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Subject: Economics

  • Drop in FDI inflows mirrors Global Trends: Finmin 

    Why in the News?

    India’s net Foreign Direct Investment (FDI) inflows have dropped almost 31% to $25.5 billion over the first ten months of 2023-24 as per the Finance Ministry

    Recent key Observations related to FDI inflow as per the Finance Ministry

    Recent FDI in the context of India:

    • From April 2023 to January 2024, the net inflows decreased more significantly due to increased repatriation of investment.
    • India remains one of the top destinations for global greenfield projects, with a stable number of new project announcements.
    • The country received significant FDI in sectors like services, pharmaceuticals, construction, and non-conventional energy.
    • The Netherlands, Singapore, Japan, the USA, and Mauritius contribute around 70% of total FDI equity inflows into India.
    • There’s a possibility of a modest increase in global FDI flows in the current year, driven by a decline in inflation and borrowing costs in major markets. However, significant risks remain, including geopolitical issues, high debt levels in many countries, and concerns about further economic fracturing.

    Recent FDI scenario in the context of the world:

    • Overall, global FDI flows rose by 3% to an estimated $1.4 trillion in 2023 due to economic uncertainty and higher interest rates led to a 9% fall in FDI flows to developing countries.
    • Drivers of Global FDI: Capital-intensive projects, particularly in renewable energy, batteries, and metals sectors, drove a large proportion of global FDI in 2023, highlighting the importance of energy transition.
    • Decline in International Investment Projects: Both greenfield projects and project finance (mainly infrastructure) and cross-border Mergers and Acquisitions (M&As) saw declines in 2023, attributed to higher financing costs. International project finance and M&A activity decreased by 21% and 16%, respectively.

      What is Foreign direct investment (FDI)?

      Foreign direct investment (FDI) is a category of cross-border investment in which an investor resident in one economy establishes a lasting interest in and a significant degree of influence over an enterprise resident in another economy.

      Government Bodies regulating FDI:

      India offers an automatic route for FDI in several sectors, simplifying the investment process for foreign investors in India. However, certain sectors require government approval, and reporting requirements, in line with the Foreign Exchange Management Act (FEMA), are in place to ensure transparency in foreign investments in India. FDI in India is subject to regulation and oversight by various government bodies, such as:

      • Department for Promotion of Industry and Internal Trade (DPIIT): DPIIT formulates and implements policies to promote and regulate foreign investment in India across sectors.
      • Reserve Bank of India (RBI): RBI manages the monetary aspects of foreign investments in India.
      • Securities and Exchange Board of India (SEBI): SEBI regulates FDI in the capital market.

      Conclusion:  India remains a top destination for greenfield projects, but international investment projects declined due to higher financing costs. This is indeed a silver lining for the Indian government to plan and execute for targeting more FDI inflow considering the Global scenario.

     

    Practice Question for mains

    Q- Explain the reasons for India’s decline in net FDI inflows in 2023-24 and analyze its implications amid global trends

  • India Employment Landscape: Insights from the ILO-IHD Report 2024

    Why in the news?

    According to the India Employment Report 2024 released by the International Labour Organisation (ILO) and the Institute of Human Development (IHD), India’s youth account for almost 83% of the unemployed workforce.

    About the International Labour Organization (ILO)

     

    • The ILO is a UN agency whose mandate is to advance social and economic justice through setting international labour standards.
    • Founded in 1919 under the League of Nations (under Treaty of Versailles) it is the first and oldest specialised agency of the UN.
    • India was one of the founding members of the ILO, joining the organization in 1919.
    • The ILO has 187 member states: 186 out of 193 UN member states plus the Cook Islands.
    • Its international labour standards are broadly aimed at ensuring accessible, productive, and sustainable work worldwide in conditions of freedom, equity, security and dignity.
    • The Governing body is the apex executive body of the ILO which decides policies, programmes, agenda, budget and elects the Director-General.
    • It meets 3 times a year, in March, June and November.
    • ILO has received the Nobel Peace Prize in 1969.

     

    Major Conventions of the ILO:

    • Forced Labour Convention (No. 29)
    • Abolition of Forced Labour Convention (No.105)
    • Equal Remuneration Convention (No.100)
    • Discrimination (Employment Occupation) Convention (No.111)
    • Minimum Age Convention (No.138)
    • Worst forms of Child Labour Convention (No.182)
    • Freedom of Association and Protection of Right to Organised Convention (No.87)
    • Right to Organise and Collective Bargaining Convention (No.98)

     

    Highlights of the India Employment Report 2024:

    1. Labour Market Dynamics
    • Long-Term Deterioration: 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.
    • Education Impact: The share of youngsters with secondary or higher education in the total unemployed youth has almost doubled from 35.2% in 2000 to 65.7% in 2022, indicating a significant shift in educational qualifications among job seekers.
    1. Challenges and Insecurities
    • Informal Workforce: Almost 90% of workers remain engaged in informal work, while the share of regular work declined after 2018, leading to widespread livelihood insecurities.
    • Contractualisation: There has been a rise in contractualisation, with only a small percentage of regular workers covered by long-term contracts, exacerbating job insecurities.
    1. Skills Gap and Gender Disparities
    • Skills Deficiency: Despite being a demographic dividend, the report notes a skills gap among India’s young workforce, with a significant percentage unable to perform basic digital tasks or mathematical operations.
    • Gender Gap: India faces substantial gender disparities in the labour market, with low rates of female labour force participation and high levels of unemployment among highly educated young women.

     

    PYQ:

    2018: International Labour Organization’s Conventions 138 and 182 are related to:

    1. Child labour
    2. Adaptation of agricultural practices to global climate change
    3. Regulation of food prices and food security
    4. Gender parity in the workplace

  • RBI Clampdown on Lenders could moderate Credit Growth in 2024-25

    What is the news?

    The Reserve Bank of India (RBI) has undertaken rigorous regulatory actions to address lenders’ over-exuberance, enhance compliance culture, and protect customers.

    RBI’s Regulatory Actions: An Overview

     

    • Recent Examples: Recent regulatory moves by the RBI, such as restraining lending by IIFL Finance and JM Financial Products, and implementing restrictions on customer onboarding at Paytm Payments Bank, mark a departure from historically nominal financial penalties.
    • Implications: S&P Global Ratings predicts that these actions will escalate the cost of capital and moderate loan growth in the fiscal year 2024-25, projecting a decrease from 16% to 14%.

     

    How RBI regulates Lenders in India?

    1. Licensing and Regulation:
      • The Banking Regulation Act, 1949 empowers RBI to grant licenses to banks and regulate their operations.
      • Non-Banking Financial Companies (NBFCs) are regulated under the Reserve Bank of India Act, 1934 and governed by guidelines issued by RBI under Section 45-IA of the RBI Act.
    2. Prudential Regulations:
      • RBI issues prudential regulations under various Acts, including the Banking Regulation Act, 1949 and the RBI Act, 1934.
      • These regulations include guidelines on capital adequacy (Basel III norms), asset classification, provisioning norms, liquidity management, exposure limits, and risk management practices.
      • Non-compliance with these regulations may attract penalties or other enforcement actions under the relevant Acts.
    3. Supervision and Monitoring:
      • RBI conducts supervision and monitoring of banks and NBFCs under Section 35A of the Banking Regulation Act, 1949 and Section 45L of the RBI Act, 1934.
      • It has the authority to conduct on-site inspections, off-site surveillance, and review financial reports to assess compliance with regulatory requirements.
      • RBI may issue directives, guidelines, or corrective actions under Section 35A and Section 45L to address deficiencies identified during supervision.
    4. Policy Framework:
      • Monetary policy frameworks are governed by the RBI Act, 1934 and the Reserve Bank of India (RBI) Act, 1934, which empower RBI to formulate and implement monetary policies.
      • RBI’s Monetary Policy Committee (MPC) sets key policy rates such as the repo rate, reverse repo rate, and statutory liquidity ratio (SLR) to regulate credit flow, inflation, and overall economic conditions.
    5. Consumer Protection:
      • RBI issues guidelines under the Banking Regulation Act, 1949 and the RBI Act, 1934 to ensure fair practices and consumer protection in banking and NBFC operations.
      • The Banking Ombudsman Scheme, 2006 provides a mechanism for redressal of customer grievances against banks.
      • Violations of consumer protection norms may result in penalties or enforcement actions under the relevant Acts.
    6. Financial Stability:
      • RBI’s mandate to maintain financial stability is enshrined in the RBI Act, 1934.
      • It monitors systemic risks, including interconnectedness among lenders, under Section 45J of the RBI Act, 1934, and takes measures to mitigate risks to financial stability.
      • RBI may intervene in the interest of financial stability under Section 45W of the RBI Act, 1934, to prevent disruptions to the functioning of the financial system.

     

    PYQ:

    2012: The Reserve Bank of India (RBI) acts as a bankers’ bank. This would imply which of the following?

    1. Banks retain their deposits with the RBI.
    2. The RBI lends funds to the commercial banks in times of need.
    3. The RBI advises the commercial banks on monetary matters.

    Select the correct answer using the codes given below:

    1. 2 and 3 only
    2. 1 and 2 only
    3. 1 and 3 only
    4. 1, 2 and 3

     

    Practice MCQ:

    Consider the following statements regarding ‘Payment Banks’ in India:

    1. Payment Banks have the authority to accept demand deposits but are prohibited from issuing credit cards, disbursing loans, offering mutual funds units, and providing insurance products.
    2. Unlike scheduled commercial banks, Payment Banks are exempted from the obligation to maintain a cash reserve ratio with the Reserve Bank.
    3. Payment Banks are mandated to invest a minimum of 75% of their demand deposit balances in Statutory Liquidity Ratio (SLR) eligible Government securities/treasury bills.

    How many of the above statements is/are correct?

    1. One
    2. Two
    3. Three
    4. None

  • Robusta Coffee price touches All-time High

    What is the news?

    • Robusta Coffee farmers in South India are celebrating as their produce fetches an all-time high price.
    • The farmgate price of raw Robusta coffee berries reached ₹172 per kilogram (kg) in the Wayanad market, a significant increase from ₹115 per kg last year.

    Coffee Cultivation in India

    • The coffee cultivation in India began with the planting of 7 seeds of coffee during 1600 AD by saint Baba Budan, in the courtyard of his hermitage in Chikmagalur, Karnataka.
    • Commercial plantations of coffee started in the 18th century under British entrepreneurship.
    • Today, India is among the top 10 coffee-producing countries, with about 3% of the global output.

    Major Varieties Cultivated

    Characteristics Altitude Range Flavor Profile Popular Varieties Regions
    Arabica Coffee Known for mild flavor, aromatic profile, and smooth taste. 800 – 1600 meters above sea level Mild, slightly sweeter, softer taste Kents, S.795, Cauvery, Chandragiri Coorg (Karnataka), Wayanad (Kerala), Nilgiris (Tamil Nadu), Chikmagalur (Karnataka)
    Robusta Coffee Characterized by strong and bold flavor, higher caffeine content, and somewhat bitter taste. Sea level to about 800 meters Strong, bold, somewhat bitter S.274, CxR hybrids Chikmagalur (Karnataka), Coorg (Karnataka), Wayanad (Kerala), Araku Valley (Andhra Pradesh)
    Liberica and Excelsa Less common varieties, with limited plantings in specific regions. Variable Variable Variable Limited plantings; sporadic regions

    Agro-climatic conditions needed for Coffee:

    • Indian coffee has a unique position as it is shade-grown and grown at elevations, while other major producing countries grow coffee in flat lands.
    • It is a tropical plant which is also grown in semi-tropical climate.
    • 16° – 28°C temperature, 150-250cm rainfall and well-drained slopes are essential for its growth.
    • Low temperature, frost, dry weather for a long time and harsh sunshine are harmful for its plant.
    • Coffee plants grow better in the laterite soils of Karnataka in India.

    Market Dynamics

    • Karnataka is the largest producer accounting for about 70% of the total coffee production in India.
    • It is followed by Kerala and Tamil Nadu. Orissa and the North-eastern areas have a smaller proportion of production.
    • Arabica has high market value than Robusta coffee due to its mild aromatic flavor.
    • The country exports over 70% of its production. According to The Food and Agriculture Organization (FAO), India is the eighth largest exporter of coffee by volume.
    • Indian coffee exports display a seasonality, with exports peaking from March to June.

    Coffee Board of India

     

    • The Coffee Board of India is an organization managed by the Ministry of Commerce and Industry and was established in 1942.
    • It is headquartered in Bangalore.
    • The activities of the Board are broadly aimed at:
    1. Enhancement of production, productivity & quality;
    2. Export promotion for achieving higher value returns for Indian Coffee and
    3. Supporting development of Domestic market.
    • Until 1995 the Coffee Board marketed the coffee of a pooled supply.
    • Later, coffee marketing became a private-sector activity due to the economic liberalisation in India.
    • The Board comprises 33 members including the Chairman, who is the Chief Executive and appointed by the Government of India.

     

    PYQ:

    2010: Though coffee and tea both are cultivated on hill slopes, there is some difference between them regarding their cultivation. In this context, consider the following statements:

    1. Coffee plant requires a hot and humid climate of tropical areas whereas tea can be cultivated in both tropical and subtropical areas.
    2. Coffee is propagated by seeds but tea is propagated by stem cuttings only.

    Which of the statements given above is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2

     

    Practice MCQ:

    With reference to the Coffee Cultivation in India, consider the following statements:

    1. Kerala is the largest producer accounting for about 70% of the total coffee production in India.
    2. Robusta coffee has high market value than Arabica due to its mild aromatic flavor.
    3. Indian coffee exports display a perennial nature.

    How many of the given statements is/are correct?

    1. One
    2. Two
    3. Three
    4. None

  • SEBI’s directive on Overseas ETF Investments

    What is the news?

    SEBI has instructed mutual fund houses to halt new inflows into schemes investing in overseas exchange-traded funds (ETFs) from April 1, 2024.

    What are Exchange Traded Funds (ETFs)?

    • ETFs are marketable securities that track various assets, including indices, commodities, or bonds, and trade on stock exchanges like regular stocks.
    • ETFs were started in 2001 in India.
    • Types of ETFs: Equity ETFs, bonds ETFs, commodity ETFs, international ETFs, and sectoral/thematic ETFs cater to diverse investment preferences.

    Market dynamics of ETFs

    • ETFs can be purchased or sold on a stock exchange in the same way that regular stocks can, unlike the mutual funds.
    • The traded price of an ETF changes throughout the day like any other stock, as it is bought and sold on the stock exchange.
    • The trading value of an ETF is based on the net asset value of the underlying stocks that it represents.
    • These funds offer higher liquidity, lower fees, and tax efficiency compared to traditional mutual funds, appealing to individual investors.

    Reasons behind SEBI’s Directive

    • Cap Proximity: The mutual fund industry has nearly reached 95% of the $1 billion investment limit in overseas ETFs, prompting SEBI’s intervention.
    • Temporary Measure: SEBI’s directive aims to temporarily curb inflows into these schemes until the investment limit is revised or additional measures are implemented.
    • Existing Caps: Currently, mutual funds are subject to an overall cap of $7 billion for investments in overseas stocks or mutual funds, with a specific limit of $1 billion for ETFs.

    PYQ:

    2013: 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.

    2020: With reference to Foreign Direct Investment in India, which one of the following is considered its major characteristic?

    1. It is the investment through capital instruments essentially in a listed company.
    2. It is a largely non-debt creating capital flow.
    3. It is the investment which involves debt-servicing.
    4. It is the investment made by foreign institutional investors in the Government securities.

     

    Practice MCQ:

    With reference to the Exchange Traded Funds (ETFs), consider the following statements:

    1. ETFs are marketable securities that track various assets, including indices, commodities, or bonds, and trade on stock exchanges like regular stocks.
    2. ETFs were started in 2021 in India.
    3. ETFs can be purchased like the mutual funds.

    How many of the given statements is/are correct?

    1. One
    2. Two
    3. Three
    4. None

  • RBI finalises Omnibus Framework for SROs in regulated entities

    Why in the news? 

    • The Reserve Bank of India (RBI) on Thursday said it had finalised the Omnibus Framework for recognising Self-Regulatory Organisations (SRO) for its Regulated Entities.

    The key features of the Self-Regulatory Organization (SRO)- 

    • Omnibus Framework: The RBI has finalized an omnibus framework for recognizing Self-Regulatory Organizations (SROs) for regulated entities. This framework contains broad parameters such as objectives, responsibilities, eligibility criteria, governance standards, application process, and other basic conditions for granting recognition.
    • Sector-Specific Guidelines: Sector-specific guidelines will be issued separately by the respective departments of the Reserve Bank for each sector where an SRO is intended to be set up. This ensures that the SROs cater to the specific needs and requirements of their respective sectors.
    • Draft Framework and Public Consultation: A draft framework for SROs was issued for public comments, and based on the examination of inputs received, the omnibus framework has been finalized. This indicates a consultative approach in the development of the SRO framework.
    • Credibility and Responsibility: SROs are expected to operate with credibility, objectivity, and responsibility under the oversight of the regulator. They aim to improve regulatory compliance for the healthy and sustainable development of the sectors they cater to.
    • Transparency and Independence: SROs are expected to operate with transparency, professionalism, and independence to foster greater confidence in the integrity of the sector. Compliance with the highest standards of governance is a prerequisite for an effective SRO.

    The significance of Self-Regulatory Organizations (SROs)-

    • Enhanced Regulatory Compliance: SROs establish and enforce industry standards and best practices, leading to improved regulatory compliance among member organizations. By setting clear guidelines and monitoring adherence to them, SROs help regulated entities maintain compliance with relevant laws and regulations.
    • Industry Integrity and Confidence: SROs play a crucial role in maintaining and enhancing industry integrity and public confidence. By promoting transparency, professionalism, and ethical conduct, SROs contribute to building trust among stakeholders, including customers, investors, and regulatory authorities.
    • Tailored Regulation: SROs can develop sector-specific regulations and standards that are tailored to the unique characteristics and challenges of their respective industries. This flexibility allows SROs to address industry-specific issues effectively, leading to more efficient regulation.
    • Effective Self-Regulation: SROs enable industry participants to self-regulate by collaboratively developing and enforcing rules and standards. This approach can often be more responsive and adaptable than traditional government regulation, as SROs can quickly respond to emerging risks and market developments.
    • Reduced Regulatory Burden: SROs can help alleviate the regulatory burden on government agencies by taking on certain regulatory functions. By delegating responsibilities such as rule-making, monitoring, and enforcement to SROs, regulators can focus their resources on overseeing broader market activities and addressing systemic risks.
    • Innovation and Growth: SROs can foster innovation and growth within their industries by creating a supportive regulatory environment. By providing guidance on emerging technologies and business models, SROs can encourage innovation while ensuring that it aligns with regulatory requirements and consumer protection standards.
    • Expertise and Knowledge Sharing: SROs serve as repositories of industry expertise and knowledge, allowing members to benefit from collective insights and experiences. Through networking events, training programs, and knowledge-sharing initiatives, SROs facilitate collaboration and learning among industry participants.

    Conclusion-

    Self-Regulatory Organizations (SROs) enhance compliance, integrity, and tailored regulation. They enable effective self-regulation, reduce regulatory burden, foster innovation, and facilitate expertise sharing, ensuring sustainable industry growth and integrity.

  • Startups ‘reverse flip’: Pine Labs, Zepto, Meesho in queue for India return

    Why in the news?

    • Pine Labs and Zepto are the latest new-age companies looking to move headquarters to India.

    Context-

    There is a significant surge in reverse flipping within India’s startup scene, characterized by a growing trend of startups choosing to relocate their headquarters or establish a presence in the country.

    What is Reverse Flipping ? 

    • Reverse flipping is the process of shifting the domicile of an Indian company back to India after it had moved its headquarters overseas.
    • Indian startups are increasingly choosing to reverse flip back into India, drawn by the country’s favorable economic policies, expanding domestic market, and increasing investor confidence in its startup ecosystem.

    Recent Examples of Reverse-Flipping of Unicorns-

    Several high-profile startups are opting for reverse flipping to India, indicating a trend of relocating their headquarters or establishing a base in the country.

    • Walmart-owned PhonePe: PhonePe, a subsidiary of Walmart, relocated its domicile from Singapore to India. This move was likely motivated by the significant user base and potential for digital payments in the Indian market.
    • Pine Labs, Meesho, and Zepto: These are identified as the latest new-age companies intending to move their headquarters to India. Their decisions suggest confidence in the opportunities and advantages offered by the Indian startup ecosystem.
    • It Solidifies India’s Position as a Startup Hub: The successful execution of reverse flipping by these high-profile startups contributes to solidifying India’s position as a prominent startup hub globally.

    How Reverse-Flipping is done? 

    • Strategic Assessment: The company conducts a strategic assessment of potential target countries, considering factors such as market size, regulatory environment, access to talent, infrastructure, tax policies, and overall business climate.
    • Legal and Regulatory Considerations: The company evaluates the legal and regulatory requirements for establishing a presence in the target country. This may involve understanding company registration procedures, compliance with corporate laws, tax regulations, employment laws, and any other relevant regulations.
    • Corporate Structure: The company determines the appropriate corporate structure for its operations in the target country. This may involve setting up a subsidiary, branch office, or joint venture, depending on the specific needs and objectives of the company.
    • Transfer of Assets and Operations: The company transfers its assets, operations, and intellectual property rights to the new entity in the target country. This may include physical assets such as equipment and inventory, as well as intangible assets such as trademarks, patents, and proprietary technology.
    • Share Swaps or Mergers: In some cases, the company may use share swaps or mergers as a method for executing the reverse flip. This involves exchanging shares with shareholders of a company in the target country or merging with an existing company to establish a presence in that jurisdiction.
    • Compliance and Approval: The company ensures compliance with all legal and regulatory requirements in both the home country and the target country. This may involve obtaining approval from regulatory authorities, such as the National Company Law Tribunal (NCLT) or other relevant government agencies.
    • Operational Transition: Once the reverse flip is completed, the company focuses on transitioning its operations to the new location. This may involve hiring local talent, establishing partnerships with suppliers and vendors, and adapting its business strategy to the local market dynamics

    Startups are opting to reverse flip for several compelling reasons:

    • Access to a Growing Economy: India is currently the world’s fifth-largest economy by GDP and is projected to become the third-largest by 2030. This growth trajectory presents significant opportunities for startups to tap into a dynamic market with increasing urbanization, disposable income, and consumption.
    • Large and Educated Youth Population: India boasts the world’s largest youth population, with approximately 66% of its citizens under the age of 35. This demographic advantage provides a vast pool of skilled and educated talent, making it attractive for startups seeking a workforce with diverse skills and capabilities.
    • Access to Capital Markets: The Indian capital market offers overseas startups access to a large pool of capital. The listing process on Indian stock exchanges is relatively cost-effective compared to many Western exchanges, making it an appealing option for startups with limited resources.
    • Opportunity to Tap into the Consumer Market: With its rapidly growing middle class and increasing disposable income, India presents a lucrative consumer market for startups offering products and services across various sectors.
    • Synergies with Indian Companies: Reverse flipping allows overseas startups to explore synergies with Indian companies, leading to partnerships, joint ventures, and acquisitions. These collaborations help startups expand their reach and operations in India while leveraging the local expertise and market knowledge of Indian companies.

    Potential tax implications in this scenario:

    • Corporate Tax: The company may be subject to corporate tax in the jurisdiction where it is based and operates. If the company chooses to establish its headquarters or base in India through reverse flipping, it would be subject to Indian corporate tax laws.
    • Capital Gains Tax: Any gains realized from the transaction, such as the separation of PhonePe and the return of the holding company to India, could be subject to capital gains tax in the relevant jurisdictions. The quantum of this tax would depend on factors such as the valuation of the company and the applicable tax rates.
    • Transfer Pricing Rules: Transfer pricing rules may apply if there are transactions between related parties as part of the reverse flip process. These rules are designed to ensure that transactions between related entities are conducted at arm’s length, and appropriate taxes are paid on profits generated from such transactions.
    • Indirect Taxes: Depending on the nature of the company’s business and the jurisdictions involved, other indirect taxes such as goods and services tax (GST) may also apply.

    Conclusion-

    Reverse flipping, relocating headquarters to India, gains traction. Driven by favourable market dynamics, talent pool, capital access, and synergies. Potential tax implications include corporate tax, capital gains, transfer pricing, and indirect taxes.

  • How to bring about White Revolution 2.0

    Why in the news?

    The government’s latest Household Consumption Expenditure Survey (HCES) for 2022-23 shows milk emerging as India’s top food spend item, both in rural and urban areas

    Key facts as per survey-

    • The monthly value of milk and dairy products consumed by an average person in rural India, at Rs 314, was ahead of vegetables (Rs 203), cereals (Rs 185), egg, fish & meat (Rs 185), fruits (Rs 140), edible oil (Rs 136), spices (Rs 113) and pulses (Rs 76).
    • The HCES data reveals the same for urban India: Milk (Rs 466), fruits (Rs 246), vegetables (Rs 245), cereals (Rs 235), egg, fish & meat (Rs 231), edible oil (Rs 153), spices (Rs 138) and pulses (Rs 90).

    The challenges as per the latest Household Consumption Expenditure Survey (HCES)-

    • Rising Milk Prices: Over the last five years, the all-India modal price of milk has surged from Rs 42 to Rs 60 per liter, with a notable increase from Rs 52 to Rs 60 in the past year alone. This upward trend in milk prices poses a challenge for consumers in terms of affordability.
    • Inflationary Pressure: The increase in milk prices is attributed to inflationary pressures, impacting consumer demand. Higher prices may lead to reduced consumption or shifts to alternative products, affecting the dairy industry’s revenue and profitability.
    • Increased Input Costs: The cost of fodder, feed, and raw materials/ingredients has risen significantly. Dairies are compelled to raise procurement prices paid to farmers to offset these increased input costs. Consequently, consumers bear the brunt of these cost hikes through higher retail prices for milk and dairy products.
    • Pass-through to Consumers: To mitigate the impact of rising input costs, dairies pass on the increased procurement prices to consumers, leading to further price hikes in milk products. This pass-through mechanism exacerbates the financial burden on consumers already grappling with inflated prices.
    • Impact on Farmers: While increased procurement prices may benefit farmers initially, they may face challenges in sustaining dairy farming operations if input costs continue to escalate. Balancing the interests of farmers, consumers, and the dairy industry becomes crucial amidst these challenges..

    How can that be achieved?

    • Use of Sex-Sorted Semen (SS) technology: The use of sex-sorted semen increases the probability of female calves being born to over 90%, compared to the 50:50 ratio with conventional semen. This technology ensures a higher proportion of future milk-producing cows, enhancing the productivity of dairy herds.
    • Increased Adoption: Dairy cooperatives like Amul are actively promoting the use of sex-sorted semen among farmers. In 2022-23, Amul performed 2.86 lakh artificial inseminations (AIs) using sex-sorted semen out of a total of 13.91 lakh AIs, constituting 20.5% of the total. The cooperative aims to raise this ratio to 30% by 2024-25.
    • Enhanced Conception Rate: Roughly one-third of artificial inseminations using sex-sorted semen lead to conception. This high conception rate, coupled with the assurance of female calves, contributes to a more efficient breeding strategy, resulting in a larger population of milk-producing cows.
    • Long-term Impact: By increasing the number of female calves born through sex-sorted semen technology, dairy farmers can anticipate a higher yield of milk-producing cows in subsequent generations. This proactive approach ensures the sustainability and growth of the dairy industry by maximizing milk production efficiency.
    • Cooperative Initiatives: Dairy cooperatives play a pivotal role in facilitating the adoption of advanced breeding technologies among farmers. Through initiatives like Amul’s targeted use of sex-sorted semen, cooperatives contribute to improving the genetic potential of dairy herds and enhancing overall milk yield per animal.

    Taking to farmer/ significance of Breeding Centre-

    • Establishment of Bovine Breeding Centre: Amul inaugurated a Bovine Breeding Centre in Mogar, Gujarat, in March 2020, to breed a nucleus herd of superior bulls and cows for artificial insemination (AI) and embryo transfer (ET) technologies.
    • Objective of the Centre: The primary objective of the centre is to produce high-quality semen and in vitro-fertilised embryos, stored at ultra-low temperatures, for use in AI or transferring into farmers’ animals.
    • Breeds and Milk Yield: The centre has produced various breeds, including exotic (such as Holstein-Friesian and Jersey), HF-Gir and HF-Sahiwal crossbred, and indigenous Gir, Sahiwal, and Murrah buffalo breeds, with varying milk yield capacities ranging from 3,000 to 12,000 liters per year.
    • Utilization of Male and Female Genetics: Through AI and sex-sorted semen, the centre exploits male genetics, while IVF-ET technology focuses on harnessing the female genetics of donor cows.
    • Adoption by Farmers: Amul has extended IVF-ET technology to farmers, with successful pregnancies and calvings recorded. Member unions of the Gujarat Co-operative Milk Marketing Federation have also embraced these advancements, with farmers like Bhavnaben Chaudhary experiencing the benefits of higher-quality breeds through IVF-ET, leading to better milk yields and economic returns.
    • Preference for Specific Breeds: Farmers like Bhavnaben Chaudhary choose breeds like Kankrej for their higher fat and solids-not-fat content, despite lower yields, to ensure better prices and lower feeding and maintenance costs.

    Animal nutrition/ lowering the cost of producing milk at the farm-gate

    • Feeding Cost Reduction: Intervention is necessary to reduce the feeding costs of animals by cultivating high-yielding, protein-rich green fodder grasses. This reduces reliance on expensive compound cattle feed and oil-meal concentrates.The focus of White Revolution 2.0 would clearly have to be on lowering the cost of producing milk at the farm-gate
    • Introduction of Total Mixed Ration (TMR) Plant: Amul is establishing a 30-tonnes-per-day TMR plant at Sarsa in Anand. TMR will comprise dry and green fodder, concentrates, vitamins, and mineral mixtures, providing animals with a ready-to-eat mashed form of nutrition.
    • Benefits of TMR: TMR will save farmers the cost of purchasing and storing fodder separately, as well as the effort of administering it alongside cattle feed. It offers a convenient and cost-effective solution for animal nutrition.
    • Sourcing Fodder: The plan involves sourcing fodder from farmer producer organizations (FPOs), whose members will cultivate maize, jowar, hybrid napier, or oat grass and prepare silage for use in the TMR plant.
    • Focus on High-Yielding Grasses: Farmers will focus on cultivating high-yielding grass varieties rich in protein content, which are essential for maintaining the health and productivity of dairy animals.

    Conclusion-

    To ensure a sustainable White Revolution 2.0, measures such as the adoption of advanced breeding technologies, the establishment of breeding centres, and focus on animal nutrition are crucial for enhancing milk production efficiency and economic viability.

    Mains question for practice-

    Q- Discuss the role of advanced breeding technologies, establishment of breeding centers, and strategies for reducing feeding costs in ensuring sustainable milk production to achieve White Revolution 2.0.(250 words)

  • Centre brings wheat and rice under price stabilization fund

    Why in the news?

    The government has approved the inclusion of wheat and rice under its price stabilization fund to provide subsidies for the quantity allocated under Bharat atta and rice sale.

    Context: After it started selling Bharat atta and rice as part of its retail intervention in a bid to tame inflation as prices are soaring ahead of general elections

    What is the Price Stabilisation Fund (PSF)?

     

    A Price Stabilization Fund is established to mitigate excessive fluctuations in specific commodity prices. The fund’s resources are typically deployed to moderate high or low prices through various initiatives, such as procuring particular goods and distributing them as needed, ensuring prices stay within a desired range.

    Background-

    • During the fiscal year 2014-15, the Price Stabilization Fund (PSF) was instituted within the Department of Agriculture, Cooperation & Farmers Welfare (DAC&FW) to manage the fluctuating costs of crucial agricultural commodities like onions, potatoes, and pulses.
    • These commodities will be procured directly from farmers or their organizations at farm gates or designated marketplaces, and subsequently offered to consumers at a more affordable rate. Any incurred losses in the coordination between the central government and the states during these operations must be divided.

    The significance of the Price Stabilization Fund (PSF) in the context of recent expansion to include of wheat and rice-

    • Addressing Inflationary trends : The inclusion of wheat and rice under the PSF marks a significant expansion beyond the previously covered commodities like onions, potatoes, and pulses. This expansion reflects the government’s commitment to addressing inflationary trends across a broader spectrum of essential food items.
    • Buffer Stock Management: The PSF is utilized to build up buffer stocks of key food commodities such as wheat and rice. These stocks are strategically released into the market during periods of price surges to stabilize prices and ensure affordability for consumers.
    • Subsidy Allocation: The government provides subsidies to agencies like the Food Corporation of India (FCI) for supplying wheat and rice to central procurement agencies. This subsidy support helps in maintaining the affordability of these commodities, particularly under the Bharat brand, which is sold at subsidized prices.
    • Inflation Mitigation: The inclusion of wheat and rice in the PSF is aimed at mitigating rising food inflation, which has been a concern ahead of general elections. By intervening in the market through strategic buffer stock management and subsidized sales, the government seeks to curb inflationary pressures and ensure food affordability for consumers.
    • Policy Response to Market Dynamics: The decision to expand the PSF reflects a proactive policy response to address market dynamics, particularly concerning rising rice prices. By taking measures to stabilize prices and increase availability through the PSF, the government aims to alleviate the burden on consumers and mitigate potential electoral repercussions associated with food inflation.

    The Price Stabilization Fund (PSF) addresses inflationary pressures and aids in maintaining food affordability through several mechanisms:

    • Buffer Stock Management: The PSF accumulates buffer stocks of essential food commodities during periods of surplus production or lower prices. These stocks are strategically released into the market during periods of scarcity or price surges. By increasing the supply of commodities during shortages, the PSF helps stabilize prices and prevents excessive inflation.
    • Subsidy Provision: The PSF provides subsidies to support the procurement and distribution of essential commodities. These subsidies enable the government to sell commodities at lower prices, making them more affordable for consumers. Subsidies can also incentivize increased production, leading to a greater supply of commodities and further price stability.
    • Market Intervention: The PSF allows for direct intervention in the market to address sudden price fluctuations. By purchasing commodities during periods of low prices and selling them during periods of high prices, the PSF helps moderate price volatility and ensures that prices remain within a reasonable range.
    • Consumer Protection: By stabilizing prices and ensuring the availability of essential food items, the PSF protects consumers from sudden spikes in food prices, which can disproportionately affect vulnerable populations. Affordable food prices contribute to improved food security and overall economic stability.
    • Incentivizing Domestic Production: The PSF incentivizes domestic production by providing a guaranteed market for farmers’ produce at stable prices. This encourages farmers to increase their production levels, contributing to overall food security and helping to mitigate inflationary pressures.

    Conclusion: The government is expanding the Price Stabilization Fund to include wheat and rice amid soaring food prices ahead of elections. This aims to manage inflation by subsidizing essential commodities and maintaining buffer stocks.

  • RBI and SEBI: India’s Financial Landscape under Scrutiny

    Why in the news-

    • Recent actions by both India’s banking regulator RBI and the securities watchdog SEBI have startled the market, exposing various malpractices in the financial sector.

    Context

    • Banking Sector: The Reserve Bank of India (RBI) faces political scrutiny following the Supreme Court’s ban on anonymous political funding instruments introduced by the government in 2018. Its oversight was questioned amidst concerns about opaque corporate donations in the Electoral Bonds Scheme which was recently held unconstitutional.
    • Securities Market: The Securities and Exchange Board of India (SEBI) is under pressure to address concerns about asset price inflation, concentrated positions in illiquid shares, and excessive speculation among retail investors. Its credibility was questioned after Hindenburg Research’s allegations.

    Financial Landscape and its Regulation

    [1] Reserve Bank of India (RBI)

    • The RBI is the central bank and monetary authority of India.
    • It is established on April 1, 1935, under the Reserve Bank of India Act, 1934.
    • Its idea was incepted from the recommendations of the Hilton Young Commission.
    • It is a centralized institution for India to effectively regulate its monetary and credit policies.
    • RBI had its initial headquarters in Kolkata, later moving permanently to Mumbai in 1937.
    • Initially, the RBI operated as a privately owned entity until its full nationalization in 1949.

    Key Regulatory Functions of the RBI:

    (i) Monetary Policy:

    • The RBI formulates and implements monetary policies to achieve price stability, economic growth, and financial stability.
    • The Monetary Policy Committee (MPC) determines the policy interest rates, such as the repo rate, reverse repo rate, and marginal standing facility rate, based on inflation targeting and growth objectives.
    • By adjusting these rates, the RBI influences money supply, credit flow, and interest rates in the economy.

    (ii) Banking Regulation and Supervision:

    • The RBI regulates and supervises banks and financial institutions to ensure their stability, soundness, and compliance with regulatory norms.
    • It issues guidelines, directives, and prudential regulations covering aspects like capital adequacy, asset quality, management effectiveness, and liquidity risk management.
    • The RBI conducts regular inspections, audits, and assessments of banks to assess their financial health and adherence to regulations.
    • It also intervenes in troubled banks to protect depositors’ interests and maintain financial stability.

    (iii) Payment and Settlement Systems:

    • The RBI manages and oversees payment and settlement systems to ensure efficiency, safety, and reliability in financial transactions.
    • It operates the Real-Time Gross Settlement (RTGS) system for large-value transactions and the National Electronic Funds Transfer (NEFT) system for retail transactions.
    • The RBI formulates regulations and standards for payment systems, promotes innovation in payment technologies, and monitors systemically important payment infrastructures to mitigate risks and enhance resilience.

    (iv) Financial Markets Regulation:

    • The RBI regulates and supervises financial markets, including money, bonds, foreign exchange, and derivative markets, to maintain market integrity and investor confidence.
    • It issues guidelines, directives, and regulations governing market participants, intermediaries, and trading activities.
    • The RBI monitors market developments, enforces compliance with regulations, and intervenes in markets to address disorderly conditions, liquidity shortages, or excessive volatility.
    • It also conducts open market operations (OMOs) to manage liquidity and stabilize interest rates.

    [2] Securities and Exchange Board of India (SEBI)

    • SEBI is the regulatory authority overseeing India’s securities and commodity markets.
    • Established in 1988 as a non-statutory body, SEBI was granted statutory powers with the enactment of the SEBI Act 1992 by the Indian Parliament.
    • It operates under the purview of the Ministry of Finance.
    • SEBI’s structure includes a chairman nominated by the GoI, members from the Union Finance Ministry, the Reserve Bank of India, and others.
    • Its headquarters is in Mumbai, with regional offices in Ahmedabad, Kolkata, Chennai, and Delhi.

    Key Regulatory Functions of the SEBI:

    (i) Formulating Regulations:

    • SEBI formulates regulations, guidelines, and directives to govern various aspects of the securities market.
    • This includes regulations related to public issuances, disclosures, insider trading, takeover bids, corporate governance, and investor protection.

    (ii) Monitoring Market Participants:

    • SEBI regulates and supervises market intermediaries such as stock exchanges, brokers, merchant bankers, portfolio managers, and mutual funds.
    • It sets eligibility criteria, registration requirements, and conduct norms for these entities and monitors their compliance with regulations.

    (iii) Overseeing Market Infrastructure:

    • SEBI oversees the functioning of stock exchanges, clearing corporations, depositories, and other market infrastructure institutions.
    • It ensures that these entities maintain adequate systems, procedures, and safeguards to facilitate fair, transparent, and efficient trading and settlement operations.

    (iv) Enforcing Securities Laws:

    • SEBI enforces securities laws and regulations by conducting inspections, investigations, and enforcement actions against violations.
    • It has the authority to impose penalties, suspend licenses, and initiate legal proceedings against individuals or entities found to be engaged in fraudulent or unfair practices.

    (v) Regulating Securities Offerings:

    • SEBI regulates public offerings of securities, including initial public offerings (IPOs), rights issues, and follow-on public offerings.
    • It reviews offer documents, ensures disclosure of material information to investors, and supervises the conduct of issuers, underwriters, and other intermediaries involved in the offering process.

    (vi) Monitoring Insider Trading and Market Manipulation:

    • SEBI monitors and regulates insider trading, market manipulation, and other fraudulent activities that can undermine market integrity.
    • It prohibits insider trading, imposes restrictions on share buybacks and open market operations, and investigates suspicious trading activities to maintain market fairness and transparency.

    PYQ:

     

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

     

    2021: With reference to India, consider the following statements:​

    1. Retail investors through demat account can invest in ‘Treasury Bills’ and ‘Government of India Debt Bonds’ in primary market.​
    2. The ‘Negotiated Dealing System-Order Matching’ is a government securities trading platform of the Reserve Bank of India. ​
    3. The ‘Central Depository Services Ltd.’ is jointly promoted by the Reserve Bank of India and the Bombay Stock Exchange. ​

    Which of the statements given above is/are correct?​

    1. 1 only ​
    2. 1 and 2 only ​
    3. 3 only ​
    4. 2 and 3 only ​

     

    Practice MCQ:

    With reference to the Securities and Exchange Board of India (SEBI), consider the following statements:

    1. It was established in 1988 as a non-statutory body.
    2. It operates under the Ministry of Corporate Affairs.
    3. It consists of a chairman, members from the Union Finance Ministry and the Reserve Bank of India.

    How many of the given statements is/are correct?

    1. One
    2. Two
    3. Three
    4. None