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Subject: Economics

  • Unlocking Bharat NCAP: How safe is your Car?

    bharat ncap bncap

    Central Idea

    • India is set to launch its own Bharat New Car Assessment Programme (NCAP) for four-wheelers starting from 1 October, with the aim of making cars safer and improving consumer awareness.

    What is Bharat NCAP?

    • Definition: BNCAP is a safety assessment program for passenger vehicles weighing less than 3.5 tonnes and capable of seating up to eight people.
    • Global Alignment: It brings India in line with other regions around the world, including the US, Europe, Japan, Australia, and Latin America, which have their own NCAPs.
    • Goal: The program aims to promote transparency, create consumer awareness, and assist buyers in making informed decisions based on safety credentials.

    Implementation Details

    • Applicability: It will apply to type-approved motor vehicles of category M1 with a gross vehicle weight less than 3.5 tonnes, manufactured or imported in India.
    • Category M1: Category M1 motor vehicles are designed for the carriage of passengers, comprising eight seats, in addition to the driver’s seat.
    • Voluntary Nature: Bharat NCAP will be voluntary for car manufacturers. Cars will only be tested upon the request of the makers.

    Crash Testing Methodology

    bncap ncap

    • Types of Tests: The testing will include 3 types of crash tests: frontal, side, and pole-side impact tests.
    • Speed and Scoring: Frontal tests will be conducted at 64 kmph, while side and pole-side tests will be conducted at 50 kmph and 29 kmph, respectively. Scoring will be based on adult safety for front passengers and child safety at the rear.
    • Star Ratings: A car must score at least 27 out of 32 points for adult safety to achieve a 5-star rating, while a minimum score of 41 out of 49 points will earn a 5-star rating for child safety. Additional points will be awarded for restraint systems like ISOFIX anchorages.

    Significance of Bharat NCAP

    • Consumer Awareness: BNCAP ratings will provide consumers with an indication of the level of protection offered to occupants, covering areas such as adult occupant protection, child occupant protection, and safety assist technologies.
    • Promoting Safer Cars: It will serve as a consumer-centric platform, allowing customers to choose safer cars based on their Star Ratings, and encouraging manufacturers to produce safer vehicles.
    • Enhanced Safety and Export Potential: Bharat NCAP aims to ensure structural and passenger safety in cars while increasing the exportworthiness of Indian automobiles.
    • Aatmanirbhar Initiative: It aligns with the goal of making the Indian automobile industry self-reliant.

    Importance of Crash-Testing Vehicles in India

    • Road Crash Burden: Despite having only 1% of the world’s vehicles, India accounts for 11% of global road crash fatalities.
    • Existing Testing Standards: While India’s Central Motor Vehicle Rules (CMVR) mandate safety and performance assessments, including basic conformity crash tests, they do not provide crash test ratings. This has led to international automakers selling vehicles in India with lower safety ratings to reduce costs.
    • Changing Purchase Criteria: Safety is increasingly becoming a significant factor influencing car purchases in India.

    Expected Performance of Indian Cars

    • Progress in Crash Testing: Global NCAP has been crash-testing Indian cars since 2014, with notable progress in recent years.
    • Star Ratings Achieved: Out of the 62 crash tests conducted so far, older cars scored poorly, with 20 cars receiving 0 stars. However, eight cars, all less than three years old, achieved 5-star ratings for adult safety.
    • Easier and Cost-Effective Testing: With testing centers in Pune, Manesar, and Indore now equipped to conduct these tests, it will become easier and more cost-effective for manufacturers to have their cars tested in India.
    • Leveraging Star Ratings: The implementation of Bharat NCAP is expected to encourage more car manufacturers to seek star ratings for their vehicles, leveraging these ratings to enhance their market position.

    Conclusion

    • Enhancing Safety Standards: Bharat NCAP aims to encourage more automakers to voluntarily undergo safety assessments and build vehicles that meet global standards.
    • Congruence with Global NCAP: The government aims to align Bharat NCAP with Global NCAP standards, resembling the global gold standard.
    • Boosting Export Potential: The implementation of Bharat NCAP is expected to enhance the export-worthiness of Indian automobiles.

  • Mapping India’s poor

    What’s the news?

    • The recent release of the NITI Aayog’s Multidimensional Poverty Report for the period 2019-21 marks a significant milestone in India’s pursuit of poverty alleviation.

    Central idea

    • The NITI Aayog’s Multidimensional Poverty Report’s unveiling of a noteworthy decline in the poverty headcount, from 24.85 percent in 2015-16 to 14.96 percent in 2019–2021, presents a promising trajectory of progress. These revelations, rooted in data sourced from standardized National Health Status Reports, underscore the government’s commitment to transparency and evidence-based policymaking.

    Complexity of poverty management

    • Challenging Task: Poverty management is more complex now compared to the era of global expansion (1980 to 2007).
    • Economic Factors: Economies like India, characterized by large populations and lower middle-level per capita incomes, face difficulties in allocating resources to further reduce poverty ratios.
    • Technological Advancements: Technological progress, automation, Artificial Intelligence (AI), and bionics add complexity to poverty management.
    • Job Creation Risk: Technological advances can freeze the addition of productive global jobs, which in turn jeopardizes household incomes.
    • Population Increase: India’s anticipated population rise of about 250 million by 2050 introduces additional complexity.
    • Youth Demographic: While a youthful population could be beneficial, ensuring appropriate employment for this growing workforce remains uncertain.
    • Future of Work: The impact of technological advances such as automation, AI, and bionics on job creation and household income stability is unclear.
    • Need for Innovation: Overcoming the complexity of poverty management requires innovative strategies and adaptable approaches.

    Significance of the Report

    • In-Depth Analysis: The NITI Aayog’s Multidimensional Poverty Report provides a detailed analysis of poverty at the state level, offering insights into the status of poverty in different regions.
    • Flexible Tool for Poverty Identification: The report introduces a flexible tool with 12 indicators to identify the poor and assess the intensity of deprivation. This approach offers a nuanced understanding of poverty beyond income-based measurements.
    • Inclusivity: The methodology prioritizes inclusivity over rigid statistical precision. This acknowledges the practical necessity of balancing misidentification while ensuring poverty reduction.
    • Contextual Barriers to Poverty Reduction: The Alkire-Foster methodology recognizes that barriers to ending poverty can vary across jurisdictions, enabling contextual priorities to be factored into poverty reduction efforts.
    • The Changing Nature of Poverty: The report acknowledges that poverty’s face evolves over time and across states. This underscores the importance of flexible monitoring systems to map, assess, and address poverty.
    • Policy Implications: The report’s findings have significant policy implications as they highlight disparities in education, health, and quality of life among the poor. This can guide targeted interventions and policy decisions.
    • Methodological Comparison: The report introduces a methodological approach distinct from traditional methods, which can lead to more accurate and comprehensive poverty assessments.

    Effectiveness of the Poverty Reduction Strategy

    • Education and Health Impact: The poor constitute a significant portion of those requiring higher levels of assistance in education and health. They make up 62% of households not meeting schooling norms and 43% not receiving minimum health support.
    • Quality of Life Disparities: The poor are particularly disadvantaged in terms of quality of life. Around 56% of poor households lack access to electricity, raising concerns about the effectiveness of ground-level electrification efforts. Additionally, 47% of poor households don’t possess assets like a telephone or TV.
    • MDPI as a Tracking Tool: The Multidimensional Poverty Index (MDPI) serves as a valuable tool to assess the results of government programs aimed at poverty reduction. It offers a comprehensive framework to monitor and evaluate poverty initiatives.

    Way forward

    • Contextual Grassroot Initiatives: Given the complexity of poverty management, it’s a necessity to promote and implement context-specific initiatives at the grassroot level. These initiatives should address the unique challenges and needs of different regions.
    • Adapt to Changing Dynamics: With the potential freezing of job creation due to technological advances, there’s a need to formulate strategies that adapt to the changing nature of work. This includes preparing the workforce for emerging job sectors and bolstering social safety nets.
    • Employment Generation: Considering the projected population increase, efforts to generate meaningful employment opportunities must be a priority. Ensuring employment for the growing workforce is crucial for poverty reduction.
    • Innovative Monitoring Systems: The changing face of poverty demands flexible monitoring systems that can accurately map, assess, and respond to evolving poverty patterns across states and over time.
    • Inclusive Approaches: The inclusive nature of poverty reduction efforts, as demonstrated by the methodology in the report, should be maintained. Balancing misidentification while ensuring inclusivity is essential.
    • Quality Education and Healthcare: Effective interventions should be designed to address gaps in education and healthcare for the poor. These areas play a significant role in breaking the cycle of poverty.
    • Digital Inclusion: Disparities in access to electricity and digital connectivity need to be addressed. Expanding access to these services can improve the quality of life and open economic opportunities.
    • Dignified Assistance: While providing merit goods for free is important, policymakers must ensure that such assistance doesn’t undermine the dignity of the poor. Balancing charity with preserving self-respect is crucial.

    Conclusion

    • The NITI Aayog’s report signifies a significant step toward comprehending and addressing multidimensional poverty in India. As India’s per capita incomes rise, the country must internalize the lesson that poverty’s face evolves asymmetrically across states. This realization underscores the need for adaptable monitoring and targeted strategies.

  • Debate over India’s Smartphone Manufacturing Dreams

    smartphone

    Central Idea

    • A recent dispute between former RBI governor Raghuram Rajan and Minister of State for Electronics Rajeev Chandrasekhar has brought to light differing opinions on the effectiveness of a Central government initiative aimed at bolstering electronics manufacturing in India.
    • The disagreement centers around whether the scheme truly promotes self-sufficiency and robust manufacturing or merely generates low-level assembly jobs dependent on imports.

    Critical Overview of the PLI Scheme

    • Government Intentions: Around five years ago, India embarked on a mission to invigorate domestic manufacturing as a cornerstone of economic growth.
    • Dual Strategy: The government employed a dual strategy of raising import duties (the ‘stick’) and providing incentives (the ‘carrot’) to stimulate manufacturing. The Production-Linked Incentive (PLI) scheme emerged as a key component, offering financial support to companies engaged in production within India.

    Triumphs and Concerns

    • Focus on Smartphone Manufacturing: Among various sectors, smartphone manufacturing stood out as the frontrunner in embracing the PLI scheme.
    • Impact of PLI on Smartphone Exports and Imports: The program yielded impressive results, witnessed by a surge in mobile phone exports from $300 million in FY2018 to a remarkable $11 billion in FY23. Furthermore, imports of mobile phones saw a decrease from $3.6 billion in FY2018 to $1.6 billion in FY23.

    Delving into Critiques

    • Rising Component Imports: A central point of contention involves the surge in imports of mobile phone components like display screens, batteries, cameras, and printed circuit boards between FY21 and FY23.
    • Redefining Manufacturing: The critique challenges the conventional notion of localized manufacturing, asserting that manufacturers primarily assemble imported components.

    Counterarguments

    • Diverse Component Uses: The response counters the claim by asserting that imported components, such as screens and batteries, could serve multiple industries beyond mobile phones.
    • Partial PLI Implementation: The response clarifies that only approximately 22% of mobile production in India is supported by the PLI scheme.
    • Import Dependency Clarification: It is emphasized that not all imports are utilized for mobile phone production.

    Central Disagreement

    • Critical Viewpoint: One perspective underscores that even if a percentage of imports are used for production, India’s net exports remain in the red.
    • Crux of Disagreement: The heart of the disagreement centres on whether the PLI program can generate sustainable job growth and elevate India’s manufacturing prowess to encompass value-added production.

    Conclusion

    • The spirited exchange encapsulates the intricacies of India’s electronics manufacturing scheme.
    • While both sides present compelling viewpoints, a fundamental question persists: Can the PLI program truly foster enduring job opportunities and propel India towards becoming a hub of value-enriched manufacturing?
    • As India charts its economic course, striking the right balance between incentivizing domestic production and investing in comprehensive socio-economic advancement remains a formidable challenge.

  • Gene-Edited Mustard: Less pungent, more useful

    Central Idea

    • Among India’s domestically grown oilseeds, rapeseed-mustard stands out.
    • However, its pungent oil and unpalatable meal have posed challenges for both consumers and livestock.
    • Scientists have undertaken breeding efforts to create Canola-quality (white) mustard with reduced pungency and improved meal quality.

    About Rapeseed-Mustard

    • Rapeseed-Mustard: India’s significant oilseed is rapeseed-mustard, contributing significantly to vegetable oil production and meal availability.
    • Pungency: Mustard seeds contain glucosinolates, compounds that give the oil and meal their pungent flavor and odor.

    Quest for Canola-Quality Mustard

    • Canola-Quality Pursuit: Scientists aimed to breed mustard lines with low glucosinolate content similar to Canola.
    • Reducing Pungency: Efforts to create low-pungency oil and meal have faced challenges due to the necessity of glucosinolates in plant defense.
    • Vulnerability to Pests and Diseases: Canola-quality mustard lines have not been cultivated extensively due to their susceptibility to pests and diseases.

    Role of Gene Editing

    • Innovative Research: Gene editing emerges as a solution to balance glucosinolate levels for improved quality and plant defence.
    • CRISPR/Cas9 Approach: Researchers used CRISPR/Cas9 gene editing tool to target and modify 10 out of 12 GTR genes in Indian mustard.
    • Achieving Desired Changes: Editing GTR genes led to lower glucosinolate content in seeds while preserving higher levels in leaves and pod walls.

    Benefits of GE Mustard

    • Easy Synthesis: Glucosinolates are synthesized in mustard leaves and pod walls before translocation to seeds.
    • Dual Benefit of Glucosinolates: The study revealed that edited mustard lines with low-seed glucosinolates exhibited improved defence against pests and diseases.

    Distinction between GE and GM

    • GE Mustard: The new mustard lines are genome-edited (GE), not genetically modified (GM).
    • Transgene-Free Solution: Unlike GM crops with foreign genes, GE lines have no foreign DNA and no residual gene-editing tools.

    Regulatory Considerations and Future Prospects

    • Regulation Changes: India’s regulatory environment is shifting, exempting GE plants free of exogenous introduced DNA from stringent approval requirements.
    • Potential Field Trials: Scientists are preparing for open field trials of GE mustard, with expectations to conduct them in the upcoming planting season.
    • Importance of Self-Reliance: With massive edible oil imports, domestic oilseed production through breeding advancements like GE mustard becomes vital for self-reliance.

    Economic Implications and Self-Sufficiency

    • Importance of Oilseeds: India’s substantial edible oil imports highlight the need for boosting domestic oilseed production.
    • Mustard’s Role: Mustard’s high oil content and protein-rich meal position it as a significant oilseed crop.
    • Potential Benefits: Both GE mustard and GM hybrid mustard have the potential to reduce dependence on imported vegetable oils.

    Conclusion

    • The journey of rapeseed mustard from its pungent state to a potentially improved, self-sufficient crop demonstrates the power of innovative breeding techniques.
    • The breakthrough in gene editing opens doors to balancing quality and plant defence.

    Back2Basics: CRISPR/Cas9 Gene Editing Tool

    crispr mustard

    • CRISPR-Cas9 is a revolutionary technology allowing precise genetic modifications by altering DNA sequences.
    • It’s a cutting-edge tool in genetic manipulation, generating excitement in the scientific community.

    How does it work?

    • CRISPR-Cas9 employs two crucial components for DNA change:
      1. Cas9 enzyme: Functions as molecular scissors, cutting DNA strands at a specific location.
      2. Guide RNA (gRNA): Composed of a short, pre-designed RNA sequence within a longer scaffold. The scaffold guides Cas9 to the right genomic spot.
    • Guide RNA complements a target DNA sequence. It binds only to the specific DNA region, avoiding unintended interactions.
    • Cas9 follows guide RNA to the DNA sequence, creating a cut across both strands.
    • Cell recognizes the DNA damage and initiates repair.
    • Scientists harness repair processes to modify genes in a cell’s genome.

  • India’s Remarkable fight against Poverty

    What’s the news?

    • On the 77th Independence Day of our nation, Prime Minister Narendra Modi addressed the nation from the historic Red Fort in Delhi, heralding a remarkable achievement in the fight against poverty.

    Central idea

    • The Prime Minister’s announcement highlighted the lifting of 135 million people from poverty in five years, as confirmed by the MDPI from NITI Aayog. This aligns with UNDP’s estimate of 415 million lifted out of poverty between 2005–06 to 2019–21, a commendable milestone in India’s history.

    Remarkable Achievements in the Fight Against Poverty

    • 135 Million Uplifted: Between 2015-16 and 2019-21, 135 million people were lifted out of poverty.
    • 415 Million Escaped Poverty: From 2005–06 to 2019–21, India lifted 415 million people out of poverty (MDPI).
    • Extreme Poverty Reduced: Extreme poverty decreased from over 80% to around 15% based on the MDPI.
    • Leading Rice Exporter: Successful policies resulted in India becoming the largest exporter of rice.
    • Top Producer of Milk and Cotton: India emerged as the largest producer of milk (222 MT) and cotton (39 million bales).
    • Infant Mortality Decreased: Infant mortality decreased significantly from 57% in 2005–06 to 35% in 2019–21.

    Factors Behind This Achievement

    • Economic Policy Transition (1991): The shift to a market-oriented economy in 1991 generated substantial resources for poverty reduction.
    • Strategic Government Initiatives: Targeted policies like the PM Garib Kalyan Yojana directly impact poverty reduction by providing essential commodities.
    • Education and Skill Development: Prioritizing education and skill enhancement empowers individuals, grants access to improved livelihood opportunities, and contributes to child nutrition.
    • Agricultural Reforms (Green Revolution): Innovations like the Green Revolution augmented rural incomes, lifting communities out of poverty by enhancing agricultural productivity.
    • Women’s Empowerment: Focusing on women’s education and participation correlates with positive effects on family welfare and economic growth, as exemplified by proposals to train women in self-help groups for drone operation.
    • Technological Advancements: Technological breakthroughs have streamlined service delivery, as seen in the provision of commodities through the PM Garib Kalyan Yojana and enhanced agricultural productivity via the gene revolution in cotton.
    • Global Integration: Embracing globalization and trade expanded economic horizons, fostering growth, job creation, and effective poverty reduction.
    • Resilience and Adaptability: Society’s adaptability to changing economic conditions bolstered resilience against poverty, preventing further economic deterioration.
    • Public-Private Partnerships: Collaborations between the government and the private sector magnified poverty reduction efforts, as evident from Punjab Agricultural University’s role in the Green Revolution.
    • Civil Society Participation: Non-governmental organizations and civil society groups complemented government initiatives, actively contributing to poverty alleviation and service delivery.
    • Data-Driven Decision Making: Utilizing data to identify poverty pockets and target interventions precisely enhances the efficacy of poverty reduction strategies.
    • Foreign Exchange Reserves: India’s growth in foreign exchange reserves from $1.4 billion in July 1991 to approximately $600 billion bolstered the economy against external shocks, enhancing its ability to sustain poverty alleviation efforts.

    Challenges and Concerns

    • Child malnutrition: Despite progress, 32% of children are underweight and 35% are stunted, according to the NFHS-5.
    • Climate Change Impact: Increasing extreme weather events due to climate change pose a threat to food security and poverty alleviation.
    • Gender Gap in the Labor Force: Women’s participation rate in the labor force remains low at around 30% (2021–22).
    • Quality Education Gap: Ensuring quality education and skill formation for women beyond the 12th grade is a challenge.
    • Access to Nutritious Food: Ensuring equitable access to nutritious food, especially for vulnerable populations, is a challenge.

    Way Forward: A Blueprint for Transformation

    • Education Empowerment: Strengthen education programs beyond the 12th grade, providing quality education and skill formation for women to enhance their contribution to poverty reduction.
    • Enhanced Gender Participation: Implement measures to boost women’s participation in the labor force, aiming to bridge the gender gap and empower women economically.
    • Climate-Resilient Agriculture: Prioritize sustainable agricultural practices that address climate change challenges, ensuring food security and rural income stability.
    • Nutrition Interventions: Develop targeted interventions to address child malnutrition, focusing on reducing underweight and stunting rates among children under five.
    • Data-Driven Approach: Continuously utilize accurate and comprehensive data to inform policy decisions, ensuring effective poverty alleviation strategies.

    Conclusion

    • India’s remarkable poverty alleviation journey reflects recent unparalleled progress. Leveraging inclusive growth, women’s education, and agricultural innovation can drive lasting transformation. Safeguarding against climate change and enhancing food systems can pave the way for a prosperous and equitable future.

     

  • RBI unveils UDGAM portal for Unclaimed Deposits Claims

     

    udgam

    Central Idea

    • The RBI has launched Centralised Web Portal called UDGAM to search and retrieve unclaimed deposits from various banks, all in one centralized location.

    What are Unclaimed Deposits?

    • The RBI defines “Unclaimed Deposits” as funds residing in dormant savings or current accounts for a duration of ten years.
    • Similarly, for fixed deposits (FDs), the funds remain unclaimed if they have not been withdrawn within ten years from the maturity date.

     

    About UDGAM Portal

    • The UDGAM portal is a centralized web platform launched by the Reserve Bank of India (RBI) called “Unclaimed Deposits – Gateway to Access inforMation.”
    • It is collaborated by Reserve Bank Information Technology Pvt Ltd (ReBIT), Indian Financial Technology & Allied Services (IFTAS), and participating banks.
    • It aims to provide individuals with an accessible and user-friendly platform to search and retrieve their unclaimed deposits from various banks in one centralized location.
    • The portal consolidates unclaimed deposit data from different banks.
    • It empowers users to identify their dormant accounts and take actions such as claiming the deposited amount or reactivating their dormant accounts directly through their respective banks.

    Key Features

    The UDGAM Portal brings forth a set of user-centric features that redefine the approach to reclaiming unclaimed deposits:

    • Reclaim or Activate: Through this platform, users have the autonomy to initiate either the process of reclaiming the deposited amount or reactivating their dormant accounts, all under the umbrella of their respective banks.
    • Effortless Registration: Customers can swiftly register on the UDGAM Portal using their mobile numbers, initiating their journey towards unlocking their unclaimed funds.
    • Search and Input: Once registered, users can seamlessly search for their unclaimed deposits by inputting essential details such as their name, PAN, voter ID, driving license, and passport number.
    • KYC Process: Upon locating their deposits, customers can facilitate their retrieval by completing a streamlined Know Your Customer (KYC) process through their respective bank branches.
    • Nominee Assistance: In instances where the deposit holder is no longer alive, the nominee can facilitate the retrieval process by providing the necessary documents.

  • How NBFCs can be used to address the problem of credit inadequacy in India

    What’s the news?

    • India’s Non-Banking Financial Company (NBFC) sector is on a path of recovery after a turbulent period following the collapse of IL&FS and the challenges posed by the COVID-19 pandemic.

    Central idea

    • India’s NBFC sector’s revival aids credit flow in tandem with banks, bolstered by upgraded outlooks from ICRA due to enhanced oversight, wider bank credit, robust market performance, reduced NPAs, and higher provisions. However, Ind-Ra and Fitch’s caution highlights concerns over certain NBFCs’ unsecured credit exposures.

    Non-Banking Financial Company (NBFC)

    • A NBFC is a financial institution that offers various financial services similar to those offered by traditional banks, but it does not hold a banking license and cannot accept deposits from the public.
    • NBFCs provide services such as loans and credit, investment and wealth management, insurance services, money market operations, and other financial products.
    • They play a crucial role in extending credit to sectors of the economy that might not be served by traditional banks, contributing to financial inclusion and overall economic growth.

    What is credit inadequacy?

    • Credit inadequacy refers to the insufficiency of available credit or loans to meet the financial needs and investment requirements of various sectors within an economy.
    • In the context of India, it signifies a situation where the amount of credit available from traditional banking sources is limited and falls short of what is required to support economic growth, business expansion, and other investment activities.

    What are credit sources?

    • Credit sources refer to the origins or channels through which funds are made available for lending or borrowing purposes.

    Credit sources within the Indian financial system

    • Credit Flow through Financial Intermediaries (Banks and NBFCs):
    • This channel involves banks and Non-Banking Financial Companies (NBFCs) acting as intermediaries between savers and borrowers.
    • Banks collect deposits from individuals and businesses and then lend these funds to borrowers in the form of loans.
    • NBFCs, while similar to banks, cannot accept deposits but can still provide credit by borrowing from other financial institutions or markets and lending those funds to borrowers.
    • Market credit through bond markets:
    • This channel involves borrowing and lending directly through the financial markets.
    • Various participants, like mutual funds, insurance companies, and banks, engage in the bond market.
    • Borrowers issue bonds, which are essentially debt instruments, and investors purchase these bonds, effectively lending money to the issuers in return for interest payments.

    Evolution of credit and banking sector challenges

    • Historical Credit Growth:
    • Between 1991 and the early 2000s, annual bank credit expanded by 15% on average.
    • From 2003 to 2008, the growth rate surged to 28%, driven by optimistic disbursements for the commercial sector due to positive growth outlook.
    • Challenges and Non-Performing Assets (NPAs):
    • The rapid credit expansion of 2003-2008 led to an increase in non-performing assets (NPAs) during the early 2010s.
    • The Reserve Bank of India (RBI) introduced asset quality reviews in 2016 as NPAs rose from 3.4% to 10% between 2013 and 2017.
    • The rise in bad assets hampered banks appetite for commercial sector exposure, leading to a shift towards retail loans.
    • Credit Slowdown and NBFC Emergence:
    • Bank credit growth declined after 2016, reaching 10% annually pre-Covid, and further dropping to 7% during the pandemic.
    • This slowdown created an opportunity for Non-Banking Financial Companies (NBFCs) to step in and bridge the credit gap.
    • NBFCs compensated for reduced bank credit, particularly in MSMEs and real estate, where they contributed 60% of incremental credit flows between 2014 and 2018.
    • Disruption and Liquidity Crisis:
    • A major infrastructural lending-focused NBFC’s collapse in 2018 created a sector-wide contagion.
    • Both commercial banks and NBFCs experienced a sharp decline in incremental credit, resulting in liquidity challenges.
    • This crisis highlighted the vulnerability of NBFCs due to concentrated liability books and disrupted funding sources.

    Significance of NBFCs in a capital-constrained nation like India?

    • Filling the Credit Gap: In a country where credit flow is limited, NBFCs step in to bridge the credit gap, particularly in sectors like MSMEs and real estate. They contribute 60% of incremental credit flows to these sectors, supporting their growth and development.
    • Niche Expertise: NBFCs possess specialized sectoral expertise and flexibility in underwriting. They can evaluate borrowers based on unconventional parameters, extending credit to segments that traditional banks might consider riskier.
    • Financial Inclusion: NBFCs extend credit to underserved and remote regions where traditional banks have limited reach. This contributes to financial inclusion by providing loans to individuals and businesses that might otherwise be excluded from the formal credit system.
    • Timely Investment: With quick and efficient loan processing, NBFCs enable timely investment and economic activity. This agility is crucial in addressing credit needs promptly, supporting growth in various sectors.
    • Alternative Funding: NBFCs raise funds through diverse channels such as bank borrowings, market issuances, and commercial papers. This alternative funding approach ensures that credit is available even when traditional banking sources face limitations.
    • Complementary Role: NBFCs complement traditional banks by extending credit and financial services. They serve as an alternative credit avenue, ensuring a broader spectrum of borrowers can access the funds needed for their ventures.
    • MSME and Real Estate Focus: NBFCs’ emphasis on MSME and real estate financing fills a critical gap. These sectors, vital for India’s growth, often face challenges in accessing credit from traditional banks due to perceived risks or constraints.
    • Sectoral Growth: NBFCs, with their specialized approach, contribute to sectoral growth. For instance, they supported 60% of incremental credit flows to MSMEs and real estate developers between 2014 and 2018, facilitating expansion in these key sectors.
    • Diversified Credit Landscape: NBFCs enhance the overall credit landscape by offering an alternative credit channel. Their presence helps distribute credit more evenly across sectors, promoting balanced economic growth.

    How can NBFCs be used to address the problem of credit inadequacy in India?

    • Targeted Credit Access: NBFCs can cater to segments that traditional banks might find riskier or less viable, such as MSMEs and real estate developers. Their specialized approach, nimbleness, and sectoral expertise allow them to provide tailored credit solutions to these underserved sectors.
    • Financial Inclusion: NBFCs extend credit to areas where traditional banks have limited reach, fostering financial inclusion. They can provide loans to individuals and businesses in remote and underserved regions, contributing to economic growth across the nation.
    • Flexibility in Underwriting: NBFCs often adopt innovative and tech-enabled approaches for assessing creditworthiness. This enables them to evaluate borrowers based on unconventional parameters, extending credit to those who might not meet traditional banking criteria.
    • Quick and Efficient Processes: NBFCs, with streamlined operations, can offer faster loan approvals and disbursements. This agility in processing loans can bridge the credit gap more rapidly, supporting timely investment and economic activities.
    • Sectoral Focus: NBFCs can concentrate on specific sectors or niches, catering to unique credit requirements. For instance, they can offer specialized real estate financing or support to micro and small businesses, contributing to sectoral growth.
    • Liquidity Channels: NBFCs can raise funds through various channels, including bank borrowings, market issuances, and commercial papers. This diversity in funding sources enables them to overcome liquidity challenges more effectively.
    • Diversification of Funding Sources: For sustainable growth, NBFCs can diversify their funding sources to reduce reliance on specific channels, reducing vulnerability to liquidity shocks, as highlighted in the article.
    • Complementing the Banking System: NBFCs complement traditional banks in extending credit and financial services. Their presence provides an alternative credit avenue, ensuring that credit is available to a wider spectrum of borrowers.

    Conclusion

    • In a country where financial inclusion and access to bank credit remain challenges, NBFCs play a vital role in reaching underserved segments. Learning from the crisis of 2018–2021, diversifying funding sources, and implementing short-term liquidity buffers can fortify NBFCs against future shocks.

  • De-dollarisation: Is it a gateway to rupeefication?

    dollarisation

    What’s the news?

    • Countries worldwide are pursuing de-dollarisation to reduce reliance on the US dollar in international trade, exploring bilateral currency agreements and strategies like rupeefication.

    Central idea

    • In the past century, a single currency has dominated the global economy, transitioning from the pound sterling to the US dollar, now comprising 59.02% of COFER. The US dollar’s prevalence is due to its pivotal role in international trade. India’s push for the Indian Rupee’s use in trade showcases this trend, aiming at bolstering economic autonomy.

    What is meant by Dollarisation?

    • US dollar as a substitute for domestic currency: Dollarisation refers to the phenomenon where countries adopt the US dollar as a substitute for their domestic currency to varying degrees.
    • This practice can take several forms:
    • Financial dollarisation (substituting domestic assets/liabilities with foreign ones)
    • Real dollarisation (pegging domestic transactions to exchange rates)
    • Transactional dollarisation (using the US dollar for domestic transactions)
    • Poor performance of the domestic currency:
    • Dollarisation typically arises due to the poor performance of the domestic currency, caused by factors such as political instability or economic uncertainty.
    • It can also result from financial market liberalization and economic integration, leading to reduced exchange rate risk and increased capital inflow.
    • The US dollar’s dominance: The US dollar’s dominance as an anchor currency for international trade contributes to its widespread acceptance and high demand, thereby driving dollarisation trends.

    What is meant by De-dollarisation?

    • De-Dollarisation refers to the global trend of countries reducing their reliance on the US dollar in international trade and financial transactions.
    • This movement involves shifting towards bilateral currency agreements, using domestic currencies for trade, and promoting alternatives to the dollar.
    • The aim is to achieve greater economic autonomy, reduce risks associated with dollar fluctuations, and challenge the dominance of the US dollar in the global financial system.

    What is meant by Rupeefication?

    • Rupeefication refers to the process of internationalizing the Indian Rupee (INR) by promoting its use in international trade and financial transactions.
    • This strategy involves enabling trade partners to transact in INR, issuing financial instruments denominated in INR to foreign entities, and facilitating greater access to the INR in global markets.
    • The objective of rupeefication is to enhance the INR’s status as a global currency, reduce dependence on the US dollar, and strengthen India’s economic resilience and autonomy on the global stage.

    De-dollarisation in motion

    • Brazil’s Bilateral Currency Trade: Brazil is expanding bilateral currency trade agreements, notably with Japan and China. These agreements involve using domestic currencies for trade, reducing reliance on the US dollar.
    • China’s Leadership in De-Dollarisation: Following sanctions against Russia, China has been at the forefront of reducing dollar reliance. China’s actions have prompted other BRICS nations to follow suit in decreasing dollar usage.
    • Indonesia’s Local Currency Trade System: Indonesia has adopted a Local Currency Trade (LCT) system to lower the role of the US dollar in its current account transactions. This shift aims to promote greater usage of domestic currency.
    • Africa’s Consideration for Intra-Africa Trade: African nations are contemplating replacing the US dollar with domestic currencies for intra-Africa trade. This approach aligns with the broader global trend of de-dollarisation.
    • BRICS Summit and Integrated Payment System: The upcoming BRICS Summit will address the challenges of de-dollarising trade and establishing an integrated payment system. This reflects the growing global emphasis on reducing dollar dependence.
    • India’s Multi-Faceted Approach: India, while pursuing de-dollarisation, also considers bilateral currency agreements. However, it might opt out of a common BRICS currency due to existing trade commitments with the US and Europe

    How is India actively advancing its systems to bypass the US dollar and fortify the INR?

    • Bilateral Currency Agreements: India is engaging in bilateral currency agreements with multiple nations. These agreements encourage trade partners to transact in INR instead of the US dollar, reducing the reliance on the dollar in international trade transactions.
    • Special Rupee Vostro Accounts (SRVAs): India has established Special Rupee Vostro Accounts with various countries, including the UK, Russia, Sri Lanka, and Germany. These accounts enable foreign entities to transact in INR directly with Indian banks, promoting the use of the Indian currency.
    • Currency Internationalization: By promoting the use of INR in international transactions, India aims to increase the acceptance of its currency in global markets. This strategy involves initiatives to make INR more widely recognized and used beyond its borders.
    • Reducing Dollar Dependency: India’s efforts to develop systems that bypass the dollar aim to reduce the country’s dependence on the US dollar for international trade and financial transactions. This can enhance India’s economic autonomy and mitigate the risks associated with fluctuations in the value of the dollar.
    • Enhancing the INR’s Global Role: Strengthening the INR involves making it a viable alternative to the US dollar in global transactions. By creating systems that support the use of INR in trade and finance, India aims to increase the currency’s global significance.

    Advantages of rupeefication

    • Risk Mitigation for Exporters: Rupeefication provides exporters with a means to limit their exposure to exchange rate risks. By invoicing trade in INR, exporters can avoid the uncertainties associated with fluctuating US dollar exchange rates, enhancing predictability in their earnings.
    • Deepened Markets and Wider Access: The adoption of rupeefication can lead to increased market access and deeper trade relationships. As the INR gains wider acceptance, exporters can tap into new markets and expand their customer base.
    • Lower Borrowing Costs for the Private Sector: Rupeefication enables the private sector to access international financial markets with reduced borrowing costs. This can result in enhanced profitability and investment opportunities for businesses.
    • Public Sector Financing Flexibility: The public sector benefits from the ability to issue international debt denominated in INR. This provides an alternative source of financing for government projects without depleting official US dollar reserves.
    • Strengthened Economic Autonomy: By promoting rupeefication, India can gradually reduce its reliance on the US dollar, leading to increased economic autonomy. This reduces vulnerability to external economic shocks and fluctuations in the value of the dollar.
    • Microeconomic Growth and Livelihoods: A focus on rupeefication encourages the growth of the private sector, leading to increased economic activities and job opportunities. This approach can contribute to the improvement of livelihoods across various sectors.
    • Enhanced Monetary Policy Autonomy: As rupeefication gains traction, India can exercise more control over its domestic monetary policy. This autonomy allows for tailored economic measures that align with the country’s specific needs.

    Potential challenges associated with its implementation

    • Exchange Rate Volatility: Shifting towards rupeefication could expose businesses to exchange rate volatility if the INR’s value fluctuates significantly against other major currencies. This could impact the predictability of earnings and increase risks for exporters.
    • Limited Acceptance in International Markets: Achieving widespread acceptance of the INR in global markets might be challenging. Many international transactions are still predominantly conducted in the US dollar, which could hinder the seamless adoption of rupeefication.
    • Global Economic and Political Factors: External economic and political events can impact the feasibility of rupeefication. Global factors such as economic crises or geopolitical tensions could influence the willingness of other nations to engage in transactions using the INR.
    • Trade Balance and Reserves: A swift shift to rupeefication might impact India’s trade balance and foreign exchange reserves, potentially necessitating greater reserves of foreign currencies to manage trade deficits.
    • Gradual Implementation: Rapidly transitioning to rupeefication might lead to economic disruptions.

    Way forward

    • Gradual Transition: To address the challenges and uncertainties associated with shifting towards rupeefication, a gradual and phased approach is recommended. This allows businesses, financial institutions, and the economy as a whole to adapt to the changes smoothly.
    • Macroeconomic Stability: Maintaining macroeconomic stability is crucial. Efforts should be directed toward ensuring the stability of the INR’s value to inspire confidence among trade partners and investors.
    • Promoting INR Use: Initiatives to promote the use of the INR in international transactions should be continued. This could involve diplomatic efforts to foster bilateral agreements, increasing awareness about the benefits of INR invoicing, and addressing concerns about exchange rate risk.
    • Collaborative Approach: Collaborating with other nations and international organizations is essential. The adoption of rupeefication requires cooperation and coordination among various stakeholders to establish the INR as a viable global currency.
    • Balancing Trade and Reserves: Balancing trade and managing foreign exchange reserves remain crucial. Gradual rupeefication should align with maintaining a stable trade balance and adequate reserves to manage potential deficits.

    Conclusion

    • While the journey towards de-dollarisation and rupeefication is multifaceted and not devoid of challenges, India’s persistent efforts to limit dollar reliance while nurturing the international status of the INR underscore its commitment to greater economic autonomy. By gradually integrating the INR into the global financial landscape, India aims to bolster its economic resilience, promote growth, and enhance its position as a global economic player.

    Also read:

    The Future of the US Dollar As a World Reserve Currency

  • For India’s 15 to 34-yr-olds, top concern is jobs, economic struggle: What Lokniti-CSDS’s latest survey reveals

    What’s the news?

    • A recent report released by Lokniti-CSDS has unveiled significant insights into the perspectives of India’s youth, aged 15 to 34, regarding the most pressing challenges confronting the nation.

    Central idea

    • The Lokniti-CSDS report provides a comprehensive insight into the concerns and preferences of Indian youth, shedding light on their perception of the country’s key challenges and their aspirations for the future. The report, conducted across 18 states with a sample size of 9,316 respondents, reveals a comprehensive picture of the concerns, hopes, and choices of India’s young population.

    Findings of the Report

    • Unemployment, A Central Worry:
    • 36% of the surveyed youth view unemployment as the most critical challenge facing India.
    • This represents an increase of 18 percentage points since the previous survey in 2016.
    • 40% of highly educated respondents, including graduates and those with advanced degrees, identify unemployment as the most pressing issue.
    • Other Notable Concerns
    • 16% of respondents expressed concerns about poverty.
    • 13% highlight inflation as a major challenge.
    • Gender plays a role: 42% of males compared to 31% of females see unemployment as their top concern.
    • Occupational Diversity:
    • About 49% of the surveyed youth are currently engaged in some form of work.
    • Among those working, 23% are self-employed, indicating an entrepreneurial inclination.
    • Various sectors are represented: 16% are professionals, 15% are engaged in agriculture, and 27% are skilled or semi-skilled workers.
    • Only 6% are employed in government jobs.
    • Aspirations and Preferences:
    • When considering ideal career paths, 16% of respondents aspire to roles in the health sector.
    • 14% prefer jobs in the education sector.
    • 10% express interest in science and technology-related roles and entrepreneurship.
    • 2% are content with continuing in their current jobs.
    • Employment Choices: Government Jobs and Entrepreneurship:
    • 60% of respondents favor government jobs, reflecting their consistent appeal over time.
    • Over 25% lean toward entrepreneurship, showcasing a growing trend in entrepreneurial ambitions.

    The Significance of the Age Bracket Between 15 and 34 for India

    • Demographic Powerhouse: The youth aged 15 to 34 constitute a considerable 34% of India’s population, making it a demographic powerhouse. With over 40 crore individuals, their collective influence is significant in determining societal trends, economic patterns, and policy priorities.
    • Human Capital Reservoir: This age group forms the core of India’s human capital reservoir. Their energy, creativity, and potential can drive the nation’s progress across various sectors. The report’s insights highlight the youth’s aspirations, which, if harnessed, can contribute to the nation’s growth.
    • Agents of Change: As the report suggests, the youth possess a dynamic outlook and are open to exploring diverse career paths. Their adaptability and willingness to embrace new opportunities position them as agents of change, capable of shaping industries and driving innovation.
    • Future Workforce: This age range encompasses individuals in different stages of education and employment preparation. Their choices and preferences, as illuminated by the report, offer insights into the future composition of India’s workforce, guiding policy decisions and skill development initiatives.
    • Socio-Economic Transformation: The youth’s concerns, such as unemployment and poverty, directly correlate with the socio-economic fabric of the nation. Addressing these challenges is crucial for achieving inclusive growth and elevating the living standards of millions.
    • Cultural and Social Trends: The age group between 15 and 34 witnesses the convergence of traditional values and modern aspirations. Understanding their perspectives can aid in shaping cultural and social trends, influencing areas ranging from consumer behavior to family dynamics.
    • Global Competitiveness: India’s global competitiveness is intricately linked with the capabilities of its youth. As the report reveals, their interest in sectors like technology and entrepreneurship can position India as a hub for innovation on the global stage.
    • Long-Term Implications: Investments made in education, skill development, and employment opportunities for youth can have long-term implications. Nurturing this demographic can result in a more educated, skilled, and capable population, boosting economic growth and societal progress.

    Addressing Youth Concerns: A Path Forward

    • Targeted Employment Generation: Address the rising concern of unemployment by implementing policies that stimulate job creation across sectors. Encourage public-private partnerships to create diverse and suitable job opportunities for educated youth.
    • Inclusive Economic Policies: Formulate and execute inclusive economic policies that uplift marginalized sections of society. Tackling poverty and controlling inflation will directly alleviate concerns among youth from lower economic backgrounds.
    • Gender-Responsive Initiatives: Develop gender-specific initiatives to provide equal opportunities for education and employment. Empower young women with skills and education to bridge the gender gap in the job market.
    • Education Reforms: Align educational curricula with the aspirations of youth. Promote practical skills alongside traditional academic subjects, enabling them to pursue careers that resonate with their interests.
    • Fostering Entrepreneurial Ecosystems: Establish supportive ecosystems for entrepreneurship. Offer mentorship, funding, and regulatory frameworks that encourage young individuals to embark on entrepreneurial ventures.
    • Government and Private Sector Collaboration: Foster collaborations between the government and private sector to create a diverse range of job opportunities. Provide stability through government jobs while embracing innovation through private sector growth.
    • Youth-Centric Policies: Translate the insights from the report into concrete policies that address the concerns of youth. Regularly review and adapt these policies to ensure they remain relevant and effective.

    Conclusion

    • The prominence of unemployment as a pressing issue underscores the need for focused efforts to address this concern, especially among educated youth. As the nation strives to harness the potential of its youth population, understanding their viewpoints and preferences becomes essential for shaping policies and initiatives that align with their aspirations and drive sustainable growth.

  • PM E-Bus Seva Scheme: 10,000 Electric Buses to Transform Urban Mobility

    e-bus

    Central Idea

    • The Union Cabinet’s recent approval of the PM e-bus Seva scheme marks a significant step towards enhancing urban mobility and promoting green transportation across India.

    PM E-Bus Seva: Scheme Overview

    • E-Bus Definition: The scheme’s core revolves around e-buses, which are buses powered solely by zero-emissions electricity sources for both propulsion and accessory systems.
    • Scope and Cost: The PM e-bus Sewa scheme is estimated to cost ₹57,613 crore, with the Central government contributing ₹20,000 crore.
    • Operational Support: The scheme is designed to provide operational support to bus services for a period of 10 years.

    Implementation Strategy

    • Two Segments: The scheme will be executed in two distinct segments:
      1. 10,000 E-Buses: In 169 cities, 10,000 e-buses will be introduced through a public-private partnership (PPP) model.
      2. Infrastructure Upgrades: In 181 other cities, green urban mobility initiatives will focus on improving infrastructure, bus priority, charging infrastructure, multimodal interchange facilities, and automated fare collection systems.
    • Depot Infrastructure: For the first segment, the development and enhancement of depot infrastructure, including power substations, will be undertaken to support the new e-buses.
    • Job Creation: The scheme is expected to generate around 45,000 to 55,000 direct jobs, contributing to employment growth.

    Coverage and Funding

    • Coverage: Cities with populations of three lakh and above, Union Territory capitals, as well as northeastern and hill states, are included in the scheme’s ambit.
    • Funding Model: States or cities will manage bus services and payments to bus operators, with the Central government providing subsidies as outlined in the scheme. This approach promotes decentralized management.

    Positive Impacts

    • Environmental Benefits: The adoption of electric buses will significantly reduce noise and air pollution, contributing to cleaner and healthier urban environments.
    • Carbon Emission Reduction: Electric mobility aligns with India’s commitment to curb carbon emissions and combat climate change.
    • Economies of Scale: Aggregating electric bus procurement is expected to achieve economies of scale, making electric buses more financially viable and encouraging their adoption.

    Conclusion

    • The PM e-bus Sewa scheme signifies India’s ambitious stride towards sustainable and eco-friendly urban mobility.
    • It also highlights the government’s commitment to job creation, as well as its determination to transform the transportation sector into a cleaner, greener, and more efficient mode of commuting.