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Subject: Economics

  • MSP as a legal right: Pros and Cons

    What’s the news?

    • For years, farmers have been demanding a legal guarantee of the minimum support price (MSP), calculated according to the Swaminathan Commission formula.

    Central idea

    • The significance of MSP lies in its role in maintaining agricultural viability and preventing farmers from falling into debt and bankruptcy. However, the current MSP system falls short of its objectives, leaving most farmers without much-needed support. This op-ed emphasizes the need for a farmer-centric agricultural policy and a radical shift in approach to secure MSP with a legal guarantee.

    Minimum support price (MSP)

    • MSP is the price at which the government procures crops directly from farmers. It is calculated to be at least one-and-a-half times the cost of production incurred by the farmers.
    • The MSP serves as a minimum guaranteed price for specific crops that the government considers remunerative and deserving of support for farmers.

    Agriculture’s Role in the National Economy

    • Employment and Livelihood: Agriculture is the largest source of employment and livelihood for about 50 percent of the country’s population, especially in rural areas. It provides direct and indirect employment for millions of people.
    • Contribution to GDP: Agriculture contributes around 17–18 percent to India’s Gross Domestic Product (GDP). Although the share of agriculture in the overall GDP has been declining over the years due to the growth of other sectors, it remains a crucial component of the economy.
    • Food Security: The agricultural sector plays a critical role in ensuring food security for the nation. By producing a variety of food crops like rice, wheat, pulses, fruits, and vegetables, it caters to the dietary needs of the population and helps manage food inflation.
    • Source of Raw Materials: Agriculture is the primary source of raw materials for various industries, including textiles, sugar, jute, and vegetable oil. It provides the necessary inputs for industrial production, contributing to the overall industrial growth of the country.
    • Export Earnings: Agricultural exports, such as rice, spices, tea, coffee, and cotton, generate foreign exchange earnings for the country. This helps improve the balance of trade and supports economic growth.
    • Rural Development: The growth of agriculture has a significant impact on rural development. It improves rural infrastructure, raises the standard of living, and creates opportunities for the development of allied industries and services in rural areas.
    • Poverty Alleviation: Agriculture remains an essential tool in poverty alleviation as it provides income and employment opportunities to the rural population, which is often more susceptible to poverty.

    Important role of MSP

    • Ensuring Income Security: MSP provides a minimum guaranteed price for farmers’ produce. It protects them from price fluctuations and market risks, ensuring a stable income for their efforts and investment in farming.
    • Preventing Distress Sales: With MSP in place, farmers are less likely to resort to distress sales of their crops during times of market downturns.
    • Encouraging Crop Diversification: The MSP system covers a range of crops, including cereals, pulses, oil seeds, and more. By providing a remunerative price for diverse crops, it encourages farmers to adopt crop diversification, contributing to agricultural sustainability and food security.
    • Government Procurement: MSP sets a benchmark for government procurement of crops. The government procures crops at MSP through various agencies like FCI and state agencies, thereby supporting farmers and maintaining buffer stocks for food distribution.
    • Addressing Regional Imbalances: MSP implementation considers regional variations in production costs and helps bridge the income gap between farmers in different regions. It addresses regional imbalances and ensures equitable growth in the agriculture sector.

    Inadequacies of the MSP

    • Limited Coverage: The current MSP system leaves the majority of farmers without much-needed support. Only around 6% of farmers in the country benefit from MSP, while the remaining face challenges in accessing remunerative prices for their produce.
    • Debt and Bankruptcy: Despite MSP being introduced as a safety net, farmers still struggle with debt and bankruptcy. The average debt burden on a farmer’s family is over Rs 1 lakh, despite the subsidies provided by the government.
    • Natural Disasters and Market Risks: Farmers remain vulnerable to natural disasters and market forces, making their income uncertain and apprehensive. Climate change adds complexity to farming, and farmers cannot be left at the mercy of such unpredictable factors.
    • Insufficient Market Regulation: Middlemen exploit farmers, leading to a significant difference between the price at which farmers sell their produce and the price at which consumers buy the same produce. This lack of market regulation affects farmers’ income adversely.
    • Inadequate MSP Calculation: The MSP calculation method may not fully reflect the input costs, market trends, and other economic factors, leading to an ineffective MSP for farmers.
    • Rising Debt: The outstanding loan on farmers has increased significantly over the years, indicating the insufficiency of MSP and minimal increases in support prices.

    Swaminathan Commission Recommendations

    • Calculation of MSP: The Swaminathan Commission recommended that MSP be calculated by adding 50 percent profit to the C2 cost (comprehensive cost including imputed value of family labor) for crops. This method takes into account various input costs incurred by farmers, including labor, seeds, fertilizers, and other expenses.
    • Expanded Coverage: The Commission suggested expanding the scope of MSP to cover a wide range of agricultural produce, including crops like ginger, garlic, turmeric, chili, and all agricultural produce and horticulture.

    The Call for a Legal Guarantee of MSP

    • Addressing Rising Debts: The outstanding loan to farmers has significantly increased over the years, reaching Rs 23.44 lakh crore in 2021–22. Legalizing MSP would offer a sustainable solution, reducing farmers’ dependence on debt.
    • Fulfilling Promises: A legal guarantee makes MSP a binding obligation, ensuring farmers receive the promised prices for their crops and avoiding selling at lower rates.
    • Empowering Farmers: Legalized MSP enhances farmers’ bargaining power and enables informed decisions in cropping and marketing.
    • Supporting Sustainable Agriculture: MSP legislation promotes sustainable agriculture, diversification, and resilience against climate change.
    • Promoting Farmer-Centric Policy: A Legal Guarantee of MSP emphasizes a farmer-centric approach, safeguarding their rights, interests, and livelihoods.

    Way forward

    • Reforming Agribusiness and Ensuring Fair Compensation:
      1. Promote farmer producer organizations (FPO’s) and cooperatives.
      2. Facilitate direct market access to reduce dependence on intermediaries.
    • Adhering to the Swaminathan Commission’s Guidelines:
      1. Follow the MSP calculation as per the Swaminathan Commission’s recommendations.
      2. Consider comprehensive costs, including labor and input expenses.
    • Promoting Sustainable Agriculture Practices:
      1. Encourage the adoption of sustainable farming practices and climate-resilient crop varieties.
      2. Invest in agricultural research and extension services for modern technologies.
    • Ensuring Access to Credit and Insurance:
      1. Strengthen credit facilities for farmers.
      2. Provide insurance coverage to manage risks effectively.
    • Investing in Rural Infrastructure:
      1. Improve irrigation facilities, storage, and transportation networks.
      2. Reduce post-harvest losses and improve market access.
    • Promoting Agro-tourism and Direct Marketing:
      1. Encourage agro-tourism for additional income.
      2. Establish farmers’ markets and e-commerce platforms for direct marketing.

    Conclusion

    • The demand for a legal guarantee of MSP is a just and crucial step towards safeguarding the livelihoods of farmers. Providing farmers with a dignified life is not just a moral obligation but an economic imperative, as the growth of the agricultural sector directly impacts the nation’s prosperity.

  • Mapping India’s Chip Design Ecosystem

    chip

    Central Idea

    • The Indian government is considering a proposal to pick an equity stake in domestic chip design-making companies as part of the second phase of the Design-Linked Incentive (DLI) Scheme for the semiconductor industry.
    • The aim behind the scheme is to establish a stable ecosystem and promote the growth of “fabless companies” in India—entities that design chips but outsource manufacturing.
    • However, this policy requires a long-term strategy due to the capital-intensive nature of the semiconductor sector and the lengthy gestation periods for setting up design and fabrication units.

    What is DLI Scheme?

    What is Design Linked Incentive (DLI) Scheme? - Civilsdaily

    • DLI scheme is a program aimed at providing financial and infrastructural support to companies establishing semiconductor manufacturing plants in India.
    • Eligible participants who set up fabrication units in the country can receive fiscal support of up to 50% of the total cost.
    • Additionally, participants building compound semiconductors, silicon photonics, and sensors fabrication plants can avail fiscal support of 30% of the capital expenditure under this scheme.
    • Companies engaged in semiconductor design for integrated circuits, chipsets, system-on-chips, systems, and IP cores will receive incentives of 4% to 6% on net sales for a duration of five years.
    • The scheme is expected to promote the growth of at least 20 such companies, achieving a turnover of more than ₹1500 crore in the next five years.

    Present Chip Dynamics

    • Long Gestation Period: Setting up design and fabrication units in the semiconductor industry involves long gestation periods before the first product is launched. Returns on investment are not immediate.
    • Capital Intensive: The semiconductor industry requires significant investment for setting up fabrication units, up-scaling manufacturing capabilities, and research.
    • Cyclic Nature: The industry’s cyclic nature and changing functional requirements of chipsets make research and development challenging.
    • Supply Chain Disruptions: Supply chain disruptions, such as those experienced during COVID-related lockdowns, can dampen investor confidence in the sector.

    Domestic Chip Industry Scenario

    • Talent Pool: India has a highly-skilled talent pool of semiconductor design engineers, making up around 20% of the world’s workforce, working for global companies like Intel, Micron, and Qualcomm, among others.
    • IP Ownership: Despite a thriving talent pool, India owns a smaller portion of the intellectual property (IP) related to chip designs, which is mostly retained by global companies.
    • DLI Scheme for Chip Designing: The DLI scheme introduced in December 2021 aimed to indigenize innovations and support the growth of chip design companies with financial incentives.
    • Changing Landscape: The scheme has led to the establishment of over 30 semiconductor design startups in India, with some already receiving government support.

    Growing market in India

    • The semiconductor industry is growing fast and can reach $1 trillion dollars in this decade. India can grow fast and reach $64 billion by 2026 from $27 billion today.
    • Mobiles, wearables, IT, and industrial components are the leading segments in the Indian semiconductor industry contributing around 80% of the revenues in 2021.
    • The mobile and wearables segment is valued at $13.8 billion and is expected to reach $31.5 billion in 2026.

    Challenges and Considerations

    • Effectiveness and Efficiency: Some experts view the government’s plan to become a venture capital firm for chip design companies as ineffective and inefficient. Companies may prefer foreign buyers for higher valuations and global ecosystem connections.
    • Venture Capital Support: The lack of venture capitalists in the private sector focused on semiconductors is a challenge for the growth of design firms.
    • Equity Stake’s Impact: Offering an equity stake can align the interests of design companies with the project’s success, ensuring shared risk and reward. It may also help in selling chip-designing services more effectively and attracting a broader client base in the market.
    • IP and Value-Added Activities: The government must consider who can keep the IP and how investments can drive more innovation and employment generation. Moving up in the value chain and enabling the ecosystem is crucial.

    Conclusion

    • The proposal to take an equity stake in domestic chip design-making companies in India’s semiconductor industry aims to promote the growth of fabless companies and ensure a stable ecosystem.
    • However, it requires a long-term strategy and careful consideration of IP ownership, venture capital support, and value-added activities in chip design.
    • The success of the scheme will depend on effective implementation and alignment of interests between the government and promising design companies.

  • Need for Overhaul in UDAN Scheme

    udan

    Central Idea

    • Union Civil Aviation Ministry inaugurated a new phase of the Ude Desh Ka Aam Nagrik (UDAN) scheme, or UDAN 5.2, to improve last-mile connectivity in remote regions of the country through small aircraft.
    • There have been aspersions regarding the success of the UDAN regional connectivity scheme (RCS) since ONLY 11 of the 74 Greenfield airports are decently operational.

    Progress till now

    • Route Closures: Out of the 479 routes launched under RCS, 225 have ceased operations, leading to significant route closures.
    • Commercial Viability: Around 70 of the routes were found to be commercially unviable even with subsidies, leading airlines to discontinue their operations.
    • Three-Year Sustainability: The objective of RCS was for airlines to become self-sustaining after three years, but only 58 out of 155 routes completed this period successfully.
    • Incomplete Infrastructure: Some airports, such as Thanjavur, Moradabad, Saharanpur, and Ayodhya, were not ready for operations, leading to the discontinuation of 12 routes.

    What is UDAN Scheme?

    • UDAN Scheme, initiated in 2016, aims to enhance aviation infrastructure and air connectivity in Tier II and Tier III cities.
    • It was formulated based on the review of The National Civil Aviation Policy (NCAP)-2016, with the goal of fulfilling the aspirations of the common citizen.
    • The scheme, designed to last for 10 years, operates with a self-financing mechanism through the establishment of the Regional Connectivity Fund (RCF).
    • The RCF funds the viability gap funding (VGF) requirements of the scheme by levying certain domestic flights, thereby stimulating growth and development in the aviation sector.
    • As part of the scheme, the Airports Authority of India has waived the airport fee.

    Issues with the scheme

    • Route Discontinuance: Some routes launched under UDAN have been discontinued, raising concerns about their sustainability.
    • Challenges in Expansion: Efforts to improve connectivity to hilly regions and islands through helicopters and seaplanes have faced hurdles due to land unavailability and operational difficulties.
    • Unrecovered since the Pandemic: The COVID-19 pandemic has adversely affected the aviation industry, further impacting the sustainability of airlines.

    Various Challenges

    • Financial Constraints: Many smaller airlines struggle with insufficient funds, making it difficult to maintain aircraft, pay rentals, and provide staff salaries.
    • Maintenance Issues: Smaller players often have limited aircraft that are poorly maintained, and acquiring new planes is expensive.
    • Pilot Availability: The availability of pilots can be a challenge for smaller airlines, leading to higher costs when hiring foreign pilots.
    • Competition: Routes dominated by bigger domestic players like IndiGo and SpiceJet tend to see better success rates.

    Way Forward

    • Extended Subsidy Period: Airlines need an extension of the subsidy period to develop routes sustainably and achieve self-sufficiency.
    • Addressing Pandemic Impact: The impact of the COVID-19 pandemic on travel restrictions and passenger safety should be considered when evaluating the losses incurred by airlines.
    • Collaboration and Support: The government and stakeholders need to collaborate to address financial constraints and maintenance issues faced by smaller airlines.
    • Continuous Evaluation: Regular evaluation and necessary adjustments in the UDAN scheme are essential to overcome challenges and ensure successful implementation.

    Conclusion

    • While India has made significant strides in airport development, challenges related to commercial viability and infrastructure readiness must be addressed to ensure sustainable air connectivity across the nation.
    • Renewed focus on the UDAN scheme and optimizing airport infrastructure can pave the way for a robust aviation sector that benefits smaller cities and contributes to the overall growth of the nation’s economy.

  • Monsoon and food inflation: a status check

    Monsoon

    What’s the news?

    • As of July 30, the current month has witnessed a significant 15.7% above-normal rainfall, transforming the cumulative deficit into an overall 6% surplus for the period from June 1 to July 30.

    Central idea

    • The southwest monsoon made a tardy start, arriving seven days late this year, resulting in 52.6% below-normal rainfall during the first two weeks. By the end of June, there was a cumulative deficiency of 10.1%. However, the scenario changed dramatically from the last week of June, as the monsoon recovered remarkably, covering the entire country by July 2—six days ahead of schedule.

    The monsoon’s erratic behavior and its impact on agriculture

    • Delayed Crop Planting: The late arrival of the southwest monsoon raised concerns among farmers about their ability to sow crops on time, potentially affecting overall agricultural productivity.
    • Uneven Rainfall Distribution:
    • During the first two weeks of the monsoon, the country experienced a substantial rainfall deficit, with the overall rainfall being 52.6% below the normal long-period average.
    • Eastern and southern India, except Tamil Nadu and Maharashtra, were among the regions that received insufficient rainfall, which can lead to water stress and impact crop growth and yields.
    • Cumulative Deficiency: By the end of June, the cumulative rainfall deficiency stood at 10.1%. This cumulative deficit further intensified worries about agricultural output and food security, as it could affect the availability of water for crops during crucial growth stages.
    • Crop Recovery: Despite the abysmal start, the monsoon showed signs of recovery. This turnaround led to increased kharif crop plantings, including rice, which had been lagging behind last year’s levels until mid-July.
    • Positive Impact on Sowing: The monsoon’s recovery improved sowing conditions for most major agricultural regions, except for certain areas in Uttar Pradesh, Bihar, Jharkhand, and West Bengal, where rainfall remained deficient.
    • Subsequent Impact on Yields: While the monsoon’s recovery positively impacted crop sowing, the ultimate impact on yields would largely depend on the rainfall during August and September.

    El Niño Concerns

    • The Oceanic Niño Index (ONI) in June exceeded the El Niño threshold of 0.5 degrees, reaching 0.8 degrees Celsius.
    • Many global weather agencies predicted that El Niño would persist and strengthen through the 2023-24 winter.
    • El Niño’s potential strengthening raised concerns about its impact on India’s monsoon in the coming months, particularly during August.
    • El Niño is known to suppress rainfall in India, which could lead to a weakening of the monsoon during this crucial period.
    • A weakened monsoon can adversely affect crop growth, yields, and overall agricultural productivity.
    • If rainfall activity becomes progressively weaker due to El Niño’s influence, the implications can extend beyond the kharif season and impact the rabi winter-spring crops as well.
    • Rabi crops, dependent on stored rainwater, might be more vulnerable to a weakened monsoon, leading to potential losses and food production challenges.

    Prospects of food security: Food inflation and stock situation

    • Rice and Wheat Stocks: As of July 1, rice and wheat stocks in government godowns were reported to be at 71.1 million tonnes (mt). This stock level is the lowest in five years for this date.
    • Impact of the Delayed Monsoon on Rice Planting:
    • Due to the delayed monsoon, rice acreage initially picked up only after mid-July. It is unclear how much of this acreage is under short-duration varieties (around 125 days from seed to grain maturity).
    • If the rice belt had received rain on time, farmers might have planted more long-duration varieties (around 150–155 days), which yield higher at about 1–2 tonnes per hectare.
    • Re-transplanting in Punjab and Haryana: There are reports of farmers in Punjab and Haryana having to undertake paddy re-transplanting in large areas along the Beas, Sutlej, Ghaggar, and Yamuna rivers. This re-transplanting is likely for shorter duration varieties that usually yield less.
    • Sugar Stocks and Exports: The estimated sugar stocks with mills at the end of September 2023 are projected to be 6.3 mt, a six-year low. The Indian government has already banned exports of sugar to manage domestic supply.
    • Pulses and Edible Oil:
    • Among pulses, arhar (pigeon-pea) and urad (black gram) have registered a dip in acreage due to rain deficiency in Maharashtra, Karnataka, and Telangana. However, Rajasthan is expected to deliver a bumper crop of moong (green gram).
    • Chana (chickpea) has ample stocks due to government procurement, and masoor (red lentil) is being imported at rates below the government’s minimum support price.
    • Edible Oil Inflation: Edible oil inflation is likely to remain low, supported by imports projected to exceed 15 mt, a new all-time high, by the end of the current oil year in October 2023.
    • Milk Production and Prices: The supply of milk is expected to ease with buffalo calvings beginning from August. This will reflect in increased milk production, peaking during the winter and remaining high until next March-April.
    • Vegetables: Vegetable inflation has been on the rise, contributing to an unacceptably high consumer price index inflation number for July. However, with faster supply responses, vegetable inflation is expected to fall as easily as it rose.

    Way forward

    • Monitor Monsoon Developments: Continuously monitor the progress of the monsoon and its distribution across regions. Timely and accurate weather forecasting can help farmers make informed decisions about crop planting and irrigation.
    • Crop Diversification: Encourage farmers to diversify their crop choices to reduce dependence on water-intensive crops. Promote the cultivation of climate-resilient crops that require less water and are suitable for specific agro-climatic zones.
    • Strategic Buffer Stock: Maintain a strategic buffer stock of essential food commodities like rice and wheat to address any temporary supply shortages and stabilize food prices during periods of volatility.
    • Supply Chain Management: Improve supply chain logistics to ensure smooth transportation and distribution of agricultural produce. This will help prevent post-harvest losses and ensure the timely availability of food in the market.
    • Price Stabilization Measures: Implement effective price stabilization measures to control food inflation and prevent price volatility. These measures may include regulating exports, imports, and MSP (Minimum Support Price) mechanisms.
    • Encourage Pulses and Oil seed Production: Provide incentives and support to farmers for increasing pulses and oilseed production. This can reduce the country’s dependence on imports and stabilize prices.
    • Support the Dairy Sector: Extend support to the dairy sector to enhance milk production and improve the availability of dairy products. This can help stabilize milk prices and ensure food security.

    Conclusion

    • The monsoon’s erratic behavior has impacted crop sowing and food inflation in India. While the recovery has been promising, concerns over El Niño persist, making it vital for the government to monitor the agricultural sector closely and implement appropriate measures to ensure food security.

  • Bitter truths in Maharashtra’s sugar fields

    sugar

    What’s the news?

    • The High Court of Bombay has recently taken suo motu cognisance of the exploitation of the intra-State workforce that migrates seasonally from the drought-affected and water-scarce regions of Marathwada to the sugar-belt region of western Maharashtra.

    Central Idea

    • According to the Maharashtra Sugar Commissioner, in 2022-23, the net area under sugar cane was 1.487 million hectares, and there were 203 crushing factories in the State that were expected to produce 138 lakh metric tons of sugar. Though intra-State migrant workers form the backbone of the sugar cane industry and economic growth, they have remained critically marginalised and oppressed for several decades.

    Seasonal Migrant Workers

    • Seasonal migrant workers are individuals who temporarily migrate from one region or area to another for work during specific seasons or periods of the year.
    • These workers move to places where demand for labor is higher during certain agricultural or industrial activities, often due to seasonal variations in work opportunities.
    • For example, Workers from the drought-affected and water-scarce regions of Marathwada in Maharashtra migrate to the sugar-belt districts of western Maharashtra. They do so to work in the sugar cane industry, particularly during the harvesting season.

    Challenges faced by the these workers 

    • Exploitative Labor Practices: Seasonal migrant workers in the sugar cane industry are often recruited through labor contractors known as Mukadams. This exploitative system allows sugar factories to obtain a large volume of temporary, cheap, and efficient workforce.
    • Low Wages and Job Insecurity: Migrant workers often receive low wages for their labor, and their work is typically temporary and seasonal. As a result, they face uncertainty about future employment opportunities.
    • Inadequate Working Conditions: The nature of sugar cane harvesting and processing tasks can be physically demanding and hazardous. Workers, including women, may engage in strenuous work, such as head loading, leading to accidents.
    • Lack of Social Protection: Seasonal migrant workers may lack access to social protection schemes, such as health insurance and other benefits, leaving them financially vulnerable in case of illness or injury.
    • Invisibility and Marginalization: Migrant workers are often marginalised and overlooked in the regions where they migrate for work. This invisibility can limit their access to essential services, education, and healthcare.
    • Education Challenges for Children: Children accompanying their parents may face disruptions in their education due to migration, and there may be insufficient alternative schooling models, impacting their learning and development.

    Primary drivers of this migration

    • Lack of Employment Opportunities:
    • Marathwada, being a region with drought-prone areas and water scarcity, faces challenges in providing sufficient employment opportunities to its rural population.
    • The agricultural sector, which is the primary source of employment, often experiences prolonged unemployment after the sowing of rabi crops, leaving many small and marginal peasant households without work.
    • Crop Failures and Debt: The region of Marathwada is susceptible to crop failures due to erratic monsoons and water shortages. Repeated crop failures result in the accumulation of debt for many farmers and agricultural laborers, making their economic situation precarious.
    • Acute Unemployment: Apart from crop-related employment, there may be limited industries or economic activities in the region that can absorb the surplus labor during non-agricultural seasons, leading to acute unemployment.
    • Attractive Job Opportunities in the Sugar Cane Industry:
    • The sugar-belt districts of western Maharashtra, such as Sangli, Kolhapur, Pune, Satara, Solapur, and Ahmednagar, are known for their sugar cane industry.
    • During the sugar cane harvesting and processing seasons, there is a high demand for labor in the sugar factories and fields, making it an attractive destination for seasonal migrant workers seeking employment.
    • Mukadam System and Labor Contractors:
    • The Mukadam system/ contractors act as intermediaries and provide labor couples to the factories.
    • Workers, often in need of employment, rely on the Mukadams, creating a system of dependence that perpetuates the migration.
    • Lack of Diversified Livelihood Options: Limited livelihood diversification in the home region may prompt individuals to seek employment opportunities in other regions with more robust economic activities.

    Concerns and challenges in framing meaningful policies 

    • Inadequate Data and Migration Tracking:
    • Lack of comprehensive data is hindering the formulation of meaningful policies for seasonal migrants, making it difficult to address their specific needs effectively.
    • The Migration Tracking System (MTS) application, launched by the Women and Child Development Department in 2022, aimed to track and enumerate seasonal migrants, particularly focusing on children, pregnant women, and lactating mothers to ensure their well-being and access to services.
    • However, the MTS falls short in providing a complete picture of seasonally migrating families, including their employment status, wage structure, and entitlement coverage.
    • Plight of Women:
    • Women working in the sugar cane industry face strenuous and hazardous tasks, such as headloading cane bundles and carrying heavy weights on trucks or trolleys (Oxfam India 2020).
    • Their work adversely impacts their bodies, causing musculoskeletal disorders and several gynecological issues (Oxfam India 2020).
    • Early and forced marriages among migrant women lead to problems for adolescent girls, resulting in early pregnancies (15-17 years), deliveries without trained birth attendants, and frequent childbirth (UNESCO).
    • Studies have also reported recurring cases of violence and sexual harassment linked to labor contractors (Mukadams) and male workers, further exacerbating the vulnerabilities faced by migrant women.
    • Plight of Children:
    • Children accompanying their parents to sugar cane fields face blatant violations of the Right to Education (National Education Policy, NEP, 2020).
    • The lack of sufficient alternative schooling models affects their education, potentially forcing them into child labor.
    • School records often fail to acknowledge the physical absence of these children from school, perpetuating the lack of proper education for them (International Institute for Population Sciences, IIPS, and UNICEF, 2022)

    Way forward: Need for government interventions

    • Data Collection and Migration Tracking System (MTS): The government should conduct a periodic and time-bound enumerating exercise to create a credible databank of seasonal migrants. Expand the scope of the Migration Tracking System (MTS.
    • Empowering Labor Administration: Strengthening labor administration and enforcing labor laws is essential to protect the rights of migrant workers. Regular inspections should be conducted.
    • Holistic Policy Development: Formulate comprehensive policies specifically addressing the needs of seasonal migrants. Collaborate with different Ministries and Departments to address the multi-dimensional challenges faced by migrant workers and their families.
    • Addressing Women’s Plight: Implement long-term intervention strategies to address the challenges faced by women migrant workers. Provide training and opportunities for skill development to enhance their economic independence and ensure their health and safety in the workplace.
    • Ensuring Children’s Education: Implement alternative schooling models for children accompanying their parents to sugar cane fields. Protect their Right to Education and prevent them from being forced into child labor.
    • Access to Justice and Safe Working Conditions: Ensure that seasonal migrants have access to justice and are guaranteed safe and healthy working and living conditions. Address the exploitative Mukadam system prevalent in the sugar cane industry to protect the workers’ rights.

    Conclusion

    • Empowering seasonal migrant workers in Maharashtra’s sugar cane industry is crucial to fostering inclusive economic growth and protecting human rights. The State government must act with strong political will to formulate comprehensive policies and interventions that address the vulnerabilities faced by these workers at both the source and destination regions.

  • Hurdles to overcome before becoming ‘Digital India’

    Digital

    Central Idea

    • The digital payments landscape in India has experienced a remarkable transformation in recent years, with the United Payments Interface (UPI) playing a pivotal role in this revolution. With every neighborhood kirana store now equipped with a QR code scanner, the popularity of digital transactions has soared.

    Modes of payment and their growth trends

    1. UPI (United Payments Interface):
      • Introduction: UPI was introduced in 2016.
      • Growth: Transactions in UPI have grown in value and volume since its introduction.
      • Push factors: Demonetisation in November 2016 and the COVID-19 lockdown in 2020 played a significant role in the widespread adoption of digital payments, contributing to UPI’s popularity.
      • Growth rate: From June 2021 to April 2023, UPI payments grew at an average monthly rate of 6%.
      • Share of total digital retail payments: The share of UPI payments increased from less than 20% in mid-2021 to about 27% in March 2023.
      • Comparison with other modes: UPI’s growth rate outpaced all other modes of payment, including NEFT, IMPS, debit card payments, and prepaid payments.
      • Impact on NEFT: The increasing share of UPI payments came mainly at the cost of NEFT transactions, which experienced a decline of about 10 points (from 64% to less than 54%) over the same period.
      • Real-time payment settlement: UPI’s popularity might be due to its real-time payment settlement system, similar to IMPS, unlike NEFT.
    2. NEFT (National Electronic Funds Transfer):
      • Growth rate: NEFT transactions grew at an average monthly rate of 3% from June 2021 to April 2023.
      • Declining share: The share of NEFT transactions in the total value of digital retail payments declined from 64% to less than 54% over the same period, with UPI gaining popularity.
    3. IMPS (Immediate Payment Service):
      • Growth rate: IMPS transactions grew at an average monthly rate of 3% from June 2021 to April 2023.
      • Stable share: The share of IMPS transactions remained relatively stable at about 9% in the total value of digital retail payments.
    4. Debit card payments and Prepaid payments:
      • Growth rate: Debit card payments and prepaid payments experienced slower growth, with an average monthly rate of 1.5% from June 2021 to April 2023.
      • Combined share: The combined share of these modes of payment did not exceed 2.5% of the overall digital retail transactions.

    Analysis: Financial Inclusion

    1. Bank Account Penetration:
      • India has made remarkable progress in bank account penetration, with 80% of the population having bank accounts in 2017 and 2021, up from 53% in 2014.
      • However, a concerning issue is the high percentage of inactive accounts, which stands at 38%. This indicates that a significant portion of the population remains excluded from actively utilizing banking services.
    2. Gender Gap:
      • There is a substantial gender gap in digital transactions, with only 28% of women conducting any digital transaction in 2021, compared to 41% of men.
      • The difference of 13 points between men and women in digital transactions is higher than many other comparable countries like Vietnam, Brazil, China, and Kenya, signaling a need for targeted measures to empower women in accessing and using digital payment methods.
    3. Rural-Urban Divide:
      • The rural-urban gap in digital payments is evident, with only 30% of Indians in rural areas making or receiving any digital payment in 2021, compared to 40% in urban areas.
      • In contrast, countries like Bangladesh and Kenya display less discrepancy between rural and urban digital payment rates, with over 70% of their populations engaged in digital transactions.
    4. Overall Digital Transaction Figures:
      • Despite the increasing popularity of UPI, only 35% of the population reported carrying out any digital transaction in 2021, indicating that a considerable proportion of the population is not actively participating in digital payments.
      • India’s figures for digital transactions are lower compared to the average of 57% for all developing countries and the world average of 64%

    Way forward

    • Promote Digital Literacy: Provide training programs and workshops to enhance digital literacy, focusing on women and vulnerable populations.
    • Reduce Gender Disparities: Implement targeted measures to bridge the gender gap in digital transactions, encouraging more women to participate in digital payment ecosystems.
    • Enhance Digital Infrastructure: Expand internet connectivity and improve digital infrastructure in remote and rural areas to ensure equitable access to digital payment facilities.
    • Encourage Active Usage of Bank Accounts: Develop financial literacy programs to educate people about the benefits of using their bank accounts actively, thereby reducing the prevalence of inactive accounts.
    • Enable Business Participation: Encourage businesses, especially small and medium-sized enterprises, to adopt digital payment methods by providing incentives and simplifying the onboarding process.
    • Strengthen Security Measures: Enhance cybersecurity protocols and fraud prevention mechanisms to build trust and confidence among users in using digital payment platforms.

    Conclusion

    • The UPI has undeniably revolutionised India’s digital payments landscape. However, the journey towards achieving Digital India is far from complete. To address the persisting issues, policymakers must devise targeted interventions to ensure that the benefits of digital payments reach all sections of society. Only then can India truly harness the potential of digital payments and attain the goal of a cashless economy.

  • What is Offer-for-Sale (OFS)?

    Central Idea

    • The government’s stake sale in Rail Vikas Nigam Ltd (RVNL) through an offer-for-sale (OFS) received an enthusiastic response from institutional investors.

    About Offer for Sale (OFS)

    • OFS is a method of share sale introduced by India’s securities market regulator SEBI in 2012.
    • The primary aim was to facilitate promoters of listed companies to reduce their holdings and comply with the minimum public shareholding norms within the stipulated time frame.
    • This mechanism gained popularity among both state-run and private listed companies as a means to adhere to SEBI’s order.
    • Subsequently, the government also embraced OFS to divest its shareholding in public sector enterprises.

    Key Features of Offer for Sale:

    • Stake Dilution: In an OFS, the promoters of a company reduce their stake by selling existing shares to retail investors, companies, Foreign Institutional Investors (FIIs), and Qualified Institutional Buyers (QIBs) through an exchange platform.
    • Restriction on Fresh Issuance: Unlike a follow-on public offering (FPO), where companies can raise funds through issuing fresh shares or promoters can sell their existing stakes (or both), OFS is used exclusively for the sale of existing shares.
    • Eligibility Criteria: Only promoters or shareholders holding more than 10% of the share capital in a company can conduct an OFS.
    • Limited to Top 200 Companies: The OFS mechanism is available to the top 200 companies based on market capitalization.
    • Reserved Quota for Institutions: A minimum of 25% of the shares offered in an OFS is reserved for mutual funds (MFs) and insurance companies. Additionally, no single bidder, other than MFs and insurance companies, can be allocated more than 25% of the offering size.
    • Retail Investor Participation: A minimum of 10% of the offer size is reserved for retail investors, encouraging their participation in the share sale.
    • Discount Provision: Sellers have the option to offer a discount to retail investors either on the bid price or on the final allotment price.
    • Timely Notification: The company must inform the stock exchanges about its intention to conduct an OFS at least two banking days prior to the event.

  • In news: Maitree Super Thermal Power Project

    maitree

    Central Idea

    • Bharat Heavy Electricals (BHEL), a state-owned engineering firm, achieved a major milestone in Bangladesh.
    • The 660-MW Unit-2 of the 1,320-MW Maitree Super Thermal Power Project (STPP) was successfully synchronized with the electricity grid in Bangladesh.

    Maitree Super Thermal Power Project

    • Location: The Maitree STPP is a 1,320-MW power plant situated at Rampal, Mongla, Bagerhat, Bangladesh.
    • Joint Venture: BHEL is responsible for setting up the power plant, which is a 50:50 joint venture between the Bangladesh Power Development Board (BPDB) and NTPC Ltd.
    • Infrastructure Priority: The project serves as a symbol of successful cooperation between India and Bangladesh and is a priority infrastructure development initiative for Bangladesh.
    • Objective: The primary goal of the project is to establish a reliable and cost-effective base-load power production system in Bangladesh.

    BHEL’s Technological Prowess and Global Leadership:

    • The successful synchronisation of the 660-MW Unit-2 underscores BHEL’s expertise and technological prowess in the power sector.
    • This accomplishment further solidifies BHEL’s position as a leading global player in providing dependable and sustainable energy solutions.

  • India’s Economic Ascent: From Top 10 to Top 3 Economies

    economic

    Central Idea

    • India is set to become the world’s third-largest economy by FY28, two years earlier than projected, according to economists at SBI Research.
    • Prime Minister highlighted India’s remarkable economic progress during his tenure.

    India’s Economic Growth Trajectory

    • Actual progress: India’s Gross Domestic Product (GDP) has grown by an impressive 83% between 2014 and 2023, a close second to China’s growth rate of 84% during the same period.
    • Financial Crisis Impact: While India’s economy was affected by the 2008-09 Global Financial Crisis its resilience was significantly better than that of European countries, contributing to its growth advantage over them.
    • Stagnation of Competing Countries: Many other top 10 economies have struggled to maintain significant growth rates, allowing India to overtake them. Ex. the UK’s total GDP grew by only 3%, France’s by 2%, Russia’s by 1%, while Italy’s GDP stagnated, and Brazil’s GDP even contracted by 15% during the same nine-year period.

    India’s Projected Growth

    economic

    • India’s Prospective Rank: According to forecasts from the International Monetary Fund (IMF), India is expected to become the third-largest economy globally by 2027, overtaking both Germany and Japan.
    • India’s Growth Advantage: Even with a more moderate growth rate of 6% per annum, India’s GDP in 2027 will be approximately 38% higher than its 2023 level.
    • Recessing countries: Japan and Germany are projected to achieve only a 15% increase over the same period, enabling India’s ascendancy to the third rank.
    • Challenges of Catching up: The gap between China and the US (the top two economies) and India’s GDP remains substantial.
    • Digitalization and Global Sentiment: Positive aspects include increased digitalization of the economy and the opportunity to attract investments due to negative global sentiment towards China.

    Issues with such growth: Per Capita GDP Disparity

    • Aggregate vs. Per Capita Numbers: While India’s aggregate GDP growth has been impressive, it is essential to consider per capita GDP figures to understand the actual prosperity of the country’s citizens.
    • Low Per Capita GDP: India’s per capita GDP, at $2,600 per annum, remains the lowest among the top 10 economies and lags considerably behind the countries it has overtaken, such as the UK, Brazil, and Italy.

    Reasons for such disparity

    • Pandemic Devastation: MSMEs, contributing 30% to India’s GDP and employing 110 million people, have been hit hard by the pandemic. Government surveys suggest that around 9% of these enterprises have shut down due to COVID-19.
    • Inflation: The decimation of MSMEs has resulted in core inflation, giving pricing power to a few large companies and burdening consumers with increased costs.
    • Unemployment Woes: The struggles of MSMEs are a significant reason behind India’s failure to reduce unemployment rates, leading many towards the rural job guarantee scheme for paid work.
    • Manufacturing-Led Economy: India’s inability to build a manufacturing-led economy remains a challenge, affecting job creation.
    • Factor Market Reforms: Successive governments have struggled to implement meaningful factor market reforms in land and labor laws.

    Conclusion

    • Addressing the hidden crisis will require sustained efforts from the government, focused on supporting MSMEs and implementing crucial reforms.
    • Taking timely and decisive action is essential to propel India towards a more stable and inclusive economic future.

  • What flipped the decline of India’s FOREX reserves?

    forex

    Central Idea

    • India’s forex reserves were at $578.4 billion as of March 2023—a fall of over $28 billion since March 2022, $19.7 billion of which was due to valuation changes, as per RBI.
    • The depreciation of the US dollar and increased capital flows contributed to a surge in reserves this year.

    What is Foreign Exchange (Forex) Reserve?

    • Foreign exchange reserves are important assets held by the central bank in foreign currencies as reserves.
    • They are commonly used to support the exchange rate and set monetary policy.
    • In India’s case, foreign reserves include Gold, Dollars, and the IMF’s quota for Special Drawing Rights.
    • Most of the reserves are usually held in US dollars, given the currency’s importance in the international financial and trading system.
    • Some central banks keep reserves in Euros, British pounds, Japanese yen, or Chinese yuan, in addition to their US dollar reserves.

    India’s forex reserves cover:

    1. Foreign Currency Assets (FCAs)
    2. Special Drawing Rights (SDRs)
    3. Gold Reserves
    4. Reserve position with the International Monetary Fund (IMF)

    Current Scenario: Impact of US Rate Hikes and Capital Inflows

    • US Rate Hikes and Capital Flows: The US Federal Reserve’s rate hikes have triggered a flow of foreign investments into the US treasury, leading to capital outflows from India.
    • Potential Capital Inflows: So far this year, the US Fed has raised rates by 75 basis points. This could potentially increase capital inflows into emerging markets like India.
    • Improved Balance of Payment (BoP): India’s Balance of Payment has improved significantly, with the current account deficit projected to be less than 2% of GDP.
    • Resumption of Equity Capital Flows: There is a resumption in equity capital flows, and India continues to attract substantial investments compared to other emerging market peers.

    Global Standing of India’s Forex Reserves

    • Rank among Nations: India ranks fourth among countries with the highest forex reserves, following China, Japan, and Switzerland.
    • Differences in Reserve Accumulation: Most countries maintain large and persistent current account surpluses, owing to a competitive exports market. However, India, Brazil, and the US have accumulated reserves primarily through capital flows rather than a significant current account surplus.

    RBI’s Strategy for Diversifying Forex Reserves

    • Internationalizing the Rupee: The RBI aims to reduce reliance on foreign currencies by internationalizing the Indian rupee.
    • Exploring Use of Asian Clearing Union Currencies: The RBI is exploring the use of currencies from member states of the Asian Clearing Union, including the rupee, for payment and settlement among themselves.
    • Agreement with Sri Lanka: An agreement with the Central Bank of Sri Lanka enables the use of the rupee as a designated foreign currency, promoting trade between the two countries and facilitating rupee transactions for Indian tourists in Sri Lanka.

    Conclusion

    • While India’s forex reserves have seen fluctuations due to various factors, the country’s sustained efforts to diversify and strengthen its reserves position indicate a proactive approach by the RBI.
    • The ongoing focus on attracting foreign investments, coupled with measures to internationalize the rupee, may contribute to a more stable and resilient forex reserve management system in the future.