💥Join UPSC 2027,2028 Mentorship (August Batch) + XFactor Notes & Microthemes PDF
Talk to Mentor

Civilsdaily

Login

Subject: Economics

  • Rural Real Wage Growth In India: The Importance of Accurate Data analysis

    Central Idea

    • Rural real wage growth is a crucial indicator of the well-being of individuals, particularly the poor, in India. Jean Dreze, a respected economist claims that rural real wage growth in India has been sluggish despite rapid economic growth. However as per Surjit Bhalla another economist, Dreze’s findings are based on weak statistical analysis and incomplete data. Surjit Bhalla’s and presents his own findings, which suggest higher wage growth rates for construction workers, non-agricultural laborers, and agricultural laborers.

    Contrast results for instance

    • For construction workers, Dreze obtains a rate of growth (CAGR) of just 0.2 per cent (actually 0.15 per cent); However, CAGR stands at eight times larger at 1.2 per cent.
    • For non-agricultural labourers (porters and loaders) the same yawning divergence: Dreze obtains 0.3 per cent, whereas it stands 1.2 per cent, and for agricultural labourers, 0.9 per cent vs 1.5 per cent.

    What is CAGR?

    • CAGR stands for Compound Annual Growth Rate. It is a measure used to calculate the average growth rate of an investment over a certain period of time, assuming that the investment has grown at a steady rate each year.
    • It takes into account the effect of compounding, which means that the investment’s growth in one year is added to the base value of the investment, and the total amount is then used to calculate growth for the next year.
    • CAGR is often used in finance to compare the performance of different investments or to forecast future growth.

    Why are the two results so different?

    • Differences in Method of Estimation: Dreze uses semi-log regression on eight observations to estimate the compound annual growth rate (CAGR) for each of three male occupations. His estimate of CAGR is not even significant at the 11 per cent level of confidence for two of these occupations – construction and non-agricultural laborers. Dreze does not uses a population-weighted average of year-on-year growth for each of the 38 sex-occupation categories to estimate CAGR accurately.
    • Differences in Time Period of Analysis: Surjit Bhalla also criticizes Dreze’s chosen time period of analysis, 2014-2021. As per Surjit Bhalla, that no study combines pre-Covid and Covid years without even a mention of the difference. Surjit Bhalla presents data for three time periods, including the normal 2014-2018, Covid 2019-2021, and all years 2014-2021.

    Why accurate rural wage data is important?

    • Poverty alleviation: Rural wage data is used to determine the poverty levels in a country, and accurate data is essential for effective poverty alleviation policies.
    • Income inequality: Accurate rural wage data can help policymakers understand the level of income inequality in rural areas and design policies to reduce it.
    • Agricultural productivity: Rural wage data is used to assess the productivity of the agricultural sector, which is a key source of income for rural households.
    • Labor market trends: Accurate rural wage data helps policymakers understand the trends in the rural labor market, such as changes in demand for different types of labor, and design policies to support employment growth.
    • Minimum wage determination: Accurate rural wage data is necessary for determining minimum wages for rural workers, which is important for protecting the rights of workers and reducing labor exploitation.
    • Social protection: Rural wage data is used to design social protection programs such as cash transfers, food subsidies, and public works programs to support the poorest households in rural areas.
    • Macro-economic policy: Rural wage data is used to inform macro-economic policies such as inflation targeting and monetary policy, as well as to evaluate the effectiveness of such policies on rural households.

    Conclusion

    • The issue of rural real wage growth in India is complex and requires a nuanced understanding of data selection, treatment, intensity, and estimation. There is need for a more comprehensive set of data and a different method of estimation.

    Mains Question

    Q. What is Compound Annual Growth Rate (CAGR). Why do you think, accurate rural wage data is so important?

    Get an IAS/IPS ranker as your personal mentor for UPSC 2024 | Schedule your FREE session and get Prelims prep Toolkit!

  • Overuse of Urea in India and its Implications

    urea

    Central idea

    • Rising urea consumption: The use of urea has continued to increase, leading to a decline in crop yield response to fertiliser use, and an imbalance in the nutrient application.
    • Unbalanced fertilization: The nutrient-based subsidy regime is a failure in promoting balanced fertilization.
    • Several measures failed: The measures introduced by the Indian government to reduce urea consumption, such as neem-coating, smaller bags, and Nano Urea, have not been successful.

    Do You Know?

    The ideal NPK use ratio for the country is 4:2:1, whereas it was 6.5:2.8:1 in 2020-21 and 7.7:3.1:1 in 2021-22. In the recent 2022 kharif season, the ratio got further distorted to 12.8:5.1:1.

    What is Urea?

    • Urea is a commonly used nitrogen-containing fertiliser that provides crops with the necessary nutrients for growth and development.
    • It is a white, crystalline solid that is soluble in water and has a high nitrogen content, with around 46% nitrogen by weight.
    • Urea is made from ammonia and carbon dioxide and is used extensively in agriculture due to its high nitrogen content and affordability.
    • It is a major source of nitrogen for crops, and when applied in the right amounts, it can improve crop yields and increase overall agricultural productivity.

    Urea usage in India

    urea

    Policy moves related to Urea

    The introduction of these measures was aimed at reducing urea consumption in the country.

    • Neem-coated urea: In May 2015, the Indian government mandated the neem-coating of all urea manufactured in the country as well as imported urea to illegal diversion for non-agricultural use.
    • Reduced size: Later, in March 2018, the government replaced 50-kg urea bags with 45-kg bags.
    • Liquid Nano Urea: Recently, in June 2021, the Indian Farmers’ Fertiliser Cooperative (IFFCO) launched a liquid fertiliser called ‘Nano Urea’.

    Ineffectiveness of the above measures

    • Despite the introduction of these measures, urea consumption in the country has not decreased.
    • In fact, sales of urea crossed a record 35.7 million tonnes (mt) in the fiscal year ended March 31, 2023.
    • Although consumption dipped in the initial two years after neem-coating was fully enforced, it reversed from 2018-19.

    Failure of the nutrient-based subsidy (NBS) regime

    • The government introduced the nutrient-based subsidy (NBS) regime in April 2010.
    • The regime fixed a per-kg subsidy for each fertiliser nutrient – nitrogen (N), phosphorus (P), potash (K), and sulphur (S).
    • The aim was to promote balanced fertilisation and discourage farmers from applying too much urea, di-ammonium phosphate (DAP) and muriate of potash (MOP).
    • However, the data shows that nutrient imbalance has worsened, with urea consumption rising by over a third since 2009-10.
    • Nitrogen use efficiency (NUE) has declined from 48.2% in 1962-63 to 34.7% in 2018.

    Cost of overdose fertilization

    • Fertilisers are essential for plant growth and grain yield, but the overuse of urea and other fertilisers has led to an imbalance in nutrient application.
    • Crop yield response to fertiliser use has decreased, with the disproportionate application of nitrogen by farmers being a key reason.
    • Recent research has shown that nitrogen use efficiency has declined in India, making it necessary to promote the use of other fertilisers containing different nutrients.

    Way forward

    To address the issue of rising urea consumption, two approaches can be adopted.

    • Disincentivise: The first is to raise prices, but this is not politically feasible.
    • Improve nitrogen use efficiency (NUE): One way to achieve this is to make the incorporation of urease and nitrification inhibitors compulsory in urea.

    Some other potential solutions include:

    • Promoting the use of organic fertilisers: Such as compost and manure, can improve soil health and reduce the need for synthetic fertilisers. This can also reduce the risk of environmental pollution and improve the sustainability of agriculture.
    • Encouraging precision agriculture: Such as soil testing, can help farmers apply fertilisers in the right amounts and at the right time, reducing wastage and increasing nutrient use efficiency.
    • Promoting crop rotation and intercropping: Planting different crops in rotation or together can help maintain soil fertility and reduce the need for synthetic fertilisers.
    • Increasing public awareness and education: Educating farmers and the public on the importance of sustainable fertiliser use and the potential risks of overusing synthetic fertilisers can help promote more sustainable agricultural practices.

     

    Get an IAS/IPS ranker as your personal mentor for UPSC 2024 | Schedule your FREE session and get Prelims prep Toolkit!

  • Vibrant Villages Program to be integrated with PM Gati Shakti

    The Centre’s Vibrant Villages Programme (VVP) which aims to develop infrastructure and open up villages to tourists along the China border will be integrated with the Gati Shakti Mega Project.

    What is Vibrant Villages Programme (VVP)?

    • Under the VVP, the selected villages will be provided with basic facilities like all-weather roads, potable piped water, 24×7 electricity, good mobile and internet connectivity, healthcare, and enhanced livelihood options.
    • The VVP aims to prevent migration of border population, catalyze reverse migration, and keep all villages along the LAC well-populated from the strategic and security point of view.

    Villages selected

    • Kibithoo, one of the remotest circle headquarters of Arunachal Pradesh, is the first village to be developed under the VVP.
    • The villages will also serve as the Indian Army’s eyes and ears in these remote areas.
    • 2,967 villages in 19 border districts of Arunachal Pradesh, Sikkim, Uttarakhand, Himachal Pradesh and Ladakh will be developed under the VVP, with 662 villages being developed in the first phase of the project.

    Components

    • The VVP programme involves a number of livelihood programmes, including bee-keeping, improving agricultural yields, encouraging handicrafts and local products, and providing market linkages to them.
    • The programme also focuses on promoting high-end tourism and training local people to cater to tourists.
    • Provision of 24×7 power through micro-hydel power plants, solar power panels, and windmills is also a vital component of the programme.

    Impact

    • The development of border villages under the VVP will help provide a better livelihood for the locals, improve the quality of life and prevent migration from these remote areas.
    • It will also help in gathering intelligence from the people of border villages and provide the Indian Army with better access to these areas.

    Comparison with China’s Model

    • India’s Vibrant Village Programme (VVP) is people-centric and aims to enhance the quality of life of the locals.
    • China’s Xiaokang villages lack proper planning for providing livelihood opportunities, healthcare and education facilities, and proper transportation.
    • Beijing’s aim of keeping civilian residents of these villages as watchful eyes over activities across the LAC and on Indian Army patrols has been negated.
    • Most of the villages now serve as residential quarters and logistical facilities for the PLA.
    • India’s VVP scores over China’s building of new Xiaokang villages as it has a holistic approach to development.

    Why merged with Gati Shakti?

    • Gati Shakti brings 16 ministries, including Railways and Roadways, together for integrated planning and coordinated implementation of infrastructure connectivity projects.
    • It allows government departments to break operational silos.
    • By integrating VVP with Gati Shakti, there can be better coordination between various ministries and departments to ensure the smooth implementation of the programme and to avoid any duplication of efforts.

     

    Get an IAS/IPS ranker as your personal mentor for UPSC 2024 | Schedule your FREE session and get Prelims prep Toolkit!

  • India-UAE Food Security Partnership Stands to Benefit From Multiple Points of Convergence

    Food Security

    Central Idea

    • The UAE, heavily dependent on food imports, has set the goal of achieving food access and supply chain crisis readiness. India is a key partner in the UAE’s efforts to strengthen food security, given India’s status as the world’s second-largest food producer. The India-UAE food security partnership stands to benefit from multiple points of convergence.

    India’s Capabilities in the Global Agri-Export Market

    • Global agri-export powerhouse: India has become a global agri-export powerhouse thanks to its vast arable land, favourable climate, and growing food production and processing sector
    • India’s role in global food security: India has demonstrated its evolving role in advancing regional and global food security by serving as a humanitarian provider of food to developing countries
    • Global food marketplace: India has invested in massive food parks and placed its food sector to benefit from bilateral trade agreements, reflecting a strong and sustained intent to make the most of its agri-capabilities in the global food marketplace

    India’s Domestic Food Security Measures

    • World’s largest food subsidy programme: India runs the world’s largest food subsidy programme, the Public Distribution System, providing nearly 800 million citizens with subsidised grains for daily, affordable meals
    • POSHAN Abhiyaan: India’s Prime Minister’s Overarching Scheme for Holistic Nutrition (POSHAN) Abhiyaan is the world’s largest nutrition programme for children and women
    • 3 C’s for instance: India promotes the consumption and farming of millets as part of its G-20 presidency, demonstrating its resilience focus to address the three Cs of Covid, Conflict, and Climate issues pernicious to food security in India and across the globe

    Facts for prelims: Food security measures

    Scheme Description Target Beneficiaries
    Public Distribution System (PDS) World’s largest food subsidy program providing subsidized grains to nearly 800 million citizens BPL (Below Poverty Line) and APL (Above Poverty Line) families
    National Food Security Act (NFSA) Provides legal entitlement to subsidized food grains to two-thirds of India’s population Priority households and Antyodaya Anna Yojana (AAY) households
    Mid-Day Meal Scheme (MDMS) Provides cooked meals to children in primary and upper primary schools Children in primary and upper primary schools
    Integrated Child Development Services (ICDS) Scheme Provides supplementary nutrition to children under six years of age, pregnant women, and lactating mothers Children under six years of age, pregnant women, and lactating mothers
    Annapurna Scheme Provides 10 kg of food grains per month free of cost to senior citizens who are not covered under the NFSA or PDS Senior citizens who are not covered under the NFSA or PDS
    Prime Minister’s Overarching Scheme for Holistic Nutrition (POSHAN) Abhiyaan World’s largest nutrition program for children and women Children under six years of age, pregnant women, and lactating mothers
    Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) Provides free food grains to around 80 crore beneficiaries for a period of 8 months to mitigate the impact of COVID-19 Migrant workers, urban and rural poor, and other vulnerable groups
    Antyodaya Anna Yojana (AAY) Provides highly subsidized food grains to the poorest of the poor families identified by the government Poorest of the poor families identified by the government

    Food Security

    The India-UAE Food Security Partnership

    • UAE’s Commitment to Food Security: The UAE is focusing on the twin objectives of food access and readiness to confront supply chain crises
    • Food corridor: The food corridor could potentially commence a route for foods made and processed in India, beginning their outbound journey on the Indian coast of the Arabian Sea, passing through the UAE, and towards major international markets
    • Agri-trade for India: The corridor stands to emerge as a world-class template of successful agri-trade for India, while also unlocking greater productivity, efficiency, and growth for its millions of workers and employees
    • Boost to food processing sector: The UAE’s private sector projects spanning its agricultural and food processing sector will generate lakhs of non-farm agri-jobs while enabling farmers to discover better prices for their products.
    • Diversified pathways to the global marketplace: Bolstered by the UAE’s infrastructural capabilities, India’s agricultural products will have more resilient and diversified pathways to the global marketplace

    Food Security

    Facts for prelims

    Millet production and food security

    • Largest producer: India is the largest producer of millet in the world with a share of 41% in 2020, as per FAO. Nine types are grown as kharif crops in over 20 States in the country.
    • Major millets include: finger millet (ragi or mandua), pearl millet (bajra) and sorghum (jowar) and minor millets include foxtail millet (kangani or kakun), barnyard millet (sawa or sanwa, jhangora), little millet (kutki), kodo millet (kodon), proso millet (cheena) and browntop millet.
    • Leading producers: Rajasthan, Karnataka, Maharashtra and Andhra Pradesh are leading producers.
    • India is also among the top five exporters: India exported millets worth $64.28 million in 2021-22 and $59.75 million in 2020-21, according to the Agricultural and Processed Food Products Export Development Authority.

    In depth: The Benefits of India-UAE food security partnership for India and the UAE

    For India

    • Investment in Food Parks: During the I2U2 summit in July 2020, the UAE committed $2 billion in investment towards constructing food parks in India. This investment will generate lakhs of non-farm agri-jobs, while enabling farmers to discover better prices for their products.
    • Access to Global Markets: The food security corridor established on the sidelines of the Comprehensive Economic Partnership Agreement (CEPA) with logistics partner DP World takes forward India’s envisioned presence on the global food value chain, beyond the UAE. The corridor has the potential to establish a route for foods made and processed in India, beginning their outbound journey on the Indian coast of the Arabian Sea, passing through the UAE, and towards major international markets.
    • Direct Access to UAE’s Food Ecosystem: The Dubai Multi Commodities Centre, the UAE’s largest free trade zone, launched Agriota, an agri-trading and commodity platform to link Indian farmers to food companies in the UAE. This platform will give millions of Indian farmers the opportunity to directly reach out to the entirety of the UAE’s food ecosystem (processing companies, traders, wholesalers) and stock their products in Emirati stores.
    • Infrastructure Development: Several UAE-based companies have expressed interest in constructing a supporting logistics and infrastructure pipeline to accelerate trade and reinforce the food corridor. A consortium of UAE-based entities are investing up to $7 billion in mega food parks, contract farming, and the sourcing of agro-commodities in India. This initiative will include mega food parks, logistics and warehouse hubs, and fruits and vegetable hubs, which will bolster India’s agricultural products’ resilient and diversified pathways to the global marketplace.

    For UAE

    • Diversification of food reserves: UAE heavily relies on food imports to feed its population. The partnership with India will help UAE diversify its food reserves and reduce its dependence on a few countries for its food security.
    • Strategic location: UAE’s strategic location between Asia and Europe can be leveraged to serve as India’s food export gateway to West Asia and Africa region, and beyond. This could enhance the UAE’s position as a hub for food trade in the region.
    • Investment opportunities: The partnership could open up investment opportunities for UAE-based companies to invest in India’s food and agriculture sector, including mega food parks, contract farming, and sourcing of agro-commodities.
    • Better access to Indian products: The partnership could give UAE better access to India’s diversified agri-produce, enabling them to benefit from India’s large and growing food production and processing sector.
    • Infrastructural capabilities: The UAE’s infrastructural capabilities could strengthen India’s agricultural products’ pathways to the global marketplace, providing more resilient and diversified routes to the global food value chain.

    Value addition box

    India’s efforts to promote millet:

    • The Union government promoted millets under the Initiative for Nutritional Security through Intensive Millets Promotion (INSIMP), as a sub-scheme of Rashtriya Krishi Vikas Yojana (RKVY) between 2011 and 2014.
    • In the following years, NITI Aayog worked on a framework to introduce millets under the public distribution system for nutritional support.
    • The government declared 2018 as the ‘national year of millets’ to trigger an increase in demand.
    • The programme under INSIMP was merged with the National Food Security Mission (NFSM) as NFSM-Coarse Cereals and implemented in 14 States. Several States led separate missions to promote millets.
    • In 2021, the Centre approved the Pradhan Mantri Poshan Shakti Nirman (PM POSHAN) and advised State governments to include millets in the midday meal menu to enhance the nutritional outcome.
    • India’s efforts to promote the consumption and production of millet got a boost when the UNGA accepted the country’s proposal and dedicated 2023 to spreading awareness about these grains. It is instrumental for PM’s vision to make IYM 2023 a people’s movement and positioning India as the ‘global hub for millets’.

    Conclusion

    • The India-UAE food security partnership stands to benefit both countries, and the collaboration between the two nations can offer solutions to address food security issues in the Global South. With the UAE’s infrastructural capabilities and India’s agricultural capabilities, the partnership can create diversified pathways to the global marketplace, generate non-farm agri-jobs, and enable farmers to receive better prices for their products.

    Mains Question

    Q. Explain the India-UAE food security partnership and enumerate the mutual benefit of the food security partnership.

    Get an IAS/IPS ranker as your personal mentor for UPSC 2024 | Schedule your FREE session and get Prelims prep Toolkit!

  • India’s first underwater transport tunnel spanning the Hooghly River

    tunnel

    Central idea: The East-West Metro corridor, the second line of Kolkata’s Metro network that is currently under construction, will connect Kolkata and Howrah, and one of its highlights is India’s first underwater transport tunnel spanning the Hooghly river.

    Hooghly River: Some facts

    Description
    Name Bhagirathi Hooghly River (Anglicized alternatively spelled Hoogli or Hugli)
    Source Close to Giria, north of Baharampur and Palashi, in Murshidabad
    Length 260 km
    Flows through West Bengal
    Endpoint Bay of Bengal
    Importance Lifeline for Kolkata, transportation route for goods and people, historical trade route, cultural and ecological resource
    Challenges Changing course, frequent floods, pollution from industrial effluents and sewage
    Additional Information A man-made canal called the Farakka Feeder Canal connects the Ganges to the Bhagirathi to bring the abundant waters of the Himalayan river to the narrow river that rises in West Bengal.

    The main course of the Ganges then flows into Bangladesh as the Padma.

    The Bhagirathi Hooghly River is also called the Ganga or the Kati-Ganga in the Puranas.

    About the East-West Corridor

    • The East-West Corridor is expected to significantly ease congestion in the city.
    • The line connects Kolkata’s IT hub of Salt Lake Sector V to the western suburb of Howrah.
    • The eastern part of the East-West line is operational while the western portion of the corridor is underground.
    • There are 12 stations on the entire route, including the country’s deepest, Howrah, at a depth of 33 meters.

    Key feature: Underwater Tunnel

    • The tunnels under the Hooghly River are 520 meters long and more than 30 meters below the river surface at its deepest point.
    • The trains will have an operational speed of 80 km/h and will cover the half-kilometre stretch under the Hooghly in about 45 seconds.
    • The underwater tunnels have an internal diameter of 5.55 meters and an external diameter of 6.1 meters.

     

    Get an IAS/IPS ranker as your personal mentor for UPSC 2024 | Schedule your FREE session and get Prelims prep Toolkit!

  • Critical Minerals and India

    critical

    Central idea

    • A recent working paper from Centre for Social and Economic Progress (CSEP) extends the earlier minerals assessment for 23 minerals by assessing the criticality levels of 43 select minerals for India.
    • This is based on their economic importance (demand-side factors) and supply risks (supply-side factors) which are determined through the evaluation of specific indicators.

    What are Critical Minerals?

    • Critical minerals are elements that are crucial to modern-day technologies and are at risk of supply chain disruptions.
    • These minerals are used in making mobile phones, computers, batteries, electric vehicles, and green technologies like solar panels and wind turbines.
    • Minerals such as antimony, cobalt, gallium, graphite, lithium, nickel, niobium, and strontium are among the 22 assessed to be critical for India.
    • Many of these are required to meet the manufacturing needs of green technologies, high-tech equipment, aviation, and national defence.

    Why are these resources critical?

    • Clean energy transition: Critical minerals are essential to the ecosystem that fuels the world’s transition towards clean energy and digital economy.
    • Strategic nature: Any supply shock can severely imperil the economy and strategic autonomy of a country that is over-dependent on others to procure critical minerals.
    • Rare availability: Supply risks exist due to rare availability, growing demand, and complex processing value chain.

    What is the China ‘threat’?

    • Dominant role: China is the world’s largest producer of 16 critical minerals, including cobalt and rare earth elements.
    • Monopoly in processing: The country has a strong presence across the board in processing operations, with a share of refining around 35% for nickel, 50-70% for lithium and cobalt, and nearly 90% for rare earth elements.
    • Control over offshore mines: China also controls cobalt mines in the Democratic Republic of Congo, from where 70% of this mineral is sourced.
    • Supply chain dominance: The country’s dominance in critical minerals production and processing raises concerns of a supply disruption in case of a geopolitical conflict.

    Challenges in ensuring resilient critical minerals supply

    • Limited availability of critical minerals: The rare availability of critical minerals poses a challenge in meeting the growing demand for these minerals.
    • Geopolitical risks: Complex supply chains can be disrupted by hostile regimes or politically unstable regions, leading to supply chain disruptions.
    • Dominance of certain countries: A few countries, such as China, are the dominant producers of critical minerals, leading to concerns over supply disruptions in case of a geopolitical conflict.
    • Increasing demand for critical minerals: With the shift towards renewable energy technologies and electric vehicles, the demand for critical minerals such as copper, lithium, and rare earth elements is increasing rapidly.
    • Reliance on foreign partners: Countries with limited reserves and higher requirements for critical minerals may have to rely on foreign partners to meet their domestic needs, leading to supply chain vulnerabilities.
    • Environmental and social concerns: The extraction and processing of critical minerals can have negative environmental and social impacts, leading to challenges in meeting sustainability goals.

    What are countries around the world doing about it?

    Several countries are taking measures to ensure a consistent supply of critical minerals to their domestic markets.

    • India: It has set up Khanij Bidesh India Ltd. (KABIL), a joint venture of three public sector companies, to ensure a consistent supply of critical and strategic minerals to the Indian domestic market.
    • US: It has ordered a review of vulnerabilities in its critical minerals supply chains and shifted its focus on expanding domestic mining, production, processing, and recycling of critical minerals and materials.
    • Australia: Its Critical Minerals Facilitation Office (CMFO) and KABIL had recently signed an MoU aimed at ensuring reliable supply of critical minerals to India.
    • UK: It has unveiled its new Critical Minerals Intelligence Centre to study the future demand for and supply of these minerals, and its critical mineral strategy will be unveiled later this year.

    What should India do to ensure resilient supply?

    • Developing domestic sources of critical minerals: This can be achieved by promoting exploration and mining activities, both by public and private sector entities.
    • Encouraging responsible mining practices: The Indian government should encourage responsible mining practices that minimize negative environmental and social impacts of mining activities.
    • Developing recycling capabilities: This can be achieved by promoting research and development in recycling technologies and incentivizing the adoption of recycling practices.
    • Promoting transparency in the supply chain: India should promote transparency in the critical minerals supply chain by ensuring the traceability of minerals from the point of extraction to the point of end-use.
    • Investing in research and development: India should invest in research and development to develop new technologies and processes for efficient extraction, processing, and recycling of critical minerals.
    • Developing a national critical minerals strategy: India should develop a national critical minerals strategy that identifies priority minerals, promotes domestic exploration and mining, and promotes sustainable and responsible mining practices.

    Conclusion

    • India has a significant mineral geological potential, many minerals are not readily available domestically.
    • Hence, India needs to develop a national strategy to ensure resilient critical minerals supply chains, which focuses on minerals found to be critical in this study.

     

    Get an IAS/IPS ranker as your personal mentor for UPSC 2024 | Schedule your FREE session and get Prelims prep Toolkit!

  • Indian Economic Growth Prospects: A Comprehensive Analysis

    Growth

    Central Idea

    • India has had an established track record of high growth, with an average annual GDP growth of 6.6% in the decade leading up to the Covid-19 pandemic. In fiscal 2023, India is seen growing at 7%, making it the fastest-growing large economy. But with an imminent global slowdown and the full manifestation of the lagged impact of interest rate hikes since May 2022, the economy is expected to decelerate and grow at 6% in fiscal 2024.

    Indian economic growth prospects

    • Growth accounting: Growth accounting provides a useful framework to analyse medium-term prospects by decomposing their drivers into the contribution of capital, labour and efficiency.
    • Economic growth next five years: Indian economy expected to grow at 6.8 per cent per year for the next five years with 52 per cent of it from capital, 38 per cent from efficiency and 10 per cent from labour.
    • Changing growth model: The growth model is changing to an infrastructure and manufacturing-driven one.
    • Capital spending: The Union Budget has raised capital spending by almost a third in high-multiplier infrastructure segments. But such support to capex will moderate in the years to come, given fiscal consolidation pressures.
    • Investment ratio: Investment as a percentage of GDP has already touched a decadal high of 34 per cent in fiscal 2023. So far, the onus to lift the investment ratio has been shouldered by the government. The contribution of the private sector to investments is set to improve, primed as it is with healthier balance sheets, cash reserves and low leverage.
    • Contribution of productivity to growth: The creation of physical and digital infrastructure in conjunction with efficiency-enhancing reforms will raise the contribution of productivity to growth. The economy is expected to continue seeing efficiency gains from reforms such as GST and Insolvency and Bankruptcy Code (IBC).

    What is holding back a swift and broad-based lift in private investments?

    • Economic uncertainty, primarily, and geopolitical events to a lesser extent.
    • Sustainability challenge looms for the manufacturing sector as manufacturing and infrastructure growth are carbon-intensive.
    • Low-quality skilling of the workforce is holding back its contribution to growth.
    • Quality and the skilling of the workforce
    • Falling labour force participation of women

    What is holding back in Labour’s contribution to growth?

    • Labour’s contribution to growth is likely to be low not because India does not have sufficient people in the working-age group, this cohort is 67 per cent of the population and is set to expand by 100 million over the next decade. It is the quality and skilling of the workforce that is holding it back.

    Why private investment is essential for Indian economic growth?

    • Capital formation: Private investment helps in creating capital formation, which is essential for economic growth. It helps in building infrastructure, creating jobs, and generating income, which in turn drives consumer spending and boosts economic growth.
    • Innovation: Private investment is often associated with innovation and technological advancements. Companies that invest in research and development (R&D) can develop new products and processes that can boost productivity and create new markets. This, in turn, can lead to increased profits and more investment in R&D, creating a virtuous cycle of innovation and growth.
    • Employment: Private investment creates jobs, which is critical for economic growth and development. When companies invest in new projects or expand their operations, they often need to hire additional workers, which reduces unemployment and boosts consumer spending.
    • Foreign investment: Private investment is also an important driver of foreign investment. When companies invest in India, they often bring new technology, skills, and expertise that can help boost local industries and drive economic growth.
    • Tax revenue: Private investment can also help increase tax revenues, which can be used by the government to fund public goods and services such as education, healthcare, and infrastructure.

    Steps taken by the government to encourage private investment

    • Investment-Friendly Policies: The Indian government has launched several investment-friendly policies, such as Make in India, Start-up India, and Digital India, to encourage private investment in the country.
    • Infrastructure Development: The government is investing heavily in infrastructure development, including roads, railways, airports, and ports, to create a conducive environment for private investment.
    • Tax Reforms: The Indian government has implemented several tax reforms, such as the Goods and Services Tax (GST), to simplify the tax structure and make it more investor-friendly.
    • FDI Liberalization: The government has liberalized foreign direct investment (FDI) norms in several sectors, including defense, insurance, and retail, to attract more foreign investment.
    • Insolvency and Bankruptcy Code (IBC): The government has implemented the Insolvency and Bankruptcy Code (IBC), which has made it easier for businesses to exit, and has increased investor confidence in the Indian economy.
    • Production Linked Incentives (PLI): The government has launched the Production Linked Incentives (PLI) scheme to encourage manufacturing in India and make it more competitive globally.
    • Easing of Business Regulations: The Indian government has eased several business regulations to improve the ease of doing business in the country and attract more private investment.
    • Skill Development: The government has launched several initiatives, such as Skill India and Pradhan Mantri Kaushal Vikas Yojana, to develop the skills of the Indian workforce and make it more attractive to investors.

    Facts for prelims: Steps taken by the government to encourage labour force participation of women

    Initiatives

    Description
    Maternity Benefit Programme A scheme to provide financial assistance to pregnant women and lactating mothers for their health and nutrition needs.
    Pradhan Mantri Ujjwala Yojana A scheme to provide LPG connections to women from Below Poverty Line households.
    National Urban Livelihood Mission A programme to provide self-employment opportunities and skill development training to urban poor women.
    National Rural Livelihood Mission A scheme to provide self-employment opportunities and skill development training to rural women.
    Mahila E-Haat A digital platform to provide a market for women entrepreneurs to sell their products online.
    Beti Bachao Beti Padhao A campaign to address the declining child sex ratio and to promote education among girls.
    Sukanya Samriddhi Yojana A savings scheme for the girl child to ensure their education and marriage expenses are taken care of.

     Way ahead

    • Focus on green transition: As the manufacturing and infrastructure growth are carbon-intensive, so it’s important to have a significant and simultaneous focus on green transition. Having a high sustainability quotient can only embellish India’s credentials as a production destination.
    • For instance: Research suggests that between fiscals 2023 and 2027, over 15 per cent of India’s capex could be towards green initiatives involving renewable energy, transportation, altering the fuel mix, and green hydrogen. In the fragmented geopolitical milieu, which is shifting towards supply-chain diversification and friend shoring, India can attract foreign investments.
    • Enhancing labour force participation of women: The labour force participation of women is falling. This will have to be reversed through employment policies and investing in the health and education of women.
    • For instance: According to a World Bank report in 2018, India could add 1.5 percentage points to its GDP growth by improving the participation of women in its workforce.

    Growth

    Conclusion

    • India is going to become a $5 trillion economy by fiscal 2029, given the current growth dynamics. However, the impact of climate risk mitigation will be felt across revenue, commodity prices, export markets, and capital spending. To win the growth marathon, India’s focus must be sharp on the drivers of pace.

    Mains Question

    Q. Highlight India’s growth prospects in the next five years? Discuss the significance of private investment for economic growth and enlist factors that holding back the private investment.

    Get an IAS/IPS ranker as your personal mentor for UPSC 2024 | Schedule your FREE session and get Prelims prep Toolkit!

     

  • Windfall Tax back on local crude oil

    windfall

    The government has revised a windfall tax on domestically-produced crude oil. According to an official notification, the windfall tax rate of Rs 6,400 per tonne.

    What is a Windfall Tax?

    • Windfall taxes are designed to tax the profits a company derives from an external, sometimes unprecedented event — for instance, the energy price-rise as a result of the Russia-Ukraine conflict.
    • These are profits that cannot be attributed to something the firm actively did, like an investment strategy or an expansion of business.
    • The US Congressional Research Service (CRS) defines a windfall as an “unearned, unanticipated gain in income through no additional effort or expense”.
    • One area where such taxes have routinely been discussed is oil markets, where price fluctuation leads to volatile or erratic profits for the industry.

    Features of Windfall Tax

    • Imposed on unanticipated and unearned gains: Windfall tax is imposed on the profits or gains that a company earns from external events or factors beyond their control, which they did not actively seek or pursue.
    • One-time tax: It is typically imposed as a one-time tax retrospectively, over and above the normal rates of tax, and is not a regular or ongoing tax.
    • Imposed on specific sectors or industries: Windfall taxes are usually imposed on specific sectors or industries where there is a significant increase in profits due to external factors such as price fluctuations, supply disruptions, or changes in regulations.
    • Rationale for imposition: The imposition of windfall taxes is based on the rationale of redistributing unexpected gains, funding social welfare schemes, and creating a supplementary revenue stream for the government.
    • Design problems: Introducing windfall taxes may suffer from design problems, given their expedient and political nature.
    • Potential impact on investment: Windfall taxes may lead to uncertainty in the market and negatively impact future investment, as companies may feel uncertain about investing in a sector with an unstable tax regime.

    When did India introduce this?

    • In July 2022, India announced a windfall tax on domestic crude oil producers who it believed were reaping the benefits of the high oil prices.
    • It also imposed an additional excise levy on diesel, petrol and air turbine fuel (ATF) exports.
    • Also, India’s case was different from other countries, as it was still importing discounted Russian oil.

    How is it levied?

    • Governments typically levy this as a one-off tax retrospectively over and above the normal rates of tax.
    • The Central government has introduced a windfall profit tax of ₹23,250 per tonne on domestic crude oil production, which was subsequently revised fortnightly four times so far.
    • The latest revision was on August 31, when it was hiked to ₹13,300 per tonne from ₹13,000.

    Reasons for re-introduction

    • There have been varying rationales for governments worldwide to introduce windfall taxes like:
    1. Redistribution of unexpected gains when high prices benefit producers at the expense of consumers,
    2. Funding social welfare schemes, and
    3. Supplementary revenue stream for the government

    Issues with imposing such taxes

    • Design problems: Windfall taxes may suffer from design problems, given their expedient and political nature. There is also the issue of determining what constitutes true windfall profits and who should be taxed, which raises questions about the threshold for exemption of smaller companies.
    • Potential impact on investment: Windfall taxes may lead to uncertainty in the market and negatively impact future investment, as companies may feel uncertain about investing in a sector with an unstable tax regime.
    • Internalization of potential taxes: Introducing a temporary windfall profit tax may reduce future investment since prospective investors may internalize the likelihood of potential taxes when making investment decisions.
    • Threshold for exemption of smaller companies: Determining the threshold for exemption of smaller companies raises questions about which companies should be taxed and what level of profit is normal or excessive.
    • Difficulty in determining true windfall profits: There is also the issue of determining what constitutes true windfall profits, as it may be challenging to differentiate between profits attributable to external events versus those attributable to a company’s active investment strategy or business expansion.

     

    Get an IAS/IPS ranker as your personal mentor for UPSC 2024 | Schedule your FREE session and get Prelims prep Toolkit!

  • What are Stablecoins?

    stablecoins

    The US Congress (Parliament) has made another attempt to create a legislative framework for the increasingly popular stablecoins, a sort of cryptocurrency that is pegged to a particular commodity or currency.

    What are Stablecoins?

    • Stablecoins are cryptocurrencies designed to maintain a stable value, typically by being pegged to a stable asset such as the US dollar.
    • Investing in stablecoins can help mitigate market volatility because they are less susceptible to price fluctuations than other cryptocurrencies such as Bitcoin or Ethereum or any other.

    Types of stablecoins

    Fiat-backed stablecoins Backed by reserves of fiat currency held in a bank account or other secure location. Example: Tether (USDT)
    Commodity-backed stablecoins Backed by reserves of a physical commodity, such as gold or silver. Example: PAX Gold (PAXG)
    Algorithmic stablecoins Use algorithms or smart contracts to maintain a stable value. Example: Dai stablecoin (DAI)

     

    How can Stablecoin mitigate market volatility?

    Explanation
    Hedging against volatility
    • Help investors hedge against volatility and reduce their risk exposure.
    • Pegged to a stable asset, which can provide a haven during market turbulence.
    • If the value of Bitcoin or Ethereum drops suddenly, investors can move their funds into stablecoins to protect their portfolio from further losses.
    Greater flexibility in transferring funds
    • Greater flexibility and convenience compared to traditional fiat currencies.
    • Quickly and easily transferred between wallets and exchanges, making them ideal for cross-border transactions.
    • Investors take advantage of investment opportunities in other markets and avoid currency exchange fees and delays.
    Arbitrage trading
    • Used for arbitrage trading, which involves buying an asset in one market and selling it in another market for a higher price.
    • As stablecoins are pegged to a stable asset, investors can quickly move funds between exchanges without worrying about price fluctuations, making arbitrage trading easier and potentially more profitable.

     

    What are the risks?

    Explanation
    Stability of the asset
    • Stablecoins are reliant on the stability of the asset they are pegged to.
    • If the value of that asset drops, it can lead to a drop in the stablecoin’s value as well.
    • This could result in losses for investors who hold the stablecoin.
    Transparency and regulation
    • There are concerns over the transparency and regulation of stablecoin issuers.
    • This could result in a loss of trust in the stablecoin and a subsequent drop in its value.
    • There is no proper regulation and oversight.
    • There is a risk that stablecoin issuers may engage in fraudulent or unethical behaviour, which could lead to losses for investors.
    • It is important for investors to carefully assess the reputation and credibility of the stablecoin issuer before investing in a stablecoin.

     

     

    Get an IAS/IPS ranker as your personal mentor for UPSC 2024 | Schedule your FREE session and get Prelims prep Toolkit!

  • What is the Consumer Confidence Index (CCI)?

    confidence

    Central idea

    • The Consumer Confidence Survey was conducted in the first half of March 2023 across 19 cities.
    • This article analyses the survey results, released this month, and breaks down the findings under different sections.

    What is Consumer Confidence Survey?

    • The Reserve Bank of India (RBI) conducts a Consumer Confidence Survey to measure consumers’ perceptions of the prevailing economic situation.
    • The survey is conducted across various cities and measures consumer confidence on parameters such as the economy, employment, price, income, and spending.
    • The survey consists of questions regarding consumers’ sentiments over various factors in the current situation and future.

    Here are a few parameters that help aggregate overall confidence:

    1. Spending: The consumer is asked about the willingness to spend on major consumer durables, purchasing vehicles, or real estate. This measures the overall spending scenario on necessities as well as luxuries for the next quarter.
    2. Employment: The consumer is asked about current and future ideas on employment situations, joblessness, job security, which reflects the sentiments of the current or expected employment in the country.
    3. Inflation: The consumer is asked about interest rates and levels of prices of all goods, tracking the price expected by consumers and their spending on basic necessities.

    About the Consumer Confidence Index (CCI)

    • CCI is a survey that is conducted every two months to measure how optimistic or pessimistic the consumers are regarding their financial situation.
    • The index measures the change in consumer perception on the financial situation in the last year and the future expectations index measures what the consumer thinks about his financial situation in the coming one year.
    • The main variables of the survey are: Economic situation, Employment, Price Level, Income and Spending.

    Current perceptions of the survey

    • The survey estimates current perceptions and a year-ahead expectations on the economy, employment, price, income, and spending.
    • The results show that consumer confidence continues to recover from its historic low of mid-2021, but still remains pessimistic at 87.0, a 2.2 point increase from previous results.
    • The assessment of inflation conditions improved for the current period reflecting a higher confidence in prevailing economic conditions.
    • With regards to spending, sentiments were positive with signs of improvement compared to the last round conducted in January 2023.

    What does this imply?

    • The survey shows that while consumer confidence is slowly recovering, it still remains pessimistic.
    • The survey results indicate positive sentiments on employment and spending, but a marginal dip in the country’s future economic situation.
    • Credit growth numbers indicate a rise in consumer spending.
    • The upcoming state and general elections could have an impact on the economy, and it remains to be seen how it will play out.

     

    Get an IAS/IPS ranker as your personal mentor for UPSC 2024 | Schedule your FREE session and get Prelims prep Toolkit!