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Subject: Economics

  • Food Security and Energy Crisis In The South Asian neighbourhood

    Central Idea

    • To be sure, the Ukraine-Russia conflict has thrown the energy markets into a crisis in several Global South nations. In addition, the supply cuts by edible-oil exporting countries, alongside the rise in fuel prices, have led to a surge in food prices, making food security a primary concern, especially for the vulnerable sections of society. In addition, China’s COVID-19 surge has dampened global economy, especially in BoB.

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    How the South Asian neighbourhood is in flux?

    • Sri Lanka and Pakistan: Sri Lanka and Pakistan are facing economic headwinds, with the former having gone through a full-blown economic collapse and the latter facing huge external debts, power shortages, and extreme inflation.
    • Bangladesh: The IMF sanctioned a precautionary loan of US $4.7 billion to Bangladesh amidst the precarious macroeconomic situation in the country, with high inflation and volatility of the Bangladeshi Taka.
    • Myanmar: A post-coup Myanmar sees a shutdown of businesses and a massive spike in unemployment.
    • Nepal: Nepal, too, sees widening trade deficits and declining foreign exchange reserves.

    How Russia-Ukraine war challenges Food security?

    • Russia-Ukraine war and the resulting food crisis: Ukraine and Russia play a significant role in the global food supply chains, further affecting low- and middle-income countries and vulnerable populations already grappling with hunger in the post-pandemic world.
    • Wheat suppliers: Since both countries exported more than one-third of the world’s wheat and barley, and about 70 percent of sunflower oil, governments around the world were severely hit as the war stopped exports of around 20 million tons of Ukrainian grain.
    • Agricultural commodities exports to Asia have dried up: An estimated 6 million tons of agricultural commodities were exported monthly to Asia, Africa, and the Middle East. As of June 2022, this number had dried up to a fifth of its original value.
    • Ripple effects on food prices and availability: According to the United Nations’ (UN) Food and Agriculture Organization (FAO), global food prices have risen by 20 percent. It further predicts a rise in the undernourished population to be between 7.6 to 13.1 million, because of the conflict situation and its ripple effects on food prices and availability.

    Sri Lanka: A case of Food security crisis

    • The economic meltdown in Sri Lanka wreaked havoc on the food security of the local population.
    • For Sri Lanka, the sudden switch to organic farming in 2021 worsened its trade performance in the agricultural sector.
    • The island nation had to import sugar, rice, and various other commodities, including intermediate goods in which the economy had had a previous surplus.
    • By 2022, the tea industry, which was a major commodity of exchange, incurred losses of approximately US $425 million, further worsening the economy’s foreign exchange situation.

    Energy crisis

    • Heavy on energy imports: The data analysis on energy imports shows that all the countries in Bay of Bengal Initiative for Multi-sectoral Technical and Economic Cooperation (BIMSTEC), especially India, Myanmar, and Bhutan, rely heavily on energy imports.
    • Fuel dependency makes the region highly vulnerable to external shocks: The trade dependency on fuel is a major curse for the region, making it highly vulnerable to exogenous macroeconomic shocks. The Russia-Ukraine conflict underscores the importance of nations having self-reliance regarding energy.
    • Absence of infrastructure and synchronisation in BIMSTEC Grid plan: Despite the BIMSTEC countries having developed a ‘Plan of Action for Energy Cooperation in BIMSTEC’ and also signed a MoU for the establishment of the BIMSTEC Grid Interconnection in August 2018, the absence of required infrastructure and adaptive power market, the lack of synchronisation of the grid system, the lack of financial policies, and other related issues have made progress in energy cooperation slow among the countries in the region.

    Bangladesh: In a tough spot

    • Unable to set in motion the transition to renewable energy, alongside heavy dependence on fuel imports, Bangladesh, especially, has been placed in a tough spot concerning energy security.
    • The Russia-Ukraine conflict has added more fuel to this fire. With energy prices climbing upwards and subsidy bills increasing, the fiscal balances and current account deficits have been worrisome for Bangladesh’s economy.
    • The government had to finally put in place some austerity measures. The domestic prices of diesel, kerosene, octane, and petrol were increased to achieve price parity with its neighbours such as India, China, and Nepal.

    Way ahead

    • Safeguard against food security crisis: It becomes imperative for regional groupings to set up safeguards against crises where their food security is affected by geopolitical events and domestic macroeconomic threats.
    • Food Bank for BIMSTEC: The idea of a food bank for the BIMSTEC countries modelled on the Association of Southeast Nations (ASEAN) Food Bank is a good start as it will aid in stabilising prices.
    • India urged to develop regional strategy and promoting millets: Recently, in November 2022, India hosted the second Agriculture Ministerial-level meeting of the BIMSTEC nations, where it urged the member countries to develop a regional strategy for transforming agriculture and promoting millets into the food systems.
    • Millets have potential to ameliorate food insecurity: Promotion and intra-regional trade of food items such as millets, where these countries have surplus production, can help ameliorate food insecurity to a large extent.
    • Self-reliance in energy: Overdependence on fuel will make the region more vulnerable and affect its financial stability. Therefore, developing a domestic energy market is critical for the region. This can be achieved by accelerating the green transition.
    • For instance: FDI from Japanese firms has constantly seen more impacts and spillovers in the Indian economy. If Japanese firms’ economies of scale and their potential in developing different green energy technologies could be fully utilised, it would reduce the regional dependence on China, which is currently the dominant player in the domain of solar energy.

    Conclusion

    • Regional economies have huge potential to invest in research for green transition technologies and sustainable agriculture which can help them have self-reliant energy and food markets respectively. Led by India, the Bay of Bengal region can lead the way in innovations in renewable forms of energy such as solar and wind.

    Mains Question

    Q. The South Asian neighbourhood is in flux. Discuss the major challenges and suggest a way ahead.

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  • SEBI approval to launch Social Stock Exchange

    The National Stock Exchange (NSE) has received final approval from the Securities and Exchange Board of India (SEBI) to set up a Social Stock Exchange (SSE) as a separate segment of the NSE.

    What is a Social Stock Exchange?

    • Social Stock Exchange (SSE) is a platform that connects social enterprises with investors who are looking for social impact along with financial returns.
    • Social enterprises are organizations that prioritize social impact over profits.
    • SSE aims to provide these organizations with access to capital markets and raise awareness about social investment opportunities.

    Who can get listed for SSEs?

    • Any social enterprise, Non-Profit Organisation (NOPs) or For-Profit Social Enterprises (FPEs), that establishes its primacy of social intent can get registered or listed on the Social Stock Exchange segment.
    • Eligible NPOs can begin by registering on the SSE segment.
    • After onboarding, NPOs can initiate the fund mobilization process by issuing instruments such as Zero Coupon Zero Principal (ZCZP) via a public issue or private placement.
    • Currently, the regulations have prescribed a minimum issue size of Rs 1 crore and a minimum application size for the subscription of Rs 2 lakhs for ZCZP issuance.

    How will SSE work?

    • The SSE will be a separate segment on the NSE, where social enterprises can list their securities.
    • These securities will be available for trading to investors who are interested in social impact investing.
    • The SSE will also provide a range of services such as capacity building, impact measurement, and reporting to help social enterprises improve their operations and measure their social impact.

    Benefits of SSE

    • For social enterprises, SSE will provide access to capital markets and help them raise funds for their social projects.
    • For investors, SSE will provide a platform to invest in social enterprises and contribute to social impact.
    • SSE will also create a transparent marketplace where investors can assess the social impact of their investments.

     

     

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  • R&D Expenditure And The Perils of Inadequate Data

    Central Idea

    • India’s research and development (R&D) expenditure-GDP ratio of 0.7% is very low when compared to major economies and is much below the world average of 1.8%. The main reason is the low investment in R&D by the corporate sector.

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    Overview: Spending’s on R&D in India

    • While the corporate sector accounts for about two-thirds of gross domestic expenditure on R&D (GERD) in leading economies, its share in India is just 37%. There is evidence, however, suggesting that India’s GERD data are an underestimate.
    • A 2022 infobrief of the National Science Foundation (NSF) of the United States on Foreign R&D by U.S.-based multinational corporations (MNCs) shows a spend of $9.5 billion (₹649.7 billion) on R&D in India in 2018, which increased to $9.8 billion (₹690.2 billion) in the following year.
    • There are MNCs from other leading countries also spending on R&D in India.
    • But the latest Research and Development Statistics, published by the Department of Science and Technology (DST) in 2020, has provided an estimate of ₹60.9 billion R&D spending in 2017-18 by foreign MNCs, which is only about 10% of what U.S. firms have reported to have spent in India on R&D.

    What is Gross Domestic Expenditure On R&D (GERD)?

    • Gross domestic spending on R&D is defined as the total expenditure (current and capital) on R&D carried out by all resident companies, research institutes, university and government laboratories, etc., in a country.
    • It includes R&D funded from abroad, but excludes domestic funds for R&D performed outside the domestic economy.
    • This indicator is measured in USD constant prices using 2015 base year and Purchasing Power Parities (PPPs) and as percentage of GDP.
    • It is often used as an indicator of a country’s level of innovation and technological progress.

    Issues with the current system

    • NSTMIS compiles GERD data: The National Science and Technology Management Information System (NSTMIS) of the DST is the agency that compiles GERD statistics in India.
    • Challenge is to collect data from private sector: It is easier to gather the information on R&D by the government sector, the higher education sector and public sector enterprises. The challenge lies in collecting data from the private corporate sector.

    There are two key factors that make the official R&D estimates grossly inadequate

    1. The method used for identification of R&D performing firms does not capture all the R&D performing firms.
    • NSTIMS uses DSIR and Prowess to identify R&D units: A study found only 11% of 298 firms receiving foreign investment (2004-16) for R&D were registered with DSIR. Prowess covers only 3.5% of currently active registered enterprises in India. Leading enterprises in new technology areas may not be listed in both databases, such as SigTuple Technologies.
    • The DSIR list may not have many of the actual R&D performers for two reasons: Firms which consider government incentives as not attractive enough or that are sensitive about sharing critical information with the DSIR may not be inclined to register themselves with the DSIR. 2. It may be difficult for R&D firms in services such as software and R&D services to meet the requirement of having separate infrastructure for R&D to distinguish it from their usual business. In fact, many of the R&D performing enterprises in new technology areas may come under the services category.
    1. The survey conducted by the NSTMIS is the key source of R&D statistics of India
    • Data from Secondary sources works only if firms disclose their R&D spending: If firms don’t respond to the survey, data is collected from secondary sources like annual reports and Prowess. Some firms don’t report R&D spending despite their technology activities, patents and innovators. They may not feel obliged to report accurately to Indian regulatory authorities.
    • For instance: A review of the documents submitted to the Ministry of Corporate Affairs (MCA) by some R&D-oriented firms shows that there are firms which do not report any spending on R&D in spite of their declarations that suggest that they are engaged in activities of technology development, adoption and adaptation.

    What is to be done?

    • Short term measure: the NSTMIS should use the patents granted data, both in India and the U.S., in addition to its current method to identify R&D performing enterprises.
    • Mandatory disclosure: Annual R&D estimates can be prepared from mandatory disclosures that the enterprises are required to make to the MCA.
    • Technologies can be employed to ensure compliance and proper reporting: In order to ensure compliance and proper reporting, technologies can be used like in the case of revamped income-tax return forms where various sections are interlinked.
    • Spending data should be made an essential component of ESG: Additionally, proper disclosure of information to regulatory agencies, including R&D spending data, should be made an essential component of the environmental, social and governance (ESG) ranking of enterprises.

    Conclusion

    • Concrete data on R&D spending is crucial as it helps to identify areas needing investment, promotes economic growth, informs policymaking decisions, tracks progress, and evaluates policy effectiveness in promoting innovation and technological development. Transforming India’s R&D statistics to truly reflect the R&D ecosystem calls for short-term and medium-term measures.

  • Repo Rate Hike: Impact Should be Considered Before Making Decisions

    Rate

    Central Idea

    • In its last meeting, held just a few days after the Union budget, the monetary policy committee (MPC) of the RBI had voted to raise the benchmark repo rate by 25 basis points. The MPC noted that calibrated action was warranted to break the persistence in core inflation. This surprise uptick in inflation is likely to complicate the policy choices before the MPC members when it meets next in the first week of April.

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    What is Basis points we often hear about?

    • A basis point is a unit of measurement used to express changes in interest rates, bond yields, and other financial indicators.
    • One basis point is equal to one-hundredth of a percentage point, or 0.01%.
    • For example, If the Reserve Bank of India (RBI) raises the repo rate by 25 basis points, it means that the interest rate has increased by 0.25%.

    What it indicates?

    • If the Reserve Bank of India (RBI) keeps raising the repo rate by basis points, it is an indication that the central bank is tightening its monetary policy stance to manage inflationary pressures in the economy.

    Back to basics: Monetary Policy Committee (MPC)

    • Committee of RBI to fix the benchmark policy: The Monetary Policy Committee (MPC) is a committee of the RBI, which is entrusted with the task of fixing the benchmark policy interest rate (repo rate) to contain inflation within the specified target level.
    • To bring transparency and accountability: The RBI Act, 1934 was amended by Finance Act (India), 2016 to constitute MPC to bring more transparency and accountability in fixing India’s Monetary Policy.
    • Policy is published after discussion: The policy is published after every meeting with each member explaining his opinions.
    • Answerable to GOI: The committee is answerable to the Government of India if the inflation exceeds the range prescribed for three consecutive months.

    What is Inflation?

    • Inflation is an increase in the level of prices of the goods and services that households buy. It is measured as the rate of change of those prices.
    • Typically, prices rise over time, but prices can also fall (a situation called deflation).

    The current trends of Inflation

    • Rise in retail inflation: Retail inflation, as measured by the consumer price index, rose to 6.52 per cent in January, up from 5.72 per cent in December, reversing the declining trend seen in the preceding months.
    • Much of the surge was driven by food inflation: The consumer food price index rose to 5.94 per cent, up from 4.19 the month before, driven largely by cereals.
    • Price pressure remain across the economy: Inflation remained elevated in clothing and footwear, household goods and services, personal care effects and education, signalling that price pressures remain fairly broad-based across the economy.

    RBI’s Upper tolerance limit for inflation

    • Highest level of inflation that can be tolerated: The upper tolerance limit for inflation set by the Reserve Bank of India (RBI) is the highest level of inflation that the RBI will tolerate before taking action to bring inflation back within its target range.
    • RBI’s limit: The target range is defined in terms of the Consumer Price Index (CPI) inflation and the RBI has set an upper tolerance limit of 6% and a lower tolerance limit of 2% with a central target of 4%. This means that the RBI aims to keep CPI inflation within the range of 2-6%, with a target of 4%.
    • Tools to contain inflation: If inflation exceeds the upper tolerance limit of 6%, the RBI is required to take steps to bring inflation back within the target range. The RBI uses a variety of monetary policy tools to control inflation, including adjusting the policy interest rate, changing reserve requirements for banks, and using open market operations to manage liquidity in the financial system.

    Conclusion

    • Monetary policy experts Varma and Goyal suggest pausing to observe the impact of previous tightening before taking further action. Despite a cumulative 250 basis point increase, inflation is still expected to remain above the 6% target. The full impact of previous tightening should be considered before making any decisions.

    Mains Question

    Q. What is upper threshold of the RBI’s inflation targeting framework? Discuss the impact of policy interest rate hikes on the economy.

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  • GST revenues hit a record ₹1.59 lakh CR in January

    gst

    India’s Goods and Services Tax (GST) revenues grew 12.7% in January to hit almost ₹1.59 lakh crore ($17.9 billion), the second-highest monthly collections on record, as per revised figures from the Finance Ministry.

    What led to hike in GST revenue collection?

    • Economic recovery: Discusses how the steady economic recovery in India has led to higher consumption and spending, resulting in increased GST collections
    • Crackdown on Tax evasion: Several measures were taken by the government to streamline the GST system and reduce tax evasion, including the implementation of e-invoicing and the use of technology to track compliance.
    • Crackdown on fraudulent claims: The government’s efforts to crack down on fraudulent input tax credit claims, have also contributed to the increase in GST collections
    • Increase in imports: The higher value of imported goods due to rising commodity prices is another reason behind the increase in GST collections from imports.

    What is GST?

    • GST is an indirect tax that has replaced many indirect taxes in India such as excise duty, VAT, services tax, etc.
    • The Goods and Service Tax Act was passed in Parliament on 29th March 2017 and came into effect on 1st July 2017.
    • It is a single domestic indirect tax law for the entire country.
    • It is a comprehensive, multi-stage, destination-based tax that is levied on every value addition.
    • Under the GST regime, the tax is levied at every point of sale. In the case of intra-state sales, Central GST and State GST are charged. All the inter-state sales are chargeable to the Integrated GST.

    Answer this PYQ in the comment box:

    Q. All revenues received by the Union. Government by way of taxes and other receipts for the conduct of Government business are credited to the (CSP 2015):

    (a) Contingency Fund of India

    (b) Public Account

    (c) Consolidated Fund of India

    (d) Deposits and Advances Fund

     

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    What are the components of GST?

    There are three taxes applicable under this system:

    1. CGST: It is the tax collected by the Central Government on an intra-state sale (e.g., a transaction happening within Maharashtra)
    2. SGST: It is the tax collected by the state government on an intra-state sale (e.g., a transaction happening within Maharashtra)
    3. IGST: It is a tax collected by the Central Government for an inter-state sale (e.g., Maharashtra to Tamil Nadu)

    Advantages of GST

    • GST has mainly removed the cascading effect on the sale of goods and services.
    • Removal of the cascading effect has impacted the cost of goods.
    • Since the GST regime eliminates the tax on tax, the cost of goods decreases.
    • Also, GST is mainly technologically driven.
    • All the activities like registration, return filing, application for refund and response to notice needs to be done online on the GST portal, which accelerates the processes.

    Issues with GST

    • High operational cost
    • GST has given rise to complexity for many business owners across the nation.
    • GST has received criticism for being called a ‘Disability Tax’ as it now taxes articles such as braille paper, wheelchairs, hearing aid etc.
    • Petrol is not under GST, which goes against the ideals of the unification of commodities.

    Take a look at the share of GST in government earnings for the previous fiscal:

    gst

    UPSC can ask about the majority component of the Revenue Receipts of the govt. See how Corporate tax is nearing the GST revenues.

    Do you think it will surpass GST revenue when the economy is fully recovered?

     

     

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  • Four-day workweek: Analysis

    Four-day workweek

    Central Idea

    • Much is being made about the major breakthrough in one of the largest-ever experiments with a four-day workweek in Britain. Sixty-one companies were part of the six-month trial and 56 of them have opted to continue with the program, while 18 have made it permanent. 4 Day Week Global trial, overseen by Autonomy, aimed to improve work-life balance by allowing workers to work four days instead of five with the same salary and workload.

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    Advantages of implementing a four-day workweek

    • Improved Work-life balance: Having a positive work-life balance can also allow professionals to adopt a better attitude about their work, as they can return to their jobs well-rested. This can help employees remain productive and enthusiastic while working.
    • Increased job satisfaction: With more free time, employees may feel more satisfied with their jobs and be more engaged at work.
    • Reduced absenteeism and turnover: Offering a four-day workweek could make companies more attractive to potential employees, and employees may be less likely to miss work or leave their jobs if they have a better work-life balance.
    • Increased productivity: Some studies have shown that shorter workweeks can actually boost productivity, as employees may be more focused and efficient during their work hours.
    • Positive environmental impact: Working four days per week decreases the number of times a professional commute to work. This is helpful to the environment, as most vehicles produce emissions that can harm the environment.

    Four-day workweek

    Potential disadvantages

    • Limited impact: The benefits of a four-day workweek may be limited in certain industries or job types, such as those that require shift work or have strict deadlines.
    • Increased workload: Employees may feel pressure to complete the same amount of work in fewer hours, resulting in an increased workload and potential burnout.
    • Reduced productivity: Some employees may find it difficult to maintain focus and productivity over longer workdays. This could lead to a decrease in overall output and quality of work.
    • Impact on customer service: If businesses are closed for an extra day each week, it may be more difficult to provide customer service or maintain consistent operating hours.
    • Reduced income: With a shorter workweek, employees may see a reduction in their pay, which could be a disadvantage for those who rely on their income to cover living expenses.

    Examples of companies/organizations considering a four-day workweek

    • Microsoft Japan: In 2019, the tech giant conducted a trial where employees worked a four-day week and saw a 40% increase in productivity.
    • Iceland: A number of companies and organizations in Iceland have experimented with shorter workweeks, including the country’s government, which is exploring a four-day workweek for public servants.
    • New Zealand: Unilever New Zealand recently announced it would be trialing a four-day workweek for all of its employees, while the country’s prime minister, Jacinda Ardern, has previously spoken in favor of the idea.
    • Spain: The government of Spain has proposed a three-year trial of a four-day workweek, with the goal of improving work-life balance and boosting productivity.

    Four-day workweek

    Feasibility of Four-day workweek in India’s context

    • Will require a careful analysis: The feasibility and impact of a four-day workweek in India would depend on various factors such as industry type, workforce demographics, and cultural norms. Implementing a four-day workweek in India would require careful analysis of various factors.
    • For instance: With the rise of remote work and the increased focus on work-life balance four day week option could be helpful to enhance productivity with improved work life balance in corporate sector.
    • Complex regulations: India’s labour laws and regulations are complex and provide significant protections for workers. Any changes to work arrangements, including a four-day workweek, would need to comply with these laws and ensure that employees’ rights and benefits are protected.
    • For example: Any reduction in working hours would need to be accompanied by appropriate compensation and benefits to ensure that employees do not suffer financial losses.
    • Specific needs of industries: The feasibility of a four-day workweek would depend on the specific needs of different industries.
    • For instance: While some knowledge-based sectors may be well-suited to a four-day workweek, industries that require continuous operations or shift work, such as manufacturing or healthcare, may face significant challenges in implementing a shorter workweek.

    Conclusion

    • It’s important to carefully consider the potential advantages and disadvantages of a four-day workweek before implementing it in any workplace. The impact may vary depending on the specific work arrangements and the needs of the employees and customers.

  • UPI: Internationalization of Digital Payments

    UPI

    Central Idea

    • On Tuesday, the Union government unveiled India’s first cross-border real-time payments systems linkage, with the Unified Payments Interface (UPI) connecting with Singapore’s PayNow payment system.

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    What is Unified Payments Interface (UPI)

    • UPI is India’s mobile-based fast payment system, which facilitates customers to make round-the-clock payments instantly, using a Virtual Payment Address (VPA) created by the customer.
    • It eliminates the risk of sharing bank account details by the remitter.
    • UPI supports both Person-to-Person (P2P) and Person-to-Merchant (P2M) payments and it also enables a user to send or receive money.

    What is PayNow?

    • It is a fast payment system in Singapore.
    • It enables peer-to-peer funds transfer service, available to retail customers through participating banks and Non-Bank Financial Institutions (NFIs) in Singapore.
    • It allows users to send and receive instant funds from one bank or e-wallet account to another in Singapore by using just their mobile number, Singapore National Registration Identity Card (NRIC)/Foreign Identification Number (FIN), or VPA.

    UPI

    Overview: Remarkable success of UPI

    • Changed the landscape of electronic payments: The introduction of UPI in 2016-17 led to a dramatic change in the electronic payments landscape of the country.
    • Instrumental in dramatic growth of digital payments: Along with the JAM trinity of Jan Dhan, Aadhaar and mobile phones, this payment architecture has been instrumental in facilitating the dramatic growth of digital payments in the country, aided by a conducive regulatory framework.
    • Value and volume increasing day by day: Over the years, various reports by the RBI have documented the significant increase in digital payments transactions in the country, with per person digital transactions growing both in terms of value and volume.
    • Dramatic surge during the pandemic: Contactless payments also witnessed a surge during the pandemic. In fact, as per another study, roughly one-third of households surveyed had transacted digitally for the first time during the lockdown.
    • Statistics for instance:
    1. In January 2023, roughly 8 billion transactions were carried out on the UPI platform, whose value touched almost Rs 13 lakh crore.
    2. In comparison, in January 2020, just prior to the pandemic, 1.3 billion transactions were routed through the UPI platform, which touched Rs 2.1 lakh crore in value.
    • Aided in accelerating financial inclusion: The convenience of real-time transfer of payments, the zero-cost framework for users, the rapid expansion in the acceptance touch-points, have encouraged its widespread adoption. This has also aided in accelerating financial inclusion by providing access to financial services at low cost.

    Did you know? “UPI Lite”

    • UPI Lite is a on device wallet feature similar to the ones seen on popular digital payment apps such as Paytm, Freecharge, MobiKwik and others.
    • The feature will allow you to make faster near real-time small value payments without internet connection via the money added in the wallet.
    • In phase one, UPI Lite will process transactions in near offline mode i.e. debit offline and credit online, and at a later point, UPI Lite will process transactions in complete offline mode i.e. debit and credit both offline.

    UPI

    All you need to know about UPI-PayNow interlinkage facility

    • How is the interlinkage benefit users?
    1. With this facility, funds held in bank accounts or e-wallets can be transferred to /from India using just the UPI ID, mobile number, or Virtual Payment Address (VPA), which is essentially the address to or through which you can make UPI money transfers.
    2. With this payment facility, both inward and outward remittances will happen instantly.
    • Who can undertake remittance transactions through this facility: Account holders of participating banks and financial institutions in India and Singapore.
    • Participating banks in India and Singapore:
    1. Banks from India are Axis Bank, DBS Bank India, ICICI Bank, Indian Bank, Indian Overseas Bank and State Bank of India (SBI). Going forward, the UPI-PayNow interlinkage will cover more banks and financial institutions.
    2. From Singapore, DBS Bank Singapore and Liquid Group (Non-Bank Financial Institution) are selected.
    3. Popular payment platforms such as PhonePe and Google Pay have been excluded from the ambit of this framework. Perhaps, over time, these platforms will also be brought under this framework, aiding in its widespread adoption.
    • The daily transaction limit:
    1. Banks in India have not communicated about any restrictions on transfers yet.
    2. It is Rs 60,000 (around SGD 1,000). Initially, DBS customers can use PayNow-UPI only to transfer funds up to SGD 200 per transaction, capped at SGD 500 per day.
    3. There is no such communication about capping for transferring funds through Liquid Group (Non-Bank Financial Institution) to India.

    UPI

    Conclusion

    • The UPI-PayNow interlinkage is a milestone moment for cross-border transfers. Not only India but the world has witnessed how UPI revolutionized the landscape of domestic digital payment infrastructure. With this encouraging development we are now going to see a similar revolution in the cross-border payments space as well. This internationalization of the digital payments architecture, will help bring down both the cost and the time associated with such transfers, bringing benefits to migrant workers, students, and professionals, among others.

    Mains Question

    Q. Recently India launched its first cross-border real-time payments systems linkage with Singapore. In this light highlight Discuss remarkable success of UPI and prospect of internationalization of UPI.

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  • What is Angel Tax?

    angel

    Central idea: The article provides an overview of the angel tax provisions in the Finance Bill, which were introduced in the Budget. It highlights the concerns raised by the start-up community regarding the impact of these provisions on their operations.

    Angel Investment

    • An angel investor is an individual who provides financial backing to early-stage startups or entrepreneurs, typically in exchange for equity in the company.
    • Angel investors are typically high-net-worth individuals who invest their own personal funds, rather than investing on behalf of a firm or institution.
    • Features of Angel Investing:
    1. Early-stage funding
    2. Equity investment
    3. High-risk, high-reward
    4. Active involvement
    5. Personal investment
    6. Flexible terms
    7. Shorter investment horizon

     

    What is Angel Tax?

    • Referred to as Angel Tax, this rule is described in Section 56(2)(viib) of the Income Tax Act, 1961.
    • Essentially it’s a tax on capital receipts, unique to India in the global context.
    • This clause was inserted into the act in 2012 to prevent laundering of black money, round-tripping via investments with a large premium into unlisted companies.
    • The tax covers investment in any private business entity, but only in 2016 was it applied to startups.

    Why was angel tax introduced?

    • The complicated nature of VC fundraising with offshore entities, multiple limited partners and blind pools is contentious.
    • There has been some element of money laundering or round-tripping under guise.

    Details of its levy

    • The Angel Tax is being levied on startups at 9% on net investments in excess of the fair market value.
    • For angel investors, the amount of investment that exceeds the fair market value can be claimed for a 100% tax exemption.
    • However, the investor must have a net worth of ₹2 crores or an income of more than ₹25 Lakh in the past 3 fiscal years.

    Startups under scrutiny

    • As more and more new-age tech startups started raising VC funding, they came under the IT department scrutiny.
    • These funding deals often saw investors paying a premium above the face value or the fair market value of securities, and therefore were taxed as income for the startup.
    • Between 2016 and 2019, startups urged the government to add exceptions that would allow them to be exempt from the Angel Tax.

    Which startups are exempted?

    • There is a clear provision that says that start-ups which are recognized by DPIIT are out of the proposal’s purview.
    • The start-up recognition process is also very simple where any applicant gets it automatically.
    • However, the key condition for exemption is that the aggregate amount of paid up share capital and share premium of the startup after issue or proposed issue of share does not exceed INR 25 Cr.

    Concerns raised by startup

    • Compliance burden: Even beyond the issue of taxation, the compliance burden on startups will potentially increase significantly under the new rules.
    • Persisting slowdown: The timing of this potential tax is most worrying since it coincides with the ongoing startup funding slowdown.
    • Fear of off-shoring: Entrepreneurs and investors are concerned that applying strict taxes on capital receipts without adequate exceptions will lead to startups moving overseas.

    Back2Basics: Startups in India

    • Startups are young companies founded to develop a unique product or service, bring it to market and make it irresistible and irreplaceable for customers.
    • In India, start-up should be incorporated as a private limited company or registered as a partnership firm or a limited liability partnership.
    • Turnover should be less than INR 100 Crores in any of the previous fiscal years.
    • An entity shall be considered a Start-up up to 10 years from the date of its incorporation.
    • The Start-up should be working towards innovation/ improvement of existing products, services, and processes and should have the potential to generate employment/ create wealth.
    • An entity formed by splitting up or reconstruction of an existing business shall not be considered a “Startup”.

     

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  • ‘HD 3226’ Wheat can beat the heat

    wheat

    Scientists at the Indian Council of Agricultural Research (ICAR) have developed a new variety of wheat ‘HD 3226’ that can withstand high temperatures.

    HD 3226 Wheat

    • The wheat, known as “HD 3226”, has been developed specifically for cultivation in the northwest region of India, where temperatures can reach up to 42 degrees Celsius.
    • It took 10 years for ICAR to develop this variety.
    • It has been specifically developed for cultivation in the northwest region of India.

    Features of HD 3226 Wheat

    • More resilient to heat stress: The HD 3226 wheat variety is reportedly more resilient to heat stress than other varieties of wheat.
    • Higher yields: The HD 3226 wheat variety can produce up to 12-15% higher yields in high-temperature conditions.

    Significance

    • The development of this new wheat variety is particularly important given the increasing frequency of heatwaves in the region due to climate change.
    • With rising temperatures, it is becoming more challenging for farmers to grow crops.

    Government approval and availability

    • The HD 3226 wheat variety has now been submitted to the Indian government for approval.
    • Once approved, it is expected to be available to farmers in the coming years.

     

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  • India, Singapore launch UPI-PayNow Linkage

    upi

    India’s Unified Payments Interface (UPI) and Singapore’s PayNow were officially connected to allow a “real-time payment linkage”.

    What are UPI and PayNow?

    [A] Unified Payments Interface (UPI)

    • UPI is India’s mobile-based fast payment system, which facilitates customers to make round-the-clock payments instantly, using a Virtual Payment Address (VPA) created by the customer.
    • It eliminates the risk of sharing bank account details by the remitter.
    • UPI supports both Person-to-Person (P2P) and Person-to-Merchant (P2M) payments and it also enables a user to send or receive money.

    [B] PayNow

    • It is a fast payment system in Singapore.
    • It enables peer-to-peer funds transfer service, available to retail customers through participating banks and Non-Bank Financial Institutions (NFIs) in Singapore.
    • It allows users to send and receive instant funds from one bank or e-wallet account to another in Singapore by using just their mobile number, Singapore National Registration Identity Card (NRIC)/Foreign Identification Number (FIN), or VPA.

    What is the UPI-PayNow linkage?

    • Cross-border retail payments are generally less transparent and more expensive than domestic transactions.
    • The project to link both the fast payment systems was initiated in September 2021 to facilitate faster, more efficient and transparent cross-border transactions relating to trade, travel and remittances between the two countries.

    Significance of the integration

    • Enhanced cross-border transactions: The integration will enable easier cross-border transactions between India and Singapore, reducing the need for intermediaries and associated costs.
    • Easier remittances: The integration will make it easier for Indian workers in Singapore to send money back home to their families.
    • Boost to trade and investment: The integration will facilitate smoother transactions between businesses in the two countries, potentially increasing trade and investment.
    • Strengthening of diplomatic ties: The integration is expected to improve diplomatic ties between India and Singapore.

    How the integration works?

    • The integration is made possible through the use of standardized QR codes.
    • The QR codes will allow users to transfer funds between the two systems in real-time, without the need for intermediaries.

    Implications for the future

    • More integrations: The success of the UPI-PayNow integration could pave the way for similar integrations between other countries.
    • Increased use of digital payments: The integration is expected to encourage the adoption of digital payments in both India and Singapore, potentially reducing the use of cash.

     

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