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Subject: Economics

  • The National Land Monetisation Corporation (NLMC)

    The National Land Monetisation Corporation (NLMC) has decided to involve international property consultancy firms to speed up the process of making money by selling or leasing the land owned by the government.

    What is NLMC?

    • NLMC is a Special Purpose Vehicle (SPV) announced in the Union Budget 2021-22 to carry out monetisation of government and surplus land holdings of public sector undertakings (PSU).
    • It falls under the administrative jurisdiction of the Ministry of Finance and is set up with an initial authorised share capital of ₹5,000 crore and a paid-up capital of ₹150 crore.
    • It is a firm, fully owned by the government, to carry out the monetisation of government and public sector assets in the form of surplus, unused or underused land assets.

    Aims and objectives

    • Monetize underutilised or unused land parcels of Central Public Sector Enterprises (CPSEs)
    • Facilitate the monetisation of assets belonging to PSUs that have ceased operations or are in line for a strategic disinvestment.
    • Transfer of revenue rights: When the government monetises its assets, it essentially means that it is transferring the revenue rights of the asset (could be idle land, infrastructure, PSU) to a private player for a specified period of time.
    • Govt as facilitator: In such a transaction, the government gets in return an upfront payment from the private entity, regular share of the revenue generated from the asset, a promise of steady investment into the asset, and the title rights to the monetised asset.

    Significant outcomes of land monetization

    • Maximum value realization: It will help monetise them in an efficient and professional manner, maximizing the scope of value realisation.
    • Speed up the process: The setting of the NLMC will speed up the closure process of the CPSEs and smoothen the strategic disinvestment process.
    • Capitalize land assets: It will also enable productive utilisation of these under-utilized assets by setting in motion private sector investments.
    • Economic revitalization: It will boost new economic activities such as industrialisation, boosting the local economy by generating employment and generating financial resources for potential economic and social infrastructure.
    • Advisory to the govt: Besides managing and monetising, the NLMC will act as an advisory body and support other government entities and CPSEs in identifying their surplus non-core assets.

    Need for land monetization

    There are different reasons why the government monetizes its assets.

    • New sources of revenue: One of them is to create new sources of revenue essential to fulfil the government’s target of achieving a $5 trillion economy.
    • Plummeting underutilized assets: Monetisation is also done to unlock the potential of unused or underused assets by involving institutional investors or private players.
    • Capital generation: It is also done to generate resources or capital for future asset creation, such as using the money generated from monetisation to create new infrastructure projects.

    Possible challenges for NLMC

    (1) Volatile market situation

    • The performance and productivity of the NLMC will also depend on the government’s performance on its disinvestment targets.
    • In FY 2021-22, the government has hardly been able to raise expected amounts through various forms of disinvestment.

    (2) Issues with transfer of rights

    • The process of asset monetisation does not end when the government transfers revenue rights to private players.
    • Identifying profitable revenue streams for the monetised land assets, ensuring adequate investment by the private player and setting up a dispute-resolution mechanism are also important tasks.

    (3) Unattractiveness of PPP Model

    • Posing as another potential challenge would be the use of Public Private Partnerships (PPPs) as a monetisation model.
    • For instance, the results of the Centre’s PPP initiative launched in 2020 for the Railways were not encouraging.

    (4) Red tapism

    • The success of the initiative will depend on a range of factors, including the availability of suitable land parcels, market demand etc.
    • It will be highly dependent upon the ability of the government to execute the transactions efficiently.

    Conclusion

    • The government’s move to monetize its vast land assets is aimed at reducing the fiscal burden and boosting infrastructure development in the country.
    • By bringing in international property consultants to help with the process, the government hopes to improve efficiency and transparency, and maximize the returns on its land assets.
    • If successful, the government’s land monetization drive could provide a much-needed boost to the economy and create new opportunities for private investment in the real estate sector.

     

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  • How is the Stock Market regulated in India?

    stock

    The Supreme Court asked the Securities and Exchange Board of India (SEBI) and the government to produce the existing regulatory framework in place to protect investors from stock market volatility.

    Central idea

    • After short-seller Hindenburg Research published a report accusing the Adani Group of stock market manipulation and accounting fraud, its shares plummeted.
    • Investors were reported to have lost lakhs of crores.

    Laws governing the Indian Stock Market

    • The securities market in India is regulated by four key laws —
    1. Securities and Exchange Board of India Act, 1992 (SEBI Act)
    2. Securities Contracts (Regulation) Act, 1956 (SCRA) and
    3. Depositories Act, 1996
    4. Companies Act, 2013
    • The framing of these laws reflect the evolution and development of the capital market in India.

    Brief explanation of each acts-

    (1) Securities and Exchange Board of India Act, 1992 (SEBI Act)

    (2) Securities Contracts (Regulation) Act, 1956 (SCRA)

    • The SCRA empowers SEBI to recognise (and derecognise) stock exchanges, prescribe rules and bye laws for their functioning, and regulate trading, clearing and settlement on stock exchanges.

    (3) Depositories Act, 1996

    • As part of the development of the securities market, Parliament passed the Depositories Act and SEBI made regulations to enforce the provisions.
    • This Act introduced and legitimised the concept of dematerialised securities being held in an electronic form.
    • Today almost all the listed securities are held in dematerialised form.

    (4) Companies Act, 2013

    • It is an Act of the Parliament on Indian company law that regulates incorporation of a company, responsibilities of a company, directors, and dissolution of a company.
    • It stipulates the type of Companies that can be formed such as- Public Ltd., Pt. Ltd., One Person Company ex.

    Key role-player: SEBI

    • SEBI set up the infrastructure for doing this by registering depositories and depository participants.
    • The depository regulations empower SEBI to regulate functioning of depositories and depository participants by prescribing eligibility conditions, periodic inspections and powers to impose penalties including suspending or cancelling the registration as well as monetary penalties.

    You should know this!

    Shares and stocks both represent ownership in a company, but they are not the same thing

    • A share is a unit of ownership in a company. It represents a portion of the company’s capital, and the shareholder is entitled to a corresponding portion of the company’s profits or losses.
    • A company can issue different types of shares with varying rights, such as voting rights or dividend payments.
    • Stock, on the other hand, is a broader term that refers to the total capital raised by a company through the issuance of shares.
    • It represents the ownership of a company as a whole, rather than an individual unit of ownership.
    • So, shares are a component of stock, and owning shares of a company means owning a portion of the company’s stock. Stock represents the aggregate value of a company and includes all its shares.

    Can SEBI step in to curb market volatility?

    • No direct meddling: While SEBI does not interfere to prevent market volatility, exchanges have circuit filters — upper and lower — to prevent excessive volatility.
    • Issue directions: SEBI can issue directions to those who are associated with the market, and has powers to regulate trading and settlement on stock exchanges. Using these powers, SEBI can direct stock exchanges to stop trading, totally or selectively.
    • Instant regulation: It can also prohibit entities or persons from buying, selling or dealing in securities, from raising funds from the market and being associated with intermediaries or listed companies.

    What about stock exchanges?

    • The SCRA has empowered SEBI to recognise and regulate stock exchanges and later commodity exchanges in India; this was earlier done by the Union government.
    • In fact, the term “securities” is defined in the SCRA and powers to declare an instrument as a security remain vested in SEBI.
    • The rules and regulations made by SEBI under the SCRA relate to listing of securities like equity shares, the functioning of stock exchanges including control over their management and administration.
    • These include powers to determine the manner in which a settlement is done on stock exchanges (and to keep them with the times for e.g. T+1) etc.
    • It seeks to protect the interests of investors by creating an Investor Protection Fund for each stock exchange.

    Safeguards against fraud

    • Fraud undermines regulation and prevents a market from being fair and transparent. To prevent the two key forms of fraud, market manipulation, and insider trading, SEBI notified-
    1. Prohibition of Fraudulent and Unfair Trade Practices Regulations, 1995
    2. Prohibition of Insider Trading Regulations, 1992
    • These regulations, read with provisions of the SEBI Act, define species of fraud, who is an insider and prohibit such fraudulent activity and provide for penalties including disgorgement of ill-gotten gains.
    • It must be noted that violation of these regulations are predicate offences that can lead to a deemed violation of the Prevention of Money Laundering Act.

    Do you know?

    • SEBI has been given the powers of a civil court to summon persons, seize documents and records, attach bank accounts and property, and to carry out investigations.
    • Using these powers, SEBI has acted against entities and individuals like Satyam, Sahara India, Ketan Parekh and Vijay Mallya.

     

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  • Vibrant Villages Programme Gets An Upgrade

    Villages

    Central Idea

    • The Indian government has recently announced a significant allocation of funds to improve infrastructure and living conditions in villages along the Line of Actual Control (LAC) with China. Under a “Vibrant Villages” programme, the government will spend Rs 4,800 crore for infrastructure development and to provide livelihood opportunities in the areas bordering China.

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    What is Vibrant Villages Programme?

    • Improve infrastructure in villages along India’s border with China: The Vibrant Villages program is a government initiative aimed at improving infrastructure and creating job opportunities in villages situated along the Line of Actual Control (LAC) with China.
    • Overview: The program involves a significant allocation of funds, i.e., Rs 4,800 crore, to upgrade 633 villages situated in five states, Himachal Pradesh, Uttarakhand, Sikkim, Arunachal Pradesh, and the Union Territory of Ladakh. Under the programme, residential and tourist centres will be constructed.
    • Objectives of the program: The program aims to enhance the living conditions of the people residing in the border areas and improve the security situation along the LAC with China.
    • Expected Benefits: The Vibrant Villages program aims to provide better facilities like schools, 24×7 electricity, and more 4G telecommunication towers in the border areas to match what is available in settlements across the LAC.
    • Strategy to enhance security: The Vibrant Villages program is part of the broader Indian government strategy to enhance security along the border with China. The investment in developing infrastructure and creating job opportunities is a crucial step towards improving the living conditions of the people in the border areas and enhancing the security situation along the LAC with China.
    • Program is modelled after Chinese actions on LAC: The program is modelled after the Chinese military and civilian authorities’ actions on their side of the LAC to build permanent population settlements along the border.

    Villages

    What is the upgraded plan?

    • Over a third of allocation towards road infrastructure in border areas: The plan is to upgrade 633 villages in Himachal Pradesh, Uttarakhand, Sikkim and Arunachal Pradesh and the Union Territory of Ladakh. Over a third of the allocation will go towards road building in the border areas. A new 4.1 km all-weather tunnel will connect Himachal Pradesh to Ladakh making troops movement easier.
    • Sports and tourism for livelihood opportunities: Tourism and sporting activities are being planned in these areas to provide livelihood opportunities for local people.
    • New battalions of ITBP to deploy on border: Further, the government will spend Rs 1,800 crore to raise seven new battalions of the Indo-Tibetan Border Police (ITBP) that means 9,000 personnel chiefly deployed along India’s borders with China alongside the Army.

    What are the concerns for India?

    • National Security: India has long been concerned about China’s territorial claims and military build-up in the region. The development of Chinese villages along the LAC is viewed by India as a part of China’s broader strategy to strengthen its position in the region, which could pose a threat to India’s national security.
    • Military and Strategic Concerns: India is concerned that the villages built by China along the LAC have a dual purpose, i.e., they serve as civilian settlements as well as military outposts. These villages, therefore, give China an edge in terms of strategic advantage and troop deployment in the region.
    • Incursions and Border Disputes: China has been carrying out frequent incursions into Indian territory in the region, leading to increased tensions between the two countries. The development of Chinese villages along the LAC raises concerns that these could be used as bases for future incursions into Indian territory.
    • Environmental and Ecological Concerns: India has expressed concerns over the environmental impact of China’s development of villages along the LAC, as these areas are ecologically sensitive and prone to landslides, flash floods, and earthquakes. The construction of infrastructure such as roads, tunnels, and buildings can have a severe impact on the environment and ecosystem of the region.

    What are the challenges for developing villages along the LAC?

    • Harsh Terrains: The areas along the LAC are characterized by high-altitude terrain, rugged mountains, and harsh weather conditions. These factors pose significant challenges to the construction of infrastructure and provision of services in these regions.
    • Security Concerns: The LAC border region has been the site of numerous border disputes and conflicts between India and China. Developing villages in this region requires addressing security concerns to ensure the safety of local people and government infrastructure.
    • Environmental Impact: The development of infrastructure and facilities in the border regions could have an adverse impact on the environment, including the degradation of natural habitats and the loss of biodiversity. Mitigating these impacts is necessary for sustainable development in these regions.
    • Cooperation from Local Communities: The success of the Vibrant Villages program depends on the cooperation of local communities in the border regions. Building trust and collaboration with these communities is crucial to the program’s success.

    Conclusion

    • China’s incursion in Arunachal Pradesh highlights the present danger that India faces along the LAC with China. India can no longer afford to waste time as the PLA determines when and where to inflict harm on the country. Developing infrastructure and building vibrant villages is an essential step towards enhancing security and better living conditions in the border areas. Steps taken so far in the right direction however, India requires a more comprehensive defence strategy with an all-of-government approach to ensure its territorial integrity.

    Mains question

    Q. What is Vibrant Villages Programme? Discuss the challenges for developing villages along the LAC?

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  • Govt. likely to place Reverse Charging of GST on Scrap before Council

    gst

    Central idea: The article discusses the possibility of the government presenting the reverse charging of Goods and Services Tax (GST) on Steel and other metal scraps before the GST council.

    Scrap recycling in India

    • India is now the world’s second-largest steel producer, with output expected to increase by 17.8 per cent to 118.1 million tonnes in 2021.
    • In contrast to countries that take pride in using increasing amounts of steel scrap to produce ferrous metal and thus reduce carbon dioxide (CO2) emissions, India only uses about 30 MT of scrap per year.
    • India is still in its early stages, with low recycling awareness. Unfortunately, only 30 per cent of India’s recyclable scrap is recycled.

    What is Reverse Charging of GST?

    • Reverse charging of Goods and Services Tax (GST) is a mechanism in which the liability to pay the tax is shifted from the supplier to the recipient of goods or services.
    • Under normal circumstances, it is the supplier who is liable to pay GST to the government.
    • However, in cases of reverse charging, the recipient of the goods or services becomes liable to pay the tax instead of the supplier.
    • Reverse charging is usually implemented in situations where the supplier is not registered under GST or has failed to deposit the GST dues with the government.
    • Reverse charging is a way for the government to ensure that the GST liability is fulfilled even if the supplier does not fulfill its obligations.

    Some examples of goods and services on which reverse charging is already applied are:

    1. Services provided by a goods transport agency
    2. Services provided by an advocate to a business entity
    3. Supply of manpower for any purpose
    4. Renting of a motor vehicle provided by any individual or HUF to a business entity
    5. Supply of specified goods like gold, silver, or precious stones by an unregistered supplier to a registered person.

    Why scrap industry?

    • The scrap industry in India is a largely unorganized sector, and many small players operate without proper registration or compliance.
    • This has led to tax evasion and revenue losses for the government.
    • Reverse charging on the scrap industry is aimed at plugging this gap and ensuring that the GST liability is fulfilled even if the supplier (in this case, the scrap dealer) is not registered or fails to deposit the GST dues with the government.

    Consequences of the move

    • Compliance Costs: The implementation of reverse charging on the scrap industry may increase compliance costs for stakeholders. Small players in the industry may find it challenging to comply with the new regulations, leading to increased compliance costs.
    • Administrative Burden: The scrap industry in India is largely an unorganized sector, and the application of reverse charging may impose an administrative burden on stakeholders. Many small players may not have the necessary infrastructure or resources to comply with the new regulations.
    • Cash flow impact: Reverse charging could impact the cash flow of small businesses, as they would have to pay GST upfront and then claim it back through input tax credit. This could lead to a shortage of working capital for small businesses.
    • Increased Paperwork: The application of reverse charging on the scrap industry may lead to an increase in paperwork and documentation for stakeholders. This could be challenging for small players who may not have the resources to handle the additional paperwork.
    • Implementation Challenges: The implementation of reverse charging on the scrap industry could be challenging, given that the sector is largely unorganized. It could be challenging to track unregistered players, and the government may face difficulties in enforcing the new regulations.

    Woes of Scrap Industry in India

    • Lack of infrastructure: The scrap industry in India is primarily an unorganized sector, with limited access to infrastructure such as proper storage facilities, transport, and handling equipment. This can limit the efficiency and productivity of the sector.
    • Low productivity: The scrap industry in India faces low productivity due to the use of outdated technology and inadequate skills among workers. This can limit the competitiveness of the industry and its ability to meet the demand for scrap.
    • Inadequate regulatory support: The scrap industry in India lacks adequate regulatory support, which can result in a lack of standardization and transparency in the sector. This can lead to issues such as underreporting of sales, tax evasion, and other malpractices.

    Stakeholder response

    • The scrap industry has expressed concerns over the potential increase in compliance costs and administrative burden that may arise from the implementation of reverse charging.
    • This might affect the recycle economy.

     

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  • Latest spike in Inflation and RBI’s efforts

    RBI

    Central Idea

    • India’s post-pandemic economic recovery has hit a roadblock with the resurgence of inflation, hindering progress despite three consecutive months of softening. Recent significant spike in inflation, leading the Reserve Bank of India to adopt an inflation-targeting stance by raising interest rates. However, the battle to curb inflation is still ongoing, and the latest data raises doubts about whether the RBI’s efforts are sufficient.

    RBI

    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).

    Consumer Price Index (CPI)

    • CPI is used to monitor changes in the cost of living over time.
    • When the CPI rises, the average Indian family has to spend more on goods and services to maintain the same standard of living.
    • The economic term used to define such a rising prices of goods and services is Inflation.

    RBI

    Inflation outlook

    • RBI’s Inflation target: The inflation targeting framework mandates the RBI to achieve a CPI consumer price index inflation target of 4 per cent.
    • Inflation during the pandemic was still within the target band: During the pandemic period of March 2020 to September 2021, CPI inflation averaged 5.9 per cent. This was higher than the point target of 4 per cent but still within the inflation targeting band of 2-6 per cent.
    • Inflation outlook has been worsening: In 2022, CPI inflation was above the upper threshold of the RBI’s targeting band for 10 consecutive months, which meant the target was not achieved for three quarters in a row.
    • Optimism that the Inflation began softening: By December 2022, CPI inflation was down to 5.7 per cent. This led many to believe that the inflation peak had passed, and that inflation was on its way to the official target.
    • This optimism was misplaced: Underlying inflationary pressures still persist. The softening of inflation in November and December 2022 was largely driven by a steep fall in vegetable prices. Excluding vegetables, CPI inflation was in fact more than 7 per cent.
    • The misplaced optimism has now become evident: The January 2023 CPI inflation came out to be 6.5 per cent, once again crossing the upper threshold of the RBI’s inflation targeting band.

    Back to basics: Core Inflation

    • The core inflation rate measures rising prices in everything except food and energy.
    • That’s because gas prices tend to escalate now and then. Higher gas costs increase the price of food and anything else that has large transportation costs.

    inflation

    What contributed to the latest spike in inflation?

    • Rise in food prices: With food accounting for 46 per cent of the overall CPI basket, a rise in food inflation from roughly 4 per cent in December 2022 to almost 6 per cent in January 2023 has played an important role in overall inflation going up.
    • Cereal inflation is soaring high: Within food, one component that has proved rather stubborn is cereal inflation. Between May and December 2022, year-on-year cereal inflation nearly doubled from 5 per cent to 14 per cent. In January 2023, this increased to 16 per cent. Within cereals, inflation in wheat has been steadily going up. Between May and December 2022, wheat inflation increased from 9 per cent to 22 per cent. It increased even further to 25 per cent in January 2023.
    • The steep rise in wheat prices reflects shortages: Data from the Food Corporation of India shows that stocks in government warehouses declined. The government has recently approved a release of three million tonnes in the open market. However, this is insufficient to restore market supplies.
    • Persistently high core inflation: Second, core (non-food, non-fuel) inflation in January came out to be 6.2 percent. This is consistent with the unyielding core inflation of 6 per cent for nearly three years now. A persistently high core inflation implies that price pressures have become entrenched in the system.
    • External factors also play a role: Inflation in developed countries continues to be high (6.4 per cent in the US; 8.5 per cent in the EU; 10.5 per cent in the UK). India is importing some of this elevated inflation through international trade in goods and services. Moreover, with China gradually opening up its economy after nearly three years of zero-Covid restrictions, commodity prices are likely to go up, which could exert renewed pressures on India’s inflation.

    What have the policymakers been doing to address the inflationary concerns?

    • The government has done its bit by announcing a conservative Union budget for 2023-24: It has accorded primacy to much needed fiscal consolidation, and has refrained from announcing populist measures that could have arguably fuelled demand, and hence inflation.
    • The RBI has been doing its job as well: It increased the policy repo rate from a pandemic low of 4 per cent to 6.5 per cent in a span of 10 months. Unlike last year, when despite rising inflation, the monetary policy statements did not contain any forward guidance, the RBI, in its February 2023 statement, emphasised the importance to remain alert on inflation, thereby hinting that the monetary tightening cycle is not over yet.

    Conclusion

    • Inflation has been a challenge for India’s economy post-pandemic, despite the RBI’s attempt to control it by raising interest rates. A credible glide path to bring inflation down is essential today.

    Mains question

    Q. Despite of RBI’s efforts there is significant spike in inflation In India. Discuss the factors that contributed to the latest spike in inflation in India and what are the policymakers doing to address inflationary concerns?

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  • Startup20 Engagement Group On India’s Proposal

    Engagement

    “A small group of determined and like-minded people can change the course of history.”-M.K. Gandhi

    Central Idea

    • By agreeing to India’s proposal to create the Startup20 Engagement Group, the only new group by which G20 has turned itself into an ambidextrous institution, one where both large corporations and startups have an equal voice in taking the economies forward. In the new architecture, while the existing B20 Engagement Group continues its focus on corporations, the Startup20 takes on the policy issues concerning the global startup ecosystem, with the necessary linkages between the two groups.

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    What is meant by ambidexterity?

    • Ambidexterity is the ability to use both hands with equal skill and ease.
    • In the context of organizations, it is the ability to simultaneously pursue both exploratory and exploitative strategies. This means being able to balance the need for innovation and new opportunities with the need for efficiency and optimization of current operations.
    • For example, Indian IT services companies like TCS and Infosys are investing in areas like artificial intelligence, blockchain, and the IoT, even as they continue to deliver traditional IT services to their clients.

    What is B20 Engagement Group?

    • Official G20 dialogue forum representing the global business community: The B20 (Business 20) Engagement Group is a forum for international business leaders from the G20 countries.
    • Established in 2010: It is among the most prominent Engagement Groups in G20, with companies and business organizations as participants.
    • A single voice for the entire G20 business community: The B20 leads the process of galvanizing global business leaders for their views on issues of global economic and trade governance and speaks in a single voice for the entire G20 business community.
    • Aim is to provide recommendations: The group’s aim is to provide recommendations to the G20 on issues such as economic growth, trade, investment, digitalization, sustainability, and job creation.
    • Platform for different stakeholders: The B20 is one of several engagement groups, which also include groups representing civil society, labor, think tanks, and youth, that provide a platform for different stakeholders to share their views and insights with the G20.
    • B20 Secretariat: Confederation of Indian Industry (CII) has been designated as the Business 20 (B20) Secretariat for the India’s G20 Presidency.

    What is Startup20?

    • Initiated under India’s G20 Presidency: The Startup20 Engagement Group has been initiated under India’s G20 Presidency in 2023.
    • Aims to support Startups: The group aims to create a global narrative for supporting startups and enabling synergies between startups, corporates, investors, innovation agencies and other key ecosystem stakeholders.
    • Three taskforces: The engagement group comprises of three taskforces, namely Foundation & Alliance, Finance, and Inclusion & Sustainability, where delegates will come together to discuss efficient policy frameworks to promote scaling up of startups in the G20 nations.

    How these taskforces will work?

    1. Foundation and Alliances Taskforce:
    • Promotes consensus-based ecosystem: The Foundation and Alliances Taskforce will work to harmonize the global Startup ecosystem through consensus-based definitions and promote a global community of knowledge sharing among the Startup ecosystems to explore opportunities.
    • Help to bridge the knowledge gaps: It will also bridge the knowledge gap between the Startup ecosystems of G20 member countries and emerging economies through partnerships to enable more industry players across G20 nations to work with Startups and concrete solutions.
    • To create supportive policies and point of contact: It will aim to create supportive policies for industry players and government organizations to work with Startups and provide points of contact for the participating G20 countries sustained collaboration.
    1. The Finance Taskforce:
    • To provide financing and investment platforms: The finance taskforce will aim to increase access to capital for Startups by providing financing and investment platforms specifically for early-stage Startups to broaden the array of financial instruments available to Startups.
    • Networking opportunities: It will also create pitching and networking opportunities for Startups with the global investor community.
    • Best practices for funding ecosystem: It will work to provide a framework built upon best practices for global investors to fund Startups across G20 member nations, helping build suggestive frameworks that could be implemented in emerging ecosystems for building investment capabilities.
    1. Taskforce for Inclusion and Sustainability
    • Women led startups and community inclusive: For Inclusion and Sustainability, the roadmap involves increasing support for women led Startups and organizations; promotion of Startups working on making communities more inclusive and to promote Startups working on SDGs in areas of global interest.
    • Encouraging investors to invest in startups built upon sustainable practices: This Task Force aims to enable more investors to invest responsibly in Startups built upon sustainable practices and to encourage mentorship support to the Startup ecosystems of the G20 member countries and emerging economies.

    Conclusion

    • Some of the most pressing challenges facing the world today require innovative solutions at scale. The need for solutions to global problems such as climate change, food security, and energy security is urgent. However, by leveraging global ambidexterity and taking advantage of the G20’s new architecture of B20 and Startup20, we can be optimistic about our ability to systematically solve these problems. With deliberate efforts and focused action, we can create a more sustainable and prosperous future for all.

    Mains question

    Q. What is Startup20 engagement group initiated under India’s G20 presidency? How this framework will work to boost startup ecosystem globally?

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  • Industry pushes separate Ministry for Microenterprises

    Central Idea: The Consortium of Indian Associations (CIA) has suggested the formation of an independent ministry for the self-employed and microenterprises to address specific issues concerning the sector.

    Why demand for new Ministry?

    • Micro entrepreneurs continue to be governed by complicated and outdated laws and dispensable compliance burdens.
    • Despite the government’s efforts, MSMEs in India face several challenges such as access to finance, lack of skilled labor, and inadequate infrastructure.
    • New ministry might help in providing different types of support and benefits from the government, such as access to credit, subsidies, and tax exemptions.

    What are Microenterprises?

    • Microenterprises are small businesses that typically have a small number of employees, limited assets, and low levels of annual turnover or revenue.
    • The term “microenterprise” is often used interchangeably with “microbusiness” or “micro firm.”
    • Microenterprises can be found in a wide range of sectors, including retail, manufacturing, and services.
    • Examples of microenterprises include small retail shops, food stalls, street vendors, small manufacturing units, and service providers such as plumbers, electricians, and small-scale service providers.

    Features of Microenterprises

    • In general, microenterprises are considered the smallest type of business.
    • They are typically characterized by their low capital investment and simple production processes.
    • These businesses are often started by entrepreneurs who are seeking self-employment and a means to earn a livelihood.

    Why are they important?

    • Employability: Microenterprises are an important part of many economies, especially in developing countries, where they can provide vital employment opportunities and contribute to economic growth.
    • Scale of business: Such enterprises have huge potential of business penetration at household and domestic level by providing a range of services.

    Microenterprises in India

    • According to the Ministry of Micro, Small and Medium Enterprises (MSMEs), there are approximately 6.3 crore (63 million) MSMEs in India, which employ around 11 crore (110 million) people.
    • In India, MSMEs are classified based on their investment in plant and machinery or equipment, as well as their annual turnover.
    • The classification of MSMEs is as follows:
    1. Micro Enterprises: Micro enterprises are the smallest type of enterprises and have a lower investment limit than the other two categories. For manufacturing enterprises, the investment limit is up to Rs. 1 crore in plant and machinery, while for service enterprises, the investment limit is up to Rs. 50 lakh. The turnover limit for both types of enterprises is up to Rs. 5 crore.
    2. Small Enterprises: Small enterprises are those that have an investment in plant and machinery or equipment between Rs. 1 crore to Rs. 10 crore. For service enterprises, the investment limit is between Rs. 50 lakh to Rs. 2 crore. The turnover limit for both types of enterprises is between Rs. 5 crore to Rs. 50 crore.
    3. Medium Enterprises: Medium enterprises have a higher investment limit than small enterprises. For manufacturing enterprises, the investment limit is between Rs. 10 crore to Rs. 50 crore, while for service enterprises, the investment limit is between Rs. 2 crore to Rs. 5 crore. The turnover limit for both types of enterprises is between Rs. 50 crore to Rs. 250 crore.

    Various initiatives

    The government of India has taken several initiatives to support the growth of MSMEs in the country, such as:

    • Udyam Portal: The government has introduced a new registration process called Udyam Registration to make it easier for MSMEs to register and avail of various government schemes and benefits.
    • Credit Guarantee Fund Scheme: The Credit Guarantee Fund Scheme provides collateral-free loans to MSMEs from banks and other financial institutions.
    • Cluster Development Programme: The government has launched the Cluster Development Programme to enhance the competitiveness of MSMEs by providing support for infrastructure, technology, and marketing.
    • National SC-ST Hub: The National SC-ST Hub aims to promote entrepreneurship among Scheduled Castes and Scheduled Tribes by providing support for capacity building, market linkages, and access to finance.
    • Technology Upgradation: The government provides financial support to MSMEs for technology upgradation through various schemes such as the Technology Upgradation Fund Scheme and the Credit Linked Capital Subsidy Scheme.

    Way forward

    If the govt. is to consider creating a separate ministry for microenterprises, there are several steps that could be taken to ensure its effectiveness:

    • Defining clear objectives: This should be based on a thorough understanding of the challenges faced by microenterprises and the opportunities available to them.
    • Coordination with other ministries: The new ministry should coordinate with other ministries to ensure that the policies and initiatives developed are aligned with the broader economic and social objectives of the government.
    • Developing policies and initiatives: The ministry should develop policies and initiatives that address the specific needs of microenterprises in India such as access to finance, technology, and markets.
    • Strengthening institutional capacity: The ministry should have a strong institutional capacity to implement policies and initiatives effectively. This could involve recruiting experts in the field of microenterprises and strengthening the capacity of existing institutions.
    • Creating awareness: The ministry should create awareness among microenterprises about the support and services available to them. This could involve organizing workshops and training programs, as well as leveraging digital platforms to disseminate information.

     

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  • Income Tax Dept. surveys BBC over Transfer Pricing allegations

    tax

    Central idea: The Income Tax Department has conducted surveys at the premises of the British Broadcasting Corporation (BBC) in Delhi and Mumbai. The BBC has been deliberately violative of transfer pricing rules.

    Transfer Pricing: A Tax Evasion Technique

    • Transfer pricing refers to the practice of determining the price at which goods, services or intangible property are sold between related entities within an enterprise across international borders.
    • It is a practice of multinational companies transferring profits to low-tax jurisdictions to reduce their tax liabilities.

    How does Transfer Pricing work?

    • The I-T Department gives the following example: “Suppose a company A purchases goods for 100 rupees and sells it to its associated company B in another country for 200 rupees, who in turn sells in theopen market for 400 rupees.
    • Had A sold it (the good) direct, it would have made a profit of 300 rupees.
    • But by routing it through B, it (A) restricted it (profit) to 100 rupees, permitting B to appropriate the balance.
    • The transaction between A and B is arranged and not governed by market forces.
    • The profit of 200 rupees is, thereby, shifted to the country of B. The goods is transferred on a price (transfer price) which is arbitrary or dictated (200 hundred rupees), but not on the market price (400 rupees).

     

    What is a ‘Survey’ under the I-T Act?

    • Section 133A of the Income Tax Act, 1961 empowers the Income Tax Department to conduct surveys to collect hidden information.
    • I-T authority can enter any place of business or profession within their jurisdiction, verify books of account, and impound documents if needed.

    What is an I-T search?

    • Section 132 of the Income Tax Act, which I-T Department to conduct searches when it has reasons to believe that someone is in possession of undisclosed income or property.

    Differences between a survey and a search

    • A survey is a less serious proceeding than a search and can only be conducted during working hours on business days within the limits of the area assigned to the officer.
    • In contrast, a search can happen on any day after sunrise, and the entire premises can be inspected to unravel undisclosed assets, with the help of police.
    • While the scope of a survey is limited to the inspection of books and verification of cash and inventory, in a search, the entire premises can be inspected to unravel undisclosed assets, with the help of police.

    Powers of the I-T authority during a search

    • The provisions for impounding or seizing the goods were introduced only by the Finance Act, 2002.
    • The Act says that during a search, an authorized officer can:
    1. Enter and search any building or place where he has reason to suspect that such books of account, other documents, money, bullion, jewellery, or other valuable article or thing are kept;
    2. Break/open the lock of any door, box, locker, safe, almirah, or other receptacles for exercising the powers conferred by clause (i) where the keys thereof are not available;
    3. Seize any such books of account, other documents, money, bullion, jewellery, or other valuable article or thing found as a result of such search;
    4. Place marks of identification on any books of account or other documents or make or cause to be made extracts or copies therefrom;
    5. Make a note or an inventory of any such money, bullion, jewellery, or other valuable article or thing.

    What are Transfer pricing rules?

    • By setting transfer pricing rules, countries can ensure that companies pay taxes on profits generated within their jurisdiction.
    • Transfer pricing rules are used to determine the “arm’s length price” at which transactions between related entities should take place.
    • The arm’s length price is the price that would have been charged between unrelated entities in similar circumstances.
    • The rules aim to ensure that related entities do not shift profits to low-tax jurisdictions, and that the tax authorities of different countries get their fair share of taxes.

    What is the role of tax authorities in curbing transfer pricing?

    • Audit: The tax authorities can carry out transfer pricing audits to determine whether the prices used in transactions between related entities are in accordance with the arm’s length principle.
    • Compliance of Arm’s length principle: If the tax authorities find that the prices are not in accordance with the arm’s length principle, they can make adjustments to the prices and levy taxes accordingly.

    What is the “Arm’s Length Arrangement” that the BBC has allegedly violated?

    • Section 92F(ii) of the Income Tax Act, 1961 defines arm’s length price as “a price which is applied or proposed to be applied in a transaction between persons other than associated enterprises, in uncontrolled conditions”.
    • Section 92C(1) says arm’s length shall be determined by the “most appropriate” among the following methods:
    • comparable uncontrolled price method;
    • resale price method;
    • cost plus method;
    • profit split method;
    • transactional net margin method;
    • such other method as may be prescribed by the I-T Board.

    What lies ahead for BBC?

    • BBC will have to comply with transfer pricing rules in each country in which they operate.
    • Failure to comply with transfer pricing rules can lead to tax liabilities and penalties.
    • Compliance with transfer pricing rules can be complex and require the assistance of tax experts.

    Try this MCQ:

    Q. Which government agency regulates transfer pricing rules in India?

    A) Reserve Bank of India

    B) Securities and Exchange Board of India

    C) Income Tax Department

    D) Ministry of Corporate Affairs

     

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  • Big Lithium find: Risks and Rewards

    lithium

    Central idea: The discovery of 5.9 million tonnes of lithium in Jammu & Kashmir is a major boost for India’s electrification plans but mining is a high-risk, high-reward game in the ecologically sensitive Himalayas.

    India’s lithium treasure

    • Huge deposits: Authorities have found 5.9 million tonnes of lithium reserves in Reasi district of Jammu & Kashmir.
    • One of the largest mines: This may be the seventh largest deposit of the rare element, accounting for roughly 5.7% of all the reserves in the world.
    • High grade quality: They are also said to be of a higher grade—550 parts per million (ppm) against the average 220 ppm—making it highly lucrative, given how lithium prices have soared in the last few years.

    Game-changing prospects for India

    • White gold: Due to its ability to pack energy, it has utility across a range of sectors and has gained the moniker ‘white gold’.
    • Soaring prices: According to the International Energy Agency, lithium prices went up more than seven-fold between the start of 2021 and May 2022.
    • Battery economy: It is now primarily used to build the batteries that power modern appliances.
    • EV push: They also power electric vehicles, a segment that will corner most of the global lithium production in future.
    • Import cut: Currently, India does not have its own lithium resources and like crude oil, it is dependent on imports. In fiscal 2022, India imported lithium and lithium ion worth almost ₹14,000 crore.

    Will batteries be made of lithium from India now?

    • There is still some way to go before miners can extract lithium for industrial use.
    • The discovery is ‘inferred’ or preliminary, the lowest of the three levels of estimations of a mineral deposit and the second of the four stages of exploration, as per the UN Framework Classification of mineral resources.
    • There is much analysis to be done before its true value is confirmed.

    Pitfalls of lithium mining

    • Pollution in the valley: Open-pit-mining, refining, and waste disposal from these processes substantially degrades the environment, including depletes and contaminates waterways and groundwater, diminishes biodiversity, and releases considerable air pollution.
    • Water intensity: Extracting lithium from its ore is highly water-intensive, taking about 2.2 million litres of water for one tonne of lithium.
    • Seismicity threats: The Himalayas are a highly fragile and eco-sensitive region and as the recent Joshimath subsidence shows, it is vulnerable to long-term adverse consequences of unplanned development works.
    • Displacement issues: Mining in the region could displace local communities and have significant social impacts. The region is home to a number of indigenous communities who could be negatively impacted by mining in the region.
    • Undue activism over Kashmir: Mining in the region can attract opposition from environmentalists and so-called separatists disguised as national leaders.

    Geostrategic considerations

    • Sensitive location: The new lithium discovery in J&K has significant geostrategic implications due to the geopolitical sensitivity of its location.
    • Neighborhood hostility: The Union territory of J&K has a history of cross-border tensions, domestic insurgency, and terrorism.
    • Resentment of local population: Lack of meaningful engagement with the local populace in the Li extraction project could introduce new frontiers of socio-environmental conflict.

    China factor

    • China currently dominates the global lithium-ion battery manufacturing industry.
    • Dependence on China for Li and other crucial metals and their derivatives is a source of energy security risks.
    • Major economies such as the E.U., the U.S., Canada, and India are seeking alternative supplies to challenge China’s geopolitical dominance.

    Indian initiatives in this regard

    • Undeterred trade with China: India’s security considerations are more immediate due to the growing geopolitical rivalry with China and longstanding territorial disputes.
    • Rare Earths Mission: The Indian government and industry are pushing for a ‘Rare Earths Mission’ to reduce dependence on China and exploit the country’s critical mineral reserves.

    Conclusion

    • In effect, the proliferation of EVs could mean India becoming dependent on China, just like it is reliant on the Middle East for crude oil today.
    • J&K’s reserves, however, provide a major opening for India to be self-reliant.

     

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  • ‘BIMARU’ Tag: What does this term mean?

    Central idea: While addressing a summit in UP, PM recalled the tag of ‘BIMARU’, once used to describe the state.

    What are BIMARU states?

    • The term “BIMARU” is an acronym formed from the first letters of five states – Bihar, MP, Rajasthan, and UP – that were believed to be economically and socially backward in the 1980s and 1990s.
    • The term was popularized by economist Ashish Bose in the 1980s to describe the poor economic and social indicators of these states.
    • He coined this term in a paper presented to then-PM Rajiv Gandhi.
    • These states were characterized by low literacy rates, poor infrastructure, high poverty rates, and low levels of industrialization.
    • The term “BIMARU” itself is an amalgamation of the Hindi words “bimar” (sick) and “ru” (a suffix meaning “land of”).

    Behind the slang name ‘BIMAR’

    The BIMARU states of Bihar, Madhya Pradesh, Rajasthan, and Uttar Pradesh are characterized by several economic and social features that distinguish them from other states in India. Some of these features include:

    • Low per capita income: These have traditionally had low per capita income levels compared to other states in India, with Bihar having the lowest per capita income among Indian states.
    • High poverty rates: They have a high percentage of people living in poverty, with Bihar and Uttar Pradesh having some of the highest poverty rates in the country.
    • Low literacy rates: They have lower literacy rates than the national average, with Bihar having the lowest literacy rate among Indian states.
    • Poor healthcare indicators: They have traditionally had poor healthcare indicators, with high infant and maternal mortality rates.
    • Agriculture-based economy: These states are primarily agricultural states, with a significant percentage of the population engaged in agriculture and related activities.
    • Significant population: They are among the most populous states in India, with Uttar Pradesh being the most populous state in the country.

    Overall, the BIMARU states have traditionally lagged behind other states in India in terms of economic and social development, although in recent years, there has been progress in improving development indicators.

    Persisting challenges

    These states still face significant challenges, including high levels of poverty and unemployment.

    • Still a national laggard: There is still a significant development gap between these states and the more developed regions of the country. For example, in 2019-20, per capita income in Bihar was only about a third of the national average, and in UP, only about half of the population has access to basic sanitation facilities.
    • High Population: The share of BIMARU states in the absolute increase in India’s population during 2001-26 will be of the order of 50.4 per cent while the share of the south will be only 12.6 per cent.

    How are these states faring now?

    • In recent years, some of these states, such as Rajasthan and Madhya Pradesh, have shown significant improvement.
    • In terms of economic growth, several of these states have experienced high growth rates in recent years, with Madhya Pradesh and Bihar recording growth rates of over 10% in 2019-20.
    • Uttar Pradesh and Rajasthan have also recorded growth rates of over 7% in recent years.
    • There has also been progress in improving social indicators such as literacy rates and healthcare infrastructure.
    • For example, Bihar has seen a significant increase in literacy rates, with the state’s literacy rate increasing from 47% in 2001 to 63% in 2011.

    Alternatives to ‘BIMARU’ terms

    • PM has urged to refrain the use of such terms as they only serves to reinforce negative stereotypes and inhibit progress towards more equitable development across the country.
    • He coined the term such as ‘Aspirational Districts/Blocks’ as alternative to such negative word.

    Way forward

    This involves several key strategies to address the economic and social challenges that these states face. Some of these strategies include:

    • Enhancing economic growth: The BIMARU states need to focus on enhancing economic growth through policies that encourage investment, job creation, and entrepreneurship. This can include measures such as improving the ease of doing business, providing infrastructure, and investing in sectors with high growth potential.
    • Improving social indicators: They need to focus on improving social indicators such as literacy rates, healthcare, and sanitation. This can involve investing in education and healthcare infrastructure, and implementing programs that target poverty reduction and social inclusion.
    • Enhancing agricultural productivity: Given that agriculture is a major contributor to the economy of BIMARU states, efforts should be made to enhance agricultural productivity and efficiency. This can include investments in irrigation and modern agricultural techniques, and support for small and marginal farmers.
    • Encouraging inclusive development: In order to reduce disparities and ensure inclusive development, policies and programs should be targeted towards the most vulnerable and marginalized sections of society. This can include measures to promote gender equality, social inclusion, and address issues such as caste-based discrimination.
    • Leveraging technology: The BIMARU states can leverage technology to enhance economic and social development. This can involve the use of digital technologies to improve access to education and healthcare and promote entrepreneurship and innovation.

    Conclusion

    • Overall, while the BIMARU states have made progress in recent years, there is still a long way to go in terms of achieving more equitable development across the country.

     

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