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Subject: Economics

  • Species in news: Badri Cow

    badri

    To increase the productivity of its indigenous petite Badri cow that grazes on the medicinal herbs of the Himalayas, Uttarakhand is now planning for its genetic enhancement.

    Badri Cow

    • Badri/Pahari desi cow is a native cow species of Uttarakhand.
    • This cow grazes in the Himalayas on native herbs and shrubs and hence its milk has high medicinal value.
    • These cattle are well adapted to the hilly terrain and the climatic conditions of Uttarakhand.
    • This sturdy and disease-resistant breed is found in hilly regions of the Almora and Pauri Garhwal districts of Uttarakhand.
    • Disease resistance is a very important characteristic of this breed as it rarely gets any disease.

    Medicinal benefits

    • This breed is blessed with strong immunity.
    • The milk of the Badri cow contains almost 90% A2 beta-casein proteins – and is one of the highest in any indigenous varieties.
    • Antioxidants in pure desi ghee help the body better absorb vitamins and minerals, thus boosting immunity.
    • Butyric acid in Badri cow ghee helps strengthen immunity by increasing T-cell production in the gut which helps fight against allergens.

    Why in news?

    • The State authorities proposed to use sex-sorted semen technology to improve production of Badri cattle.
    • They also proposed to opt for the embryo transfer method in order to produce more cattle of high genetic stock.

    Economic significance of Badri cow

    • The Badri ghee is available at the rate of ₹3,000 to ₹5,000 per kg.
    • There is a huge marketing potential for gaumutra ark (distilled cow urine), cow dung, and Panchgavya (the five products of the cow, including milk, curd, ghee, dung and urine).

     

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  • India-China trade deficit is at $51.5 Bn

    The trade deficit, difference between import and exports, between India and China has touched $51.5 billion during April-October this fiscal.

    Widening deficit

    • The deficit during 2021-22 had jumped to $73.31 billion as compared to $44.03 billion in 2020-21.
    • According to the data, imports during April-October this fiscal stood at $60.27 billion, while exports aggregated at $8.77 billion.
    • The merchandise exports from India to China had increased from $11.93 billion in 2014-15 to $21.26 billion in 2021-22.

    India-China bilateral trade

    • In 2021, annual two-way trade crossed $100 billion for the first time, reaching $125.6 billion, with India’s imports accounting for $97.5 billion, pegging the imbalance at close to $70 billion.
    • This is certainly a healthy deficit compared to the industrial development in both nations.

    A quick backgrounder

    • Trade ties began to boom since the early 2000s.
    • This was driven largely by India’s imports of Chinese machinery and other equipment.
    • It rose up from $3 billion in the year 2000 to $42 billion in 2008, the year China became India’s largest trading partner.

    The Hindi-Chini buy buy

    • A third of machinery and almost two-fifths of organic chemicals that India purchases from the world come from China.
    • Automotive parts and fertilizers are other items where China’s share in India’s import is more than 25 per cent.
    • Several of these products are used by Indian manufacturers in the production of finished goods, thus thoroughly integrating China in India’s manufacturing supply chain.
    • For instance India sources close to 90 per cent of certain mobile phone parts from China.

    India’s export to China

    • Even as an export market, China is a major partner for India.
    • China is the third-largest destination for Indian shipments.
    • At the same time, India only accounts for a little over two percent of China’s total exports, according to the Federation of Indian Export Organisation (FIEO).

    Should we worry about this?

    • Trade deficits/surpluses are just accounting exercises and having a trade deficit against a country doesn’t make the domestic economy weaker or worse off.
    • In this light, India’s trade imbalance with China should not be viewed in isolation.
    • For instance, pharmaceuticals that India exports to the world require ingredients that are imported from China.
    • Chinese imports of Indian seafood are one area that has recently shown robust growth and carries scope to grow in future.

    So, having a trade deficit is good?

    • Of course NOT. Running persistent trade deficits across all countries raises two main issues.
    1. Availability of foreign exchange reserves to “buy” the imports.
    2. Lack of domestic capacity to produce most efficiently.

    Can we ban trade with China?

    Ans. Certainly NOT!

    • It will hurt the Indian poor the most: This is because the poor are more price-sensitive. For instance, if Chinese TVs were replaced by either costlier Indian TVs or less efficient ones, unlike poor, richer Indians may buy the costlier option.
    • It will punish Indian producers and exporters: Several businesses in India import intermediate goods and raw materials, which, in turn, are used to create final goods — both for the domestic Indian market as well as the global market (as Indian exports).
    • Pharma sector could be worst hit: For instance, of the nearly $3.6 billion worth of ingredients that Indian drug-makers import to manufacture several essential medicines, China catered to around 68 percent.
    • Ban will barely hurt China: According to the United Nations Conference on Trade and Development (UNCTAD) data for 2018, 15.3% of India’s imports are from China, and 5.1% of India’s exports go to China.
    • Chinese money funds Indian unicorns: India and China have also become increasingly integrated in recent years. Chinese money, for instance, has penetrated India’s technology sector, with companies like Alibaba and Tencent strategically pumping in billions of dollars into Indian startups such as Zomato, Paytm, Big Basket and Ola.
    • India will lose policy credibility: It has also been suggested that India should renege on existing contracts with China. This can be detrimental to India’s effort to attract foreign investment.

    China is our Frenemy. Here is why.

    • The first thing to understand is that turning a border dispute into a trade war is unlikely to solve the border dispute.
    • Worse, given India and China’s position in both global trades as well as relative to each other, this trade war will hurt India far more than China.
    • Again, these measures will be most poorly timed since the Indian economy is already at its weakest point ever — facing a sharp GDP contraction.

    Way forward

    • In the long term, under the banner of self-reliance, India must develop its domestic capabilities and acquire a higher share of global trade by raising its competitiveness.
    • But no country is completely self-sufficient and that is why trade is such a fantastic idea.
    • For the long run, a more effective strategy needs to be built to provide an ecosystem that addresses the cost disability of Indian manufacturing leading to such imports.

     

     

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  • Energy Conservation (Amendment) Bill, 2022 introduced in RS

    The Ministry of New and Renewable Energy has introduced the Energy Conservation (Amendment) Bill in Rajya Sabha.

    Highlights of the Bill

    • The Bill amends the Energy Conservation Act, 2001 to empower the central government to specify a carbon credit trading scheme.
    • Designated consumers may be required to meet a proportion of their energy needs from non-fossil sources.

    Why was this Bill introduced?

    • During the COP-26 summit in 2021, India made commitments relevant for energy efficiency efforts.
    • Against this backdrop, the Energy Conservation (Amendment) Bill, 2022 was introduced in Lok Sabha in August 2022.

    Key features of the bill

    • Carbon credit trading:The Bill empowers the central government to specify a carbon credit trading scheme.   Carbon credit implies a tradable permit to produce a specified amount of carbon dioxide or other greenhouse emissions.
    • Obligation to use non-fossil sources of energy:The Act empowers the central government to specify energy consumption standards for designated consumers to meet a minimum share of energy consumption from non-fossil sources.  Designated consumers include: (i) industries such as mining, steel, cement, textile, chemicals, and petrochemicals, (ii) transport sector including Railways, and (iii) commercial buildings, as specified in the schedule.
    • Energy conservation code for buildings: The bill empowers the central government to specify norms for energy efficiency and conservation, use of renewable energy, and other requirements for green buildings.   Under the Act, the energy conservation code applies to commercial buildings: (i) erected after the notification of the Code, and (ii) having a minimum connected load of 100 kilowatt (kW) or contract load of 120 kilo volt ampere (kVA).
    • Standards for vehicles and vessels: Under the bill, the energy consumption standards may be specified for equipment and appliances which consume, generate, transmit, or supply energy.  The Bill expands the scope to include vehicles (as defined under the Motor Vehicles Act, 1988), and vessels (includes ships and boats).
    • Composition of the governing council of BEE: The Act provides for the setting up of the Bureau of Energy Efficiency (BEE).  The Bureau has a governing council with members between 20 and 26 in number.

    Concerns raised

    • Carbon credit trading aims to reduce carbon emissions, and hence, address climate change.  The question is whether the Ministry of Power is the appropriate Ministry to regulate this scheme.
    • A further question is whether the market regulator for carbon credit trading should be specified in the Act.
    • Same activity may be eligible for renewable energy, energy savings, and carbon credit certificates.
    • The Bill does not specify whether these certificates will be interchangeable.
    • Designated consumers must meet certain non-fossil energy use obligation.  Given the limited competition among discoms in any area, consumers may not have a choice in the energy mix.

     

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  • Discussing the Indian Economy’s pressing problems

    Economy

    Context

    • Several agencies, including the IMF and the World Bank have projected lower growth rates for the Indian economy in FY23, than the 7.2 per cent estimated by the RBI in April. The Central bank has now lowered its forecast to 6.8 per cent. Given the current situation, with the Q2 FY 2023.

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    Economy

    Current economic growth estimation

    • Economy is likely to grow at 6.5-7.0 per cent: Given the current situation, with the Q2 FY 2023 GDP growth clocking in at 6.3 per cent, the economy is likely to grow at 6.5-7.0 per cent in this fiscal year.
    • Considering economic uncertainties it is difficult to arrive at precise estimate: It is difficult to arrive at a precise estimate for growth this year with unprecedented economic uncertainty worldwide, including high global inflation, synchronized monetary tightening, and the impact of the Ukraine war.

    Positive signs in the Indian Economy

    • Positive medium-term growth prospects: Company and bank balance sheets are healthier, credit growth is rising, and capacity utilisation has increased, all of which augur well for investment activity.
    • Positive impact on tourism: The waning of Covid-19 should hopefully have a positive impact on travel, transport and tourism. Construction activity should pick up further with the reduction in housing inventory and almost stable prices over the last decade.
    • On inflation India is doing better: On the inflation front, India is doing better than many advanced economies and emerging markets.

    Economy

    What is Indian economy’s pressing problems specifically in terms of Labour-intensive growth?

    • Employment a biggest concern: Employment, an issue that has persisted over the last two decades. In brief, we have not generated enough good jobs to match the scale at which the economy has grown, especially in the organised sector. As a result, we have very high under-employment and poor-quality employment, which have hampered a much-needed move away from agriculture.
    • Lack of precise data on people living in poverty: We do not have a precise estimate of the current levels of poverty, as there has been no household consumption survey since 2011-12, and the 2017-18 survey was abandoned due to technical issues. But there is reasonable consensus that poverty could be around 10 per cent of the country’s population, A low number compared to the past, but as many as 140 million people could still be living in poverty.
    • Lack of non-agricultural jobs: The rising demand for the MGNREGA, and the importance of food distribution schemes and other welfare programmes for the poor are indicators of the lack of non-agriculture jobs being generated.
    • Lowest rate of women participation in labour force: An alarming aspect of the employment problem in India is the low participation rate of women in the labour force, which is among the lowest in the world. This loops back to the importance of labour-intensive manufacturing. For example, much of Bangladesh’s success, and that of Southeast Asian countries, in exports and manufacturing stems from the large number of women working in their factories.
    • Women literacy is rising but increasing number of educated women are not working: A positive trend in India has been the growing trend in girls attending schools and college in the last 20 years, but this also means that an increasing number of educated women are not working.
    • Despite of 1991 reforms still remains an untapped opportunity: With the LPG reforms, the expectation was that, as the economy opened up to global competition, India’s low wage levels would attract private investment into labour-intensive manufacturing, thus generating jobs. This was the path followed by the East Asian economies that experienced high growth and rapid development. But for India this remains an untapped opportunity.
    • Manufacturing is shifting to countries other than India: Even with rising wage levels in China, manufacturing is shifting to countries other than India. The PLI (production-linked incentives) scheme has been rolled out to encourage manufacturing. It may need some tweaking to be biased towards labour-intensive manufacturing as China vacates space in this area. This may seem at odds with the more popular view that it is small and medium enterprises which promote employment.
    • Country’s real exchange rate is not healthy: An overvalued rupee has discouraged the export of labour-intensive manufacturing goods, which are very price-sensitive in global markets. It has also had a dampening effect on domestic production as our currency has depreciated at a lower rate than other emerging economies like China and Indonesia.
    • Depreciated rupee impacting domestic producers by inflow of cheaper imports: Domestic producers of goods that compete with imports into our markets have been impacted by the inflow of cheaper imports. This has disincentivised them from expanding production and generating employment.
    • Micro, small and medium enterprises (MSMEs) are severally hit: Problems that have come to the fore post-pandemic include the health of micro, small and medium enterprises (MSMEs). Accurate information on this is somewhat scarce but anecdotal evidence suggests that they have been more severely hit than the formal sector.

    Economy

    Way ahead

    • The rupee has been overvalued for long and needs to be allowed to depreciate, though in a calibrated way, ensuring external and financial stability.
    • Job growth is crucial if we are to reduce the still high levels of poverty in the country
    • Incentivizing the domestic producers so that they can compete with the cheaper inflow of imports and expands their manufacturing thereby generating employment in the economy
    • The continued recovery of the formal sector, as indicated by various metrics, in terms of the improved health of corporates and banks should effectively pull up the MSMEs through supply chains linkages, among others.
    • We still have a negative real interest rate (that is, the difference between the RBI’s policy rate and inflation). Hence, the policy rate needs to rise further, providing a push to financial savings, which are needed to generate higher investment for growth.
    • Inflation need to be contained through supply-side measures as well, such as an improvement in the supply of food products.

    Conclusion

    • High under-employment and poor-quality employment have hampered a much-needed move away from agriculture. A focus on labour-intensive formal manufacturing is the need of the hour.

    Mains Question

    Q. India is showing positive signs of economic recovery however the economy still has a hangover from the past and some are exacerbated by Covid. Discuss.

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  • Bill to amend Multi-State Cooperative Societies Act introduced in LS

    The Multi-State Cooperative Societies (Amendment) Bill, 2022, aimed at bringing in transparency in the sector, was introduced in the Lok Sabha.

    What is MSCS Act, 2002?

    • Cooperatives are a state subject, but there are many societies such as those for sugar and milk, banks, milk unions etc. whose members and areas of operation are spread across more than one state.
    • The MSCS Act was passed to govern such cooperatives.
    • For example, most sugar mills along the districts on the Karnataka-Maharashtra border procure cane from both states.

    What are Multi-State Cooperatives?

    • They draw their membership from two or more states, and they are thus registered under the MSCS Act.
    • Their board of directors has representation from all states they operate in.
    • Administrative and financial control of these societies is with the central registrar, with the law making it clear that no state government official can wield any control on them.

    Why does the government plan to amend the Act?

    (1) Issues with Central Registrar

    • The exclusive control of the central registrar, who is also the Central Cooperative Commissioner, was meant to allow smooth functioning of these societies.
    • The central Act cushions them from the interference of state authorities so that these societies are able to function in multiple states.
    • What was supposed to facilitate smooth functioning, however, has created obstacles.
    • For state-registered societies, financial and administrative control rests with state registrars who exercise it through district- and tehsil-level officers.

    (2) Multiple checks and balances

    • Thus if a sugar mill wishes to buy new machinery or go for expansion, they would first have to take permission from the sugar commissioner for both.
    • Post this, the proposal would go to the state-level committee that would float tenders and carry out the process.
    • While the system for state-registered societies includes checks and balances at multiple layers to ensure transparency in the process, these layers do not exist in the case of multistate societies.
    • Instead, the board of directors has control of all finances and administration.

    (3) Lack of govt control

    • There is an apparent lack of day-to-day government control on such societies.
    • Unlike state cooperatives, which have to submit multiple reports to the state registrar, multistate cooperatives need not.
    • The central registrar can only allow inspection of the societies under special conditions — a written request by one-third of the members of the board.
    • Inspections can happen only after prior intimation to societies.

    (4) Lack of infrastructure

    • The on-ground infrastructure for central registrar is thin — there are no officers or offices at state level, with most work being carried out either online or through correspondence.
    • For members of the societies, the only office where they can seek justice is in Delhi, with state authorities expressing their inability to do anything.

    (5) Ponzi schemes functioning as MCS

    • There have been instances across the country when credit societies have launched ponzi schemes taking advantage of these loopholes.
    • Such schemes mostly target small and medium holders with the lure of high returns.
    • Fly-by-night operators get people to invest and, after a few instalments, wind up their operations.

    Need for Amendment

    • At present, India has more than 1,500 multi-State cooperative societies.
    • The Bill seeks to strengthen governance, reform the electoral process, improve the monitoring mechanism, and ensure ease of doing business in multi-State cooperative societies.
    • It also aims to improve the composition of boards and ensure financial discipline, besides enabling the raising of funds in multi-State cooperative societies.

    Key establishments under the Amendment Bill

    • In order to make the governance of multi-State cooperative societies more democratic, transparent and accountable, the Bill has provisions for setting up of –
    1. Cooperative Election Authority,
    2. Cooperative Information Officer and
    3. Cooperative Ombudsman.

    Other features

    • Constitution of interim board: The Bill allows the central registrar to declare any multi-state cooperative society as sick. The Central government may, on the recommendation of the registrar, appoint an interim board for a maximum of five years. The central registrar can also declare a cooperative to be viable within the five years. The board of directors before the cooperative was declared sick shall be reinstated.
    • Elections: The Act states that elections shall be conducted by the existing board. The Bill amends this to state that the Central government may appoint a Cooperative Election Authority to conduct elections in cooperative societies to be prescribed.
    • Constitution of Fund: The Bill states that the central government shall set up the Cooperative Rehabilitation and Reconstruction Fund. A cooperative society shall credit 0.005% to 0.1% of its turnover to the fund, provided it does not exceed Rs 3crores per year.

     

     

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  • What is Goods Trade Barometer?

    barometer

    The World Trade Organization’s Goods Trade Barometer says the global economy, hit by strong headwinds and weakening import demand, may see trade growth slowdown in the closing months of 2022 and into 2023.

    What is Goods Trade Barometer?

    • The Goods Trade Barometer was developed by the WTO to complement conventional trade statistics and forecasts.
    • It is the world’s leading composite indicator that highlights the turning points in the global merchandise trade and provides forecasts of its likely trajectory in the near future.
    • It is released on a quarterly basis based on the availability of data.
    • It provides real-time data on the trajectory of merchandise trade relative to the current trends.
    • Values higher than 100 indicates above-trend growth and the values less than 100 indicates below-trend growth.

    Key trends

    • In its recent release, it said trade growth is likely to slow down in 2022 and into 2023.
    • Reflecting a cooling demand for traded goods based on actual trade developments through the second quarter of 2022, the current reading of 96.2 is below the baseline value index and the prior reading of 100.0.
    • The downturn in the goods barometer is in line with the earlier forecast which predicted a merchandise trade volume growth of 3.5% in 2022 and a revised lower estimate of 1% for 2023.

    Impact on India’s trade balance

    • With a likely fall in export earnings, and no decrease in imports of essential items like crude oil and capital goods, India’s trade deficit is set to widen.
    • The projection is that the country’s current account trade deficit is expected to be around 3% of GDP for FY23.
    • Foreign exchange reserves which have already depleted by over $100 billion over the last year are likely to shrink further.

    What does a slowdown mean for India?

    • India is not an export-led economy. In FY22, 21.5% of Indian GDP depended on exports.
    • However, in view of the poor performance of the country’s major market destinations such as the US and China, Indian exports are bound to suffer.
    • During the subprime crisis which engulfed the entire world, India’s export-oriented sectors had to pay the price though the economy was to a large extent insulated due to a vibrant rural sector.
    • But currently rural India is not in a strong position unlike in 2008-09.

     

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  • What is First Loss Default Guarantee (FLDG) System?

    Two months after the RBI issued guidelines on digital lending, banks, NBFCs and fintech players are still awaiting clarity on many aspects, including the First Loss Default Guarantee (FLDG) system.

    What is FLDG System?

    • FLDG is an arrangement between a fintech company and regulated entity (RE), including banks and non-banking finance companies, wherein the fintech compensates the RE to a certain extent if the borrower defaults.
    • Under this, the fintech originates a loan and promises to compensate the partners up to a pre-decided percentage in case customers fail to repay.
    • The bank/NBFC partners lend through the fintech but from their own books.
    • FLDG helps expand the customer base of traditional lenders but relies on the fintechs underwriting capabilities.
    • FLDG is also seen as a validation of the fintechs underwriting capabilities for loans disbursed.

    Issues with FLDGs

    • A report by an RBI-constituted working group on digital lending has laid down risks of FLDG agreements with unregulated entities.
    • The other concern is that FLDG costs are often passed on to customers.

     

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  • Healthy tax collection and the challenge of effective utilization

    collection

    Context

    • Notwithstanding the likely slowdown in economic momentum in the second half of the year, the Union government’s tax collections are on track to surpass its budgeted target by a significant amount this year.

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    collection

    The current status Union government’s tax collection

    • Gross tax collections have already touched the target: Data released by the Controller General of Accounts last week shows that gross tax collections have already touched 58 per cent of the full year’s target, growing by 18 per cent in the first seven months (April-October) of the current financial year.
    • Healthy growth in corporate tax collection: Under the broad rubric of taxes, direct tax collections have grown by a robust 26 per cent in the first seven months of the financial year, with healthy growth being seen across both corporate and income tax collections.
    • Higher than the nominal GDP growth: While the pace of direct collections has eased during July-October when compared to the first quarter, it continues to be higher than nominal GDP growth in the second quarter.
    • Healthy indirect tax collection: On the indirect tax side, GST collections continued to witness healthy growth, recording an increase of 11 per cent in November.

    collection

    Memory shot in short: Types of Direct Taxes

    • Income Tax: Depending on an individual’s age and earnings, income tax must be paid. Various tax slabs are determined by the Government of India which determines the amount of Income Tax that must be paid. The taxpayer must file Income Tax Returns (ITR) on a yearly basis. Individuals may receive a refund or might have to pay a tax depending on their ITR. Penalties are levied in case individuals do not file ITR.
    • Wealth Tax: The tax must be paid on a yearly basis and depends on the ownership of properties and the market value of the property.
    • Estate Tax: It is also called Inheritance Tax and is paid based on the value of the estate or the money that an individual has left after his/her death.
    • Corporate Tax: Domestic companies, apart from shareholders, will have to pay corporate tax. Foreign corporations who make an income in India will also have to pay corporate tax.
    • Capital Gains Tax: It is a form of direct tax that is paid due to the income that is earned from the sale of assets or investments

    What the Healthy tax collection imply?

    • Higher devolution to states: Higher tax collections at the level of the central government imply that devolution to states will be higher than the budgeted amount of Rs 8.16 lakh crore. The months of August and November have in fact witnessed double instalments as the Centre has stepped up devolution.
    • States can increase fiscal expenditure: Along with the interest free loan scheme extended by the Centre, higher devolution implies that states have considerable fiscal room to increase capital expenditure. However, this has not been the case so far. Capex by states has been rather muted.
    • Provides comfort to governments fiscal arithmetic: As per recent statements by revenue secretary Tarun Bajaj, the government is now hopeful of exceeding the budgeted target by nearly Rs 4 lakh crore. With its spending also likely to surpass earlier expectations by a considerable margin, higher tax collections will provide some comfort to the government’s fiscal arithmetic.

    collection

    Challenges on the expenditure side

    • Increased subsidy bills: On the expenditure side, the Union government is facing a massive increase in its subsidy bill.
    • Spending is more than actual budget: Actual spending on the food and fertilizer subsidy and also on LPG will be significantly higher than what has been budgeted for. This is likely to make the fiscal situation challenging.
    • Effective utilization is necessary: Considering that the central government has maintained the momentum on its capital spending, growing by around 60 per cent in the first seven months of the year, the overall general government fiscal impulse will depend on how effectively states are able to utilise the extra space available to them.

    Conclusion

    • Calls for increasing spending to support the economy during this uncertain period will only gain traction as the budget approaches. The government must however resist the temptation. It should stick to the glide path of fiscal consolidation.

    Mains Question

    Q. In a time of possible economic slowdown, India’s tax collection is on a healthy path. Discuss what good tax collection means for economy?

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  • India’s Economic Growth story and the future roadmap

    Economic

    Context

    • By 2047, India will complete 100 years after Independence. By that time, India strives to achieve the status of a developed economy, which means achieving a minimum per capita income equivalent to $13,000.

    Economic growth during the British period

    • Poor state of economy: It is not realized often that India’s economic progress in the first half of the 20th century under British rule was dismal. According to one estimate, during the five decades, India’s annual growth rate was just 0.89%.
    • Negligible growth in per capita: With the population growing at 0.83%, per capita income grew at 0.06%. It is not surprising that immediately after Independence, growth became the most urgent concern for policymakers.

    Economic growth after Independence

    • In the early period, India’s strategy of development comprised four elements:
    1. Raising the savings and investment rate;
    2. Dominance of state intervention;
    3. Import substitution, and
    4. Domestic manufacture of capital goods.
    • Modest growth till 1970: India’s average growth till the end of the 1970s remained modest, with the average growth rate being 3.6%. With a population growth of 2.2%, the per capita income growth rate was extremely modest at 1.4%.
    • Improvement in social indicators: On certain health and social parameters, such as the literacy rate and life expectancy, there were noticeable improvements.
    • The success of green revolution: While India had to rely on the heavy imports of food grains on a concessional basis, initially, there was a breakthrough in agriculture after the Green Revolution.
    • Industrial base widened: The industrial base expanded with time. India became capable of producing a wide variety of goods including steel and machinery.
    • Unsustainable fiscal policy: Plan after plan, actual growth was less than what was projected. The Indian economy did grow at 5.6% in the 1980s. But it was accompanied by a sharp deterioration in the fiscal and current account deficits, and the economy faced its worst crisis in 1991-92.

    Economic

    Statistics of economic growth after 1991

    • Rapid economic growth: Between 1992-93 and 2000-01, GDP at factor cost grew annually by 6.20%. Between 2001-02 and 2012-13, it grew by 7.4% and the growth rate between 2013-14 and 2019-20 was 6.7%.
    • Sustained period of high growth rate: The best performance was between 2005-06 and 2010-11 when GDP grew by 8.8%, showing clearly what the potential growth rate of India was. This is the highest growth experienced by India over a sustained period of five to six years. This was despite the fact that this period included the global crisis year of 2008-09.
    • Rising investment rate: There was a corresponding increase in the savings rate. The current account deficit in the Balance of Payments (BOP) remained low at an average of 1.9%.
    • Setback to growth after 2011-12: However, the growth story suffered a setback after 2011-12. The growth rate fell to 4.5% in 2012-13 according to the 2004-05 series. The growth rate since then has seen ups and downs. The growth rate touched the 3.7% level in 2019-20.

    Economic

    Roadmap for Future Growth

    • Keeping the sustained growth rate: The first and foremost task is to raise the growth rate. Calculations show that if India achieves a 7% rate of growth continuously over the next two decades and more, it will make a substantial change to the level of the economy. India may almost touch the status of a developed economy.
    • Maintaining the incremental capital output ratio: If India maintains the incremental capital output ratio at 4, which is a reflection of the efficiency with which we use capital, India can comfortably achieve a 7% rate of growth.
    • Investment must be increased: Raising the investment rate depends on a number of factors. A proper investment climate must be created and sustained.
    • Private investment is crucial: While public investment should also rise, the major component of investment is private investment, both corporate and non-corporate. It is this which depends on a stable financial and fiscal system. The importance of price stability in this context cannot be ignored.
    • New technologies must be embraced: India needs to absorb the new technologies that have emerged, and that will emerge. Its development strategy must be multidimensional.
    • Strong Export and manufacturing: India need a strong export sector. It is a test of efficiency. At the same time, India needs a strong manufacturing sector. The organized segment of this sector must also increase.
    • Strengthened the social safety nets: As output and income increase, India must also strengthen the system of social safety nets. Growth without equity is not sustainable.

    Challenges for India’s growth

    • Low per capita income: India today is the fifth largest economy. This is an impressive achievement. However, in relation to per capita income, it is a different story. In 2020, India’s rank was 142 out of 197 countries. This only shows the distance we have to travel.
    • Declining growth in developing countries: The external environment is not going to be conducive. The Organization for Economic Co-operation and Development reports a secular decline in growth in developed countries.
    • Climate change may affect the growth: Environmental considerations may also act as a damper on growth. Some adjustment on the composition of growth may become necessary.

    Conclusion

    • Considering the India’s population, India has no option but to grow continuously. Government has undertaken major structural reform and policy initiatives like GATI-SHAKTI to give fillip to growth of economy. These are the steps in the right directions and more such liberalizing initiatives need to be encouraged.

    Mains Question

    Q. Briefly describe the history of economic growth of India after independence. What could be the roadmap for future growth of India till 2047?

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  • Unified Payments Interface (UPI) market cap deadline extended by 2 years

    The National Payments Corporation of India (NPCI) has extended by two years the deadline to comply with its 30 percent cap on the market share of platforms operating on the Unified Payments Interface (UPI).

    What is UPI?

    • Unified Payments Interface (UPI) is an instant real-time payment system developed by National Payments Corporation of India (NPCI) facilitating inter-bank transactions.
    • The interface is regulated by the Reserve Bank of India (RBI) and works by instantly transferring funds between two bank accounts on a mobile platform.

    What is the NPCI plan for UPI?

    • NPCI had initially planned to enforce the market cap rules in January 2021.
    • It aimed to limit any single payments app from processing more than 30 per cent of UPI transactions in a month.

    Why extension?

    • The extension is being seen as a major relief for Walmart and Flipkart-backed PhonePe and Google Pay, which currently command a majority of the UPI market share.

    How could it impact UPI platforms?

    • Industry analysts believe the move comes as a shot in the arm for PhonePe and Google Pay, which collectively control more than 80 per cent of UPI’s market share.
    • For platforms like Paytm and WhatsApp Pay, however, the extension could be seen as a natural loss.
    • As of October, Paytm had a market share of 15 per cent on UPI.
    • In comparison, PhonePe had a 47 per cent market share, while GooglePay accounted for around 35 per cent.

    How is UPI performing?

    • According to the Reserve Bank of India’s Payment Vision 2025, UPI is expected to register an average annualized growth of 50 percent.
    • After touching a new high of Rs 12.11 lakh crore in October, the UPI transaction value for the month of November came in at Rs 11.90 lakh crore.
    • However, the transaction count at 7.3 billion in October remained the same in November.

     

    Try this PYQ:

    With reference to digital payments, consider the following statements:

    1. BHIM app allows the user to transfer money to anyone with a UPI-enabled bank account.
    2. While a chip-pin debit card has four factors of authentication, BHIM app has only two factors of authentication.

    Which of the statements given above is/ are correct? (CSP 2018)

    (a) 1 only

    (b) 2 only

    (c) Both 1 and 2

    (d) Neither 1 nor 2

     

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