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Subject: Economics

  • Making The Case for Wealth Tax

    Wealth Tax

    Context

    • The discourse on efficient, effective and equitable public spending often takes us into the realm of limited resources facing competing demands. India definitely needs to widen its revenue collection as well as base. In this context, it is important to discuss the need for levying a wealth tax, and levying it now.

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    Why wealth needs to be taxed?

    • Accumulation of wealth: The most compelling reason stems from evidence that there has been massive accumulation of wealth in a few hands. A small section of people has access to a large share of economic assets and resources that remain almost completely untaxed and thus unavailable for public allocation.
    • Wealth without hard work: Wealth, much less than even income, has little to do with one’s education, merit or efforts; it is largely dependent on inheritance and opportunities that come with the advantages associated with belonging to one of India’s privileged classes and castes.
    • Income inequality: India’s top 10% population owns 65% of the country’s wealth, while the bottom 10% owns only 6%, according to the World Inequality Database, 2022.
    • Wealth of rich doubled in pandemic: An Oxfam report has highlighted how India’s richest doubled their wealth during the pandemic. This happened for a variety of reasons, including profits made on vaccines and commodity and asset price movements.
    • Wealth doesn’t translate into productive resources: But the fact remains that India, despite facing grave financial and economic challenges, has no means to convert any of this growing wealth into productive resources that can generate employment opportunities and push up the incomes of multitudes, which in turn can drive demand for goods something that is needed to counter an economic drag-down.

    What is the government’s attitude towards wealthy?

    • Rich knows how to invest: One may argue and it is common to hear this that wealth is better left to the wealthy, as they know best how to invest. This has not been in sufficient evidence, at least in India.
    • Corporate tax lowered: The government lowered the corporate tax rate significantly from 30% to 22% in 2019-20, which has continued despite the economic crises caused by the pandemic. However, this did not elicit much private investment.

    Wealth Tax

    History of Wealth taxation in India

    • Wealth tax: Wealth tax, which is a direct tax unlike the goods and services tax or value-added tax, can take several forms, such as property tax, inheritance or gift tax and capital gains tax.
    • Capital gains tax: Capital Gains tax exists in India, but applies only to transactions and hence is limited in its base.
    • Estate duty: India scrapped its estate duty in 1985 and has no inheritance tax. Although the receipt of gifts is subject to income tax in the beneficiary’s hands, it has various exemptions; it is almost entirely exempt if received from within the family, including the extended family of self and spouse.
    • Exemption leads to accumulation: These exemptions shrink the base significantly, as most accumulated wealth is acquired through family, and that remains outside the gift tax’s ambit. Given the cultural context of wealth inheritance, some exemptions make sense, but upper thresholds can be easily added to make it more effective.

    Present status of wealth taxation

    • No wealth tax: India presently does not have any wealth tax i.e., a tax levied on one’s entire property in all forms.
    • One time solidarity tax: It did not impose a one-time ‘solidarity tax’ on wealth in post-covid budgets that could have generated resources for essential public investment.
    • Example of developing countries: A number of Latin American countries, including Argentina, Peru and Bolivia, have either introduced or are introducing a progressive annual wealth tax levied on the wealth gains of each year or a one-time covid ‘solidarity’ tax.

    Wealth Tax

    Conclusion

    • Idea of wealth tax appear good on paper however; it may negatively impact the domestic and foreign investment in the country. Direct tax slab for superrich in India is already among the highest in the world. The idea of wealth taxation needs careful deliberation before implementation.

    Mains Question

    Q. Comment on history of wealth tax in India. why wealth tax is necessary in India? elaborate.

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  • RBI proposes Expected Loss-based Approach for Loan Provisioning

    The Reserve Bank of India (RBI) has proposed a framework for the adoption of an expected loss-based approach for loan provisioning by banks.

    What is Loan-Loss Provision?

    • The RBI defines a loan loss provision as an expense that banks set aside for defaulted loans.
    • Banks set aside a portion of the expected loan repayments from all loans in their portfolio to cover the losses either completely or partially.
    • In the event of a loss, instead of taking a loss in its cash flows, the bank can use its loan loss reserves to cover the loss.
    • Since the bank does not expect all loans to become impaired, there is usually enough in the loan loss reserves to cover the full loss for any one or a small number of loans when needed.
    • An increase in the balance of reserves is called loan loss provision.
    • The level of loan loss provision is determined based on the level expected to protect the safety and soundness of the bank.

    And what is the expected loss-based approach?

    • Under this practice, a bank is required to estimate expected credit losses based on forward-looking estimations, rather than wait for credit losses to be actually incurred before making corresponding loss provisions.
    • As per the proposed framework, banks will need to classify financial assets (primarily loans, including irrevocable loan commitments, and investments classified as held-to-maturity or available-for-sale) into one of three categories — Stage 1, Stage 2, or Stage 3.
    • This depends upon the assessed credit losses on them, at the time of initial recognition as well as on each subsequent reporting date, and make necessary provisions.
    1. Stage 1 assets are financial assets that have not had a significant increase in credit risk since initial recognition or that have low credit risk at the reporting date. For these assets, 12-month expected credit losses are recognised and interest revenue is calculated on the gross carrying amount of the asset.
    2. Stage 2 assets are financial instruments that have had a significant increase in credit risk since initial recognition, but there is no objective evidence of impairment. For these assets, lifetime expected credit losses are recognised, but interest revenue is still calculated on the gross carrying amount of the asset.
    3. Stage 3 assets include financial assets that have objective evidence of impairment at the reporting date. For these assets, lifetime expected credit loss is recognised, and interest revenue is calculated on the net carrying amount.

    What are the benefits of this approach?

    • The forward-looking expected credit losses approach will further enhance the resilience of the banking system in line with globally accepted norms.
    • It is likely to result in excess provisions as compared to shortfall in provisions as seen in the incurred loss approach.

    What is the problem with the incurred loss-based approach?

    • The incurred loss approach requires banks to provide for losses that have already occurred or been incurred.
    • The delay in recognising expected losses under an “incurred loss” approach was found to exacerbate the downswing during the financial crisis of 2007-09.
    • Faced with a systemic increase in defaults, the delay in recognising loan losses resulted in banks having to make higher levels of provisions which ate into the capital maintained precisely at a time when banks needed to shore up their capital.
    • This affected banks’ resilience and posed systemic risks.
    • Further, the delays in recognising loan losses overstated the income generated by the banks which, coupled with dividend payouts, impacted their capital base

     

    Which banks are covered under this approach?

    • The proposed norms are for all scheduled commercial banks, excluding regional rural banks.
    • Regional rural banks and smaller cooperative banks (based on a threshold to be decided based on comments) are proposed to be kept out of the framework.

     

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  • A Bumpy Ride for India’s Economy in 2023: A perspective

    Economy

    Context

    • India’s general elections, scheduled for 2024, will also bring in their wake high-pitched rhetoric and spin-doctoring to further muddy the waters. In short, buckle up because the next 12 months promise a flurry of conflicting signals and a rather bumpy ride. A perspective on Indian economy in 2023.

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    Turbulent global situation

    • Pandemic plus Ukraine war: One conflicting signal is already staring us in the face, the seemingly doomed future of globalization. Post-Brexit, the covid pandemic and Russia-Ukraine conflict, there are multiple signs indicating retrenchment of globalization.
    • Collapse of Supply chains: The collapse of global supply chains due to economic lockdowns has refocused attention towards near-shoring or on-shoring.
    • Trade barriers: In an associated move, nations have erected protective trade barriers; both the US and EU are using climate plans to renege on free-trade promises. The end result, reduced global trade.

    What are the prospects from international institute?

    • BlackRock Investment Institute’s 2023 Global Outlook: Various financial institutions across the globe are trying to wrap their heads around the phenomenon. According to BlackRock Investment Institute’s 2023 Global Outlook, “We see geopolitical cooperation and globalization evolving into a fragmented world with competing blocs.
    • Citi’s wealth outlook for 2023: Citi’s wealth outlook for 2023 intoned ominously, as a less globalized, more polarized world presents challenges for investors.

    Economy

    Effect of globalization and policy change by developed economies

    • Rising federal rates: As US employment numbers and demand data continue to stay elevated (despite, paradoxically, slowing growth), the Federal Reserve is likely to be unrelenting in its endeavor to bring the inflation rate back to 2%.
    • Rise in domestic interest rates: The Fed’s actions will undoubtedly strengthen the dollar further, forcing many central banks across the global economy to raise interest rates in tandem. Interestingly, central banks in emerging economies today face threats to their independence from an external agency and not from the political dispensation at home.
    • Increase in food and fuel cost: Beyond interest rates, inflation also travels easily across national boundaries, especially through food and fuel trade. The fractured supply chains and war in Europe have ensured that inflation’s harmful impact might sustain through 2023.
    • Omicron variant and travel restrictions: The other undesirable effect of globalization could be the persisting effect of the Omicron variant that has travelled seamlessly from one corner of the world to another. The Indian government has been forced to resume random screening of passengers arriving from different parts of the world to test for the numerous Omicron variants that have witnessed a resurgence in recent times.

    Economy

    Impact on Indian Economy

    • Over-priced equity markets: Indian equity markets have been soaring since early 2020, once the initial shock of the covid pandemic was negotiated. Cross-country comparisons across emerging markets by various valuation indices show the Indian market to be considerably over-priced currently, both relative to its own past performance as well as compared with the rest of the world.
    • High retail investors: Interestingly, the market held its own despite foreign portfolio investors (FPI) pulling out money over the past few months. Domestic investment institutions and retail investors are believed to have kept the market valuation up. But below this cheery visage lies a grim reality.
    • Worrisome credit records: Sectoral credit deployment data from the Reserve Bank of India (RBI) shows credit growth in commercial banks in recent months has been driven by only two segments: non-bank financial companies (NBFCs) and consumer loans.
    • High retail borrowings: A large chunk of the NBFC borrowing was also for on-lending to retail borrowers, given tepid industrial credit demand. RBI data for commercial banks shows consumer loans in four categories advances against fixed deposits, advances against shares or bonds, loans against gold jwellery and other personal loans grew by almost 71% between April 2020 and November 2022.
    • Loans for equity investments: It is quite likely that a large proportion of these loans have found their way into stock markets; the Nifty-50 index gained close to 118% between April 2020 and November 2022, at a time when FPI investments during the same period witnessed a net inflow of only ₹1,464 crore.

    Conclusion

    • The year 2023 appears to be very bumpy for economy in general and credit growth and recovery in particular. SEBI and RBI need to protect the retail investors from Ponzi scheme and fake promises of guaranteed returns.

    Mains Question

    Q. How policy changes in developed economies affects the India’s decision making? Assess the effect of turbulent global situation on credit growth in India.

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  • Ganga Vilas: A boost to riverine tourism

    tourism

    Context

    • The travel-tourism-hospitality sector got a symbolic boost on Friday, with the Prime Minister launching the MV Ganga Vilas from Varanasi. The luxury 51-day cruise operated in partnership with private players by the Inland Waterways Authority will traverse several states, two countries and make stops at about 50 tourist and heritage sites along the Ganga and Brahmaputra River systems.

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    tourism

    All you need to know about MV Ganga Vilas

    • MV Ganga Vilas is the first indigenously made and the world’s longest river cruise
    • The Ministry of Ports, Shipping and Waterways is the coordinator of this ship tourism project.
    • The cruise has three decks, 18 suites on board with a capacity of 36 tourists, with all the modern amenities and avoids river pollution.
    • It has its own sewage treatment plant besides a water treatment plant that lifts water from the river for daily use.
    • The cruise has a gymnasium, a spa, restaurant, sunbath deck and other amenities on board to entertain the tourists and also to provide them a comfortable experience.

    tourism

    Journey of MV Ganga Vilas

    • From Varanasi to Dibrugarh: Set to sail from Varanasi, the cruise ship, MV Ganga Vilas, will cover 3,200 km over 51 days, crossing 27 river systems and several states before ending its journey at Dibrugarh.
    • It will cover World heritage sites: The voyage is packed with visits to 50 tourist spots, including World Heritage spots, national parks, river ghats, and major cities like Patna in Bihar, Sahibganj in Jharkhand, Kolkata in West Bengal, Dhaka in Bangladesh and Guwahati in Assam.
    • Pilgrimage plus environmental tourism: It will make pit-stops to cover the famous Ganga Arti in Varanasi, the Buddhist site of Sarnath; and even Majuli, the largest river island in Assam.

    What are the concerns highlighted?

    • Silting and pollution of rives must be addressed on priority: Two of the greatest threats to India’s rivers silting and pollution must be addressed.
    • Employment generation must go hand-in-hand with ecological repair: Both the PM and Shipping & Ports Minister Sarbananda Sonowal have cited the jobs that riverine tourism could bring to states like Uttar Pradesh, West Bengal, Bihar and Assam. But employment generation must go hand-in-hand with ecological repair.

    tourism

    Way ahead

    • Involve local communities: For the government to realise its goal to increase cruise passenger traffic from 4 lakh people to nearly 10 times that figure. But this growth, to be sustainable, must involve local communities.
    • Smaller vessels could be involved: While there is potential for larger, luxury liners, riverine tourism could also expand and cater to travellers from different economic strata. Also, smaller vessels may pose less of an ecological challenge.
    • Lesson to be learnt from Kerala: While the Centre’s push in the sector, with the PM as the face, is welcome, states and the private sector too must be brought on board. There is, for example, much that east Indian states can learn from how Kerala monetizes and maintains its backwaters.
    • Further expansion with worlds best practices: The Ganga cruise, though, should be just a beginning in tapping the unrealized potential of India’s numerous and diverse river systems for tourism. At the same time, the expansion must take into account the best practices from around India and the world, while ensuring local communities and the environment are not given short shrift.

    Conclusion

    • The hospitality sector is labor-intensive and can provide some of the formal jobs that a transitioning Indian economy so desperately needs. And given the growing global market for ecologically-conscious travel, India can if it is meticulous and enterprising in its planning protect its rivers and create jobs at the same time.

    Mains question

    Q. Recently government launched MV Ganga Vilas cruise. Discuss how it will change the face of tourism in India?

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  • Hospitality Industry in India: Adhering to the principle of Atithi Devo Bhava

    Hospitality

    “To other Country, I may go as a tourist. But to India I come as a pilgrim”-Martin Luther King 

    Context

    • As the world moves on, the service sector travel and tourism business included is emerging as a major growth engine for the Indian economy. People are once again flying in great numbers, airports are crowded, hotels are well booked, and travellers want to explore, connect and feel alive through the exhilarating emotion of travel. Despite several difficulties and challenging infrastructure in hospitality, the industry has fared extremely well.

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    Hospitality

    What is mean by Hospitality?

    • Hospitality refers to the friendly and generous treatment of guests or strangers.
    • It involves making guests feel welcome, comfortable, and attended to during their stay or visit.
    • The goal of hospitality is to create a positive experience for the guest and to ensure that they have everything they need to feel at home and enjoy their time.

    Hospitality Industry in India

    • Hospitality contributes to the economy: The hospitality industry in India is a growing industry which contributes significantly to the country’s economy.
    • India a choiced tourist destination: India is home to number of popular destinations for tourists, due to its diverse culture, ancient civilization, art and architecture, spiritual knowledge centre and the paradise of natural beauty.
    • Infrastructure upgraded with time: The hospitality industry in India has undergone significant growth in recent years, fueled by an increase in domestic and international tourism, as well as the development of new infrastructure, such as airports and roads.
    • Hospitality companies determined to offer diverse experience: Hospitality companies have consistently added supply across all segments budget, business and luxury hotels, homestays, villas and so forth by developing new circuits and offerings that tap into the diverse and myriad potential of Incredible India.

    Hospitality

    How Hospitality Industry contributes to the Economy?

    • Tourism a driving force: Tourism is seen as a major driving force for any economy. It has a multiplier effect on associated industries like hospitality.
    • Spillover earning: Not only improves economic condition but also enhances standard of living: The spillover of earnings from tourism into other industries not only improves economic conditions but also enhances the standards of living of the local population.
    • For instance, GDP and employment in Goa: This is most apparent at the popular beach destination of Goa. Contributing over 16 per cent to the GDP and 35 per cent to direct employment within the state as per the IBEF Report 2022, the domino effect of the sector on indirect job creation is unrivalled. Today, led by tourism, Goa leads the nation in per capita NSDP (Net State Domestic Product) as per the RBI.
    • Significant impact on high employability: As per trends, every hotel room generates five to seven jobs, both directly and indirectly, further leading to a significant impact on other high-employability sectors such as real estate and infrastructure.
    • Will generate more than 100 million jobs globally: In fact, according to the latest World Travel and Tourism Council (WTTC) report, the sector is expected to create nearly 126 million new jobs globally within the next decade with at least 20 per cent of these from the Indian subcontinent. However, government support will be instrumental in achieving this.
    • Will augment the Indian economy to reach $1 trillion by 2047: With Indian companies reporting positive earnings this fiscal, the sector is poised to potentially grow three times compared to the pre-pandemic levels to touch $250 billion by 2030 and further accelerate to reach $1 trillion by 2047.

    Way ahead

    • Upgrading the infrastructure to cater new consumer demands well: The travel and tourism industry is constantly evolving, catering to rapidly changing consumer demands. A capital-intensive industry, the hospitality sector needs to continually plough back to keep the ball rolling.
    • Attracting more investments: A good start will be the Centre according infrastructure status to the sector, which will boost the industry, incorporating required incentives including regulatory ease, cheaper loans, tax concessions and contributing to a cycle of attracting more investments.
    • Augmenting the infrastructure growth: In addition, industry status at the state and Union territories-level and augmenting the infrastructure growth will also have a much-needed positive impact. States like Maharashtra, Karnataka, Assam, Goa, Gujarat, Madhya Pradesh and Rajasthan have taken the lead, and more should follow suit.

    Hospitality

    India’s G20 presidency an opportunity for India

    • Challenge to provide world class experience to visiting dignitaries: As India takes on the G20 presidency and starts preparing for the summit in 2023, positioning the country as a safe, tourist-friendly destination hinges on how the government can work together with the industry and provide world-class experiences to visiting dignitaries.
    • Meeting mostly be hosted in hotels: Around 300 plus meetings are expected to take place during the summit, most of which will be hosted within the corridors of the finest hotels across the country.
    • Adhering to the principle of Aithi Devo Bhava: Hospitality companies are leaving no stone unturned to showcase India’s cultural essence, and the inherent warmth of Atithi Devo Bhava in our service philosophy.
    • India can set an impression: Using the summit to highlight the country’s unique and differentiated travel offerings, India can claim its position on the world tourism stage.

    Conclusion

    • India’s growth story remains immensely encouraging. On the back of strong consumer demand, travel and tourism offers promising growth and are at an important inflection point. Through collective action between industry stakeholders and government, we can undoubtedly shape an even more thriving future for the industry one that can have a positive impact on the economy and society at large.

    Mains question

    Q. Tourism and Hospitality is a growing industry in India. In light of this discuss how this industry contributes to the economy? Illustrate with an example.

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  • Rise in government CAPEX pushes investments up by 53%

    capex

    A sharp 61.2% sequential rise in capital expenditure (capex) by the Central and State governments lifted fresh investment plans announced in the third quarter (Q3) of 2022-23 to ₹7.1 lakh crore, even though private sector investments dropped 41% from ₹6.31 lakh crore in Q2 to ₹3.71 lakh crore.

    What is Capital Expenditure (CAPEX)?

    • Capital expenditure refers to investments in upgrading existing or building new physical assets by the government or private businesses.
    • As businesses expand, capex has a multiplier effect on the economy, creating demand and unleashing animal spirits.

    Types of CAPEX

    Many different types of assets can attribute long-term value to a company. Therefore, there are generalized types of purchases that may be considered CAPEX.

    • Buildings may be used for office space, manufacturing of goods, storage of inventory, or other purposes.
    • Land may be used for further development. Accounting treatment may different for land specifically held as a speculative long-term investment.
    • Equipment and machinery may be used to manufacture goods and convert raw materials into final products for sale.
    • Computers or servers may be used to support the operational aspects of a company including the logistics, reporting, and communication of operations. Software may also be treated as CapEx in certain circumstances.
    • Vehicles may be used to transport goods, pick up clients, or used by staff for business purposes.
    • Patents may hold long-term value should the right to own an idea come to fruition through product development.

    Why need CAPEX?

    • Asset creation: Capex is generally made to acquire fixed assets with a useful life of more than one accounting period.
    • Infra upgrade: It may sometimes add value to an asset by incurring upgrading and maintenance expenditures, thereby increasing the shell life of an investment.
    • Business sustainability: CAPEX increases the profit earning capacity of the business in the long term.

    India’s Capital spending

    capex

    • India’s budgets have seen an increase in allocations for the infrastructure segment, essentially roads and railways.
    • In the last Budget, FM announced a big jump in the government’s planned capex.
    • In 2022-23, the government will have a capex spend of ₹7.5 lakh crore (even more if we add grants-in-aid for capital assets including MGNREGA) — a spike of 27% over the estimates for the previous year (2021-22).
    • Also, the government has ambitious plans to exponentially ramp up spending on expressways, logistics parks, metro systems and housing — much of this work will be sourced out to private contractors.

    Challenges of Capital Expenditure

    The following are the challenges faced due to CAPEX –

    • Substantial funds: Normally, huge funds are required for processing a capital expenditure, and the availability of funds may be an issue. Therefore, organizations must wisely make capex decisions.
    • Long term burden on exchequer: The amount of Capex is charged as an expense in more than one accounting period.
    • Irreversible: Once a CAPEX is incurred, the decision cannot be changed easily. Reversing the capex decision may prove to be significantly costlier for any entity.
    • Uncertainty: It becomes difficult to foresight expenses that may occur in the future. CAPEX involves huge costs and results that may be extended to the future. Hence, characterizing the exact decision regarding CAPEX is uncertain, which affects future expenses.
    • Measurement Issue: The cost and benefits of CAPEX are challenging to identify and measure
    • Temporal Spread: Decisions made regarding CAPEX are consistent over a long time, and investments it includes are called long-term investments. These long-term investments create problems in getting the exact discount rates and maintaining their equivalence in the coming period.

    Why India focuses on CAPEX?

    • Demand push: A thrust on capex eases supply-chain bottlenecks and revives demand.
    • Job creation: So, while capex adds to the productive capacities of the economy, boosting long-term growth, it also spurs job creation and consumption.

    Way forward

    • Timely implementation: Emphasis must also be provided on timely implementation of projects within the earmarked outlay by strengthening monitoring, redressal mechanisms and processes for controlling project delays.
    • Project management: The solution lies in optimising project management processes of all the key stakeholders, including implementation agencies, state governments, vendors and others.
    • Ensuring quality control: This would also help in ensuring quality control, which, in turn, will result in capital assets providing benefits over a longer term following the multiplier effect.
    • Revenue saving: The government should also aim to cut down on inefficient revenue expenditure and focus on creating a balanced and stable virtuous cycle, which can have positive knock-on effects over the long term.

     

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  • PM flags off world’s longest river cruise MV Ganga Vilas

    ganga vilas

    Prime Minister has flagged off the world’s longest river cruise – MV Ganga Vilas – and inaugurated the tent city at Varanasi.

    About Ganga Vilas

    • MV Ganga Vilas is the first indigenously made cruise vessel to be made in India.
    • The Ministry of Ports, Shipping and Waterways is the coordinator of this ship tourism project.
    • The cruise has three decks, 18 suites on board with a capacity of 36 tourists, with all the modern amenities.
    • It will cover a distance of 3,200 km in roughly 51 days reaching Assam’s Dibrugarh through Bangladesh.

    Destinations covered

    • Set to sail from Varanasi, the cruise ship, MV Ganga Vilas, will cover 3,200 km over 51 days, crossing 27 river systems and several states before ending its journey at Dibrugarh.
    • The voyage is packed with visits to 50 tourist spots, including World Heritage spots, national parks, river ghats, and major cities like Patna in Bihar, Sahibganj in Jharkhand, Kolkata in West Bengal, Dhaka in Bangladesh and Guwahati in Assam.
    • It will make pit-stops to cover the famous Ganga Arti in Varanasi, the Buddhist site of Sarnath; and even Majuli, the largest river island in Assam.

     

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  • Digital Agriculture

    digital

    Context

    • The world’s population will grow to 10 billion by 2050; agricultural land has halved in the last 50 years; 20-40% of crop yield is lost to pests and disease and another 10-25% is lost post-harvest. Take into account geo-political factors like the Ukraine war in account, and food security is a big problem facing mankind. In all this, digital technologies may be the answer to ills in agriculture; vitally, they can help achieve sustainability if we overcome challenges.

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    Agriculture’s digital drive

    • Use of modern technology: Farming is witnessing the use of modern technology for higher productivity and profitability. Today, farmers use digital tools for farm management, financial services, market services, information and much else.
    • Smart agriculture use of AI and IOT: ‘Smart agriculture’ uses software for remote sensing, apart from big data, the Internet of Things (IoT) and artificial intelligence (AI). IoT in agriculture comprises sensors, drones and computer imaging integrated with analytical tools to generate actionable insights.
    • Use of data and ML: Predictive analytics allows quick decision-making based on information drawn from data mining, data modelling and machine learning (ML).
    • Digital adoption of Supply chain: Digital adoption can add value across the entire farm-to-fork (F2F) supply chain, covering the journey from planting to harvesting (of fruits, vegetables, grains, etc) till it arrives on one’s plate. This journey’s stakeholders include farm suppliers, farmers, food processors, traders, retailers and finally end consumers.
    • Precision farming: Precision farming helps raise crop yields while minimizing the use of resources. It measures and analyses the needs of different fields and crops to aid waste management, reduce production costs, make optimal use of water and minimize environmental impacts.

    digital

    The challenges of digital adoption in the Farm to Fork (F2F) supply chain

    • Risks concentrated on farmer: For example, all risk is concentrated on the farmer, who is encumbered by the vagaries of weather, selection of profitable products, poor access to crop insurance, etc. We need to provide more value to the farmer in compensation for that burden.
    • Trust deficit in the overall functioning of the F2F model: Over time, decision-making in food production, crop marketing, transport, etc, has got heavily concentrated in the hands of large agricultural entities or producers. While production has risen, the democratization of decision-making has suffered.
    • Digital inequalities: The sector’s digital transformation is characterized by digital inequalities between large and small farmers, or between high- and low-income countries.
    • Challenges in the supplier ecosystem: A fertilizer or agriculture equipment manufacturer may want to help farmers but is handicapped in creating the right ecosystem to provide a holistic solution.
    • Capital expenditure a major challenge: Subsistence farmers cannot afford capital expenditure, and other farmers have financial constraints too. This is a major challenge at the farm level.

    digital

    What binds these supply chain components together?

    • Sustainability: which refers to practices that ensure long-term increased farm production and higher income while protecting the environment. Farmers apply inputs to only those parts of the field that need it, improving product quality, reducing input cost, increasing productivity and ensuring environmental sustainability.
    • Evolving digital ecosystem: India’s evolving digital ecosystem and high-speed internet are making it possible for agritech startups to utilize AI/ML models.
    • Precision techniques: Companies using precision techniques are helping farmers increase yields substantially.
    • No middlemen: Due to a rise in online agritech platforms, farmers can now sell their products directly without any middlemen involved and thereby increase their incomes. This also helps create trust and transparency between farmers and consumers.
    • Digital access to the market: In India, rising internet use and smartphone penetration has changed the face of agriculture in significant ways already, especially how small and medium farmers operate. It is helping with direct access to markets, thus allowing farmers to retain a higher proportion of the value created.

    Current status of Indian agriculture

    • While there is large scope for using digital technologies for agriculture in India, various problems must be overcome.
    • As of now, the use of farming technology among India’s farmers is low.
    • Productivity is also low, given small landholdings and significant overcrowding, which also contributes to our low level of mechanization.
    • The absence of agricultural marketing makes farmers depend on local traders and middlemen to sell their farm produce, which is sold at very low prices.

    Digital

    Government Initiatives towards Digital Agriculture:

    • AgriStack: The Ministry of Agriculture and Farmers Welfare has planned to create ‘AgriStack’ – a collection of technology-based interventions in agriculture. It will create a unified platform for farmers to provide them end-to-end services across the agriculture food value chain.
    • Digital Agriculture Mission: This has been initiated for 2021 -2025 by the government for projects based on new technologies like artificial intelligence, blockchain, remote sensing and GIS technology, use of drones and robots, etc.
    • Unified Farmer Service Platform (UFSP): UFSP is a combination of Core Infrastructure, Data, Applications, and Tools that enable seamless interoperability of various public and private IT systems in the agriculture ecosystem across the country. UFSP is envisaged to play the following role:
      • Act as a central agency in the Agri ecosystem (like UPI in the e Payments)
      • Enables Registration of the Service Providers (public and private) and the Farmer Services.
      • Enforces various rules and validations required during the service delivery process.
      • Acts as a Repository of all the applicable standards, API’s (Application Programming Interface) and formats.
      • Act as a medium of data exchange amongst various schemes and services to enable comprehensive delivery of services to the farmer.
    • National e-Governance Plan in Agriculture (NeGP-A): A Centrally Sponsored Scheme, it was initially launched in 2010-11 in 7 pilot States, which aims to achieve rapid development in India through the use of ICT for timely access to agriculture-related information to the farmers.
      • In 2014-15, the scheme was further extended for all the remaining States and 2 UTs.
    • Other Digital Initiatives: Kisan Call Centres, Kisan Suvidha App, Agri Market App, Soil Health Card (SHC) Portal, etc.

    Way forward

    • The digital revolution is touching every sphere of life and hence it is high time to bring agriculture in its ambit.
    • The MoUs to rope in the private sector can help in
      • quicker modernisation of Farms,
      • easier access to various schemes and
      • subject matter knowledge.
    • Such practices must be studied in depth via pilot projects and extended to whole India if found successful.
    Other Schemes for Farmers

    National e-Governance Plan in Agriculture (NeGPA):

    • It was initially launched in seven selected States in the last quarter of 2010-11.
      • This Scheme has subsequently been extended to the 2nd Phase to cover all the States and 2 UTs from 2014-15.
    • Aim:
      • To achieve rapid development in India through use of Information & Communication Technology (ICT).
      • It will provide timely access to agriculture related information for the farmers.
    • The possible components for modern management of agriculture are
      • Remote Sensing
      • Geographical Information System
      • Data Analytics
      • Artificial Intelligence & Machine Learning and
      • Internet of Things.
    • Under this initiative, one Stop Window-Farmers Portal (www.farmer.gov.in) has been developed for dissemination of information like.
      • seeds variety,
      • Storage Godown,
      • Pests and plant diseases,
      • Best Agricultural Practices,
      • Watershed,
      • Mandi details etc.
    • SMS/mKisan Portal (www.mkisan.gov.in) has also been developed.
      • It will send advisories on various crop related matters to the registered farmers through SMSs.
      • In mkisan. more than 5 crores farmers are registered for receiving crop advisories through SMS.
    • Various mobile applications including KisanSuvidha have also been developed.
      • They facilitate dissemination of information to farmers on the critical parameters viz.,
        • Weather, Market Prices,
        • Plant Protection,
        • Agro-advisory,
        • Extreme Weather Alerts,
        • Input Dealers ( of Seed, Pesticide, Fertilizer, Farm Machinery),
        • Soil Health Card,
        • Cold Storage & Godowns,
        • Veterinary Centre & Diagnostic labs,
        • Crop Insurance Premium Calculator
      • This app launched in 2016, has more than 13 lakh downloads.

    Strengthening/Promoting Agricultural Information System (AGRISNET):

    • It is the scheme for strengthening the IT infrastructure of the Department and its offices.
    • Fund allocated under the scheme is also utilized for making payment to the vendor for sending SMS through mkisan portal.

    Source: PIB

    What’s New

    Important Links

    Conclusion

    • Digital technology in agriculture is designed to support innovation and sustainable farm practices. To ensure its success, all changes must be holistic in their benefits.

    Mains question

    Q. Digital technologies are highly changing the face of agriculture and thereby farm to fork (F2F) supply chain. Discuss and also highlight the challenges in F2F supply chain.

     

  • FSSAI sets standards for Basmati Rice

    basmati

    In a bid to promote the business around basmati rice, the Food Safety and Standards Authority of India (FSSAI) notified standards for basmati rice. They will be enforced from August 1, 2023.

    Food Safety and Standards Authority of India (FSSAI)

    • The FSSAI is an autonomous body established under the Ministry of Health & Family Welfare, Government of India.
    • It has been established under the Food Safety and Standards Act, 2006 which is a consolidating statute related to food safety and regulation in India.
    • It is responsible for protecting and promoting public health through the regulation and supervision of food safety.
    • It is headed by a non-executive Chairperson, appointed by the Central Government, either holding or has held the position of not below the rank of Secretary to the Government of India.

     

    Basmati Rice

    • Basmati, pronounced is a variety of long, slender-grained aromatic rice which is traditionally grown in India, Pakistan, and Nepal.
    • As of 2019, India accounted for 65% of the international trade in basmati rice, while Pakistan accounted for the remaining 35%.
    • Many countries use domestically grown basmati rice crops; however, basmati is geographically exclusive to certain districts of India and Pakistan.
    • India accounts for over 70% of the world’s basmati rice production.
    • The areas which have a geographical indication are in the states of Punjab, Haryana, Himachal Pradesh, Delhi, Uttarakhand, Western Uttar Pradesh and Jammu and Kashmir.

    What are the standards set out by FSSAI?

    • Fragrance: Basmati has the characteristic fragrance identified with this variety and is free from artificial fragrances and colouring.
    • Grain size: The authority has also set standards on parameters such as average size of grains and their elongation ratio after cooking.
    • Vital contents: It has set the maximum limits for moisture, amylose content, uric acid, damaged grains and presence of non-basmati rice.
    • Varieties included: The standards are applicable to brown basmati rice, milled basmati rice, parboiled brown basmati rice and milled parboiled basmati rice.

    Economics of Basmati

    • Basmati rice is exported out of India and had an annual forex earning of Rs 25,053 crore during 2021-22.
    • India accounts for two-thirds of the global supply of basmati rice.

    Significance of the move

    • FSSAI hopes that the standards would protect consumer interest and ensure the quality of basmati rice.
    • In 2020, India’s application for a geographical indication tag recognised in the European Union market was put on hold after Pakistan opposed the move.
    • Before this, in 1997, Texas-based Company RiceTec developed American basmati varieties and patented them.
    • These were introduced in the international market as ‘Kasmati’ and ‘Texmati’.
    • However, the patent was contested in the year 2000 by the Centre for Scientific and Industrial Research (CSIR), India’s premier science and industry organisation, saying the term ‘basmati’ could be used only for rice grown in India and Pakistan.

     

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  • New India: The world’s next engine of growth

    growth

    “The mantle of the G20 presidency has come at the right time, allowing India to influence the global agenda based on its own priority of accelerated, inclusive and resilient growth”

     Context

    • The pandemic has proven to be the breakout moment in India’s long overdue emergence as the world’s next engine of growth. New India is bearing fruit at a time when one-third of the world’s economy is facing a slowdown. Speaking at FICCI’s 95th annual general meeting, Finance Minister said that the upcoming budget will set the template for the next 25 years, which is India’s Amrit Kaal.

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    A gloomy global outlook

    • Prospectus of global growth: According to the International Monetary Fund (IMF), global growth will nearly halve to 3.2 per cent in 2022 and fall further to 2.7 per cent in 2023, reflecting stalling growth in the US, China and the Euro Zone.
    • Global inflation: Higher food and energy prices have led to global inflation peaking at 8.8 per cent in 2022 which is, however, expected to decline to 6.5 per cent in 2023 and 4.1 per cent in 2024.
    • Developed nations are struggling to tame inflation: Developed nations have adopted excessive stimulus measures. According to a report by the McKinsey Global Institute, in 2020 and 2021, households globally added $100 trillion to global wealth on paper as asset prices soared and $39 trillion in new currency and deposits were minted and debt and equity liabilities increased by about $50 trillion and $75 trillion, respectively, as governments and central banks stimulated economies.
    • Russia- Ukraine conflict inflicting fiscal pain: Meanwhile, the continuing Russia-Ukraine conflict is inflicting fiscal pain beyond the immediate region
    • Disrupted supply chain by China’s covid policy: While China’s Covid policy has disrupted supply chains, which are now once again threatened by a potential fallout of an abrupt reversal.
    • India’s inflation is largely imported: India’s own fight against inflation, which is largely imported, has been aided by fiscal and monetary policy working in tandem with a little help from easing commodity prices.

    growth

    India stands at a bright spot amidst significant challenges

    • Fastest-growing large economy in the world: However, India stands out as a rare bright spot with the economy estimated to grow around 7 per cent in FY23 and a growth forecast of 6.1-6.5 per cent in FY24, thus retaining the tag of the fastest-growing large economy in the world.
    • Inflation coming down within RBI’s tolerance level: In an encouraging sign, retail inflation eased to 5.88 per cent in November, thus coming within the RBI’s tolerance band after 11 months. While it is too early to declare victory in terms of taming inflation, policymakers must now chart out a path that prioritises growth
    • India likely to overtake Japan and Germany to become 3rd largest economy: Having recently surpassed the UK to become the world’s fifth-largest economy, India is likely to overtake Japan and Germany before the end of the decade to become the third-largest economy in the world.
    • What made this possible: Reforms aimed at enhancing ease of doing business and reducing the cost of doing business in a large, unified domestic market along with a focus on boosting the manufacturing sector through the Production Linked Incentive (PLI) schemes, which are helping attract large investments including in critical areas like semiconductors.

    growth

    What India has to share with the world?

    • G20 leadership to bring about structural transformation: Its priority as G20 president is to focus on areas, which have the potential to bring about structural transformation leading to accelerated, inclusive and resilient growth.
    • Concept of LiFE for a sustainable lifestyle: Similarly, the concept of LiFE (Lifestyle for the Environment) draws upon ancient sustainable traditions to reinforce modern-day environmentally conscious practices.
    • Knowledge sharing: Finally, knowledge sharing in areas like digital public infrastructure and financial inclusion will enable the wider adoption of disruptive technologies.

    growth

    Conclusion

    • Investors both domestic and global must now come forward and participate in the India growth story which, in turn, will give a much-needed boost to global growth going ahead. Speaking at the World Economic Forum last year, PM Modi said “Make in India, Make for the World”. There has never been a better time to invest in India and reap the benefits of what it has to offer.

    Mains question

    Q. At a time when one-third of the world’s economy is facing a slowdown India stands at a brighter spot Discuss. Highlight what India has to share with the world?

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