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Subject: Economics

  • Levying the Wealth tax to reduce income inequality

    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 its time to consider a wealth tax.

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    What is wealth tax?

    • Wealth tax 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.
    • It aims to reduce the inequalities of wealth.
    • It is based on the market value of assets owned by a taxpayer and charged on the net wealth of super rich individuals.

    Wealth tax

    Wealth Tax in India

    • Abolished wealth tax: The government abolished wealth tax as announced in the budget 2015. In its place, the government decided to increase the surcharge levied on the ‘super rich’ class by 2% to 12%. (Super rich are persons with incomes of Rs.1 crore or higher and companies that earn Rs.10 crores or higher).
    • Abolished to simplify tax structure and discourage tax evasion: The abolition was a move to do away with high costs of collection and also to simplify the existing tax structure thereby discouraging tax evasion.
    • No wealth tax at present: India presently does not have any wealth tax i.e., a tax levied on one’s entire property in all forms. It did not impose a one-time ‘solidarity tax’ on wealth in post-covid budgets that could have generated resources for essential public investment.

    What is the need for levying a wealth tax?

    • High 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.
    • 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.
    • Capital gains tax has limited base: Capital Gains tax exists in India, but applies only to transactions and hence is limited in its base.
    • Wealth largely depends on inheritance and privilege: 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.
    • India does not have inheritance tax: India scrapped its estate duty in 1985 and has no inheritance tax.
    • Almost entirely exemptions on gift 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. 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.

    Wealth tax

    Comprehensive PoV: Why wealth tax is necessary at present economic condition

    • Wealth of rich doubled during the pandemic but not channelised well to create productive resou: An Oxfam report has highlighted how India’s richest doubled their wealth during the pandemic. This happened for a variety of reasons. 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.
    • There is no sufficient increase in private investment: 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. Obviously, there is something else at work, and one cannot assume that accumulated wealth in private hands will necessarily be invested in the domestic economy.
    • Not only investment is important but also the right application is important: It is not only investment that is important, but also where that investment is going and whether it is creating employment opportunities for the youth.

    Present status and economic projections

    • Data on youth unemployment: Data from diverse sources show high unemployment rates during May-July 2022 for the youth: 28.3% in the 15-24 age group and an even higher 43.3% for the 20-24 age-group.
    • Likely global recession overhead: The likelihood of a global recession and the related layoffs being announced by corporate giants will make the situation worse.
    • Jobless growth and wealth inequality: The recent economic growth experienced in India, especially in the post-covid recovery phase, has largely been jobless growth and can further deepen both income and wealth inequalities.
    • Economy cannot afford to have such high level of youth unemployment: No economy can afford to have such youth unemployment rates for long without adversely affecting economic growth and social cohesion.

    Way ahead

    • 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.
    • There is no reason why India cannot do so too. This is the right time to introduce a progressive wealth tax along with other fiscal steps that can directly reverse the trend of growing inequalities in the country.

    Conclusion

    • India needs a shift in its fiscal policy, as suggested by a number of economists, to adopt measures that create employment opportunities and in turn drive demand for products made by small and medium level producers. This would also push up growth while not necessarily widening inequalities.

    Mains question

    Q. What is wealth tax? Why wealth tax abolished? Considering the present economic situation Discuss the need to levy wealth tax in India?

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  • Stock Trade and the Economy

    Stock

    Context

    • Even as the RBI steadily downgraded India’s growth forecasts for the year from 7.2 per cent in April to 6.8 per cent in December, and the benchmark Nifty50 index ended the year up a mere 4.1 per cent, a handful of stocks delivered outsized returns to investors.

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    Expansion of business and reward

    • Adani gained because of expansion: The top trade was undoubtedly that of Adani Enterprises with the stock more than doubling over the year. But that should not come as a surprise. After all, the group has embarked on a breathless pace of expansion (both organic and inorganic) that is perhaps unparalleled in recent times.
    • Unexpected rise in prices: Share prices of associated companies such as Adani Green have also seen a remarkable surge, catapulting the group into the top leagues of Indian conglomerates.
    • Risky price-to-rent ratio: One should be forgiven for thinking that residential real estate in Delhi, with a price-to-rent ratio that ranges between 40-50, is expensive. Adani Enterprises is currently trading at a price-to-equity ratio of 394 as per NSE. The Nifty50, in comparison, is trading just above 21.

    Performance of Public sector banks

    • SBI AND PNB gained: The year also belonged to Indian banks, more specifically to public sector banks, who at last seemed to have turned the corner. SBI is up more than 30 per cent, while Punjab National Bank is up almost 50 per cent. Others like Bank of Baroda and UCO Bank have more than doubled.
    • Outperforming private banks: While private sector bank stocks have also seen a sharp rise Axis is up almost 35 per cent, while ICICI is up 17 per cent, public sector banks have outperformed their private counterparts by a significant margin. The Nifty PSU bank index is up 70 per cent for the year, while in comparison, the private bank index is up only 21 per cent. This was perhaps to be expected.
    • Cleaning up balance sheet: Public sector banks have been on a multi-year drive to clean up their balance sheets, and shore up capital. And while there are still some concerns over possible slippages from accounts that were restructured during the pandemic, gross non-performing assets or bad loans were down to 6.5 per cent at the end of September 2022.
    • Rising lending rates: Moreover, lending is growing at a brisk pace. And banks’ spreads also have improved with the interest rate cycle on the upswing. In typical fashion, lending rates have risen faster than deposit rates. But, as credit growth picks up and competition for deposits among banks begins to intensify, deposit rates are likely to edge upwards, putting pressure on the spread.

    Status of Consumption and auto sector

    • Consumption is up: while concerns over the unevenness of the economic recovery persist, consumption stocks have fared well. ITC is up more than 50 per cent, as are Britannia (almost 20 per cent) and HUL (9 per cent).
    • Real wages have not increased: But with firms underlining the continuing pressure on volumes with elevated inflation, real wage growth has been subdued in rural areas it is likely that in some product segments, the formalisation theme is still playing out.
    • Size of market is not expanding: The bigger formal firms gaining market share even as the overall size of the market isn’t expanding as hoped.
    • Auto sector have done well: Among the auto stocks, M&M and Maruti are up 50 per cent and 12 per cent respectively, though Tata motors is down 22 per cent, while among the two-wheelers, both Bajaj and Hero are up.

    Better performance of Infrastructure

    • Moderate uptick in infrastructure: Infrastructure stocks are a mixed bag. Larsen & Toubro, often thought of as a proxy for the domestic capex cycle, is up almost 9 per cent, recently hitting a new high.
    • Impact of PLI scheme: Perhaps, this reflects a pick up in the public sector capex or the private sector push under the government’s production-linked investment scheme.
    • Mix picture of steel and cement: Among cement stocks, Ultratech is down, though ACC is up, while among steel stocks, SAIL is down, Tata steel is almost flat, but JSW Steel is up.

    IT sector was worst performing

    • IT NIFTY significantly down: The sector which has taken a beating has been IT. The Nifty IT index is down 26 per cent.
    • Heavy correction in market: All major IT firms from TCS to Infosys to Wipro have witnessed heavy correction.
    • Impact of slowdown in advanced economy: Valuations of the sector will be heavily influenced by market views over the slowdown in advanced economies which are major revenue centres for these firms.

    Conclusion

    • Though stock market doesn’t reflect the entirely true picture of economy but it certainly a good indicator of where the retail investor and common man invest his money. India’s stock market is going to be top 3 in the world. SEBI must protect the retail investor from this highly volatile terrain.

    Mains Question

    Q. Analyze the performance of the auto and IT sector in India through lenses of stock market? Why the balance sheet of public sector banks is improving?

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  • What are Systemically Important Banks?

    State Bank of India, ICICI Bank, and HDFC Bank have again been named as Domestic Systemically Important Banks (D-SIBs) by the Reserve Bank of India (RBI).

    What are Systemically Important Banks (SIBs)?

    • SIBs are perceived as certain big banks in the country/world. They enjoy a huge customer base and also engage in cross sector activities and are perceived as ‘Too Big to Fail (TBTF)’.
    • The system of D-SIBs was adopted in the aftermath of the 2008 financial crisis where the collapse of many systematically important banks across various regions further fuelled the financial downturn.
    • A failure of any of these banks can lead to systemic and significant disruption to essential economic services across the country and can cause an economic panic.
    • As a result of their importance, the government is expected to bail out these banks in times of economic distress to prevent widespread harm.
    • D-SIBs follow a different set of regulations in relation to systemic risks and moral hazard issues.

    Types of SIBs

    There are two types of SIBs:

    1. Global SIBs: They are identified by BCBS (BASEL Committee on Banking Supervision)
    2. Domestic SIBs: They are declared by Central Bank of the country

    How are D-SIBs determined?

    • Since 2015, the RBI has been releasing the list of all D-SIBs.
    • They are classified into five buckets, according to their importance to the national economy.
    • In order to be listed as a D-SIB, a bank needs to have assets that exceed 2 percent of the national GDP.
    • The banks are then further classified on the level of their importance across the five buckets.
    • ICICI Bank and HDFC Bank are in bucket one while SBI falls in bucket three, with bucket five representing the most important D-SIBs.

    What regulations do these banks need to follow?

    • Due to their economic and national importance, the banks need to maintain a higher share of risk-weighted assets as tier-I equity.
    • SBI, since it is placed in bucket three of D-SIBs, has to maintain Additional Common Equity Tier 1 (CET1) at 0.60 percent of its Risk-Weighted Assets (RWAs).
    • ICICI and HDFC on the other hand, have to maintain Additional CET1 at 0.20 percent of their RWA due to being in bucker one of D-SIBs.

     

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  • What should India do in the current international energy market?

    energy

    Context

    • India marches ahead carrying the same challenge projected as last year that it will have to navigate the choppy waters of a volatile petroleum market without straying from the green path towards clean energy. Energy security cannot be achieved by focusing only on the supply and distribution side of the equation. The demand conservation and efficiency sides are equally important.

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    Current situation of international energy market

    • Fragmented energy market: the energy market has fragmented and energy nationalism is the driving force behind policy.
    • Restricted markets for Russia: Irrespective of how and when the Ukraine conflict ends, Russia will not be allowed access to the western markets for as long as President Putin is at the helm of the affairs. One fallout is the tightening energy embrace between Russia and China.
    • Declining western orbit and increasing non-aligned approach: Three, OPEC plus one which is, in effect, Saudi Arabia plus Russia has stepped outside the Western orbit. Saudi Arabia has made clear it intends to pursue a Saudi first, non-aligned approach to international relations including with the US.
    • Emergence of new energy centres: The new centres of energy power are emergent around countries that have a large share of the metals, minerals and components required for clean energy. China is currently the dominant power.

    What should India do against this backdrop?

    • Government must increase productivity of existing sources: Discounted Russian crude is an opportunistic panacea. It does not provide a sustainable cover to meet our requirements. To secure such a cover, government must increase the productivity of our existing producing fields; additional resources should be allocated for accessing relevant enhanced oil recovery technologies.
    • Secure long- term supply relationship with Saudi Arabia and Iran: Further, it should leverage the country’s market potential to secure a long-term supply relationship with Saudi Arabia and an equity partnership with Iran.
    • Enhance the strategic petroleum reserves: It should enhance the strategic petroleum reserves to cover at least 30 days of consumption and remove the sword of Damocles that the CBI/CVC/CAG wield over the heads of the public sector petroleum companies so that their traders can, without fear, take advantage of market volatility.
    • Expediate gas pipeline grid: The construction of a pan-India national gas pipeline grid should be expedited.

    energy

    Analysis: Phasing out coal and the energy transition in India

    • Coal one of the major sources of energy in India: Coal will remain the bulwark of India’s energy system for decades. It is no doubt the dirtiest of fuels, but it remains amongst, if not the cheapest, source of energy. Plus hundreds of thousands depend on the coal ecosystem for their livelihood.
    • Phasing out is not yet a near possibility: The option of phasing out coal whilst environmentally compelling is not yet a macroeconomic or social possibility.
    • Need a balance: In the interim, the government has to find an energy transition route that balances livelihoods and pushes forward the green agenda.
    • Steps to be taken: Some small, politically feasible steps in that direction would include increased R&D expenditure for coal gasification and carbon capture and sequestration technologies; setting a carbon tax; the establishment of regulatory and monitoring mechanisms for measuring carbon emissions from industry; the closure of inefficient and old plants and a decision not to approve any new ones.
    • Determining competitiveness: In parallel, it would help if Niti Aayog were to pull together a group of economists and energy experts to determine the competitiveness of coal versus solar on a full-cost basis

    Other possible measures 

    • Upgrading the transmission grid: Allocation of funds for upgradation of the transmission grid network to render it resilient enough to absorb clean electrons on an intermittent basis. The sun does not shine at night and the wind does not blow all the time. In parallel, the underlying structural issues currently impeding the scaling up of renewables must be addressed.
    • Repairing the balance sheets of discoms through various regulatory reforms: In parallel, the repair of the balance sheets of state distribution companies (discoms), easing the procedures for the acquisition of land and the removal of regulatory and contract uncertainties are most important.
    • Building up the domestic chip industry: It will take decades to harness our indigenous resources of the metals and minerals critical for clean energy and build up a domestic chip industry. In the interim, diplomats should secure diversified sources of supply to reduce the country’s vulnerability.
    • Developing and commercializing 3G clean energy technologies: Finally, the creation of an enabling ecosystem for developing and commercializing third-generation clean energy technologies like hydrogen, biofuels and modular nuclear reactors. Nuclear, in particular, should be pushed.

    energy

    Conclusion

    • India is not responsible for global warming, but it will be amongst the worst affected. Millions live around its coastline. Their livelihoods will be undermined by rising sea levels. Millions will also be affected by melting glaciers and extremes of temperatures. So irrespective of who is to blame, India has to stay on the path of decarbonization. It cannot afford to develop first and clean up later.

    Mains question

    Q. What is the current situation of international energy market? What are the measures that India should take in the time of global uncertainty of energy market.

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  • New Year and the Indian economic growth

    economic

    Context

    • The new year begins on a slightly more optimistic note for India. Global crude and food prices are down, the rupee has stabilised at 82-83 to the dollar after dropping from 74.5 levels at the start of 2022, even as official foreign exchange reserves have recovered. However, there are challenges to the economic growth of India which needs an immediate attention and action.

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    The current scenario and the optimism around Indian economy

    • Global crude and food prices: Global crude and food prices are roughly 38 per cent and 15 per cent down respectively from their highs in March, following Russia’s invasion of Ukraine.
    • Stabilised rupee: The rupee has stabilised at 82-83 to the dollar after dropping from 74.5 levels at the start of 2022
    • FOREX recovered: even as official foreign exchange reserves, which had plunged to $524.5 billion on October 21 from a year-ago peak of $642 billion, have since recovered to $562.8 billion.
    • Environmental conditions are good for Rabi crops: With the prospects for the upcoming rabi crop looking good, as there is favourable soil moisture conditions, timely onset of winter and improved fertiliser availability on the back of declining international prices one can expect consumer inflation to ease further.

    economic

    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).

    economic

    What are the challenges?

    • Challenge is more on growth than on Inflation: The challenge for India this year is likely to be more on the growth than on the inflation front.
    • It seems, Chinese’s authoritarian policies making India a favourable investment destination: On paper, the world’s disillusionment with China (more specifically, the authoritarian policies of Xi Jinping, both at home and beyond) and its diminishing economic prospects, worsened by a looming demographic crisis, should be making India every investor’s favourite destination.
    • On paper government efforts are honest to attract investment: The present government’s focus on improving the country’s physical as well as digital infrastructure plus schemes such as production-linked incentive to attract investments in specific sectors, from solar photovoltaic modules and drones to specialty steels ought to have given added impetus to this process.
    • But on the ground, neither domestic nor foreign companies are really investing: The biggest drag on investment during the last decade was over-leveraged corporates and bad loans-saddled banks.
    • Deepening global slowdown is a major challenge to the economic growth: That twin balance sheet problem has more or less resolved itself. Today’s problem has mainly to do with strained government and household balance sheets. That, coupled with a deepening global slowdown constricting export demand, could have a bearing on India’s economic growth.

    What is Current Account Deficit (CAD)?

    • A current account is a key component of balance of payments, which is the account of transactions or exchanges made between entities in a country and the rest of the world.
    • This includes a nation’s net trade in products and services, its net earnings on cross border investments including interest and dividends, and its net transfer payments such as remittances and foreign aid.
    • A CAD arises when the value of goods and services imported exceeds the value of exports, while the trade balance refers to the net balance of export and import of goods or merchandise trade.

    economic

    What should the government do?

    • Refrain from fiscal stimulus and maintain macroeconomic stability: It should certainly refrain from any fiscal stimulus to kick-start investment or drive growth. Far from stimulus, what the country needs is macroeconomic stability and policy certainty.
    • Managing current account deficit: The current fiscal deficit and public debt levels are far too high to allow any new populist schemes in the name of putting money in people’s hands or sharp tax cuts to supposedly revive investor sentiment. Large government deficits will invariably spill over into current account deficits. The latter number, at 4.4 per cent of GDP in July-September, was the highest for any quarter since October-December 2012 and the prelude to the last so-called taper tantrum-induced balance of payments crisis.
    • Must prioritize fiscal consolidation: The coming budget must prioritize fiscal consolidation. This will enable the RBI to also pause interest rate hikes and further monetary tightening, which is probably not the best thing for an economy already facing multiple growth headwinds.

    Conclusion

    • India’s challenge has shifted from inflation management to facilitating growth in 2023. Policy stability and credibility should be the mantra that will ultimately work for India.

    Mains question

    Q. It is said that the new year 2023 is starting on a slightly more optimistic note for the Indian economy. In this background, discuss the challenges facing India’s economy and what the government should do?

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  • In news: Crypto Awareness Campaign

    crypto

    The Investor Education and Protection Fund (IEPF) will launch an outreach programme soon to create awareness of cryptocurrencies.

    What is Cryptocurrency?

    • A cryptocurrency is a digital asset stored on computerised databases.
    • These digital coins are recorded in digital ledgers using strong cryptography to keep them secure.
    • The ledgers are distributed globally, and each transaction made using cryptocurrencies are codified as blocks.
    • And multiple blocks linking each other forms a blockchain on the distributed ledger.
    • There are estimated to be more than 47 million cryptocurrency users around the world.
    • These cryptocurrencies are created through a process called mining.

    Investor Education and Protection Fund (IEPF)

    • The Investor Education and Protection Fund (IEPF) is managed by the IEPF Authority, which was set up in 2016 under the provisions of Section 125 of the Companies Act, 2013.
    • The Authority is entrusted with promoting awareness among investors, makes refunds of shares, unclaimed dividends, matured deposits and debentures and so on to rightful claimants.
    • As for investment education, the idea is to reach out to household investors, housewives and professionals alike in rural and urban areas and teach them the basics.
    • Focus areas include primary and secondary capital markets, various saving instruments, the instruments for investment, making investors aware of dubious Ponzi and chit fund schemes and existing grievance redressal mechanisms, among other things.
    • Until the end of October, it had conducted more than 65,000 awareness programmes covering 30 lakh citizens.

    Why is there a concern about cryptocurrency?

    • RBI caution: The Reserve Bank of India (RBI) has recommended framing legislation on the sector. It is of the view that cryptocurrencies should be prohibited.
    • Fiscal stability at stake: The crypto dilemma stems from concerns about the unregulated currency having a destabilising effect on the monetary and fiscal stability of a country.
    • Involved in unlawful activities: Further, crypto exchanges in India are being investigated for their alleged involvement in unlawful practices such as drug trafficking, money laundering, violating foreign exchange legislation and evasion of GST.
    • High volatility: Cryptocurrency investing can be a complex and risky endeavour as the category is extremely volatile and works round the clock.

    Will an outreach programme help?

    • Regulation is must: Apart from the outreach programme, there has to be a regulatory mechanism for the crypto sector.
    • Messaging has to be right: If the government takes a heavy-handed approach and starts saying things like virtual currency is not legal in India that will not be entirely true.

    Present regulation in India

    • RBI has banned banks and other regulated entities from supporting crypto transactions.
    • The Government has confirmed that expenditure incurred in mining cryptocurrency is considered capital expenditure and not a cost of acquisition.
    • Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 was introduced by the Centre.

    Way forward

    • Crypto assets are borderless and therefore, any legislation (for regulation or for banning) would require international collaboration to prevent regulatory arbitrage.
    • The collaboration must entail an evaluation of risks and benefits and the evolution of common taxonomy and standards.

     

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  • In news: Small Savings Schemes

    The Central government raised interest rates on eight of the 12 small savings schemes by 20 to 110 basis points for the January to March 2023 quarter.

    Small Savings Schemes

    • Small Savings Schemes are a set of savings instruments managed by the central government with an aim to encourage citizens to save regularly irrespective of their age.
    • They are popular as they provide returns higher than bank fixed deposits, sovereign guarantee and tax benefits.

    How are they managed?

    • Since 2016, the Finance Ministry has been reviewing the interest rates on small savings schemes on a quarterly basis.
    • All deposits received under various schemes are pooled in the National Small Savings Fund.
    • The money in the fund is used by the Centre to finance its fiscal deficit.

    What are the different saving schemes?

    The schemes can be grouped under three heads –

    1. Post office deposits
    2. Savings certificates and
    3. Social security schemes

    (1) Post Office Deposits

    • Under this we have the savings deposit, recurring deposit and time deposits with 1, 2, 3 and 5 year maturities and the monthly income account.
    • The savings account currently pays an interest of 4% per annum and can be opened individually or jointly with an initial investment of Rs 500.
    • The recurring deposit that pays 5.8% a year compounded quarterly matures after 60 months from the date of opening.
    • It allows investors to save on a monthly basis with a minimum deposit of Rs 100 per month.
    • Investments under the 5-year time deposit up to Rs 1.5 lakh further qualifies for benefit under section 80C of Income Tax Act.

    (2) Savings Certificates

    • Under this, we have the National Savings Certificate and the Kisan Vikas Patra.
    • The National Savings Certificate pays interest at a rate of 6.8% per annum upon maturity after 5 years. The interest that is earned is reinvested into the scheme every year automatically.
    • The NSC also qualifies for tax saving under Section 80C of the income tax act.
    • The Kisan Vikas Patra, which is open to everyone, doubles your one-time investment at the end of 124 months signifying a return of 6.9% compounded annually.
    • The minimum investment amount is Rs 1000 while there is no upper limit.

    (3) Social security schemes

    • In the third head of social security schemes, there is Public Provident Fund, Sukanya Samriddhi Account and Senior Citizens Savings Scheme.
    1. Public Provident Fund
    • The Public Provident Fund is a popular saving option for long term goals like retirement.
    • It pays 7.1% a year and qualifies for tax benefit under Section 80C of the Income Tax Act.
    • Upon maturity of the account after 15 years, it can be extended indefinitely in blocks of 5 years.
    • The accumulated amount and interest earned are exempt from tax at the time of withdrawal.
    1. Sukanya Samriddhi Account
    • The Sukanya Samriddhi Account was launched in 2015 under the Beti Bachao Beti Padhao campaign exclusively for a girl child.
    • The account can be opened in the name of a girl child below the age of 10 years.
    • The scheme guarantees a return of 7.6% per annum and is eligible for tax benefit under Section 80C of the Income Tax Act.
    • The tenure of the deposit is 21 years from the date of opening of the account and a maximum of Rs 1.5 lakh can be invested in a year.
    1. Senior Citizen Savings Account
    • And finally, the 5-year ​​Senior Citizen Savings Account can be opened by anyone who is over 60 years to age.
    • It carries an interest of 7.4% per annum payable quarterly and qualifies for Section 80C tax benefit.
    • These time-tested and safe modes of investments don’t offer quick returns, but are safer when compared to market-linked schemes.

     

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  • Vibrant Village Programme (VVP)

    village

    Union Home Minister said that borders can be permanently secured only when border villages are populated by patriotic citizens who are concerned for the country, asking the border-guarding forces to use the Vibrant Village Programme (VVP) for the same.

    Vibrant Village Programme

    • The program aims to improve infrastructure in villages along India’s border with China.
    • Infrastructure will be improved in states like Uttarakhand, Himachal Pradesh, and Arunachal Pradesh.
    • Under the programme, residential and tourist centres will be constructed.
    • It will also provide for improvement in road connectivity and development of decentralized renewable energy sources.
    • Apart from that, direct access of Doordarshan and education related channels will be provided. Support will be provided for livelihood.

    Key focus areas

    • It focuses on livelihood generation, road connectivity, housing, rural infrastructure, renewable energy, television and broadband connections.
    • This objective will be met by strengthening infrastructure across villages located near the Line of Actual Control (LAC).

    Need for such scheme

    • The programme is a counter to China’s model villages but the name has been carefully chosen so as to not cause any consternation in the neighbouring country.
    • China has established new villages along the LAC in the past few years, particularly across the Arunachal Pradesh border.
    • While China has been settling new residents in border areas, villages on the Indian side of the frontier have seen unprecedented out-migration.

     

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  • India’s tech startups and the dearth of funding

    startups

    Context

    • The Indian government is emphasizing and celebrating its tech startups as an important component of its economic development policy. Prime Minister Modi recently pointed out that the number of Indian ‘unicorns’ technology startup companies with a valuation of US$ 1 billion or more has doubled since 2021. Some sectors within these startups, such as climate tech, do demonstrate strong promise.

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    startups

    Funding a major problem

    • Though India has emerged as the third largest ecosystem for startups, funding is becoming a growing problem, with the number of unicorns dropping by half in 2022.
    • One of the sectors that appear to be not doing very well is the Indian online tech startups.

    Present status of Indian tech startups

    • Good performance during the pandemic: These Indian tech startups did very well during the two-year-long pandemic. With the dramatic increase in work-from-home (WFH) office interactions, online consulting for various services but especially heathcare, online classes at schools and colleges and other educational centres, and other online services and platforms proliferate.
    • Indian techs became popular for online services: Overnight, technological solutions and electronic communications using virtual platforms, digital payments system, video consultations and edtech all became popular.
    • As people returning to normal lives Indian techs looks weak: But with the pandemic now relatively under control and people returning to normal lives, the future of Indian startups that provided online services is beginning to look bleak.
    • Negative assumptions: Going by recent media reports, the future of such tech startup companies is not so bright. Funds are drying up and not all startups are going to survive.
    • Global uncertainties adding up to the existing problems: Further, issues like the Russian invasion of Ukraine, a spike in global inflation rates, and fears of a possible recession have also brought down the prospects for many startups in general.

    Impact of shortage in funding to tech startups

    • Complete shutdown of many startups: Shortage of capital that is critical for the startups to sustain has led to cost-cutting measures with layoffs, mergers and consolidation and even complete shutdowns of some of them.
    • Shut down as it unable to find market fit product: According to Inc42, a tech media platform, eight startups shut shop in 2022. These include Matrix Partners-backed SaaS startup, Protonn, which closed its operations in January 2022 since it was unable to find the right product-market fit.
    • For instance, the funding case of Protonn: Protonn was a Bengaluru and San Francisco-based startup, focused on providing its platform to professionals such as lawyers, graphic designers and nutritionists to launch their businesses online, create videos, conduct live sessions, generate payment links, and track their business’s financial performance. The company had raised US$9 million in seed funding. The company, founded by former Flipkart executives, Anil Goteti and Mausam Bhatt, returned US $ 9 million to its investors.

    startups

    Problem faced by edtch startups in a post pandemic world

    • A case of edtech startup Uday: Uday ended its operations in April this year. The Gurgaon-based startup had difficulties finding ways to stay in business in the post-pandemic world. The startup co-founder, Soumya Yadav stated that the company was witnessing the post-pandemic world for the first time, as the kids went back to school, we faced roadblocks in growing the original model of online, live learning. We evaluated multiple different strategies and adjacent pivots however none of them were promising enough.
    • Financial crunch and laying off the employees by well-established edtechs: Edtech startups such as Vedantu and Unacademy are also facing severe financial crunch, leading to hundreds of layoffs or shutting down certain verticals.
    1. Vedantu for instance: Earlier in the year, Vedantu laid off around 620 employees. Unacademy, earlier in the year, shut down its medical test preparation vertical, USMLE.
    2. Unacademy laying off its verticle: As of November, Unacademy has done three rounds of layoffs, starting with 600-800 employees from its sales and marketing team.
    3. Byjus: Byju’sa rival of Unacademy has also felt the pinch and is reported to have laid off close to 2,500 employees.
    4. SuperLearn: Another startup in the education sector, a Bengaluru-based SuperLearn, shut its operations in June because of “a dearth of funds and diminishing investor confidence.”

    Other positive side of the startups

    • Biotech and healthcare startups did well: While the edtech is possibly the worst hit, startups in the biotech and healthcare sector and e-commerce and fintech may not be as badly affected in the coming year.
    • Healthcare startups not only survived but also benefitted: Several startups gained from the inadequacy of the Indian healthcare system and thus phenomena like online pharmacy, healthcare-at-home services, and fitness and wellness companies have sprung up and they are likely to stay.
    • Funds received by healthcare startups will be helpful: Healthcare startups reportedly received funds of around US$2.2 billionn across 131 deals. They also appear to have found an appealing business model that might help them pull on with reasonable success in the coming years.

    Way ahead

    • Nevertheless, there is a likelihood that after seeing a boom and a significant spike in the demand in these sectors in the last two years, there may be some balancing in the next two years.
    • Another possible way that startups will deal with the financial crunch, lack of adequate response is to consolidate the several different edtech and e-commerce platforms and so, one could expect a few merger and acquisition to come through in the coming years.
    • Enterprisetech sector saw some of this playing out already. Startups, at least within a few exclusive sectors, have gained fair amount of prominence and appears that they are here to stay despite the possibility of a rough couple of years until issues around funds and market are evened out.

    Conclusion

    • It is evident that not only the economic crisis caused closures, but growing businesses in post-pandemic conditions was proving to be a challenge. Overall, Indian tech startups therefore suggest a mixed picture. Strong government support is positive but business model and market competition issues need to be addressed.

    Mains question

    Q. Indian edtech startups are witnessing financial crunch however, healthcare start-ups are benefitting in a post pandemic world. Therefore, Indian tech startups suggest a mixed picture. Discuss.

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  • India’s first Waste-to-Hydrogen Project

    Hydrogen

    Context

    • India assumed the Presidency of the Group of 20 this December. The world’s third largest emitter is moving beyond a transition strategy based squarely on solar development by branching out into emerging fields such as hydrogen.

    Present Energy status and future Predictions

    • Only country to keep promise: India is one of the few countries that has kept to its Paris Agreement (21st Conference of Parties or COP21 to the United Nations Framework Convention on Climate Change) commitments, with an exponential increase in renewable energy capacity.
    • Energy through renewables: It is anticipated that by 2050, 80-85 per cent of India’s overall power capacity will come from renewables by achieving the nationally determined contributions commitments.
    • Reducing the fossil fuel: India had committed to increasing the share of non-fossil fuels to 40 per cent of the total electricity generation capacity by 2030.

    Hydrogen

    Potential of hydrogen energy

    • 6 million tonnes hydrogen: India consumes about six million tonnes of hydrogen annually to produce ammonia and methanol in industrial sectors, including fertilisers and refineries.
    • Rising demand of hydrogen: This could increase to 28 million tonnes by 2050, principally due to the rising demand from the industry.

    Efforts to promote Green Hydrogen

    • Search for technology to generate: Ever since the Union Ministry of New and Renewable Energy (MNRE) shared that it is time for green hydrogen, private players have been looking for new technologies to generate it.
    • Electrolyser is inefficient: With the challenges of electrolyser capacity for generating green hydrogen globally, finding alternatives to foster green hydrogen in the country is essential.
    • Incentives from central government: The central government, the prime facilitator of such projects, has been coming up with new initiatives, policies and schemes to unleash the potential of green hydrogen generation and boost its demand.
    • Rational utilization of resources: The long-term low-emission development strategy of the country submitted to UNFCCC at COP27 focused on the rational utilisation of national resources for energy security in a just, smooth and sustainable manner.

    Idea proposed by Pune Municipal Commission

    • Partnership with private player: PMC has partnered with business management consultant The Green Billions (TGBL) to manage its waste and generate it into useable green hydrogen. TGBL’s special purpose vehicle or subsidiary, Variate Pune Waste to Energy Private Ltd, will be undertaking the work.
    • Waste management: The new facility for generating hydrogen from waste will solve major problems of Inefficient waste management and carbon emissions. Waste management is one of the prime issues in the country, which is blamed for generating pollution in the surroundings.
    • Reducing carbon emissions: Pune, the second largest city in Maharashtra, hosts many industries, including steel, fertilisers and pharmaceutical industries. The emissions in the city increased by 12 per cent to 1.64-tonne carbon dioxide equivalent (tCO2Eq) per capita in 2017 from 1.46 tonne tCO2Eq per capita in 2012.

    Hydrogen

    How Hydrogen will be generated?

    • Hydrogen generation for 30 years: Variate Pune Waste to Energy Private Ltd will be managing and utilising the municipal waste of 350 tonnes per day (TPD) for generating hydrogen for 30 years. This waste will comprise biodegradable, non-biodegradable and domestic hazardous waste.
    • Plasma gasification technology: The Refuse-Derived Fuel (RDF) from the waste would later be utilised to generate hydrogen using plasma gasification technology. The technology has been developed while closely working with the Bhabha Atomic Research Institute (BARC) and the Indian Institute of Science, Bengaluru.
    • 9MT Tonnes of H2: It is estimated that 150TPD RDF and 9MT tonnes of H2 would be generated out of 350 TPD waste.
    • Decarbonising the city: The hydrogen generated at the facility will be utilised locally to help the city lower its emissions. As the Centre is focusing on industrial decarbonisation and facing the challenges of just transition, the project can prove to be a game-changer in helping industries reduce carbon emissions.

    Hydrogen

    Conclusion

    • In India, where the hydrogen industry is nascent, it is imperative to keep the cost of hydrogen competitive to expand its usage in various sectors. TGBL will work on the same by making hydrogen affordable and easier to switch in the just-transition.