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Subject: Economics

  • What are Additional Tier-1 (AT-1) Bonds?

    The Bombay High Court has quashed the write-off of Additional Tier-1 (AT1) bonds worth Rs 8,400 crore issued by Yes Bank Ltd, bringing relief to investors.

    What are AT1 bonds?

    • AT-1, short for Additional Tier-1 bonds, are a type of unsecured, perpetual bonds that banks issue to shore up their core capital base to meet the Basel-III norms.
    • AT-1 bonds are complex hybrid instruments, ideally meant for institutions and smart investors who can decipher their terms and assess if their higher rates compensate for their higher risks.
    • They carry a face value of ₹10 lakh per bond.
    • There are two routes through which retail folk have acquired these bonds — initial private placement offers of AT-1 bonds by banks seeking to raise money; or secondary market buys of already-traded AT-1 bonds based on recommendations from brokers.

    Why are they important?

    AT-1 bonds have several unusual features lurking in their fine print, which make them very different from plain bonds.

    • One, these bonds are perpetual and carry no maturity date. Instead, they carry call options that allow banks to redeem them after five or 10 years. But banks are not obliged to use this call option and can opt to pay only interest on these bonds for eternity.
    • Two, banks issuing AT-1 bonds can skip interest payouts for a particular year or even reduce the bonds’ face value without getting into hot water with their investors, provided their capital ratios fall below certain threshold levels. These thresholds are specified in their offer terms.
    • Three, if the RBI feels that a bank is tottering on the brink and needs a rescue, it can simply ask the bank to cancel its outstanding AT-1 bonds without consulting its investors. This is what has happened to YES Bank’s AT-1 bond-holders who are said to have invested ₹10,800 crore.

     

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  • Forex Reserves zoom by $10.417 billion to $572 billion

    India’s forex reserves zoomed by $10.417 billion to $572 billion, making it one of the biggest weekly jumps in recent times.

    Recent trends in FOREX Reserves

    • In the previous reporting week, the overall reserves had dropped by $1.268 billion to $561.583 billion.
    • In October 2021, the country’s forex reached an all-time high of $645 billion.
    • The reserves have been declining as the central bank deploys the kitty to defend the rupee amid pressures caused majorly by global developments.
    • In October 2022, the reserves had swelled by $14.721 billion during a week.

    What is Foreign Exchange (Forex) Reserve?

    • Foreign exchange reserves are important assets held by the central bank in foreign currencies as reserves.
    • They are commonly used to support the exchange rate and set monetary policy.
    • In India’s case, foreign reserves include Gold, Dollars, and the IMF’s quota for Special Drawing Rights.
    • Most of the reserves are usually held in US dollars, given the currency’s importance in the international financial and trading system.
    • Some central banks keep reserves in Euros, British pounds, Japanese yen, or Chinese yuan, in addition to their US dollar reserves.

    India’s forex reserves cover:

    1. Foreign Currency Assets (FCAs)
    2. Special Drawing Rights (SDRs)
    3. Gold Reserves
    4. Reserve position with the International Monetary Fund (IMF)

    Countries with the highest foreign reserves

    • Currently, China has the largest reserves followed by Japan and Switzerland.
    • India earlier overtook Russia to become the fourth-largest country with foreign exchange reserves. (Data from August 2022)
    1. China – $3,349 Billion
    2. Japan – $1,376 Billion
    3. Switzerland – $1,074 Billion
    4. Russia – $597.40 Billion

    Why are these reserves so important?

    • All international transactions are settled in US dollars and, therefore, required to support India’s imports.
    • More importantly, they need to maintain support and confidence for central bank action, whether monetary policy action or any exchange rate intervention to support the domestic currency.
    • It also helps to limit any vulnerability due to sudden disturbances in foreign capital flows, which may arise during a crisis.
    • Holding liquid foreign currency provides a cushion against such effects and provides confidence that there will still be enough foreign exchange to help the country with crucial imports in case of external shocks.

    Initiatives taken by the government to increase forex

    • To increase the foreign exchange reserves, the Government of India has taken many initiatives like AatmaNirbhar Bharat, in which India has to be made a self-reliant nation so that India does not have to import things that India can produce.
    • Other than AatmaNirbhar Bharat, the government has started schemes like Duty Exemption Scheme, Remission of Duty or Taxes on Export Product (RoDTEP), Nirvik (Niryat Rin Vikas Yojana) scheme, etc.
    • Apart from these schemes, India is one of the top countries that attracted the highest amount of Foreign Direct Investment, thereby improving India’s foreign exchange reserves.

     

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  • What constitutes a Trademark Violation?

    trademark

    The Delhi High Court dismissed a case of trademark infringement brought by the global fast food chain against a Delhi-based restaurant.

    What is a trademark?

    • A trademark is a symbol, design, word or phrase that is identified with a business.
    • When a trademark is registered, its owner can claim “exclusive rights” on its use.
    • The Trademark Act, 1999, governs the regime on trademark and its registration.
    • The Act guarantees protection for a trademark that is registered with the Controller General of Patents, Designs, and Trademarks, also known as the trademark registry.
    • A trademark is valid for 10 years, and can be renewed by the owner indefinitely every 10 years.

    Violation of trademark

    • Using a registered trademark without authorization of the entity that owns the trademark is a violation or infringement of the trademark.
    • Using a substantially similar mark for similar goods or services could also amount to infringement.
    • In such cases, courts have to determine whether this can cause confusion for consumers between the two.
    • There are several ways in which a trademark can be infringed. However, the trademark owner has to show that the trademark has a distinct character-
    1. Deceptive similarity: The law states that a mark is considered deceptively similar to another mark if it nearly resembles that other mark, confusing the consumer in the process. Such deception can be caused phonetically, structurally or visually.
    2. Passing off: Say, a brand logo is misspelt in a way that’s not easy for the consumer to discern. The Supreme Court has ruled that passing off is a “species of unfair trade competition or of actionable unfair trading by which one person, through deception, attempts to obtain an economic benefit of the reputation which other has established for himself in a particular trade or business”.

     

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  • Economic growth and the government disintermediation

    Context

    • Between spending and saving, governments are generally better at the former. High growth comes with the advantage that government revenue expands and gets spent, as is happening this fiscal. But this is also habit-forming. If growth tapers down as is expected in FY 2024 cutting back government spending will be politically rocky just before a general election. Better then, to get selective on spending early on.

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    Current economic indicators

    • Finance Minister Nirmala Sitharaman took over the hot seat in May 2019. True to character, she resolved to pick up this rolling can by tabling in the FY 2021 budget, an amount of INR 2.64 trillion (1.2 percent of GDP) to pay these overdues.
    • India, yet again, in an era of high inflation and high oil import prices. It has taken courage and sagacity to reduce the FD from 9.2 percent (FY 2021—the COVID-19 year) to a targeted 6.4 percent this fiscal.

    Challenges to establish a declining trend back towards an FD of 3.5 percent of GDP

    • The oil slick of global uncertainty and inflation: Oil price uncertainties, created by the Ukraine standoff, which was partially cushioned via nimble Indian diplomacy resisting the boycott of cheaper Russian oil, has kept imported oil at US$77.7 per barrel in January 2023. But the ongoing opening up of China could firm up oil prices.  
    • India’s high-debt burden compromises fiscal resilience: Interest payments in FY 2023 (budgeted) at INR 9.4 trillion, are the largest expense outlay bucket, accounting for 43 percent of budgeted Union net revenue receipts, up from 41.7 percent in FY 2021. Defence and domestic security services at 15 percent come next, followed by subsidies (food, fertilizers, and fuel) at 14 percent and inflation-indexed government pensions at 9 percent.
    • Infrastructure lags: Infrastructure remains a drag on growth although intercity highways have improved. Multimodal transport solutions remain underdeveloped as do train stations and bus terminals in most towns and rural areas. The competitiveness of major Indian ports in 2018 was ranked 42nd well below China, Malaysia and Thailand- pulled down by low outcomes in infrastructure and turn-around time. The gas grid remains nascent with just 10.1 million connections versus 309 million users for LPG canisters a more volatile substitute for cooking fuel, than piped natural gas.

    What is the worrying situation?

    • Inflation: The Reserve Bank of India (RBI) expects retail inflation, assessed at 5.78 percent (December 2022) to trend downwards in FY 2024. But signals of embedded inflation via core inflation (other than volatile food and fuel) above 6 percent are worrying.
    • Disrupted energy supply: A disruption in energy supplies could upset sanguine inflation expectations.
    • Taming inflation would increase fiscal crunch: Taming the resulting inflation by reducing taxes on the retail supply of petroleum products would increase the fiscal crunch.
    • Interests funded by additional borrowings is risky strategy: High-growth economies can afford to fund by borrowings as can start-ups, which borrow against their future growth prospects. For a large, lower middle-income economy like India, with historically moderate long-term growth rates (4 to 6 percent), it compromises reserve fiscal capacity to respond, through counter-cyclical measures, to economic downturns induced by economic shocks a risk-laden strategy.

    What India should do?

    • Resume much delayed disinvestment: Resume the much-delayed privatisation and disinvestment of public sector enterprises and government-owned financial sector entities.
    • Make Indian railway and autonomous entity: Second, make Indian Railway an autonomously regulated, commercially run entity, providing a surplus to the government rather than looking for budgetary support.
    • Encourage public finance outlays: Maximise the economic impact by encouraging public finance outlays to be driven by competitive metrics of allocative efficiency across investment options and program/project implementation models.

    Conclusion

    • For a new phase of growth, government disintermediation is appropriate. It allows for increased competition and innovation in the private sector, leading to greater efficiency and economic growth. India has momentum. What it needs is for the reins to be lightly held.

    Mains question

    Q. What obstacles does the Indian economy face as it enters a new era of growth, and what should India do?

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  • In news: National Export Co-operative Society

    The first consignment expected to be exported by the first-ever National Export Co-operative Society.

    Why in news?

    • The Union Cabinet on January 11 approved the setting up Multi-State Seed Society, Multi-State Organic Society and Multi State Export Society.

    What is National Export Co-operative Society (NECS)?

    • The society will have an authorised share capital of ₹2,000 crore with the area of operation all over the country.
    • It will be registered under the Multi-State Cooperative Societies (MSCS) Act, 2002.
    • It will have its registered office in Delhi.
    • The Society’s registration will be complete in the next few days and the first consignment will be exported in three months.
    • It will work as an export house for handicrafts, handlooms, khadi and other products, ensuring enhancement of income of the cooperative member entrepreneurs.

    Funding of NECS

    • Leading cooperatives like IFFCO, KRIBHCO, NAFED, Amul and National Cooperative Development Corporation (NCDC) will be the promoters of the Society.
    • They will contribute ₹100 crore each.

    Working of NECS

    • The Society will be different from the Export Promotion Council under the Ministry of Commerce.
    • This Society will provide end-to-end services to the cooperatives.
    • It will open foreign bank accounts and complete all the formalities, including necessary permissions for exporting a product.
    • The dividends will be shared with the manufacturer instantly and without any brokerage fee.
    • The Society will hire consultants in foreign countries who will help expand its footprint across continents.

    Why need cooperatives for export promotion?

    • Cooperatives contribute 28.80% in fertilizer production, 35% in fertilizer distribution, 30.60% in sugar production and 17.50% in milk in the national economy.
    • However, their contribution to exports is negligible.
    • Society will benefit the smallest of farmer or artisan who has a good product but does not have access to the right platform.
    • Through this Society, they will get access to international market and good returns too.
    • Once a product has been tested for international standards, the packaging and export will be done by the Society.

     

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  • TRAI’s Calling Name Presentation (CNAP) Proposal

    cnap

    Telecom operators have expressed concerns over user privacy on the Telecom Regulatory Authority of India’s Calling Name Presentation (CNAP) proposal.

    Calling Name Presentation (CNAP)

    • Under this phones would need to display the name of a caller, by extracting the name of the telecom subscriber from their SIM registration data.
    • The feature would provide the called individual with information about the calling party (similar to ‘Truecaller’ and ‘Bharat Caller ID & Anti-Spam’).
    • The idea is to ensure that telephone subscribers are able to make an informed choice about incoming calls and curb harassment by unknown or spam callers.

    Why need CNAP?

    • Securing important calls: Genuine calls should not get unanswered. Hence proper system is solicited.
    • Blocking of spammers: Since subscribers are not given the name and identity of the caller, they may choose not to answer them believing it could be commercial communication from unregistered telemarketers.
    • Rise of robocalls: There have been rising concerns about robocalls (calls made automatically using IT-enabled systems with a pre-recorded voice), spam calls and fraudulent calls.

    What are the proposed models? 

    The regulator has proposed four models for facilitating the CNAP mechanism-

    1. TSPs operating CNAP database: The first model involves each telecom service provider (TSP) establishing and operating a CNAP database of its subscribers. Here, the caller’s TSP would have to extract the relevant data from its own database.
    2. Database sharing: In the second model, the operator of the calling entity shares its CNAP database with the receiver’s operator. The difference here is that the calling operator would permit the receiver’s operator to access its database for the caller’s CNAP data.
    3. Creating a Centralised database: The onus rests on the receiver’s operator to delve into the centralized database to retrieve and present the caller’s data. This model is similar to a plan envisaged by the Department of Telecommunications (DoT) in 2018, involving the setting up of a Digital Intelligence Unit at the central level.
    4. Centralized CNAP database: TSP retains a copy of a synchronized central database operated by a third party. It works this way: the call is facilitated as per the routine procedure, and since the receiver’s operator has access to both the centralized and their own database, the lookup is, therefore, internal.

    Issues involved

    • Latency: The regulator has said that latency in setting up the call must be ensured and CNAP must be inter-operable. The responsiveness might also suffer when moving from a faster wireless network (4G or 5G) to a comparatively slower one (2G or 3G), or vice-versa.
    • Privacy Issue: It is not clear how the CNAP mechanism would balance the caller’s right to remain anonymous, an essential component of the right to privacy. To put it into perspective, an individual may opt to remain anonymous for multiple reasons, for example, whistle-blowers or employees being harassed.
    • Gendered impact: The proposal may particularly harm women. The service will display a woman subscriber’s name and data, to every calling party whether or not she consents to it.
    • Data sharing without consent: We have to see it in parallel with The Digital Personal Data Protection Bill (2022) which has a clause on deemed consent lacking adequate safeguards including sharing of data with third parties.
    • Implementation loopholes: Marketers have figured out newer ways to circumvent the existing framework. Previously, telemarketers were required to be registered as promotional numbers. Now they have started deploying people not necessarily part of the entity’s set-up, but rather “at-home workers”.

    Way forward

    • Innovative solution: TRAI must build an interface that is user-friendly and in turn, an effective mechanism.
    • Spam identification: Active participation from the subscribers would ensure that spammers are rightly identified and are unable to make further calls.
    • Digital literacy: The government must also invest in digital literacy, skilling citizen’s to navigate and use the tech better, ensuring they do not share their data indiscriminately and are informed about dangers such as financial fraud and spoofing.

     

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  • Why India needs a fresh Fertilizer Policy?

    fertilizer

    The government is expected to come out with a new fertilizer policy.

    What is the news?

    • A task force to examine the production and promotion of bio-fertilizer and organic fertilizers has already been set up under the NITI Aayog.

    How much fertilizer does India consume?

    • Total consumption of fertilizers between April and mid-December 2022 was 40.146 million metric tonnes (mmt), with production of 32.076 mmt and imports of 12.839 mmt.
    • The gap between demand and production is met through timely imports.

    How is fertilizers availability monitored?

    • Some steps undertaken by the government to improve the availability of fertilizers include:
    1. Assessment of state-wise requirements every month;
    2. 100% neem coating of urea, which increases nutrient efficiency;
    3. Monitoring of crop yield and soil health; and
    4. Online monitoring of the movement of fertilizers through the integrated Fertilizer Monitoring System.

    Impact of the current policy

    • Heavy subsidies: This has prompted many farmers to use chemical fertilizers like urea, which leads to higher productivity, but affects soil fertility in the long run.
    • Excessive and inefficient use of fertilizers: This leads to nutrient losses to the environment and could also result in drinking water contamination and impact human lives as a result of unsafe storage practices, as per a UN report.
    • Emission causing: With the subsidy being released directly to companies, technology-inefficient companies are being protected causing carbon emission.

    While attempts have been made to reform the fertilizer policy, they had to be rolled back after pressure from various quarters.

    Trend in government expenditure

    • Food subsidy: The government has spiked spending on food, fertilizer and fuel subsidy by nearly 70%.
    • Increased expenditure: For 2023-24, the fertilizer ministry might seek budgetary support of ₹2.5 trillion subsidy – outgo for FY23 has already crossed ₹2 trillion.
    • Increased import bill: Russia being a major exporter of liquefied natural gas -critical input for manufacturing of urea – has also led to higher prices.

    Steps taken in 2022

    • Implementation of DBT: The department of fertilizers disbursed subsidies for urea and nutrient-based subsidy, and implemented direct benefit transfer.
    • One Nation One Fertilizers Scheme: It also implemented the ONOF scheme which aims to ensure timely supply of fertilizers.
    • Model fertilizer retail outlets: The existing village, block/sub district/taluk and district level fertilizer retail outlets are being converted into model fertilizer retail outlets.

    Way forward

    • Promoting local fertilizers: Lower duty on imported phosphoric acid to raise the competitiveness of local fertilizer manufactures, and an incentive for promoting organic fertilizers, could be proposed.
    • Bio-fertilizer and organic fertilizers: A task force on bio-fertilizer and organic fertilizers has already been set up under NITI Aayog.
    • Curbing hefty subsidies: Considering the long-term interests of agriculture and the effects of using inorganic fertilizers, saving a huge amount on account of subsidy support is a step in the right direction.

     

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  • What is National Coal Index (NCI)?

    The Ministry of Coal has launched the sixth round of commercial coal mines’ auction for 141 coal mines.

    What is the news?

    • As per the provisions of the tender document, the Performance Bank Guarantee (PBG) to be submitted for each successfully auctioned coal mine is to be revised annually based on the National Coal Index (NCI).

    What is National Coal Index (NCI)?

    • Ministry of Coal has started commercial auction of coal mines on revenue share basis.
    • In order to arrive at the revenue share based on market prices of coal, one National Coal Index (NCI) is conceptualized.
    • The NCI is a price index which reflects the change of price level of coal on a particular month relative to the fixed base year.
    • The base year for the NCI is FY 2017-18.
    • NCI is a price index combining the prices of coal from all the sales channels- Notified Prices, Auction Prices and Import Prices.
    • It is released every month.

    Components of NCI

    • The concept and design of the Index as well as the Representative Prices have been developed by the Indian Statistical Institute, Kolkata.
    • NCI is composed of a set of five sub-indices: three for Non-Coking Coal and two for Coking Coal.
    • The three sub-indices for Non-Coking Coal are combined to arrive at the Index for Non-Coking Coal and the two sub-indices for Coking Coal are combined to arrive at the Index for Coking Coal.
    • Thus, indices are separate for Non-coking and Coking Coal.
    • As per the grade of coal pertaining to a mine, the appropriate sub-index is used to arrive at the revenue share.

    Implementation of NCI

    • The amount of revenue share per tonne of coal produced from auctioned blocks would be arrived at using the NCI by means of a defined formula.
    • The Index is meant to encompass all transactions of raw coal in the Indian market.
    • This includes coking and non-coking of various grades transacted in the regulated (power and fertilizer) and non-regulated sectors.
    • Washed coal and coal products are not included.

     

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  • UPI for NRIs: What it means for India and Indians abroad

    upi

    The National Payments Corp. of India (NPCI) has allowed Indians abroad to use fast payments network UPI, if their domestic bank accounts are linked to their foreign mobile numbers.

    What is UPI?

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

    What exactly has NPCI allowed on UPI?

    • NPCI issued a circular that paved the way for wider adoption of homegrown payments platform UPI.
    • So far, only Indian phone numbers were allowed on UPI, leaving out non-resident bank accounts linked to their phone numbers abroad.
    • In the first phase, phone numbers from 10 countries including Singapore, Australia, Canada, Hong Kong, Oman, Qatar, the US, Saudi Arabia, United Arab Emirates, and the UK have been allowed to be used on UPI.
    • NPCI said it could extend this to other nations as well.

    How will it benefit Indians abroad?

    • Once the systems are in place, non-resident Indians will be able to transact using UPI, irrespective of whether they are in India or abroad.
    • To use UPI, non-residents need to have either a non-resident external (NRE) account or a non-resident ordinary (NRO) account in India.
    • It would, of course, be more useful when account holders visit India, given the scale of UPI merchant infrastructure in India.
    • While abroad, they can use UPI to transfer funds to families in India and use it on e-commerce portals that allow such payments.

    What are the prerequisites for this facility?

    • NPCI has asked banks to onboard only those accounts that meet the Foreign Exchange Management Act guidelines and instructions issued by the departments of the Reserve Bank of India (RBI).
    • Apart, the remitter, as well as beneficiary banks, will have to ensure they comply with anti-money laundering (AML) and combating of financial terrorism (CFT) checks.

    Does it help the plan to take UPI global?

    • NPCI has been attempting to make UPI a global phenomenon and the idea to tap NRIs is a step towards that.
    • 10 countries are just to begin with and the list will expand in future.
    • NPCI has been trying to push homegrown payment systems in other countries through NPCI International Payments Ltd, a subsidiary it set up in 2020.
    • It has already tied up with payment system operators in Nepal, UAE, France, UK and others to allow UPI usage there.
    • There is also a plan to link UPI with Singapore’s Paynow.

    How will it help the UPI ecosystem?

    • UPI is almost synonymous with digital payments in India, clocking over ₹12.8 trillion worth of transactions in December.
    • After a slow start in 2016, UPI payments have grown at a rapid pace. Given there are over 13.5 million NRIs, the availability of UPI is expected to raise transaction volumes.
    • Industry experts said that just like resident Indians do not have to pay for UPI, it will also be available to NRIs at no extra cost.
    • That said, it might be off to a slow start as the acceptance infrastructure abroad is still being developed.

     

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  • 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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