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Subject: Economics

  • What is Positive Indigenisation List (PIL)?

    In line with the effort to promote self-reliance in defence manufacturing, the Defence Minister has approved the third Positive Indigenisation List (PIL) of 780 strategically important line replacement units (LRU).

    What is a Positive Indigenisation List (PIL)?

    • The positive indigenisation list essentially means that the Armed Forces—Army, Navy, and Air Force—will only procure the listed items from domestic manufacturers.
    • The manufacturers could be private sector players or Defense Public Sector Undertakings (DPSUs).
    • This concept was rolled out in the Defence Acquisition Procedure (DAP) 2020.

    Why in news?

    • This third list is different from the three PILs announced for the armed forces.
    • This list is in continuation to the two PILs of LRUs, sub-systems, assemblies, sub-assemblies and components that were published in December 2021 and March 2022.
    • These lists contain 2,500 items which are already indigenised and 458 (351+107) items which will be indigenised within the given timelines.
    • Out of the 458 items, 167 items (163 from the first PIL, and four from the second PIL) have been indigenised, so far, it stated.

    Other steps taken by the Centre to boost defence production

    • Licensing relaxation: Measures announced to boost exports since 2014 include simplified defence industrial licensing, relaxation of export controls and grant of no-objection certificates.
    • Lines of Credit: Specific incentives were introduced under the foreign trade policy and the Ministry of External Affairs has facilitated Lines of Credit for countries to import defence product.
    • Policy boost: The Defence Ministry has also issued a draft Defence Production & Export Promotion Policy 2020.
    • Budgetary allocation: In addition, a percentage of the capital outlay of the defence budget has been reserved for procurement from domestic industry.
    • Defence Industrial Corridors: The government has also announced 2 dedicated Corridors in the States of TN and UP to act as clusters of defence manufacturing that leverage existing infrastructure, and human capital.
    • Long-term vision: The vision of the government is to achieve a turnover of $25 bn including export of $5 bn in Aerospace and Defence goods and services by 2025.
    • Push for self-reliance: The govt has identified the Defence and Aerospace sector as a focus area for the ‘Aatmanirbhar Bharat’ or Self-Reliant India initiative.

    Issues retarding defence indigenization

    • Excess reliance on Public Sector: India has four companies (Indian ordnance factories, Hindustan Aeronautics Limited (HAL), Bharat Electronics Limited (BEL) and Bharat Dynamics Limited (BDL)) among the top 100 biggest arms producers of the world.
    • Policy delays: In the past few years, the government has approved over 200 defence acquisition worth Rs 4 trillion, but most are still in relatively early stages of processing.
    • Lack of Critical Technologies: Poor design capability in critical technologies, inadequate investment in R&D and the inability to manufacture major subsystems and components hamper the indigenous manufacturing.
    • Long gestation: The creation of a manufacturing base is capital and technology-intensive and has a long gestation period. By that time newer technologies make products outdated.
    • ‘Unease’ in doing business: An issue related to stringent labour laws, compliance burden and lack of skills, affects the development of indigenous manufacturing in defence.
    • Multiple jurisdictions: Overlapping jurisdiction of the Ministry of Defence and Ministry of Industrial Promotion impair India’s capability of defence manufacturing.
    • Lack of quality: The higher indigenization in few cases is largely attributed to the low-end technology.
    • FDI Policy: The earlier FDI limit of 49% was not enough to enthuse global manufacturing houses to set up bases in India.
    • R&D Lacunae: A lip service to technology funding by making token allocations is an adequate commentary on our lack of seriousness in the area of Research and Development.
    • Lack of skills: There is a lack of engineering and research capability in our institutions. It again leads us back to the need for a stronger industry-academia interface.

    Way forward

    • Reducing import dependence: India was the world’s second-largest arms importer from 2014-18, ceding the long-held tag as the largest importer to Saudi Arabia, says 2019 SIPRI report.
    • Security Imperative: Indigenization in defence is critical to national security also. It keeps intact the technological expertise and encourages spin-off technologies and innovation that often stem from it.
    • Economic boost: Indigenization in defence can help create a large industry which also includes small manufacturers.
    • Employment generation: Defence manufacturing will lead to the generation of satellite industries that in turn will pave the way for a generation of employment opportunities.

     

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  • Green finance for green future

    green finance Context

    • Inclusion of climate change and green finance in policy is crucial for a strong economy.

    What is green finance?

    • Green finance is a phenomenon that combines the world of finance and business with environment friendly behaviour. It may be led by financial incentives, a desire to preserve the planet, or a combination of both.
    • In addition to demonstrating proactive, environment friendly behaviour, such as promoting of any business or activity that could be damaging to the environment now or for future generations.

    Green finance instruments       

    • Dedicated fund: A “green super fund” could be established to jumpstart green investments by pooling together international and domestic capital.
    • Sovereign green bond (SGB): The sovereign green bond is a novel idea. It will be a part of the government’s borrowing programme. The gross borrowing programme of the government is pegged at Rs 14.95 lakh crore. The SGB (sovereign green bond) raised will be part of the aggregate borrowing programme and has to be used for projects which are ESG (environment, social and governance) compliant.

    green financeNetwork for Greening the Financial System

    • The Network for Greening the Financial System is a network of 114 central banks and financial supervisors that aims to accelerate the scaling up of green finance and develop recommendations for central banks’ role for climate change.
    • The NGFS was created in 2017 and its secretariat is hosted by the Banque de France.

    Purpose

    • The Network’s purpose is to help strengthening the global response required to meet the goals of the Paris agreement and to enhance the role of the financial system to manage risks and to mobilize capital for green and low carbon investments in the broader context of environmentally sustainable development.

    green financeSignificance

    • Green goals: Reaching net-zero emissions and other climate-related and environmental goals will require significant investments to enable decarbonisation and innovation across all sectors of the economy. Greening the financial system is key to making these investments happen.
    • SDG goals: Green finance initiatives also aim to achieve the 2030 Sustainable Development Goals (SDGs), shifting the focus from creating value for shareholders (economic) to creating value for stakeholders (economic, environmental, and social).
    • Green future: And as we begin to recover from the pandemic, green finance presents a huge opportunity to build back with a greener future, creating new businesses and jobs.
    • Robust growth: Supports strong and green growth in all sectors of economy .

    The issues in mobilization and effective use of green finance are

    • Low incentives: The return on green finance is long term, low in monetary value & many times intangible, so that the ability of the financial system to mobilize private green finance, especially in developed countries is difficult.
    • Distribution challenge: Developing countries like India have challenges of development & poverty alleviation, so allocation of resources towards meeting fundamental needs & promoting the green projects which require heavy investment is a challenge.
    • Skewed investment: In many countries, green finance & much of the green projects are limited to the investment in renewable energy: India whose 60% of installed capacity is coal based, greening of coal technology is required which is mostly limited to private players in developed countries. It is subjected to IPR & makes them cost prohibitory.
    • High risk: Green bonds are perceived as new and attach higher risk and their tenure is also shorter. There is a need to reduce risks to makes them investment grade.

    Conclusion

    • Our future depends on how we resolve our environmental challenges. Further, we are the world’s third-largest carbon emitter and will play a crucial role in getting the planet to a low-carbon trajectory. Simply put, we must urgently transform our economy to get to the green frontier.

    Mains question

    Q. As the world copes with the repercussions of carbon emissions, there is growing pressure to achieve climate-compatible growth. In this context What do you understand by the term green finance? Discuss how it will help to achieve climate-compatible growth along with limitations of green finance.

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  • Dams in news: Vishnugadh Project

    An independent panel of the World Bank is considering a plea by residents of some village to investigate environmental damage from the under-construction Vishnugad Pipalkoti Hydro Electric Project (VPHEP).

    Vishnugadh Project

    • The 444-MW VPHEP is being built by the Tehri Hydropower Development Corporation (THDC), a partially State-owned enterprise.
    • It is being constructed on Dhauliganga River in Chamoli District of Uttarakhand.
    • The project is primarily funded by the World Bank and was sanctioned in 2011. It is proposed to be completed in June 2023.
    • About 40% of the funds for the $792 million project (₹64,000 crore approx.) has already been disbursed.

    Why in news now?

    • Residents in their complaint have said muck dumping from the dam threatens the local Lakshmi Narayan Temple, which is deemed to be of historical and cultural importance.
    • They also complained about the limited availability of water, saying that 70 of the 92 households received water only for two hours daily.
    • Before the project construction, they had ready access to water.

     

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  • Automatic Number Plate Reader (ANPR) cameras for toll collection

    In light of congestion at toll plazas, the Road Transport and Highways Ministry is now moving ahead with a plan to replace toll plazas with cameras that could read number plates, also known as Automatic Number Plate Reader (ANPR) cameras.

    ANPR cameras

    • The plan is to remove toll plazas on national highways and instead rely on ANPR cameras, which will read vehicle number plates and automatically deduct toll from the linked bank accounts of vehicle owners.
    • The model is simple: Entry and exit of toll roads will have cameras capable of reading number plates, and toll will be deducted based on these cameras.

    Can all number plates be read by the cameras?

    • Not all number plates in India can be read, and only those that have come after 2019 will be registered by the cameras.
    • The government, in 2019, had come up with a rule mandating passenger vehicles to have company-fitted number plates, and only these number plates can be read by cameras.
    • The government plans to come up with a scheme to replace older number plates.
    • A pilot of this scheme is underway and legal amendments to facilitate this transition are also being moved to penalise vehicle owners who skip toll plazas and do not pay.

    Current model for toll collection: FASTags

    • Currently, about 97 per cent of the total toll collection of nearly Rs 40,000 crore happens though FASTags — the remaining 3 per cent pay higher than normal toll rates for not using FASTags.
    • With FASTags, it takes about 47 seconds per vehicle to cross a toll plaza.
    • There’s a marked throughput enhancement – more than 260 vehicles can be processed per hour via electronic toll collection lane as compared to 112 vehicles per hour via manual toll collection lane, according to government data.
    • While FASTags have eased traffic at toll plazas across the country, congestion is still reported as there are toll gates that need to be crossed after authentication.

    Why such move?

    • Congestion at toll plazas on national highways continues to impact commuters despite 97 per cent of tolling happening through FASTags.
    • Apart from ANPR helping to ease congestion, the government is also looking at GPS technology as one of the options for toll collection.

    Are there issues with ANPR?

    • The success of ANPR cameras will depend on creating an ecosystem that is in sync with the requirements of the camera.
    • The biggest problem being faced during the trials is when things are written on number plates, beyond the nine digit registration number, such as ‘Govt of India/Delhi’ etc.
    • Another problem that ANPR cameras face is in reading number plates on trucks, as most of the time they are hidden or soiled etc.
    • A pilot on a key expressway has found that about 10 per cent of vehicles with such number plates are being missed by the ANPR cameras.

    Back2Basics: What is ‘FASTag’?

    • As per Central Motor Vehicles Rules, 1989, since 1st December 2017, the FASTag had been made mandatory for all registered new four-wheelers and is being supplied by the Vehicle Manufacturer or their dealers.
    • It has been mandated that the renewal of fitness certificate will be done only after the fitment of FASTag.
    • For National Permit Vehicles, the fitment of FASTag was mandated since 1st October 2019.
    • FASTags are stickers that are affixed to the windscreen of vehicles and use Radio Frequency Identification (RFID) technology to enable digital, contactless payment of tolls without having to stop at toll gates.
    • The tags are linked to bank accounts and other payment methods.
    • As a car crosses a toll plaza, the amount is automatically deducted, and a notification is sent to the registered mobile phone number.

    How does it work?

    • The device employs Radio Frequency Identification (RFID) technology for payments directly from the prepaid or savings account linked to it.
    • It is affixed on the windscreen, so the vehicle can drive through plazas without stopping.
    • RFID technology is similar to that used in transport access-control systems, like Metro smart card.
    • If the tag is linked to a prepaid account like a wallet or a debit/credit card, then owners need to recharge/top up the tag.
    • If it is linked to a savings account, then money will get deducted automatically after the balance goes below a pre-defined threshold.
    • Once a vehicle crosses the toll, the owner will get an SMS alert on the deduction. In that, it is like a prepaid e-wallet.

     

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  • Benami Law can’t be applied retrospectively: SC

    The Supreme Court has declared as “unconstitutional and manifestly arbitrary” the amendments introduced to the Benami Property Transactions Act, 1988  in 2016, which apply retrospectively and can send a person to prison for three years even as it empowers the Centre to confiscate “any property” subject to a benami transaction.

    What is Benami Property?

    • Benami in Hindi means without name. So, a property bought by an individual not under his or her name is benami property.
    • It can include property held in the name of spouse or child for which the amount is paid out of known sources of income.
    • A joint property with brother, sister or other relatives for which the amount is paid out of known sources of income also falls under benami property.
    • The transaction involved in the same is called benami transaction.
    • The benami transactions include buying assets of any kind — movable, immovable, tangible, intangible, any right or interest, or legal documents.

    Why do people indulge in such transactions?

    • As a usual practice, to evade taxation, people invest their black money in buying benami property.
    • The real owner of these properties are hard to trace due to fake names and identities.

    What is the Benami Law?

    • The first act against benami properties was passed in 1988 as the Prohibition of Benami Property Transactions Act, 1988.
    • To block all loopholes, the government in July 2016 decided to amend the original act.
    • So after further amendment, Benami Transactions (Prohibition) Amendment Act, 2016 came into force on November 1, 2016.
    • The PBPT Act defines benami transactions, prohibits them and further provides that violation of the PBPT Act is punishable with imprisonment and fine.
    • The PBPT Act prohibits recovery of the property held benami from benamidar by the real owner.
    • Such, properties are liable for confiscation by the Government without payment of compensation.

    What amendment is this article talking about?

    • The 2016 law amended the original Benami Act of 1988, expanding it to 72 Sections from a mere nine.
    • Sections 3(2) and 5 were introduced through the Benami Transactions (Prohibition) Amendment Act, 2016.
    • A Bench, led by CJI N.V. Ramana, declared Sections 3(2) and 5 introduced through this amendment as unconstitutional.

    Which sections did the Supreme Court declare unconstitutional?

    (b) Section 3(2)

    • A/c to this, a person can be sent behind bars for a benami transaction entered into 28 years before the Section even came into existence.
    • CJI Ramana held that the provision violated Article 20(1) of the Constitution.
    • Article 20(1) mandates that no person should be convicted of an offence, which was not in force “at the time of the commission of the act charged as an offence”.

    (b) Section 5

    • It said that “any benami property shall be liable to be confiscated by the Central Government”.
    • The court held that this confiscation provision cannot be applied retrospectively.
    • The CJI dismissed the government’s version that forfeiture, acquisition and confiscation of property under the 2016 Act was not in the nature of prosecution and cannot be restricted under Article 20.

    What else did the apex court observe?

    • The court observed that the 2016 Act condemned not only transactions that were traditionally denominated as benami but also a “new class of fictitious and sham transactions”.
    • The court said the intention of Parliament was to condemn property acquired from ill-gotten wealth.
    • These proceedings cannot be equated as enforcing civil obligations, the CJI noted.

    Why curb benami transactions?

    • Inflationary implications: Rather than hoarding the black money in cash, the tax evader invest their accumulated illegal money in buying benami properties.
    • Loss of economic activity: The whole process affects the revenue generation of government hampering growth and development of the state.
    • Tax evasion: Since the percentage of tax payer in the country is a dismal low, the government fails to successfully implement its policies and schemes due to lack of resources.
    • Money laundering: Benami transactions also serves the illicit purpose of money laundering.

    Conclusion

    • A tough law against benami properties is the need of the hour to check corruption.
    • However, due process of law needs to be followed in true letter and spirit.

     

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  • With eye on defaulters, Centre tweaks Overseas Investment Rules

    The Finance Ministry has released the Rules for Foreign Exchange Management (Overseas Investment Rules), 2022 subsuming extant regulations for Overseas Investments and Acquisition and Transfer of Immovable Property outside India Regulations, 2015.

    What are the news Overseas Investment Rules?

    • With an eye on wilful defaulters, the new rules stipulate that:
    • Any Indian resident will have to seek an no objection certificate before making any overseas financial commitment:
    1. Who has an account appearing as a non-performing asset
    2. Or is classified as a wilful defaulter by any bank
    3. Or is under investigation by a financial service regulator or by investigative agencies in India

    What are the tweaks in overseas investment norms?

    • Any resident in India acquiring equity capital in a foreign entity or overseas direct investment (ODI), will have to submit an Annual Performance Report (APR) for each foreign entity, every year by December 31.
    • No such reporting shall be required where a person resident in India is holding less than 10% of the equity capital without control in the foreign entity.
    • There is no other financial commitment other than equity capital or a foreign entity is under liquidation.

    Ceiling on investment

    • Any resident individual can make ODI by way of investment in equity capital or overseas portfolio investment (OPI) subject to the overall ceiling under the Liberalised Remittance Scheme (LRS) of the Reserve Bank.
    • Currently, the LRS permits $2,50,000 outward investment by an individual in a year.
    • These norms make it easier for domestic corporates to invest abroad.

    What are the prohibitions?

    • Any Indian resident, who has been classified as a wilful defaulter or is under investigation by the CBI, the ED or the Serious Frauds Investigation Office (SFIO), will have to obtain a no-objection certificate (NOC).
    • NOC can be obtained from his or her bank, regulatory body or investigative agency before making any overseas “financial commitment” or disinvestment of overseas assets.
    • The rules also provide that if lenders, the concerned regulatory body or investigative agency fail to furnish the NOC within 60 days of receiving an application, it may be presumed that they have no objection to the proposed transaction.
    • Additionally, the new rules also prohibit Indian residents from making investments into foreign entities that are engaged in real estate activity, gambling in any form, and dealing with financial products linked to the Indian rupee without the specific approval of the RBI.

     

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  • Data diplomacy

    Context

    • The government has withdrawn the Personal Data Protection Bill from Parliament after several amendments were proposed by the Joint-Parliamentary Committee.

    Definition of data

    • Data is a collection of discrete values that convey information, describing quantity, quality, fact, statistics, other basic units of meaning, or simply sequences of symbols that may be further interpreted.

    What is Data Protection?

    • Data protection refers to policies and procedures seeking to minimise intrusion into the privacy of an individual caused by collection and usage of their personal data.

    What is data localisation?

    • Data localization or data residency law requires data about a nation’s citizens or residents to be collected, processed, and/or stored inside the country, often before being transferred internationally.

    What is Data Governance?

    • Data governance is a collection of processes, roles, policies, standards, and metrics that ensure the effective and efficient use of information in enabling an organization to achieve its goals. Data governance defines who can take what action, upon what data, in what situations, using what methods.

    Interesting facts

    • Over 90% of all the data in the world was created in the past 2 years;
    • The total amount of data being captured and stored by industry doubles every 1.2 years;
    • If you burned all of the data created in just one day onto DVDs, you could stack them on top of each other and reach the moon – twice.

    Data sovereignty of India

    • Definition: India has placed itself at the heart of the battle, its foreign policy vision fuelled by the principle of ‘data sovereignty’—a broad notion that supports the assertion of sovereign writ over data generated by citizens within a country’s physical boundaries.
    • Issues: The ideal of “data sovereignty”, and global attempts to leverage it, has come under heavy criticism from various stakeholders who are of the view that the concept violates the principle of “free and open internet”. They also argue that “data sovereignty” hampers innovation and economic growth, and is a ruse for authoritarian digital governance.

    India’s Data Diplomacy: Three Pillars

    • Pillar 1: India’s data for India’s development

    The flagship ‘Digital India’ programme clearly views data as the cornerstone of India’s socioeconomic future—one where the government leverages the Indian citizen’s data for the benefit of the people themselves, and not solely for profit-making.

    • Pillar 2: Cross-border data flows and digital trade

    In keeping with its foreign policy tradition of actively shaping debates on global trade rules, India has been an active participant in the ongoing contestation on regulating cross-border data flows.

    • Pillar 3: Securitising the economic

    The final pillar of India’s data diplomacy has been predicated ostensibly on safeguarding its citizens’ data from external threats.

    Why data is important?

    • Improve People’s Lives: Data will help you to improve quality of life for people you support: Improving quality is first and foremost among the reasons why organizations should be using data.
    • Make Informed Decisions: Data = Knowledge. Good data provides indisputable evidence, while anecdotal evidence, assumptions, or abstract observation might lead to wasted resources due to taking action based on an incorrect conclusion.
    • Stop Molehills from Turning into Mountains: Data allows you to monitor the health of important systems in your organization: By utilizing data for quality monitoring, organizations are able to respond to challenges before they become full-blown crisis.
    • Get The Results You Want: Data allows organizations to measure the effectiveness of a given strategy: When strategies are put into place to overcome a challenge, collecting data will allow you to determine how well your solution is performing, and whether or not your approach needs to be tweaked or changed over the long-term.

    Conclusion

    • The fulcrum of India’s data diplomacy should be predicated on the rule of law and the genuine protection of fundamental rights enshrined in the Constitution. A commitment to the rule of law and accountability for all actors sets India apart from present adversaries like China and offers an opportunity to burnish its reputation globally.

    Mains question

    Q.Data is considered as new gold across the globe in this context analyse data sovereignty along with status of data diplomacy of India.

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  • Central Bank Digital Currency (CBDC): the Digital Rupee

    Reports have said the Reserve Bank of India’s (RBI) digital rupee — the Central Bank Digital Currency (CBDC) — may be introduced in phases beginning with wholesale businesses in the current financial year.

    What is Central Bank Digital Currency (CBDC)?

    • CBDC is a central bank issued digital currency which is backed by some kind of assets in the form of either gold, currency reserves, bonds and other assets, recognised by the central banks as a monetary asset.
    • The present concept of CBDCs was directly inspired by Bitcoin, but a CBDC is different from virtual currency and cryptocurrency.
    • Cryptocurrencies are not issued by a state and lack the legal tender status declared by the government.

    What is Currency chest?

    Currency in India is managed by Currency chest. Currency chest is a place where the Reserve Bank of India (RBI) stocks the money meant for banks and ATMs. These chests are usually situated on the premises of different banks but administrated by the RBI.

    Why India needs a digital rupee?

    • Online transactions: India is a leader in digital payments, but cash remains dominant for small-value transactions.
    • High currency in circulation: India has a fairly high currency-to-GDP ratio.
    • Cost of currency management: An official digital currency would reduce the cost of currency management while enabling real-time payments without any inter-bank settlement.

    Why is CBDC preferred over Cryptocurrency?

    • Sovereign guarantee: Cryptocurrencies pose risks to consumers.  They do not have any sovereign guarantee and hence are not legal tender.
    • Market volatility: Their speculative nature also makes them highly volatile.  For instance, the value of Bitcoin fell from USD 20,000 in December 2017 to USD 3,800 in November 2018.
    • Risk in security: A user loses access to their cryptocurrency if they lose their private key (unlike traditional digital banking accounts, this password cannot be reset).
    • Malware threats: In some cases, these private keys are stored by technical service providers (cryptocurrency exchanges or wallets), which are prone to malware or hacking.
    • Money laundering: Cryptocurrencies are more vulnerable to criminal activity and money laundering.  They provide greater anonymity than other payment methods since the public keys engaging in a transaction cannot be directly linked to an individual.
    • Regulatory bypass: A central bank cannot regulate the supply of cryptocurrencies in the economy.  This could pose a risk to the financial stability of the country if their use becomes widespread.
    • Power consumption: Since validating transactions is energy-intensive, it may have adverse consequences for the country’s energy security (the total electricity use of bitcoin mining, in 2018, was equivalent to that of mid-sized economies such as Switzerland).

    Features of CBDC

    • High-security instrument: CBDC is a high-security digital instrument; like paper banknotes, it is a means of payment, a unit of account, and a store of value.
    • Uniquely identifiable: And like paper currency, each unit is uniquely identifiable to prevent counterfeit.
    • Liability of central bank: It is a liability of the central bank just as physical currency is.
    • Transferability: It’s a digital bearer instrument that can be stored, transferred, and transmitted by all kinds of digital payment systems and services.

    Key benefits offered

    • Faster system: CBDC can definitely increase the transmission of money from central banks to commercial banks and end customers much faster than the present system.
    • Financial inclusion: Specific use cases, like financial inclusion, can also be covered by CBDC that can benefit millions of citizens who need money and are currently unbanked or banked with limited banking services
    • Monetary policy facilitation: The move to bring out a CBDC could significantly improve monetary policy development in India.
    • Making of a regional currency: In the cross border payments domain, India can take a lead by leveraging digital Rupee especially in countries such as Bhutan, Saudia Arabia and Singapore where NPCI has existing arrangements.

    Others:

    • It is efficient than printing notes (cost of printing, transporting, and storing paper currency)
    • It reduces the risk of transactions
    • It makes tax collection transparent
    • Prevents money laundering

    Issues involved with CBDC

    • Innovation with centralization: The approach of bringing a sovereign digital currency stands in stark contrast to the idea of decentralization.
    • Liability on RBI:  when bank customers wish to convert their deposits into digital rupee, the RBI will have to take these liabilities from the books of banks and onto its own balance sheet.
    • Inflationary risk: Central banks would indulge in issuing more digital currencies which could potentially trigger higher inflation.
    • User adoption: User adoption could also pose a major setback for the smooth roll out of the CBDC in India. The main challenges would always be user adoption and security.
    • Reduced savings: Many, including various central bankers, fear that people may begin withdrawing money from their bank accounts as digital currencies issued by Central banks become more popular.
    • Volatility: the risk is higher and there is more price volatility and lesser acceptance as a money instrument globally, unless the trust factor and investor protection factors change.

    Way forward

    • The launch of CBDCs may not be a smooth affair and still requires more clarity in India. There are still a lot of misconceptions about the concept of digital currency in the country.
    • The effectiveness of CBDCs will depend on aspects such as privacy design and programmability.
    • There is a huge opportunity for India to take a lead globally via a large-scale rollout and adoption of digital currencies.

     

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  • Doubling farmer’s income

    Context

    • By making solar energy the ‘third crop’, promoting this innovation on a mission mode, the government can double farmers’ income.
    • The famous slogan of late Lal Bahadur Shastri, “Jai Jawan, Jai Kisan,” was extended by Atal Bihari Vajpayee to include “Jai Vigyan”. Now, Prime Minister Narendra Modi has extended it to, “Jai Anusandhan”.

    What is doubling farmer’s income scheme

    • Doubling farmers’ income is a target set by the government of India in February 2016 to be achieved by 2022.
    • To promote farmers’ welfare, reduce agrarian distress and bring parity between income of farmers and those working in non-agricultural professions.

    KUSUM Scheme

    • The scheme would provide extra income to farmers, by giving them an option to sell additional power to the grid through solar power projects set up on their barren lands.
    • It was announced in the Union Budget 2018-19.

    Component of KUSUM Scheme

    Component-A

    • Renewable power plants of capacity 500 KW to 2 MW will be setup by individual farmers/ cooperatives/panchayats /farmer producer organisations (FPO) on their barren or cultivable lands.

    Component-B

    • Installation of 17.50 lakh standalone Solar Powered Agriculture Pumps.
    • Individual farmers will be supported to install standalone solar pumps of capacity up to 7.5 HP. Solar PV capacity in kW equal to the pump capacity in HP is allowed under the scheme.

    Component-C

    • Solarization of 10 Lakh Grid-connected Solar Powered Agriculture Pumps is included in this component, Individual farmers will be supported to solarise pumps of capacity up to 7.5 HP.

    Expected outcomes of KUSUM

    • Welfare: By providing greater financial assistance to smaller farmers, instead of a one¬size¬fits¬all approach.
    • Equity: To encourage equitable deployment, the Centre could incentivise States through target linked financial assistance and create avenues for peer learning.
    • Addressing inequity within a State – This is addressed by a share of central financial assistance under KUSUM should be appropriated for farmers with small landholdings and belonging to socially disadvantaged groups.

    Punchline

    Annadata becoming the urjadata – This one policy has the potential to double farmers incomes within a year or two.

    Challenges

    • Awareness challenge: Barriers to adoption include limited awareness about solar pumps.
    • Upfront contribution: The other barrier includes farmers’ inability to pay their upfront contribution.
    • Regulatory hurdle: Progress on the implementation front has been rather poor due to regulatory, financial, operational and technical challenges.

    Constraints in the path of doubling the income

    • Outdated technology: Use of outdated and inappropriate technology is the main reason for low productivity of crops and livestock.
    • Affordability: Given the pre-dominance of small and marginal farmers in Indian agriculture, affordability becomes a significant constraint on technology adoption by farmers.
    • Low research in agriculture: Agricultural research in the country is constrained by resource inadequacy, regulations and intellectual property rights (IPR).

    The Measures Taken by Indian Government

    • Institutional Reforms: Pradhan Mantri Krishi Sinchai Yojana, Soil health card, and Prampragat Krishi Vikas Yojana- Aiming to raise output and reduce cost.
    • Technological Reforms: Various Technology mission like Technology mission on cotton, Technology Mission on Oilseeds, Pulses and Maize etc.

    Way forward

    • To secure future of agriculture and to improve livelihood of half of India’s population, adequate attention needs to be given to improve the welfare of farmers and raise agricultural income.
    • It is essential to mobilize States and UTs to own and achieve the goal of doubling farmers’; income with active focus on capacity building (technology adoption and awareness) of farmers that will be the catalyst to boost farmer’s income.

    Mains question

    Q. By making solar energy the ‘third crop’, promoting this innovation on a mission mode, the government can double farmers’ income. Critically analyse this statement.

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  • Mystery of milk price going up when WPI inflation is down

    Milk prices are rising, as producers and marketers pass on higher costs to consumers.  Amul and Mother Dairy raised milk prices by ₹2 each this week, the second such hike this year.

    Why are milk prices going up?

    • High operating cost: For dairy companies and cooperatives, the cost of operation and production of milk has increased.
    • Fodder price hike: Prices of cattle feed, which includes maize, wheat and soybean, are up 20% over the year.
    • High procurement cost: Given the rise in input costs, its member unions from where it procures milk have increased farmers’ price in the range of 8-9% year-on-year.
    • Cost sharing: In an already inflationary environment, dairies are compelled to pass on price increases to consumers as procurement prices go up.

    Has demand for milk picked up as well?

    • A better rate of vaccination, resumption of offices, schools and even opening up of channels such as hotels and restaurants have led to higher out-of-home consumption of foods and beverages in the last two to three quarters.
    • This has led to greater demand for milk and other dairy beverages.
    • Analysts cited higher skimmed milk prices in the international markets that they said make exports of the commodity out of India more attractive.
    • A combination of these factors is pushing up milk procurement prices, and leading to higher retail prices.

    But isn’t wholesale inflation cooling down nowadays?

    • Yes; India’s wholesale price-based inflation eased to 13.93% in July.
    • In fact, WPI inflation in milk eased in July to 5.45% compared  to  6.35%  in  June,  though it remained high compared to February.
    • However, companies also pass on hikes with a lag to lessen the impact on demand. Amul says the increase is less than 4% — below the food inflation rate of 8-9%.

    When will milk prices cool down?

    • Milk procurement is also dependent on the flush season that runs between September to February.
    • This is the peak lactating period for cattle due to better availability of green fodder and water.
    • As a result, the period in general sees higher milk production and availability.
    • The onset of  the  flush  season  could offer some relief to dairy companies in the second half of the current fiscal year.

    What does this mean for consumers?

    • For households, an  increase  in milk prices obviously means shelling out more money; this in a country that is among largest consumers of milk.
    • In fact,  by July,  dairy companies had raised milk selling prices by 5-8% in a six-month window.
    • Consumer demand typically sees an impact in the first few days after price hikes are initiated. However, recovery happens gradually.
    • Consequently, higher milk procurement prices could also hurt companies that make bakery products or food items that use milk or milk solids.

    Also read

    Concept of Inflation/Deflation/WPI/CPI/IIP

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