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Subject: Economics

  • Chisumle- Demchok: Worlds’ Highest Motorable Road

    Ladakh’s Chisumle-Demchok Road, when it crosses the Umling Pass, is now the world’s highest motorable road.

    Chisumle- Demchok Road

    • The project to build the road through the pass — a part of Border Roads Organization (BRO) Project Himank — had been completed in 2017, after which vehicles had started playing on the route.
    • The road is in south Ladakh. It passes through Umling La Pass, which is at a height of over 19,000 feet.
    • The height of the pass makes it the highest motorable road in the world, and was recently recognized as such by Guinness World Records.
    • The 52-km road ‘black-top’ tarmac road from Chisumle to Demchok betters the previous record of a road in Bolivia, which connects the volcano Uturuncu at 18,953 feet.
    • The road was built under extremely challenging conditions, as temperatures in the region can fall to below minus 40 degrees Celsius, and oxygen levels go down to 50 per cent below normal.

    Top of the world

    • At the pass, the road is higher than both the base camps for the climb to Mount Everest, the world’s highest mountain.
    • The South Base Camp in Nepal is at a height of 17,598 ft, while North Base Camp in Tibet is at 16,900 ft.
    • The Chisumle-Demchok road is also higher than the Siachen Glacier, which is situated at 17,700 feet.
    • Khardung La in Leh, which at one time was among the highest roads in the world, is at an altitude of 17,582 feet.

    Military significance of the road

    • This road provides a direct route from Chisumle, which lies on the major road coming from Leh, Karu and Nyoma.
    • All of these stations have important military stations which are close to the Line of Actual Control.
    • Demchok has been an India-China flashpoint earlier, the site of a standoff between the two armies in 2016.
    • In the current standoff in eastern Ladakh, which began in May 2020, Demchok has come up as a point of contention.

    Other benefits offered

    • The new axis will be helpful for the armed forces, making it easier to mobilize troops and equipment, including rations.
    • The road will not only enable faster movement of armed forces to the region but will also boost tourism and improve the socio-economic condition of the local people in the region.

    Certain limitations

    • Since the road goes through such a high pass, road transport will be unfeasible during the winter, when the armed forces rely on air support.

     

     

     

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  • States demand extension of GST compensation for another 5 years

    Many states have demanded that the GST compensation cess regime be extended for another five years and the share of the Union government in the centrally-sponsored schemes be raised as the COVID-19 pandemic has impacted their revenues.

     What is GST?

    • GST, being a consumption-based tax, would result in loss of revenue for manufacturing-heavy states.
    • GST launched in India on 1 July 2017 is a comprehensive indirect tax for the entire country.
    • It is charged at the time of supply and depends on the destination of consumption.
    • For instance, if a good is manufactured in state A but consumed in state B, then the revenue generated through GST collection is credited to the state of consumption (state B) and not to the state of production (state A).

    Compensation under GST regime: GST Compensation Cess

    • Due to the consumption-based nature of GST, manufacturing states like Gujarat, Haryana, Karnataka, Maharashtra and Tamil Nadu feared a revenue loss.
    • Thus, GST Compensation Cess or GST Cess was introduced by the government to compensate for the possible revenue losses suffered by such manufacturing states.
    • However, under existing rules, this compensation cess will be levied only for the first 5 years of the GST regime – from July 1st, 2017 to July 1st, 2022.
    • Compensation cess is levied on five products considered to be ‘sin’ or luxury as mentioned in the GST (Compensation to States) Act, 2017 and includes items such as- Pan Masala, Tobacco, and Automobiles etc.

    Why is the compensation necessary?

    • States no longer possess taxation rights after most taxes, barring those on petroleum, alcohol, and stamp duty were subsumed under GST.
    • GST accounts for almost 42% of states’ own tax revenues, and tax revenues account for around 60% of states’ total revenues.
    • Finances of over a dozen states are under severe strain, resulting in delays in salary payments and sharp cuts in capital expenditure outlay amid the pandemic-induced lockdowns and the need to spend on healthcare.

    Distributing GST compensation

    • The compensation cess payable to states is calculated based on the methodology specified in the GST (Compensation to States) Act, 2017.
    • The compensation fund so collected is released to the states every 2 months.
    • Any unused money from the compensation fund at the end of the transition period shall be distributed between the states and the centre as per any applicable formula.

    Try this question from CSP 2018:

    Q. Consider the following items:

    1. Cereal grains hulled
    2. Chicken eggs cooked
    3. Fish processed and canned
    4. Newspapers containing advertising material

    Which of the above items is/are exempt under GST (Goods and Services Tax)?

    (a) 1 only

    (b) 2 and 3 only

    (c) 1, 2 and 4 only

    (d) 1, 2, 3 and 4

     

    [wpdiscuz-feedback id=”7c72z5efcv” question=”Please leave a feedback on this” opened=”1″]Post your answers here.[/wpdiscuz-feedback]

     

    Also read:

    [Burning Issue] GST Compensation

     

     

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  • Reining in the Direct Selling Industry

    The Government has notified the Consumer Protection (Direct Selling) Rules, 2021, that prohibits all direct selling entities from promoting pyramid schemes or money circulation schemes, while also providing for a mechanism for redressal of consumer complaints.

    What is Direct Selling?

    • In Direct Selling, goods or services are directly sold to consumers through sellers who act as individual representatives of the direct selling entities, instead of a retail premises.
    • For example: Brands such as Amway, Herbalife , Oriflame and Modicare etc. directly sell their products through outlets. They are generally expensive.

    What are the new rules?

    • The new Rules were primarily introduced to prohibit the promotion of pyramid and money circulation schemes by the direct selling industry.
    • Apart from that, entities are now required to be registered in the country.
    • Further, to provide a redressal mechanism for consumers, the Rules mandate that direct selling entities appoint grievance redressal officers who will put up their contact details on the website.
    • Direct selling entities that are not established in India, but offer goods or services to consumers here, will also need to comply with the newly notified rules.

    How big is the Indian Direct Selling industry?

    • As per a report, the number of active direct sellers in the country stood at around 7.4 million in 2019-20.
    • The two big categories were ‘wellness & nutraceuticals’ – which accounted for 57% of the sales, followed by cosmetics and personal care which contributed 22% to the sales.

    Whom do these Rules apply?

    • These Rules apply on all models of direct selling and all goods and services bought or sold through direct selling.
    • Direct selling entities that are not established in India, but offer goods or services to consumers in India, will also need to comply with the newly notified Rules.

    Why have they been notified now?

    • Fraud prevention: The guidelines aim for preventing fraud and protecting consumer interest. Earlier, these were not regulated under enforceable law.
    • Costly products: A direct selling entity or a direct seller cannot refuse to take back “spurious goods or deficient services” and provide a refund, or charge consumers any entry fee or subscription fee.
    • Coercive persuasion: They often tend to persuade consumers to make a purchase based upon the representation that they can reduce or recover the price by referring prospective customers.
    • Providing legitimacy to DS: The Rules provide legitimacy to the industry and also help attract more foreign direct investment (FDI).

    What do the rules say?

    • Registration: Every direct selling entity with operations in India needs to be registered in the country, and have a minimum of one physical location as its registered office within India.
    • Self-declaration: The entities will need to make a self-declaration that it is in compliance with these Rules and is not involved in any pyramid scheme or money circulation scheme.
    • Data storage within India: Additionally, such entities are required to store sensitive personal data within India and take steps to ensure the protection of such data.
    • Grievance redressal: The Rules mandate that direct selling entities appoint one or more grievance redressal officers and put up their details such as name, telephone number and email address, on their website.
    • Officer to ensure compliance: Every direct selling entity will need to appoint a nodal officer who will be responsible for ensuring compliance with the provisions of the Act.
    • Restricted visits: A direct seller will not visit a consumer’s premises without identity card and prior appointment or approval, or provide any literature to a prospect, which has not been approved by the direct selling entity.

     

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  • Rythu Bandhu: Telangana DBT scheme for farmers’ assistance

    The total funds disbursed under Rythu Bandhu, Telangana government’s direct benefit transfer scheme for farmers, will soon touch Rs 50,000 crore in the coming days.

    What is Rythu Bandhu?

    • Rythu Bandhu is a scheme under which the state government extends financial support to land-owning farmers at the beginning of the crop season through direct benefit transfer.
    • The scheme aims to take care of the initial investment needs and do not fall into a debt trap.
    • This in turn instills confidence in farmers, enhances productivity and income, and breaks the cycle of rural indebtedness.

    DBT under the Scheme

    • Each farmer gets Rs 5,000 per acre per crop season without any ceiling on the number of acres held.
    • So, a farmer who owns two acres of land would receive Rs 20,000 a year, whereas a farmer who owns 10 acres would receive Rs 1 lakh a year from the government.
    • The grant helps them cover the expenses on input requirements such as seeds, fertilizers, pesticides, and labour.

    How much does it cost the state exchequer?

    • Since the Kharif season of 2018, the state government has been crediting Rythu Bandhu assistance to farmers.
    • As of date, it has credited Rs 43,036.64 crore into the bank accounts of beneficiaries.
    • This season, the state government will disburse another Rs 7638.99 crore, taking the total sum disbursed so far to over Rs 50,000 crore.

    Comparing with the PM-KISAN scheme

    • The state government has often said that the Centre’s PM-KISAN (Pradhan Mantri Kisan Samman Nidhi) scheme is a “copy” of Rythu Bandhu.
    • Under PM-KISAN, a land-holding family receives an income support of 6,000 per year in three equal installments.
    • Rythu Bandhu is based on anticipated input expenditure for each acre of land and there is no restriction on the number of acres owned by a farmer.
    • PM-KISAN only provides support to the family and not to the farm units.

    Criticisms of the Rythu Bandhu Scheme

    • The scheme does not cover the landless or tenant farmers.
    • Farmer bodies have been demanding that the state government should extend the agriculture assistance to tenant farmers as well.
    • They have pointed out that those who work on lands taken on lease from landowners also need government assistance at the beginning of a crop season.
    • It is difficult to bring tenant farmers under the ambit of the scheme because of the informal nature of the agreements they enter into.

     

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  • What are Blockchain Funds?

    The Securities and Exchange Board of India (SEBI) has ruled that Indian mutual funds (MFs) cannot invest in crypto-related products until government regulations on are clear.

    What are Blockchain Funds?

    • Blockchain is a digital ledger system that facilitates the process of recording transactions and tracking assets in a network.
    • It is possible to have blockchain without crypto, but in practice the two are highly interlinked.
    • Cryptocurrency tends to power the resources needed for a public blockchain network.
    • Unlike specific crypto-based investments, blockchain funds invest in multiple companies that are driving sustainable earnings from blockchain businesses.
    • Some key companies in this ecosystem are US-based Coinbase Global Inc and Advanced Micro Devices Inc, and Japan’s GMO internet Inc.

    Why has SEBI blocked Blockchain funds?

    • Absence of regulations: SEBI concerns stem from unclear regulations around cryptocurrencies in India.
    • Unclear future: While investing, trading and holding crypto assets are allowed in India as of now, the laws are still not clear as to how they are regulated and taxed.
    • Possible ban: There is a possibility that the government may ban trading in crypto altogether or come up with stringent thresholds for investors to delve into this new asset.
    • Taxing the gains: For taxation purposes, short-term capital gains from individual crypto investing are taxed at personal taxation rates, however, there are no clear guidelines for fund investing.

    Are blockchain funds good investments?

    • The technology is creating value by revolutionizing the way assets and digital records are managed and transferred.
    • Many companies, particularly in financial services, are investing millions of dollars in researching and building Blockchain infrastructure.
    • Although the technology is still in the nascent phase in India, its potential across the board is huge.

    Back2Basics: Mutual Funds

    • A mutual fund is a company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt.
    • The combined holdings of the mutual fund are known as its portfolio. Investors buy shares in mutual funds.
    • Each share represents an investor’s part ownership in the fund and the income it generates.

    Mutual funds are a popular choice among investors because they generally offer the following features:

    • Professional Management. The fund managers do the research for you. They select the securities and monitor the performance.
    • Diversification or “Don’t put all your eggs in one basket.” Mutual funds typically invest in a range of companies and industries. This helps to lower your risk if one company fails.
    • Affordability. Most mutual funds set a relatively low dollar amount for initial investment and subsequent purchases.
    • Liquidity. Mutual fund investors can easily redeem their shares at any time, for the current net asset value (NAV) plus any redemption fees.

    Risks with MFs

    • With mutual funds, one may lose some or all of the money invested because the securities held by a fund can go down in value.
    • Dividends or interest payments may also change as market conditions change.
    • The more volatile the fund, the higher the investment risk.

     

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  • What is the Regression Theorem?

    This newscard is an excerpt from the original article published in the TH e-paper edition.

    Regression Theorem

    • The regression theorem refers to a theory of the origin of money.
    • It states that money must have originated as a commodity with intrinsic value in the marketplace.
    • The idea was first proposed by Austrian economist Carl Menger in his 1892 work “On the Origins of Money.”
    • This theory is offered as an alternative to the state theory of money which states that money (fiat money) can come into existence only when it is backed by the government.

    Evolution of Money

    • The regression theory argues that money comes into existence through a gradual process of evolution in the marketplace, without the need for any government sanction.
    • Economists who try to explain the regression theory generally start with the question of why money, particularly fiat money which is simply just a piece of paper, has any value at all in the marketplace.
    • The most common answer to this question is that fiat money can be used to buy other useful goods such as houses, cars etc.
    • But this answer is insufficient —it tries to tackle the question of why fiat money can buy other useful goods by simply saying that it can buy other useful goods.

    Why is fiat money, which has little intrinsic value, considered valuable?

    • In real life, people accept money in exchange for goods in the present because they are aware that money was accepted as a medium in exchange for other goods in the past.
    • For example, people accept wages in the US dollar today because they are aware that the dollar was used to buy cars, groceries and other goods in the market yesterday.
    • This gives them confidence in the value of their money.

    What made people accept money in exchange for other useful goods in the past?

    Ans. Intrinsic Value

    • Economists who advocate the regression theory of money argue that money must have originated as a useful commodity like gold or silver or the barter system.
    • This is the only way, they argue, it could have possibly been accepted by people in exchange for other useful goods at some point in the past.
    • If a thing did not possess any intrinsic value, it is unlikely that people in the marketplace would have accepted it in exchange for other goods and services.
    • So, commodities like gold and silver must have been traded in exchange for other goods and services at some point in history purely because they offered some kind of personal utility to people.
    • For example, these precious metals could have been used to make ornaments, to fill teeth, etc., which gives them intrinsic value.
    • They maintain value over time because their supply cannot be easily ramped up as mining gold involves significant production costs.

     

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  • Places in news: Deucha Pachami Coal Mines

    Thousands of Tribals fear displacement following the implementation of the project to mine coals and basalts from the Deucha-Pachami coal block in West Bengal’s Birbhoom district.

    Deucha-Pachami Mines

    • Deucha-Pachami-Dewanganj-Harinsinga coal block is the second-largest coal block in the world; it is the largest in India.
    • It is located in Deucha and Panchamati area under Mohamad bazar community Development Block of Birbhum district, West Bengal.
    • The block has a thick coal seam trapped between equally thick layers of rocks, mostly basalt. It has a great economic value.
    • The existence of these thick basalt layers, however, makes mining of coal difficult; foreign investment and technology will be hence needed for mining.

     

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  • SEBI tweaks share sale norms for IPOs

    The Securities & Exchange Board of India (SEBI) has approved amendments to a slew of regulations to tighten the Initial Public Offering (IPO) process and norms governing the utilization of IPO proceeds by promoters.

    What is an IPO?

    • Every company needs money to grow and expand.
    • They do this by borrowing or by issuing shares.
    • If the company decides to opt for the second route of issuing shares, it must invite public investors to buy its shares.
    • This is its first public invitation in the stock market and is called the Initial Public Offering (IPO).

    What does it mean for investors to buy shares?

    • When one buys such shares, he/she makes an IPO investment.
    • He/she gets ownership in the company, proportionate to the value of your shares.
    • These shares then get listed on the stock exchange.
    • The stock exchange is where you can sell your existing shares in the company or buy more.

    How does an IPO work?

    • The Securities and Exchange Board of India (SEBI) regulates the entire process of investment via an IPO in India.
    • A company intending to issue shares through IPOs first registers with SEBI.
    • SEBI scrutinizes the documents submitted, and only then approves them.

    Who can hold IPOs?

    • It could be a new, young company or an old company that decides to be listed on an exchange and hence goes public.

    What are the recent regulations?

    • In its board meeting, SEBI approved conditions for sale of shares by significant shareholders in the Offer-For-Sale (OFS) process via an IPO and has extended the lock-in period for anchor investors to 90 days.
    • Shares offered for sale by shareholders with more than 20% of pre-issue shareholding of the issuer, should not exceed 50% of their holding.
    • If they hold less than 20%, then the offer for sale should not exceed 10% of their holding of the issue.
    • These changes are as per proposals recommended by SEBI’s Primary Market Advisory Committee.

    Also read:

    [Sansad TV] The IPO Boom

     

    Try this question from CSP 2019:

    Q.In India, which of the following review the independent regulators in sectors like telecommunications, insurance, electricity, etc.?

    1. Ad Hoc Committees set up by the Parliament
    2. Parliamentary Department Related Standing Committees
    3. Finance Commission
    4. Financial Sector Legislative Reforms Commission
    5. NITI Aayog

    Select the correct answer using the code given below:

    (a) 1 and 2

    (b) 1, 3 and 4

    (c) 3, 4 and 5

    (d) 2 and 5

     

    [wpdiscuz-feedback id=”tmup8r61ul” question=”Please leave a feedback on this” opened=”1″]Post your answers here.[/wpdiscuz-feedback]

     

     

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  • Plea seeks GI tag for Arunachal Apatani textile product

    An application seeking a Geographical Indication (GI) tag for the Arunachal Pradesh Apatani textile product has been filed by a firm.

    Apatani textile

    • The Apatani weave comes from the Apatani tribe of Arunachal Pradesh living at Ziro, the headquarters of lower Subansiri district.
    • The woven fabric of this tribe is known for its geometric and zigzag patterns and also for its angular designs.
    • The community weaves its own textiles for various occasions, including rituals and cultural festivals.
    • The tribe predominantly weaves shawls known as jig-jiro and jilan or jackets called supuntarii.
    • The traditional handloom of this tribe is a type of loin loom, which is called Chichin, and is similar to the traditional handloom of the Nyishi tribe.

    What makes it special?

    • The people here use different leaves and plant resources for organic dying the cotton yarns in their traditional ways.
    • Only women folk are engaged in weaving.

     

    Answer this PYQ in the comment box:

     

    Q.Which of the following has/have been accorded ‘Geographical Indication’ status?

    1. Banaras Brocades and Sarees
    2. Rajasthani Daal-Bati-Churma
    3. Tirupathi Laddu

    Select the correct answer using the code given below:

    (a) 1 only

    (b) 2 and 3 only

    (c) 1 and 3 only

    (d) 1, 2 and 3

     

    [wpdiscuz-feedback id=”3krodtowqp” question=”Please leave a feedback on this” opened=”1″]Post your answers here.[/wpdiscuz-feedback]

    About Geographical Indication

    • A GI is a sign used on products that have a specific geographical origin and possess qualities or a reputation that are due to that origin.
    • Nodal Agency: Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry
    • India, as a member of the World Trade Organization (WTO), enacted the Geographical Indications of Goods (Registration and Protection) Act, 1999 w.e.f. September 2003.
    • GIs have been defined under Article 22 (1) of the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement.
    • GI is granted for a term of 10 years in India. As of today, more than 300 GI tags has been allocated so far in India (*Wikipedia).
    • The tag stands valid for 10 years.

     

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  • All you need to know about the New  Labour Codes

    India is likely to implement four new labour codes on wages, social security, industrial relations, and occupational safety by the next fiscal year beginning 2022.

    Must read:

    [Burning Issue] New Labour Laws

    New Labour Codes

    The four codes likely to be implemented in FY23 are:

    1. Code on Wages
    2. Industrial Relations Code
    3. Social Security Code, and
    4. Occupational Safety, Health and Working Conditions Code

    Objectives of the Labour Code

    • The new labor codes are aimed at facilitating ease of doing business in the country and seek to replace 29 cumbersome laws.
    • The objective is to encompass over 500 million organized and unorganized sector workers—90% of the workforce which has been outside labour laws.
    • The idea is to ensure that they receive wage security, social security and health security, gender equality in terms of remuneration, a minimum floor wage, make the lives of inter-state migrant workers easier.

    What is the current status of the codes?

    • The central government has completed the process of finalizing the draft rules, state governments are in the process of drafting the same.
    • With labor being a concurrent subject, states are in the process of pre-publishing draft rules for these reforms.

    How many labour laws do Indian states have?

    • The simplification of 29 labour laws into the four labour codes is expected be a watershed moment for labour reforms.
    • India currently has a web of multiple labour legislations, over 40 central laws and 100 state laws involving labour.
    • The Second National Commission on Labour (2002) recommended simplification to bring about transparency and uniformity.

    What are the major goals in these codes?

    • Social security benefits: With organized sector workers being approximately 10% of the total workforce, the new codes may ensure that social security benefits are for all.
    • Take-home salary: As per the proposed labour codes, total allowances such as house rent, leave, travel etc. are to be capped at 50% of the salary, while basic pay should account for the remaining 50%.
    • Four days work: There could also be a permissible four-day work week of 12 hours per day.

    How will it affect ease of doing business?

    • Labour productivity: It is likely to improve with both employees and employers developing a sense of being partners in wealth creation.
    • Labour reform: A transparent environment in terms of workers’ compensation, clear definition of employee rights and employer duties.
    • Compliance un-burdening: Simplified labour codes making compliance easier are likely to attract investments.
    • Formalization of the economy: With more workers in the organized sector, leakage in terms of direct as well as indirect taxes may be plugged.

     

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