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Subject: Economics

  • Startup ecosystem can help India become powerhouse of global economy

    Context

    With 62 per cent of the population in the working-age group and 54 per cent below the age of 25, we have the advantage of leveraging the skill and ability of our youth to drive the nation forward through productive output and innovation.

    Significance of startup ecosystem in the country

    • In 2021 alone, Indian startups have so far raised upward of $20 billion in funding.
    • Today, India is home to more than 40,000 startups and is building a robust tech and internet infrastructure.
    • The last decade-and-a-half has witnessed a significant change in the landscape — from the founding of new startups, to global investor interest, to the advances made in infrastructure and policies.
    • Global investors too are realising the potential upside in India’s huge, under-penetrated market as the country steadily makes a place for itself as a leading R&D hub for many Silicon Valley companies.
    • Amid the Covid-19 pandemic, Indian startups have rapidly innovated to provide indigenous, tech-enabled solutions to combat challenges from testing kits and ventilators to remote monitoring, and preventive technologies, as well as innovations in supply chain management, logistics, and education.

    Factors driving startup economy in India

    • The steady rise of Indian IT companies in the 2000s, a large talent pool of a skilled workforce, increased expendable income, and rising capital inflows have collectively contributed in large part.
    • Young generation: Moreover, the ability of the young generation to take risks, move fast, and disrupt things without fear, has become our biggest asset today.
    • Increasing internet use: In the next five years and likely to have an estimated 850 million internet users by 2030, the country stands at the cusp of unprecedented economic growth.

    How it helps economy

    • The proliferation of this startup economy has brought with it new business opportunities, innovation, tech-centric approaches and job creation across sectors.
    • A mature startup ecosystem, with seasoned entrepreneurs and technology-led solutions, paves the way for innovation and expanding its global footprint.
    • While value creation lies at the centre of entrepreneurship, Indian startups are also taking big strides in building synergies and partnerships with global entities, further demonstrating the evolution of the startup ecosystem and its appetite for innovation, collaboration and disruption.
    •  In fact, one of the paradigm shifts brought about through technology during the pandemic has been systemic shift to online education and remote learning at scale.
    • Solutions built by Indian startups saw widespread adoption not just domestically but also on a global scale, firmly establishing the country as a cornerstone of tech and innovation in the world.

    Suggestions

    • Educations and reskilling: In order to transition beyond the current capabilities and achieve the demographic dividend, education, and reskilling, and upskilling of our workforce is crucial.
    • Policy environment: Apart from the domestic policy environment, the global environment and technological advances are also changing, and it is imperative that India is prepared for this revolution.
    • Foster entrepreneurship: Apart from policy-level decisions that promote entrepreneurship, the onus is also on India’s corporate sector to foster entrepreneurialism, and create synergies to build impactful technology solutions, sustainable and resource-efficient growth.
    • Inclusion and sustainability: As country stands at the cusp of unprecedented economic growth, speed, inclusion, and sustainability are key elements in this mission.
    • Tap the potential of rural and semi-urban India: The collective future efforts of the public and private sectors to improve physical and digital connectivity will also help unlock the untapped potential of rural and semi-urban India to truly lead Industry 4.0 and beyond.
    • Focus on goals of national importance: In view of achieving this transformation at scale, the Indian startup ecosystem must focus on developing solutions that allow businesses in key sectors to meet goals of national importance.

    Conclusion

    Coupled with the nation’s focus on strengthening digital infrastructure in healthcare and education, and boosting employment in manufacturing, there is little doubt that India@100 will be a powerhouse of the global economy.

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  • Positive Pay System for high-value cheques

    Banks have been informing customers about making mandatory, the positive pay system, a process of reconfirming the key details of high-value cheques.

    What is the Positive Pay System?

    • The Positive Pay System, developed by the National Payments Corporation of India, is a process of reconfirming the key details of large value cheques.
    • Under this system, a person issuing the high-value cheque submits certain essential details of that cheque like date, name of the beneficiary/payee amount etc. to the drawee bank.
    • The details can be submitted through electronic means such as SMS, mobile app, internet banking, ATM etc.
    • The details are cross-checked while issuing the cheque and any discrepancy is flagged.

    Try answering this PYQ:

    Q.Which one of the following links all the ATMs in India? (CSP 2018)

    (a) Indian Banks’ Association

    (b) National Securities Depository Limited

    (c) National Payments Corporation of India

    (d) Reserve Bank of India

    (Note: You need to sign-in to answer this PYQ)

    [wpdiscuz-feedback id=”vno3efazhv” question=”Please leave a feedback on this” opened=”1″]Post your answers here.[/wpdiscuz-feedback]

    What is the limit on the amount for the system?

    • RBI has told banks to enable the facility for all account holders issuing cheques for amounts of â‚č50,000 and above.
    • It has also been said that while availing of the facility is at the discretion of the account holder, banks may consider making it mandatory in case of cheque values of â‚č5 lakh and above.

    Why is this system important for customers?

    • Some banks have been telling customers that if the details of large-value cheques are not pre-registered, the cheque will be returned.
    • On issuance of a high-value cheque, customers should ensure that details are provided within the timeframe prescribed by the banks for hassle-free clearance.
    • RBI has said only cheques that are registered in the Positive Pay System will be accepted under the dispute resolution mechanism.
    • Customers would get an SMS on whether the cheque is accepted or rejected for any reason.

    What are the details of the cheque that must be submitted?

    • Account number, cheque number, date of the cheque, amount, transaction code, beneficiary name, MICR CODE.

    How can these details be submitted?

    • These details can be submitted through the respective bank’s website, internet banking, or mobile banking.
    • In case a customer does not use electronic banking services, they can submit the details by visiting bank branches.

  • Learning from China

    Context

    As we look back on our own journey after independence and feel proud of our achievements, wisdom lies in also looking around to evaluate how other nations have performed, especially those which started with a similar base or even worse conditions than us.

    How India’s neighbouring countries have performed?

    • Independent India has done better than Pakistan if measured on a per capita income basis:
    • Comparison with Pakistan: India’s per capita income stood at $1,960 (in current PPP terms, it was $6,460) in 2020, as per the IMF estimates, while Pakistan’s per capita income was just $1,260 (in PPP terms $5,150).
    • Comparison with Bangladesh: Bangladesh, whose journey as an independent nation began in 1971, had a per capita income of $2,000 (though $5,310 in PPP terms), marginally higher than India, and certainly much higher than Pakistan in 2020.
    • Comparison with China: The real comparison of India should be with China, given the size of the population of the two countries and the fact that both countries started their journey in the late 1940s.
    • By 2020, China’s overall GDP was $14.7 trillion ($24.1 trillion in current PPP terms), competing with the USA at $20.9 trillion.
    • India, however, lags way behind with its overall GDP at $2.7 trillion ($8.9 trillion in PPP terms).
    • The quality of life, however, depends on per capita income in PPP terms, with the USA at $63,420, China at $17,190 and India at $6,460.

    What made the difference between India and China?

    • India adopted a socialist strategy while China took to communism to provide people food, good health, education, and prosperity.
    • China, having performed dismally on the economic front from 1949 to 1977, started changing track to more market-oriented policies, beginning with agriculture.
    • Agriculture reforms: Economic reforms that included the Household Responsibility System and liberation of agri-markets led to an annual average agri-GDP growth of 7.1 percent during 1978-1984.
    • Reform in the non-Agri sector: Success in agriculture reforms gave political legitimacy to carry out reforms in the non-agriculture sector.
    • Manufacturing revolution: The success of reforms in agriculture created a huge demand for manufactured products, triggering a manufacturing revolution in China’s town and village enterprises.
    • Population control measures: China adopted the one-child norm from 1979-2015.
    • As a result, its per capita income grew much faster.
    • India’s attempts to control its population succeeded only partially and very slowly.
    • India’s sluggish performance when compared to China raises doubts about its flawed democratic structure that makes economic reforms and implementation of policy changes more challenging, unlike China.

    Way forward for India

    • Liberating agri-markets is part of the reform package that China followed. That’s the first lesson.
    • Increase purchasing power of rural areas: Even for manufacturing to grow on a sustainable basis, we have to increase the purchasing power of people in rural areas.
    • This has to be done by raising their productivity and not by distributing freebies.
    • Investment in various areas: Increasing productivity requires investments in education, skills, health and physical infrastructure, besides much higher R&D in agriculture, both by the government as well as by the private sector.
    • Create institutional setup: This requires a different institutional setup than the one we currently have.

    Conclusion

    India’s sluggish performance when compared to China raises doubts about its flawed democratic structure that makes economic reforms and implementation of policy changes more challenging, unlike China. But India has lessons to learn from China.

  • What is Gati Shakti Master Plan?

    In his I-day speech, the PM has announced a â‚č100 lakh crore “Gati Shakti” infrastructure plan.

    What is Gati Shakti Master Plan?

    • The PM has pegged the project as a source of employment opportunities for the youth in the future.
    • The plan will make a foundation for holistic infrastructure and give an integrated pathway to our economy.
    • More details and the launch date of the project are awaited.

    What are the focus areas of the project?

    • The Gati Shakti plan will help raise the global profile of local manufacturers and help them compete with their counterparts worldwide.
    • It also raises possibilities of new future economic zones.
    • The PM also said that India needs to increase both manufacturing and exports.

    Why need such a plan?

    • The push for infrastructure is in line with the government’s efforts to step up capital expenditure in infrastructure to promote economic growth.
    • Infrastructure development has the ability to create a multiplier effect with every rupee invested, yielding much higher returns.

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    Back2Basics:

    National Infrastructure Pipeline (NIP)

  • [pib] IndiGau: India’s first Cattle Genomic Chip

    The National Institute of Animal Biotechnology (NIAB), Hyderabad has launched a chip called IndiGau.

    IndiGau

    • IndiGau is India’s first Cattle Genomic Chip for the conservation of pure varieties of indigenous cattle breeds like, Gir, Kankrej, Sahiwal, Ongole etc.
    • It is purely indigenous and the largest cattle chip in the world.
    • It has 11,496 markers more than that placed on 777K Illumina chip of US & UK breeds.
    • The manufacturing of this chip is in synergy with Rashtriya Gokul Mission and is a great example of Atmanirbhar Bharat.

    Utility of IndiGau

    • Indigenous bovines are robust and resilient and are particularly suited to the climate and environment of their respective breeding tracts,
    • Their productivity is less likely to be impacted by the adversities of climate change.
    • The milk of indigenous animals is high in fat and SNF (solids-not-fat) content.

    (SNF content are the substances in milk other than butterfat and water in the form of casein, lactose, vitamins, and minerals which contribute significantly to the nutritive value of milk.)

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    Back2Basics: National Programme for Bovine Breeding and Dairy Development

    • The NPBBDD has been formulated by merging four ongoing schemes of the Department of Animal Husbandry, Dairying and Fisheries in the dairy sector.
    • It was launched in Feb 2014.
    • This merger has been done to integrate milk production and dairying activities in a scientific and holistic manner to meet the increasing demand for milk in the country.

    Components of the scheme

    NPBBDD has the following three components.

    • National Programme for Bovine Breeding (NPBB)
    • National Programme for Dairy Development (NPDD) and
    • Rashtriya Gokul Mission.

    Differences between all these schemes:

    1) National Programme for Bovine Breeding

    It aims-

    • To arrange quality Artificial Insemination services at farmers’ doorstep
    • To bring all breedable females under organized breeding through Artificial Insemination or natural service using germplasm of high genetic merits

    2) National Programme for Dairy Development

    It aims-

    • To create and strengthen infrastructure for the production of quality milk including cold chain infrastructure linking the farmer to the consumer
    • To strengthen dairy cooperative societies/Producers Companies at the village level
    • To increase milk production by providing technical input services like cattle-feed, and mineral mixture etc.

    3) Rashtriya Gokul Mission

    It aims-

    • To undertake breed improvement programme for indigenous cattle breeds so as to improve the genetic makeup and increase the stock.
    • To enhance milk production and productivity of indigenous bovines.
    • To upgrade nondescript cattle using elite indigenous breeds like Gir, Sahiwal, Rathi, Deoni, Tharparkar, Red Sindhi.

  • Growth needs steps beyond reforms

    Why 1991 stands out as a watershed year in the economic history of India

    • This was the year in which the economy was faced with a severe balance of payments crisis.
    • In response, we launched a wide-ranging economic program to reform, restructure and modernize the economy.
    • The break with the past came in three important ways:
    • Dismantling of license and permit requirements: The vast network of licenses, controls, and permits that dominated the economic system was dismantled.
    • Redefining the role of the state: Changes were made by redesigning the role of the state and allowing the private sector a larger space to operate within,
    • Integration with world economy: The inward-looking foreign trade policy was abandoned and the Indian economy was integrated with the world economy and trade.

    Judging the performance of the economy after liberalisation

    • It is appropriate to look at three broad parameters to judge the performance of the economy after liberalisation — growth rate, current account deficit, and poverty reduction.

    1) Growth rate after 1991

    • Between 1992-93 and 2000-01, GDP at factor cost grew annually by 6.20%.
    • Between 2001-02 and 2010-11, it grew by 7.69% and the growth rate between 2011-12 and 2019-20, was 6.51%.
    • Best growth rate: The best performance was between 2005-06 and 2010-11 when showing clearly what the potential growth rate of India was.
    • This is despite the fact that this period included the global crisis year of 2008-09.

    2) Foreign reserves

    • BoP: The balance of payments situation had remained comfortable.
    • Most of the years showed a small deficit.
    • The exceptions were 2011-12 and 2012-13 when the current account deficit exceeded 4%. This was taken care of quickly.
    • Forex reserves: Foreign exchange reserves showed a substantial increase and touched $621 billion as of last week.
    • The opening up of the external sector, which included liberal trade policy, market-determined exchange rate, and a liberal flow of external resources, has greatly strengthened the external sector.

    3) Poverty ratio

    • Going the Tendulkar expert group methodology, the overall poverty ratio came down from 45.3% in 1993-94 to 37.2% in 2004-05 and further down to 21.9% in 2011-12.
    • The post-reform period up to 2011-12 did see a significant reduction in poverty ratio because of faster growth supplemented by appropriate poverty reduction programmes such as the Rural Employment Guarantee Scheme and the Extended Food Security Scheme.
    • With the decline in growth rate since then and with negative growth in 2020-21, this trend must have reversed, i.e. the poverty rate may have increased.

    Way forward

    • Growth requires more than reforms. Reforms are, in the words of economists, only a necessary condition. It is not sufficient.
    • Need to increase investment: It is the decline in investment rate of nearly five percentage points since 2010-11 that has led to the progressive decline of the growth rate.
    • Reforms supplemented by a careful nurturing of the investment climate are needed to spur growth again.
    • Reform agenda must continue: First of all, there is a need to move in the same direction in which we have been moving in the past three decades.
    • Policymakers should identify the sectors which need reforms in terms of creating a competitive environment and improving performance efficiency.
    • From this angle, we need to take a relook at the financial system, power sector, and governance. Centre and States must be joint partners in this effort.
    • Second, in terms of government performance, there should be an increased focus on social sectors such as health and education.

    Conclusion

    Growth and equity must go together. They must not be posed as opposing considerations. They are truly interdependent. It is only in an environment of high growth, equity can be pushed aggressively.

     

  • Vehicle Scrappage Policy, 2021

    The launch of India’s vehicle scrapping policy or the Voluntary Vehicle-Fleet Modernization Programme (VVMP) seeks to usher in a new age of what it means to own and use an automobile in India.

    Vehicle Scrappage Policy: Key Features

    • Fitness testing: The government plans to set up between 450-500 automated vehicle fitness testing stations across India on a PPP basis. Private vehicles – which are over 20 years old – will have to undergo fitness tests, at an estimated cost of Rs 300-400 per test.
    • Scrappage: A total of 60-70 vehicle scrapping centers will also be built, situated no further than 150-200 kilometers away from any location in India.
    • Green Tax: Vehicles that pass the automated tests will be subjected to a ‘green tax’, which will see owners shell out an additional 10 percent to 25 percent of road tax at the time of the renewal of the vehicle’s fitness certificate, along with re-registration fees.
    • Penalties: Those who choose to drive a vehicle that has failed the automated test will face substantial penalties, and such vehicles could also be impounded.
    • Choice of owners: The scrappage policy leaves the choice of scrapping to the owner of the vehicle, with Gadkari saying the automated tests will place emphasis on vehicle fitness, and not its age.

    Implementation plan

    • The implementation of the vehicle scrappage policy in India is still some time away.
    • Initially, it will be heavy commercial vehicles that will need to undergo fitness tests starting 1 April, 2023.
    • Fitness tests will be made mandatory for all other types of vehicles from 1 June, 2024, in a phased manner.

    Why need such policy?

    • Clean mobility: More than one crore vehicles on India’s roads contribute greatly to rising pollution levels, as well as their tendency to be less fuel-efficient towards the end of their life.
    • Reducing oil import: The promotion of clean mobility necessitates a reduction in the country’s fuel import bills, and a reduction in emissions is a pressing need at this time.
    • Road safety: Such vehicles are also inherently unsafe and can be a threat to their occupants as well as other road users.
    • Consumer benefits: Scrapping an old vehicle and replacing it with a new one will bring substantial monetary benefits for motorists, in addition to reducing emissions and enhancing fuel efficiency.

    Benefits for a vehicle owner

    • Once the vehicle has been scrapped, the owner will receive anywhere between four to six percent of their old vehicle’s ex-showroom price, and a scrappage certificate.
    • This will make the individual eligible for a road tax rebate of 25 percent, a registration fee waiver and a discount of five percent of a new vehicle’s ex-showroom cost, offered by the vehicle manufacturer.
    • This will essentially make a new vehicle cheaper for someone who has scrapped their old vehicle, with potential discounts in the range of Rs 30,000 (for a car costing Rs 6 lakh) to Rs 50,000 (for a car costing Rs 10 lakh).

    What are the other positives?

    • Investment and Employment: The policy will attract investment of over Rs 10,000 crore, and generate 50,000 jobs in the country.
    • Recycling: Proper recycling of raw materials obtained from the scrapping will help reduce the import of materials such as aluminium, copper, steel and more.
    • Vehicle price control: With the potential to recycle up to 99 percent of materials used in a vehicle, raw material costs are estimated to drop by as much as 40 percent.
    • Transition to EVs: There’s also a possibility to derive materials needed for local production of lithium-ion batteries from scrapping older vehicles, which could help drive the growth of the EV business.
    • Circular Economy: A circular economy depends on reuse, sharing, repair, refurbishment, remanufacturing and recycling of resources to create a closed-loop system, minimizing the use of resources, generation of waste, pollution and carbon emissions.
    • Demand boost: Globally, a scrappage policy has been followed by a boost in demand in the auto manufacturing sector, especially in Europe and the US.

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  • Places in news: Ningbo Port

    China has partially shut down the world’s third-busiest container port, the Ningbo Port, after a worker there tested positive for Covid-19.

    Port of Ningbo-Zhoushan

    • This port is the busiest in the world in terms of cargo tonnage.
    • It handled 888.96 million tons of cargo in 2015.
    • The port is located in Ningbo and Zhoushan, on the coast of the East China Sea, in Zhejiang province on the southeast end of Hangzhou Bay, across which it faces the municipality of Shanghai.
    • The port is at the crossroads of the north-south inland and coastal shipping route, including canals to the important inland waterway to interior China, the Yangtze River, to the north.
    • The port consists of several ports which are Beilun (seaport), Zhenhai (estuary port), and old Ningbo harbour (inland river port).

    What is the potential impact of the closure?

    • Despite the diversion of shipments to other terminals, experts are anticipating a backlog of consignments with average wait times being expected to rise.

    How is it likely to affect global trade?

    • In the aftermath of Covid-19, global supply chains have remained fragile mainly on account of closures and lockdowns that affected both the manufacturing and the logistical segments of the chain.
    • This has not only resulted in a growing backlog of shipments but has also caused freight charges to go up as demand outgrew the supply.
    • Extended closure of one of the biggest terminals at the third-busiest port in the world could further exacerbate the stress in global trade.

  • How e-RUPI can transform government’s welfare schemes

    Context

    Recently e-RUPI was launched by the Prime Minister.

    About e-RUPI

    • It is a digital prepaid, purpose, and person-specific payment utility. 
    • Built on the UPI platform, e-RUPI is easy to scale by the issuer.
    • At the point of presence, the verification code received by the beneficiary is shared with the service provider to authenticate and authorize the transaction: Contactless, real-time payment, and online settlement of funds into the service provider’s bank account.
    • Fourteen leading banks have already integrated it with their systems.
    • e-RUPI is almost custom-designed for school voucher programs.
    • The efficacy of these programs is well established in many countries. 

    Advantages

    The adoption of e-RUPI in various government programs will enhance business efficiency, simplicity, transparency, and accountability in these programs.

    1) e-RUPI can make cash transfer purpose and person-specific

    • Policymakers have debated whether direct cash transfers deliver benefits more efficiently than in-kind transfers like the Public Distribution System (PDS) and fertilizers.
    • e-RUPI could break the policy logjam with the following advantages:
    • 1) It will make cash transfers purpose- and person-specific.
    • 2) Freeing them from dependence on bank accounts.
    • 3) Providing visibility from the time of issue until redemption.

    2) e-RUPI can make PDS more efficient

    • The inefficiency of PDS is rooted in high overhead costs, leakages, exclusion, and inefficiencies.
    • A food-specific e-RUPI voucher will allow beneficiaries to buy rations from an outlet of their choice.
    • It will also help promote the One Nation, One Ration Card.
    • The move will also help in removing price distortion and the redemption of the voucher at market price by merchants within and outside the PDS network.

    3) Streamline fertilizer subsidy

    • e-RUPI will enable farmers to buy fertilizer at nominal prices with direct credit of the subsidy amount into the account of the authorised dealers.
    • As far back as 2011, a task force on direct transfer of subsidies on kerosene, LPG and fertilisers headed by Nandan Nilekani had suggested a roadmap for direct cash transfer of fertiliser subsidies in a phased manner.
    • The e-RUPI will allay apprehensions about creating an IT infrastructure, managing nearly 3,00,000 fertilizer sale points, the collapse of dealer network due to liquidity squeeze in the event of subsidy payments getting delayed, and a complex system of timely credit of subsidy into an estimated 129 million Aadhaar-linked bank accounts of farm households.

    4) Basic income support

    • The Covid-19 pandemic has revived interest in Universal Basic Income (UBI).
    • The lockdowns to contain the pandemic exposed the poor to acute distress, due to loss of means of livelihood.
    • e-RUPI can mitigate their stress by rapidly distributing food and cash vouchers at scale.

    5) Ayushman Bharat

    • In the Ayushman Bharat healthcare initiative beneficiaries can be given e-RUPI vouchers of designated value tenable at empanelled healthcare facilities, providing them portability and facility choice.
    • The service provider will benefit from the immediate payment.

    Way forward

    • Ownership agency: The Aadhaar experience suggests ownership must vest with a specific agency.
    • Make distribution and acceptance compatible: Making the distribution and acceptance of e-RUPI incentive-compatible is recommended, as demonstrated by the popularisation of prepaid telephony by the telecom industry.
    • Light regulation and competition promotion: Light regulation and the opening of e-RUPI to the competition will spur innovation and adoption.
    • All banks, small and big, NBFCs, non-bank PPI issuers, and telcos may be allowed to issue it later.

    Conclusion

    e-RUPI opens up a world of opportunities to the government, people, and businesses to provide, avail, and pay for services seamlessly.

  • General Insurance Business (Nationalization) Amendment Bill, 2021

    The General Insurance Business (Nationalization) Amendment Bill, 2021, was recently passed by both houses of parliament.

    What is the amendment?

    • The Bill seeks to amend the General Insurance Business (nationalization) Act, 1972.

    What is the GIB Act?

    • The 1972 Act set up the General Insurance Corporation of India (GIC).
    • The businesses of the companies nationalized under the Act were restructured in four subsidiary companies of GIC: (i) National Insurance, (ii) New India Assurance, (iii) Oriental Insurance, and (iv) United India Insurance.
    • The Act was subsequently amended in 2002 to transfer the control of these four subsidiary companies from GIC to the central government, thereby making them independent companies.
    • Since 2000, GIC exclusively undertakes the reinsurance business.

    Answer this PYQ:

    Microfinance is the provision of financial services to people of low-income groups. This includes both the consumers and the self-employed. The service/ services rendered under micro-finance is/are: (CSP 2011)

    1. Credit facilities
    2. Savings facilities
    3. Insurance facilities
    4. Fund Transfer facilities

    Select the correct answer using the codes given below the lists:

    (a) 1 only

    (b) 1 and 4 only

    (c) 2 and 3 only

    (d) 1, 2, 3 and 4

     

    [wpdiscuz-feedback id=”dq8yt6bg6b” question=”Please leave a feedback on this” opened=”1″]Post your answers here: [/wpdiscuz-feedback]

    Key highlights of the Amendment Bill

    • Government shareholding threshold: The Act requires that shareholding of the central government in the specified insurers (the above five companies) must be at least 51%.  The Bill removes this provision.
    • Change in definition of general insurance business: The Act defines general insurance business as fire, marine or miscellaneous insurance business.
    • Transfer of control from the government: The Bill provides that the Act will not apply to the specified insurers from the date on which the central government relinquishes control of the insurer.
    • Notifying terms and conditions: The Bill provides that schemes formulated by the central government in this regard will be deemed to have been adopted by the insurer.
    • Liabilities of directors: The Bill specifies that a director of a specified insurer, who is not a whole-time director, will be held liable only for certain acts.

    Significance of the bill

    • De-regulation: The move is part of the government’s strategy to open up more sectors to private participation and improve efficiency.
    • Capital infusion: Privatization will bring in more private capital in the general insurance business and improve its reach to make more products available to customers.
    • Insurance coverage: This will enhance insurance penetration and social protection to better secure the interests of policyholders and contribute to faster growth of the economy

    Concerns of the opposition

    • The Opposition is of the view that privatization will be detrimental to the interests of the public.
    • They wanted a proper discussion on the pros and cons of the Bill rather than passing it in a hurry.
    • They wanted an expert committee of the Cabinet to study the impact before passing the legislation.
    • They are worried about large-scale employee layoffs and short-term investors entering and exiting these entities once the Act comes into force.

    Also read:

    [Burning Issue] Divestment of LIC