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Subject: Economics

  • [3rd February 2025] The Hindu Op-ed: Beyond tax cuts, a closer read of the Union Budget

    PYQ Relevance:

    Q) One of the intended objectives of Union-Budget 15-18 is to ā€˜transform, energize and clean Indiaā€™. Analyze the measures proposed in the Budget 15-18 to achieve the objective. (UPSC CSE 2017)

    Q) Distinguish between Capital Budget and Revenue Budget. Explain the components of both these Budgets. (UPSC CSE 2021)

     

    Mentorā€™s Comment: UPSC mains have always focused on Sustainable Development (2016, 2017, 2018 and 2022), and Budget Initiatives (2017 and 2021).

    The Union Budget 2024-25 presents a strategic framework aimed at fostering economic growth while addressing the needs of various sectors, particularly the middle class, agriculture, and employment. While efforts to streamline tax structures and reduce compliance burdens are positive, they must be accompanied by robust strategies to ensure sustainable growth and equitable distribution of resources.

    The editorial emphasizes the urgent need for decisive and equitable action in addressing inclusive and sustained growth. This content can be used to present challenges/criticism for the present Budget 2025-26 in your Mains Answers for Economy and Infrastructure.

    _

    Let’s learn!

    Why in the News?

    The Union Finance Minister presented the Union Budget on February 1, addressing significant economic challenges while outlining an ambitious plan for ā€˜Viksit Bharatā€™ that focuses on various sectors, which although requires careful evaluation.

     

    What are the key highlights from Budget 2025 that would raise the questions?

    • Fiscal Consolidation Target: This target aims to reduce the fiscal deficit from the previous year’s estimate of 4.9% and reflects the government’s commitment to managing public debt while balancing necessary public expenditures and economic growth challenges.
      • The Budget sets a Fiscal Consolidation Target of 4.4% of GDP for FY26, relying on optimistic revenue projections, including 11.2% growth in total tax revenues and 14.4% in income tax revenues, despite significant tax cuts and economic challenges.
    • Second Asset Monetisation Plan (2025-30): This plan aims to generate ā‚¹10 lakh crore by monetizing government-owned assets. The proceeds from this monetization will be reinvested into new infrastructure projects.
      • Success of Second Asset Monetisation Plan (2025-30) after previous underperformance raises concerns, and ā‚¹11.54 lakh crore in net market borrowings may crowd out private capital amid weak credit demand.
      • Additionally, the government has proposed ā‚¹1.5 lakh crore in interest-free loans to states to further support capital expenditure and infrastructure reforms.
    • Personal Income Tax: The revisions in income tax rates that exempt incomes up to ā‚¹12 lakh can lead to a loss of ā‚¹1 lakh crore in direct tax revenue due to the following reasons:
    • Increased Exemptions: By exempting incomes up to ā‚¹12 lakh, more individuals will not be liable to pay income tax, significantly reducing the overall tax base.
    • Reduced Tax Rates: The new tax regime includes lower tax rates for various income brackets, which means that even those who do pay taxes will contribute less than they would under the previous regime.
    • Impact on Government Revenue: The expected loss of ā‚¹1 lakh crore in direct tax revenue will limit the government’s financial resources, constraining its ability to fund developmental initiatives and public services.
    • Declining Household Savings: As the government foregoes this revenue, it may struggle to maintain or increase public investments, which could exacerbate the already declining household savings rate, impacting long-term economic stability.
    • India’s Manufacturing Sector: The Budget aims to bolster India’s manufacturing sector, which currently contributes only 17% to the GDP, through various initiatives. However, significant challenges remain that could hinder the sector’s growth and competitiveness.
      • Regulatory Inefficiencies: By enhancing access to credit for MSMEs, the government aims to foster growth, but the existing regulatory framework often hampers business operations, leading to delays and increased costs that undermine competitiveness.
      • Low Innovation Capacity: The government has introduced PLIs targeting various sectors to encourage domestic production and attract foreign investment. However, the investment in R&D is critically low, currently at just 0.64% of GDP. This lack of focus on innovation limits the ability of Indian manufacturers to compete effectively.
      • Structural Weaknesses: The manufacturing sector has been plagued by structural weaknesses such as high costs of raw materials and logistics, which make it less competitive compared to other nations.
      • For example, steel prices in India are reported to be 20-30% higher than those in China.

    What are the gaps highlighted by the budget that need to be recognized in the Agricultural Sector?

    Significant Agricultural Initiatives taken by the Government in Budget 2025-26:

    1. Prime Minister Dhan-Dhaanya Krishi Yojana:

    • Objective: To enhance agricultural productivity and promote sustainable farming practices in 100 districts characterized by low productivity, moderate crop intensity, and below-average credit access.
    • The initiative is expected to benefit approximately 1.7 crore farmers by providing them with better financial support and resources. The program will be executed in partnership with state governments, leveraging existing schemes and specialized measures to drive focused reforms.
    • Key Focus Areas:
      • Introduce advanced farming techniques and modern equipment.
      • Encourage farmers to grow a variety of crops instead of relying on a single crop.
      • Develop storage facilities at the panchayat and block levels to reduce crop wastage.
      • Enhance irrigation infrastructure to increase agricultural output.
      • Facilitate easier access to both short-term and long-term credit for farmers.

    2. National Mission on High-Yielding Seeds:

    • Objective: This mission aims to improve the availability and use of high-yielding seed varieties to boost agricultural productivity across the country.
    • The mission emphasizes research and development in seed technology, ensuring that farmers have access to superior quality seeds that can lead to better crop yields.
    • It will work in conjunction with other agricultural programs, such as the Dhan-Dhaanya Krishi Yojana, to maximize the impact on food security and farmer income.

    3. Increased Kisan Credit Card (KCC) Limit:

    • The loan limit for KCC has been raised from ā‚¹3 lakh to ā‚¹5 lakh, along with targeted support in 100 low-productivity districts, indicating a shift from blanket subsidies to more precise financial assistance for farmers.
    • Short-Term Loan Focus: The emphasis on credit enhancements primarily through short-term loans may perpetuate farmers’ dependency on debt without resolving underlying issues.
      • Systemic inefficiencies in agricultural markets remain unaddressed, particularly regarding price volatility and market access.
    • Missed Export Opportunities: The lack of concrete measures to promote agricultural exports, especially as India aims to lead in millets and natural farming, represents a significant missed opportunity.
      • Services exports, particularly in IT and business process outsourcing, are growing robustly at a 10.5% CAGR, but efforts to diversify the export portfolio are lacking.
      • While initiatives like Bharat Trade Net (BTN) and export credit support for MSMEs are positive, they lack the scale necessary to effectively address India’s ongoing trade deficits.
      • The depreciation of the rupee and declining foreign exchange reserves highlight the need for a more ambitious export strategy.
      • A fiscal push toward value-added sectors such as pharmaceuticals, electronics, renewable energy, and high-value agricultural products could enhance Indiaā€™s position in global supply chains and improve export competitiveness.

    What are the questions raised on other transformative and sustainable pushes?

    • Lithium-Ion Battery Recycling: Ace Green Recycling plans to establish India’s largest lithium iron phosphate (LFP) battery recycling facility in Gujarat, with a capacity of 10,000 metric tons per year by 2026.Ā 
    • Incentives for Clean Tech Manufacturing: The Budget introduces tax benefits and policy extensions aimed at supporting electric vehicle (EV) startups and clean tech manufacturing. This includes exemptions on cobalt powder and lithium-ion battery scrap from basic Customs Duty, which is expected to strengthen India’s battery recycling ecosystem.
    • Despite these initiatives, the transition to a low-carbon economy remains fragmented due to insufficient investment in essential areas like grid modernization and energy storage.
    • To achieve a successful transition to a low-carbon economy, India needs a more integrated approach that includes substantial investments in energy infrastructure alongside the current recycling initiatives.
      • For example, enhancing energy storage capabilities is crucial for managing the intermittent nature of renewable energy sources like solar and wind power.

    Way Forward:

    • While the Budget lays a promising foundation for economic progress, it requires a comprehensive approach that not only focuses on immediate tax relief but also addresses long-term challenges in productivity, innovation, and market access.
    • The success of these initiatives will be measured by their ability to create lasting benefits for all segments of society, driving India toward its vision of a prosperous and inclusive economy.

  • Agriculture is fiscally neglected in the Budget

    Why in the News?

    A budget reflects how a government addresses the challenges in the economy. The Economic Survey 2024-25 tried to present a positive view of Indian agriculture’s situation.

    What are the specific budget allocations for agriculture?

    • Total Allocation: The Union Budget for 2025-26 has allocated ā‚¹1.71 lakh crore for agriculture and allied activities, an increase from ā‚¹1.51 lakh crore in the previous fiscal year.
    • Prime Minister Dhan-Dhaanya Krishi Yojana: This new initiative aims to enhance agricultural productivity in 100 districts with low productivity, targeting 1.7 crore farmers through sustainable practices and improved irrigation facilities.
    • Kisan Credit Card (KCC) Expansion: The loan limit under the Modified Interest Subvention Scheme for KCCs will be raised from ā‚¹3 lakh to ā‚¹5 lakh, facilitating better access to credit for farmers.
    • PM-Kisan Scheme: The allocation for the PM-Kisan scheme remains at ā‚¹63,500 crore, consistent with the revised estimates from the previous year, aimed at providing direct income support to farmers.
      • The PM-Kisan scheme provides annual income support of ā‚¹6,000 to eligible farmers, distributed in three instalments, which is crucial for enhancing their financial stability.
    • Pradhan Mantri Fasal Bima Yojana: This crop insurance scheme has seen a significant reduction in funding, with allocations decreasing from ā‚¹14,600 crore in previous estimates to ā‚¹12,242.27 crore for 2025-26.
    • Makhana Board: A new Makhana Board in Bihar has been allocated ā‚¹100 crore, while other missions include ā‚¹100 crore for hybrid seeds and ā‚¹500 crore for cotton technology.
    • National Mission on Natural Farming: The mission received a significant allocation of ā‚¹516 crore, emphasizing sustainable agricultural practices and increasing the adoption of natural farming methods.
    • Support for Pulses and Oilseeds: The government is launching a six-year mission focused on self-sufficiency in pulses and edible oils, with procurement support from agencies like NAFED and NCCF, aiming to enhance domestic production.

    What measures are being proposed to support farmers and enhance agricultural productivity?

    • Prime Minister Dhan-Dhaanya Krishi Yojana: This new scheme aims to target 100 districts with low productivity, focusing on improving crop intensity and credit parameters. However, concerns exist regarding its centralized governance approach.
    • Investment in Sustainable Practices: The government emphasizes sustainable agriculture practices through initiatives like the Pradhan Mantri Krishi Sinchayi Yojana (PMKSY) aimed at enhancing irrigation efficiency.
    • Post-Harvest Infrastructure Investment: The Agriculture Infrastructure Fund (AIF) is highlighted as a mechanism to improve post-harvest infrastructure, although specific allocations remain unclear.

    Does the budget reflect the broader economic context and challenges?

    • Addressing Farmer Distress: The budget reflects the urgent need to address farmer distress by extending support measures such as lower loan interest rates and increased PM-KISAN assistance.
    • Investment in Sustainable Practices: The budget emphasizes the importance of sustainable agriculture, with recommendations for increased investment in climate-resilient seeds and agricultural research.
    • Post-Harvest Management Improvements: Recognizing significant post-harvest losses, the budget allocates funds to improve cold storage and processing facilities. This investment is crucial for reducing waste and enhancing the value chain, which is vital for improving farmers’ profitability and food security.
    • Focus on Technological Adoption: There is a push for greater adoption of agri-tech solutions to tackle issues like low mechanization and inadequate access to quality seeds. This reflects an understanding that modernizing agriculture is essential for boosting productivity and competitiveness in a challenging economic environment.
    • Long-Term Structural Reforms: The budget indicates a need for transformational changes rather than incremental adjustments, advocating for a shift from subsidy-heavy approaches to investment-driven growth.
      • This strategic direction aims to make Indian agriculture more resilient and globally competitive by 2047.

    Way forward:Ā 

    • Increased Investment in Agricultural R&D and Infrastructure ā€“ The government should prioritize higher allocations for agricultural research, modern irrigation techniques, and post-harvest infrastructure to enhance productivity and climate resilience.
    • Targeted Financial Support and Market Reforms ā€“ Strengthening direct income support, improving crop insurance schemes, and ensuring better price realization through MSP reforms and enhanced market linkages will help stabilize farmers’ incomes and boost rural demand.

    Mains PYQ:

    Q Explain various types of revolutions, took place in Agriculture after Independence in India. How these revolutions have helped in poverty alleviation and food security in India? (UPSC IAS/2017)

  • [pib] National Manufacturing Mission (NMM)

    Why in the News?

    The Union Finance Minister, while presenting the Union Budget 2025-26, announced the launch of the National Manufacturing Mission (NMM) to boost Indiaā€™s manufacturing sector under the Make in India initiative.

    What is the National Manufacturing Mission?

    • The NMM was announced in Union Budget 2025-26 to boost India’s manufacturing sector under the Make in India initiative.
    • It covers small, medium, and large industries and aims to strengthen domestic production capabilities, enhance competitiveness, and create jobs.
    • The mission provides policy support, execution roadmaps, and governance frameworks for both central ministries and state governments.
    • It promotes Clean Tech manufacturing and focuses on developing an ecosystem for critical industrial components such as solar PV cells, EV batteries, wind turbines, and high-voltage transmission equipment.
    • Aims and Objectives:
      • Boost domestic production to reduce import dependence.
      • Enhance MSME sector growth with credit expansion (ā‚¹10 crore from ā‚¹5 crore).

    Key Features & Significance:

    • Infrastructure & Industrial Clusters to strengthen supply chains.
    • National Action Plan for Toys to make India a global toy hub.
    • New footwear & leather industry scheme to create 22 lakh jobs and boost exports.
    • National Institute of Food Technology in Bihar to increase farmer incomes through food processing.

    Back2Basics: National Manufacturing Policy (NMP)

    • Launched in 2011 to boost India’s manufacturing sector.
    • Aims to increase GDP share to 25% and create 100 million jobs in a decade.
    • Focuses on National Investment and Manufacturing Zones (NIMZs) to attract investment and enhance productivity.
    • Promotes technology advancement, skill development, and sustainable growth with fiscal & infrastructure incentives.
    • Key areas: Ease of doing business, labor law reforms, export growth, and global competitiveness.

     

    PYQ:

    [2012] What is/are the recent policy initiative(s) of Government of India to promote the growth of manufacturing sector?

    1. Setting up of National Investment and Manufacturing Zones

    2. Providing the benefit of ‘single window clearance’

    3. Establishing the Technology Acquisition and Development Fund

    Select the correct answer using the codes given below:

    (a) 1 only

    (b) 2 and 3 only

    (c) 1 and 3 only

    (d) 1, 2 and 3

  • [pib] What is Geo-Economic Fragmentation?

    Why in the News?

    The Economic Survey 2024-25 highlights the shift from globalization to geo-economic fragmentation (GEF). Countries are now forming economic blocs, with concepts like “friend-shoring” gaining prominence.

    What is Geo-Economic Fragmentation (GEF)?

    • GEF refers to the breakdown of global economic integration, caused by strategic national policies.
    • It involves disruptions in trade, capital flows, foreign direct investment (FDI), and migration.
    • The shift resembles the Cold War era, with countries aligning into economic blocs.
    • Western nationsā€™ imposition of uniform environmental, labor, and social standards has fueled economic divisions.
    • The World Trade Organization (WTO) Trade Monitoring Report (October 2024) recorded:
      • 169 new trade-restrictive measures, affecting $887.7 billion worth of trade.
      • A sharp rise from $337.1 billion in 2023, reflecting escalating protectionism.
    • The IMF notes that trade fragmentation today is costlier than during the Cold War, when global trade was just 16% of GDP.
      • Today, it is 45%, making economic isolation riskier.

    Significance and Impacts of GEF:

    • Decline of Global Trade: WTO reported 169 new trade restrictions covering $887.7 billion in 2023-24, making trade costlier.
    • FDI Relocation: Friend-shoring is concentrating FDI among geopolitically aligned nations, reducing capital for emerging economies.
    • Chinaā€™s Economic Dominance: Controls 80% of solar panels, 80% of batteries, and 60% of wind energy, reshaping supply chains.
    • Supply Chain Disruptions: Firms are shifting from China to India, Vietnam, and Mexico to diversify risks.
    • Emerging Market Challenges: Increased trade barriers, inflation, and tech restrictions slow down growth.
    • Rise in Economic Nationalism: Nations are prioritizing domestic industries, energy security, and localized production over global collaboration.

    PYQ:

    [2022] Elucidate the relationship between globalization and new technology in a world of scarce resources, with special reference to India.

    [2017] Which of the following has/have occurred in India after its liberalization of economic policies in 1991?

    1. Share of agriculture in GDP increased enormously.

    2. Share of India’s exports in world trade increased.

    3. FDI inflows increased.

    4. India’s foreign exchange reserves increased enormously.

    Select the correct answer using the codes given below:

    (a) 1 and 4 only

    (b) 2, 3 and 4 only

    (c) 2 and 3 only

    (d) 1, 2, 3 and 4

  • A pragmatic picture: Economic Survey

    Why in the News?

    The Budget session of Parliament has started at a time when India’s economic situation is shifting. After four years of strong growth following the pandemic, the economy is slowing down.

    What are the key projections for India’s economic growth in FY 2024-25?

    • Projected GDP Growth: The National Statistical Office (NSO) has estimated that India’s GDP will grow by 6.4% in FY 2024-25. This figure marks a decline from the 8.2% growth recorded in FY 2023-24 and is lower than earlier forecasts which ranged from 6.5% to 7%.
    • Sectoral Performance: The slowdown is attributed to weaker performance in sectors such as manufacturing and services. The first half of FY 2024-25 is expected to see a growth rate of around 6%, necessitating a stronger performance of 6.8% in the second half to meet the annual target.
    • Comparative Estimates: While the NSO’s estimate stands at 6.4%, other organizations like the International Monetary Fund (IMF) have projected a slightly higher growth rate of 7%, reflecting differing outlooks on economic recovery and consumer demand.

    How does the Economic Survey address challenges such as inflation and global uncertainties?

    • Food Inflation Concerns: Despite the overall decline in inflation, food inflation remains a challenge, rising from 7.5% in FY24 to 8.4% in the same period due to supply chain disruptions and adverse weather conditions.Ā 
      • The survey emphasizes the need for improved agricultural practices and climate-resilient crops to manage these risks effectively.
    • Inflation Trends: The survey reports a reduction in retail inflation from 5.4% in FY24 to 4.9% during April-December 2024, indicating a positive trend towards achieving the RBI’s target of around 4% by FY26, contingent on stable global commodity prices and favorable domestic agricultural output.
    • Global Economic Uncertainties: The survey highlights that ongoing geopolitical tensions and global trade risks pose significant challenges to inflation management, necessitating careful policy interventions to mitigate potential impacts on the domestic economy.
    • Policy Recommendations: To address these challenges, the Economic Survey advocates for strategic policy measures, including enhancing supply chain resilience, improving data collection for better price monitoring, and fostering an environment conducive to investment and growth.

    What structural reforms are recommended to enhance long-term economic stability?

    • Deregulation and Ease of Doing Business: The Economic Survey advocates for significant deregulation to foster a more conducive business environment. It stresses that the government should “get out of the way” of businesses by minimizing micro-management and enhancing accountability among regulators.
    • Empowering Small Firms: Recommendations include empowering small enterprises, enhancing economic freedom, and ensuring a level playing field across sectors to stimulate growth and investment.
    • Focus on Domestic Demand: The budget is expected to prioritize boosting domestic demand through increased government spending, particularly in infrastructure and capital projects, as a countermeasure against global uncertainties and inflationary pressures.

    Way forward:Ā 

    • Strengthen Domestic Resilience ā€“ Focus on boosting domestic consumption and investment through targeted fiscal measures, infrastructure expansion, and support for MSMEs to counter global uncertainties.
    • Enhance Inflation Management ā€“ Implement climate-resilient agricultural policies, improve supply chain efficiency, and strengthen monetary-fiscal coordination to maintain stable inflation and ensure sustainable growth.

    Mains PYQ:

    Q Is inclusive growth possible under market economy? State the significance of financial inclusion in achieving economic growth in India.(UPSC IAS/2022)

  • India is heading into a middle income trap

    Why in the News?

    Ahead of the Union Budget, the Congress released a report on January 30, 2025, saying that India is at risk of getting stuck in the middle-income trap.Ā Ā 

    What is the classification of Countries given by the World Bank?

    The World Bank classifies countries into four income groups based on their Gross National Income (GNI) per capita.Ā Ā 

    • Low-Income Countries: These are nations with a GNI per capita of $1,145 or less. This group typically includes countries facing significant economic challenges and lower levels of development.
    • Lower-Middle-Income Countries: Countries in this category have a GNI per capita ranging from $1,146 to $4,515. This group often includes emerging economies that are in the process of development but still face various socio-economic issues.
    • Upper-Middle-Income Countries: This classification includes countries with a GNI per capita between $4,516 and $14,005. These nations generally have more developed economies and better infrastructure compared to lower-middle-income countries.
    • High-Income Countries: These are countries with a GNI per capita exceeding $14,005. This group includes the most developed economies with high standards of living and advanced infrastructure.

    What factors contribute to India being at risk of falling into a middle-income trap?

    • Low GDP Growth: India’s projected GDP growth rate for 2024-25 is around 6.4%, significantly lower than the 8% needed to leverage its demographic dividend effectively, indicating a slowdown in economic momentum.
    • Food Inflation Concerns: Despite the overall decline in inflation, food inflation remains a challenge, rising from 7.5% in FY24 to 8.4% in the same period due to supply chain disruptions and adverse weather conditions.Ā 
    • Private Sector Investment: Despite corporate tax cuts, private sector investment has not significantly increased. The Economic Survey 2024-25 indicates that Gross Fixed Capital Formation (GFCF), a crucial indicator of investment activity, slowed to 5.4% in the recent quarter, reflecting a decline in private capital expenditure.
    • Government Capital Expenditure: The survey notes that government capital expenditure utilization was only 37.3% in the first half of FY25, down from 49% the previous year, which has contributed to the overall slowdown in investments.
    • Low Incomes: A significant portion of India’s population lives on extremely low incomes, with estimates suggesting that about 50% of the population earns between ā‚¹100 and ā‚¹150 per day. This level of income severely limits consumer spending capacity and economic growth potential.

    How does the current economic policy framework address the challenges? (Way forward)

    • Next-Generation Reforms: The Union Budget 2024-25 emphasizes “Next Generation Reforms” aimed at enhancing productivity and market efficiency across various sectors.Ā 
      • This includes a comprehensive Economic Policy Framework that focuses on improving factors of production land, labour, capital, and entrepreneurship while leveraging technology to reduce inequality and boost economic growth.
    • Deregulation and Economic Freedom: The Economic Survey highlights the need for deregulation and grassroots reforms to enhance the competitiveness of the economy. It advocates for greater economic freedom, allowing individuals and organizations to pursue legitimate economic activities without excessive regulatory burdens.Ā Ā 
    • Public-Private Partnerships and Infrastructure Investment: The framework encourages public-private partnerships (PPPs) in infrastructure projects, facilitating greater collaboration between the government and private sector.Ā 
      • By removing policy hurdles and providing upfront support for long-term projects, the government aims to attract patient capital necessary for sustainable development, which is critical for addressing current economic challenges

    Mains PYQ:

    Q Do you agree with the view that steady GDP growth and low inflation have left the Indian economy in good shape? Give reasons in support of your arguments. (UPSC IAS/2019)

  • Cannabis Cultivation in India

    Why in the News?

    The Himachal Pradesh Cabinet has approved a pilot study for the controlled cultivation of cannabis for medicinal and industrial purposes.

    Legal Status of Cannabis Cultivation in India:

    • Prohibited for recreational use under the Narcotic Drugs and Psychotropic Substances (NDPS) Act, 1985.
    • Section 2 of the NDPS Act bans the cultivation, production, and sale of cannabis resin and flowers.
    • Section 10 allows state governments to regulate cannabis cultivation for medicinal and scientific purposes.
    • Section 14 grants the Central Government authority to permit cultivation for industrial uses (fiber and seed extraction).

    Why Himachal Pradesh Could Soon Allow Controlled Cannabis Cultivation?

    • The Himalayan regionā€™s soil and climate are ideal for cultivating low-THC hemp varieties, making Himachal Pradesh a prime location for controlled cannabis farming.
    • The government sees controlled cultivation as a way to generate revenue, create employment opportunities, and support local farmers, particularly in Kullu, Chamba, Mandi, Solan, Kangra, and Sirmaur.
    • Cannabis cultivation will be restricted to industrial and pharmaceutical uses, such as:
      • Pain relief medications
      • Textile and paper production
      • Biofuel and cosmetics
      • Hemp-based food products
    • The Kullu and Malana regions are known for illegal narcotic cannabis cultivation. Regulating the sector could reduce illegal activities and ensure legal trade.
    • The Narcotic Drugs and Psychotropic Substances (NDPS) Act, 1985 allows state governments to permit and regulate cannabis cultivation for scientific, medicinal, and industrial purposes under strict conditions.

    Which are the other States to allow Controlled Cannabis Cultivation in India?

    • Uttarakhand (2018):
      • First state to legalize industrial hemp cultivation.
      • Managed by the Centre for Aromatic Plants (CAP), Selaqui.
      • Challenges include maintaining THC levels below 0.3% and seed availability.
    • Madhya Pradesh (2023):
      • Approved medicinal cannabis research but commercial cultivation is yet to start.
      • Sai Phytoceuticals (Pvt. Ltd.) received the first license for cannabis-based medicine production.
    • Jammu & Kashmir (2021):
      • Indiaā€™s first medicinal cannabis pilot project launched by CSIR-Indian Institute of Integrative Medicine (IIIM), Jammu.
      • Conducted in Public-Private Partnership (PPP) mode with a Canadian firm.
      • Research focuses on cannabis-based cancer and epilepsy treatments.

    PYQ:

    [2018] Indiaā€™s proximity to the two of the worldā€™s biggest illicit opium-growing states has enhanced her internal security concerns. Explain the linkages between drug trafficking and other illicit activities such as gunrunning, money laundering and human trafficking. What counter-measures should be taken to prevent the same?

  • Cabinet approves Mechanism for procurement of ethanol by Public Sector Oil Marketing Companies (OMCs) under EBP Programme

    Why in the News?

    The Cabinet Committee on Economic Affairs (CCEA) has approved a revision in the ethanol procurement price for Public Sector Oil Marketing Companies (OMCs) for the Ethanol Supply Year (ESY) 2024-25.

    What is the significance of the Price Revision?

    The recent revision of the ethanol procurement price for Public Sector Oil Marketing Companies (OMCs) is significant for several reasons:

    • Price Stability and Remuneration: The increase from ā‚¹56.58 to ā‚¹57.97 per litre ensures price stability and provides a more remunerative rate for ethanol suppliers, which is crucial for maintaining a steady supply of ethanol.
    • Support for Sugarcane Farmers: The separate payment of Goods and Services Tax (GST) and transportation charges will benefit sugarcane farmers, enhancing their income and encouraging production.
    • Meeting Blending Targets: The 3% increase in the price is aimed at ensuring adequate availability of ethanol to meet the ambitious blending target of 20% by 2025-26, advancing from the original target of 2030.
    • Reducing Crude Oil Dependency: This initiative is part of a broader strategy to reduce India’s dependency on crude oil imports, leading to substantial foreign exchange savings and environmental benefits.

    What is Ethanol Blended Petrol (EBP)?

    The Ethanol Blended Petrol (EBP) Programme is a government initiative aimed at promoting the blending of ethanol with petrol to create a more sustainable and environmentally friendly fuel option.

    • OMCs are currently blending up to 20% ethanol with petrol, which helps reduce reliance on imported crude oil and lowers carbon emissions.
    • Ethanol blending has dramatically increased from 38 crore litres in the Ethanol Supply Year (ESY) 2013-14 to 707 crore litres in ESY 2023-24, achieving an average blending rate of 14.60%.
    • The programme has resulted in estimated savings of over ā‚¹1,13,007 crore in foreign exchange and has substituted approximately 193 lakh metric tonnes of crude oil over the past decade.

    What are other initiatives taken to promote biofuels?

    • National Policy on Biofuels (2018): This policy aims to reduce dependency on fossil fuels and promote sustainable development by encouraging the production and use of biofuels from various feedstocks such as sugarcane, broken rice, and maise.
    • Pradhan Mantri JI-VAN Yojana: This initiative focuses on accelerating the development of second-generation (2G) ethanol capacity in India, providing viability gap funding to support the establishment of 2G ethanol projects.
    • Global Biofuels Alliance (GBA): Launched in September 2023, this alliance aims to accelerate the global adoption of cleaner fuels and support decarbonization goals. It involves collaboration with multiple countries to enhance biofuel deployment.
    • Repurpose Used Cooking Oil (RUCO) Initiative: Launched by the Food Safety and Standards Authority of India (FSSAI) in 2018, this initiative aims to convert used cooking oil into biofuel, thereby preventing its reuse in food preparation and promoting sustainability.
    • Biodiesel Production Targets: India has set a biodiesel blending target of 5% by 2030. The government is mobilizing production through policies that support feedstock availability, including used cooking oil and non-edible industrial oils.
    • Sustainable Aviation Fuel (SAF) Initiatives: The National Biofuel Coordination Committee has established targets for blending SAF in domestic flights, aiming for 1% by 2025 and 5% by 2030.
    • Ethanol Blending Advancements: The target for ethanol blending has been advanced from 2030 to 2025, with plans to achieve 20% blending. This includes signing long-term off-take agreements with dedicated ethanol plants to ensure a steady supply.

    Way forward:Ā 

    • Strengthen Feedstock Supply Chain: Enhance agricultural productivity and diversify feedstock sources including maize and non-food biomass, to ensure a stable and sustainable ethanol supply.
    • Expand Infrastructure and Investments: Develop ethanol storage, blending, and distribution networks while encouraging private sector participation through financial incentives and policy support.

    Prelims PYQ:

    [2013] With reference to the usefulness of the by-products of the sugar industry, which of the following statements is/are correct?

    1. Bagasse can be used as biomass fuel for the generation of energy.
    2. Molasses can be used as one of the feedstocks for the production of synthetic chemical fertilizers.
    3. Molasses can be used for the production of ethanol.

    Select the correct answer using the codes given below.

    (a) 1 only

    (b) 2 and 3 only

    (c) 1 and 3 only

    (d) 1, 2 and 3

  • India approves Mutual Credit Guarantee Scheme for MSME manufacturers

    Why in the News?

    The government approved a Mutual Credit Guarantee SchemeĀ  (MCGS) Ā for micro, small, and medium enterprises (MSMEs).

    What is MCGS-MSME?

    • The Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME) is a government initiative aimed at enhancing financial accessibility for micro, small, and medium enterprises in India.

    What are the Provisions and Salient Features of MCGS-MSME?

    • Eligibility and Loan Coverage: The MCGS-MSME is available to MSMEs with a valid Udyam Registration Number, providing loan guarantees of up to Rs 100 crore for purchasing equipment and machinery.
    • Guarantee Coverage: The scheme offers 60% guarantee coverage by the National Credit Guarantee Trustee Company Limited (NCGTC) for loans sanctioned to Member Lending Institutions (MLIs).
    • Project Cost Requirements: While the guaranteed loan amount is capped at Rs 100 crore, the total project cost can exceed this amount, provided that at least 75% of the project cost is allocated for equipment or machinery.
    • Repayment Terms: Loans up to Rs 50 crore have a repayment period of up to 8 years, including a moratorium of up to 2 years on principal repayments. For loans above Rs 50 crore, longer repayment schedules may be considered.
    • Scheme Duration and Fees: The MCGS-MSME will be in effect for four years from the issuance of operational guidelines or until cumulative guarantees of Rs 7 lakh crore are issued. The initial guarantee fee is waived for the first year, followed by a fee of 1.5% per annum for the next three years, and then reduced to 1% per annum thereafter.

    What are the other steps taken to ease access to Credit for MSMEs?

    In addition to the MCGS-MSME, several other measures have been implemented to facilitate easier access to credit for MSMEs:

    • Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE): This scheme provides collateral-free loans up to Rs 2 crore, offering up to 85% guarantee coverage, thereby reducing lender risk.
    • Raising and Accelerating MSME Performance (RAMP) Program: This initiative involves an investment of Rs 6,000 crore over five years, aimed at enhancing MSME growth and performance.
    • Trade Receivables Discounting System (TReDS): An online platform that enables MSMEs to receive faster payments from larger companies, improving cash flow and liquidity.
    • Emergency Credit Line Guarantee Scheme (ECLGS): Introduced during COVID-19, this scheme provided a Rs 3 lakh crore relief package, offering a 100% government-backed guarantee for loans.
    • Priority Sector Lending (PSL) Norms: These regulations require banks to allocate a portion of their loans specifically for MSMEs, ensuring that they receive necessary financial support.

    What are the challenges faced by MSMEs in accessing finance?

    • Access to Finance: One of the most significant challenges faced by MSMEs is obtaining timely and affordable financing. For example, The Bank of Baroda reported that over 50% of MSMEs in India could not access formal credit.
    • Lack of Financial Knowledge: Many MSMEs lack awareness of available financial schemes and products, which restricts their ability to access funding. For example, Many business owners remain unaware of the Shishu, Kishor, and Tarun loan schemes.

    Way forward:Ā 

    • Enhanced Financial Literacy and Awareness Campaigns: There is a need for targeted outreach programs to educate MSMEs about available financial schemes, including loan products and government initiatives like Shishu, Kishor, and Tarun schemes, to ensure they are aware and can leverage them effectively.
    • Streamlined Loan Processes and Collateral-Free Options: Simplifying the loan application process and expanding collateral-free loan schemes like CGTMSE, along with improving credit rating systems, will ensure quicker and easier access to funds, especially for smaller MSMEs.

    Mains PYQ:

    Q Ā Can the strategy of regional-resource-based manufacturing help in promoting employment in India? (UPSC IAS/2019)

  • How can the Budget arrest growth decline?

    Why in the News?

    The growth rate is lower than what the government had expected. Looking at past trends, the 2004-2011 period had high growth and poverty reduction, supported by welfare programs and government interventions.

    Context:Ā 

    • The World Bank forecasts India’s GDP growth to soften to 6.5% for the fiscal year 2024-25, down from previous expectations of 7%. This reflects a slowdown in investment and weak manufacturing growth.
    • The International Monetary Fund (IMF) has also revised its growth forecast for India to 7% for FY24 and 6.5% for FY25, citing robust domestic demand but acknowledging challenges ahead

    How did the period from 2004 to 2011 have a consistently high growth rate?

    • State Intervention and Welfare Programs: This period saw a revival of state interventions through rights-based legislation and welfare schemes, which contributed to economic growth and reduced absolute poverty.
      • Notably, programs like the National Rural Employment Guarantee Act (NREGA) provided jobs and set higher wage floors, benefiting the rural poor.
    • Rising Consumption Among Lower Income Groups: Despite increasing income inequality, the consumption share of the bottom 80% of the population grew faster than that of the richest 20%. This was facilitated by targeted fiscal policies that favoured lower-income groups, enhancing their consumption capacity.

    • Increased Fiscal Expenditure on Social Services: There was a significant rise in social services and developmental expenditures during this time, which directly impacted consumption patterns positively across various commodity categories for lower-income groups.

    Does the nature of fiscal expenditure also matter when it comes to private consumption?Ā 

    • Capital Expenditure vs. Revenue Expenditure:
      • Capital Expenditure (Capex) (e.g., infrastructure projects) primarily benefits high-income groups and corporations, with a lower short-term impact on consumption.
      • Revenue Expenditure (e.g., social welfare, wages, and pensions) immediately boosts demand by increasing disposable income among lower-income groups.
    • Leakages in Capex: Large-scale projects often involve imports (e.g., heavy machinery), leading to capital outflows instead of stimulating the domestic economy.
    • Higher Consumption Propensity of Lower-Income Groups: Money spent on welfare programs reaches people with a higher tendency to spend, leading to a larger multiplier effect on domestic demand.

    How would an increase in revenue expenditure, particularly in the social sector, help? (Way forward)

    • Higher Incomes for Workers: By providing better wages and job opportunities through social programs, disposable income among lower-income populations would rise, thereby boosting overall consumption levels.
    • Stimulating Private Investment: Enhanced consumer demand can create a conducive environment for businesses to invest. As workers have more income to spend, businesses may respond by increasing production capacity, leading to a cycle of investment and growth.
    • Reversing Economic Slowdown: A strategic shift towards increasing revenue expenditure can help combat the current economic slowdown by fostering a more inclusive growth model that benefits a broader segment of society.

    Mains PYQ:

    Q ā€œIndustrial growth rate has lagged behind in the overall growth of Gross-Domestic-Product (GDP) in the post-reform periodā€ Give reasons. How far the recent changes in Industrial Policy are capable of increasing the industrial growth rate? (UPSC IAS/2015)