Daily Current Affairs

February 27, 2025

Current Affairs

RTI is now the ‘Right to Deny Information’

Context: The Right to Information Act was introduced as a bulwark against corruption and non-transparent functioning of government and its agencies. However, over the period, the Act has been weakened by the government and judicial interpretations. 

Relevance of the Topic: Mains: Right to Information Act, 2005: Significance and Challenges.  

RTI as a Tool for Empowerment

  • The Right to Information Act, 2005, was enacted to promote transparency and accountability in governance.
  • It recognises that citizens are the true rulers in a democracy and gives them the power to seek information from government institutions. The RTI Act is considered one of the most progressive transparency laws in the world.
  • The Act was legislated with the intention to curb corruption, reduce bureaucratic discretion, and ensure participatory governance.
    • For example: The RTI Act helped expose corruption in the allocation of 2G spectrum and coal block allocations (2010-12), leading to many prosecutions and policy reforms.

Challenges facing the RTI Act

Despite initial success, the RTI Act has faced multiple issues—administrative, judicial, and legislative, which has led to its dilution.

1. Government and Administrative Challenges:

  • Within a year of its enactment, the government attempted to amend the RTI Act to restrict access to certain categories of information. Widespread public protests forced the government to withdraw the amendments. 
  • However, successive governments have continued efforts to weaken the law through administrative means. E.g., In 2019, the RTI (Amendment) Act was passed, which: 
    • Weakened the independence of Information Commissioners (ICs) by allowing the government to determine their tenure and salaries.
    • Increased bureaucratic control over the appointment process.

2. Delays in Appointing Information Commissioners: 

  • The State and Central Information Commissions (ICs) are the final appellate bodies under the RTI Act.
  • Many ICs function with fewer members than sanctioned, causing severe case backlogs.
    • Example: In 2023, the Central Information Commission (CIC) had over 30,000 pending cases due to delays in appointments.
    • State ICs like Maharashtra and Karnataka had similar backlogs due to vacant posts.

3. Post-Retirement Benefits:

  • Many RTI commissioners are retired bureaucrats who see their roles as post-retirement sinecures.
  • Unlike High Court judges, who dispose of over 2,500 cases a year, RTI commissioners handle far fewer cases.
  • Some commissioners work only a few hours a day, delaying information access.

4. Judicial Setbacks to the Act: Shift from Transparency to Secrecy: 

  • Supreme Court’s shift in stance: Courts have upheld RTI as a Fundamental Right under Article 19(1)(a).
  • However, in CBSE vs Aditya Bandopadhyay (2011), the Supreme Court stated that:
    • RTI should not be used indiscriminately as it could burden the administration.
    • Excessive RTI requests could hamper efficiency and national development.
    • RTI should not become a tool of oppression or intimidation against honest officials.
  • This led to concerns like:
    • The judgment framed RTI users as troublemakers, creating a negative perception of transparency activists.
    • Government officials began using this judgment to deny information, citing "burden on administration." Example: Initially, several RTI requests regarding electoral bonds and the PM-CARES Fund were denied using this justification.

5. Expansion of ‘Personal Information’ Exemption:

(Girish Ramchandra Deshpande vs CIC, 2012)

  • In this case, the Supreme Court ruled that:
    • Information related to public servants' assets, memos, and disciplinary actions could be exempted as personal information.
    • The test of public interest was ignored, even though the RTI Act allows disclosure if public interest justifies it.
    • This created a precedent for denying crucial information under Section 8(1)(j) (privacy exemption). Example:
      • RTI requests for civil servants' property declarations, corruption complaints, and tax returns of public officials were denied using this judgment.
      • Even cases of proven corruption in public service were shielded from scrutiny.

6. Weakening of RTI Through the Digital Personal Data Protection Act (DPDPA), 2023: 

  • The DPDPA, 2023, amended the RTI Act by removing the public interest clause from Section 8(1)(j).
  • This means any information classified as ‘personal data’ can now be denied outright. This goes against the original intent of the RTI Act, which balanced privacy with transparency.

The impact of the above issues is that the citizens seeking information face delays of over a year, making RTI ineffective for timely decision-making.

Implications of dilution of RTI Act

  • Decline in Whistleblower Protection
    • Over 100 RTI activists have been attacked or killed for exposing corruption.
    • Weakening RTI endangers activists by reducing public accountability.
      • Example: RTI activists like Satish Shetty (Maharashtra), Amit Jethwa (Gujarat), and Lalit Mehta (Jharkhand) were killed for exposing corruption in land and mining projects.
  • RTI is Being Converted into "Right to Deny Information (RDI)"
    • The cumulative effect of government inaction, judicial decisions, and legislative amendments has led to a decline in RTI’s effectiveness.

Way Forward to Strengthen RTI Act

Institutional Reforms:

  • Mandatory timelines for case disposal: Like courts, RTI commissions should have fixed deadlines for hearing appeals.
  • Transparent and merit-based selection: Information Commissioners should include civil society members, transparency activists, and legal experts.

Judicial review and reforms:

  • Review of adverse court rulings: Parliament must amend the RTI Act to restore the public interest clause in privacy exemptions.
  • Protection for whistleblowers: The Whistleblower Protection Act (2014) must be fully implemented.

Citizen and media mobilisation:

  • Civil society and the media must actively defend the RTI Act from further dilution.
  • Public awareness campaigns to help citizens understand their rights under RTI.

Conclusion: The Supreme Court in multiple judgments (Raj Narain Case, 1975) has upheld the Right to Information as a part of freedom of speech and expression. Democracy thrives on informed citizens and restricting RTI weakens public participation. 

India restarts Trade Deal Negotiations with UK, EU

Context: India has resumed trade negotiations with the UK and the EU, amidst global trade uncertainties exacerbated by the US's tariff threats under President Donald Trump. 

Relevance of the topic:

Prelims: External trade

Mains: India-UK Trade relations, India-EU relations

India-UK Trade Negotiations

Following are the key agreements under negotiation:

  • Free Trade Agreement (FTA):
    • Talks began in 2022; India's first comprehensive FTA with a Western nation.
    • Aims to improve market access for goods and services, particularly in technology and services sectors.
  • Bilateral Investment Treaty (BIT):
    • Seeks to provide a stable investment environment and protect investors' rights.
  • Social Security Agreement:
    • Addresses Indian professionals' concerns over double social security contributions in the UK.
    • Aims to eliminate the compulsory National Insurance contributions burdening Indian workers with an annual cost of £500 per employee.
image 190

Areas of Contentious Negotiations

  • Tariffs:
    • India maintains higher tariffs (average 14.6%) compared to the UK (4.2%).
    • The UK seeks tariff reductions on whisky, cars, and other products.
  • Visas and Business mobility:
    • The UK emphasises short-term business mobility visas.
    • India pushes for easier access for its service sector professionals.
  • Market access concerns:
    • India seeks concessions in the EV auto sector.
    • UK whisky makers request reduction of import duties and easing maturation rules.

Economic Significance

  • Bilateral trade grew from $17.5 billion (2021-22) to $20.36 billion (2022-23).
  • India is the UK’s second-largest source of FDI, with a 28% YoY increase in investment stock as of end-2023.

India-EU Trade Negotiations

  • Ten rounds of negotiations with the 10th round scheduled for March 10-14, 2025 in Brussels.
  • Focus areas include:
    • Goods and Services: Tariff reductions and regulatory harmonization.
    • Investment Protection: Ensuring investor rights and dispute resolution.
    • Government Procurement: Enhancing transparency and access.
    • Rules of Origin: Defining product sourcing norms.
    • Sanitary and Phytosanitary Measures (SPS): Addressing food safety and animal health standards.
    • Technical Barriers to Trade (TBT): Simplifying compliance for exporters.
    • Carbon Border Adjustment Mechanism (CBAM) discussions:
      • CBAM imposes carbon costs on imports, potentially affecting Indian exporters.
      • India aims to negotiate exemptions or adjustments to protect its manufacturing sectors.

Significance of EU/UK trade talks

  • Widening trade relations: Resumption of talks signals India's commitment to diversifying trade partnerships amidst US-EU tensions.
  • Global context: Strengthening ties with the UK and EU could serve as leverage in global trade forums.
  • Future scope: Successful deals may set a precedent for future negotiations with other Western economies.

Environmental Impacts of Artificial Intelligence

Context: Artificial Intelligence (AI) encompasses technologies that simulate human thinking and decision-making. While basic forms of AI have existed since the 1950s, AI adoption has advanced rapidly in recent years. However, the rapid development of AI comes with environmental consequences. 

Relevance of the Topic: Prelims: Environmental consequences of Artificial Intelligence. 

Expansion of AI market

  • The global AI market is valued at $200 billion and is projected to contribute up to $15.7 trillion to the global economy by 2030. E.g., 
    • Announcement of the Stargate Project by the US, involving more than $500 billion in AI infrastructure investments over four years.
    • In India, Reliance is planning to build the world’s largest data centre in Jamnagar, in partnership with Nvidia. 
    • India has also announced plans to build its own LLM (large language model) to compete with DeepSeek and ChatGPT. 
  • However, rapid expansion of AI brings not only opportunities but also risks, particularly at environmental costs. 

Environmental impact of AI

  • High Energy Consumption and Carbon emission: 
    • Data centres (the backbone of AI operations) consume enormous electricity and contribute 1% of global greenhouse gas emissions. 
    • A simple search request made through ChatGPT (an AI-based virtual assistant) consumes 10 times the electricity of a Google Search, as reported by the International Energy Agency.
    • Training advanced AI models, such as GPT-3, can emit up to 552 tonnes of carbon dioxide equivalent — comparable to the annual emissions of dozens of cars. 
  • E-Waste Crisis and Environment Destruction: 
    • Rapid expansion of data centres is also fuelling a growing e-waste crisis, which often contains hazardous substances, like mercury and lead. 
    • Microchips that power AI need rare earth elements, which are often mined in environmentally destructive ways. 
  • Water Depletion:
    • Data centres use million litres of water during construction and, once operational, cool electrical components and maintain operational temperatures. 

To mitigate these environmental risks, governments and the private sector must proactively work towards embedding sustainability into AI ecosystem design.

Way Forward

  • Adopting standardised global procedures to measure the environmental impact of AI. 
  • Governments can develop regulations that require companies to disclose the direct environmental consequences of AI-based products and services. 
  • Tech companies can make AI algorithms more efficient, reducing their demand for energy, while recycling water and reusing components where feasible.
    • A study by Google has found that the carbon footprint of LLMs can be minimised by a factor of 100 to 1,000 through optimised algorithms, specialised hardware, and energy-efficient cloud data centres. 
    • Instead of collecting new data or training models from scratch, businesses can adapt pre-trained models to new tasks.
  • Using energy-efficient hardware and ensuring regular maintenance can also significantly minimise emissions. 
  • Encourage companies to green their data centres, including by using renewable energy and offsetting their carbon emissions.
    • Locating data centres in areas with abundant supply of renewable resources can help lower the carbon footprint. 
    • At COP29, the International Telecommunication Union emphasised the urgent need for greener AI practices. 

Sustainability needs to be incorporated into the very design of the AI ecosystem to balance innovation and environmental responsibility. This will harness the transformative potential of AI without compromising the Earth’s future. 

Microsoft unveils new Quantum Chip Majorana 1

Context: Recently, Microsoft has unveiled a new quantum chip called Majorana 1. Microsoft has claimed to have found a novel way to create qubits (quantum bits) that produces more stable and error-resistant qubits, than those produced by existing methods.

Relevance of the Topic: Prelims: Key facts about Quantum Chip Majorana 1; Quantum computers. 

Quantum Chip Majorana 1: 

image 189
  • Material Innovation:
    • The chip is built using indium arsenide (a type of semiconductor) and part aluminum (a superconductor at low temperatures). 
    • When cooled to near absolute zero (−273.15 °C) and tuned with magnetic fields, this material exhibits topological superconductivity, leading to the emergence of Majorana zero modes. Two Majorana zero modes encode (act as) a single topological qubit in this chip. 
  • Majorana 1 chip contains eight qubits with the potential to scale to 1 million qubits on a single chip. 
  • Superiority:
    • The chip utilises topological qubits to be more stable and scalable, than existing quantum computers developed by Google and IBM. 
    • The chip's design reduces error susceptibility, making it more reliable for practical applications.
  • Its supposed fault-tolerant abilities come from the properties of an exotic subatomic particle called the Majorana fermion, which was first theorised in the 1930s.

Majorana Zero Modes: 

  • Majorana Zero Modes are exotic quasiparticles (not fundamental particles like electrons) that arise in certain types of topological superconductors.
  • They exhibit unique behaviour and possess topological protection (inherent stability i.e, their quantum state is resistant to small disturbances). This makes them promising candidates for fault-tolerant qubits in quantum computing. 
  • Unlike traditional qubits which are prone to errors, Majorana zero modes offer a path to more stable and error-resistant qubits.

Quantum Computing

  • Quantum computers utilise the quantum mechanical properties of sub-atomic particles (smaller than an atom).
  • One such property is superposition or the ability of a quantum particle to exist in multiple states at the same time. This gives quantum computers an exceptional edge over traditional computers.
    • In traditional computers, data is stored and processed through billions of small transistors that can each handle only one bit of information (0 or 1) at a time.
    • Quantum computers use qubits (electrons or other similar particles) to process data. Superposition allows qubits to be in both 0 and 1 state at the same time. In fact, they can exist in every combination of 0 and 1 simultaneously.
  • Interaction with other qubits allows for a kind of parallel processing that is not possible in a normal computer where data processing happens one step at a time (even though at lightning speeds).

Limitations of Quantum Computing:

  • Maintaining the stability of qubits (Decoherence issue): 
    • Quantum behaviour of a particle collapses into normal behaviour the moment the system is observed or measured. This is because any act of measurement, or observation, is not possible without disturbing these extremely tiny systems. 
    • Even minor external disturbances, such as deviations in temperature or pressure, also collapses the system.
  • Integrity of the outcome (Error correction challenge):  
    • Multiple states of a qubit lead to multiple outcomes, only one of which is desirable. Ensuring that the quantum computer selects the correct outcome (instead of millions of other possibilities) is a challenge.
    • Disturbances caused in any qubit can result in errors in calculations, and algorithms need to correct for these, which, in turn, require many more qubits. Hence, the more stable the qubits are, the fewer will be errors.

Significance (Why breakthrough by Microsoft is important):  

Microsoft has claimed that the qubits created through its novel process are more resilient, and significant in terms of scalability, error generation and error correction. 

  • Resilient qubitsand their scalability will fast-track the development of a million-qubit system within a few years.
    • Quantum computers using other methods have barely managed to reach 1,000-qubit systems. 
    • For fully-functional efficient quantum computers, they need to operate a million or ten million qubit systems.
  • Error-resistant qubits:
    • In existing quantum systems, roughly one million physical qubits are required to create a few thousand logical (error-corrected) qubits.  
    • The advanced qubits by Microsoft will lower the error rates, and thus increase the ratio of physical qubits to logical cubits. 
    • This would drastically reduce the number of qubits needed for robust computations, and further speed the scalability of quantum computers. 
  •  Potential applications in various fields like drug discovery, energy optimisation, material science etc. 

IT Sector in India

Context: India’s IT industry looks content being the world’s back office, while the real tech giants chase the future through world-class software products, AI breakthroughs, and deep-tech start-ups.

Relevance of the Topic: Mains: IT Sector in India- Issues, Way Forward

India’s Services Sector

  • India’s services sector has been a significant contributor to the Gross Value Added (GVA) in the economy.
    • Its contribution to the total GVA at current prices has increased from 50.6% in FY14 to about 55% in FY25. 
    • Growth in the service sector (measured by YoY change in real GVA by services) has been above 6% in each year in the last decade, except for FY21 (Covid-19 pandemic).
  • The Indian IT/ ITeS industry is a cornerstone of India’s services sector and a key contributor to the growth of exports. The industry has estimated revenues of $254 billion, marking a 3.8% YoY growth in FY24 (excluding e-commerce).
    • Tech exports reached nearly $200 billion reflecting a growth of 3.3%.
    • The domestic market is expected to expand by 5.9%, crossing $54 billion in FY24.
  • India’s Global Capability Centres (GCCs) are providing various support services, such as IT, finance, human resources, and analytics, to their parent organisations.
    • The number of GCCs in India has grown from approximately 1430 in FY19 to over 1700 in FY24. 
    • As of FY24, GCCs in India employ nearly 1.9 million professionals.

Constraints limiting India’s IT Sector

Despite its successes, the sector remains overly focused on outsourcing, missing opportunities in innovation, deep tech, and indigenous technology development.

  • Low on Innovation:
    • Predominant focus on outsourcing rather than creating intellectual property (IP).
    • Indian IT giants (TCS, Infosys, Wipro) prioritize human resource deployment over technological innovation.
    • Despite a 55% share in global outsourcing, India lacks global software products comparable to Google or OpenAI.
  • Absence of long-term technology vision:
    • Companies prioritise dividends over investing in long-term research and development (R&D).
    • Risk aversion leads to missed opportunities in emerging fields like AI, blockchain, and automation. 
    • In contrast, countries like China invest heavily in cutting-edge technologies.
  • AI blind spot:
    • Limited investment in AI, with industry leaders underestimating the feasibility of building cost-effective Large Language Models (LLMs).
      • DeepSeek’s success proves AI models can be developed for under $7 million.
    • Underrepresentation of Indian languages in AI datasets (only 3% of global web data), hindering AI models from effectively serving Indian users.
  • Overreliance on Global Capability Centres (GCCs):
    • GCCs, despite hiring Indian engineers, retain innovation and IP abroad.
    • These centres diminish revenues for Indian IT firms and may exploit tax loopholes through transfer pricing.
  • Dependence on American digital firms:
    • India failed to develop indigenous tech giants despite having early industry leaders.
    • Unlike China, which fostered domestic alternatives (Baidu, WeChat, Tencent), India’s market is dominated by foreign platforms.
    • Weak policy support for homegrown companies has exacerbated this reliance.
  • Low Data centre capacity:
    • India’s data centre capacity stands at 1GW, significantly lagging behind the US’s 20GW.
    • Reliance on foreign data hosting limits India’s sovereignty over data-driven innovations.
  • Weak Start-up culture:
    • Start-ups focus mainly on services (e.g., Zomato, Swiggy) rather than deep-tech solutions.
    • Investors prefer low-risk ventures, unlike in the US or China where venture capital supports high-risk, innovative technologies.
  • Role of Nasscom
    • Nasscom’s influence has faded; currently operating more as a lobbying entity than a driver of innovation.
    • Lacks up-to-date data and actionable strategies to promote technological advancement.

Way Forward

  • Fostering innovation and risk-taking:
    • Shift from a service-oriented model to product-based innovation.
    • Encourage companies to reinvest profits into R&D rather than distributing them solely as dividends.
  • Promoting indigenous AI and deep-tech development:
    • Develop AI models in Indian languages to cater to local users.
    • Invest in cost-effective solutions like open-source models (e.g., DeepSeek).
  • Building a robust Start-up ecosystem:
    • Government to incentivise deep-tech start-ups through funding and procurement policies.
    • Support for venture capital investment in high-risk, high-reward ventures.
  • Strengthening data sovereignty:
    • Expand India’s data centre capacity to reduce dependence on foreign infrastructure.
    • Implement policies to retain data within national borders for security and innovation benefits.
  • Revitalising Nasscom’s role:
    • Reorient Nasscom towards promoting deep-tech innovation and supporting start-ups.
    • Develop comprehensive data repositories and policy recommendations to guide industry growth.

True leadership in IT will only come when India embraces a culture of innovation, risk-taking, and long-term vision.  

NAKSHA Scheme

Context: Union Rural Development Minister launched the Central government’s new initiative- ‘NAtional geospatial Knowledge-based land Survey of urban HAbitations’ (NAKSHA).

Relevance of the Topic:Prelims: NAKSHA Scheme

About NAKSHA Scheme

  • NAKSHA (National Geospatial Knowledge-based Land Survey of Urban Habitations) is a geospatial technology-driven city survey initiative under the existing Digital India Land Records Modernisation Programme (DILRMP). 
  • Aim: To create and update land records in urban areas to ensure transparency, efficiency, and accuracy in property ownership documentation.
  • Nodal Ministry: Ministry of Rural Development.
  • Implemented by: Department of Land Resources, in collaboration with Survey of India, and National Informatics Centre Services Inc. (NICSI)

Objectives:

  • Modernise urban land records: Ensure accurate, updated, and digitalized land ownership records.
  • Enhance urban planning: Facilitate smart city development and infrastructure planning.
  • Reduce land disputes: Minimize property disputes through clear, verifiable records.
  • Foster transparency: Establish a Web-GIS-based IT system for land record management.
  • Support sustainable development: Improve urban governance and land resource management.

Key features

  • Launched as a pilot project in 152 Urban Local Bodies (ULBs): Across 26 States and 3 Union Territories (UTs).
    • Cities selected meet two criteria: area less than 35 sq km, and population less than 2 lakhs. The pilot project will be completed in a year.
    • As per the Census 2011, India has 7,933 towns covering 1.02 lakh square km of the total 32.87 lakh square km geographical area of the country. NAKSHA will cover 4,142.63 square km of area.
  • Estimated cost of pilot project: ₹194 crore (100% funded by Government of India).
  • Drone-based land survey: High-precision aerial surveys for accurate mapping.
  • Web-GIS platform: End-to-end IT-based land record management system.
  • Public accessibility: Citizens can access digital land records for ease of living.

How will the Survey be conducted?

  • Use of drone technology:
    • Aerial photography using two types of cameras: Simple cameras & Oblique angle cameras (5 cameras with LiDAR sensors).
    • Mounted on drones with 5 cm resolution, much sharper than satellite imagery.
  • Three-Stage survey process:
    • Drone Survey & Data Collection:
      • Select survey area and create a flight plan for drone survey.
      • Drones capture images, from which data is extracted.
    • Field Survey & Data Verification:
      • Ground verification of property tax, ownership, and registration records.
      • 2D/3D models are created, and draft land ownership details are published.
    • Public Review & Finalisation:
      • Claims and objections are reviewed.
      • Grievance redressal is conducted.
      • Final maps are published.

Potential benefits:

  • Will provide comprehensive digital urban land records.
  • Reduce land disputes and facilitate faster and efficient urban planning.
  • Improve property tax collection and simplify property transactions.
  • Enhances access to credit by streamlining ownership records.

Need for Urban Land Record Updation: 

  • While rural land records have improved due to efforts like Digital India Land Records Modernisation Programme (DILRMP), urban land records remain fragmented, outdated or incomplete in many Indian cities.
    • As of 2024, around 95% of rural land records have been computerised, covering over 6.26 lakh villages. 
  • Lack of cadastral map (detailed property maps within a specific area) in urban areas results in:
    • Difficulty in verification of land ownership
    • Disputes and delays in urban infrastructure projects
    • Inefficiencies in governance and loss of tax revenue for municipal bodies.  

RBI lowers risk weightage on Banks’ exposure to NBFCs

Context: The Reserve Bank of India (RBI) has announced a significant reduction in risk weights on bank loans to Non-Banking Financial Companies (NBFCs) by 25 percentage points. This move is aimed at improving credit flow and ensuring financial stability in the banking sector.

Relevance of the Topic: Prelims: Risk-weighted assets; Liquidity boost measures by RBI

Background

  • In November 2023, RBI increased risk weights on bank exposures to NBFCs by 25% to 125%, leading to tighter credit conditions and slowing down bank lending.
  • RBI has now reversed this decision after evaluating its impact on credit availability and liquidity.
  • Objective: To enhance credit flow to NBFCs, thereby, improving credit availability for retail borrowers and small businesses.
  • Impact on Microfinance loans: RBI has also reduced risk weights on microfinance loans under regulatory retail to 75% from 125%.

Reasons for Reduction

  • Sluggish bank credit to NBFCs: The previous increase in risk weights had constrained bank lending to NBFCs.
  • Liquidity tightening: Prevailing liquidity challenges required intervention to ease credit flow.
  • Economic stability: Ensuring a balanced credit supply is critical for financial and economic stability.

Implications of RBI’s Decision

  • Impact on Banks: 
    • Lower capital requirement: Reduced risk weights mean banks need to hold less capital against loans to NBFCs.
    • Enhanced credit growth: Encourages banks to lend more, boosting overall economic activity.
  • Impact on NBFCs: 
    • Easier access to bank credit: Lower risk weights increase banks’ willingness to extend loans.
    • Lower borrowing costs: Reduced capital requirements translate into lower interest rates for NBFCs.
    • Business expansion: Greater liquidity enables NBFCs to lend more to retail borrowers and underserved markets.
  • Impact on the Economy: 
    • Boost to retail credit: Increased NBFC lending supports consumer spending and small business growth.
    • Financial stability: A steady credit flow prevents liquidity crunches and economic slowdowns.

Challenges Ahead

  • Asset quality concerns: Recent issues in micro-loan segments may temper immediate growth.
  • Selective lending: Banks may prefer stronger NBFCs, limiting relief for weaker players.
  • Diversification needs: NBFCs continue to explore bond markets to reduce bank dependence.

Risk-Weighted Assets (RWAs)

  • Risk-Weighted Assets (RWAs) refer to a bank’s total assets, adjusted by a risk factor, to determine the capital required to mitigate potential losses.
  • How are RWAs calculated:
    • Each loan or asset is assigned a risk weight based on its risk level.
    • Higher-risk assets require banks to allocate more capital as a safeguard against potential defaults.
  • Regulatory requirement: Banks must maintain a Capital Adequacy Ratio (CAR) to ensure they have sufficient capital to absorb risks.

Farmers’ Producer Organisations (FPOs)

Context: Recently, the Prime Minister of India announced that the target of creating 10,000 farmer producer organisations (FPOs) has been achieved before the deadline, March 31, 2025. 

Relevance of the Topic: Mains: Farmers’ Producer Organisations: Significance and Challenges.

What is the Farmers Producer Organisation (FPO)?

  • A Producer Organisation (PO) is a legal entity formed by primary producers such as farmers, milk producers, fishermen, weavers, rural artisans, craftsmen etc. 
  • FPO is a type of PO where the members are farmers. The FPOs can be registered as Cooperatives (under Cooperative Societies Act of the respective State), Farmer Producer Company (Under Companies Act, 2013) or Societies (under Society Registration Act, 1860).

How FPOs Benefit Small and Marginal Farmers?

  • Facilitate land pooling and address problems associated with fragmented landholdings.
  • Reap economies of scale for buying inputs and selling the agricultural produce.
  • Enable sharing of services such as knowledge input, production supervision, storage, transportation, etc and hence reduce the transaction costs.
  • Create opportunities for farmers to get more involved in value addition activities such as input supply, credit, processing, marketing and distribution.
  • Provide interface between the farmer and global market enabling them to export  commodities.
  • Provide access to capital for farmers and manage risk for farmers through diversification.
  • Promote economic democracy at the grass root level.

Initiatives for the Promotion of FPOs

  • The SFAC is the nodal agency at the national level for the creation of FPOs. The SFAC operates a Credit Guarantee Fund to mitigate credit risks of financial institutions which lend to the FPCs without collateral. SFAC also provides matching equity grants up to Rs. 10 lakh to double the share capital of FPCs. 
  • NABARD also provides financial support to the FPOs through two dedicated funds - “Producers Organization Development Fund (PODF)” and PRODUCE Fund (Producers’ Organization Development and Upliftment Corpus) to promote new FPOs and support their initial financial requirements.

Challenges and Issues in Building Robust FPOs

In the last 8-10 years, 5000 FPOs have been formed through initiatives of SFAC (Nodal Agency), NABARD, Government etc. without much success. Hence, to ensure success of a new initiative, the Government needs to acknowledge present weaknesses, analyse their reasons and then take outcome-oriented actions.

  • Promote Collaborative Farming: The FPOs need to be formed on the basis of adjoining land holdings and common produce to ensure higher economies of scale and undertake value addition.
image 69
  • Finances: The reluctance of Banks to give loans has to be countered through enhanced credit support from Government agencies. Further, Just like cooperatives, the FPOs also must be given income tax exemption.
  • Handholding: Need to provide regular training and business level handholding. 
  • Professional Management: It can be improved by enabling the Private sector to invest in FPOs. This will need amendment of Companies Act which currently allows only farmers to be producer members.
  • Market Linkages: Direct procurement by Government; freight subsidy to wholesale buyers; connecting FPOs to online platforms etc.
  • Village Producer Organisations (VPOs): The VPOs can be developed as a joint venture of FPOs such that an entire village region is developed for a predetermined set of agricultural produce with post-production activities. For example, a region having strength in producing fibre crops can be developed as a VPO to include small handloom weavers.

Suggestion for Improved Functioning of FPOs

  • Efficient Selection Mechanism: There is a need for a proper selection mechanism for the promoters/organisation as well as members based on merit to avoid subsidy gouging.
  • Optimal Size Determination: Enables easier monitoring and delivery of attributes like appropriate quality and food safety.
  • Skill and Product Differentiation: Optimal composition with participation of members having different skills is important to reap the gains based on comparative advantage. Further, FPOs can maximise prices for farmers if their products are differentiated.
  • Collaboration with NGOs is essential as they can play a crucial role in the development of FPOs as promoting institutions. Thus, more approaches of social enterprises should be infused to further develop these companies.

Way Forward

The promotion of FPCs should not be seen as a one-time exercise. Though there is sufficient focus on providing financial assistance to FPOs, there is limited hand-holding subsequent to their formation. In this regard, the Government must provide for sustained and continuous support until the time the FPCs become financially viable and independent.

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