Economy

All (4265)Current Affairs (4243)Mains Practice (77)Mains PYQs by Subjects (40)

Maternity Benefits in India

Context: Despite legal provisions under the National Food Security Act (NFSA) 2013, implementation of maternity benefits has been inadequate. PM Matru Vandana Yojana (PMMVY), also has been restrictive and ineffective.

Relevance of the Topic: Mains: Maternity Benefit initiatives-Issues, Way forward

Maternity Benefit Initiatives in India

  • National Food Security Act (NFSA) 2013: Entitles all pregnant women (except those in the formal sector) to ₹6,000 per child.
  • PM Matru Vandana Yojana (PMMVY): Initially introduced in 2017, restricts benefits to one child per family, later extended to a second child (if a girl).
  • Maternity Benefits Act 1961 (amended 2017): Provides 26 weeks of paid maternity leave in the formal sector, compared to only ₹5,000 in the informal sector under PMMVY.

Issues with PMMVY Implementation

  • Violation of NFSA provisions: 
    • PMMVY provides only ₹5,000 instead of ₹6,000.
    • Limiting benefits to one child (or two in case of a girl) contradicts NFSA's universal entitlement.
  • Shrinking Coverage:
    • Effective coverage peaked at 36% in 2019-20 and crashed to 9% in 2023-24.
    • Budgetary allocation for PMMVY fell to ₹870 crore in 2023-24, about one-third of the allocation five years ago.
    • Required budget to cover 90% of births at ₹6,000 per child: ₹12,000 crore.
  • Lack of Transparency:
    • The Ministry of Women and Child Development does not proactively disclose PMMVY data.
    • Basic statistics on beneficiaries and disbursement rates are absent from public records.
  • Administrative and Technical challenges:
    • Frequent software issues disrupted disbursements in 2023-24.
    • Aadhar-linked payments and digital application processes create exclusionary barriers.
  • Comparison with State Schemes:
    • Tamil Nadu: Offers ₹18,000 per child, with 84% coverage in 2023-24.
    • Odisha: Provides ₹10,000 per child, covering 64% of births in 2021-22.
    • PMMVY (all-India): Coverage fell below 10% in 2023-24.

Way Forward

  • Universal Coverage: Restore NFSA-mandated ₹6,000 benefit for every pregnancy.
  • Increase budget allocation: Align PMMVY spending with estimated needs.
  • Transparent implementation: Publish real-time data on applications, approvals, and disbursements.
  • Simplified disbursement process: Reduce bureaucratic and technological hurdles.
  • Indexation to inflation: Adjust maternity benefits in line with rising living costs.

Revamped scheme aligned with NFSA provisions is essential to ensure better maternal and child health outcomes. Strengthening maternity benefits is a social investment that benefits not just women, but the entire society.

India-EU Trade Talks

Context: India is set to raise concerns over the European Union’s controversial carbon tax, which seeks to impose tariffs as high as 30% on imports of carbon-intensive products such as Steel and Aluminium from January 2026.  

Relevance of the topic:

Prelims: Carbon Border Adjustment Mechanism

Mains: India-EU Trade relations

About EU Carbon Border Adjustment Mechanism (CBAM)

  • The EU Carbon Border Adjustment Mechanism is a carbon tariff on carbon intensive products, such as steel, cement and some electricity, imported to the European Union. 
  • Legislated as part of the European Green Deal, it takes effect in 2026, while the current transitional phase lasts between 2023 and 2025.
  • Purpose: 
    • To put a fair price on the carbon emitted during the production of carbon-intensive goods that are entering the EU.
    • To prevent carbon leakage, i.e., shifting of the production of goods to non-EU countries, where there is a lower or no carbon cost associated with their production. 
    • To encourage cleaner industrial production in non-EU countries.
    • To ensure that the EU's climate objectives are not undermined.
  • CBAM is designed to be compatible with the rules of the World Trade Organisation (WTO). 

Key Features

  • Carbon Certificates:
    • EU importers will have to buy carbon certificates corresponding to the carbon price that would have been paid in the EU if the goods had been produced locally.
    • The price of the certificates would be calculated according to the auction prices in the EU carbon credit market.
    • The number of certificates required would be defined yearly by the quantity of goods and the embedded emissions in those goods imported into the EU.
    • EU importers will declare the emissions embedded in their imports and surrender the corresponding number of certificates each year.
    • If importers can prove that a carbon price has already been paid during the production of the imported goods, the corresponding amount can be deducted.
    • Companies in countries with a domestic carbon pricing regime equivalent to the EU’s will be able to export to the EU without buying CBAM certificates.
  • Coverage: CBAM will initially cover several specific products in some of the most carbon-intensive sectors at risk of carbon leakage: iron and steel (including some downstream products such as nuts and bolts), cement, fertilizers, aluminium, electricity, and hydrogen.

India’s concerns regarding CBAM

  • Violation of climate equity principles:
    • CBAM contradicts the Common but Differentiated Responsibilities (CBDR) principle under multilateral climate agreements.
    • India argues that CBAM disproportionately affects developing economies like India.
  • Negative impact on Indian exports:
    • The EU accounts for 15% of India’s total exports ($75 billion in 2022-23).
    • CBAM could increase costs for Indian exporters, especially in the steel and aluminium sectors. Global Trade and Research Institute (GTRI) estimates a 20-35% tax on select Indian metal exports to the EU.
    • CEEW Report (2024) highlights that 43% of India’s exports to the EU could be at risk due to sustainability-focused regulations.
      • The product categories at risk include textiles, chemicals, selected consumer electronics products, plastics, and vehicles.
      • These items accounted for 32% of India’s exports to the EU in 2022, valued at approximately $27 billion. 
      • If CBAM sectors are added to the list, then the exports of at-risk sectors amount to $37 billion.
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  • Negotiations at Risk: 
    • India is negotiating a free trade agreement (FTA), investment pact, and geographical indication (GI) treaty with the EU.
    • CBAM may nullify trade concessions under FTA if additional products are brought under its ambit.
  • Data compliance burden: 
    • CBAM demands over 1,000 data points for compliance, affecting small manufacturers who lack such records.

Response to EU’s CBAM

  • The Government of India termed CBAM an unfair measure.
  • Multilateral resistance: Countries like China, Russia, Brazil, South Africa have taken the EU to the WTO, but India is yet to formally file a case.
  • Negotiations through Trade and Technology Council (TTC): India and the EU have agreed to discuss CBAM-related concerns separately. 

Green Finance

Context: The government is working to set up a National Green Financing Institution to support its net-zero target by 2070. Current finance flows for climate initiatives remain much lower than the desired levels. 

Relevance of the topic:

Prelims: Green Finance; Green deposits; Green bonds.

Mains: Challenges to Green financing.

National Green Financing Institution (proposed)

  • The primary purpose of the institution will be to aggregate green capital from different sources and lower the cost of capital.
  • NITI Aayog is examining structuring mechanisms for operationalising a potential National Green Financing Institution, including a bank modelled on NaBFID/NABARD, repurposing existing institutions like IREDA; Climate Fund in GIFT city, Green InvIT, etc. (non-exhaustive) along with analysing best practices from Green Banks around the world. 

India’s Climate Commitments and need for Green Finance

  • As part of its climate commitments or Nationally Determined Contributions (NDCs) submitted to the United Nations Framework Convention on Climate Change (UNFCCC) in 2022:
    • India aims to reduce its GDP emission intensity by 45% by 2030, compared to 2005 levels.
    • India aims to achieve 50% of its installed electric power capacity from non-fossil fuel sources by 2030.
  • India has set a target to achieve at least 500 GW (gigawatts) of non-fossil power capacity by 2030, up from its current 165 GW (2024).
  • India has also pledged to create an additional carbon sink of 2.5 to 3 billion tonnes through additional forest and tree cover by 2030.
  • India has the aim to achieve the target of net zero emissions by 2070.
  • Preliminary estimates conducted for the Paris Agreement suggest that at least US$ 2.5 trillion (at 2014-15 prices) will be required for meeting its climate change actions between 2015 and 2030 (Government of India, 2015). The financial sector can play a pivotal role in mobilising resources and their allocation in green activities/projects.

Challenges to Green financing:

  • Lack of clear definition: There is no clear-cut definition for “Green Finance” in India. Various terms such as Climate finance, sustainable finance is used interchangeably with green finance. It led to misunderstanding among stakeholders and made it problematic to keep track of capital invested in green sectors. 
  • Green Washing: Greenwashing is the practice of channelling proceeds from green finance towards projects that have negligible environmental benefits and providing misleading information to the investors and public about the environmental impacts of the company. Such practises discourage green financing. 
  • Failure to internalize externalities: Infrastructure investments in India didn’t efficiently internalise the environmental externalities (Positive externalities are benefits arisen to third parties due to green investments and negative externalities are damages inflicted on third parties due to polluting investments). This resulted in insufficient capitalization of “green” projects and excessive investment in “brown” projects.
  • Maturity mismatches: Generally green projects require long-term financing with low returns in the initial years. This results in mismatch between long-term green investment and relatively short-term interests of investors.
  • Information asymmetry: Lack of information on commercial viability of green technologies and uncertain policies on green investments resulted in risk aversion by investors in projects of renewable energies. 

Government’s Steps:

  • Sovereign green bonds: 
    • Sovereign green bonds are fixed interest-bearing financial instruments issued by any sovereign entity / inter-governmental organisation /corporation. The proceeds of these bonds are used only for environmentally conscious, climate-resilient projects.
    • The Reserve Bank of India (RBI) recently auctioned its maiden sovereign green bonds worth ₹8,000 crore under its Sovereign green bond framework.
    • There is no cap on foreign investment in these bonds because these instruments are considered as specified securities under the fully accessible route.

Green deposits: With a view to fostering and developing green finance ecosystem in the country further, RBI has put in place a Framework for acceptance of Green Deposits by the banks.

What are Green Deposits?

  • A green deposit is a fixed-term deposit for investors looking to invest their surplus cash reserves in environmentally friendly projects. Green bonds used to be the most common fixed-income ESG product in India earlier, and now products like green deposits are gaining significance.
  • Corporates looking for inclusion of a sustainability agenda into their treasury activities or those that have limited opportunities for investment in environmentally beneficial projects can invest in these green deposits.

Purpose of the framework:

To encourage banks to offer green deposits to customers, protect interest of the depositors, aid customers to achieve their sustainability agenda, address greenwashing concerns and help augment the flow of credit to green activities/projects.

Key Guidelines:

  • Applicability: The provisions of these instructions shall be applicable to Scheduled commercial banks (excluding payment banks, RRBs), deposit taking NBFCs and Housing finance companies (HFCs)
  • The Banks shall issue green deposits as cumulative/non-cumulative deposits. On maturity, the green deposits would be renewed or withdrawn at the option of the depositor. The green deposits shall be denominated in Indian Rupees only.
  • The eligible banks shall put in place a comprehensive Board-approved policy on green deposits covering all aspects in detail for the issuance and allocation of green deposits.
  • Allocation of funds: The proceeds raised form the green deposits shall be allocated to the following activities

Projects involving nuclear power generation, generating energy from biomass and hydropower plants larger than 25MW are excluded from eligible projects. 

The banks shall ensure that the funds raised through green deposits are allocated to the eligible green activities/projects.

  • Third party verification: Allocation of funds raised through green deposits shall be subject to an independent Third-Party Verification/Assurance which shall be done on an annual basis. The third-party assessment would not absolve the bank of its responsibility regarding the end-use of funds.

A review report shall be published by the banks covering the details about amount raised under green deposits, amount of funding to the eligible green projects and third-party verification report.

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.
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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.

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.
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  • 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.

Time use survey 2024: NSO

Context: Recently, the National Statistics Office (NSO) has released the findings of the Time Use Survey 2024, conducted during January – December 2024. 

Relevance of the topic:

Prelims: Key facts about Time Use Survey 2024.

Mains: Issues associated with Unpaid care work. 

Time Use Survey

  • Time Use Survey (TUS) measures time dispositions by the population on different activities. 
  • The primary objective of the Survey is to measure the participation of men and women in paid and unpaid activities.
  • Time Use Survey 2024 (January-December) covered over 4.5 lakh people belonging to 1.3 lakh households (both rural and urban). Information on time use was collected from each member of age 6 years and above of the selected households. 
  • Released by: Ministry of Statistics and Programme Implementation (MoSPI)
    • National Statistics Office, MoSPI conducted the first all-India Time Use Survey during January – December 2019. 
    • January – December 2024 is the second such All-India Survey.
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Major findings of the Time Use Survey 2024

  • The gap between the minutes spent by females than males in a day is the sharpest for unpaid domestic work, followed by unpaid caregiving services for household members.
    • Females spent 289 minutes in unpaid domestic services for household members than 88 minutes spent by males in 2024. 
    • Time spent by females in a day on unpaid domestic services for household members reduced by 10 minutes to 289 minutes in 2024, from 299 minutes in 2019. 
  • For unpaid caregiving services for household members, females spent 137 minutes a day, while males spent 75 minutes in 2024.
  • For employment and related activities, men spent 132 minutes more than females (341 minutes by females, 473 minutes by males).
    • During 2024, 75% of the males and 25% of the females in the age group 15-59 years, participated in employment and related activities during the reference period of 24 hours. 

What are Unpaid Activities?

  • Paid work includes self-employment for production of goods and services; regular wage or salary or casual labour for production of goods and services.
  • Unpaid activities include:
    • care for children, sick, elderly, differently-abled persons in own households;
    • production of other services for own consumption
    • production of goods for own consumption
    • voluntary work for production of goods & services in households and market/non-market units
    • unpaid trainee work and other unpaid work for production of goods and services.

Also Read: Empowering Women: Unpaid Care Work's Influence on Labor Force Engagement

AI in Agriculture

Context: Microsoft CEO Satya Nadella highlighted Project Farm Vibes in Baramati, Maharashtra, showcasing how AI-driven solutions improved crop yield by 40% and reduced fertilizer use by 25%.

Relevance of the topic:

Prelims: AI- Applications

Mains: AI in Agriculture

About Project Farm Vibes

About Project Farm Vibes
  • What is it?
    • A suite of AI-driven agricultural technologies developed by Microsoft Research to enhance farming efficiency, sustainability, and productivity.
    • Uses satellite data, IoT sensors, drones, and AI algorithms to generate actionable insights for farmers.
  • Organisations associated: Microsoft Research & Azure AI Team, Agricultural Development Trust, Baramati, Oxford University AI Researchers. 
  • How AI transformed agriculture in Baramati?
    • Sensor Fusion Technology: Integrated real-time data from drones, satellites, and soil sensors to optimise farm operations.
    • AI-Powered Insights: AI analysed soil moisture, temperature, pH levels, and humidity, offering data-driven recommendations.
    • Vernacular AI Assistance: Farmers accessed AI-generated advice in their local language, making technology more accessible and user-friendly.
    • Precision farming: Spot fertilisation techniques reduced chemical use by 25%, improving soil health and sustainability.
    • Climate-responsive farming: AI monitored weather patterns and field conditions, enabling better water management and crop scheduling.
  • Impact on Agriculture:
    • 40% increase in crop yield: AI-driven insights led to better farming practices and higher productivity.
    • 25% reduction in fertilizer costs: Precision farming minimized chemical overuse, improving cost-effectiveness.
    • 50% water conservation: AI-enhanced irrigation strategies optimized water usage, making farming more sustainable.
    • Shorter crop cycle: Sugarcane harvest time reduced from 18 to 12 months, increasing profitability for farmers.
    • 12% reduction in Post-harvest losses: AI applications streamlined logistics and storage, cutting wastage.

Role of Artificial Intelligence in Agriculture

  • Precision Agriculture (Enhancing productivity and efficiency): 
    • AI technologies, such as machine learning, drone applications, and remote sensing, are revolutionising farming practices.
    • These innovations enable precise monitoring of crop health, soil conditions, and weather patterns, allowing farmers to make informed decisions.
    • These allow for targeted interventions, such as precise application of water and fertilizers.
  • Data-driven innovations: 
    • By analysing vast amounts of data, AI systems can recommend optimal planting times, crop rotations, and irrigation schedules. It helps in conserving water, reducing chemical usage, and maintaining soil health. 
    • For example, drones equipped with hyperspectral imaging can detect nutrient deficiencies and pest infestations early.
    • The concept of Hybrid Agricultural Intelligence (HAI), which combines farmers’ indigenous knowledge with AI, is particularly promising for smallholder farmers in India.
  • Climate-Smart Agriculture: 
    • AI can predict weather patterns and provide early warnings for extreme weather events, enabling farmers to take preventive measures.
    • AI-based systems can optimise resource use, such as water and fertilizers, to adapt to changing climatic conditions.

AI-Powered Solutions in Agriculture

  • Kisan e-Mitra Chatbot: 
    • An AI-powered tool designed to assist farmers with queries related to the PM Kisan Samman Nidhi scheme.
    • It supports multiple languages and is evolving to provide information on other government programs.
  • National Pest Surveillance System: 
    • AI and Machine Learning (ML) are utilized in the National Pest Surveillance System to detect crop issues early.
    • It helps in timely interventions, reducing crop losses due to pests and diseases.
  • IoT-based Irrigation systems: 
    • Indian Council of Agricultural Research (ICAR) has developed IoT-based irrigation systems tested in the field for selected crops.
    • These systems optimize water usage, ensuring efficient irrigation.
  • Crop health monitoring: 
    • AI-based analytics, using field photographs and satellite data, assess crop health.
    • It monitors weather and soil moisture conditions, particularly for rice and wheat, enabling farmers to make informed decisions.

Concerns in integration of AI into Agriculture

  • Challenges for smallholders: Small landholdings in India pose a challenge for the adoption of AI technologies, which are often designed for larger farms.
  • Ensuring affordable and accessible AI tools for smallholder farmers is crucial.
  • Technological infrastructure and costs: The high costs of AI technologies and the need for robust technological infrastructure are significant barriers.
  • Skill deficiency: There is a need for specialized skills to operate and maintain these technologies. 

Tariff reduction on Agricultural Products in India-US Trade Negotiations

Context: Agricultural goods receive high protection in India and have largely remained outside trade agreements. India is considering a range of items for tariff reductions on US products, however, the United States is particularly interested in reduction of tariffs in the agricultural sector to export more agricultural goods to India.

Relevance of the Topic: Prelims: Key trends in the US-India Trade relations. 

India-US trade in Agricultural products

  • High protection in India:
    • India has traditionally maintained high tariffs on agricultural imports to protect its domestic farming sector, which is highly sensitive and politically significant.
    • Despite tariff reductions on select products in recent Union Budgets, agriculture remains a protected sector.
  • US Agricultural export interests:
    • The American agricultural sector (especially in the Midwest) forms a key voter base for former President Donald Trump, influencing US trade policies.
    • Increasing agricultural exports is an offensive interest for the US, aiming to support domestic farmers and strengthen economic ties.
  • Tariff rates comparison:
    • India’s average applied Most Favoured Nation (MFN) tariff on agricultural goods: 39%
    • The US average applied MFN tariff on agricultural goods: 5%
  • Implications:
    • High Indian tariffs on agricultural products lead to trade imbalances and hinder the growth of US exports to India.
    • The disparity prompts US demands for reciprocal tariff reductions, which could potentially benefit both sides through enhanced trade volumes.
image 179

India’s agricultural exports to the US

  • Key export items: Basmati rice, spices, cereals, dairy, and poultry products.
  • Export value: Approximately $4 million annually.
  • Potential gains from tariff reductions:
    • Lowering tariffs could improve the market access for Indian agricultural goods in the US.
    • Enhanced access could particularly benefit sectors like basmati rice, processed foods, and spices.

Sectoral vulnerabilities in Indian agriculture from US Reciprocal Tariffs (As per GTRI Report): 

  • Seafood (Fish, Meat, Processed Seafood): 
    • Exports worth $2.58 billion face a 27.83% tariff differential.
    • Shrimp, a key export item, is likely to lose competitiveness in the US market.
  • Processed Foods, Sugar, and Cocoa:
    • Exports worth $1.03 billion affected by a 24.99% tariff increase.
    • Indian snacks and confectionery products will become costlier and less attractive to US consumers.
  • Edible Oils: Coconut and mustard oil exports valued at $199.75 million face a 10.67% tariff increase.
  • Alcohol, Wines, and Spirits: Exports of $19.20 million affected by a steep 122.10% tariff hike.
  • Live Animals and Animal products: $10.31 million in exports face a 27.75% tariff differential.
  • Tobacco and Cigarettes: Despite a high US tariff of 201.15%, Indian exports worth $94.62 million remain largely unaffected due to an already negative tariff differential (-168.15%).

Also Read: Reciprocal Tariffs by the U.S. 

Comparison in Global Context

  • United States - Mexico - Canada Agreement (USMCA):
    • Signed during Trump’s tenure to replace North American Free Trade Agreement (NAFTA) and expand the US agricultural market access.
    • Key Provisions:
      • Removal of Canadian Class 6 and 7 milk pricing programs to prevent undercutting of US dairy prices.
      • Reforms in Canada’s wheat grading system to ensure fair competition for US wheat growers.
    • Impact: Significant increase in the US dairy and wheat exports to Canada.
  • US-China Trade Deal (2020-2021):
    • Focused on boosting US agricultural exports amid the trade war.
    • Key Provisions:
      • China agreed to purchase US agricultural products worth $12.5 billion above the 2017 baseline in 2020 and $19.5 billion above the same baseline in 2021.
      • Removal of non-tariff barriers, such as lifting age restrictions on US beef imports.
    • Outcome: Enhanced market access and increased agricultural trade between the two economies.

Quality of Government Expenditure Index: RBI

Context: Recently, the Reserve Bank of India (RBI) has released the ‘Quality of Public Expenditure’ Index to assess how well the government is spending public money. The latest report makes for a positive picture.

Relevance of the Topic: Prelims: Quality of Public Expenditure Index; Public Expenditure- Trends & Analysis. 

Quality of Public Expenditure (QPE) Index

  • Developed by the RBI to assess how well the government is spending public money. 

The Index uses five variables to assess quality of spending:

  1. Capital outlay to GDP ratio
  2. Capital outlay to GDP ratio
  3. Development expenditure to GDP ratio
  4. Development expenditure measured as a percentage of a government’s total expenditure
  5. Interest payments to total government expenditure ratio

Variables of Quality of Public Expenditure (QPE) Index

  •  Capital outlay to GDP ratio:
    • Money set aside by the government towards building physical infrastructure expressed as a percentage of Gross Domestic Product (GDP).
    • The higher the ratio, the better is the quality of public expenditure (stronger commitment to enhance a nation's productive capacity).
  • Revenue expenditure to Capital outlay ratio:
    • Relative weight of the revenue & capital expenditures. Compares day-to-day operational expenses of the government (like salaries, subsidies, pensions) to the long-term capital investment. 
    • The lower the value of this ratio, the better is the quality of public expenditure.
  • Development expenditure to GDP ratio:
    • Development expenditure refers to all public expenditure to enhance production factors (labour and capital) or by improving their productivity, in order to stimulate economic growth. 
    • It includes expenditure on:
      • Education and training
      • Public infrastructure investments
      • R&D (which drives technological advancement and innovation)
      • Healthcare (which boosts both the size and productivity of the labour force by extending the span of healthy life). 
      • Subsidies (particularly those aimed at improving nutrition, such as food subsidies) to bring long-term welfare gains.
  • Development expenditure as a percentage of a government’s total expenditure: The higher the value of this ratio, the better is the quality of public expenditure.  
  • Interest payments to total government expenditure ratio:
    • Proportion of government spending on servicing debt. 
    • A lower value of this ratio shows better quality of public spending.

Quality of India’s Public Expenditure: Analysis by RBI

  • The RBI has broken the whole period  (from 1991 to now)  in six phases to illustrate how structural forces have shaped the quality of public expenditure at both levels of government (Centre & states). 
image 172
image 173
  • Phase 1: Early Post-Liberalisation Reforms & Fiscal Realignments (1991-95):
    • Centre’s index (Chart 1) showed a slight improvement in quality of public expenditure (QPE), while the States’ index (Chart 2) declined modestly. These movements were driven by the fiscal pressures faced by both levels of government. 
    • Public investment fell as fiscal consolidation took precedence.
  • Phase 2: Pre- FRBM Consolidation (1996-2003):
    • Both indices experienced a sharp decline reflecting the combined impact of the Fifth Pay Commission implementation, rising interest payments, and the persistent dominance of revenue expenditure over capital outlay.
  • Phase 3: FRBM Implementation & Growth Upswing (2003-2008):
    • Reflects positive effects of both fiscal discipline (as FRBM Act started guiding government borrowing) and fast economic growth making more money available for spending. 
    • States also benefited from higher fiscal devolution.
    • The index rebounded sharply until the world was hit by the Global Financial Crisis (GFC) of 2008.
  • Phase 4: Global Financial Crisis & Countercyclical Adjustments (2008-13):
    • GFC prompted the Centre to adopt countercyclical fiscal measures, including stimulus packages. 
    • Governments, especially the Centre had to spend more in order to counter the slowdown and hurt caused by the GFC. 
    • While this continued to push up the index during this phase, higher spending levels resulted in higher deficits, and it eventually started eroding the quality of public expenditure.
  • Phase 5: Structural Reforms & GST Rollout (2013-20):
    • The trajectory of the index goes in opposite directions for the Centre and the states. 
    • The QPE saw an improvement in states with improvements in development spending, as well as more money being available to them, thanks to the recommendations of the 14th Finance Commission. 
    • The Centre further faced challenges with GST revenue sharing initially favouring the states.
  • Phase 6: Pandemic shock & Infrastructure-focused recovery (2020-Present):
    • Economic recovery especially driven by the heightened focus on capital expenditure helped push up the quality of public expenditure.

Thus, according to RBI’s index, the quality of public expenditure in India (both at Centre and state levels) is close to the highest point it has ever been since the start of economic liberalisation in 1991.

Recent Trend shifts in India’s Public Expenditure

  • Push for Fiscal Discipline:
    • To limit the tendency in government to overspend, India instituted the Fiscal Responsibility and Budget Management (FRBM) Act, 2003. 
    • FRBM limit on Fiscal & Revenue Deficit:
      • As per FRBM Act, the fiscal deficit should ideally not exceed 3% of GDP.  
      • The revenue deficit should be zero.
      • Purpose: Government should only borrow for capital expenditure (and not for paying higher salaries and other similar everyday spending).
    • Targeting overall debt: India has now shifted to targeting overall debt as a percentage of GDP, instead of an individual year’s fiscal deficit, as a way to maintain fiscal discipline.
  • Push for higher capital expenditure: Capex boosts productive capacity of the economy. 

Also Read: Re-evaluating FRBM Act 2003 

India needs to enhance the Quality of Public Expenditure by continued investment in infrastructure, renewable energy, and digital transformation, keeping borrowing under control, strengthening Centre-state financial coordination and using data-driven governance models to track expenditure efficiency.

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