Economy

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Decline in Social Sector Expenditure in Budget

Context: The share of the Union Budget allocated for the social sector has declined rapidly in recent years. Concerns arise, amid the upcoming Budget, on whether further reduction in social sector expenditure will impact inclusive growth and welfare of vulnerable groups.

Relevance of the Topic: Mains: Social Sector Expenditure- Trends, Impacts

Trend Analysis of Social Sector Spending:

1. Sector-wise allocation: Allocations for various social sectors as a share of the total Budget has witnessed continuous decline.

  • Expenditure on health as a share of the total Budget declined from 2.47%-2.22% in the FY18-22 period to 1.85%-1.75% in the FY23-25 period. 
  • Allocations for higher education as a share of the total Budget declined from the 1.57%-1.37% range in FY17-20 to 1.27%-0.88% in FY21-25. 
  • Allocations for school education declined from the 2.18%-1.96% range to 1.61%-1.23%.
  • The share of total Budget allocated to the Ministry of Rural Development did not cross the 6%-mark in the last three years.
  • Allocations for social welfare schemes declined from the 1.89%-1.61% range to 1.17%-0.97% in the same period.
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2. Scheme-wise allocation: 

  • Allocations for Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) have declined significantly over time.
    • ₹86,000 crore allocated for MGNREGS for 2024-25 formed only 1.78% of the total Budget, a 10-year low. 
  • Allocation for the National social assistance programme, which includes old age pension, widow pension, and disability pension, has declined as a share of the total Budget.
    • From 1.21%-0.36% in FY19-21 to about 0.2% in the last four years.
  • Allocations for Pradhan Mantri Poshan Shakti Nirman (PM-POSHAN) scheme as a share of the total Budget declined.
    • 0.26% in FY25 (Budget Estimates) — the lowest in the last nine years.
  • Exceptions: Allocations under certain schemes as a share of the total Budget were on an increasing trend or at least stagnating.
    • Ayushman Bharat-Pradhan Mantri Jan Arogya Yojana (PMJAY)
    • Pradhan Mantri Awas Yojna (PMAY)-Rural
    • PM Schools for Rising India (PM SHRI) 
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Impacts of decline of social-sector spending: 

  • Decline in Demand: Less allocations on MGNREGA/food subsidy/pensions can hinder demand revival or less consumption expenditure.
  • Impact on Human Development Indicators: Reduced spending on education and health reduce human development outcomes. It reduces productivity, employment opportunities, etc.
  • Social Exclusion and Inequality Based on Caste, Gender: According to NITI Aayog’s 2021 Multidimensional Poverty Index, SCs and STs suffer more from multidimensional poverty. Female labour force participation in India is only 32.8% (latest PLFS report)
  • Falling standards of education: India still lags behind the global standard of 6% of GDP recommended by the Kothari Commission. This affects quality and infrastructure in schools, especially in rural areas.
  • Health & Nutrition Concerns: India still spends below the WHO recommended level of 5% of GDP. This impacts healthcare infrastructure and access to services, particularly in rural and underserved regions.
  • Regional disparity and rural-urban divide: Reduced spending on the social sector can lead to regional imbalances in growth & development, which can spur security concerns in backward regions. Further, increasing gap between rural and urban development indicators can also be fuelled by decreasing social sector expenditure.

For India to achieve the vision for Amrit Kaal, it is necessary to ensure adequate access to quality and affordable education, health, nutrition and social security.

Easing Oil Prices: What it means for India?

Context: Recent developments in global oil markets, influenced by policy shifts in the United States, have led to a decline in crude oil prices. This trend holds significant implications for India.

Relevance of the Topic:Prelims: Brent Crude, West Texas Intermediate, Global Oil Prices- Impact for India.

Global Context

  • In January 2025, U.S. President Donald Trump urged the Organisation of the Petroleum Exporting Countries (OPEC) to reduce oil prices. This was aimed to pressure Russia financially amid the ongoing Ukraine conflict. 
  • This appeal contributed to a decrease in oil prices, with Brent crude futures falling to $77.97 per barrel and West Texas Intermediate to $74.16.

Implications for India

As the world's third-largest oil importer, India sources over 80% of its oil needs from abroad. The reduction in global oil prices presents several potential benefits.

  • Economic Growth: Lower oil prices can reduce India's import bill, positively impacting the current account deficit and supporting economic expansion. 
  • Inflation Control: Decreased fuel costs can lead to lower transportation and manufacturing expenses, helping to keep inflation in check.
  • Energy Security: Lower prices provide an opportunity to India to stack its strategic oil reserves. 
  • Fiscal Health: Savings from reduced oil import costs can provide the government with greater fiscal flexibility, potentially allowing for increased public spending or deficit reduction.

Brent Crude

  • It serves as the most widely used benchmark that defines oil prices around the world.
  • The term "Brent" refers to the Brent oil field, which was discovered in the 1970s and became a significant source of oil production.
  • About two-thirds of all internationally traded crude oil supplies are priced relative to Brent, making it the most widely used marker of all.
  • It is extracted from different oil fields in the North Sea. Its unique properties, low density and low sulphur content, make Brent crude oil simpler to process into products such as gasoline. 
  • As its supply is water-borne, Brent crude oil is easy to transport to distant locations.

West Texas Intermediate (WTI)

  • West Texas Intermediate (WTI) is another grade of crude oil. It is one of the main three benchmarks in oil pricing, along with Brent and Dubai Crude. 
  • WTI is considered a high-quality oil that is relatively easy to refine.
  • WTI is known as a light sweet oil. It contains less than 0.50% sulfur, whereas the norm is about 0.24% to 0.34%, making it "sweet." It also has a low density, making it "light."
  • WTI is the underlying commodity of the New York Mercantile Exchange's (NYMEX) oil futures contract.

Overhauling the Tax System

Context: India’s current tax system hampers growth. It is time to overhaul the taxation system in India.

Relevance of the Topic: Mains: Tax Reforms

About Retrospective Taxation

  • Retrospective tax is a tax charged for transactions in the past. It refers to the act of imposing an additional tax charge from a specified date in the past.
  • Retrospective taxation allows a nation to implement a rule to impose a tax on certain products, goods, or services, retrospectively. 

Retrospective Taxation in India

  • In 2024, the 55th GST Council meeting resorted to old, counterproductive practices. The Council recommended a retrospective amendment to nullify a Supreme Court judgment which granted input tax credit to warehouses and infrastructure projects.
  • Impacts of Retrospective Amendment:
    • Undermines judicial authority and tarnishes India’s reputation as a reliable investment destination. 
    • Damages India’s business environment and deters foreign investment. 
    • Long-term damage to investor confidence outweighs the short-term fiscal gains.
    • Mirrors past missteps, such as the Vodafone case, which cost India Rs 8,000 crore in international arbitration.

Flawed Outlook of GST Council

  • GST Council’s preoccupation with revenue maximisation over rationalising tax structures, reflects a myopic approach that perpetuates inefficiencies and impedes economic growth. 
  • Negative Impacts: High tax rates, coupled with denial of input tax credits, have the following impacts:
    • Reduces demand or consumption
    • Discourage investments
    • Complex structure inadvertently fuels non-compliance or tax evasion.

Tax Burden on Real Estate and Housing

  • The current GST regime disproportionately hits the real estate sector. Levying GST on lease rentals, assignment of leasehold rights, and joint development rights creates significant financial strain on developers and homebuyers.
    • Ideally, these activities (which are neither goods nor services) should be exempt from GST to stimulate the housing market and support affordable housing initiatives.
  • Multiple layers of taxation undermine the government's goal of providing affordable housing, and makes homes less accessible for the average citizen.

Reflecting the Socialist Past

  • India’s current tax system resembles the inefficient and growth-stifling framework of the pre-liberalisation era.
    • High taxes, excessive regulation, and over-emphasis on revenue collection led to the economic stagnation of the 1980s.
  • The re-emergence of these practices threatens to reverse the progress made since 1991 (LPG reforms).
    • Rising imports from China, declining manufacturing output, and weakening rupee are clear indicators of this regression.

Way Forward

India needs a new fiscal vision focused on growth maximisation, to break the cycle of high taxation and low growth. The government must focus on-

  • Simplifying the GST regime
  • Eliminate retrospective taxation
  • Respecting judicial verdicts to provide legal/policy certainty 
  • Foster ease of doing business, encourage domestic manufacturing 

Taxes should be the by-product of a thriving economy, not its primary objective. A second wave of reforms—“Reforms 2.0”—could enable India to achieve a sustainable annual growth rate of 9-10%.

Revising Import Barriers to Support MSMEs

Context: In the upcoming Union Budget, the Central government is likely to review import barriers that currently ‘protect’ large domestic players. Various import restrictions – tariff and non-tariff – have led to market concentration and increased costs for downstream users across sectors. This has disproportionately impacted the Micro and Small & Medium Enterprises (MSMEs). 

Relevance of the Topic: Mains: MSMEs: Challenges, Policy Recommendations

Impact of Import Restrictions on MSMEs:

1. Rising costs & favouring Select Players

  • Example of Solar Panel Industry: The Ministry of New and Renewable Energy mandates solar projects to source modules exclusively from a government-approved list of domestic manufacturers starting April 1, 2024.
    • It has benefitted domestic manufactures by excessive profiteering.
    • On the other hand the small manufacturers are impacted due to expensive domestic modules, and have potential to inflate household electricity tariffs for downstream users. 

2. Impact of Quality Control Orders

  • Between 2021 and 2023, the government brought in quality control orders (QCOs) on polyester and viscose fibres (key inputs for synthetic textiles), effectively restricting imports.
    • QCOs has led to disruption of supply-chain and costlier domestic alternatives for MSMEs. 
    • This has led to inflated input costs and supply shortages persist for smaller MSMEs, while big companies like Grasim Industries and Reliance Industries benefit.

3. Strengthening Monopolies at the Expense of Smaller Players

  • A rise in QCOs, tariffs, and other trade barriers on key raw materials (E.g., steel, copper, aluminium, and polymers) aimed to protect the domestic industry from external competition is turning counter-productive.
    • The use of tariff and non-tariff barriers like QCOs on the import of critical raw materials is creating an uncompetitive environment for Indian industries, particularly MSMEs. Now, MSMEs are pushing back against such protectionist measures. 

4. Domino effect on Downstream Industries

  • Safeguard duty policies might give a fillip to the domestic steel industry. But they also raise the price of steel, which undermines the pace of expansion of railways and hurts the consumers of products using steel, such as kitchen utensils, cutlery, refrigerators, bicycles, motorcycles, farm machinery, and automobiles.  
  • The higher costs also lead to job losses in these products.

Other Concerns Regarding Import Restrictions:

  • MSMEs kept out of consultations:
    • MSMEs are not being invited to the import duty consultations. 
    • For instance, a duty hike in steel imports will hurt the downstream industry. If protection is provided for steel producers, there must be protection for MSMEs too.
  • Threat of Chinese dumping:
    • There is merit in the safeguard duty request as globally there is a push back against Chinese steel. 
    • The European Union has been blocking imports for the last 8 years, the US has imposed restrictions. So, there is a case of trade diversion to India. 

Policy Recommendations

  • Comprehensive review of customs duty rates:
    • rationalise and simplify it for ease of trade
    • removal of duty inversion
    • reduction of disputes
  • Selective Reduction of Tariffs:  Lowering import duties on specific raw materials and components crucial for MSME production to reduce costs.
  • Reevaluation of QCOs:  Assessing and potentially relaxing certain Quality Control Orders that may be unnecessarily stringent for MSMEs without compromising product safety and standards.
  • Caution against High tariffs and Trade barriers:
    • Government initiatives should not close off imports to the point where India starts “cultivating local monopolies”. 
    • An economy gains more from its imports than it gains from the exports because imports are what provide competition. 

SEBI proposes Sachetisation of Mutual Funds

Context: The Securities and Exchange Board of India (Sebi) has unveiled a proposal for promoting financial inclusion through the "sachetisation" of mutual fund (MFs) investments. SEBI is working with the mutual fund industry to make such products available. 

Relevance of the Topic: Prelims: Key facts about Sachetisation. 

What is Sachetisation?

  • Sachetisation refers to the process of offering financial products and services in smaller, more affordable packages, making them easier to access and manage.
  • India’s capital market regulator Securities and Exchange Board of India (SEBI) wants to “sachetise” mutual fund investments made through monthly systematic investment plans (SIPs).
  • Objective: 
    • To promote financial inclusion.
    • Better participation in mutual funds among lower-income investors.
    • Financial empowerment of the underserved section of the economy.
    • Nudge fund houses to expand their footprints to even remote locations.
Sachetisation of Mutual fund

SEBI’s Proposal for Sachetisation

  • SEBI’s proposal envisages launching a sachetised mutual fund product—a small ticket SIP of Rs. 250.
  • Eligibility Criteria:
    • Available for new investors only.
    • Investors can start with a maximum of 3 small-ticket SIPs across different Asset Management Companies (AMCs).
      • This will be supported by discounted fees and incentives from intermediaries. 
  • Payment mode: Payments will be facilitated via (restricted to) auto-pay modes like NACH (National Automated Clearing House) and UPI (Unified Payment Interface). 
  • Subsidy: Costs incurred by AMCs will be subsidised through SEBI’s Investor Education and Awareness Fund. 
  • Incentive: An incentive of Rs. 500 will be offered to distributors and platforms for each new investor completing 24 SIP installments, promoting outreach efforts. 
  • Schemes Excluded: Debt schemes, sectoral, thematic, small-cap, and mid-cap equity funds due to their volatility.
  • Commitment Period: Investors are encouraged to commit to 5 years (60 instalments), but premature withdrawal is allowed.

Forex Reserves hit 11 month low as Rupee slides

Context: India’s foreign exchange reserves fell to a near 11-month low of $623.98 billion as of January 17, 2025.

Relevance of the Topic:Prelims: Key facts about Forex Reserves. 

What are Foreign Exchange Reserves?

  • Foreign Exchange Reserves (Forex Reserves) are reserve assets held by a Central bank in foreign currencies.
  • What does it include? Foreign currencies, bonds, treasury bills, and other government securities.
  • Legal Framework: In India, the Reserve Bank of India Act 1934 enables the RBI to act as the Custodian of Forex Reserves.

Composition of Foreign Exchange Reserves:

  • India’s Foreign exchange reserves comprise of:
    • Foreign currency assets (FCAs): maintained in currencies like the US Dollar, Euro, Pound sterling, Australian Dollar and Japanese Yen.
    • Gold with the RBI as part of Forex Reserves.
    • SDR (Special Drawing Rights): This is the reserve currency with the International Monetary Fund (IMF). 
    • RTP (Reserve Tranche Position): This is the reserve capital with the IMF.
  • The biggest contributor to India’s Forex reserves is foreign currency assets, followed by gold.

Significance of Foreign Exchange Reserves

  • Backing currency liabilities: Forex reserves are used to back liabilities on the country’s issued currency, ensuring financial stability. 
  • Exchange rate management: They support the exchange rate by allowing the central bank to intervene in the forex market. E.g., If the value of the Rupee decreases due to an increase in the demand of the foreign currency, then RBI sells the dollar in the Indian money market so that depreciation of the Indian currency can be checked.
  • Emergency backup funds: They act as a buffer to ensure that the central bank has backup funds, if the country’s national currency rapidly devalues or in the event of insolvency.
  • International credibility: A country with a good stock of forex has a good international image because the trading countries can be sure about their payments.
  • Boosting trade and attracting investment: A good forex reserve helps in attracting foreign trade and earns a good reputation with trading partners.

Adequacy of Forex Reserves

  • Import Cover: Indicates the number of months of imports that could be paid for by Forex reserves. In India, it is presently around 9-10 months.
  • Greenspan-Guidotti rule: Forex Reserves should be sufficient to pay the short-term External Debt.

Slide of Indian Rupee

  • The Indian rupee has fallen past the important 86 level.  
  • Reasons:
    • Rally in the U.S. dollar 
    • Expectations of policy changes under U.S. President Donald Trump.
  • It had declined to an all-time low of 86.6475 during the week.
  • Frequent interventions by the RBI has helped prevent sharper losses.

Anti Dumping Measures against Chinese Steel

Context: Amid the US-China trade issues, India is likely to face the dumping of Chinese steel. India's Steel Ministry is ramping up efforts to shield the domestic industry from a potential surge in low-cost steel imports from China. 

Relevance of the Topic: Mains: Detailed question on dumping of goods

About Anti-Dumping

  • The Concept of Dumping: Dumping occurs when a country or company exports goods to another country at a price lower than the product's normal value (often below production cost or market price in the exporter's home country).
  • Anti-Dumping measures: 
    • Anti-dumping refers to measures taken by a country to protect its domestic industries from unfair trade practices. 
    • Measures include Anti-dumping duties, countervailing measures and sanitary and phytosanitary measures to reduce dumping.
    • The Directorate General of Trade Remedies (DGTR), under the Ministry of Commerce and Industry, is responsible for investigating dumping cases and recommending anti-dumping duties. Final decisions are implemented by the Department of Revenue, Ministry of Finance.

Various contemporary facets of the Issue: 

  • US tariff imposition: The US President Donald Trump is likely to impose tariffs on Chinese goods, especially steel and e-technology goods.
  • Chinese surplus steel: The US tariffs will reduce the export of Chinese steel to the US leading to unexported surplus. 
  • Cascading protectionism: The US tariffs may enhance the protectionism by other global leaders like the European Union (EU). E.g., Quota based import policy by the EU, where a 25% tariff is imposed on the steel after the import quota is breached.

Challenges to India is present situation: 

  • Possible dumping: India can face possible dumping of the surplus Chinese steel in India, hampering the profitability of the Indian steel sector.
  • Jerk to Indian exports: The US tariffs can also impact the Indian exports of steel to US and Europe.
  • Restrictions in Alternative markets: The cascading impact raising EU protectionism will reduce the global market coverage of India.
  • Environmental restrictions: India can also face the restrictions due to Green steel demand across the world, reducing scopes of exports for India.
steel industry

Way Forward for India

  • Import monitoring: 
    • India should intensify the scrutiny of imports, particularly from China and explore countervailing and anti-dumping duties to safeguard domestic steelmakers.
    • The Steel Ministry is closely engaging with European counterparts and WTO to ensure a fair and transparent trading environment, and adherence to WTO norms. 
  • Product diversification: Government can encourage steel manufacturers to diversify offering by diversification of goods like Specialised grade steel to enhance exportability. 
  • Negotiations for concessions: India should engage with the EU for concessions in reducing the barriers of the EU tariffs, as Europe remains a key market, contributing up to 40% of India’s steel.
  • Market diversification: India is focusing on diversifying export markets to reduce dependence on Europe. Enhanced trade ties with ASEAN, Middle East, and African nations are being explored. Additionally, India is supporting exporters by streamlining trade policies and offering incentives under the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme.
  • Green steel investments: The government is pushing the investment in green steel with fiscal incentives, tax benefits and partnership to reduce carbon emission and meet sustainability goals. India is the first country to define green steel and introduce rating systems.
  • PLI scheme: The production-linked incentive scheme and stricter quality controls aim to promote self- reliance, reduce imports and global challenges. The National Steel Policy 2017 targets 300 million tonnes (mt) of production capacity by 2030-31.

Also Read: https://compass.rauias.com/current-affairs/green-steel/ 

Diversification into new export markets, addressing trade barriers with the EU, and encouraging green steel investments highlight India's proactive approach to maintaining a fair and competitive steel market amidst global challenges.

Labour Welfare in India

Context: Lack of implementation of Labour Codes and Inefficiencies with the current legislative frameworks for labour welfare, calls for attention into the falling state of labour conditions in India.

Relevance of the Topic: Mains: Labour Welfare: Framework and challenges.

What is Labour Welfare?

  • Definition: In India, labour welfare refers to various measures undertaken by both the government and employers to improve the working conditions, well-being, and overall quality of life of workers and industrial workers.
  • Objective:
    • To address the social, economic, and health needs of workers and their families.
    • To ensure a better standard of living for the workforce.
  • What does it include? 
    • Provisions for safe working environments
    • Reasonable working hours
    • Fair wages
    • Access to healthcare
    • Housing facilities
    • Education for workers’ children
    • Social security benefits

Framework Regarding Labour in India

  • Constitutional Framework:
    • Labour is a subject in the Concurrent List. Thus, both Central and State governments are competent to enact legislation.
  • Judicial Interpretation: 
    • The Supreme Court emphasised “the principle of ‘Equal pay for Equal work’, to be achieved through Article 14, 16 and 39 (c) of Indian Constitution.” (Randhir Singh vs Union of India).
  • Legislative Framework: India has enacted four labour codes to consolidate 29 outdated laws to simplify and modernise existing labour laws and improve working conditions of labour. They include-
    • Code of Wages, 2019
    • Industrial Relations Code, 2020
    • Social Security Code, 2020
    • Occupational Safety, Health and Working Conditions Code, 2020.
  • Expansion of Social Security Net: 
    • The Code on Social Security, 2020 aims to widen the scope of social security schemes to include unorganised workers, gig workers and platform workers. 

Benefits of Labour Codes

  • Simplification of the Complex laws: Consolidate 29 Central laws, thus reducing multiplicity of definition and authority for businesses.
  • Easier Dispute Resolution: The codes simplify archaic labour laws and revamp adjudication processes, which will lead to quicker dispute resolution. 
  • Gender Parity:
    • All sectors must allow women to work at night.
    • Employers must ensure that security arrangements are made for them.
    • Women must consent before working at night.
  • Ease of Doing Business: These reforms will boost investment and make doing business easier.

Issues associated with Labour Welfare

  • Labour codes are not operational:
    • Implementation of labour codes has been delayed repeatedly due to state-level compliance issues and stakeholder resistance, with no clear indication when they will be operational.
    • The primary challenge is the shared jurisdiction over labour laws between India’s central and state governments.
      • The central government has passed the codes, but the state governments are responsible for drafting and notifying their own rules under each code, before they can be fully implemented. 
      • This duality has led to significant inconsistencies, and states are yet to finalise their rules under these codes.
  • Poor Implementation of Building and Other Construction Workers Act:
    • Many State governments have not reconstituted the welfare boards or implemented the BOCW Act effectively.
    • As per the recent CAG report, the welfare boards have not yet used the cess worth ₹70,744.16 crore, collected from the employers for the welfare of the workers, under the BOCW Act. 
    • Benefits like free temporary accommodation, drinking water and sanitation facilities to workers, remain unfulfilled. 
  • Concerns with Labour Codes:
    • Code on Social Security has provisions for self-assessment of cess by the employer, concerning contributions meant for workers’ welfare. This has the risk of underreporting by the employers, in the absence of any external regulatory check, and thus, could evade employer accountability. The Code also reduced the rate of cess and interest.
    • The statutory entitlements to workers under the BOCW Act are now subject to prescription by the Union government, under the new code. This means that there is no right to workers to these facilities, if not prescribed. 
  • No Recognition for Invisible Labour: 
    • Childcare, household work, looking after elderly are some examples of unpaid work and constitute invisible labour. They go unnoticed, unrecognised and are thus unregulated. The labour codes are silent about invisible labour. 

Read More: Analysis of Labour Codes 

Way Forward

  • Vocational Training: Establish accrediting agencies & vocational training institutes to provide skill-based training to the labour workforce.
  • Social Security: State governments should codify laws for implementation of the new labour codes and the welfare of unorganised workers.
  • Create centralised employment platforms to register workers, and connect workers with potential employers, to match the demand-supply gap. 

Along with these, it is also essential that we adopt a futuristic approach when it comes to protecting workers and handling disputes regarding Automation and Robotics, AI-powered workforces, and bioengineering, which may hamper workers' rights in the future.

Trade Tariff Threats by Trump Administration

Context: The US President Donald Trump has intended to impose trade tariffs on BRICS nations which likely will have an impact on India.

Relevance of the Topic: Mains: Detailed question on possible impact of US tariff hike and suggestions for India.

Trade dynamics between the US and India

  • India-US Bilateral Trade: Present Status: 
    • The US is India’s largest trading partner.
    • The US is also one of the few countries with which India had a trade surplus in 2023-24.
      • In FY24, the bilateral trade between India and the US stood at a record US$ 118.2 billion as against US$ 128.78 billion in FY22.
      • In FY24, India had a trade surplus of US$ 36.8 billion with the US.
    • US is the 3rd largest investor in India with cumulative FDI inflows of US$ 65.19 billion from April 2000-March 2024.
  • India’s major exports to the US: Engineering goods, Electronic goods, Gems and Jewellery, Pharmaceutical Products, Light crude oil and petroleum, electrical, and others.
  • India’s imports from the US: Mineral fuels and oils, Pearls, precious, and semi-precious stones, Nuclear reactors, boilers and machinery, Electrical machinery etc. 
India USA trade

Issues pertaining to trade and tariffs between India and US

  • Asymmetrical tariffs: The US alleges India of enjoying more tariff relaxations but does not provide the same in reciprocity to the US.
  • Trade imbalance: The positive Balance of Trade of India remains a persistent concern for the US.
  • Lack of concessions: India provides less amount of concessions in trade to the US as both nations lack any Free Trade Agreement. E.g., The US motorcycle company Harley-Davidson withdrew from India due to high tariff rates.
  • Service Export disputes: The US-India free trade agreement is delayed due to the difference in opinion in Mode-4 type of service export.
    • Mode-4 is a type of service export that means a person temporarily immigrating to a destination nation to provide services.
  • Most Favoured Nation clause: If India wishes to provide concessions in tariff to the US, the MFN clause of the World Trade Organisation compels India to provide the same concessions to other trade members like China, which can impact trade balance of India.
  • Agriculture subsidies: Nations like the US criticize the subsidies to Indian farmers claiming them to be a trade distortion practice.

Due to all the above issues the US President Donald Trump is of the opinion to impose trade tariffs on India to uphold the principle of reciprocity in global trade.

India USA trade and tariff issues

Potential Impacts on India

  • Reducing competitiveness: The possible high tariffs will reduce the competitiveness of the Indian products in the US market, reducing the profits of Indian exporters.
  • Widening of trade deficit: A reduction in the exports to nations like the US will impact the trade balance of India, pushing it towards the negative side.
  • Pressure on foreign exchange: Trade imbalance of India may reduce the dollar inflow in India reducing the foreign exchange reserve.
  • Sectoral slump: Indian sectors like pharmaceuticals, IT sector, textile sector and jewelry sector may face a crisis situation due to the reduction in the exports to one of the largest markets i.e., US.
  • Hampering investment: The tariff hikes may make foreign investors skeptical about the future of India-US trade relations hampering the investment in the Indian market.
  • Currency depreciation: Reduction in the export will have a cascading impact on the Indian rupee, leading to weakening of Indian currency.

Way Forward for India

In these challenging circumstances India have various structural, diplomatic and institutional solutions;

  • Export diversification: Majority of Indian exports i.e., 90% are limited to five countries. India should look for diversification of export destinations with a special focus on Latin American and African nations.
  • Diplomatic engagement: India should engage with the US administration to accelerate the process of the US-India Free Trade Agreement by assuring equal trade rights and benefits to the US.
  • Enhancing product competitiveness: India should invest in long-term investments like:
    • Reducing cost of production by skilling and reskilling of labour; reducing legal compliance cost of manufacturers and automation of the assembly line.
    • Improving connectivity to reduce logistics cost from 12% to 8% of GDP.
    • Trade facilitation by enhancing ease of doing business.
    • Capacity building of Special Economic Zones by focusing on a few large SEZ instead of multiple small SEZs. 

The US-India trade relations are expected to witness a roller-coaster ride due to aggressive policies of the Trump administration. The need of the hour is to enhance competitiveness, boost domestic consumption and explore alternative markets to create a cushion against the US tariff jerks.

India’s Digital Economy to Contribute One-Fifth of GDP by 2030: ICRIER

Context: According to a report from the Ministry of Electronics and Information Technology (MeitY), India’s digital economy is projected to contribute one-fifth of the country’s national income by 2030.

Relevance of the Topic: Prelims: Key trends of Digital Economy. 

Major Highlights of the Report

  • The report titled “Estimation and Measurement of India’s Digital Economy,” was released by the Indian Council for Research on International Economic Relations (ICRIER) in collaboration with MeitY.
  • Methodology used: globally adopted methodologies developed by Organisation for Economic Co-operation and Development (OECD) and Asian Development Bank (ADB).
  • Limitations: The estimates are conservative due to unavailability of data on (i) smaller digital platforms, (ii) digitalisation of the informal sector and (iii) digitalisation of other traditional sectors such as health and logistics.
image 192

Digital Economy: Key Numbers and Contributions

  • Contribution to National Income: 
    • As per the report, India’s digital economy is estimated at 11.74% of the national income in 2022-23. In absolute numbers, it is equivalent to INR 31.64 lakh crore (~USD 402 billion) in GDP.
    • It is likely to rise to 13.42%  of the national income by 2024-25. 
  • Highest contributor:
    • The digital-enabling industry — comprising ICT services, telecommunication, manufacturing of electronic components, computers — is the highest contributor, accounting for 7.83% of GVA. 
    • Emerging digital platforms, intermediaries, and new-age digital businesses collectively added 2% to GVA. 
  • India’s Global Digital Standing: 
    • India ranks 3rd in the world for economy-wide digitalisation and 12th among G20 nations for digital adoption by individual users.
    • India is the second-largest exporter of ICT services globally, with exports valued at USD 162 billion in 2023, just behind Ireland.
    • India’s contribution to artificial intelligence (AI) projects on GitHub is the highest in the world, accounting for 23% of all contributions.
    • India has the third-largest number of homegrown unicorns globally, after the US and China, underscoring the country’s expanding startup ecosystem.
    • India leads in digital transactions, processing over 1,644 billion transactions in FY 2023-24. 
  • Employment generation: 
    • India’s digital economy employed 14.67 million workers in 2022-23, representing 2.55% of the country’s workforce.
  • Projections for 2030:
    • India’s digital economy is poised for exponential growth, projected to account for nearly 20% of the national GVA by 2030.
    • India's digital economy’s GDP could surpass $1 trillion by 2029, driven by the rapid adoption of emerging technologies such as artificial intelligence, cloud computing, blockchain, widespread 4G and 5G access, and innovations such as the Unified Payments Interface (UPI).

ISRO to launch its 100th mission: NVS-02 Satellite

Context: Indian Space Research Organisation (ISRO) is all set to launch its 100th mission – the NVS-02 satellite, aboard the Geosynchronous Satellite Launch Vehicle (GSLV) – in January 2025.

Relevance of the Topic:Prelims: Key facts about NVS-02 Satellite; NAVIC System

About NVS-02 Satellite

  • NVS-02 will be the second satellite in the series of 2nd-generation navigation satellites and the 9th satellite in the Navigation with Indian Constellation (NavIC).
    • NavIC consists of a constellation of 7 satellites (First-generation Satellites)
    • NVS-01 (the first 2nd generation satellite was launched in May 2023)
  • Launch vehicle: GSLV Mark II
  • NVS-02 will likely have two kinds of payloads - navigation payload and ranging payload.

Payloads of NVS-02

1. Navigational payload:

  • Navigational payload transmits signals to users on Earth. It does so using three bands in the spectrum - L1, L5, and S band. 
  • A Rubidium atomic clock is on-board NVS-02.
    • Atomic clocks are highly accurate and stable clocks, with errors of less than 10 nanoseconds.
    • The low errors result in providing accurate ranging for position determination.
    • The Rubidium atomic clock measures the length of one second by counting the oscillations of rubidium-87 atoms. 

2.  Ranging payload:

  • Ranging payload consists of a transponder. 
    • This helps the navigation satellite transmit time-stamped navigation signals to the receivers at the ground station. 
    • This information is then processed at the end-user stage to derive their exact position, speed, and time. 
  • This helps in providing seamless and non-stop service irrespective of weather conditions on Earth.

Significance of 2nd generation satellites

  • 2nd-generation satellites in NavIC will send signals in a third frequency (L1) besides the L5 and S, thus increasing interoperability with other satellite-based navigation systems.
  • 2nd-generation satellites have a much more robust encryption system to keep all communications completely secure.
  • These satellites will have a longer mission life of more than 12 years. 1st generation satellites have a mission life of 10 years. 
image 191

What is NavIC? 

  • NavIC (Navigation with Indian Constellation) is the independent stand-alone navigation satellite system of India. It was earlier known as IRNSS (Indian Regional Navigation Satellite System).
  • Features:
    • NavIC consists of a constellation of seven satellites. Three satellites are located in the geostationary orbit and the remaining four are located in geosynchronous orbits around the Earth: IRNSS-1A, IRNSS-1B, IRNSS-1C, IRNSS-1D, IRNSS-1E, IRNSS-1F, and IRNSS-1G. 
    • The first satellite of the seven-satellite navigation system was launched in 2013, and the seventh satellite was launched in 2016.
      • NVS-01 replaced IRNSS-1G. 
      • NVS-02 is also a replacement satellite for one of the satellites in NavIC. 
  • NavIC provides positioning, navigation, and timing services to users across India and the region extending up to 1,500 km around the country, with position accuracy of better than 20 meters, and timing accuracy of better than 50 nanoseconds. 
  • Developed by: Indian Space Research Organisation (ISRO).

NavIC offers two types of services

  • Standard Positioning Service: Available to all users and provides positioning accuracy of around 20 meters throughout the Indian region and within the primary service area.
  • Restricted Service: Encrypted service primarily intended for authorised users such as the military, government agencies, and other security-sensitive applications.

 Key objectives of NavIC system will be to aid:

  • Precision military activity
  • Strategic applications
  • Terrestrial, aerial, and maritime navigation
  • Precision agriculture
  • Geodetic surveying
  • Emergency services
  • Fleet management
  • Location-based services in mobile devices
  • Orbit determination for satellites
  • Marine fisheries
  • Timing services for financial institutions, power grids, and other government agencies
  • Internet-of-Things (IoT) based applications.

Satellite navigation systems of other countries:

  • Presently, there are four global satellite-based navigation systems.
    • United States: Global Position System (GPS)
    • Russia: Global Navigation Satellite System (GLONASS)
    • China: BeiDou
    • European Union: Galileo
  • Japan has a four-satellite regional navigation system (Quasi-Zenith Satellite System). 

Why NavIC over global competitors?

  • NavIC is an independent regional system over the Indian region and does not depend on other systems for providing a position service within the service region.
    • GPS and GLONASS are operated by the defence agencies of the US and Russia, respectively. 
    • There is a possibility that civilian service can be degraded or denied at any given time. E.g., during the 1999 Kargil War, the Indian government requested the US to provide enemy locations, but this request was denied.
  • Enhances India's military capabilities by providing accurate real-time navigation data for defence applications like weapon guidance, fleet management and location-based services, reinforces national security and safeguards territorial integrity.
  • NavIC signals come to India at a 90-degree angle, making it easier for them to reach devices located even in hard-to-reach areas like congested areas, dense forests, or mountains. In contrast to this, the GPS signals (satellites placed in Medium Earth Orbit) are received over India at lower angles. 

Rhodamine B

Context: In the U.S., the FDA has long prohibited Rhodamine B in food due to evidence of its carcinogenic properties. In India, Rhodamine B is banned in food items due to potential health risks under Food Safety and Standards Act, 2006. Despite the ban, In India, the rampant use of Rhodamine B in food items has raised significant health concerns.

Relevance of the Topic:Prelims: Key facts about Rhodamine B.

About Rhodamine B

  • Rhodamine-B is a water soluble chemical compound or fluorescent xanthene dye which has various applications. 
  • The chemical is considered substandard and unsafe under the Food Safety and Standards Act 2006. 
  • Threats:
    • In long-term use, Rhodamine-B can:
      • Cause Cell death
      • Cause allergies or irritation of the lip, tongue, eyes, upper respiratory allergies.
      • Damage the cerebellum tissue and brainstem, kidney and liver
      • Induce DNA damage, leading to mutations and increases the risk of stomach tumour and cancer.
image 190

Various applications include

  • Used as a dye in textile, cosmetics, paper, paints, plastics, leathers etc., lends a vibrant pink hue. 
  • Food dye (used in cotton candy to produce its iconic pink colour). Also used in the preparation of sweets, preparation of sauces for Chinese food. 
  • Used as a tracer dye, E.g., to determine the rate and direction of water flow in rivers, lakes etc. Used to trace pollutants in water systems and indicate herbicide usage, or detect leaks in pipelines due to its high visibility and water solubility. 
  • Rhodamine dyes exhibit fluorescence, and thus can be used in fluorescence microscopy, fluorescence correlation spectroscopy and ELISA (To detect the presence of specific molecules like proteins or antibodies).
  • Laser Dyes employed in scientific and medical lasers.  

FSSAI Regulations

  • Food Safety and Standards (Food Products Standards and Food Additives) Regulations, 2011 restrict the use of artificial colours in food unless permitted in the regulations. 
  • The regulations state that the colours used must be pure and free from harmful impurities. For example, FSSAI has approved certain food colours and flavours as safe for consumption. These include: Caramel, Riboflavin (Lactoflavin), Saffron, Annatto, Curcumin (Turmeric), Carotene and carotenoids, including Beta-carotene, red colour from Ponceau 4R, Carmoisine, and Erythrosine, yellow colour (Tartrazine and Sunset Yellow FCF), blue colour (Indigo Carmine and Brilliant Blue FCF) and green colour (Fast Green FCF).

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