Economy

All (4049)Current Affairs (4038)Mains Practice (126)Mains PYQs by Subjects (40)

Contract Farming in India

Context: India has emerged as a major exporter of French Fries attributed to the success of contract farming. It is a model through which companies procure high-quality potatoes directly from growers.

Relevance of the Topic:Mains: Contract Farming: Advantages, Challenges 

What is Contract Farming?

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  • According to the Food and Agriculture Organisation (FAO), Contract farming is an agreement between farmers and processing and/or marketing firms for the production and supply of agricultural products under forward agreements, frequently at pre-determined prices.

Rationale behind Contract Farming in India

  • Generating a steady source of income for small-scale and marginal farmers.
  • Focus on growing market-oriented crops.
  • Promote food processing and value addition and enhance exports. 
  • Attract private sector investments into the agriculture sector, promoting innovation. 
  • Reducing government burden of procurement or providing fair prices for the produce.
  • Diversifying crops and reducing the stress of growing traditional crops continuously.
  • Educating farmers about agri-business and market share of their produce. 
  • Streamlines sourcing of raw materials for food processing units.

Advantages of Contract Farming

Producer/FarmerBuyer/Firms
Assured income.

They get the desired quality and quantity of produce.
Access to modern technology, credits, and cost information.Consistent supply of produce/raw material.
Doorstep exchange of produce, minimising transportation and marketing costs.The most effective and preferred way to utilise their resources.
Minimising risks related to production and damage.Direct investment in the agriculture sector.
Higher production and quality yieldFixed price and no further negotiations after the contract is made. Cheaper option of all.
Assured market priceIncreases brand value by having proper explanations for food safety concerns.
Knowledge acquisition and other intangible benefits.Control over the variety of produce and other inputs.

Challenges associated with Contract Farming

  • Exploitation of Small-scale Farmers: Weak bargaining power of farmers, lack of knowledge compared to a team of market analysts and economists makes them vulnerable to unfair terms. 
  • High Risks for Farmers: To meet the demands of firms, farmers have to make a change in their cropping pattern. This makes them overly dependent on contracting firms for inputs and market access, and makes them vulnerable to firms’ decisions. 
  • Lack of Legal Protection: Informal (verbal) or poorly enforced contracts often fail to protect farmers’ interest. Minimal legal recourse in the event of breach of agreements. 
  • Monopsony: A single buyer dealing with multiple farmers limits competition, promotes dependency and limits farmers’ negotiating power. 
  • Differential Contractual Agreements: Large-scale farmers often receive better terms in the contract than the small-scale farmers for the same commodity, by the same firm. 
  • Problems faced by growers like undue quality cut on produce by firms, delayed deliveries at the factory, delayed payments, low price and pest attack on the contract crop which raised the cost of production.

Case Study: Success Story of French Fries:

  • India has transitioned from importing to exporting frozen French fries. Varieties of potato like Innovator, Atlantic, and Markies are grown specifically for processing into fries. 
  • Companies like McCain Foods, HyFun Foods, and Iscon Balaji Foods directly engage with farmers, ensuring a consistent supply of high-quality potatoes. 
  • Farmers benefit from assured markets, stable incomes, and technical guidance, while companies gain reliable raw material. 
  • This partnership has bolstered India’s agricultural exports and rural economy, with Gujarat emerging as a key hub. 
  • The model highlights how contract farming can align farmers' interests with global demand for processed food products.

Legal status of Contract Farming in India: 

  • Agriculture and Agricultural Marketing is a State Subject.
    • Agricultural marketing is regulated by the States’ Agricultural Produce Marketing Regulation (APMR) Acts. 
    • Over 20 states of India have amended their APMR Acts to provide for contract farming.
  • Tamil Nadu is the first State in India to enact a law on contract farming in 2019- Agricultural Produce and Livestock Contract Farming and Services (Promotion and Facilitation) Act.
    • Aim: To safeguard interests of farmers during times of bumper harvest or fluctuating market prices.
    • Key Features (Can be used as Way Forward):
      • Farmers would be paid at a pre-determined price arrived at the time of signing agreements with buyers.
      • Farmers could get support from purchasers for improving production and productivity by way of inputs, feed and fodder, and technology. 
      • Any produce, banned by the Centre or State government or the Indian Council of Agricultural Research, would not be covered under contract farming.
      • Such agreements would have to be registered with designated officers from the Department of Agricultural Marketing and Agri Business.
      • State Contract Farming and Services (Promotion and Facilitation) Authority, would be formed to ensure proper implementation of this Act.
  • The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020 was an Act to create a national framework for contract farming through an agreement between a farmer and a buyer before the production or rearing of any farm produces. However, the Act was repealed owing to farmer protests. 

Maritime Sector in India

Context: India’s maritime sector has become a cornerstone of the country’s economic resurgence. However, to harness its full potential, the maritime sector would need an investment of $1 trillion by 2047 and ₹5 lakh crore by 2030.

Relevance of the topic:

Prelims: Overview of India's Maritime Sector.

Mains: Maritime Sector in India: Significance, challenges and Initiatives.  

Overview of India's Maritime Sector

  • Backbone of India’s trade and commerce, handling around 95% of India’s trade by volume and 70% by value. 
  • Port Infrastructure: 13 major ports and over 200 notified minor and intermediate ports. 
  • India is the 16th largest maritime nation in the world.
  • India occupies a key position on global shipping lanes.
    • Most cargo ships traveling between East Asia and destinations like America, Europe, and Africa traverse Indian waters, highlighting India’s strategic importance.

Strengths of India’s Maritime Sector

  • Aligning with Hong Kong Convention on Ship Recycling:
    • Indian recycling yards at Alang are compliant with the Convention’s standards. This positions India as a global ship recycling market.

Hong Kong Convention on Ship Recycling

  • Adoption: Adopted in May 2009.
  • Aim: To ensure ship recycling does not pose any unnecessary risks to human health and safety and the environment.
  • Objectives:
    • To address all the issues around ship recycling, including the probable presence of environmentally hazardous substances such as asbestos, heavy metals, hydrocarbons, ozone depleting substances and others.
    • To address concerns about working and environmental conditions in many of the world's ship recycling facilities.
  • Port Capacity:
    • India’s major ports are handling 820 MMT of cargo annually, which is a 47% growth since 2014. 
    • The overall port capacity has doubled to 1,630 MMT during the same period.
    • India’s port capacity is expected to increase six-folds to 10,000 MT per annum by 2047. This would make India one of the top 10 maritime countries in the world.
  • Mega Ports:
    • Jawaharlal Nehru Port, India’s largest shipping facility, has crossed 10 million TEUs (twenty-foot equivalent units) container handling capacity. 
    • Vadhavan Port in Maharashtra is set to become India’s largest container facility.
    • The proposed International Container Transshipment Port at Galathea Bay, Great Nicobar would capture transshipment trade along key global routes.
  • Modernisation driving efficiency gains:
    • According to the World Bank’s Logistic Performance Index (LPI) Report 2023, India is ranked 22nd in the “International Shipments” category, from the 44th position in 2018.
    • Operational Efficiency: 
      • Container dwelling time has now reduced to three days.
      • Vessel turnaround time has improved to 0.9 days.
    • Nine Indian ports feature in the World Bank’s Container Port Performance Index 2023. Visakhapatnam ranks among the top 20 globally.

Key Initiatives

  • Maritime India Vision (MIV) 2030: Accelerate growth of India’s maritime sector by developing world-class Mega Ports, transhipment hubs and infrastructure modernisation of ports. 
  • Sagarmala Programme:
    • Flagship initiative by the Ministry of Ports, Shipping, and Waterways.
    • Aimed at driving port-led development through harnessing India’s 7,500 km long coastline, 14,500 km of potentially navigable waterways and strategic location on key international maritime trade routes.
    • Vision: Development of port infrastructure projects, coastal development, connectivity enhancement and reducing logistics cost. 
  • Inland Waterways Development:
    • The Inland Waterways Authority of India (IWAI) has identified 26 new national waterways, following feasibility studies to make them navigable. 
    • These new routes will provide an alternative mode of transportation, easing the load on congested road and rail networks and promoting sustainable, cost-effective transport options. 
  • Major Port Authorities Act, 2021 which grants greater autonomy to major ports.
  • Decarbonisation of Shipping sector: Initiatives to establish green hydrogen production hubs at Paradip, Tuticorin and Kandla ports.
  • Green Tug Transition Program (GTTP):
    • Aims to phase out conventional, fuel-based harbour tugs at Indian major ports.  These will be replaced with tugs powered by cleaner, sustainable fuels. 
    • The transition is set to be completed by 2040, ensuring a fully eco-friendly fleet across the country’s major ports.
  • National Logistics Portal (Marine): It is a single-window digital platform for all stakeholders including those engaged in cargo services, carrier services, banking and financial services, and government and regulatory agencies. 
  • Sagar Setu App: It facilitates seamless movement of goods and services in ports while substantially enhancing the ease of doing business.

Challenges

  • Infrastructural Issues: 
    • Port Congestion: Lack of equipment for managing the number of containers, ineffective operations, contribute to port congestion. 
    • Sub-optimal Transport Modal Mix: This is due to a lack of the infrastructure required for evacuation from both large and minor ports.
  • Adoption of sustainable fuel for transitioning to net-zero emissions. 
  • Spills or leaks from cargo loading and unloading and pollution from oil spills are widespread during port operations.
  • Availability of skilled labour for shipbuilding and repairs work. 
  • Port development initiatives often result in the displacement of people. E.g., Mundra in Gujarat, Gangavaram Port in Andhra Pradesh. 

US exits from Global Corporate Minimum Tax deal

Context: The US President Donald Trump signed an executive order to withdraw from the landmark 2021 Global Corporate Minimum Tax deal, citing that it has no force or effect in the U.S.. The global agreement was negotiated by the Biden administration with nearly 140 countries, under the aegis of OECD.

Relevance of the Topic: Prelims: Global Corporate Minimum Tax: Benefits, Challenges

What is Global Corporate Minimum Tax?

  • A global corporate minimum tax is a framework to impose a minimum rate of taxation on corporate income in most countries of the world.
  • The 2021 Agreement:
    • In October 2021, 136 countries agreed to a proposal from the Organisation for Economic Co-operation and Development (OECD). 
    • OECD’s Proposal: Corporate minimum tax of 15% on foreign profits of large multinationals. Expected to generate additional tax revenues of $150 billion, globally.
  • Objective: To discourage tax-motivated profit shifting and tax base erosion by multinational corporations (MNCs).

Two Pillar Plan of Global Corporate Minimum Tax

  • Pillar 1: Reallocation of Profits:
    • 25% of profits above a set profit margin of the largest profitable Multinational Enterprise (MNEs) will be reallocated to the market jurisdictions where the MNE’s users and customers are based. Ensures fair taxation in countries where economic activities occur. 
    • Includes measures to ensure dispute prevention & resolution to address any risk of double taxation.
  • Pillar 2: Minimum Corporate Tax 
    • It sets a minimum 15% tax on corporate profit, putting a floor on tax competition.
    • If a company’s earnings go untaxed or lightly taxed in one of the tax havens, their home country would impose a top-up tax that would bring the effective rate to 15%.

Rationale behind Global Minimum Corporate Tax

  • Prevent Base erosion and Profit Shifting: Discourage MNCs to shift their operations to off-shore units merely for tax benefits.
  • Ends the Race to the Bottom: Halts the trend when countries excessively reduce their tax rates to attract investments. This has pushed other countries to lower their rates as well.
  • Prevent revenue loss to countries: 
    • Countries lose out an estimated $100 billion per year in tax revenue, in absence of GMCT. 
    • Revenue loss occurs on account of lower tax structure in off-shore destinations like Ireland, British Virgin Islands, Bahamas, Panama etc.
  • Encourages better competitive practices: GMCT would induce the countries to compete on other factors like better regulatory regimes, ease of doing business, access to global talent, etc. This healthy competition would create a sustainable business environment. 

Challenges in the adoption of Global Minimum Corporate Tax

  • Impact on Sovereignty: Perceived as infringement to the independent right of formulating tax policies, especially by smaller economies. 
  • One Size fits all approach: The 15% rate may be too high for some countries and less for others. 
  • Disproportionate tilt: GMCT would be levied by the country where the ultimate parent entity resides. This heavily favours home countries of MNCs (mainly developed countries). 

RBI Guidelines on Settlement of Dues by ARCs

Context: The Reserve Bank of India (RBI) has modified its guidelines on the settlement of dues of borrowers by asset reconstruction companies (ARCs). RBI says that ARCs should use the settlement option only after examining all possible ways to recover the dues.

Relevance of the Topic: Prelims: Key facts about the Asset Reconstruction Companies. 

What are Asset Reconstruction Companies?

  • Rationale: While banks can take legal action against defaulting borrowers, such actions are often economically unfeasible. To minimise losses and to clear their balance sheets, banks can sell their bad debts to Asset Reconstruction Company (ARC).
  • ARC is a special type of financial institution that buys debts of the bank at a mutually agreed value and attempts to recover the debts or associated securities independently.
    • ARCs take over the debts of the bank that are Non-Performing Assets. 
    • ARCs are engaged in asset reconstruction, securitisation, or both.
    • All the rights that were held by the lender (bank) in respect of the debt are transferred to ARC. 
    • Funds required to purchase such debts can be raised from Qualified Buyers.
  • Registration & Regulation: 
    • ARCs are registered under the Reserve Bank of India.
    • They are regulated under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act, 2002).
TERMSMEANING
Asset Reconstruction

- Acquisition of any right or interest of any bank or financial institution in loans, advances granted, debentures, bonds, guarantees or any other credit facility extended by banks for the purpose of its realisation. 
Securitisation- Acquisition of financial assets either by way of issuing security receipts to Qualified Buyers. 
Qualified Buyers- Include Financial Institutions, Insurance companies, Banks, State Financial Corporations, State Industrial Development Corporations, trustee or ARCs registered under SARFAESI.  

- Also include Asset Management Companies (AMCs) registered under SEBI that invest on behalf of mutual funds, pension funds, FIIs, etc. 

- Qualified Buyers (QBs) are the only persons from whom ARC can raise funds.

Working Mechanism of ARC

Working Mechanism of ARC

RBI’s New Guidelines on Settlement of Dues of borrowers by ARCs

  • Board-approved policy for dues settlement:
    • Every ARC shall frame a Board-approved policy for settlement of dues payable by the borrowers. 
    • This policy shall cover aspects such as:
      • cut-off date for one-time settlement eligibility.
      • permissible sacrifice for various categories of exposures while arriving at the settlement amount.
      • methodology for arriving at the realisable value of the security.
  • Settlement as last resort:
    • Settlement with the borrower shall be done only after all possible ways to recover the dues have been examined and settlement is considered as the best option available.
  • Minimum Net Present Value (NPV):
    • NPV of the settlement amount should generally be not less than the realisable value of securities. 
  • Lump Sum payment:
    • The settlement amount should preferably be paid in lump sum. 
    • Where the settlement does not envisage payment of the entire amount agreed upon in one instalment, the proposals should be in line with and supported by an acceptable business plan, projected earnings and cash flows of the borrower.
  • Procedure to be followed when borrower have aggregate value of more than ₹1 crore of outstanding principal:
    • Settlement of dues with the borrower shall be done only after the proposal is examined by an Independent Advisory Committee (IAC).
    • Board of Directors including at least two independent directors or a Committee of the Board shall deliberate on IAC’s recommendations.
  • Procedure to be followed when borrower have aggregate value of ₹1 crore or below of outstanding principal:
    • Any official who was part of the acquisition of the concerned financial asset shall not be part of approving the proposal for settlement of the same financial asset.
    • A quarterly report on the resolution of these accounts shall be placed before the Board/ Committee of the Board.
  • Borrowers classified as frauds or wilful defaulters:
    • For settlement of dues payable by the borrowers classified as frauds or wilful defaulters, guidelines are same as that applicable to borrowers of aggregate value of more than ₹1 crore of outstanding principal, irrespective of the amount involved.

SEBI to ease norms for Social Stock Exchanges

Context: Securities and Exchange Board of India (SEBI) has proposed a new framework for Social Stock Exchanges with changes in the definition of Not-for-Profit (NPO) organisation and expansion of eligible activities to be identified as social enterprise.

Relevance of the Topic:Prelims: Key facts about Social Stock Exchanges. 

What are Social Stock Exchanges? 

  • Social Stock Exchange (SSE) is a separate segment of the existing Stock Exchange that can help Social Enterprises to raise funds from the public through the stock exchange mechanism.
  • The primary goal of an SSE is to channel funds towards entities that create measurable social impact.
  • Objectives:
    • Regulated platform that connects social enterprises and potential donors.
    • Facilitate funding for the growth of social enterprises.
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Eligibility for Registration on SSEs

  • Social Stock Exchange identifies the following two forms of social enterprises (SE): Not-for-profit organisation and For profit social enterprise. 
Not-for-profit Organisations (NPOs)For Profit Organisations
Not for profit organisations are either charitable societies registered under the Societies Registration Act, 1860 or company incorporated under section 8 companies under Companies Act 2013.For-profit company is any company under the Companies Act, 2013, operating for profit and does not include a company incorporated under section 8 of the Companies Act, 2013.
A Not-for-Profit organisation may raise funds on Social Stock Exchange through:

- Issuance of Zero Coupon Zero Principal Instruments.

- Donations through Mutual Fund Schemes.		A For Profit Social Enterprise may raise funds through:

- Issue of equity shares
- Issue of equity shares to mutual funds
- Issue of debt-instruments
Zero Coupon Zero Principal Instruments shall be issued only by a Not-for-Profit Organisation registered on a Social Stock Exchange. For-profit organisations cannot issue Zero Coupon Zero Principal bonds.
The instruments issued by Not-for-Profit Organisations are not available for trading in the secondary market.Instruments issued by For-Profit Organisations are available for trading in the secondary market on respective platforms of the Stock Exchanges, on which they are listed.
  • Ineligibility: However, corporate foundations, political or religious organisations or activities, professional or trade associations, infrastructure, and housing companies, except affordable housing, shall not be eligible to be identified as a Social Enterprise. NPOs would be deemed ineligible if dependent on corporates for more than 50% of its funding.

Zero Coupon Zero Principal (ZCZP) Instruments: 

  • ZCZP bonds differ from conventional bonds in the sense that it entails zero coupon and no principal payment at maturity.
  • For ZCZP issuance, the minimum issue size is presently prescribed as Rs 1 crore and minimum application size for subscription at Rs 2 lakhs.

Proposed easing of norms for Social Stock Exchanges

1. Expanding definition of NPOs:

  • Currently, an NPO means:
    • Social enterprise registered under a charitable trust registered under Indian Trusts Act, 1882 or under the public trust statute of the relevant State.
    • Charitable society registered under Societies Registration Act, 1860.
    • Company incorporated under Section 8 of Companies Act, 2013.
  • Expanded definition includes:
    • Trusts registered under Indian Registration Act with relevant sub registrar.
    • Charitable society registered under the society registration statute of the relevant State.
    • Companies registered under Section 25 of the Companies Act, 1956.

2. Expanding Eligible list of activities: List of activities to be eligible as a social enterprise will include:

  • welfare of disadvantaged children, women, destitute, elderly and disabled; 
  • vocational skills
  • promotion and education of art, culture and heritage.

3. Expanding Target Segment: Target segment may be expanded to include cultural and environmental ecosystem entities, in addition to social entities.

4. Easing conditions for renewal of registration:

  • Several NPOs register with SSE and do not graduate to listing or renewing the registration. This is due to the cost of annual reporting, including the social impact assessment of significant programmes.
  • Now, NPOs shall be permitted to register with SSEs for two years without raising funds through SSEs. 

5. Condition of business income:

  • SEBI has proposed to prescribe the condition of business income of more than 20% of revenues in the latest annual year for the For-Profit Social Enterprises or Not for Profit Social Enterprises. This is done in order to comply with the criteria of 67% of activities qualifying as eligible activities. 

India's first Edible Oil Survey

Context: The Union Ministry of Agriculture has launched its first-ever survey to assess edible oil consumption patterns in India, aiming to effectively implement the new Mission on Edible Oils-Oilseeds (NMEO-Oilseeds). 

Relevance of the Topic: Prelims: Questions about Palm oil and edible oil data of India; National Mission for edible-oil.

Major Highlights of the Survey: 

  • The Survey involved a 45 days questionnaire from the various stakeholders like consumers and distributors of edible oil. 
  • Aim: To capture the consumption pattern and choice of edible oils, which will help in policy decisions.
  • Behavioural analysis: 
    • The survey also analyses the behaviour pattern and influence of advertisement, labelling and willingness to pay for premium oils. 
    • The survey also explores various aspects like deep-frying frequency, seasonal usage pattern and factors influencing oil selection. 
  • Need for the survey: Report indicates that there is a rise in per capita consumption of the edible oils to over 20kg in India. This reflects the lifestyle and health risks as Indian Council for Medical Research (ICMR) recommends per capita consumption should be less than 12 Kg. 

Significance of the Survey

  • Evaluating pattern: Help in understanding the pattern of consumption of edible oils in India, as India is the largest consumer of oil in the world. 
  • Policy formulation: Understanding consumption patterns will help in regulation of production and import of edible oils by effective policy formulation (implementation of NMEO-Oilseeds). 
  • Controlling advertisement: By understanding the impact of advertisement on buying patterns of consumers, the government can take effective measures to counter fake claims in edible oil advertisements by companies. 
  • Preventive measures: The survey will allow the Ministry of Health and Family Welfare to launch an awareness campaign to counter negative health implications of consumption on health. 

Issues in Indian Edible Oil Sector

  • Import dependency: India imports 55-60% of its edible oil requirement from nations Indonesia, Malaysia, Ukraine, etc. 
  • Dominance of Palm Oil: Palm oil dominates the consumption with 38% share in Indian edible oil consumption. 
  • Health challenges: Rise in oil consumption and prevalence of fast-foods raised oil consumption in India is leading to negative health implications. 

Suggestive measures

  • Diversification of oilseed by replacing the Palm oil with other oilseeds like sesame and groundnut oil. It is beneficial for the balance of trade and health of consumers. 
  • Promoting oil seed cultivation. More efforts like fund devolution and capacity building of farmers to cultivate oil seeds. E.g., National Mission for Edible-Oils Oilseeds programme. 
  • Awareness: Dedicated campaign on the lines of DASH eating plan that emphasises more on the fruits and vegetable consumption by replacing edible oils from diet. 
  • Strengthening norms: Government should make trans-fat norms more stringent under the Eat Right Campaign in line with the World Health Organisation (WHO).
    • In India the trans-fat limit is 2% while as per WHO it should not be more than 1%. 
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About National Mission for Edible-Oils Oilseeds programme

  • The National Mission on Edible Oils – Oilseeds (NMEO-Oilseeds) is a dedicated initiative for boosting oilseed production in India.
  • Aim: To boost domestic oilseed production and achieve self-reliance in edible oils. 
  • Implementation Period: 2024-25 to 2030-31
  • Financial outlay: Rs 10,103 crores
  • Scheme has the following targets:
    • Increasing oilseed production from 39 million tonnes (2022-23) to 69.7 million tonnes by 2030-31.
    • Focus on crops like Rapeseed-Mustard, Groundnut, Soybean, Sunflower, and Sesamum, as well as improving extraction from secondary sources. 
    • Promote high-yielding seed varieties, rice fallow cultivation, and intercropping, aiming to meet 72% of domestic edible oil needs by 2030-31. 

What is Securities Transaction Tax?

Context: Despite the volatility in the stock market, the Securities Transaction Tax (STT) collection has shot up by over 75% to Rs 44,538 crore as of January 12, 2025.

Relevance of the Topic:Prelims: Key facts about the Securities Transaction Tax. 

About Securities Transaction Tax

  • Background: 
    • Finance Act 2004 introduced Securities Transaction Tax (STT), as a clean and efficient way of collecting taxes from financial market transactions.
    • Rationale: To prevent people evading capital gains tax by not declaring their profits on the sale of stocks.
  • What is STT?
    • STT is a direct tax levied on every purchase and sale of securities that are listed on the recognised stock exchanges in India.
    • STT is an amount to be paid over and above the transaction value. Hence, it increases transaction value. 
  • Regulation: 
    • STT is governed by the Securities Transaction Tax Act (STT Act).
    • STT Act has specifically listed down various taxable securities transactions i.e., transactions on which STT is leviable.
    • Rate of STT: Decided by the Government and modified from time to time, if necessary.
  • Taxable Securities:
    • Shares, scrips, stocks, bonds and debentures
    • Derivatives (Futures and Options)
    • Units of mutual funds and other collective investment schemes.
    • Government securities of equity nature
    • Equity-oriented units of mutual funds
    • Rights or interest in securities
    • Securitised debt instruments
  • Exclusion: Off-market transactions are out of the purview of STT.
image 163

Rise in STT Collection: 

  • Securities Transaction Taxcollection has increased by over 75% to Rs 44,538 crore as of January 12, 2025, as against Rs 25,415 crore raised in the same period in 2024.
    • The rise in collections comes despite a hike in STT on futures & options (F&O) of securities that was levied to curb speculative market activity in the F&O segment.
    • SEBI and RBI had raised concerns over the rise in volumes in the F&O segment, which can pose a risk to macroeconomic stability.
  • Increased STT collections also adds to the revenue kitty of the government.

Insolvency & Bankruptcy Code: Mechanism and Challenges

Context: Certain issues have cropped up in the Insolvency and Bankruptcy Code, 2016 (IBC). The recent Supreme Court judgment in Jet Airways case highlighted the structural infirmities in India’s insolvency regime.

Relevance of the topic:

Prelims: Key facts about Insolvency and Bankruptcy Code.

Mains: Insolvency & Bankruptcy Code- Issues & Way Forward.

Insolvency and Bankruptcy Code 2016 (IBC)

  • Rationale: IBC Code was introduced to-
    • Consolidate all the existing laws related to Insolvency and Bankruptcy in India.
    • Simplify the process of insolvency resolution. 
  • Deals with: All aspects of insolvency and bankruptcy of all kinds of companies, LLPs, Partnerships and Individuals. However, it does not deal with insolvency of banks.
image 161

Institutional Mechanism

  • Insolvency Professionals:
    • to administer the resolution process
    • manage the assets of the debtor
    • provide information for creditors to assist them in decision making.
  • Insolvency Professional Agencies to conduct examinations to certify the insolvency professionals.
  • Information Utilities to report financial information of the debt owed to them by the debtor.
  • Adjudicating authorities:
    • National Companies Law Tribunal (NCLT) for companies 
    • Debt Recovery Tribunal (DRT) for individuals. 
  • Committee of Creditors (CoC):
    • Either decide to restructure the debtor’s debt by preparing a resolution plan or liquidate the debtor’s assets. 
    • However, such a decision has to be approved by at least 66% of the votes. (Earlier threshold: 75%).
  • Insolvency and Bankruptcy Board:
    • to regulate insolvency professionals, insolvency professional agencies and information utilities set up under the Code. 

Procedure- Insolvency Resolution Process (IRP)

image 162

Liquidation (Sale of Assets)

  • It takes place if the Committee of Creditors (CoC) fails to come up with a resolution plan within the time limit of 330 days.

Issues in Insolvency Resolution in India

  • Double burden for Tribunals:
    • National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) face the dual burden of handling corporate insolvencies under IBC and cases under Companies Act. 
  • Not aligning with contemporary demands:
    • NCLT was conceived in 1999 based on Eradi Committee’s recommendations. However, it was operationalised in 2016.
    • NCLT’s structure reflects the economic realities of a bygone era. This leaves it ill-equipped to meet contemporary demands. 
  • Inadequatestrength:
    • The sanctioned strength of 63 members divide their time across multiple benches.
    • Thus, NCLT has become a bottleneck for insolvency resolutions and corporate transactions such as mergers and amalgamations.
  • Delay in functioning:
    • Several NCLT benches do not operate for the full working day, even when not tasked with handling cases from other benches. As a result, delays have worsened. 
    • According to the Insolvency and Bankruptcy Board of India (IBBI), average time for insolvency resolutions increased to 716 days in FY2023-24, up from 654 days in FY2022-23. 
  • Lack of domain experience:
    • The current method of appointment ignores the need for domain experience. Members often lack the domain knowledge required to understand the nuanced complexities involved in high-stakes insolvency matters.
    • This creates a paradox where an institution tasked with resolving complex cases is hindered by a lack of specialized knowledge. (Supreme Court in the Jet Airways case).
  • Institutional inefficiency:
    • There is no effective system in place before the NCLTs for urgent listings. The Supreme Court has highlighted a growing tendency among NCLT & NCLAT members to ignore or defy its orders.
      • This threatens the very foundation of India’s judicial hierarchy.
    • This impacts both institutional efficiency as well as institutional integrity.
  • Sparse use of alternatives:
    • The limited use of alternative dispute settlement methods adds to the problems of an already overworked system.

Way Forward: Reform proposals

  • Mandatory mediation: The initiative for mandatory mediation prior to the submission of insolvency applications.
  • Hybrid model:There is the need for a hybrid model that values judicial experience and domain expertise. 
  • Specialised benches:
    • Creation of specialised benches for different categories of cases could enhance both efficiency and expertise. This also ensures that mergers and amalgamations are cleared in time.
  • Proper Infrastructure:
    • Adequate courtrooms and a qualified, permanent support staff are critical to sustaining these institutions within the broader economic framework. 

India’s insolvency regime must evolve beyond mere debt resolution to serve as a proactive driver of economic rejuvenation, especially as the country aims to attract greater foreign investment. The time for a bold reimagining is now.

Why have Private Investments dropped?

Context: Discussions regarding the upcoming Union Budget 2025 highlights the perceived underperformance of the private sector and slowdown of private investments in India.

Relevance of the Topic: Prelims: Private Sector Investments: Key Trends;  Gross Fixed Capital Formation. 

Historical Context: Public and Private Sector Investments

  • Period of Public Sector Dominance:
    • During Second and Third Five-Year Plans (1956-1966), India had massive public sector investments.
    • Tax increases under TT Krishnamachari’s Budget (1958) financed these investments successfully.
  • Shift in the 1980s: 
    • From independence to economic liberalisation, private investment largely remained either slightly below or above 10% of the GDP.
    • By the mid-1980s, public sector investments stagnated, and the government turned to the private sector.
    • Pro-growth reforms like tax cuts in 1985 and the LPG reforms of 1991, spurred private investments, despite challenges like low consumption and high interest rates.
  • Post-liberalisation Era:
    • Post-liberalisation, private investment took the leading role in fixed capital formation.
    • Growth in private investment lasted until the global financial crisis of 2007-08. It rose from around 10% of GDP in the 1980s to around 27% in 2007-08. 
    • From 2011-12 onwards, private investment began to drop and hit a low of 19.6% of the GDP in 2020-21.
  • Recent Trends:
    • Corporate tax rate reduction in 2019 (to 22%) was aimed at attracting private investment, but failed to yield desired results.
    • Even with a 15-year high profit-to-GDP ratio of 5% in 2024, private sector investments in India remain sluggish.

Why have private investments dropped?

  • Structural issues (like policy uncertainty, issues in ease of doing business, delays in land acquisition, lengthy dispute resolution) have led to significant fall in private investment as a percentage of GDP. 
  • High levels of NPAs in the banking sector have constrained credit availability for the private sector. 
  • Crowding out of private investment due to expansionary fiscal policies and increased borrowings of the government. 
  • Narrow corporate bond market due to illiquid secondary market, narrow investor base, lack of diversity of instruments and crowding out by large public issuance impacted corporate investment.
  • Low private consumption expenditure can also be a reason for reducing demand-driven investment opportunities. 

Associated Challenges

  • Low Private Investment: Declining private investment has been impacting the Gross Fixed Capital Formation (GFCF) in India. Private investment in India declined from 27% of GDP in 2007-08 to 19.6% of the GDP in 2020-21. As per NSO, GFCF in India declined from 34% in 2009-10 to 26% in 2021-22.
    • GFCF refers to the growth in the size of fixed capital in an economy.
      • Fixed capital refers to things such as land improvements, buildings, plants, machinery etc. which require investment to be created. 
      • GFCF excludes financial assets such as bonds, stocks, and other financial instruments. 
    • Private GFCF can serve as a rough indicator of how much the private sector in an economy is willing to invest.
  • Preference to overseas investments:
    • Despite benefiting from government initiatives like Make in India (shielding domestic industries), private entities prefer international investments or overseas expansion. 
  • Labour Exploitation Concerns:
    • Suggestions by industry leaders for employees to work 72-90 hours per week raise ethical and practical questions about workforce sustainability.

Policy Recommendations

  • Rebalancing Tax Rates:
    • Government could consider revising the tax rates:
      • Increasing corporate tax 
      • Reducing personal income tax 
    • This could increase disposable income and stimulate demand and consumption.
  • Focus on structural reforms like policy consistency, labour reforms, improving the ease of doing business, ease of land acquisition, early dispute resolution, etc. 
  • Encouraging domestic investment: Introduce incentives for businesses investing in India, such as sector-specific subsidies or reduced compliance burdens for targeted industries.
  • Strengthen corporate bond markets and diversify financial instruments to ensure adequate capital for private investments.  
  • Strengthening Public-Private Partnerships (PPPs): Foster collaboration in long term projects (like infrastructure) and manufacturing to share risks and benefits equitably.

The biggest cost of low private investment would be slower economic growth as a larger fixed capital base is crucial to boost economic output.

QS World Future Skills Index 2025

Context: Recently released QS World Future Skills Index 2025 highlights India’s strong position as a forward-thinking nation with significant potential. However, challenges in its current economic and academic systems could slow progress.

Relevance of the Topic: Prelims: QS World Future Skills Index 2025

QS World Future Skills Index

  • QS World Future Skills Index evaluates how well countries are equipped to meet the evolving demands of the international job market. 
  • Aim: To empower governments to align education and skills with future demand, fostering innovation, sustainable global competition and talent development.
  • Released by: London-based Quacquarelli Symonds (QS).

Key criteria in the QS Future Skills Index:

image 156

India Spotlight on QS World Future Skills Index

  • India’s overall rank: 25th 
    • India’s overall ranking puts it as a future skills contender.
    • Comparison: Countries like US, UK, Germany, Australia, Canada and others in top 10 have been categorised as ‘future skills pioneers’.
  • Skills Fit:
    • India’s rank: 37th 
    • In this indicator, India scored 59.1, which is the worst among the top 30 countries overall.
  • Academic Readiness:
    • India’s rank: 26th
  • Future of Work:
    • India’s rank: 2nd only behind the US.
    • This indicator measures how well the job market is prepared to meet the growing demand for digital, AI, and green skills.
    • The assessment of this indicator has been largely done from the demand side. i.e., job postings. On supply side indicators, India’s ranking leaves much to be desired. 
  • Economic Transformation:
    • India’s rank: 40th 
    • India scored a full score of 100 on account of economic capacity.  
    • India fared the worst when it came to ‘future-oriented innovation in sustainability’. 
      • India’s score: 15.6/100
      • Comparison: G7 countries- 68.3, EU countries- 59, APAC countries- 44.7, African countries: 25.4.
image 157

Challenges for future skills in India

  • Poor performance in Green Readiness:
    • Green readiness is an area of relative underperformance for the Indian economy versus G20 peers.
    • Whilst rising demand for green occupations and green skilled workers is clear through India's strong Future of Work score, India places 176 in the Environmental Performance Index.
  • Inadequate investment and innovation: 
    • Gaps in investment and innovation capacity pose challenges that could slow long-term growth.
  • Lack of relevant skills: 
    • India’s graduates are struggling to keep up with the pace of change in relevant skills required. 
    • India has a particularly large skills gap in ‘entrepreneurial and innovative mindset’.
  • Need for higher education reforms: 
    • Employers across India highlighted a critical gap in the workforce’s ability to meet the demands of a rapidly changing economic landscape. 
    • This highlights a broader challenge for India’s higher education system which is struggling to keep pace with evolving employer needs.

Way Forward: Tapping the potential of Future Skills in India

  • Invest in green skills development: Address green skill gaps by aligning curricula and learning modes to nurture the green skills necessary.
  • Higher education reforms: Universities must prioritise embedding creativity, problem solving and entrepreneurial thinking into their curricula.
  • Collaboration and Coordination:  Industries must foster stronger collaborations with universities to better align education with workforce demands. 
  • Government policy intervention:  Focused strategies are required to re-engage workers in continuous and lifelong reskilling programs. This ensures that skilled workers remain relevant and productivity contributors.  

To fully realise its potential, India must align economic momentum with robust higher education reforms and skills development, ensuring a dynamic and competitive position in the global economy. 

ILO Report: Global Estimates on International Migrants

Context: The 4th edition of the International Labour Organisation’s (ILO) Global Estimates on International Migrant Workers was released in December 2024. International Migrants not only address the labour market shortages in host nations but also send remittances to their home countries, thus making significant contributions to the world economic growth. 

Relevance of the Topic Prelims: Organisation based questions on UN and ILO; Basic idea of trends of international migration and their contribution. 

Major Highlights of Report: 

  • Global migrant estimates: The report estimates approximately 169 million international migrant workers recorded in 2022.
    • This accounts for 4.7% of the global workforce.
    • Note: Global workforce stands for the number of people employed or unemployed, but are willing to work.
  • Incremental trend: The estimate of migrant workers has increased from previous years, i.e., 164 million in 2017 and 150 million in 2013.
  • Regional distribution: Over 68.4% of all migrants are in high-income nations like Europe, North America and Arab states.
  • Gender disparity: The report has highlighted the evident gender disparity in the migrant labour force
    • Only 38.7% of female migrants are employed as compared to the 61.3% of male migrants. 
    • Females are predominantly employed in the service sector, that too in the sectors associated with the care economy. 
  • Sectoral distribution of migrants: Migrant population dominates the service sector i.e., 68.4% migrants are employed in the service sector.
    • Female migrants dominate the service sector 80.1% females as compared to 60.8% male counterparts.
  • Comparison with the non-migrants: 
    • The service sector is out-numbered by migrants.
    • The manufacturing sector is marginally dominated by migrants.
    • The agriculture sector is predominantly handled by non-migrants.  
image 154

Challenges highlighted by the Report

  • Gender-bias: The data of the report highlights the gender based biases, as most female migrants are part of the care economy. Also, the unemployment rate is higher in females as compared to males.
  • Economic vulnerability: The report also highlights the low wages and exploitative conditions of laborers. Also, the lack of social security leaves the labour in distress during any negative event.
  • Barriers in employment: Qualification and skill deficit along with the language barriers hinders the labour to adjust in the country of migration.
  • Social isolation: Migrants often face Xenophobia, racism and social exclusion that further marginalises them in the host societies.
  • High cost of migration: Migrants often pay exorbitant fees to recruiters leading to debt and financial burdens due to which workers fall victim to trafficking and forced labour. E.g., the Kafala System of Arab nations.

About International Labour Organisation

  • International labour organisation (ILO) is a specialised United Nations agency that focuses on promoting social justice and internationally recognised human and labour rights. 
  • Objectives of ILO: 
    • Promote decent work for all
    • Advance social and economic justice
    • Establish international labor standards
    • Advocate for workers’ rights, social protection and inclusive employment opportunities.
  • Major publications: World employment and social outlook; Global Wage Report; Global estimates on International Migrant Workers; Unemployment Rate Index.
  • India and ILO: 
    • ILO was established in 1919, where India was one of the original members. Narayan Malahar Joshi, founding member of All India Trade Union Congress, joined it. (Social Service League of 1911 is also associated with NM Joshi)
    • ILO has eight core conventions, of which India has not-ratified two conventions: 
      • No. 87: Freedom of Association and Protection of Rights to Organise Convention
      • No. 98: Right to Organise and Collective Bargaining.
    • In 2017, India ratified ILO Conventions No. 138 and 182, signaling its legal commitment to the elimination of child labour.

Bharatiya Vayuyam Adhiniyam 2024

Context: India is one of the world's fastest growing civil aviation markets. The Bharatiya Vayuyan Adhiniyam 2024, a legislative reform aimed at modernising India’s aviation sector, came into effect from January 1, 2025.

Relevance of the topic:

Prelims: Key facts about Bharatiya Vayuyam Adhiniyam 2024; Cape Town Convention Bill.

Mains: Detailed question on issues in aviation question. 

About Bharatiya Vayuyam Adhiniyam 2024

  • Objective: The Act is aimed at modernising India’s aviation sector by replacing the Outdated Aircraft Act of 1934.
  • Major Features of the Act:
    • Empowered Director General of Civil Aviation (DGCA): DGCA has been provided with expanded jurisdiction over aircraft design, manufacturing, maintenance and operations, ensuring a centralised regulatory framework. 
    • Establishment of Bureau of Civil Aviation Security (BCAS): It focuses on establishment of a dedicated body exclusively for security matters in the aviation sector, enhancing safety of air travel. 
    • Aircraft Accidents Investigation Bureau: Creating an independent body for the investigation of aviation accidents and incidents, promoting transparency and accountability.
    • Streamlining leasing of Aircraft: will guarantee lessors rights to repossess their leased equipment.
    • Emergency powers to Central government: It empowers central government to take immediate actions to address crisis like;
      • Health pandemic affecting aviation
      • Cybersecurity threats
      • Situations requiring temporary suspension of air operations.
    • Compensation and Appeal Framework: It allows individuals and organisations to seek compensation for damages caused by government actions in the aviation sector.
    • Penalties for Non-Compliance: It includes monetary fines and other penalties on violation of aviation laws deterring companies and establishing a culture of accountability.
    • Alignment with International practices: It harmonises India’s aviation laws with international conventions like ‘International Telecommunication Convention’, for the aviation sector.
    • Encouragement for Domestic Manufacturing: By regulating the entire lifecycle of aircraft, the bill supports domestic production and maintenance, contributing to economic growth and self-reliance.

Cape Town Convention Bill

  • Recently, the Union Cabinet has approved the Protection and Enforcement of Interests in Aircraft Objects Bill, 2024 (Cape Town Convention Bill). The bill will be tabled in the next parliamentary session for consideration.
  • The proposed Bill will give primacy to the Cape Town Convention in case of conflict with any other domestic law, mainly the Insolvency and Bankruptcy Code (IBC), 2016.
  • Aim: To make the process easier for aircraft leasing companies to seize the planes of airlines that miss rental payments.
  • Significance:
    • Allow the aircraft leasing companies to reclaim their planes from Indian airlines in case of default on rental payments. 
      • Presently, the expensive assets like aircraft and engines of lessors, get stuck in India when Indian carriers default on paying rentals.
      • The lessors have to wage lengthy legal battles (in National Company Law Tribunal) to get their planes and engines back. E.g., the case of Wadia Group's erstwhile GoAir.
    • Expected to boost lessors' confidence in the Indian civil aviation space.
    • Expected to lower the lease rentals in India and help finance high-value mobile equipment, like airframes, helicopters and engines.

Cape Town Convention:

  • CTC is a global treaty that guarantees the rights of lessors to repossess leased high-value equipment such as aircraft, engines, and helicopters in case of payment defaults.
  • It was adopted at a conference in Cape Town in November 2001, under the International Civil Aviation Organisation (ICAO) and the International Institute for the Unification of Private Law (UNIDROIT).
  • India is a signatory to the convention (since 2008), but the Indian Parliament has not ratified the same. Hence, Indian laws presently prohibit such recovery once a company initiates bankruptcy proceedings
challenges in Indian Aviation

Major issues in Aviation Sector of India

  • Taxation challenge: The rejection of the proposal to include Aviation Turbine Fuel under the Goods and Services Tax regime means continued high tax on the fuel for the aviation sector.
  • Pilot fatigue: The industry faces challenges related to shortage of pilots that leads to extended hours of service by pilots. Such practices compromise passenger safety and the wellbeing of pilots.
  • Unsecure practices: Airlines violate safety protocols for landing by promoting Flap 3 landing instead of full flap landing, compromising with the safety of passengers.
  • Import dependency: The airlines sector is overdependent on imports of equipment for airlines including critical spare parts. 
  • High operational cost: Airlines are burdened with high user development fees, landing charges and parking fees adding more to their operational cost.
  • Infrastructure constraints: Major airports like Delhi, Mumbai, and Bengaluru operate at or near capacity causing delays and operational inefficiencies.

What more can be done?

  • Include Aviation Turbine Fuel (ATF) under GST to reduce costs.
  • Invest in airport capacity, especially in tier-2 and tier-3 cities.
  • Develop India as a hub for aircraft leasing with tax incentives.
  • Encourage adoption of AI, big data, and automation for efficiency.
  • Enhance training facilities to address pilot and workforce shortages.
  • Focus on improving passenger experience with better services and digital solutions.

Conclusion: The Bharatiya Vayuyan Adhiniyam, 2024 will foster indigenous manufacturing under Make in India, align with international conventions like the Chicago Convention and ICAO, and streamline regulatory processes. Hence, the Act is a major step to revolutionise India’s aviation sector, enhance safety, innovation, growth, and global compliance. 

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