Economy

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

Cabinet extends PM FASAL till 2025-26

Context: The Union Cabinet has announced the continuation of the Pradhan Mantri Fasal Bima Yojana and Restructured Weather Based Crop Insurance Scheme till 2025-26.

Relevance of the topic:

Prelims: Scheme based questions.

Mains: Impacts; reforms and potential of schemes in the agriculture sector.

Major Highlights:

The Union Cabinet has- 

  • Approved the continuation of Pradhan Mantri Fasal Bima Yojana and Restructured Weather Based Crop Insurance Scheme till 2025-26 with a total budget of ₹69,515.71 crore.
    • The aim is to provide risk coverage to farmers against natural calamities.
  • Approved setting up of Fund for Innovation and Technology (FIAT) for upgradation in farm technology by revitalising research and development, with an allocation of ₹824.77 crore. Key initiatives include:
    • Yield Estimation System using Technology (YES-TECH) which uses remote sensing for crop yield estimates.
    • Weather Information and Network Data System (WINDS) for augmenting weather data through automatic weather stations. Implementation of WINDS to assist state governments will begin in 2024-25.
  • Approved the extension of the subsidies on DAP. DAP is Diammonium Phosphate, a fertiliser that contains a mix of nitrogen and phosphate. 
image 12

Yield Estimation System using Technology (YES-TECH)

  • Yield Estimation System using Technology (YES-TECH) uses Remote Sensing Technology for yield estimation with minimum 30% weightage to technology-based yield estimates. 
  • Under YES-TECH Claim calculation and settlement has been done for 2023-24. Madhya Pradesh has adopted 100% technology based yield estimation. 
  • 9 Major States are currently implementing (namely AP, Assam, Haryana, Uttar Pradesh, MP, Maharashtra, Odisha, Tamil Nadu & Karnataka). Other States are also being on-boarded expeditiously. 

Weather Information and Network Data System (WINDS): 

  • Weather Information and Network Data Systems (WINDS) envisages setting up Automatic Weather Stations (AWS) at block level and Automatic Rain Gauges (ARGs) at panchayat level.
  • Under WINDS, 5 times increase in current network density is envisaged to develop hyper local weather data. Under the initiative, only data rental costs are payable by Central and State Governments. 

About PM FASAL Bima Yojana

  • Pradhan Mantri Fasal Bima Yojana is a flagship crop insurance scheme launched in 2016 to promote crop insurance penetration among the farmers.
  • Objectives: Providing financial support to farmers in case of unforeseen circumstances; stabilising farmers income; encouraging farmers to adopt modern technology; and ensuring flow of credit to the agriculture sector. 
  • Coverage of the scheme:
    • Food crops (Cereals, Millets and Pulses) 
    • Oilseeds 
    •  Annual Commercial/Annual Horticultural crops
  • The scheme also covers the post-harvest losses due to rainfall, hail storm or any such negative externality within 14 days of harvesting.
  • Farmers pay a nominal premium:
    • 2% for Kharif crops.
    • 1.5% for Rabi crops.
    • 5% for commercial and horticultural crops.
    • The remaining premium is shared between the central and state governments. In the ratio of 50:50 in normal states and 90:10 in the case of north-eastern.
  • Use of Remote Sensing Technology, Smartphones & Drones for quick estimation of crop losses to ensure early settlement of claims.
image 13

Benefits of the decision to Extend Schemes:

  • Protecting from vulnerability: Indian farmers are prone to vulnerabilities like monsoon dependency and pest attack along with the risks of seed productivity. Extension of scheme will reduce such vulnerabilities by insuring farmers against risks.
  • Reducing input cost: Extending the subsidies for DAP fertiliser will reduce the input cost of the farmers reducing expenditure burden.
  • Boost to North-East: Special treatment in insurance premium to north-eastern states will reduce the regional disparities.
  • Promoting R&D: Institutionalisation and fund allocation to FIAT will revitalise the research and development in the farm sector in India making it more productive and gender neutral in nature.

Conclusion: PM FASAL and fertiliser subsidies are key for boosting the farmer’s income in India. But more funds need to be allocated in the research and development to enhance the overall productivity and optimum utilisation of the resources. India should take a slight turn from subsidies based support to innovation and capital generation based support to make agriculture sustainable.

UPI: Duopoly & Market Vulnerabilities

Context: The meteoric rise of Unified Payments Interface (UPI) since its launch eight years ago, is no small feat for a country like India. As UPI enters its next phase of growth in both reach and innovation, there remain certain challenges to be addressed.

Relevance of the Topic: Mains: UPI- Scope, Risks, Way forward

Present Scenario of UPI in India

  • Unified Payments Interface (UPI) ecosystem accounts for nearly 80% of digital transactions in India.
  • UPI transaction value exceeded Rs. 20.60 lakh crore in August 2024 alone.
  • UPI penetration is at 30% of the population. With India’s low digital literacy and a historic reliance on cash, this is a big achievement.
  • UPI has played a key role in fostering public trust in digital payments.
image 1

Scope for further growth of UPI

  • Enhancing public trust: 
    • UPI’s continued success will heavily depend on whether its ecosystem can maintain and build upon such public trust.
    • This, in turn, will depend on UPI’s performance on resilience, reliability, and openness to innovation. 
  • Wider reach:
    • 70% of the population remains to be brought into the digital payments fold. 
  • Potential for Innovations:
    • Expanding reach of UPI will require substantially new innovations ranging from service offerings to app design and the overall product base of the UPI ecosystem.
  • Scope for new entrants:
    • A major hindrance for UPI’s growth is the extreme market concentration of two Third Party App Providers (TPAPs) in the UPI network — Phone Pe and Google Pay. 
    • Together, they control over 85% of the total market share.
    • The next biggest player, Paytm, controls merely 7.2%.

What are the risks posed by Duopoly in the UPI ecosystem?

  • Increased systemic vulnerability:
    • High market concentration of payments systems in PhonePe and GooglePay can lead to single points of failure, where any sudden break in services can have ripple effects across the entire financial structure. 
  • Risk of decreased competition and innovation:
    • Disproportionately large share of the market and user base creates high entry barriers for smaller and newer market participants. 
    • Lack of competition also discourages investment in new innovations.
  • Risk of foreign dominance:
    • Both PhonePe and GPay are foreign-owned (by Walmart and by Google respectively). 
    • Foreign ownership creates multiple potentially new lines of failure, including data protection and backdoor access to sensitive information of Indian citizens, etc. 

Regulative Measures and Recent Developments:

  • Initial proposal: In November 2020, National Payments Corporation of India (NPCI) proposed that the digital payment firms would not be allowed to hold more than 30% share of the volume of transactions processed via India's popular unified payments interface (UPI). The mandate was to take effect from the end of 2024.
  • Extension of Deadline: In December 2024, NPCI extended the deadline for compliance by two years to the end of December 2026.
    • Recent reports suggest that the NPCI may potentially increase the market share cap from 30% to 40%. 
    • Presently, Phone Pe accounts for 48.36% and Google Pay for 37.3% of market share in volume, as of August 2024. 
  • Every subsequent extension to the deadline given by the NPCI, with any potential increase in the market share cap, will only allow the dominant TPAPs to consolidate their hold.

Way Forward

  • Strict implementation of market cap at previously determined 30% to prevent monopolistic tendencies and encourage competition. 
  • Create a level-playing field for Indian entrants to the UPI ecosystem, thus balancing foreign dominance and addressing data sovereignty concerns. 
  • Encourage participation of small and new payment systems.
  • Ensure data protection, especially financial data handled by foreign-owned companies.
  • Encourage innovation through increased competition, user-friendly apps and customised user reach.

The UPI ecosystem has every potential to offer smaller market participants a level playing field to compete and innovate with large established players. Providing the right conditions and right incentives is the key, so as to ensure the next phase of growth in both reach and innovation.

India’s Financial System showing Stability & Resilience: RBI

Context: The RBI’s Financial Stability Report released in December 2024, highlights significant improvements in the asset quality of Scheduled Commercial Banks (SCB), with Gross NPA ratios at a 12-year low. 

It shows the resilience of India’s financial system, supported by strong capital buffers, improved provisioning and healthy domestic financial fundamentals amidst global uncertainties.

Relevance of the Topic: Prelims: Important Banking-related terms.

RBI’s Financial Stability Report

  • Published bi-annually by the Reserve Bank of India. 
  • It reflects the collective assessment of the Sub-Committee of Financial Stability and Development Council (FSDC), which is headed by the RBI Governor. 
  • The report evaluates the resilience of the Indian financial system and identifies risks to financial stability.

Important Banking-related Terms

1. Asset Quality Ratio:

  • Asset quality ratio (AQR) is a key indicator that measures the proportion of non-performing assets (NPAs) to total assets in a bank. 
  • A high AQR indicates that a bank has a large amount of bad assets that are dragging down its performance and posing a risk to its solvency. 
  • A low AQR indicates that a bank has a healthy portfolio of assets that are generating income and interest for the bank, enhancing its profitability and stability.

2. Provisioning Coverage Ratio (PCR):

  • PCR provides insights into the adequacy of provisions made by banks to cover potential losses on their loan portfolios.
  • It is calculated by dividing the total provisions held by a bank by its total non-performing loans (NPLs). 
  • It represents the percentage of NPLs that are covered by provisions. 
  • A higher ratio indicates a stronger ability to absorb potential losses.

3. Capital Adequacy Ratio (CAR):

  • CAR is the ratio of a bank’s capital in relation to its risk weighted assets and current liabilities. This is a measure of a bank’s ability to meet its obligations. 
  • A high CAR means the bank can absorb losses without diluting capital.

4. CASA Ratio (Current Account Savings Account ratio):

  • CASA is the proportion of current account and savings account deposits in the total deposits of the bank.
  • A low CASA ratio means the bank relies heavily on costlier wholesale funding, which can hurt its margins.

5. Net Interest Margin (NIM):

  • This is the difference between interest earned by a bank on loans and the interest it pays on deposits.
  • NIM will be high for banks with higher low-cost deposits or high lending rates. 
  • Low NIM and high NPA is a bad combination.

6. Return on Assets (RoA):

  • It shows how profitable a bank’s assets are in generating revenue.
  • A lower RoA means that the bank is not able to utilise assets efficiently. 
  • Negative RoA implies the bank’s assets are yielding negative returns.

7. Capital Conservation Buffer (CCB): 

  • CCB is a concept introduced under the international Basel III norms. 
  • According to Basel III norms, during good times, banks must build up a capital buffer that can be drawn from, when there is stress. 
  • In India, to adhere to Basel norms, RBI wants all the commercial banks to achieve a minimum total capital of 9 per cent and a capital conservation buffer of 2.5 per cent, with the minimum total capital and CCB adding up to 11.5 per cent.
banking sector soundness indicators

Major Highlights of RBI’s Financial Stability Report

  • Gross NPA ratio has declined to a 12-year low of 2.6% in September 2024.
  • Scheduled Commercial Bank’s Net NPA ratio stayed at 0.6%.
  • Provisioning Coverage Ratio improved to 77% in September, mainly due to proactive provisioning by Public Sector Banks.
  • Improvement in Return on Assets and earnings before provisions and taxes.
  • Sequential decline in the net interest margin abetted by shift of deposits to higher interest rate buckets.
  • Decline in share of low-cost Current Account Savings Account (CASA) deposits.
  • Increase in share of term deposits, especially for higher interest-rate buckets. 

What is the H-1B Visa?

Context: The US President elect Donald Trump’s supporters are locked in a public row about skilled immigration and H-1B visa.

Relevance of the Topic: Prelims: Key facts about H-1B Visa. 

What is the H-1B Visa?

  • The H-1B  is a Visa in the United States that allows the US employers to employ high skilled foreign workers in specialised occupations. The programme was started in 1990.
  • Criterion: Specialty Occupation refers to a job that requires a specific set of specialised skills and educational qualifications.
    • Educational Requirement: At least a Bachelor's degree or higher in a specific field of study. 
    • Specialised Knowledge: Expertise in a particular field like- IT specialists, engineers, scientists, healthcare professionals etc.
    • Complex and specialised duties associated with the position.

Eligibility Criteria- Visa Requirements for Employees:

  • Education: A person should possess a Bachelor’s degree or higher (or its equivalent) in a specific field directly related to the offered position.  
  • Job Offer: A person must have a legitimate job offer from a U.S. employer for a specialty occupation.
  • Work Experience: Depending on the specific occupation and degree, one may be required to demonstrate relevant work experience in the field.
  • Licensing: If the occupation requires a license to practice in the state of intended employment, the employee must generally possess that license before the H-1B petition can be approved. 

Duration and Cap

Duration:

  • H-1B status is initially granted for three years but can be extended to another three years (maximum of 6 years). 
  • After 6 years the visa holder has to either leave the US for a period of at least 12 months before returning or apply for and receive permanent residence that is a green card.
  • There is no capping on the number of H1-B Visas that an individual can have in his/her lifetime. 

Cap: 

  • Currently, the annual numerical limit is 85,000 for H-1B visas (65,000 new status visas and extra 20,000 visas available to those with a Master’s degree or higher from the US universities.)
  • Some H-1B petitions are exempt from the annual cap. (E.g., those for employees of institutions of higher education, non-profit research organisations, or governmental research organisations)

Debate over H-1B Visas

  • H-1B Visa has been the highly desired pathway for jobseekers including Indians to migrate to the US.
  • People born in India are the largest beneficiaries of the H-1B programme. 
  • Data from the US government show that Indians account for more than 70% of all H-1B  petitions approved each year since 2015.
Debate over H-1B Visas
  • Immigration is one of the most polarising political issues in the US. Much of the election time anti-immigration rhetoric focused on low skilled labour migration.
    • Critics of the H-1B program claim that this program has been misused by tech corporations to staff their low to mid-level workforce for much less pay than what Americans would demand.
    • They are of the view that such immigration depresses wages and takes away jobs that would have otherwise gone to the American working class.
    • President elect Mr. Trump has encashed on such sentiments and has promised improved conditions for working American Middle Class by curbing immigration.
  • Proponents of H-1B visa argue that this programme is essential for bridging the skill gaps in the USA and wages are market driven. Since, China and India boast the highest number of STEM graduates (more than 6 million combined) in the World. When compared to the number of STEM graduates in the US (nearly 8 lakh), they become critical and vital for the economy. 

Interest rate cuts likely in Small Savings Scheme

Context: The government is likely to cut interest rates on small savings schemes from April 2025, after a significant time period of steady rates since October 2022. The decision is likely influenced by falling G-Sec yields and monetary policy dynamics.

Relevance of the topic:

Prelims: Small Savings Scheme- Prelims-related facts.

Mains: Small Savings Scheme- Benefits, Limitations.

What are Small Savings Schemes?

  • Small Savings Schemes are a group of government-backed financial instruments intended to encourage people to save regularly at any age.
  • The depositors get an assured interest on their money. They are the major source of household savings in India.
  • They are popular as they provide returns higher than bank fixed deposits, sovereign guarantee and tax benefits.

About Small Savings Schemes in India

small savings schemes
  • Small savings instruments can be classified under three heads:
    • Postal deposits comprise savings accounts, recurring deposits, time deposits of varying maturities, and monthly income scheme.
    • Savings certificates: National Savings Certificates (NSC); Kisan Vikas Patra (KVP)
    • Social security schemes: Sukanya Samriddhi Yojana; Public Provident Fund (PPF); Senior Citizens Saving Scheme (SCSS); Mahila Samman Savings Certificate (MSSC).
  • All collections under the small savings are credited to the National Small Savings Fund (NSSF) in the Public Account of India. 
  • The interest rates are revised every quarter based on the G-Sec yields of the previous three months.
  • A certain amount of NSSF is invested in the Central and State Government securities. 
  • The fund is administered by the Department of Economic Affairs under the Ministry of Finance.
image 213

Kisan Vikas Patra:

  • KVP was initially launched as a small saving scheme certificate to encourage farmers to save for the long term. However, the scheme is now open to all Indian citizens over 18.

National Savings Certificates:

  • NSCs can be purchased from any Post Office in India. These are issued for five year maturity and can be pledged to banks as collateral for availing loans. The holder gets the tax benefit under Section 80C of Income Tax Act, 1961.

Sukanya Samriddhi Yojana:

  • It aims to secure the financial future of girl children under the age of 10. It matures 21 years after opening or at the time of marriage (whichever is earlier). Allows 50% withdrawal of the amount after the girl child turns 18.

Benefits of the Small Savings Schemes

  • Regular income: The schemes like SCSS provide regular income to vulnerable groups like senior citizens.
  • Encourages saving habit: Low entry values for savings investment enables even small investors to practice saving.
  • Financial Inclusion: Postal deposits schemes and Kisan Vikas Patras encourage savings in rural and other un-banked areas.
  • Tax benefits: Investments in Small Savings schemes are eligible for tax deductions under the Section 80C of the Income Tax Act.
  • Women Empowerment: Specialised schemes like Sukanya Samriddhi Yojana and Mahila Samman Savings Certificate empower women and girls financially.
  • Safety and Security: Having sovereign guarantee, small savings schemes are a secure investment option with minimal risk.

Limitations of the Small Savings Schemes

  • Inflation-related risk: Returns, at times, might not be in line with the prevailing inflation rate, thus reducing the real value of savings.
  • Taxable returns: Interests earned on certain schemes are taxable.
  • Lack of flexibility: Most schemes require fixed contributions, hence, there is little flexibility in investment amounts.
  • Comparatively Lower Returns: Returns are fixed and can be lower than high-yield investments like mutual funds or equities.
  • Low liquidity: Schemes, like PPF and Sukanya Samriddhi Yojana, have long lock-in periods, restricting premature withdrawals.

Logistics Sector in India

Context: Presently, the logistics sector in India is valued at $250 billion and contributes to 14% to India’s GDP. Given its crucial role in supply chains, experts remain bullish on the future growth prospects of the sector. 

Relevance of the Topic: Mains: Logistics Sector- Present scenario, Initiatives, Way Forward

Logistics Sector- Present scenario, Initiatives

Present Scenario of Logistics Sector in India

  • Higher logistics cost in India (12-14% of GDP), compared to 8-10% global benchmark.
  • Logistics cost slid 0.8-0.9 percentage points of GDP between FY14-22.
  • India is elevated to the 38th rank (among 139 nations) in the World Bank's Logistics Performance Index Report, 2023.
  • The logistics sector demonstrated resilience as it accelerated transition from unorganised to a structured industry.
image 211

Initiatives to boost the Logistics Sector in India

  • National Logistics Policy, 2022:
    • Aim: achieve ‘quick last-mile delivery', end transport-related challenges.
    • Logistics costs to be cut by half to be near global benchmarks by 2030.
    • India aims to be among the top 10 in the Logistics Performance Index by 2030.
  • PM Gati Shakti National Master Plan:
    • Essentially, a digital platform that brings 16 ministries together for integrated planning and coordinated implementation of infrastructure connectivity projects.
  • Unified Logistics Interface Platform (ULIP):
    • Aim: to collapse all logistics and transport sector digital services into a single portal.
    • ULIP platform enables the industry players to get secure access to information related to logistics and resources available with various Ministries.
  • Logistics Data Bank:
    • It serves as a single-window container logistics visualization system, providing comprehensive tracking using container numbers. 
    • This system tracks containers between ports and their hinterlands, including Inland Container Depots (ICDs), Container Freight Stations (CFSs), port-associated parking plazas, toll plazas, railway stations, industrial corridors, SEZs, and empty yards, etc. during EXIM and domestic journeys.
  • National Logistics Portal- Marine (NLP-Marine):
    • NLP Marine is a one-stop platform aimed at connecting all the stakeholders of the logistics community using IT.
    • The activities of NLP Marine are categorized into four distinct verticals:
      • Carrier 
      • Cargo 
      • Banking and Finance 
      • Regulatory Bodies and Participating Government Agencies (PGAs). 

Role of GST in Logistics Sector

  • GST has played a crucial role in reducing logistics cost.
  • ‘One Nation One Tax’ regime has cut waiting time of trucks at inter-state borders, significantly reducing travel time by 30%.
  • This has reduced the logistics cost and increased the average distance covered by trucks. 

Further Scope for Logistics Development in India

  • Deeper digital adoption and intensified focus on risk management has resulted in transformative changes in the Indian logistics sector in 2024.
  • “China-plus-one-strategy” adopted by various multinational companies further reaffirms India’s critical position in global supply chains.
  • Supporting policies like giving Infrastructure status to ‘Warehousing’ and expanded FDIs accelerate the development of multi-client warehousing facilities.
  • The 11.1% rise in capital expenditure for infrastructure signals significant growth opportunities in the sector.

Way Forward

  • Need for skilling
    • To fully unlock the potential of the sector, enhancing workforce skills is crucial.
  • Capitalise on global trade opportunities
    • Policies strengthening the growth of e-Commerce, demand for faster delivery, export expansion driven by PLI schemes can accelerate goods movement.
  • Streamlining Government initiatives
    • Initiatives like UDAN (promoting regional air connectivity) and NLP, will cut logistics cost by 4-5%, enhancing competition in global markets.
  • Multi-modal connectivity
    • Strengthen Maritime connectivity projects to hasten transformation from land-based to coastal transportation.
    • Implement India Ports Bill for the development of the ports sector and increasing its share in logistics.

Logistics has a crucial role in supply chains — whether road, rail, air, waterways or warehouses. India’s ambition of becoming a $5 trillion economy by 2027, strongly depends on the development of the logistics sector. Government interventions like cutting costs and focusing on reskilling and upskilling can be a game-changer.

India-Australia Trade Agreement 

Context: The Ministry of Commerce has released data on Indo-Australian Trade relations, as nations visited the 2 year milestone of Indo-Australian Economic Cooperation and Trade Agreement (ETCA) trade deal. 

Relevance of the topic:

Prelims: Basics of FTA, CEPA and ETCA.

Mains: Dynamics related to Indo-Australian trade relations; Issues related to CEPA. 

Major Highlights:

  • Export utilisation of Indo-Australian Economic Cooperation and Trade Agreement (ETCA) has reached 79%. While the import utilisation has reached 84%.
    • Trade Utilisation of a free trade agreement (FTA) indicates the extent to which the trade benefits from the agreement. 
    • It provides insights into whether businesses are effectively leveraging the FTA or finding its concession procedures burdensome. 
  • Data also reveals that the trade between India and Australia has declined.
    • As compared to $4.89 Billion during six months from April to September 2023, exports to Australia have declined to $3.99 Billion in the same period during 2024, marking a 18% decline. 
    • Imports also witnessed an 18% decline during the same period. 

About Economic Cooperation and Trade Agreement (ECTA)

  • Economic Cooperation and Trade Agreement is a bilateral trade agreement aimed at enhancing the economic ties between India and Australia. 
  • It was signed on April 2, 2022 and came into force in December 2022
  • Key aspects of ETCA:
    • Tariff Reduction: Australia eliminated 96% tariffs on Indian goods. While India offered concessions in coal, wine and agricultural produce to Australia.
    • Market access: Both nations provided market access to sectors like pharmaceuticals, education, healthcare and information technology. 
    • Enhanced professional mobility: Indian IT and healthcare professionals gain improved access to the Australian market. 
    • Rule of origin: Agreement includes rules of origin clause to avoid benefits to any third party. 
  • ETCA can be considered as the foundational stone for the upcoming Comprehensive Economic Cooperation Agreement (CECA). 
image 205

About Comprehensive Economic Cooperation Agreement (CECA)

  • The Comprehensive Economic Cooperation Agreement is an extension of the ETCA, for which negotiations are undergoing between India and Australia. 
  • It aims at broadening the scope of the agreement including areas like investment protection, intellectual property rights (IPR), digital trade, government procurement and regulatory framework. 
  • Key Goals of CECA:
    • Comprehensive access to goods-services across various sectors involving finance, education, medical etc,.
    • Enhanced mobility for skilled professionals, students and workers between the two nations. 
    • Digital trade collaboration to boost e-commerce 
    • Innovation collaboration in sustainable means like clean energy. 
  • Concerns regarding CECA
    • Agriculture and dairy sector farmers in India are apprehensive about increased Australian agriculture products reading their income due to competition.
    • Labour mobility issue: India wants IT professionals, paramedic staff, students and workers to have free mobility. But Australia opposes these conceptions due to concerns of locals. 
    • IPR: Australia wants a strict IPR regime, while India on the other hand is concerned about these stricter norms as it can impact the generic drug market of India. 
  • Current status: Negotiations for the CECA began following the success of the ETCA. Both countries have expressed strong political will to finalise the agreement, though there are certain sensitive issues like agriculture, intellectual property rights and labour mobility that require comprehensive discussion and consensus. 
image 206

Conclusion: Both ETCA and CECA are crucial for boosting the trade between India and Australia. But concerns of farmers, labourers and professionals need to be taken under consideration with a detailed discussion. A well discussed development of CECA will open a new route for the Indo-Pacific Economic Framework (IPEF). 

PDS posing challenges in CPI calculation

Context: The Ministry of Statistics and Programme Implementation (MoSPI) has floated a discussion paper in a process to revise the base of Consumer Price Index (CPI).  

Relevance of the Topic: Prelims: Key aspects about the Consumer Price Index (CPI). 

Major Highlights of the discussion paper: 

  • Objective: To revise the base year of CPI by updating weights and basket of CPI by introducing possible improvements in methodology of CPI compilation. 
  • Contention on PDS and free social transfers in context of CPI: The Ministry highlighted two major challenges in free distribution of PDS (Public Distribution System) items in context of CPI compilations:
    1. Mid Series Adjustments: How to address the reduction in the price of PDS items from positive value to zero or increase in price of PDS items from zero to some positive amount during an ongoing series?
    2. Inclusion in CPI basket at start of series: Should the free PDS items (which involve no out of pocket expenditure) be included in CPI basket or not remains a challenge. 

Challenges of including Free items in CPI

  • Various states and UT distribute various items like Kerosene in PDS for free of cost, which poses a challenge in calculation of such items as the out of pocket expenditure is zero for such items.
    • Existing norm- Such goods are assigned with the value of zero. Therefore, these items are effectively excluded from the CPI basket. 
    • IMF recommendation- International Monetary Fund suggests excluding such items from the index as the index should be restricted to monetary transactions only. Further, such transactions should be ignored as they do not generate any demand for money. 
  • Thus, including free items in CPI could underestimate inflation, while their exclusion might fail to reflect actual consumption patterns of households. 

Suggestions given in the discussion paper:

The discussion paper suggests three methods to deal with free PDS items:

  1. Zero value allocation- This method suggests that zero price to be allocated to items and adjusting the weight during the next update. (Method is proposed for next series of CPI)
  2. Redistribution of weight- Method suggests that the weight of items of such items in PDS to be redistributed as other items within the class or section. (Method is used in existing series)
  3. Redistribution across basket- Third method suggests redistribution of weight broadly over all items of basket.

About Retail Inflation Index in India

  • Consumer Price Index or CPI is the market basket index used to calculate the retail inflation in the country. 
  • RBI uses CPI (Combined) with base year 2012 to calculate the inflation. CPI (Combined) takes into account price changes in both urban and rural areas.
    • Base year is a reference year to calculate the value of goods. 
About Retail Inflation Index in India
image 199

About Public Distribution System

  • PDS is a government led initiative designed to distribute food grains and essential commodities to economically weaker sections. 
  • Key objectives: Ensuring food security, stabilising food prices and reducing poverty. 
  • Notable schemes:
    • Antodaya Anna Yojana for the poorest of the poor households with heavily subsidised food grains. 
    • National Food Security Act 2013 covers 65% of the population of the nation, ensuring their Right to Food. 

Conclusion: CPI calculation is a barometer for the inflation in the nation, helping India to calculate its real growth prospects. To address the challenges in the calculation, the suggestions of the experts and agencies like the International Monetary Fund need to be incorporated. 

Household Consumption Expenditure Survey: 2023-24

Context: The Ministry of Statistics & Programme Implementation (MoSPI) has recently released the Household Consumption Expenditure Survey: 2023-24, based on the data collected during August 2023 to July 2024 from the entire country. 

Relevance of the Topic: Prelims: Key trends in the Household Consumption Expenditure Survey. 

What is the Household Consumption Expenditure Survey (HCES)?

  • HCES is designed to collect information on consumption and expenditure of the households on goods and services. 
  • Conducted by: National Sample Survey Office (NSSO), under the Ministry of Statistics & Programme Implementation. 
  • Utility of the Survey: It provides data required to:
    • Assess trends in economic well-being (measure poverty, inequality, and social exclusion).
    • Determine and update the basket of consumer goods and services and weights used for the calculation of the Consumer Price Index (CPI). 
  • The Monthly Per Capita Consumption Expenditure (MPCE) compiled from HCES is the primary indicator used for most analytical purposes.
  • Sample size: The estimates of MPCE of 2023-24 are based on the data collected from over 2.61 lakh households (both urban and rural) spread over all States and Union Territories in the country.
image 196

Important Findings of HCES: 2023-24

  • Average MPCE in rural and urban India in 2023-24 has been estimated to be Rs. 4,122 and Rs. 6,996, respectively, without taking into account the values of items received free of cost by the households through various social welfare programmes.
    • In nominal prices, the average MPCE (without imputation) in 2023-24 increases by about 9% in rural areas and 8% in urban areas from the level of 2022-23.
  • Average MPCE with imputed values of items received free of cost through various social welfare programmes is estimated to be Rs. 4,247 and Rs. 7,078 respectively, for rural and urban areas.
  • Urban-rural gap in MPCE has declined to 71% in 2022-23 from 84% in 2011-12. It has further come down to 70% in 2023-24 that confirms sustained momentum of consumption growth in rural areas.
  • Consumption Inequality (measured in terms of the Gini Coefficient), both in rural and urban areas, has declined in 2023-24 from the level of 2022-23.
    • The Gini coefficient has declined to 0.237 from 0.266 in 2022-23 for rural areas and to 0.284 from 0.314 in 2022-23 for urban areas.
  • Non-food items (Rent, conveyance, clothing, bedding, footwear, entertainment) accounted for about 53% of household’s average MPCE in rural areas, up from about 47% in 2011-12, and 60% in urban areas, up from about 57%.
image 197

Analysis of the Trends

  • India’s average household consumption spending rose about 3.5% in real terms through August 2023 to July 2024. This signals a decline in consumption inequality as well as a narrowing gap between urban and rural spending.
  • Decline in gini coefficient reflects reduction in consumption inequality across both urban and rural sectors.  Social welfare schemes like PM-KISAN, PM Garib Kalyan Anna Yojana have contributed to narrowing consumption inequality. 
  • Free items from the social welfare programs contributed significantly to the total expenditure, enhancing rural and urban MPCE. 
  • Dominance of non-food items to the household’s average monthly expenditure highlights India’s ongoing transition towards a consumption-led economy. For rural areas, it means a rise in living standard and access to services. For urban areas, it may indicate lifestyle inflation. 

DISCOMs: Challenges and Reforms

Context: 2024 has been seminal for the power sector with the country meeting an unprecedented peak demand of 250 GW in a year. India also added around 30 GW of installed capacity in the last 12 months, three-fourths of which came from renewable energy (RE). However, debt sustainability of DISCOMs is the biggest challenge faced by the power sector. 

Relevance of the Topic: Mains: Challenges faced by DISCOMs & Way Forward. 

Background: 

  • The International Energy Agency (IEA) expects India’s power demand to grow at 4% annually till 2050. A robust power sector rests on a vibrant DISCOM ecosystem.
  • Distribution Companies (DISCOMs) act as the link between power producers and consumers, ensuring electricity distribution across the nation. 
DISCOM

Challenges faced by the DISCOMs

  • Higher AT&C losses (22%) on the account of transmission losses, commercial losses due to power theft, absence of metering, inefficiencies in bill collection. Global Average for AT&C losses is much lower at 8%.
  • Higher Cost of Power Procurement: Power procurement accounts for about 70% of costs incurred by DISCOMs. DISCOMs have entered into expensive and long-term thermal Power Purchase Agreements (PPAs). Also, delays and cost overruns in some projects have increased capital costs. 
  • Debt Unsustainability: The outstanding debt of Discoms stands at ₹7.14 lakh crore as of March 2023 and is likely to increase, as Discoms continue to grapple with ACS-ARR gap (The gap between Average Cost of Supply and the Average Revenue Realised). 
  • Lack of Autonomy: Political interference in fixing tariffs leading to lower tariffs on electricity. DISCOMS end up supplying electricity to households and the agriculture sector at subsidised prices leading to higher losses.
  • Higher dependence on State Governments: DISCOMs depend on state governments for subsidies. Delays in receiving subsidy reimbursements from the government add to liquidity stresses of DISCOMs.
  • Monopolisation: Presently, DISCOMs enjoy monopoly in distribution of electricity leading to absence of competition, higher inefficiencies and poor service-delivery.
  • Slow pace of Transmission Infrastructure: Of the 1,14,687 circuit km of (ckm) transmission lines and 776 GVA (Gigavolt-Ampere) substations to be added between April 2022-March 2027, just 28% and 20%, respectively, have been commissioned as of October 2024. 

Distribution Sector Reforms

  • UDAY Scheme: Aims at improving the financial position of DISCOMs. Under the scheme, states are supposed to take over 75% of the discoms’ debt and the DISCOMs were required to reduce AT&C losses to 15%.
  • Revamped Distribution Sector Scheme (RDSS):
    • RDSS has an outlay of Rs 3,03,758 crores over five years (2021-22 to 2025-26), with an estimated government budgetary support (GBS) of Rs 976.31 billion. 
    • Aim: To reduce AT&C losses on a pan-India level to 12-15% by 2024-25; reduce the average cost of supply-ave­rage revenue realised gap on a pan-In­­dia level to zero by 2024-25; and im­prove the quality, reliability and aff­or­da­bility of power supply to end-consumers. 
    • RDSS focuses on providing financial support for smart metering systems, distribution infrastructure upgra­des, training, capacity building etc.
  • Financial Support: A total of Rs. 1.4 lakh crores was provided to DISCOMs in 2022–23 by the central and state agencies. 
  • Private Participation and Competition in Distribution: Some of the states have promoted private participation in the DISCOMs through (a) Franchise Model and (b) Privatisation of DISCOMs.
    • Under the Franchise model, the private entity has no ownership over the distribution grid assets. The private party manages billing and revenue collection. Example: Bhiwandi, Maharashtra.
    • In case of privatisation, the private entity not only manages the billing and revenue collection but also owns the distribution grid. Example: Privatisation of Delhi Vidyut Board in 2002.
image 193

Way Forward

  • Tariff Reform and Direct Subsidy Transfer: Restructuring tariffs to reflect true cost of electricity generation and distribution is essential to ensure financial viability for DISCOMs. Direct transfer of tariff subsidies to beneficiaries may reduce undue financial burden on DISCOMs.
  • Autonomous Regulatory Bodies: Ensuring independence of regulatory bodies is crucial for effective tariff-regulation. Regulatory bodies should have authority to set tariffs based on actual costs and demand to encourage DISCOMs to operate efficiently.
  • Private Participation: Introducing competition among DISCOMs by allowing multiple-players to operate in a region can improve efficiency and bring in much-needed investment, innovation and management expertise.
  • Smart grid and metering can enable real-time monitoring of electricity usage, efficient load management, thereby, reducing transmission and distribution losses. It would also help in Peer-to-Peer energy trading and help utilities and consumers in efficient power utilisation.
  • Flexible PPAs: Electricity Regulatory Commissions should allow DISCOMs to make flexible, cost-effective procurement instead of continued lock-in under rigid and longer PPAs. 

Hence, addressing the challenges faced by DISCOMs is imperative to ensure sustainability and efficiency of India's power distribution system. 

Strengthening Fisheries Extension Services

Context: India has witnessed 83% increase in fish production, making India the second largest producer of fishes. Such a rise makes strengthening the fisheries extension services crucial. 

Relevance of the Topic: Mains: Fisheries sector in India; Challenges and scope. 

About Fisheries Extension Sector

  • Fisheries extension services are specialised programs and activities aimed at improving the knowledge, skills and practices of fishers and aquaculture stakeholders. 
  • These includes:
    • Disseminating information
    • Promoting sustainable practices 
    • Facilitating access to modern technologies.
Fisheries Extension Sector

Government Schemes to Enhance Extension Services

  • Matasya Sampada Kendra:
    • The flagship scheme provides a one-stop solution to the fishers by providing trained professionals sharing their expertise to boost production. 
    • Government assistance up to 60% is provided to set up such centers for women and weaker sections. 
    • Notable examples:
      • Kendra at Tissue Kerala provides a well-equipped lab for water, soil and microbial analysis. 
      • Kendra at Nashik focuses on capacity building of Fishers and Fish Farmers on various seed/feed inputs. 
  • Sagar Mitra: 
    • Sagar mitras in coastal areas are a vital interface between government and sea-borne fishers. 
    • They compile information and data on daily marine catch, price fluctuations, requisite market needs at fish landings harbours. 
    • They disseminate information on local regulations, weather forecast, natural calamities, hygienic fish handling and potential fishing zones in the sea. 

Lacuna in Fisheries Extension Services in India

  • Limited Reach: Insufficient number of Sagar Mitras and training centers leaves a large section of fishers unaddressed and vulnerable. 
  • Shortage of Infrastructure: There is an acute shortage of refer vans and cold storage to enhance the shelf life of the fishes. 
  • Sustainability Issue: There are issues like overfishing and habitat degradation. Also, practices like electrocution are criticised during fish export. 
  • Quality Issue: Export quality fish production remains a challenge due to pollutants in fishes. E.g., Tamil Nadu fishes were banned by the EU due to the high amount of pollutants in them. 

Ways to Improve Extension Services

  • Institutional Integration: A convergence is needed between the Matasya Kendras and 700 Indian Council of Agricultural Research centers to promote the sharing of machineries. 
  • Promoting Digital Outreach: The National Fisheries Development Board has initiated a nationwide virtual learning platform i.e., 'AquaBazaar’. 
  • Learning from Global Best Practices:
    • Norway: Sustainable fishing technology like satellite mapping and digital monitoring. Also, fishing monitoring ensures sustainable yields and boosts exports. (Norway exports 95% of its seafood.)
    • Japan Model: Japan's co-management model involving Fisheries Cooperative Associations to educate fishers about sustainable practices. 
  • Promoting Climate Adaptation: As climate change is impacting the fishing grounds and yield of fishing. E.g., FAO’s Blue Growth Initiative is focusing on climate resilient fishing. 
  • Value Addition: Along with the market access, there is a dire need of value addition of the fish production. E.g., Vietnam's focus on value-added shrimp products has enhanced its global competitiveness. 

Conclusion: Strengthening fisheries extension services can drive India towards becoming a global leader in sustainable fishing. Adopting best practices from countries like Norway and Japan, along with the localised innovations, can improve productivity, sustainability, and livelihood of millions dependent on this sector.

Reduction in Domestic Migration

Context: As per the Economic Advisory Council to the Prime Minister (EAC-PM) Report, “400 Million Dreams” the domestic migration has reduced by 11.78% as compared to 2011 census. 

Relevance of the Topic Mains: Labour issues and Migration led economy. 

Major Highlights:

  • The EAC-PM has highlighted the reduction in migration rate from 37.64% in 2011 to 28.88% in 2023. In 2023, the estimated number of migrants is about 40.20 crore as compared to 45.57 crore in census 2011. 
  • Three datasets were used to estimate the data:
    • Indian Railway Unreserved Ticketing System data on passenger volume. 
    • Mobile telephone roaming data from TRAI
    • District level banking data on remittances 
  • Cities attracting the most migrants: Mumbai, Bengaluru, Kolkata, Delhi and Hyderabad. 
  • West Bengal, Rajasthan and Karnataka have shown maximum growth in migrant arrivals. 
  • Hypothesis for trend: Report suggests improvement in health, education and economic opportunities in small cities as the reason for reduction in the migration rate. 

Other Possible Reasons for Reduction in Migration

  • Reduced urban center attraction: The urban centers are suffering from decaying infrastructure, high inflation and poor housing conditions. This can reduce the migration towards the urban centers. 
  • Preference to short distance migration: Migrants from semi-urban centers can prefer short distance migration to seek better economic opportunities.
  • Policy factor: Government policies like Aspirational District Programme has promoted the jobs and quality of life in tier-2 and tier-3 cities, reducing migration
  • Emerging labour opportunities: Percolation of development to the semi-urban areas especially the infrastructure projects creates a labour market in the small towns. 

Also Read: Migration in India: Current Issue and Challenges 

About EAC-PM

  • Economic Advisory Council to the Prime Minister is an independent, non-constitutional and non-permanent body formed to provide objective advice on economic policy matters to the Prime Minister. 
  • It consists of a chairperson, followed by experts from domains like economy, finance, agriculture etc.

Conclusion: The findings in the report not only highlights the migration pattern but also indicates the potential better economic conditions in semi-urban areas, reducing the necessity of migration to urban centers. 

Trending now

State of India’s Environment 2026: Rising Climate Risks and the Need for Resilience
Karnataka Announces Ban on Social Media for Children Under-16
India–France “Special Global Strategic Partnership”: A New Indo-Pacific Anchor
Front-of-Package Labelling: A Preventive Strategy to Address India’s Rising Lifestyle Diseases