Economy

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

RBI’s Rate Dilemma

Context:  India’s retail inflation has eased to around 5% in November from October’s 14-month high of 6.2%. This assumes significance ahead of the Reserve Bank of India’s (RBI’s) Monetary Policy Committee (MPC) meeting in the backdrop of a spike in October’s inflation and a sharp slump in economic growth with GDP rising just 5.4% in the July-September quarter. 

Relevance of the Topic: Prelims: Monetary Policy and its Components. 

What is Monetary Policy?

  • Monetary policy refers to a policy of the Central Bank (Reserve Bank of India) to regulate money supply in the economy.
  • It is aimed to achieve certain objectives like Price stability, accelerating economic growth or exchange rate stabilization. 
  • RBI uses various tools to achieve these objectives. One such tool is Liquid Adjustment Facility (LAF).

Liquid Adjustment Facility (LAF): 

  • LAF is a facility provided by RBI to scheduled commercial banks to avail of liquidity in case of need or to park excess funds with RBI on an overnight basis against the collateral of government securities. The components of LAF are:
    • Repo rate is the interest rate charged by the RBI on overnight loans given to the commercial banks under the Liquidity Adjustment Facility.
    • Reverse repo rate is an interest rate given by the RBI to commercial banks when the latter parks one-day deposits with the RBI.

These rates are referred to as key policy rates.

 Expansionary Monetary PolicyContractionary Monetary Policy
ActionTo infuse liquid into the marketTo absorb liquid from the market
ToolReduce policy ratesIncrease policy rates
GoalAccelerate economic growthInflation control

Resolving Base Year Conundrum in National Accounting 

Context: With India's GDP increasing from ₹98 lakh crore in FY14 to ₹173.8 lakh crore in FY24, the recovery from the COVID-19 pandemic has been uneven, and comparisons across different periods may be misleading due to significant base effects. In this context, the choice of a base year for measuring economic variables becomes extremely important, as it can introduce biases that distort growth assessments. 

Relevance of the Topic: Prelims- Concept of the base year is vital to understand national accounting, indices like GDP, CPI, WPI, and IIP.

Base Year:

  • A base year is a reference year used to measure important economic indicators like:
    • Gross Domestic Product (GDP)
    • Consumer Price Index (CPI) 
    • Wholesale Price Index (WPI) 
    • Index of Industrial Production (IIP)

Purpose of Base year:

  • Providing a reference point: The base year serves as a fixed reference point to measure changes in economic variables like GDP, IIP or CPI over time. It allows for meaningful comparisons of these indicators across different time periods.
  • To differentiate quantity from value: A reference year is necessary to arrive at the right measure of production activities in the economy like GDP by removing the impact of inflation.
  • Composition of Indices: Ensures composition of indices like CPI/WPI reflect contemporary consumption patterns.
  • Fixing Weightage: The base year is used to fix the relative weights of different goods and services in the calculation of various economic indicators.
  • Facilitating International Comparisons: When countries use a common base year, it enables better comparison of economic indicators like GDP and inflation across different economies.

Revision of Base Year:

  • The base year is typically updated periodically (E.g., every 5-10 years) to ensure the economic indicators remain representative of the current economic structure and consumption patterns.
  • In India, the practice was to revise the base every 5 years, so as to coincide with quinquennial rounds of the NSSO. However, since 2004-05, base year revision has been staggered due to several reasons. 
  • Post the financial crisis of 2009-10, 2011-12 was chosen as the base year and the updated series was released only in 2015.

Need for Revision of Base Year in India:

  • Old basket of Goods: We continue to monitor a basket of goods that includes torches, radios, tape recorders, CDs, DVDs, audio/video cassettes, and trunks, among some 300 other items which no longer reflect the consumption patterns of the public.
  • Disproportionate Weights:
    • The weightage of food in the CPI basket has decreased from 60.9% (in 1960) to 57.0% (in 1982) and to around 45% (present), consistent with Engel’s Law. This gradual decline indicates that as the economy grows, the proportion of income spent on food decreases. (Engel’s Law suggests that as income rises, the proportion of income spent on food falls, even if the absolute expenditure on food rises.).
    • Additionally, inflation data under-represents services in the consumption basket. In production, services are about 55% of the GDP but have no representation in WPI and about 24% in CPI. 

Challenges:

  • Selecting the Right Reference Year:
    • The reference year must be a normal year with no significant volatility in GDP or Inflation and also be devoid of any structural reforms made in the economy like GST etc.
    • Keeping a year with too high growth or too low growth may as base year will eventually result in “high base effect” in the following years.
  • Lack of relevant Consumer Data: A new nationwide consumer expenditure survey is long overdue. The last two such nationwide sample surveys were carried out in 2011-12 and 2017-18. Unfortunately, the results of the 2017-18 survey were not released on grounds of unexplained “data quality issues”. 

Banking Laws (Amendment) Bill 2024

Context: The Lok Sabha passed the Banking Laws (Amendment) Bill, 2024 to streamline the banking process and governance in India.

Relevance of the Topic: Prelims- Key provisions of Banking Laws (Amendment) Bill, 2024.  

Aim: The bill aims to improve the governance and operational efficiency of India’s banking sector.

Banking Laws (Amendment) Bill 2024

Key provisions of the Bill and their benefits:

  • The proposed amendment allows bank account holders to designate up to four nominees for their accounts.
    • The depositors have been given the option of successive or simultaneous nomination facility. 
    • Additionally, locker holders will have only successive nominations.

Benefit: It benefits the depositors by offering more options for ensuring smooth process and the management of their accounts.

  • It increases the limit for ‘substantial limit’ in a bank’s directorship from Rs. 5 lakh to Rs. 2 crore. The current limit was fixed almost six decades ago. 

Benefit: It will strengthen governance in the banking sector.

  • It extends the tenure of directors (except the chairperson and whole-time director) in co-operative banks from 8 to 10 years, in line with the 97th Constitutional Amendment Act, 2011.

Benefit: It will enhance the continuity of leadership and strengthen governance within the cooperative banks.

  • Allows a director of the Central Cooperative Bank to also serve on the board of State Cooperative Bank.

Benefit: It enables greater cross-collaboration between different levels of cooperative banks, thereby strengthening their overall functioning and improving coordination within the sector.

  • It seeks to grant the banks greater freedom in deciding the remuneration of statutory auditors.

Benefit: It will enhance the autonomy of banks in managing their internal operations and budgeting, allowing for more flexibility and efficiency in financial decision-making.

  • It changes the reporting dates for banks regarding the regulatory compliance from second and fourth Fridays to the 15th and last day of every month.

Benefit: Streamlines the compliance process, providing greater clarity and consistency in meeting regulatory requirements.

Criticism of the bill:

  • The opposition has raised concern that the bill is a “step towards privatisation.”
  • The opposition also stressed the need for better cybersecurity and fraud detection, criticising frequent KYC updates as burdensome.

Conclusion: These amendments are designed to strengthen the governance in the banking sector and improve customer convenience by making India’s banking system safer, more stable and healthier, pointing to the positive outcomes achieved over the past decade.

Oilfields (Regulation and Development) Amendment Bill 2024

Context: Rajya Sabha has passed the Oilfields (Regulation and Development) Amendment Bill, 2024. The Bill amends the Oilfields (Regulation and Development) Act, of 1948.

Relevance of the Topic: Prelims- Oil fields (Regulation and Development) [Once it becomes an Act]

About Oilfields (Regulation and Development) Amendment Bill, 2024: 

  • Aim: To ensure policy stability for oil and gas producers and allow international arbitration.
Oilfields

Key Highlights of the Bill:

1. Definition of Mineral Oils expanded:

  • The Oilfields (Regulation and Development) Act, 1948, defined only two mineral oils -  petroleum and natural gas. 
  • The Bill expands the definition to include:
    1. any naturally occurring hydrocarbon
    2. coal bed methane
    3. shale gas/ shale oil and gas hydrates.  
  • It clarifies that mineral oils will not include coal, lignite or helium. 

2. Introduction of petroleum lease: 

  • The Bill alters the previously used mining lease to introduce a ‘petroleum lease’ which allows companies to explore, prospect (assessment of potential petroleum accumulations across large areas), produce, make merchantable, and dispose of mineral oils. Existing mining leases granted under the Act will continue to be valid.
  • The Bill urges oil companies to use oilfields for other purposes like hydrogen production, carbon capture utilisation and storage or coal gasification. 

3. Expands regulatory powers of Central Government:  

  • Under the Act, the Centre is empowered to regulate the grant, terms and conditions, and time period of leases, production, storage and conservation of mineral oils and collecting royalties, fees and taxes for mineral oils. 
  • This Bill expands the Centre’s powers to include framing rules for lessees to reduce emissions, sharing of oil production and processing units, merger of leases and resolving disputes on leases. 

4. Decriminalisation of offences:

  • The Bill decriminalises offences related to the petroleum activities (such as invalid leases and non-payment of royalties etc.); however, it increases the monetary fine for violation of Rules from Rs. 1000 to Rs 25 lakhs. 
  • Adjudication of penalties:
    • The central government will appoint an officer of the rank of Joint Secretary or above for adjudication of penalties.
    • Appeals against the decisions of the Adjudicating Authority will lie before the Appellate Tribunal specified in the Petroleum and Natural Gas Board Regulatory Board Act, 2006. 

5. Opening up no-go areas to oil exploration:

  • The Centre has allowed oil exploration within previously defined no-go areas, such as those near missile testing sites. 

Need for the Amendment: 

  • India needs to increase its domestic production and reduce its import dependence to meet the country’s rapidly growing energy demand.
  • Imports have largely remained unchanged in spite of policy measures aimed at boosting domestic production— such as the Hydrocarbon Exploration and Licensing Policy (HELP), the Discovered Small Fields (DSF) policy, gas pricing reforms, and reduced royalty rates for deepwater, ultra-deepwater, and high-pressure/ high-temperature areas.
  • India is believed to hold yet-to-find potential of 13 billion tons of oil equivalent. Currently, the petroleum industry is burdened by delays in obtaining environmental and forest clearances, complexities in land acquisition, absence of comprehensive standards, procedures, and guidelines for operational and safety compliance.

Significance of Amendment: 

  • The broader definition (of mineral oils) enables the efficient exploration, development, and production of both conventional and unconventional hydrocarbon resources without any policy confusion.
  • The regulatory changes (such as separation of leases) seek to simplify and streamline the regulatory environment, for the petroleum and energy sectors in India, by eliminating redundant or irrelevant approvals.
  • By shifting from criminal penalties to administrative fines for minor infractions, companies can focus on compliance and operational improvements without the fear of severe legal consequences. This will foster a more predictable environment, encourage innovation, and streamline the regulatory process.
  • The ‘zero interference’ promise by the government to the private sector would enhance India’s domestic output and cut down its reliance on oil imports. 

These reforms are designed to enhance exploration and production. Achieving a meaningful reduction in import dependency will require a sustained and significant growth in domestic production, particularly in oil, natural gas, and deployment of renewable energy. 

Production Linked Incentive

Context: The Government’s flagship Production Linked Incentive (PLI) scheme has been a mixed bag so far in terms of job creation.

Relevance of the topic:

Prelims: Key features of the PLI scheme

Mains: Significance of PLI Scheme; Challenges associated with PLI Scheme. 

About the PLI Scheme: 

  • The Production Linked Incentive (PLI) scheme refers to a rebate given to producers. This rebate is calculated as a certain percentage of sales of the producer (sales referred to in it can be total sales or incremental sales). 
  • The incentive percentages vary across sectors calculated on the basis of incremental sales, ranging from as low as 1% for the electronics and technology products to as high as 20% for the manufacturing of critical key starting drugs and certain drug intermediaries.

Key Features of the PLI Scheme:

  • Outcome-based Incentives: Incentives will be disbursed only after the production has taken place. 
  • Incremental Production Focus:
    • The calculation of incentives is based on incremental production at a high rate of growth. 
    • In some sectors such as advanced chemistry cell batteries, textile products and the drone industry, the incentive will be calculated on the basis of sales, performance and local value addition done over the period of five years.
  • Emphasis on Scale: The scheme focuses on size and scale by selecting producers who can deliver high volumes.
  • Strategic Sectors: Sectors chosen include, those with:
    • Cutting-edge technology
    • Potential for integration with global value chains
    • High job-creation capacity
    • Sectors closely linked to the rural economy. 
  • WTO Compliance: The scheme is designed to align with World Trade Organisation (WTO) commitments, as the quantum of support is not directly linked to exports or value-addition.

Coverage of the Scheme:

The PLI scheme has been rolled out for manufacturing in 14 sectors. 

  1. Key Starting Materials (KSMs)/Drug Intermediates (DIs) and Active Pharmaceutical Ingredients (APIs): Department of Pharmaceuticals
  2. Manufacturing of Medical Devices: Department of Pharmaceuticals
  3. Pharmaceuticals drugs: Department of Pharmaceuticals
  4. Large Scale Electronics Manufacturing: Ministry of Electronics and Information Technology
  5. Electronic/Technology Products: Ministry of Electronics and Information Technology
  6. Telecom & Networking Products: Department of Telecommunications
  7. Food Products: Ministry of Food Processing Industries
  8. White Goods (ACs & LED): Department for Promotion of Industry and Internal Trade
  9. High-Efficiency Solar PV Modules: Ministry of New and Renewable Energy
  10. Automobiles & Auto Components: Department of Heavy Industry
  11. Advance Chemistry Cell (ACC) Battery: Department of Heavy Industry
  12. Textile Products: MMF segment and technical textiles: Ministry of Textiles
  13. Specialty Steel: Ministry of Steel
  14. Drones and Drone Components: Ministry of Civil Aviation

Significance of PLI Scheme:

  • Utilising the comparative advantage: In some sectors the domestic industry has comparative advantage over other countries, focusing on these sectors could generate higher returns. For instance The Indian pharmaceutical industry is the third largest in the world by volume and 14th largest in terms of value. It contributes 3.5% of the total drugs and medicines exported globally.
  • Increased ability to tap the high global and domestic demand: This will help satisfy the growing domestic demand in the respective sectors and also give a fillip to exports.
  • Developing the nascent but high-potential sectors: These sectors may not be significant but in the present socio-economic context, present high potential. The growth of the processed food industry leads to better prices for farmers and reduces high levels of wastage.
  • Attract Global Manufacturers: The renewed scheme could attract big global IT hardware manufacturers to shift their production base to India and give a boost to local production of laptops, servers and personal computers among others.
  • Generate Employment: The expected incremental production value could touch Rs 3.35 lakh crore, and the scheme could generate 75,000 direct jobs – in total, the employment figure could touch 2 lakh when accounted for indirect jobs.
  • Increase Exports: The IT hardware industry is targeted to reach a production of $24 billion by 2025-26, with exports anticipated to be in the range of $12-17 billion during the same period. This revised PLI is expected to serve as a major catalyst for both global and domestic companies aiming to establish or expand their IT hardware manufacturing operations in India,

Potential Issues with the Scheme: 

  • Absence of Common Parameters: DPIIT has raised concerns there were no common set of parameters to understand the value addition by companies that have received or are likely to receive incentives under the PLI scheme. At present, different ministries monitor the value addition of their respective PLI schemes. There is no way to compare two different schemes.
  • Multiple Deliverables: Also, there are various deliverables such as the number of jobs created, the rise in exports and quality improvement. There is no centralised database to gauge all these.
  • Steep Targets: Departments and ministries which interact with companies operating in their sector also face certain specific issues. For instance, at times, the target for companies to qualify for incentives are too steep. As for the Information Technology hardware sector, until last fiscal, only 3-4 companies managed to achieve the incremental sales targets to qualify for the PLI scheme out of the 14 companies that had been approved.
  • Designing sector specific incentives: The implementation of PLI scheme in the Electronics sector and Pharmaceutical sector has highlighted that every sector has to have different eligibility thresholds. Given the large range of activities covered in the 10 sectors, effectively determining the thresholds for each could become a difficult task.
  • Interfering with natural economic processes: In the long run, an economy can become competitive only when sectors can die and be born. Resources get reallocated to sectors that see higher productivity growth. External interference may hinder optimised allocation of resources.
  • Relative disadvantage for sectors with no incentives: The limited resources of the economy in the form of Capital and human resources will be nudged towards incentivized sectors thus indirectly disincentivizing other sectors.

What can be done to further Improve the Scheme?

  • Pre-defined Sunset clause on scheme: It will not only be beneficial for the sector in the long-term, it will also encourage the individual players to see it as a one-time opportunity for capacity building.
  • Improve technological competence: The breathing room created by these incentives could be used by the industry players to increase their technological competence and transition towards becoming globally competitive.
  • Improve business environment: It can be done by improving transparency and predictability in the policy framework. For example, simplification of the taxation regime or easing the land acquisition process etc. This becomes even more important for industries which are outside the purview PLI Scheme.
  • Managing the real exchange rate better to strengthen the export regime: The real exchange rate (adjusted for inflation) in India has appreciated 19% in the last decade on account of both Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI). This appreciation negatively affects the overall exports.
  • Augment industrial infrastructure and connectivity by increasing expenditure on infra creation for improved competitiveness.
  • Regular scheme review to keep track of progress and address concerns over raw materials, funds, skilled workforce, payments etc
  • Increased investments in innovation, research and skill development is necessary to build talent for PLI success. 

Conclusion:

  • The scheme and its associated ecosystem have ensured that India is well-positioned to develop resilient GVCs, which will continue to provide national security in the evolving global scenario.
  • However, the incentives should be well-crafted and temporary so that the industries receiving support can mature and become economically viable without protection. Keeping them in place for too long may slow down, rather than accelerate growth in these sectors.

Time to Review Inflation Targeting

Context: Despite extensive research and econometric studies, there is no conclusive evidence that inflation targeting is the most effective monetary policy framework. 

What is Inflation Targeting?

  • Inflation Targeting is a monetary policy framework where the Central Bank of a country aims to maintain the rate of Inflation within a targeted (pre-defined) range. 
  • India adopted inflation targeting through the Monetary Policy Framework Agreement in 2015, signed between the Reserve Bank of India (RBI) and the Central Government. 
  • Objective: RBI's primary objective would be to maintain price stability while keeping in mind the objective of growth. 
  • Target: The RBI is required to maintain inflation of 4% (with a deviation of +/- 2%), i.e., between 2% to 6%.

Why the Need to Review Inflation Targeting?

1. Inflation-Growth Dichotomy:

  • Inflation targeting relies on contractionary monetary policy (higher interest rates) to control inflation. However, such a policy would lead to an increase in rate of interest on loans, will raise borrowing costs, reduce private investment and consumption expenditure, thereby causing a decline in GDP growth rates. 

2. Persisting Inflation:

  • In Inflation targeting, controlling the money supply only alters demand-side inflation but does not address the inflation caused by supply-side constraints. 

E.g., Rise in prices of vegetables, pulses highlight supply side constraints, which are out of the purview of the RBI and hence they continue to erode household savings.

3. Inefficient Monetary Policy Transmission: 

  • Despite a cumulative hike in repo rate of 250 bps (during May 2022 to October 2023), banks revised their marginal cost of funds-based lending rate (MCLR) only by 152 bps. Hence, the cost of credit still remains high for prospective borrowers, thereby discouraging capital investment. 

Way Forward:

  • Shift to flexible inflation targeting: Post-Global Financial crisis, the dominant view around the world is that flexible inflation targeting (FIT), rather than pure inflation targeting, is more efficient for monetary policy formulation. By FIT, during times of extraordinary shocks (pandemics or financial crises), Central banks could temporarily adjust their inflation target to allow for more economic flexibility.
  • Address supply-chain constraints: Strengthening policy coordination with the government and undertaking structural reforms in the agriculture and developing efficient logistics and transport networks to address inflationary pressure due to supply-side shocks.

House Price Index (HPI)

Context: The All-India House Price Index (HPI) of the Reserve Bank of India rose by 4.34% as of September 2024. The rising HPI shows that the house prices are on the rise in India, despite high interest rates in the banking system and inflation. 

Relevance of the Topic: Prelims- House Price Index 

What is the House Price Index?

  • Released by: Reserve Bank of India 
  • Frequency: Published quarterly.
  • Base year: 2010-11
  • Coverage: The Index tracks the price movements of residential property in ten major cities in India. (Ahmedabad, Bengaluru, Chennai, Delhi, Jaipur, Kanpur, Kochi, Kolkata, Lucknow, and Mumbai)
  • Data Source: Official data of property price transactions collected from registration authorities of respective state governments. 
  • Based on these city indices, an average house price index representing all-India house price movement is also compiled. 

Utility of House Price Index:

  • Functions as an analytical tool for estimating:
    • Changes in the rates of Real estate and mortgage defaults
    • Housing affordability  
  • Used by policymakers and banks to assess the impact of monetary policy on the housing sector and assists in framing housing and urban development schemes. 

Riyadh Design Law Treaty 

Context: India has signed the Riyadh Design Law Treaty to foster inclusive growth and strengthen India’s intellectual property (IP) ecosystem. 

Relevance of the Topic: Prelims: Riyadh Design Law Treaty, World Intellectual Property Organisation

About Riyadh Design Law Treaty:

  • The Riyadh Design Law Treaty (DLT) was adopted under the World Intellectual Property Organisation (WIPO). 
  • Aim: To harmonise procedures and simplify registration processes of industrial designs in different countries.
  • Key Features: 
    • The DLT introduces a standardised framework for design registration, reducing complexity and administrative burdens for applicants. 
    • Applicants can file multiple designs in a single application, saving time and costs.
    • It provides a mechanism to restore rights in case of lapses, ensuring that applicants can recover lost opportunities. Provisions have been added to make it easier to correct or add priority claims.
    • It encourages countries to adopt electronic systems for design registration and facilitate the digital exchange of priority documents, reducing cost and time for startups.
Riyadh Design Law Treaty 

About World Intellectual Property Organisation: 

  • The World Intellectual Property Organisation (WIPO) is the United Nations Agency.
  • WIPO was created to:
    • develop an international intellectual property (IP) system that encourages innovation and creativity.
    • promote and protect intellectual property (IP) across the world by cooperating with countries as well as international organisations and resolve disputes. 
  • Established in 1967.
  • Membership: 193 member states. 
  • Headquarters: Geneva, Switzerland.

What are Intellectual Property Rights?

  • Intellectual property rights (IPRs) are the rights given to persons over the creations of their minds. They usually give the creator an exclusive right over the use of his/her creation for a certain period of time. 
  • There are various types of IPRs, for E.g., Patent, Trademark, Copyright, Industrial design etc. 
What are Intellectual Property Rights?
  • India is a signatory to Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which sets global standards for intellectual property protection. 
  • India has formulated the National IPR Policy 2016 to strengthen the Indian IPR ecosystem including- speeding up registration proceedings and reinforcing enforcement mechanisms and processes for all IP rights. 

Indian Designs Act, 2000: 

  • Industrial design is a specific IPR which protects the aesthetic or outward appearance of a product such as its unique shape, pattern and colour combinations. Some examples of industrial design include:
    • Unique shape of an iPhone
    • Shape of a Coca-Cola bottle
    • Outward appearance of a Volkswagen Beetle. 
  • India provides legal protection for industrial designs under the Designs Act, 2000 and the associated Designs Rules, 2001.
    • The registered design is protected for the period of 10 years from the date of registration of the design, which can be further renewed to 5 more years. 

What can India gain from Riyadh DLT?

  • Streamlined procedures: 
    • Simplified applications procedures for filings licenses and recording changes in design licences.
    • Single application and submitting a limited number of documents as per international best practices to the IPR office.

This will make it easier, faster, and more affordable for designers to protect their work internationally.

  • Flexibility in Compliance: The DLT allows applicants to request a deferment of the publication of their designs by the IP Office and provides a grace period that enables applicants to seek design protection even after their designs have been publicly disclosed.
    • Deferment allows the designers to delay the public disclosure of their design for a specific period (keep the design confidential until they are ready to launch the product in the market). 
    • The Indian Design treaty presently does not offer a deferment of publication, and the grace period available under our law is also limited in scope. 

Linking India’s existing Intellectual property rights (IPR) initiatives with the Design Law Treaty will amplify India’s IP capacity and boost its competitiveness. 

Recommendations of EAC-PM Working Paper:

India should sign- 

  • Geneva Act of the Hague Agreement on Industrial Designs 1999:
    • The Hague Agreement allows for a single international application for design protection in multiple countries. 
    • In absence of this agreement, Indian designers have to file separate applications in each country, which is time-consuming and costly. 
  • Strasbourg Agreement Concerning the International Patent Classification 1971
  • Geneva Act of the Lisbon Agreement on Geographical Indications 2015. 

Conclusion: An industrial design framework at par with global standards is a prerequisite for India which seeks to become a manufacturing hub for the world. Signing the DLT and the other major IPR treaties to align with the international best practices will send the right signals to domestic and foreign entrepreneurs about India’s commitment as a protector of IPR and showcasing itself as an IPR-savvy destination.

About World Intellectual Property Organisation: 

  • The World Intellectual Property Organisation (WIPO) is the United Nations Agency.
  • WIPO was created to:
    • develop an international intellectual property (IP) system that encourages innovation and creativity.
    • promote and protect intellectual property (IP) across the world by cooperating with countries as well as international organisations and resolve disputes. 
  • Established in 1967.
  • Membership: 193 member states. 
  • Headquarters: Geneva, Switzerland

Need for New Seeds Act in India

Context: Recently, the 13th National Seed Congress (NSC) 2024 was held at the International Rice Research Institute South Asia Regional Centre (ISARC) in Varanasi, Uttar Pradesh. It urged the Centre government to revisit and modernise the Seeds Bill of 2004 and the Seeds Policy of 2002 to incorporate the latest developments in the seed sector.

Relevance of the topic: Mains: Need for New Seeds Act and Policy and the changes it should incorporate.  

The Seed Act, 1966, the National Seed Policy, 2002 from the basis of promotion and regulation of the Indian Seed Industry.

Why is a New Seeds Act and Policy Needed?

Need for New Seeds Act in India

India's agricultural landscape has undergone significant changes since 1966, necessitating modern legislation to address emerging challenges:

1. Outdated Provisions:

  • The Seeds Act, 1966, and Seeds Rules, 1968, and existing National Seed Policy, 2002 have not been revised to align with advancements in seed technology or international standards.
  • India’s seed quality assurance system and certification standards are much lower than global benchmarks. It needs to be strengthened to adhere to international standards.

2. No clear definition of seeds: 

  • Lack of clear definitions for "farmer seeds" and "commercial seeds" creates policy ambiguities, intellectual property disputes, quality control issues, and challenges in balancing rights of both farmers and commercial seed companies.

3. Issue with voluntary registration of Varieties:

  • The current system allows voluntary registration of seed varieties which leads to discrepancies in seed quality and traceability. Mandatory registration would enhance accountability.
  • Smallholder farmers rely heavily on informal seed systems, so often access lower-quality seeds.

4. Regulatory issues and poor implementation:

  • Delay in clearing license: The companies who invest six to eight years in R&D and develop new varieties of hybrid seeds have to wait for three more years to get required permissions from the Centre and States (difficulties of obtaining licences in every State). Because of this, the access to new technology for farmers is delayed. There is a need for a "One Nation, One Licence" policy to streamline approvals for hybrid seeds across states.
  • The outdated legislations overlap between Central and State jurisdictions, and the inconsistent implementation of policies across sectors lead to:
    • High reliance of farmers on informal seed systems.
    • Conflicts between proprietary technologies and farmers’ rights.
    • Conflicts over royalties and technology-sharing agreements.

This creates roadblocks for the seed sector’s development.

5. Lack of consensus on GM Crops and Technology:

  • Lack of consensus and regulatory framework on genetically modified (GM) crops delays self-sufficiency in critical sectors, like edible oil production. E.g., India imports edible oil from Canada, U.S. and Brazil, etc., but they use genetically modified seeds.

6. Limited Research and Development (R&D):

  • Limited investment in research and development and over-dependence on imported germplasm for advanced hybrids. 

7. For preservation of traditional seed varieties: 

  • For e.g., India over 3,000 varieties of traditional rice and their seeds should be preserved.

Changes that New Seeds Act and Policy should incorporate:

  • The Regulation should include seed pricing, seed supply and decentralised seed planning/ production in addition to regulation of quality.
  • Must uphold farmers' rights of breeding, selecting, saving, using, exchanging/ bartering, distributing and selling seeds.
  • Simplified licensing and certification processes, strengthening intellectual property protections to uphold the rights of companies, foster innovation and enhance ease of doing business. 
  • Each license should be reviewed after some years (3- 5 years) and renewal should be allowed based on actual performance. 
  • Strong punitive clauses which act as deterrents, based on standard formulae to calculate penalties.
  • Appropriate compensation clauses for speedy redressal to farmers who have incurred losses due to seed failure - this should be linked to an insurance system and should be based on calculations that consider loss in yields as well as cost of cultivation.
  • Multi-Iocational agronomic trials of seeds before commercialisation to be undertaken in a scientific manner to ensure region-specific performance.
  • Should exclude traditional practices of farmers of seed production, sale and exchange from its purview.
  • Harmonisation of the new legislation with the Protection of Plant Variety and Farmers Rights Act (PPV & FR), 2001 and the Biodiversity Act, 2002.

Way Forward:

  • Build a road map to ensure that farmers receive high-quality seeds at reasonable prices and on time. (Good quality seeds can boost production by 20%) 
  • Invest in promoting innovative seed technologies for farmers including hybrid and biofortified crops, stress-tolerant varieties, and accelerated breeding cycles. 
  • Developing seed parks, enhancing seed entrepreneurship, improving supply chains, and building capacity among farmers through Public-Private Partnerships in the sector.
  • Utilising advanced technologies and satellite data to optimise crop production. E.g.,
    • The Ministry of Agriculture has released an ‘Abstract Compendium’ and the ‘Rice Fallow Webpage and Atlas’ for Bihar, Chhattisgarh, Jharkhand, and West Bengal. 
    • The atlas will use geospatial technology to map and analyse fallow lands in eastern India to optimise crop planning, enhance system intensification, and improve food security in the region. 

Conclusion: The New Seeds Act and Policy must be in tune with the contemporary situation in the seeds sector and must incorporate the concerns of farmers. A balanced focus on innovation, farmer empowerment, and policy reforms can pave the way for a resilient and globally competitive seed industry. 

First Offshore Mineral Auction

Context: The Central government has recently launched India’s first-ever tranche of e-auction for mineral blocks in the offshore areas of India. 

Relevance of the Topic: Prelims- Facts about Critical Minerals, Offshore Mining Initiative, MMDR Act.

Major Highlights of Offshore Mining Initiative:

  • First Tranche of E-Auction: Includes 13 mineral blocks in the Arabian Sea and Andaman Sea, comprising of construction sand, lime-mud and polymetallic nodules and crusts. 
  • Offshore Mining Areas include: Territorial waters, continental shelf, exclusive economic zone (EEZ) and other maritime zones under India's jurisdiction.
  • Objectives:
    • Reduce import dependence of critical minerals.
    • Increase the availability of mineral resources through offshore explorations.
    • Enhance the domestic capability to adopt sustainable mining practices.
  • The development and regulation of offshore mineral resources in India is governed by the Offshore Areas Mineral (Development and Regulation) Act, 2002. 
  • Challenges in Offshore Mining: 
    • Higher operational costs and technical challenges. 
    • Environmental risks
      • Marine habitat destruction
      • Disruption in ocean carbon cycling and storage.

What are Critical Minerals?

  • Critical mineral are metallic or non-metallic elements that are:
    • Essential for modern technologies, economy and national security, such as electronics, renewable energy, and defense.
    • Subject to distrution of supply chain, often due to limited reserves, geopolitical issues, or complex processing.

Utility of Critical Minerals:

  • Renewable Energy sector: Graphite, Lithium, Cobalt, and Nickel are key components of batteries for electric vehicles (EVs).
  • Defense and Aerospace: Tungsten, molybdenum, and REEs are used in advanced weaponry, satellites, and aircraft.
  • High-Tech Manufacturing: REEs, Indium, and Gallium are used in electronics, semiconductors, and renewable technologies.
  • Agriculture: Fertiliser minerals like potash and phosphate. 

Critical Minerals in India:

  • Different countries create their own lists of critical minerals based on their individual needs and strategic considerations. In 2023, the Ministry of Mines classified 30 minerals as critical minerals. 
    • The list comprises 30 minerals including 17 rare earth elements (REEs) and six platinum-group elements (PGE). 
    • Ten minerals on the list are 100% import-dependent, including- Lithium, Cobalt, Nickel, Vanadium, Niobium, Germanium, Rhenium, Beryllium, Tantalum, and Strontium.
  • India relies heavily on imports (mostly from China) for critical minerals. The demand for these minerals may more than double by 2030. 

Global Distribution: 

  • China is the world’s largest producer of 16 critical minerals. China is responsible for 60% of global production of rare earth elements. 
china critical mineral production
rare earth reserves

Steps taken by the Government of India: 

1. MMDR Amendment Act, 2023:

  • The Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act) is the primary legislation governing the mining sector in India. 
  • The MMDR Amendment Act, 2023:
    • Empowers Central Government to exclusively auction mining lease and composite licence for 24 critical and strategic minerals (listed in the Part-D of the First Schedule to MMDR Act). 
    • Opened mining of critical minerals to private players which was previously limited to public sector undertakings.
    • To boost exploration, Exploration Licence for reconnaissance and prospecting operations has been introduced for 29 deep-seated minerals.

2. Establishment of KABIL:

  • A Joint Venture Company among NALCO, HCL and MECL named Khanij Bidesh India Limited (KABIL) was formed in August 2019. 
  • KABIL's mandate is to ensure India's supply of critical and strategic minerals:
    • Identifying, exploring, acquiring, developing, mining, and processing strategic minerals. 
    • Focus on procuring battery minerals like Lithium and Cobalt.

3. Global Partnerships:

  • India has joined the Mineral Security Partnership with 13 countries, including the U.S., Australia, and Japan aimed to catalyse public and private investment in critical mineral supply-chains globally.
  • India has signed an agreement with Argentina for lithium exploration through KABIL (Khanij Bidesh India Limited).
  • India-Australia has signed the Critical Mineral Investment Partnership for investment in critical mineral projects and for developing supply chains between these two nations.

4. Offshore Mining Initiatives: 

  • Offshore Areas Mineral (Amendment) Act, 2023 introduced transparent and non-discretionary auction process to allocate operating rights in the offshore areas.
  • Deep Ocean Mission to explore the deep ocean to extract polymetallic nodules.
  • National Geoscience Data Repository (NGDR) hosts all exploration related geoscientific data to facilitate the exploration. 

India-US semiconductor Partnership

Context: The Indian government has been consistently giving a push to the semiconductor sector in India. In the light of the recent re-election of Donald Trump as US President, it is important to see how the existing cooperation in critical technology sectors like semiconductor shapes up. 

Relevance of the topic:

Prelims: Key facts about Semiconductors, India-USA Semiconductor Partnership, India Semiconductor Mission (ISM)

Mains: Role of semiconductors in economic growth (factors favouring & challenges associated) 

About Semiconductors

  • Definition: Materials with electrical properties that fall between those of conductors (e.g., metals) and insulators (e.g., rubber).
  • They are sometimes referred to as integrated circuits (ICs) or microchips made from pure elements, typically silicon or germanium, or compounds like gallium arsenide. 
  • Key Components: Diodes, transistors, microchips, photovoltaic cells, LEDs, and mounted piezo-electric crystals.
  • Applications: 
    • Electronics: Foundational components in computers, smartphones, LEDs.
    • Renewable Energy: Used in solar cells.
    • Defence and Space: Integral to missile guidance systems and satellite communication. 

India’s Semiconductor Industry:

  • Current Scenario: Valued at US$ 26.3 billion in 2022; projected to grow at a CAGR of 26.3% to US$ 271.9 billion by 2032.

Factors favouring India:

  • Skilled Workforce: India produces a record number of Science, Technology, Engineering and Mathematics (STEM) graduates annually, which offers the much-needed skilled workforce. 
  • Strong R&D: India leads globally in semiconductor chip design, research & development.
  • Cost Advantages: Lower labor costs compared to developed nations.
  • Global Supply Chain Diversification: India has become a preferred destination for back-end assembly and testing operations amidst diversification of global supply chains to reduce reliance on China. India can position itself as an alternative manufacturing hub.
  • Policy Support: India Semiconductor Mission (ISM), 100% automatic route for investments in the Electronics Systems Design & Manufacturing (ESDM) sector, Establishment of semiconductor plants. (In February 2024, the government approved the establishment of three semiconductor plants, two in Gujarat and one in Assam) 

India Semiconductor Mission (ISM)

  1. Launched in 2021 with a financial outlay of ₹76,000 crore
  2. Aim: To promote the domestic semiconductor industry through incentives and strategic partnerships.
  3. Focus Areas:
    1. Integrated Circuit (IC) design and manufacturing
    2. Semiconductor packaging and assembly
    3. Testing and validation of semiconductor devices
    4. Advanced materials and process technologies
    5. Design automation and tool development
    6. Skill development and human resource capacity building
  • Implementing agency: Ministry of Electronics and Information Technology (MeitY). 
  • Under ISM, government offers incentives to attract investment in semiconductor and display manufacturing:
    • Semiconductor Fab Scheme: Fiscal support on project costs for semiconductor fabs across all technology nodes.
    • Display Fab Scheme: Fiscal support of 50% for setting up display fabs for advanced display technologies.
    • Compound Semiconductor Scheme: Fiscal support of 50% of the capital expenditure for compound semiconductors, discrete semiconductor fabs, ATMP units, and semiconductor packaging.
    • on an equal footing basis, including support for discrete semiconductor fabs.
    • Design Linked Incentive (DLI) Scheme: Promotes domestic semiconductor design companies by providing financial incentives of up to 50% of eligible expenditures. Includes reimbursement for approved costs of software tools, IPs, and prototyping.

India-USA Semiconductor Partnership:

1. iCET (Initiative on Critical and Emerging Technologies):

  • Launch: 2023 
  • Objective: Foster collaboration in critical technologies like semiconductors, AI, 5G, and quantum computing. 
  • Significance:
    • Facilitates dual-use technology transfer.
    • Streamline defense and tech cooperation via frameworks like INDUS-X.
    • Promotes R&D and encourages co-investments in semiconductor design and manufacturing.

2. CHIPS Act Collaboration:

  • International Technology Security and Innovation (ITSI) Fund:
    • Created under the US CHIPS Act (2022).
    • Supports India's efforts to enhance its semiconductor ecosystem by funding critical infrastructure and R&D. 
    • Facilitates cross-border investments and diversification of global supply chains.

3. INDUS-X Initiative:

  • Collaboration between: India's iDEX (Innovations for Defence Excellence) and the US Defense Innovation Unit (DIU).
  • Purpose: To promote innovation in defense technologies, including semiconductors for military applications.
  • Focus: Security-focused chip designs; applications in green energy and telecommunications.

4. Shakti Fab:

  • Description: A proposed semiconductor fabrication plant in India, developed in collaboration with the US Space Force and Indian private players like Bharat Semi and 3rdiTech. 
  • Focus Areas: 
    • Production of multi-material chips for national security, green energy, and telecommunications.
    • Enhancing India's chip manufacturing capabilities for strategic applications.

The partnership is important for several reasons, including:

  1. Reducing reliance on China for semiconductors, which are an essential component of many modern products.
  2. Building a strong relationship for India and the US to stand up to China's growing influence.
  3. Making the global supply chain more stable and secure. 
semiconductor mission

What are the challenges facing India?

  • High Cost of establishment: Fabs are highly capital-intensive undertakings, costing billions of dollars for large facilities. As per a government estimate, it would cost roughly $5-$7 billion to set up a chip fabrication unit in India.  
  • Low Ease of doing business: The process of establishing an indigenous semiconductor facility requires clearances and approvals from multiple government departments. 
  • Technological Constraint: The indigenous manufacturing of semiconductors requires the use of high-end technologies. These technologies are licensed from patent holders at a very high price.
  • Lack of Fabrication Capacities: India has a decent chip design talent but it never built up chip fab capacity. The ISRO and the DRDO have their respective fab foundries but they are primarily for their own requirements and are also not as sophisticated as the latest in the world.
  • Structural constraint: FDI in electronics is less than 1% of the total FDI inflow because of the dearth of skilled labor, delays in land acquisition, and the uncertain tax regime.
  • Unstable power supply: The smooth production of semiconductors requires the availability of an uninterrupted 24*7 power supply. They require a highly reliable and high-quality supply of water, electricity, and insulation from the elements, reflecting the high degree of precision, cost and capital needed to make the sophisticated circuits.
  • Resource Inefficient Sector: Chip fabs require millions of litres of clean water, an extremely stable power supply, a lot of land and a highly skilled workforce.

Conclusion: The India-US semiconductor partnership holds the potential to transform India into a significant player in the global semiconductor ecosystem. With strategic investments, robust domestic policy support, India can achieve technological self-reliance while contributing to global supply chain resilience. 

PAN 2.0 Project 

Context: The Cabinet Committee on Economic Affairs (CCEA) has approved for the PAN 2.0 Project of the Income Tax Department. The PAN 2.0 Project will cost Rs 1435 crore.

Relevance of the topic: Prelims- Key facts about PAN 2.0.

About PAN 2.0 project

  • Aim: To modernise the existing PAN system, introducing new features such as a QR code and transforming PAN into a common identifier for businesses and digital systems.
  • Key Features:
    • It is an upgrade from the current PAN/TAN 1.0 ecosystem to incorporate core and non-core PAN/TAN activities under a unified, paperless, online system.
    • A QR code will be integrated in all new and old PAN cards. Existing PAN card holders can upgrade their PAN cards free of cost. 
    • PAN will be made as a common business identifier for all digital systems of specified government agencies and businesses. All PAN/ TAN/ TIN will be clubbed under this system.
  • PAN 2.0 project aims to set up a unified portal along with a “mandatory PAN data vault system” for all entities using PAN data. This is being done for data protection and cybersecurity purposes.
    • The entities such as banks, insurance companies etc. who take details of PAN will have to keep PAN data safely, mandatorily through the data vault system.
PAN 2.0 Project 

Benefits of PAN 2.0:

  • Ease of access and speedy service delivery with improved quality 
  • Single Source of Truth and data consistency
  • Eco-friendly processes and cost optimisation; and
  • Security and optimisation of infrastructure for greater agility. 

Significance:

  • For businesses, PAN 2.0 would offer a seamless, common system for filing various tax challans and returns.

Existing identification numbers:

1. Permanent Account Number: 

  • Permanent Account Number (PAN) is a 10-digit alphanumeric number that enables the Income Tax Department to link all transactions of a person with the department. These transactions include tax payments, Tax Deducted at Source (TDS) / Tax Collected at Source (TCS) credits, returns of income, specified transactions. 
  • PAN acts as an identifier for the person with the tax department. Once PAN is allotted, it remains the same forever. It is mandatory to quote PAN on filing of income tax return.

2. Tax Deduction and Collection Account Number:

  • Tax Deduction and Collection Account Number (TAN) is a 10-digit alphanumeric number issued by the Income Tax Department. 
  • TAN needs to be obtained by all persons responsible for deducting or collecting tax at source. It is compulsory to quote TAN in TDS/TCS return, any TDS/TCS payment challan, TDS/TCS certificates.

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