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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.
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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%.
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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.
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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. 

Case for Direct Cash Transfers

Context: With state governments increasingly disbursing ‘freebies’, debates have emerged regarding their economic implications on fiscal discipline. While RBI has raised concerns on rising revenue expenditure, the role of government in redistribution of resources cannot be overlooked.

Relevance of the Topic: Mains: Direct Cash Transfers, Subsidies and Freebies- Impacts

Role of the State in Redistribution of Resources

  • As defined in public economics, the role of the state is to bring about effective redistribution of resources. 
  • The principles of taxation envisages a progressive tax structure where the more affluent pay higher taxes. 
  • The revenue earned is used in social welfare and in building social and economic infrastructure. 

Approaches of Redistribution of Resources: 

  • Social Infrastructure development:
    • One form of redistribution is by creating hospitals, schools, roads, irrigation facilities, etc. which benefits people. 
    • Normally, these facilities would not be used by people in the higher income groups, and hence there is matching of expenses with the beneficiaries.
  • Subsidies:
    • The other approach to redistribution is through the subsidy schemes. These include subsidies on food, fertilizer, housing loans, etc.
      • Loan waivers help farmers when crops fail. 
      • Subsidised meals in certain States benefit street vendors, drivers, etc. 
      • Freebies like cycles, laptops and sewing machines have been given to girls/women to empower them.
    • These forms of transfers have helped improve the living standards of people.
  • Cash Transfers:
    • The PM Kisan Samman Nidhi scheme gives ₹6,000 a year to every farmer. 
    • MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act, 2005) programme gives employment for 100 days at an average wage of around ₹250 a day. 
    • Free power and irrigation is given to farmers by State governments. 
    • Cash transfers to women are also done in some states. (E.g., Mukhyamantri Majhi Ladki Bahin Yojana, Maharashtra)
Case for Direct Cash Transfers

Arguments Supporting Cash Transfers:

  • Multiplier Effectson the Vulnerable Groups:
    • Consider the case of cash transfers to women or free travel facilities.
      • Socially, women have been empowered with such transfers and are able to lead a more dignified life. 
      • Free transport encourages women to take up jobs and girls to attend school. 
  • Increases Consumption Expenditure:
    • The free food scheme (PMGKAY) of the Central Government releases considerable resources of the poor population, which they can use for buying other goods. 
    • As per NSSO Household Consumption Survey, people were spending less on food and moved up the ladder. This was possible as basic food was provided by the government. 
    • Even in the case of the PM Kisan scheme, the cash given is used exclusively for consumption. 

Also Read: RBI asks States to sustain Fiscal Prudence 

Way Forward: Balancing Welfare and Fiscal Responsibility

  • Targeted allocation: To ensure benefits reach the most deserving segments.
  • Conditional cash transfers by linking handouts to social objectives, such as education and employment.
  • Fiscal Prudence: By monitoring expenditures to prevent unsustainable fiscal deficits.

Also Read: Do new schemes ahead of elections amount to ‘voter bribes’? 

Freebies, if well-targeted and fiscally sustainable, can serve as effective redistribution tools. Governments must balance welfare spending and capital investments to ensure inclusive and sustainable development. 

Rupee's Real Effective Exchange Rate soars High

Context: While the rupee is hitting fresh lows against the US dollar each day, its exchange rate has scaled an all-time-high in “real effective” terms. The real effective exchange rate (REER) index of the rupee touched a record 108.14 in November, strengthening by 4.5% during the calendar year 2024. 

Relevance of the Topic: Prelims: Real Effective Exchange Rate, Nominal Effective Exchange Rate

What is Real Effective Exchange Rate (REER)?

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  • Real effective exchange rate (REER) is the weighted average of a country's currency in relation to an index or basket of other major currencies. The weights are determined by comparing the relative trade balance of a country's currency against that of each country in the index.
  • Function: REER is used to understand how well a currency is doing with respect to other currencies and also with respect to itself in the past. 
  • Interpretation: 
    • An increase in a nation's REER is an indication that its exports are becoming more expensive and its imports are becoming cheaper, reducing its trade competitiveness.
    • A decrease in REER denotes depreciation in rupee’s value, whereas an increase reflects appreciation.
  • REER above 100 denotes that the home currency is overvalued and more expensive compared to its competitors.

What Is the Nominal Effective Exchange Rate (NEER)?

  • Nominal effective exchange rate (NEER) is an unadjusted weighted average rate at which one country's currency is exchanged for a basket of multiple foreign currencies. 
  • NEER is an economic indicator of a country's international competitiveness in terms of the foreign exchange (forex) market. 
  • The Reserve Bank of India has constructed NEER indices of the rupee against a basket of 6 and also of 40 currencies.
    • The former is a trade-weighted average rate at which the rupee is exchangeable with a basic currency basket, comprising the US dollar, the euro, the Chinese yuan, the British pound, the Japanese yen and the Hong Kong dollar. 
    • The latter index covers a bigger basket of 40 currencies of countries that account for about 88% of India’s annual trade flows.
  • A nation's nominal effective exchange rate (NEER), adjusted for inflation in the home country, equals its real effective exchange rate (REER).

What are the implications of soaring REER?

  • The real effective exchange rate (REER) index of the rupee touched a record 108.14 in November 2024. 
  • A rising REER indicates that India’s exports are becoming less competitive globally due to higher prices, while the imports are becoming cheaper. That translates into a loss of trade competitiveness and can potentially widen the trade deficit. 

Why are Green Deposits struggling?

Context: In April 2023, the Reserve Bank of India (RBI) had issued a comprehensive framework for lenders to accept green deposits. It was done with the intent to enable the lenders and customers to further the green cause. However, over 20 months since its introduction, banks still face hurdles in pricing and public engagement.

Relevance of the topic:

Prelims: Key features of Green Deposits.

Mains: Green Deposits- Bottlenecks, Way Forward

What are Green Deposits?

  • A green deposit is a fixed-term deposit for investors looking to invest their surplus cash reserves in environmentally friendly projects.
    • Lenders shall issue green deposits as cumulative/non-cumulative deposits. 
    • On maturity, the green deposits can be renewed or withdrawn at the option of the depositor.
    • According to RBI norms, these deposits shall be denominated in Indian Rupees only.
  • Who can offer green deposits? All scheduled commercial banks (excluding Regional Rural Banks, Local Area Banks, and payment banks) and all deposit-taking NBFCs registered with RBI, including Housing Finance Companies.
  • RBI’s Regulatory Framework for Green Deposits lays down clear allocation guidelines for sectors eligible to receive green deposits.
  • RBI also mandates an independent annual third party audit of allocation of funds raised through green deposits to ensure compliance to green objectives. 
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Eligible sectors/projects to receive green deposits:

Excluded projects: Projects involving new or existing extraction, production and distribution of fossil fuels; Nuclear power generation; Direct waste incineration; Landfill projects; Hydropower plants larger than 25 MW, etc.

Note: Green deposits are different from green bonds. 

Challenges facing Green Deposits in India:

  • Lower interest rate: For instance, SBI offers a 7% interest rate for 2-3 year tenor retail domestic term deposit, whereas a green deposit with similar tenor has 6.65% rate of interest. Customers usually do not consider the nature of deposit as they seek higher returns.
  • Lack of alignment with green goals: Customers are neither aware of nor attracted by the philosophy behind or benefits of green deposits.
  • Poor adoption by private banks: While most public sector banks have started accepting green deposits, private banks have been slow adopters to market green deposits.
  • Absence of Indian green taxonomy: There is a lack of an established Indian green taxonomy in the green deposits framework . Establishing a green taxonomy is essential not only to define what constitutes “green” but also to enhance transparency, prevent greenwashing and effective deployment of green deposits.
    • E.g., the description of the renewable energy sector is mentioned as “incentivising adoption of renewable energy,” which is vague.
  • Weak regulatory enforcement: There are inconsistencies in operational practices across banks. E.g., one bank’s green deposit policy mentions opportunities for green investment in the highly polluting oil and gas sector, raising questions of legitimacy and greenwashing. 

RBI has not enforced any penalties for non-compliance or partial compliance with its related guidelines. 

Way Forward

  • Reduction in CRR: Lowering cash reserve ratio (CRR) requirement for green deposit can boost growth and will help garner more customers.
  • Increased customer awareness:  Customers must be informed that funds they park with banks as green deposits are used for financing renewable energy projects, projects that lower carbon emission, and enable clean transportation. This can boost volumes of green deposits.
  • Streamlining ESG funds: Placing ESG funds (environmental, social and governance) of large corporations in green deposits with banks, will further the green cause.
  • Develop an Indian Green Taxonomy: Clear definition of ‘green’ projects and activities with sector-specific measurable targets. 
  • Robust Regulatory Enforcement: Imposition of penalties for non-compliance or inadequate disclosures by banks. Technological mechanism to monitor the implementation of green deposits framework to prevent greenwashing. 

Ensuring authenticity and the impact of green projects requires robust monitoring and reporting mechanisms. Technology can play a pivotal role in overcoming these challenges. 

Indian Rupee vs Dollar: Currency Exchange Rate 

Context: The Indian Rupee has been weakening in value relative to the US Dollar, for a long time. INR’s exchange rate against USD breached the 85 mark last week, i.e., now $1 = Rs 85.

Relevance of the topic:

Prelims: Exchange rate- different contexts

Mains: Factors affecting exchange rate

What is the Exchange Rate?

  • Exchange rate is the value of one currency relative to another currency.
    • It is the rate at which one can swap currencies of different countries. For instance, how many rupees would buy you a dollar or a euro. 
    • Presently, one would have to pay Rs 85 to buy $1.

What decides the Exchange Rate?

  • Demand for a particular currency decides its value relative to other currencies in the currency market.
  • If Indians demand more US dollars than Americans demand Indian Rupee, the exchange rate will tilt in favour of the US dollar.

Factors deciding demand for Rupee vis-à-vis Dollar:

  • Trade of Goods and Services: For sake of simplification, consider the case of only 2 countries- India and the US. 
  • Investments:
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Factors deciding direction of Trade and Investments:

  • Foreign trade policy:
  • Suppose the US decides to cut imports from India, demand for Indian rupees will fall. This will cause rupee depreciation.
  • High rate of inflation:
    • In the scenario where India is having an inflation rate of 6%, an American investing in India with the expectation of 10% returns annually, will ultimately get only 4% returns. 
    • Comparatively, US markets would be more rewarding, because of less rate of inflation there.
    • This will cause pull out of investments from India, and fall of demand for rupees. 

Tough Roads to Viksit Bharat by 2047

Context: Ex governor of Reserve Bank of India has raised concerns about the achievement of targets of 'Viksit Bharat’ by 2047 with the present pace of economic prospects. 

Relevance of the Topic: Mains: Analytical questions on 'Viksit Bharat by 2047’, inflation and Growth prospect in nation. 

About 'Viksit Bharat 2047’

  • Viksit Bharat 2047 is a vision introduced by the Government of India aiming to transform the country into a developed and self- reliant nation by the year 2047, marking the centenary of India's  Independence. 
  • There are various objectives of the Viksit Bharat target;
    • Economic growth and self-reliance by pushing 'Make in India’ and Atma Nirbhar Bharat scheme. 
    • Human resource development by implementing National Education Policy 2020 with efficiency and promoting skill training with PM Kaushal Vikas Yojana. 
    • Infrastructure development by fostering the growth of physical, social and digital infrastructure under Smart City initiative. 
    • Sustainable growth by reducing carbon emission by adopting alternative energy sources to achieve carbon neutrality by 2070. 
    • Promoting good governance with administrative reforms using Mission Karmyogi and e-governance. 
    • Fostering inclusive growth by raising women participation in the economy and ensuring equitable growth across the regions in the nation. 
    • Robust global leadership by strengthening the position of India in organisations like the UN, G20 and BRICS. 
'Viksit Bharat 2047’

Constraints in achieving Viksit Bharat by 2047

Various constraints in achieving the targets of Viksit Bharat exist, these are;

  • High rate of inflation: India is facing a high headline inflation, especially due to food and fuel inflation. This reduces the savings of people reducing the prospects for an investment led growth by channelising the savings. 
  • Low growth rate: India is facing a low growth rate of  about 6%, due to the underutilised potential of demographic potential in India. 
  • Populist policies: The state governments are more inclined towards the ‘freebies politics’ leaving less scope for the capital investment to foster the growth of India. 
  • Low tax to GDP ratio: India has a low tax to GDP ratio i.e., of 11.7% as compared to 40% in OECD nations impacting the revenue of the government. 
  • Substandard labour: India has only 5% of formal skilled labour as compared to 95% in South Korea, hampering the growth. 
  • Pre-mature deindustrialisation: India is facing a premature deindustrialisation, where the service sector has taken over the economy without complete actualisation of the manufacturing sector's potential. 
  • Skewed sectoral growth: A non-uniform sectoral growth leaves certain sectors like agriculture vulnerable. This restrains the growth rate of the nation. 

Way Forward to achieve Viksit Bharat by 2047

  • Rationalisation of targets: India should rationalise the targets making them more practical to achieve by tracing the growth in a phased manner. 
  • Focusing job creation: To materialise the demographic potential of India jobs need to be created by promoting labour intensive industries like textile. 
  • Promoting capital expenditure: To achieve the desired infrastructural growth India needs to focus more on the capital expenditure. 
  • Human resource development: India should focus on promoting skills and education, especially higher education in STEM (Science and technology; Engineering and Mathematics). 
  • Rationalisation of schemes: The government should rationalise the 'freebies schemes’ to focus more on developmental aspects. 
  • Deep sectoral reforms: India should implement deep sectoral reforms in the agriculture, mining and manufacturing sectors by fostering private partnership to make them a growth engine of the economy. 

Conclusion: India's target to become a developed nation by the year 2047, though there are certain challenges like high inflation, low growth, and poor human capital prospects. But, to achieve the target a holistic approach driven by the reforms need to be implemented. A phased, consultative and inclusive strategy will help India to become a 'Viksit Desh’ by 2047 in a sustainable manner. 

Rise in Net Direct Tax Collection

Context: The latest data released by the Income Tax (IT) department shows that India’s net direct tax collections grew 16.45% to Rs 15.82 trillion between April 1 and December 17 of FY-2025. The growth is largely driven by a rise in non-corporate tax receipts. 

Relevance of the Topic: Prelims: Tax Receipts- Trends, Composition, etc.

What is Direct Tax?

  • A Direct tax is imposed directly on the taxpayer and paid directly to the government by the persons (juristic or natural) on whom it is imposed. A direct tax is one that cannot be shifted by the taxpayer to someone else.
  • Central Board of Direct Taxes (CBDT) governs and administers the Direct tax.
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Direct Tax Components and Latest Trends

The some important direct taxes imposed in India are as under:

  • Corporate Tax:
    • The companies and business organisations in India are taxed on the income from their worldwide transactions under the provision of Income Tax Act, 1961.
    • Current Growth (FY 25): Grew at a slower pace of 8.6%.
  • Non-Corporate Taxes:
    • Income Tax: Income Tax Act, 1961 imposes tax on the income of the individuals or Hindu undivided families or firms or co-operative societies (other than companies) and trusts (identified as bodies of individuals associations of persons) and artificial judicial persons.
      • All residents are taxable for all their income, including income outside India.
      • Non residents are taxable only for the income received in India or Income accrued in India. 
    • Current Growth (FY 25): 22.5%.
  • Securities Transaction Tax (STT):
    • STT is levied on selling or purchasing securities on listed stock exchanges.
    • Growth: 85.5%
  • Other Taxes:
    • Include: Equalisation Levy, Gift tax etc. 
    • Growth: 5.9%.
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Significance for India’s Economy

  • Broadened Tax Base: The increasing share of non-corporate taxes indicates better tax coverage and improved tax compliance among individuals and small entities.
  • Balanced growth: Tax collection is better in both corporate and non-corporate, reflecting a balanced growth.
  • Policy Reforms Impact: Tax simplification measures and digital tax filing platforms may have contributed to higher collections by reducing procedural hurdles. 
  • Stock Market Dynamics: Higher STT tax revenue reflects robust trading activity and increased participation of retail and institutional investors in the Indian equity market.
  • Boost to Fiscal Space: Enhanced direct tax collection enhances government’s fiscal flexibility, enabling robust funding for developmental and welfare programs.

Challenges in Direct Tax Collection

  • Over-reliance on Non-Corporate Taxes: A slower rise in corporate tax revenues may reflect challenges in the corporate sector (including profitability in key industries).
  • Inequality Concerns: Higher taxes on individuals and small entities may reflect rising tax inequity, and needs to be balanced to ensure equity in taxation.
  • Refund Delays: Despite growth in refunds, delays in processing refunds remain, which impacts the liquidity of the taxpayers (particularly the small businessmen). 

Way Forward

  • Strengthen the Corporate Tax Base: Simplify corporate tax structure, encourage investment and ease of doing business to boost corporate tax revenues.
  • Encourage Compliance: Incentivise digital filing of taxes and conduct programs for awareness and financial literacy for non-corporate taxpayers.
  • Improve Refund Mechanisms: Deploy technology for quicker refund processing and reduce procedural delays.
  • Enhance Stock Market Regulation: Ensure sustainable trading volumes to maintain STT growth.

GATTi-fication of WTO

Context: The World Trade Organisation's appellate body is not fully functional from 2019, as the US is blocking appointments in the WTO's highest adjudicatory body.

Relevance of the topic:

Prelims: About GATTs and WTO

Mains: Role of WTO and concerns related to it. 

Major Highlights:

  • The appointment process to the WTO’s Appellate Body members operates by consensus, thus a member can block an appointment by formal objection.
  • In 2016, the United States blocked one proposed reappointment to the Appellate Body and since then has continued its refusal to entertain measures to fill the vacancies, citing the lack of progress toward reforms of the Appellate Body.
  • The US has accused WTO’s Appellate Body of procedural inefficiency (dissatisfaction in handling of issues like subsidies, tariffs, IPR disputes), judicial activism, and being lenient towards China.
    • As per the US, China is misusing the WTO principles to gain undue advantage in trade with the US. 
  • The step came as a response to the WTO’s decision against the US regarding protectionist trade policies to control trade from China, especially in the patent régime. 

About World Trade Organisation

  • WTO is an international organisation that regulates global trade. Established in 1995, replacing the General Agreement on Tariffs and Trade (GATT).
    • GATT was established in 1948, was a multilateral treaty aimed at promoting international trade by reducing tariffs and trade barriers. 
  • Key Principles of the WTO:
    • Non discrimination in trade i.e., no nation should be treated as less favourable. 
    • Market access by reducing tariffs and quotas. 
    • Predictability of market and trade policies. 
    • Fair competition by reducing unfair trade practices like subsidies and dumping. 
    • Development and inclusivity in the trade related growth. 
  • How does WTO differ from GATT?
    • Legal mechanism- GATT was a provisional agreement and lacked the legal status as WTO
    • Dispute resolution- GATT's decree was not legally binding unlike the WTO, where decisions are legally binding in nature. 
    • Institutional structure- GATT lacked the concrete institutional structure unlike WTO, where there is a well defined structure like Ministerial conference and General Council. 
    • Membership- GATT had contracting parties, but WTO has full time member nations. 
    • Scope- GATT was limited to goods trade. Whereas, WTO rules regulate different aspects of international trade: goods, services, and intellectual property.

GATT-fication of WTO: The term means that the WTO is losing its value as a structured dispute resolution agency and becoming a mere agreement. 

World Trade Organisation

Challenges faced by WTO include

  • Stalemate in Negotiations: Doha Development Round (2001) remains unresolved due to disagreements between developed and developing nations on issues like agricultural subsidies, industrial tariffs, and services.
  • Consensus Mechanism: In the WTO, the principle of decision making by consensus has resulted in the slowdown of multilateral agreements, as it requires 100% of the members to go forward.
  • Dysfunctional dispute settlement system: The decree of WTO council lacks implementation due to the continuous stalemate at the appellate agency.
    • The WTO appellate body has been redundant since 2019, because of US obstruction to new appointments in the body. As a result many trade disputes are pending at WTO.
  • Protectionist Polices: WTO has been ineffective in controlling protectionist policies pursued by the member countries. E.g., the US misused the ‘National security clause’ to increase import duties on steel and aluminium products from China. 
  • Misuse of developing country status: Developed economies like Singapore and China have taken unfair advantage of “developing country” status to seek temporary exemptions from commitments under various multilateral trade agreements. 
  • Inequality in Global Trade: Developing countries often criticise the WTO for favouring developed nations due to imbalances in negotiation power.

Way Forward

  • Appointment of officials: Democratisation of the process of appointment of appellate body members to ensure smooth functioning of WTO. 
  • Democratisation of power: Reforms to provide developing countries more power in WTO to ensure balance in power dynamics, presently tilted in the favour of developed nations. The reforms are needed to reduce the misuse of power. 

Conclusion: WTO is an important agency to ensure free and fair trade. But politicisation of agency and geo-political tassels are pushing back the agency into the era of GATT. In the wake of rising protectionism, proliferation of exclusionary trade blocks and rising bilateral free trade agreements, it is imperative to reform the WTO system to ensure rule-based multilateral trade across the countries.

India’s Economic Growth: Positives and Concerns

Context: The Reserve Bank of India has downgraded India’s GDP growth forecast for FY2024-25 from 7.2% to 6.6%. While the government maintains that the slowing of Q2 growth is a “temporary blip”, it raises some concerns about India’s economic growth trajectory. 

Relevance of the Topic: Mains: Key trends in India’s Economic Growth- Slowdown, Positives, Challenges, Investment-led growth, etc.

Present Situation in India’s Economic Growth

  • India’s GDP growth slowed significantly in 2024 dropping to 5.4% in Q2 of FY24-25.
    • There was a dip in economic output in the first three quarters of 2024.
  • RBI downgraded FY 2024-25 GDP growth forecast from 7.2% to 6.6%.
  • India’s long-term growth rate is projected at 6.5% over the next half decade. 
  • Comparison with Asian economies: China, Japan, and South Korea grew at 8%-plus on a sustained basis during their rapid-growth phases. 
image 165

Positives Aspects of Economic Outlook

  • Increased Fiscal spending: Post-election season, the government spending is witnessing a rise.
  • Decrease in CRR requirement: Recent cut in cash reserve ratio (CRR) has freed up money kept by banks with the RBI.
  • Boosting Capital formation: The capex cycle has restarted in some sectors, and this indicates return to investment-led growth.
  • Growth in services: India’s services exports to developed markets hit a new high in October 2024.
    • Supporting factors: Disaggregation of global services value-chains, rapid increase in global cross-border telecom bandwidth, surge in remote-working, etc.
  • Potential MSME recovery: An MSME rebound could narrow the two branches of the K-shaped recovery.
    • Consumption recovery in rural areas and an improvement in salaried employment reported in the Periodic Labour Force Survey reflect increasing non-casual jobs with MSMEs. 
  • Increase in female labour force participation particularly in rural areas.
    • Around 39.6% of women with higher educational level (post-graduate and above) were reported as working in FY24, compared to 34.5% in FY18. 
    • For women with higher secondary education level, these numbers were 23.9% and 11.4%.
image 166

Concerns Remaining

  • Issue of Jobless growth: Adequacy of 6%-plus growth to generate 8 million jobs annually until 2030 is unclear.
  • Slowing down of Corporate growth: partly due to sliding consumption growth.
  • Sluggish Investments: due to softening urban demands and high food inflation.
  • Inequality in growth: Current growth trends reflect expanding wealth disparities and little scope for generational mobility.
  • Challenge in Service sector growth: India’s IT exports appear vulnerable to new technologies such as AI. 
  • Sliding credit growth: Growth in credit has been falling — for both households, as well as industry.
  • Rising NPAs:
    • There is a significant rise in NPAs in the personal loan and credit card segments. 
    • Both these types of credit are unsecured and carry high interest rates.
  • Savings-Investment Gap:
    • RBI’s latest Financial Stability Report shows Net financial savings of households fell to 5.3% of GDP in FY23 from 7.3% in FY22. 
    • Rising household debt, especially in loans, poses risks to future savings and economic stability.
  • Complex Tax laws: India’s tax laws and its administration is the single biggest hurdle in fostering a conducive investment environment.
  • Lack of reforms: The appetite for implementing even pending Labour reforms appears diminished.
  • State-level Fiscal Challenges:
    • Increased fiscal spending by states, especially in subsidies and welfare schemes, raises fiscal discipline concerns.
    • Programs like farm loan waivers and cash transfers, while beneficial, contribute to rising food inflation. 

India’s economic future remains promising despite challenges. The need of the hour is to address structural weaknesses in the economy, boost private investment, and improve fiscal discipline to ensure continued economic growth.