Context: Overseas remittances by Indian residents under the Reserve Bank of India’s Liberalised Remittance Scheme declined by 29%, falling to $1964 million in February 2025, compared to January 2025. Remittances for travel and studies abroad declined in the wake of the sharp fall in students going abroad.
Relevance of the Topic:Prelims: Key facts about the Liberalised Remittance Scheme.
About Liberalised Remittance Scheme (LRS)
As per the Foreign Exchange Management Act, 1999 (FEMA), persons resident in India are free to buy or sell foreign exchange for any current account transaction except for those transactions for which drawal of foreign exchange has been prohibited by the Central Government.
Under the Liberalised Remittance Scheme, all resident individuals, including minors, are allowed to freely remit up to USD 2,50,000 per financial year (April – March) for any permissible current or capital account transaction or a combination of both. There are no restrictions on the number of transactions but the cumulative amount should not exceed USD 2,50,000.
The Scheme was introduced on February 4, 2004, with a limit of USD 25,000. The LRS limit has been revised in stages consistent with prevailing macro and micro economic conditions.
Remittances under the LRS facility can be consolidated (clubbed together) in respect of close family members subject to the individual family members complying with the terms and conditions of the Scheme.
The remittances can be made in any freely convertible foreign currency (apart from dollars).
Only certain capital account transactions are allowed under LRS rules such as opening a bank account abroad i.e. a Foreign Currency Account, purchasing real estate property overseas, for making investments overseas which includes investing in shares, mutual funds, and debt instruments amongst others.
The Scheme is not available to corporates, partnership firms, HUF, Trusts etc.
Who is Covered Under this Scheme?
Individuals can avail of foreign exchange facility for the following purposes within the LRS limit of USD 2,50,000 on financial year basis:
Private visits to any country (except Nepal and Bhutan)
Gift or donation
Going abroad for employment
Emigration
Maintenance of close relatives abroad
Travel for business, or attending a conference or specialised training or for meeting expenses for meeting medical expenses, or check-up abroad, or for accompanying as attendant to a patient going abroad for medical treatment/ check-up
Expenses in connection with medical treatment abroad
Studies abroad
Any other current account transaction which is not covered under the definition of current account in FEMA 1999.
Changes to LRS
The investor who has remitted funds under LRS can retain and reinvest the income earned from his investment made under the scheme. However, the received/unused foreign exchange, unless reinvested, shall be repatriated and surrendered to an authorised person within a period of 180 days from the date of such realisation.
This new rule restrains the residents from keeping money beyond six months in offshore bank accounts. The rule requires them to 'Reinvest' the unused income earned from investments made under LRS from India in foreign securities, mutual funds, properties and other permitted assets.
Union government has decided to cancel its plan to impose a 20% tax on overseas credit card spending, exempting individuals from the levy for payments up to ₹7 lakh per year.
The Finance Ministry stated that it aims to address concerns raised about the applicability of Tax Collection at Source (TCS) to small transactions under the Liberalised Remittance Scheme (LRS).
What is Tax Collection at Source?
It an extra amount collected as tax by seller of specified goods from the buyer at the time of sale over and above the sale amount and is remitted to the government account.
Issues with the new rule:
Typically, a foreign bank will have a requirement of maintenance of minimum balance but the new LRS framework does not provide flexibility to retain excess funds in the bank account beyond a period of 180 days.
Until now, the unutilised funds would mostly be parked in a bank account, which offer minimal risk of capital loss, but now the same money which needs to be invested in securities incurs a potential risk.
Need for changes:
Along with change in LRS rules, Finance minister increased tax collection at source for foreign remittances to 20%. These measures were aimed to curb remittances outflows:
LRS remittances by Indians saw a sharp uptick in the last few years, thanks to booming stock markets and other lucrative investment opportunities including cryptocurrencies.
In 2021-22, Indians sent $20 billion overseas via LRS, up from $13 billion in FY21, RBI data showed. In the period between October to December 2022, residents sent $6 billion via LRS.
Such outward remittances add pressure to the forex reserves of the country, especially when there is FPI sell-off in Indian markets due to fed-tapering or when global oil prices are already high.
Off-budget borrowings or off-budget financing generally refer to use of those financial resources by the Government for meeting expenditure requirements, which are not reflected in the budget for seeking grant/appropriation, hence remaining outside legislative control. These are financed through Government owned public sector enterprises, which raise the resources through market borrowings on behalf of the Government.
However, the Government is to repay the debt or service the debt from its budget. Therefore, off-budget borrowings involve
Payment of interest on recurrent basis and
Repayment of the borrowings from budget as and when it is due.
Reasons for rise in Off-budget borrowings:
Constrained revenue growth due to the pandemic-induced slowdown and increasing revenue expenditure have led to widening of states' fiscal deficits. This has reduced the wherewithal of states to directly fund the entities they own.
Even if states wanted to borrow more, they couldn’t without the explicit approval of, and beyond the limits set by, the central government.
Borrowing by the States: Article 293(3): A State cannot raise any loan without the consent of the Government of India if there is still outstanding any part of a loan which has been made to the State by the Government of India, or in respect of which a guarantee has been given by the Government of India. A consent under this clause may be granted by the centre subject to some conditions.The Centre has allowed States to borrow up to 3.5% of their respective state GDP and an additional 0.5% if they implement mandated power sector reforms.
Centre’s norms on Off-budget borrowings:
The off-budget debt was subjected to strict oversight after the Centre noticed many states were taking loans through their institutions, which was resulting in an incorrect assessment of their finances.
The Centra had noticed in FY22 that such off-budget borrowings would be considered as borrowings made by the state itself for the purpose of the Centre issuing its consent under Article 293(3) of the Constitution of India.
The Centre has also cleaned up its own off-budget borrowings by repaying loans such as those taken by the Food Corporation of India.
However, following the protests from several states, the Centre allowed four years till March 2026 to adjust their accumulated off-budget borrowings.
Interest free Long-term loans for Capex:
Union budget 2023-24 has proposed to continue with the 50-year interest-free loan to state governments that aid infrastructure investment. Most of it would be at the discretion of states, while parts of the expenditure will also be linked to conditions like
Economic Territory: Geographical territory administered by a government within which persons, goods and capital circulate freely. Includes:
Political frontiers including territorial waters & air space.
Embassies, consulates, military bases, etc. located abroad. (Excluding those located within the political frontiers).
Ships, aircrafts etc., operated by residents between two or more countries. For ex., Air India’s services between different countries
Fishing vessels, oil & natural gas rigs and floating platforms operated by residents of the country in the international waters or engaged in extraction in areas where the country has exclusive rights of operation.
Normal Residents’ Vs Indian Citizens
Normal Resident: Person who ordinarily resides in a country and whose centre of economic interest also lies in that country. Include both nationals (such as Indians living in India) and foreigners (non-nationals living in India).
Citizens: Include Indian nationals living within India as well as outside India.
GDP vs GNP
Resident: Economic concept; Person or an institution whose centre of economic interest lies in the economic territory of the country in which he lives.
Citizens: Legal Concept
GDP calculation: All Residents (Includes foreign Residents within India & excludes Indian Citizens outside India.)
GNP Calculation: All the citizens (Includes all Indian Citizens both inside as well as outside India)
Scope of Goods Covered
Covers all Final Goods; does not cover Intermediate Goods since it leads to double accounting.
Does not include sale of secondhand Goods; but services offered on such sales considered.
Includes even those Goods that are not marketed but produced for self-consumption.
Includes even those Goods that remain unsold; considered as addition to Inventories/ Investment.
Scope of Services Covered
Covers all services which are produced within the Country.
Does not include non-marketable services such as household chores, care for elderly etc.
Exception: Imputed rent of a building that is owned and occupied by owners themselves.
Transfer Payments
National Income should consider only the factor incomes i.e., income earned through the provision of factors of production. Hence, transfer payments i.e., old age pensions, education grants, unemployment benefits, gifts not included in the GDP Calculation.
Similarly, remittances are also not accounted for.
Production vs Product Taxes
Production Taxes: Taxes paid on land, labour, assets such as Land revenue, stamp duty, Registration fee, Professional tax. Not taxed on per unit of product.
Product Taxes: Taxes paid on per unit of product such as GST, Excise Duty, Customs duty etc.
Production vs Product Subsidies
Production Subsidies: Subsidies to the entire enterprise and not specific to product. Examples include Subsidies to Railways, Farmers, Small scale Industries etc.
Product Subsidies: Product specific subsidies such as Food, LPG, Kerosene, Fertilisers etc.
Factor Cost vs Basic Price vs Market Price
GDP is calculated by considering 3 different prices
Factor Cost: Cost of factors of Production such as land, Labour & Capital.
Basic Price (Price expected to be received by Producer): Factor Cost + Production Taxes- Production Subsidies.
Market Price (Price expected to be paid by consumer): Basic Price+ Product Taxes- Product Subsidies.
GDP at Market price = GDP at Basic price + Product Taxes- Product Subsidies
Or
GDP at Market Price = GDP at Factor Cost + Production Taxes + Product Taxes – (Production Subsidies + Product Subsidies)
Or
GDP at Market price = GDP at Factor Cost + Indirect Taxes – Subsidies
Methods for GDP Calculation
Expenditure Method
GDP = PFCE + GFCE + GCF + (X-M)
Private Final Consumption Expenditure (PFCE): Expenditure incurred by the households on Goods and Services (only Marketable services).
What does it include?
Expenditure incurred by Residents within India.
Expenditure incurred by Residents outside India (Say, Tourism, Education accounted as Imports)
Expenditure incurred by non-residents within Economic territory of India considered as Exports
Government Final Consumption Expenditure: Compensation of employees (wages and salaries + pensions) + Net purchase of goods and services + Consumption of fixed capital (CFC). Note: Excludes the transfer payment.
Gross Capital Formation (GCF): Calculated as Gross Fixed Capital Formation (GFCF) + Changes in Stocks + Net acquisition of valuables.
Gross Fixed Capital Formation (GFCF) comprises of:
Construction and Maintenance of fixed assets such Infrastructure such as Dwellings, Roads, Railways etc.
Machinery and Equipment (3) Intellectual Property Rights such as R&D, Software etc.
Cultivated biological resources - Increment in Livestock and Plantation.
Exports (X) & Imports (M): Imports need to be subtracted since National Income should consider Goods & Services produced within Economic territory.
GDP By Income Method
Compensation of employees (CE): Total remuneration in cash or in-kind payable by employers to employees for the work done. Direct social transfers such as payments for sickness, educational grants and pensions are also imputed to compensation of employees.
Operating Surplus (OS): Operating surplus for Organised sector: Retained Earnings + Dividend + Interest on Capital
Mixed Income (MI): Mixed Income for Unorganised/ Household sector: Difficult to differentiate between Employment income (Wages) & Profits (Operating Surplus)
Consumption of Fixed Assets: Rent on land, Buildings and other structures
GVA at Basic Prices = (CE+ OS/MI+ CFA) + Production Taxes – Production Subsidies
GDP = GVA at Basic Prices + Product Taxes – Product Subsidies
GDP By Production Method
Gross Value Added (GVA) = Value of Output- Value of Intermediate Consumption.
GDP at Market Price = GDP at basic Price + Product Taxes – Product Subsidies
Nominal GDP Vs Real GDP
Nominal GDP: Refers to GDP at current market prices i.e., the GDP is calculated as per the market prices for the year for which the GDP is calculated.
Real GDP: Refers to GDP at base year prices i.e., GDP is calculated as per market prices in the base year. Thus, the Real GDP negates the inflation in goods and services.
In case of high rate of inflation, nominal GDP would be quite higher than real GDP. However, in case of deflation, real GDP would be higher than nominal GDP.
GDP vs GNP
GNP = GDP + Income earned by Indians outside India – Income earned by Foreigners within India
GNP = GDP + Net Factor Income from abroad (NFIA).
Changes in GDP Estimation
Change in the base year from 2004-05 to 2011-12.
Change in the GDP estimation from the GDP at Factor Cost to GDP at Market Prices
Change in the database for capturing economic activity from RBI's database to the MCA-21 database of the Ministry of Corporate Affairs. This database is used for two purposes:
Estimate the production of goods and services in the organised sector based upon the tax returns
Extrapolate the production of goods and services in the unorganised sector based upon the organised sector activity.
Drivers of Indian Economy
According to Expenditure method, GDP is calculated as C+G+I+ (X-M) where C denotes Private final consumption expenditure (PFCE), G denotes Government Final consumption Expenditure (GFCE), I denotes Investment, X denotes Exports and M denotes Imports. PFCE accounts for the highest contribution followed by Investment.
Table: Share of Sectors in Nominal GDP (per cent)
Sectors
2019-20(1st RE)
2020-21(PE)
2021-22(1st AE)
Total Consumption
71.7
71.1
69.7
Government Consumption
11.2
12.5
12.2
Private Consumption
60.5
58.6
57.5
Gross Fixed Capital Formation
28.8
27.1
29.6
Net Export
-2.5
-0.5
-3.0
Exports
18.4
18.7
20.1
Imports
21.0
19.2
23.1
GDP
100.0
100.0
100.0
Trends in India’s GDP & Growth Rates
Both Real GDP and Nominal GDP had registered consistent increases in terms of absolute value before 2020-21. Because of covid-19, both Real GDP and Nominal GDP contracted in 2020-21. However, both Real GDP and Nominal GDP have now come back to pre-COVID levels.
The Real GDP (GDP at base year prices) has increased from 133 lakh crores in 2020-21 to 144 lakh crores in 2021-22. Similarly, the nominal GDP (GDP at current market prices) has increased from 195 lakh crores in 2020-21 to 230 lakh crores in 2021-22.
Both Real GDP & Nominal GDP Growth rate had registered consistent decline before 2020-21. Because of covid-19, both Real GDP & Nominal GDP growth rates contracted in 2020-21. However, both Real GDP & Nominal GDP growth rate have now registered positive growth rates.
Trends in Gross Capital Formation
Gross Capital Formation is calculated as Gross fixed capital formation (GFCF) + Changes in stocks (increase in stocks of inventories) + net acquisition of valuables
Gross fixed capital formation: Creation of new assets, Machinery and Equipment, R&D and Increment in Cultivated Biological Resources
Changes in Stock/Inventories: Increase in Inventory value
Valuables: Valuables include precious metals & stones, antique, other art objects and valuables.
Trends in Gross Capital Formation (GCF)
Components
2010-11
2015-16
2019-20
1. Gross Fixed Capital Formation
Public: 8%
Public: 7.5%
Public: 7%
Private: 25%
Private: 21%
Private: 22%
2. Change in Stocks
4.5%
2%
1%
3. Valuables
2.2%
1.5%
1%
Total (1+2+3)
40%
32%
31%
Important Observations
There has been a decline in GCF in the last decade from 40% to 31%.
Share of Private Investment is higher than Public Investment.
Trends in Gross Domestic Savings
Trends in Gross Domestic Savings
Sector
2010-11
2015-16
2019-20
Household
24%
18%
20%
Private Corporate Sector
10%
12%
10.5%
Public
3%
1%
1%
Total (1+2+3)
37%
31%
31.5%
Important Observations
Gross Domestic Savings is contributed by the Household sector, Private Corporate and Public Sector.
Decline in Gross Domestic Savings in the last decade from 37% to 31.5%.
The Household Sector contributes the largest share of Savings in India.
The Household Savings is categorised into:
a) Net Financial Savings
b) Physical Savings
Note: Physical Savings of household sector account for the larger share in comparison to Net Financial Savings)
Important Observations
Share of the Agriculture sector has remained stagnant around 18%, except in 2020-21, when its share increased to 20%.
Amongst the sub-sectors in Agriculture, Crops account for the highest share.
Share of the Industrial Sector has steadily declined in the last decade from 32% to 25%.
Share of the manufacturing sector has remained stagnant at 16%-17% in the last decade.
Share of the services sector has increased in the last decade from 49% to 55%.
Contribution of Sectors to India's GDP
Table: Sectoral share in Gross Value Added at Current Basic Prices
(Percentage)
S. No.
Industry
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18*
2018-19"
2019-20
2020-21"
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
I
Agriculture, forestry & fishing
18.5
18.2
18.6
18.2
17.7
18.0
18.3
17.6
18.4
20.2
Crops
12.1
11.8
12.1
11.2
10.6
10.6
10.5
9.7
10.7
-
Livestock
4.0
4.0
4.1
4.4
4.6
4.8
5.1
5.1
5.2
-
Forestry and logging
1.5
1.5
1.5
1.5
1.5
1.5
1.4
1.5
1.3
-
Fishing and aquaculture
0.8
0.9
0.9
1.0
1.1
1.1
1.2
1.2
1.2
-
II
Industry
32.5
31.8
30.8
30.0
30.0
29.3
29.2
29.0
26.7
25.6
Mining and quarrying
3.2
3.1
2.9
2.7
2.3
2.3
2.2
2.2
1.9
1.6
Manufacturing
17.4
17.1
16.5
16.3
17.1
16.7
16.6
16.3
14.7
14.3
Electricity, gas, water supply & other utility services
2.3
2.3
2.5
2.5
2.7
2.5
2.7
2.6
2.6
2.7
Construction
9.6
9.2
8.9
8.5
7.9
7.7
7.7
7.9
7.4
7.0
III
Services
49.0
50.0
50.6
51.8
52.3
52.6
52.5
53.4
55.0
54.3
GVA at basic prices
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Economic Recession in India
India has faced economic recession in 2020-21 for the first time in the last 41 years since 1979-80
Recession is defined as a fall in the overall economic activity for two consecutive quarters (six months) accompanied by a decline in income, sales and employment.
In independent India’s history, 5 such years of negative GDP growth were registered. They saw contraction of -1.2% (FY58), -3.66% (FY66), -0.32% (FY73), -5.2% (FY80) and (2020-21).
Context: Recently, the social media influencer drawn into the Cadbury’s Bournvita controversy has a supporter. The Nutrition Advocacy in Public Interest — India (NAPi), a think tank working on nutrition policy, has issued a statement saying it stands by him.
What is the controversy?
Revant Himatsingka, who calls himself @foodpharmer on social media, with 1,35,000 followers on Instagram, drew the ire of Mondelez India, the company that owns Bournvita, with his April 1 video in which he flagged the product’s high sugar content.
In January, the NAPi said that a Bournvita advertisement and product packaging was misleading and did not disclose the sugar content.
The organisation has filed a formal complaint with the Department of Consumers Affairs, working under the Ministry of Consumer Affairs, Food & Public Distribution.
It alleges the ads violate the provision of the Consumer Protection Act, 2019.
However, this has brought to the boil the real issue at hand — the Food Standards and Safety Authority of India (FSSAI) dragging its feet over implementing its own guidelines to regulate packaged and processed food.
Packaging and labelling regulations of FSSAI
As per the food safety and standards (packaging and labelling) regulations, 2011, FSSAI regulations are a complete set of guidelines that all food product brands and manufacturers should abide by. It also inflicts 12 fundamental labelling regulations for any food packaging as given below; –
Food’s name
Ingredients list
Information related to nutrition
Vegetarian or non-vegetarian declaration of food
Food additives used in the declaration
Manufacturer’s name and address
Details for customer care
Quantity
Retail price rate
FSSAI license number and logo
Batch identification number, country of origin, marketing date
Instructions for usage.
What is the permissible limit of sugar content?
The threshold for sugar to avoid warning labels is 6 g per 100 g.
In 2020, the FSSAI looked into 1,306 product samples across 30 food companies, including dairy, confectionery, sweets and snacks. None of the products could meet the requirements.
Hence a panel constituted by FSSAI then proposed increasing the threshold arbitrarily by six times i.e., 36-gram sugar per 100 grams.
Despite this, only 20% of products were found to be meeting the new threshold.
Context: NITI Aayog has released a working paper titled India’s White Revolution: Achievements and the Next Phase.
Trends of India's Milk Production
Phase I - From Independence to White Revolution: Before the introduction of White Revolution, the annual growth of milk production was merely 1.36% between 1950-51 to 1973-74 which was less than the growth in population of India.
This led to decline of per capita milk output from 132 grams in 1955-56 to 110 grams in 1973-74 i.e., a drop of 15% in this period. This led to a serious shortage of milk and milk products in India. The shortage was met partly through import and aid in the form of milk powder.
Phase II - From White Revolution: Dairy sector has shown very impressive growth since the beginning of Operation Flood, launched in 1970 to increase milk production. Operation flood resulted in milk production outpacing population growth after 1973/74. Fast growth in milk output enabled India to raise per capita milk production to 387 grams per person per day by year 2018-19 which is higher than average Recommended Dietary Allowance from India.
Phase III - Recent trend in milk production: In last decade, milk production has increased by 5.3% due to shift in emphasis from exotic breeds to indigenous breeds.
Factors contributing to success of White Revolution
Institution of cooperatives especially for milk marketing: Growth of milk production requires efficient marketing of milk. Wherever marketing outlets were established to procure milk, dairy sector has witnessed impressive growth. Cooperatives have played a major role in this regard.
Investments in milk processing
Artificial insemination in cows
Absence of restrictive regulations on milk marketing & trade
Snapshot India's dairy sector
Dairy sector contributes one-fourth of total income generated in agriculture sector and this share has been rising. Thus, dairy & livestock sector has played a prominent role in growth of agriculture.
Per capita production of milk in India has now exceeded the recommended dietary allowance (RDA). RDA for milk is 377 grams per person per day for India, as recommended by the National Institute for Nutrition under ICMR.
India is the largest milk producing nation in the world with one-fourth of global production. Earlier, USA was the largest producer of milk in the world. However, share of India in world milk output has almost doubled in last 25 years.
Per capita absorption of milk and milk products has almost doubled during the last 20 years. This growth in the intake of milk and milk products implies that milk has made highest contribution to improve nutrition in India.
Growth of dairy sector has been pro-poor and pro-women besides being resilient. Growth of milk does not require particular endowments like irrigation, good soil etc.
Dairy sector has been growing despite input subsidies or output price support.
Much of the growth in milk output during the last 50 years is due to an increase in the population of dairy animals. Number of female bovines in India increased from 122.7 million in 1972 to 246.7 million in 2019 (doubling).
Challenges of Dairy Sector
Low productivity of milch animals:
According to FAO, milk yield of Indian cows is 2/3rd of World average and it is much less compared to milk yield in developed countries. World average milk yield per cow is 7.2 kg and in India it is 4.87 kg.
There is wide variation in milk yield across states. Milk yield of cows ranges from 1.49 kg in Assam to 13.31 kg in Punjab. Similarly, daily milk output per buffalo varies from low of 1.61 kg in Odisha to 9.63 kg in Haryana.
Increased emission of greenhouse gases by ruminants: Doubling population of female bovines means GHG emissions by dairy animals has doubled in the last 50 years.
Very low share of export: Success of white revolution has not translated into export of milk products from India. Dairy exports constitute only 2.6% of India's agri-exports which is much lower than 24% share of milk output in value of crop and livestock output. World dairy exports stood at US $63 billion in 2021 whereas India's dairy exports was only US$392 million (0.62% of world dairy exports).
High antibiotic usage in dairy sector: Chemicals are indiscriminately used in commercial dairy which adversely affects quality of livestock and milk. Urine and dung of animals with chemicals affects soil microbes and greenhouse gas emissions.
Way Forward
Increasing productivity of milch animals: There is a need to focus on increasing milk output per animal both on a national basis and on regional basis.
On the national level, increase in productivity needs breed improvement, improved breeding practices like Artificial Insemination, better feeding and better maintenance and health-care of livestock.
Regionally, the focus should be on states where per cow milk yield are low as compared to national average i.e., Assam, North-eastern states, Chhattisgarh, Jharkhand, Madhya Pradesh, Odisha & West Bengal.
Meeting consumer expectations: Dairy industry needs to evolve to meet consumer preferences for various types and traits of milk. Today, consumers in cities prefer fresh or unprocessed milk or cow milk. Dairy value chain should aim to meet such demand.
Promoting milk exports: As domestic milk production is already crossing recommended dietary allowance for milk and slowing down of population growth with milk production expected to grow by 6%, India is expected to see surplus milk production which can be channelised to some exports. However, dairy exports have seen a big increase in recent years. Milk & milk products has increased four times after 2017-18. Dairy export doubled in 2021-22 to reach Rs. 4742 crore and increased by 64 per cent in volume. Still exports are less than 0.5 percent of total domestic production of milk.
Steps to promote milk exports are:
Investments in milk value chain and tapping markets of high-end developed countries.
Milk as a solution for nutritional deficiency: Milk should be promoted as a critical input for addressing nutritional deficiency and improving health outcomes in India, especially in children & women. Income elasticity of demand for milk and dairy products is high.
Export competitiveness & FTAs involving milk: India’s domestic milk industry is opposed to FTAs that involves liberalisation of trade (import) in dairy products. If India wishes to capture overseas dairy markets than our milk industry needs to export competitive. Thus, India’s dairy industry needs to increase its competitiveness and confidently compete with imports and export markets.
Milk valued added products: Focusing on exports of milk value added and processed products rather than liquid milk alone.
Milk Quality: Compliances with high sanitary & phyto-sanitary standards of countries particularly in developed markets.
Livestock health: Steps to promote vaccination and disease free areas like foot mouth disease free areas, as some developed countries require this.
Adopting food systems approach: Integrated livestock and crop systems are organised in a complementary and in synergy. India’s agriculture is transitioning to natural & organic farming for this animal dung and urine are critical inputs. Using by-products from dairy to produce organic & bio-inputs is a win-win for both dairy and crop sector.
Dairy pricing: Currently, fat content in milk is the sole criteria for pricing of milk. There is a need to develop measurements and standards around other traits like solid-not-fats in milk.
Sustainability of dairy sector: There is a need to monitor the presence of antibiotics and other chemicals in milk and check it.
G20 Meetings of Agricultural Chief Scientists (MACS) 2023 in Varanasi under India's Presidency saw the launch of MAHARISHI Initiative.
About MAHARISHI
MAHARISHI stands for Millets And otHer Ancient Grains International Research Initiative.
MAHARISHI secretariat shall be housed at Indian Institute of Millets Research (IIMR), Hyderabad with technical support from ICRISAT, One CGIAR Centres and other International organisations.
Focus areas of MAHARISHI are:
Establish mechanisms to connect researchers and institutions working in identified grain crops to enhance the dissemination of research findings and identify research gaps and needs.
Establish web platforms to connect researchers, exchange data, share communication products and thematic briefs to encourage research & information sharing.
Organise capacity building activities and international workshops & conferences.
Performance identification and recognition to scientists.
Ministry of Agriculture & Farmers Welfare has launched SATHI Portal & Mobile App.
About SATHI Portal
SATHI stands for Seed Traceability, Authentication and Holistic Inventory.
SATHI is a centralised online system for seed traceability, authentication & inventory designed to deal with challenges of seed production, quality seed identification & seed certification.
This portal will ensure seed quality assurance and identify the source of seed in the seed production system.
SATHI portal will consist of integrated 7 verticals of seed chain: Research Organisations, Seed Certification, Seed Licensing, Seed Catalogue, Dealer to Farmer Sales, Farmer Registration and Seed DBT.
Seeds with valid certification can only be sold by valid licensed dealer to centrally registered farmers who will receive subsidy through DBT directly into their pre-validated bank accounts.
There will be QR code under this system, through which the seeds can be traced.
Need for SATHI Portal
Goods Quality Seeds are critical inputs for a robust agriculture. However, inferior quality or spurious seeds affects the agriculture sector output and causes loss to farmers.
It is expected that if farmers have access to newer and quality seeds having resistance against climate change and new types of pests, agricultural production can be increased by 20%.
Union Budget 2022-23 first announced Parvatmala Pariyojana - National Ropeways Development Program. In Budget 2022-23 the focus was on developing 8 ropeways in India. However, Union Ministry for Road Transport & Highways has expanded the scope of the project to 1,200 km of ropeway length in next 5 years.
About PARVATMALA PARIYOJANA
Government of India plans to develop 250+ Ropeway Projects with length of over 1,200 km in 5 years.
The projects under the scheme will be taken under PPP under Hybrid Annuity Model with 60% contribution support by Government of India.
This is a program of Ministry of Road Transport & Highways. (Note: Amendment in Government of India (Allocation of Business) Rules, 1961 empowers Ministry of Road Transport & Highways to look after development of Ropeways and Alternate Mobility Solutions.
Importance of Ropeways
Ropeways are cable propelled transit systems which are an alternative mobility transport solution as compared to roads in difficult hilly areas.
Ropeways will enable mobility to people living in difficult areas and help them become part of mainstream. Villagers/farmers living in such areas will be able to sell their produces in other areas, which in turn help them grow their income.
They are a modern and sustainable system of transportation and connectivity on the mountains, can promote tourism and may also ease access to congested urban areas, where conventional mass transit system is not feasible.
Ideal for difficult/challenging/sensitive terrain: Ropeways are built with long rope spans which helps it cross obstacles like rivers, buildings, ravines or roads without a problem. Also, in ropeways ropes are guided over towers which results in low space requirements on ground and creates no barriers for humans or animals.
Low land acquisition cost: Since ropeways are built in a straight line over a hilly terrain, they can be constructed with lower land acquisition costs. Hence, despite having a higher cost of construction per km than roadways, ropeway projects construction cost may happen to be economical than roadways.
Economical operations: Ropeways have multiple cars propelled by a single power-plant and drive mechanism. This reduces both construction and maintenance costs. The use of a single operator for an entire ropeway is a further saving. On level ground, the cost of ropeways is competitive with narrow-gauge railroads; in the mountains the ropeway is far superior.
Faster mode: Since ropeways are an aerial mode of transportation and built in straight line, transportation over ropeways takes less time in difficult terrain.
Environmentally friendly: Ropeways result in low dust emissions. Material containers can be designed to rule out any soiling of environment.
Last-Mile connectivity: Ropeway projects adopting 3S (a kind of cable car system) or equivalent technologies can transport 6000-8000 passengers per hour.
Ability to handle large slopes: Ropeways and cableways (cable cranes) can handle large slopes and large differences in elevation. While a road or rail needs switchbacks or tunnels, a ropeway travels straight up & down the fall line.
Low footprint: For ropeways only narrow-based vertical supports are needed at intervals, leaving the rest of the ground free. This makes it possible for ropeways to be constructed in built-up areas and in places where there is intense competition for land use.
Way forward
Need to promote manufacturing of ropeway components under Make in India Initiative.
Create standards for safety, auditing and regulatory environment of ropeways.
Partnership with state governments for identifying locations and accelerating development of ropeways.
Development of new technologies and global best practices.
FTAs are arrangements between two or more countries or trading blocs that primarily agree to reduce or eliminate customs tariff and non tariff barriers on substantial trade between them.
FTAs normally cover trade in goods (such as agricultural or industrial products) or trade in services (such as banking, construction, trading etc.). FTAs can also cover other areas such as intellectual property rights (IPRs), investment, government procurement and competition policy, etc.
Stages of Trade Integration
Preferential Trade Agreement (PTA): In a PTA, two or more partners agree to reduce tariffs on an agreed number of tariff lines. The list of products on which the partners agree to reduce duty is called a positive list. India MERCOSUR PTA is such an example. However, in general PTAs do not cover substantially all trade.
Free Trade Agreement (FTA): In FTAs, tariffs on items covering substantial bilateral trade are eliminated between the partner countries; however, each maintains an individual tariff structure for non-members. India Sri Lanka FTA is an example. The key difference between an FTA and a PTA is that while in a PTA there is a positive list of products on which duty is to be reduced; in an FTA there is a negative list on which duty is not reduced or eliminated. Thus, compared to a PTA, FTAs are generally more ambitious in coverage of tariff lines (products) on which duty is to be reduced.
Comprehensive Economic Cooperation Agreement (CECA)/Comprehensive Economic Partnership Agreement (CEPA): These terms describe agreements which consist of an integrated package on goods, services and investment along with other areas including IPR, competition etc. The India-Korea CEPA is one such example and it covers a broad range of other areas like trade facilitation and customs cooperation, investment, competition, IPR etc.
Custom Union: In a Customs union, member countries may decide to trade at zero duty among themselves, however they maintain common customs duty against the rest of the world. Example: Southern African Customs Union (SACU) - South Africa, Lesotho, Namibia, Botswana and Swaziland.
Common Market: Integration provided by a Common market is one step deeper than that by a Customs Union. A common market is a Customs Union with provisions to facilitate free movements of labour and capital, harmonise technical standards across members etc. The European Common Market is an example.
Economic Union: Common Market extended through further harmonisation of fiscal/monetary policies and shared executive, judicial and legislative institutions among the member countries. The European Union (EU) is an example.
Early Harvest Package
The UK has recently stated that it wants an early harvest trade package with India prior to finalisation of a full-fledged free trade agreement.
Early harvest scheme is a precursor to a free trade agreement (FTA) between two trading partners. This is to help the two trading countries to identify certain products for tariff liberalisation before the conclusion of FTA negotiation.
The EHS has been used as a mechanism to build greater confidence amongst trading partners to prepare them for even bigger economic engagement.
How is CECA/CEPA different from FTA?
A Comprehensive Economic Cooperation Agreement (CECA) or a Comprehensive Economic Partnership Agreement (CEPA) is different from a traditional Free Trade Agreement (FTA) on two counts:
Firstly, CECA/CEPA are more comprehensive and ambitious than an FTA in terms of coverage of areas and the type of commitments. While a traditional FTA focuses mainly on goods; a CECA/CEPA is more ambitious in terms of a holistic coverage of many areas like services, investment, competition, government procurement, disputes etc.
Secondly, CECA/CEPA looks deeper at the regulatory aspects of trade than an FTA. It is on account of this that it encompasses mutual recognition agreements (MRAs) that cover the regulatory regimes of the partners. An MRA recognises different regulatory regimes of partners on the presumption that they achieve the same end objectives.
Rationale for signing Free Trade Agreements
By eliminating tariffs and some non-tariff barriers FTA partners get easier market access into one another's markets.
Exporters prefer FTAs to multilateral trade liberalisation because they get preferential treatment over non-FTA member country competitors. For example in the case of ASEAN, ASEAN has an FTA with India but not with Canada. ASEAN's custom duty on leather shoes is 20% but under the FTA with India it reduced duties to zero. Now assuming other costs being equal, an Indian exporter, because of this duty preference, will be more competitive than a Canadian exporter of shoes. Secondly, FTAs may also protect local exporters from losing out to foreign companies that might receive preferential treatment under other FTAs.
Possibility of increased foreign investment from outside the FTA. Consider 2 countries A and B having an FTA. Country A has a high tariff and a large domestic market. The firms based in country C may decide to invest in country A to cater to A's domestic market. However, once A and B sign an FTA and B offers a better business environment, C may decide to locate its plant in B to supply its products to A.
Such occurrences are not limited to tariffs alone but it is also true in the case of non-tariff measures. Especially when a Mutual Recognition Agreement (MRA) is reached between countries A and B. Some experts are of the view that slow progress in multilateral negotiations due to complexities arising from large numbers of countries to reach a consensus on polarising issues, may have provided the impetus for FTAs.
How is India placed globally in terms of its bilateral PTAs/FTAs/ CECAs/CEPAs?
India has preferential access, economic cooperation and Free Trade Agreements (FTA) with about 54 individual countries. India has signed bilateral trade deals in the form of Comprehensive Economic Partnership Agreement (CEPA)/ Comprehensive Economic Cooperation Agreement (CECA)/FTA/Preferential Trade Agreements (PTAs) with some 18 groups/countries.
India is a late, and cautious, starter in concluding comprehensive preferential tariff agreements covering substantially all trade with some of its trading partners.
List of FTAs Signed By India
PTAs in Force: Asia Pacific Trade Agreement (APTA); India- Afghanistan; India-Mercosur; India-Chile.
FTAs in force India- Sri Lanka; SAARC FTA; India –ASEAN FTA; India - South Korea CEPA; India - Japan CEPA; India - Malaysia CECA; India-Singapore CECA; India-Nepal; India-Bhutan. India-Australia ECTA (They are negotiating to upgrade it to a CEPA).
FTAs in Negotiation: India –EU BTIA; India- Canada FTA; India- New Zealand FTA etc.
Are there provisions for review and implementation of FTAs?
Yes, the FTAs have provisions for review and implementation. This is normally done at specified intervals and there is an institutional mechanism to undertake such a review.
It is important for stakeholders to provide regular feedback on the operation of the FTAs for this mechanism to be effective. For example, problems faced in SPS/TBT measures or other NTMs need to be highlighted.
Relationship between Multilateralism and FTAs?
Article 1 of GATT (General Agreement on Tariffs and Trade) which enunciates the most favoured nation (MFN) principle of World Trade Organisation (WTO) states that "any advantage, favour, privilege, or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties."
However, exemptions from this MFN principle are permitted for forming FTAs under specific conditions as per the following provisions of the WTO Agreements:
Article XXIV of GATT for goods.
Article V of GATS (General Agreement on Trade in Services) for services.
The specific conditions under Article XXIV of the GATT permitting FTAs, are:
FTA members shall not erect higher or more restrictive tariff or non-tariff barriers on trade with non-members than existed prior to the formation of the FTA.
Elimination of tariffs and other trade restrictions be applied to "substantially all the trade between the constituent territories in products originating in such territories."
Elimination of duties and other trade restrictions on trade within the FTA to be accomplished "within a reasonable length of time," meaning a period of no longer than 10 years
Moreover, the "Enabling Clause, 1, allows developing countries to form preferential trading arrangements without adhering to the conditions under Article XXIV.
Context: Reserves have fallen from an all-time high of $645 billion in October 2021 to $575.27 billion in February 2023. However, India’s forex reserves increased by $6.306 billion to $584.755 billion for the week ended April 7.
What are Foreign Exchange Reserves?
Foreign exchange reserves refers to the reserves of the RBI kept in the form foreign currency assets, gold, SDR and reserve tranche position with the IMF.
The forex reserve is kept as a cushion against any potential balance of payment related crisis. In India, the Reserve Bank of India Act 1934 enables the RBI to act as the custodian of foreign reserves.
Composition of Foreign Exchange Reserves
Forex reserves in India comprise of Foreign Exchange assets (FEAs), Gold, Special Drawing Rights (SDRs) and Reserve Position in the IMF.
Foreign Exchange assets (FEAs): Consists of major global currencies + Investments in US Treasury bonds, bonds of other selected governments, deposits with foreign central and commercial banks. Even though, Foreign Exchange assets (FEAs) are maintained in major currencies, the foreign exchange reserves are denominated and expressed in US dollar terms.
Reserve Position in the IMF: Subscription of quota consists of two components: (i) foreign exchange component and (ii) domestic currency component. Under the foreign exchange component, a member is required to pay 25% of its quota in SDRs or in foreign currencies. This is termed as “reserve position in the IMF or reserve tranche” and is part of the member country’s reserve assets.
FPI outflows: mainly due global inflation post Russia-Ukraine war and hike of interest rates by US Federal Reserve.
Rupee depreciation: by around 10% against the US dollar and became the worst performing Asian currency in 2022. As a result, RBI had to intervene in the forex market to defend the rupee thereby declining forex reserves.
Valuation loss: Foreign exchange reserves are maintained as a multi-currency portfolio comprising major currencies such as the US dollar, Euro, Pound sterling, and Japanese yen, among others, but are valued in terms of US dollars. When the dollar strengthens, the valuation of other currencies vis-à-vis the US currency declines, leading to notional fall in the overall reserves position.
How Much Forex Reserves is Sufficient?
Though there is no objective formula/criterion to arrive at a specific amount, there are few factors that are considered to determine the adequacy of foreign exchange reserves of an economy, which include:
Import Cover: Number of months of imports that could be paid for by Forex Reserves.
Greenspan-Guidotti rule: Forex reserves should be sufficient to pay the short-term External Debt.
Level of short-term debt: IMF suggests that a country's reserves should equal short-term external debt (one-year or less maturity), suggesting a ratio of reserves-to-short term debt of one.
Source of accretion of reserves: Whether the forex reserves are made up of export or foreign investments (FDI & FPI) or external borrowings.
Levels of Current account deficit: To what extent the CAD can be financed by the existing foreign reserves.
Context: Textile and apparel exports contracted 14% in 2022-2023 compared with the previous year. At $41.3 billion in exports in 2021-2022, textiles and apparel constituted 9.79% of total goods exports. However, in 2022-2023, the segment recorded exports of $35.5 billion and constituted just 7.95% of goods exports.
Reasons for India’s Underperformance in Exports
Low Level of Participation in Global Value Chains (GVCs).
Limited diversification of India’s export basket: The top 10 principal exports in terms of commodity groups account for 78% of total merchandise exports.
Low competitiveness of Indian products on account of:
Lacklustre infrastructure.
Complex land and labour laws.
Fragmented and unregulated logistics sector.
Inability to exploit comparative advantage in lower-skilled and labour-intensive exports: India has seen its share of world trade in textiles, garments and footwear decline in recent years while Bangladesh has almost caught up to India, and Vietnam has overtaken it.
Regional Disparities: 70% of India’s export has been dominated by 5 states.
Intra- and inter-regional disparities in export infrastructure as coastal states have performed extremely well compared to the landlocked states in developing export promotion parks and hubs.
Poor trade support and growth orientation among states: There is an absence of strong support towards the exporters from many state governments in improving their quality or quantity.
Poor research & development infrastructure to promote complex and unique exports curbing the innovative tendencies at the subnational level.
Why India Needs an Export-Led Growth?
Economic Survey 2019 has advocated an export-led growth model for India for reasons:
Exports can help India to achieve the target of making India a developed economy by focusing on ‘Atma Nirbhar Bharat’.
Economic Growth: Higher exports draw more foreign remittances, create more jobs and lower the current account deficit, creating demand and infrastructure.
Major economies around the world are also major exporters. To corroborate this claim, it is to be noted that China is the world’s leading exporter of goods.
Becoming a part of Global Value Chains: Exports give domestic sellers increased access to the market that helps in presenting a golden opportunity to capture a good chunk of global market share.
Mitigate Regional Disparities: Improving the export competitiveness of states can mitigate regional disparities through export-led growth and the consequent rise in standard of living.
The Economic Survey established that states which engage with the world markets as well as with the other states within the country are richer.
Initiatives to enhance trade
Focus on Agricultural Products: Pro-active support of export promotion agencies including Export Inspection Council, Plantation Boards, and Agricultural and Processed Food Products Export Development Authority (APEDA), and export facilitating measures like online issuance of certificates required for exports, aided growth of agricultural exports.
Interest Equalisation Scheme: This Scheme was formulated to give benefit in the interest rates being charged by the banks to the exporters on their pre- and post-shipment rupee export credits.
Remission of Duties and Taxes on Exported Products (RoDTEP) scheme: The scheme seeks remission of Central, State and Local duties/taxes/levies at different stages at the Central, State, and local level, which are incurred in the process of manufacturing and distribution of exported products, but are currently not being refunded under any other duty remission scheme.
Export Credit Guarantee: The Export Credit Guarantee Corporation (ECGC) supports Indian exporters and banks by providing export credit insurance services. ECGC provides insurance cover on the export consignment to protect exporters from the consequences of the payment risks. It also provides Export Credit Insurance to Banks (ECIB) to protect the Banks from losses on account of export credit given to exporters due to the risks of insolvency and/or protracted default of the exporter borrower.
Krishi Udan Scheme: Krishi Udan Scheme was launched in August 2020 on international and national routes to assist farmers in transporting agricultural products so that it improves their value realisation. Krishi Udan 2.0 was launched in October 2021 enhancing the existing provisions, mainly focusing on transporting perishable food products from the hilly areas, North-Eastern states, and tribal areas.
Trade Infrastructure for Export Scheme: The Scheme provides financial assistance in the form of grant-in-aid to Central/State Government owned agencies for setting up or for up-gradation of export infrastructure as per the guidelines of the Scheme
Districts as Export Hubs – One District One Product (ODOP) Initiative: The Districts as Export Hubs-ODOP initiative is aimed at targeting export promotion, manufacturing, and employment generation at the grassroots level, making the States and Districts meaningful stakeholders and active participants in making India an export powerhouse The initiative is also aimed at fostering balanced regional development across all districts of the country. It seeks to select, brand, and promote products/services from each district of the country for enabling holistic socioeconomic growth across all regions, and attract investment in the district to boost manufacturing and exports.
Recommendations of High Level Advisory Group (HLAG) by Ministry of Commerce
Technology
Has a profound influence on manufacturing. It will more significantly impact the relative competitiveness of exports. Tools like big data analytics, industry 4.0 must be leveraged.
Financial support to industry
Government should aim for an effective corporate tax rate of 18%. It should also bring down the cost of capital to an average of 10 best performing OECD countries.
Enhance capital base of EXIM Bank and Export Credit Guarantee Corporation.
Good Governance
Promote evidence based policy making with a well structured Management Information System (MIS).
Also, strengthen the investment promotion agency and build an overarching Trade Promotion Organisation.
Identify Champion sectors
This will help overcome challenges of infrastructural deficiency. 12 champion services present comprehensive potential to enhance GDP.
Link into Global & Regional Value Chains
Integrated approach towards trade in goods, services & investments requires a strategy of generally lower & simplified tariffs. Need to identify products & segments where Indian firms can integrate into GVCs.
Use of World Trade Organisation: as part of its overall strategic vision
Constitute inter-ministerial group to disseminate and evolve national official thinking on WTO related issues.
Role of Regional Trade Agreements (RTAs) is crucial
However, a comprehensive yet selective & inclusive approach is required.
Launch 5 year program for negotiation of FTA - identified based on complementarity & sustainability.
Context: Recently NHAI data reveals that in 2022-23 10,993 kilometres of national highways have been constructed. It is 13.7% less than the goal of 12500 Km. While the pace of the construction of national highways touched a record high of 37 km a day in 2020-21, it slowed to 30.11 km a day in 2022-23.
About NHAI
The National Highways Authority of India was set up by an act of the Parliament, the NHAI Act, 1988.
It is aimed at the development, maintenance and management of national highways and for matters connected therewith or incidental thereto.
It has been entrusted with the National Highways Development Project, which along with other minor projects, has vested in it 50329 km of National Highways for development, maintenance and management.
Its objective is to ensure that all contract awards and procurements conform to the best industry practices regarding transparency of the process, adoption of bid criteria to ensure healthy competition in the award of contracts, implementation of projects conform to best quality requirements and the highway system is maintained to ensure best user comfort and convenience.
To meet the Nation’s need for the provision and maintenance of the National Highways network to global standards.
To meet the user’s expectations in the most time-bound and cost-effective manner, within the strategic policy framework set by the Government of India.
To promote economic well-being and quality of life of the people.
Mission
To develop, maintain and manage National Highways vested in it by the Government.
To collect fees on National Highways, regulate and control the plying of vehicles on National Highways for its proper management.
To develop and provide consultancy and construction services in India and abroad and carry on research activities about the development, maintenance and management of highways or any other facilities there.
To advise the Central Government on matters relating to highways.
To assist on such terms and conditions as may be mutually agreed upon, any State Government in the formulation and implementation of schemes for highway development.
Importance of NHs
National Highways are the arterial roads of the country for the inter-state movement of passengers and goods.
They traverse the length and width of the country connecting the National and State capitals, major ports and rail junctions and link up with border roads and foreign highways.
The total length of NH (including expressways) in the country at present is 1,32,499 km.
While Highways/Expressways constitute only about 1.7% of the length of all roads, they carry about 40% of the road traffic.
