Inclusive Growth & Financial Inclusion

Startup Sector in India

Context: India’s startup ecosystem has grown exponentially, emerging as the world’s third-largest hub for innovation and entrepreneurship. From just 400 startups in 2015-16 to over 1,30,000 today, the ecosystem is a testament to India’s entrepreneurial potential and supportive policies.

Relevance of the Topic: Mains: Startup sector- Present status, Challenges, Issues, Strategies

Present Status of Startup sector in India

  • Global position: India is the world’s third-largest hub for innovation and entrepreneurship.
  • Remarkable progress: Today, India has over 1,30,000 recognised startups- up from approximately 400 in 2015-16.
  • Successful funding and ecosystem expansion: 
    • Startup funding has grown 15 times.
    • The number of investors has increased nine-fold.
    • The number of incubators has risen seven-fold.

Scope for further growth of Startup Sector

  • Emerging areas: India stands at the threshold of a technological revolution, presenting immense opportunities in areas such as
    • Artificial intelligence (AI)
    • machine learning (ML)
    • big data
    • electric vehicles (EVs)
    • quantum computing
    • genomics
    • 3D printing
    • Robotics
    • Drones
    • space exploration.

Government Initiatives to promote Startups in India

  • Fostering growth in Emerging areas:
    • National Quantum Mission
    • India AI Mission
    • Semiconductor Mission
  • Promoting Research & Development: 
    • Union Budget 2024-25 allocated a substantial Rs. 1 lakh crore to the Anusandhan National Research Fund for research and development (R&D).
  • Progressive policies:
    • Opening up new sectors to the private players like space, geospatial technology, defence, and drones. Encouraging startups to venture into cutting-edge domains.
  • Facilitating Funding:
    • Fund of Funds for Startups (FFS): launched in 2016, it has committed Rs 11,688 crore through 151 Alternative Investment Fundas (AIF).
    • This has catalysed a capital pool of Rs 81,000 crore, creating a multiplier effect.
  • Minimal regulatory interference:
    • Startup India prioritised avoiding excessive regulations that could hinder startups.

Challenges and Concerns in Startup sector

  • Funding Issues:
    • Lack of long-term investments: Indian startups, particularly in deep tech sectors, face challenges in accessing long-term capital. 
    • Inadequate domestic funding: Although Indian startups raised over $12 billion in 2024, about 75% of this funding came from international sources.
  • Corporate mismanagement:
    • Recent incidents of corporate mismanagement and governance issues in startups such as Byju’s, Dunzo, and BharatPe have raised concerns.
  • Inadequate Innovations and IP Development:
    • India produces approximately 24,000 PhD graduates annually, yet lags behind in Intellectual Property (IP) earnings. 
    • India paid $14.3 billion in IPR royalties in 2024, while earning only $1.5 billion. This highlights a significant gap in innovation.

Strategies needed to tap into potential of Startups

  • Collaboration: 
    • Coordinating and collaborating among policymakers, entrepreneurs, and educational institutions.
    • Collaboration between academia and industry to ensure that educational programmes align with market needs.
  • Funding: 
    • Creating a specialised fund of funds for deep tech startups that require long-term investments.
    • Increasing domestic capital sources: Large domestic institutions like insurance companies and pension funds can allocate a portion of their surpluses to support startups. 
  • Management:
    • Startups must adopt self-regulation frameworks that emphasise accountability, transparency, and ethical conduct. This involves strong mentorship, professional boards, and sound financial management. 
  • Skilling, Reskilling and Upskilling:
    • Leverage India’s premier educational institutions (IITs, IIMs, and IIIT) to address skill shortages in product development, data science, and AI-ML. 
    • Programmes for internships, apprenticeships, and recruitment can attract talent to startups and bridge existing skill gaps.
  • Balancing risks with regulation:
    • Regulatory framework must balance innovation with oversight, enabling startups to thrive while mitigating risks associated with unregulated growth. 
  • Boosting innovations:
    • Creating a vibrant ideas ecosystem that rewards and protects intellectual property.
  • Supporting new regional hubs:
    • Nearly 50% of India’s startups originate from Tier II and Tier III cities. Emerging hubs like Indore, Jaipur, and Ahmedabad offer immense potential. 
    • Supporting these regional hubs with infrastructure, educational opportunities, and inclusivity (increasing women’s representation in leadership roles).

As India works towards its vision of Viksit Bharat by 2047, startups will play a pivotal role in driving economic growth, creating jobs, and positioning the country as a leader in innovation. 

CII proposes 10-point roadmap for Ease of Doing Business

Context: Ahead of the Budget, the Confederation of Indian Industry (CII) has suggested a 10-point agenda to drive ease of doing business reforms. While India has remained focused on improving ease of doing business (EoDB), there is a need to maintain the momentum especially in certain specific areas.

Relevance of the topic:

Prelims: Ease of Doing Business Index

Mains: Ease of Doing Business- Reform recommendations

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What is Ease of Doing Business?

  • Ease of Doing Business (EoDB) is an index developed by the World Bank Group.
  • What does it do?
    • It measures the regulatory environment of a country and its impact on the ease with which businesses can operate. 
    • It assesses how conducive a country's policies, regulations, and administrative practices are for starting, running, and closing a business.
  • In 2021, the World Bank discontinued the EoDB index following allegations of data irregularities and ethical concerns during its preparation.
    • However, its principles continue to influence global reforms and economic policies.

CII recommendations for Ease of Doing Business Reforms

  • Mandatory Use of National Single Window System (NSWS) for Approvals:
    • Integrating all central ministries into the NSWS within six months, with states to follow in a phased manner. 
    • A dedicated central budget to incentivize states to adopt the system. This will ensure transparency and faster processing.
  • Time-Bound Services with Statutory Backing:
    • A new Act to impose statutory obligations on public authorities to process industry applications and grievances within set timelines. 
    • Provisions for deemed approvals beyond deadlines are also suggested.
  • Strengthening Dispute Resolution Mechanisms:
    • Expanding commercial courts and increasing reliance on Alternative Dispute Resolution (ADR) methods like mediation and arbitration. 
    • Prioritising establishment of the Mediation Council of India and the Arbitration Council of India.
  • Expanding National Judicial Data Grid (NJDG):
    • NJDG’s scope should include tribunal cases to manage and reduce pendency effectively. Tribunals constitute a significant share of unresolved cases.
  • Unified Environmental Compliance Framework:
    • A single framework to consolidate environmental compliance requirements. 
    • Existing laws like the Water Act and Air Act should be incorporated into the Environmental Protection Act to centralise regulations. 
    • Performance-based incentives could reward companies exceeding environmental standards.
  • Facilitating Land Access:
    • States should develop an Online Integrated Land Authority to streamline land records, digitise land banks, and provide dispute information. 
    • The India Industrial Land Bank (IILB) should evolve into a National Level Land Bank with central budgetary support.
  • Simplified Labour Compliances:
    • Implementation of the four Labour Codes is essential to ease compliance. 
    • Additionally, the Shram Suvidha Portal should become a centralised platform for all labour law compliances across central and state levels.
  • Improving Trade Facilitation:
    • The Authorised Economic Operator (AEO) program should be simplified with enhanced benefits like:
      • extended duty payment periods
      • self-declared renewals
      • easier access for MSMEs.
  • Aligning Metrology Rules with Global Standards:
    • Synchronising allied legal metrology rules with international standards. 
    • Imported equipment certified by OIML labs should be exempt from additional approval processes.
  • Addressing Tax Dispute Pendency: The government should reduce income tax litigation by:
    • Unclogging cases at the Commissioner of Income Tax (Appeals) level. 
    • Improving ADR mechanisms like Advance Pricing Agreements and Dispute Resolution Schemes.

The 10-point agenda can help create a predictable, transparent, and business-friendly environment. By implementing these recommendations, India can strengthen its position as a global investment destination while boosting domestic economic activity.

Farmer ID

Context: The Ministry of Agriculture and Farmers’ Welfare (MoA&FW) has made Farmer ID mandatory for new applicants to enrol into the Pradhan Mantri Kisan Samman Nidhi (PM-Kisan) and get benefits under the scheme. The farmer ID guarantees that the applicant-farmer owns the land, and thus the PM-KISAN registration process would be vastly simplified.

Relevance of the Topic: Prelims- Farmer ID, Digital Agriculture Mission, Agristack, PM-KISAN Scheme.

What is a Farmer ID?

  • Farmer ID (also known as Kisan Pehchaan Patra) is an Aadhaar-linked Unique Digital Identity of the farmers.
  • Created and maintained by: State Governments/ Union Territories.
  • The IDs will be linked to various farmer-related data including:
  • The database created through the Farmer ID will be known as Farmer’ registry. It is one of the three registries under Agri Stack component of the Centre’s Digital Agriculture Mission for creation of digital public infrastructure in the farm sector.

Benefits of Farmer ID: 

  • Targeted delivery: Only legitimate and eligible farmers receive subsidies and benefits and eliminates duplication in government schemes.
  • Precision agriculture: Facilitates data-driven policy-making for better crop planning, insurance, and market linkages.
  • Empowerment of farmers: Encourages financial inclusion by enabling easy access to credit and crop insurance.
Farmer ID - kisan ki pehchaan

About AgriStack:

  • AgriStack is designed as a farmer-centric Digital Public Infrastructure (DPI) to streamline services and scheme delivery to farmers. It comprises three key components:
    • Farmers' Registry
    • Geo-referenced village maps
    • Crop Sown Registry
  • The AgriStack is a part of the Digital Agriculture Mission (2021–2025) which aims at modernisation of Indian agriculture. The three DPIs to be built under the Mission are Agristack, Krishi Decision Support System, and Soil Profile Mapping. 

Key targets of AgriStack include:

  • Creating digital identities for 11 crore farmers over three years (6 crore in FY 2024-25, 3 crore in FY 2025-26, and 2 crore in FY 2026-27).
  • Launching the Digital Crop Survey nationwide, within two years, covering 400 districts in FY 2024-25 and all districts in FY 2025-26.

What is the PM KISAN scheme?

  • The Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) Scheme is a Central Sector Direct Benefit Transfer (DBT) Scheme, under which, financial assistance of Rs.6000/- per annum is provided to all landholding farmer families across the country, subject to certain exclusion criteria relating to higher income strata.
  • Objective: To enable them to take care of expenses related to agriculture and allied activities as well as domestic needs.  
  • The amount is transferred in three 4-monthly installments of Rs. 2000/- each, directly into the bank accounts of the beneficiary farmers identified by the State/UT Governments.
  • Eligibility: Extended to all farmer families irrespective of the size of their landholdings. (Originally, landholding farmers having a farming area up to 2 hectares were eligible for the scheme).
  • Exclusions: 
    • Farmer families who pay income tax, with government employees and professionals like doctors etc. are excluded.
    • Former and current constitutional officeholders.
    • Previous and current Ministers/State Ministers, MPs/MLAs/SLCs/ Mayors former and present District Panchayat Chairpersons.
    • All serving or former officials and workers of Central/State Government Ministries/Offices/Departments and their field units.
    • All superannuated/retired pensioners whose monthly pension is Rs.10,000/- or higher (excluding Multi-Tasking Staff / Class IV/Group D employees).
  • Recently, a Parliamentary panel has recommended doubling the yearly payouts under the PM-Kisan to Rs 12,000 per annum from the present Rs 6,000.

India’s GDP growth projected to fall to a 4-year low: NSO

Context: The First Advance Estimates of the National Statistics Office (NSO) for FY 2024-25 show a fall in projected GDP growth to a 4-year low pace of 6.4%. This calls for a reality check for India’s economic growth trajectory. 

Relevance of the Topic: Prelims: GDP Growth- Trends, Components, Factors affecting GDP Growth rate. 

What is an Advance Estimate?

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  • Advance Estimates are essentially a forecast of what the government expects India’s economic output to be at the end of the financial year in March.
  • These estimates are made by extrapolating available data and past trends.

Data from NSO’s First Advance Estimates of GDP 2024-25:

  • Real GDP: expected to reach Rs. 184.88 lakh crores in FY 2024-25.
    • Provisional estimate of GDP for FY 2023-24 was Rs. 173.82 lakh crore.
  • Real GDP growth: expected to rise at a 4-year low pace of 6.4%.
    • For 2023-24, it was at 8.2%.
  • Real Gross Value Added (GVA): expected to rise by 6.4%.
    • For 2023-24, it increased by 7.2%.
  • Among 8 economic sectors, only 2 registered higher growth than last year:
    • Agriculture: expected to rise 3.8% from 1.4% last year.
    • Public Administration, Defence and Other Services: increased 9.1% from 7.8% in 2023-24.
  • Construction GCA Growth: pegged at 8.6% from 9.9% last year.
  • Manufacturing GVA Growth: expected to nearly halve from 9.9% in 2023-24 to 5.3% this year. 
  • GVA in Mining & Quarrying: expected to rise just 2.9% from 7.1% last year.
  • Gross Fixed Capital Formation (GFCF): expected to grow at a pace of just 6.4% compared to 9% rise in 2023-24. 
  • Private Final Consumption Expenditure: expected to expand 7.3% from 4% in 2023-24.
  • Government Final Consumption Expenditure: seen rising 4.1% from 2.5% last year. 
image 72

How is GDP Calculated in India?

  • GDP is calculated by adding up all the money spent in the economy. 
  • There are 4 engines of GDP Growth:
    • Private Final Consumption Expenditure
    • Government Final Consumption Expenditure
    • Gross Fixed Capital Formation
    • Net Exports. 
image 73
  • Private Final Consumption Expenditure (PFCE):
    • It is calculated as the total spending by individuals.
    • It accounts for almost 60% of India’s GDP. 
  • Government Final Consumption Expenditure (GFCE):
    • Spending by governments to meet daily expenditures such as salaries, etc.
    • Accounts for 10% of GDP.
  • Gross Fixed Capital Formation (GFCF):
    • Spending towards boosting the productive capacity of the economy.
    • Includes investments by the government to build roads, companies building factories or buying office equipment, etc.
    • Accounts for around 30% of GDP.
  • Net Exports:
    • Resultant of Indians spending on imports and foreigners spending on Indian exports.
    • Since Indian exports < Indian imports, net exports for India are negative. 
image 74

Factors holding back GDP Growth in India

  • Low growth rate of Private Spending:
    • What Indians spend in their personal capacity is the most vital determinant of GDP growth.
    • If this growth rate is low, it drags down the overall GDP. Further, it discourages investments in the economy.
  • Sluggish growth in Government spending:
    • Unlike other players in the economy, governments can potentially spend in excess of their incomes.
    • When the rest of the economy is struggling, governments are expected to borrow money and spend it in a manner to re-energize the economy.
    • However, Government’s own spending has grown just 4.2% in the current year, and an average of 3.1% since 2019.
  • Petering out of Investments growth:
    • Spending towards productive capacity increases if:
      • Private businesses find it profitable to expand capacity (in the hope of selling it to the public)
      • Governments boost capital expenditure (spending towards physical infrastructure).
    • In FY 2024-25, this spending has gone up by just 5.3% annually.
    • Investment growth in the economy has been fading away since 2014.
    • Unless private consumption rebounds, businesses will not invest in fresh capacity, regardless of tax incentives.

Thus, over a longer period, India’s real economy has grown at less than 5% per annum- almost half the rate at which it would need to if it is to become Viksit Bharat by 2047. 

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. 

NITI Aayog proposes S.A.F.E. Accommodations

Context: The NITI Aayog recently released a report “S.A.F.E. Accommodation - Worker Housing for manufacturing growth” suggesting the Central Government to build mega housing projects near manufacturing plants where industrial workers could rent a room for as low as Rs 3000.

Relevance of the Topic: Mains: Welfare schemes for vulnerable sections of the population by the Centre and States. (S.A.F.E. Accommodations for Workers)

India’s Manufacturing Aspirations: 

  • India aims to increase the manufacturing sector’s contribution to GDP (from the current 17% to 25%) and become a global manufacturing hub, as part of its vision for ‘Viksit Bharat’ by 2047. 
  • As per the Economic Survey 2023-24, India needs to add 7.85 million jobs every year until 2030 to sustain economic growth. A productive workforce is central to attain the vision. 
  • India needs to create more jobs for women and increase Female Labour Force Participation Rate. In India, women contribute only 18% to the GDP. (In China, women’s contribution to GDP is around 41%)
India’s Manufacturing Aspirations

Issues due to Inadequate Housing near Industrial hubs: 

Why S.A.F.E. Accommodation Matters?

  • Enhance Workforce Productivity
    • Lower commute time
    • Affordable housing for workers 
    • Improves workers’ quality of life 
    • Enables labour mobility 
  • Win-Win-Win Scenario:
    • S.A.F.E. accommodation for labour, Increases FLFP rate. 
    • Lower attrition rate, lower recruitment costs and stable workforce for Companies.
    • Promotes planned Urban development. 
    • Ensures attractive returns on investment for Private developers. 
    • Promotes competitiveness of the Indian manufacturing sector & attracts global investment. 
    • Aligns with Global Labour Standards (E.g., ILO Labor Welfare Conventions)

Note: 

  • Factories Act, 1948: Mandates basic welfare amenities for workers which can be extended to housing. (As per the Act: Factories employing more than 150 workers must provide and maintain adequate and suitable shelters/restrooms, and lunchrooms for the use of workers)
  • Social Security Code, 2020: Consolidates the laws relating to social security benefits including housing to all employees either in the organised, unorganised or any other sectors. 

Challenges in Scaling Up Worker Accommodation:

  • Restrictive Zoning Laws: Residential developments are often prohibited in industrial zones unless explicitly permitted. 
  • Restrictive Building Laws: Low Floor Area Ratios (FAR) and other inefficient land-use regulations limit the potential for high-capacity housing on available land.
  • High Operating Costs: Hostel accommodations in industrial zones are often classified as commercial establishments, leading to higher property taxes and utility rates.
  • Financial Viability: High capital costs and low returns make large-scale worker accommodation projects unattractive to private developers. 

Proposed Solutions by NITI Ayog: 

1. Regulatory Recommendations:

  • Classification of S.A.F.E Accommodation: S.A.F.E accommodation should be classified as a distinct category of residential housing. This classification would ensure:
    • GST Exemption for accommodations meeting specified criteria (E.g., ₹20,000 per person per month for a continuous stay of 90 days).
    • Residential Rates: Application of residential property tax, electricity, and water tariffs to reduce operating costs. 
  • Long-term, dormitory-style affordable accommodations designed exclusively for industrial workers, located near their workplaces.
  • Zoning Reforms: Allow ‘mixed land use’ in industrial zones or designate ‘SAFE accommodation as a permitted use in industrial zones’ to enable construction of working houses close to workplaces.
  • Environment Clearance Exemption: Include S.A.F.E. accommodations under the exemptions provided for industrial sheds, schools, colleges, and hostels in the draft notification issued by the Ministry of Environment, Forest, and Climate Change (MoEF&CC).

2. Financial Recommendations:

  • Provision of Viability Gap Funding (VGF):
    • Provide up to 30-40% of the total project cost (excluding land) through VGF, with 20% contributed by the Department of Economic Affairs (DEA) and 10% by the sponsoring nodal ministry (MoHUA). Additionally, State Governments may provide a VGF up to 10%. 
    • Amend Annexure 3 of the VGF scheme to include affordable rental housing as an eligible sector.
  • Retrofitting Existing Facilities: The VGF can also be leveraged to retrofit / upgrade existing brownfield workers’ accommodation facilities. 
  • Competitive Bidding: Determine VGF support through a transparent and competitive bidding process. 

Conclusion: As India progresses towards becoming a $5 trillion economy, addressing workers accommodation challenges is a priority. By aligning the regulatory and financial frameworks, India can unlock the potential for sustainable worker housing solutions that would bolster the manufacturing ecosystem, enhance workforce productivity, and attract global investments. 

Amendments in the Insurance Acts and Composite License

Context: The Government has sought to introduce amendments in the Insurance laws to increase the Insurance penetration and reform the insurance sector to make it more competitive. However, these amendments may go against the interests of public sector Insurance companies.

Relevance of the Topic: Prelims: Key facts and developments about the Insurance Sector in India. 

Insurance Sector in India:

Present Status:

  • The insurance sector is regulated under the Insurance Act, 1938. The sector can be divided into Life Insurance and General Insurance (Health, Motor etc.).
  • Both Public sector and Private sector companies are allowed to offer Insurance in India.

Public sector Insurance Companies.

  • The Life Insurance Corporation Act of 1956 nationalised the life insurance business by transferring it to Life Insurance Corporation.
  • General Insurance Business (Nationalisation) Act, 1972 (GIBNA) nationalised the general insurance business in India and regulates 4 general insurance companies- New India Assurance, United India Insurance, Oriental Insurance company and National Insurance Company.

Private sector Insurance Companies: 

  • IRDA Act, 1999 allowed Private sector participation in the Insurance sector. India also allows FDI of up to 74% in Insurance.

Insurance Penetration and Density: 

  • Insurance penetration is measured as the ratio of insurance premium to GDP. While insurance density is calculated as the ratio of Insurance premium to population (per capita premium).
  • India's overall Insurance penetration is around 4% while the Insurance density is around $70.

Proposed Amendments in Insurance Acts:

  • Composite License: As per the provisions of the Insurance Act, 1938, life insurance companies can only offer life insurance products, while general insurance companies can offer non-life insurance products, such as health, motor insurance etc. Hence, IRDAI does not allow composite licensing for insurance companies, which means that an insurance company cannot offer both life and non-life insurance products under one entity. Draft amendments allow composite licences for Insurance companies.
  • Foreign investment: Increase in FDI cap on Insurance from 74% to 100%.
  • Requirement of capital: The 1938 Act provides capital requirements for different classes of insurance business. The amendment provides that for entities engaged in more than one class of insurance business, the IRDAI may specify the capital requirements. This should not be less than the sum of capital required for carrying out each class of business separately. In addition, IRDAI can also reduce the minimum capital required to up to Rs 50 crore. This can be done for insurers serving underserved or special segments prescribed through regulations.

Concerns with recent proposals:

  • Presently, LIC can offer only Life Insurance under LIC Act, 1956 (and not General Insurance). Similarly, 4 General Insurance Companies can provide only General Insurance (and not Life Insurance) under the General Insurance Business (Nationalisation) Act, 1972 (GIBNA). Hence, the Government needs to amend the LIC Act and GIBNA to enable composite licensing for public sector Insurance Companies. However, no such amendments have been proposed.
  • A composite licensing regime would allow only the private sector companies to offer both Life Insurance and General Insurance. However, the public sector insurance companies would not be able to get a composite license. This would hinder public sector insurance companies from competing with the Private sector Insurance companies.

Sovereign Green Bonds 

Context: Recently, the ₹5,000-crore auction of the new Sovereign Green Bond (SGrB) with 30-year tenure was concluded successfully. It is a notable improvement over the weak response to the Sovereign Green Bonds with 10-year tenure (the investors bid for these bonds at a lower price due to their relatively illiquid nature). 

Relevance of the Topic: Prelims: Sovereign Green Bonds 

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What are Sovereign Green Bonds?

  • Sovereign Green Bonds are fixed interest-bearing financial instruments issued by any sovereign entity / inter-governmental organisation /corporation. 
  • The proceeds of these bonds are used only for environmentally conscious, climate-resilient projects. This includes:
    • Investments in solar/wind/biomass/hydropower energy projects (under 25 MW) that integrate energy generation and storage
    • Public lighting improvements (E.g., replacement with LEDs)
    • Supporting construction of new low-carbon buildings
    • Energy-efficiency retrofits to existing buildings
    • Projects to reduce electricity grid losses etc.
  • The bonds are issued at a premium to facilitate access to cheaper capital for environment-friendly projects. 
  • There is no cap on foreign investment in these bonds because these instruments are considered as specified securities under the fully accessible route.
  • The proceeds will be deposited to the Consolidated Fund of India (CFI) in line with the regular treasury policy, and then funds from the CFI will be made available for eligible green projects.
  • There are no specific tax benefits provided for investment in sovereign green bonds.

Note: 

  • In January 2023, the Reserve Bank of India (RBI) auctioned its maiden sovereign green bonds worth ₹8,000 crore under its Sovereign Green Bond Framework.
  • RBI has facilitated wider non-resident participation in the Sovereign Green Bonds by permitting eligible foreign investors in the International Financial Services Centre (IFSC) to invest in such bonds.

Bima Sakhi Yojana

Context: The Prime Minister of India launched the ‘Bima Sakhi Yojana’ of Life Insurance Corporation, in line with his commitment to women empowerment and financial inclusion.

Relevance of the Topic: Prelims: Key facts about Bima Sakhi Yojana

Key facts about Bima Sakhi Yojana:

  • Initiative of: Life Insurance Corporation (LIC)
  • Aim: To empower women through financial literacy and insurance awareness.
  • Target: Enrol 100,000 Bima Sakhi in 12 months to financially empower women and 200,000  over a period of three years as part of women empowerment drive.
  • Beneficiaries: Women in the age group of 18-70 years, who are Class-10 pass. 
  • Key features:  Under the scheme, women will receive specialised training and a stipend for the first three years.
    • Women will get a monthly stipend during the training: ₹7,000 in the first year, ₹6,000 in the second year, and ₹5,000 in the third year.
    • Following the completion of the training, women can serve as LIC agents and the graduate Bima Sakhis would have the opportunity to qualify for development officer roles in LIC.
    • Each Bima Sakhi will have a target of insuring 2 individuals every month or 24 individuals in a year to earn the commission.

Significance of the scheme: 

  • Helps to bridge the gap in insurance penetration in rural and semi-urban areas.
  • Foster financial independence among women while expanding LIC’s outreach in promoting insurance as a tool for economic security. 

The Yojana underscores the government’s commitment to women’s empowerment and aligns with its broader goals of enhancing financial literacy and employment opportunities for women in India.

What is CSR? Corporate Social Responsibility

Context: It has been a decade since Corporate Social Responsibility (CSR) was enshrined into law.

What is Corporate Social Responsibility (CSR)?

CSR is a management concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders.

  • Section 135 Companies Act, 2013 - CSR provisions are applicable to companies:
    • With an annual turnover of INR 1,000 crore and more
    • Or a net worth of INR 500 crore and more
    • Or a net profit of 5 crore INR and more
  • The Act mandates companies to spend at least 2% of their average net profit in the previous three years on CSR activities.
variety of green plants Corporate Social Responsibility

What are the Benefits of CSR?

  • For Companies:
    • Gaining the trust of communities
    • Attracting and retaining employees
    • Enhancing corporate reputation and brand building
    • Attract investors as they include ethics as part of their assessment while investing
    • Increased profitability as ethical conduct exerts a growing influence on the purchasing decisions of customers
  • For Society:
  • For Govt:

Few Challenges in CSR

  • Failure to Consider Holistic View: Companies still have a narrow perception of CSR. They fail to understand that CSR has an impact on mostly all of the stakeholders of the company and it impacts both society and the environment as a whole - Due to a lack of strategic planning, proper experimentation, innovation, and engagement, companies aren't able to make a meaningful impact on their CSR efforts.
  • Lack of capability in many firms to formulate a long-term robust CSR policy leads to failure in giving definitive directions to CSR spending.
  • Disconnect with local requirements as there is non-availability of well-organised NGOs in remote and rural areas that can assess and identify real needs of the community.
  • Duplication of activities by different corporate houses, which results in competitive approach rather than a collaborative approach.
  • Lack trust and interest of the local community in participating and contributing to CSR activities of companies.
  • Many CSR initiatives and programs are undertaken in urban areas and localities, leaving the needy and poor in rural areas to miss out on the benefits of CSR.
  • Issue of geographic equity as 5 states - Maharashtra, Gujarat, Andhra Pradesh, Rajasthan and Tamil Nadu account for well over one-quarter of all CSR spending.
  • There is lack of an independent agency that can monitor and accreditate CSR efforts.
  • Viewed as additional tax which is spent by the firms rather than given to the government. This is in addition to corporate tax which is already one of the highest in the world.

Way Forward

  • Cooperation between government and corporates: CSR activities should be better aligned and integrated with Government/local administration systems. They should complement and upscale government initiatives rather than create a parallel system and duplicate efforts
  • Community and employee participation: Improving community relations involving employees in CSR can help motivate them and encourage their personal and professional development by inculcating social and ethical values
  • Collaboration for efficiency - between NGOs, and agencies involved in environmental and social work will enable better utilisation of CSR funds
  • Evaluation and monitoring - periodically to prevent fraudulent activities and complete project within the stipulated time
  • Fair and balanced expenditure: Encouraging corporates to spend in neglected areas such as aspirational districts and NER to have regional parity in socio-economic development
  • Relaxation and incentives: The government should further provide relaxation and incentives in corporate tax to corporates complying with CSR regulations
  • High-Level Committee under the Chairmanship of Injeti Srinivas had made the following recommendations: 
    • Extending the scope of CSR applicability to Limited Liability Partnerships (LLPs), which are within the purview of the MCA, and to Banks registered under the Banking Regulation Act, 1949
    • Companies are encouraged to forge partnerships when creating assets for public purposes. The ownership shall rest with the public and the company may act as a custodian to operate it and make it self-sustaining
    • Board of a Company to ascertain the credibility of an Implementing Agency (IA) and carry out necessary due diligence. IAs to be registered with MCA to carry out CSR activities
    • International organisations may be engaged as partners for designing CSR projects, monitoring and evaluation as well as capacity building of CSR-eligible companies and implementing agencies
    • The Board of a company may engage a CSR professional, if it so desires, and the Government may prescribe eligibility criteria for such professionals
    • 5% of CSR-mandated companies be identified on a random basis for third-party assessments on a pilot basis

Conclusion

  • The government is responsible for social development. Corporates cannot replace them in this role but can supplement its role. Corporates can make a meaningful contribution especially if there is a platform that allows them to offer the totality of their skills, technology and resources. With rising fiscal deficit and leakages in the welfare schemes, CSR seeks to address the problems of society in a cost effective manner

Plugging the Global Skill Gap

Context: Many people with only high school certificates will begin their jobs in countries like Germany, Japan and Israel. This move is part of the labour mobility agreements which Prime Minister Narendra Modi has crafted.

Historical Examples of Migration

Historical Examples of Migration

Human migration across centuries has shaped cultures in several parts of the world. 

  • Following the discovery of the Americas and Australia in the Age of Exploration, and in the absence of immigration and border controls, people from Europe quickly populated these lands. Thanks to the vast resources available there, Europe was able to escape poverty. 
  • Even Imperial China, which was heavily populated in the eastern mainland, expanded westwards to the vast empty lands of the Gobi desert and the Tian Shan mountains and beyond. 

Importance of Migration for India

  • Source of Remittances: Permanent migration from India of highly-qualified doctors and engineers is brain drain. Until 2000, most doctors and engineers who eventually settled abroad had studied in highly subsidised institutions funded by Indian taxpayers. Their remittances were large, but dwindled as they settled down permanently in the destination countries. 
  • Reduced Share from Developed Countries: Moreover, the total remittances originating from high-income individuals from the US, the UK, Canada and Australia amount to only 32% of the inward remittances to India. 
  • Increasing Share from Manual Workers: On the other hand, manual workers in the UAE, Saudi Arabia, Kuwait, Qatar and Oman contribute 40% of the total remittances to India.

Opportunities for India

Circular migration is a win-win solution, with government-to-government agreements to safeguard the wages and social security of migrant workers in destination countries and their guaranteed return.

  • Care Economy: The ageing population in Western Europe and Japan can incentivise the flow of skilled workers and caregivers from the developing world. The ageing demography of the developed world has created the greatest opportunity for India to enhance the quality of life of many Indians in a single generation. 
  • Digital Economy: Today, there is a great shortage in Europe and Japan of people who can write algorithms for quantum computers, build infrastructure or work in healthcare. 
  • Construction: For example, countries like Israel have a demand for over 100,000 skilled masons, carpenters and construction workers.

Government Initiatives

  • Demand Aggregation: The National Skill Development Corporation (NSDC) has aggregated the skill gap demand for many of India’s partner countries. 
  • State Level Efforts: The Maharashtra Institution for Transformation (MITRA) worked closely with the NSDC, under the Union Ministry of Skill Development (MSD) and the Maharashtra state departments of Labour and Employment, Skills and Entrepreneurship over the last three months to evolve SOPs and policy norms so that skilled youth could access higher wage markets.
  • Skill Upgradation: Though Indian workers may have the requisite skills, they may not be able to demonstrate them in the pre-defined manner with the use of specific tools. Hence, they need booster training. The NSDC has developed a four-day course on Recognition of  Prior Learning (RPL) to upgrade the existing skills.
  • Setting up Training Facilities: The challenge of setting up testing facilities exactly as per the protocol prescribed by Israel was taken up by ITI Pune. Experts at the ITI fabricated the 12 bar bending testing machines which matched the Israeli requirements.
  • Language Training: The state government has also decided to provide them the opportunity to learn Japanese, German or French.

Conclusion

  • Circular migration agreements warrant that these workers will come back to India after a certain time abroad. But they will bring back enhanced experience of working with sophisticated construction machinery and advanced management protocols, which will benefit the Indian construction industry.
  • India should position itself to become the global source of human capital. Circular migration will ensure that the movement takes place at scale and that India also gains from the experience of returning workers.

Pradhan Mantri Gram Sadak Yojana-IV (PMGSY-IV) Scheme Approved by Union Cabinet

Context: Union Cabinet headed by Prime Minister has approved the implementation of Pradhan Mantri Gram Sadak Yojana - IV between FY 2024-25 to 2028-29.

About PMGSY-IV

  • Total length of roads: 62,500 km of all weather roads.
  • Habitations to be covered: 25,000 unconnected habitations
  • Eligibility of habitations to be covered based on population size (as per Census 2011):
    • 500+ in North-East & Hill States/UTs, Special Category Areas (Tribal Schedule V Areas, Aspirational Districts/Blocks, Desert Areas)
    • 100+ in LWE affected districts
    • Financial assistance will also be provided for construction/upgradation of bridges along the alignment of all-weather roads will be provided for new connectivity roads.
  • Financial Assistance: Total outlay will be Rs 70,125 crore (Centre's share Rs 49,087 crores and State's share Rs 21,037 crores).
  • Technological innovation: PMGSY-IV will employ global best practices for road construction such as Cold Mix Technology, Waste Plastic, panelled cement concrete, Cell filled concrete, full depth reclamation, use of construction waste and other wastes such as fly ash, steel slag etc.
  • Integration with PM Gati Shakti Portal: PMGSY-IV road alignment planning and DPR (Detailed project report) preparation will be undertaken through PM Gati Shakti portal.
  • Nodal Ministry: Department of Rural Development under the Ministry of Rural Development.