Economics Merged

ECONOMICS
MERGED
3. ECONOMY
3.1. ATMANIRBHAR BHARAT: WHAT, WHY AND HOW?
Why in news?
Recently, the Prime Minister outlined Rs.20 lakh crore stimulus package which was accompanied with large scale
structural reforms.
What does Atmanirbhar Bharat mean?
• Prime Minister in his address stated that India’s self-reliance does not advocate self-centric arrangements. It
is ingrained in the happiness, cooperation and peace of the world.
o It is based on the premise of 'माता भूममिः पुत्रो अहम ् पृमिव्यिः' - the culture that considers the earth to be the
mother.
Atmanirbhar Bharat v/s Import Substitution
• It has been clearly specified that this idea of self-
reliance is not about a return to the era of import Import substitution relied extensively on imposing high
substitution or isolationism. import tariffs and discouraging foreign trade, while
Atmanirbhar Bharat focuses on reforms and improving
• Following elements are essential to the proposed
ease of doing business, including for foreign firms in the
concept of Atmanirbhar Bharat: country.
o Active participation in post-COVID-19 global
The Import Substitution model advocated a centralised,
supply chains: Self-sufficiency in the present
top-down model whereas Atmanirbhar Bharat
context refers to improving efficiency, competing emphasizes on freeing Indian entrepreneurship and
with the world and simultaneously helping the innovation from bureaucratic hurdles.
world.
o Resilience: This resilience refers to leveraging internal strengths, personal responsibility, and a sense of
national mission (or “Man Making” as termed by Swami Vivekananda). Developing this resilience may
require additional protection for domestic enterprises.
✓ For example, the move to disallow global tenders up to Rs. 200 crores for foreign players aims to
increase the system’s resilience by protecting the MSMEs.
o Decentralized Localism: It is about creating a system that takes pride in local brands, encourages local
capacity-building and indigenisation.
✓ For example, the scrapping of the ECA-APMC system enables localised decision-making by farmers
even as they can participate in a national common market.
o System of Social Trust: A system where economic entities are expected to be self-reliant, requires a
generalised system of social trust and the ability to enforce contracts, which in turn requires reformation
of the legal system.
Why being ‘Atmanirbhar’ is important?
• Faster Economic Recovery: India’s ability to recover from the effects of COVID-19 and its economic fallout
depends on the resilience of domestic industries.
o In this light, the mission aims to promote Indian industries while making them competitive through
reforms and government interventions.
• Supply Chain Fragility: Countries all over the world are now looking at boosting domestic capabilities to be
able to absorb future supply chain shocks.
• Emergence of developmental gaps: Continuous dependence on external sector for a long time creates
developmental gaps in an economy. For example, technological dependence on imports has negatively
affected the level of indigenous innovation and R&D.
• Health and Economic Security: The fallout of COVID-19 has showcased how dependency of any form such as
raw material, labour etc. can precipitate into a security crisis.
o For example, absence of adequate Personal Protective Equipment (PPE) production capacity had created
a crises situation for India during the initial period of the crises.
• Geopolitical considerations: High dependence on other countries for resources affects the geopolitical
standing of the country in that region. For example, high import dependency of India on China for Active
Pharmaceutical Ingredients (APIs).
17 www.visionias.in ©Vision IAS

How do we become ‘Atmanirbhar’? – Strategy announced in the mission
The Prime Minister has announced Rs. 20 lakh crore stimulus and to ensure that all facets of the economy are
addressed,4L - Land, Labour, Liquidity and Laws all have been emphasized in this package.
• The idea of Atmanirbhar Bharat if based on 5 pillars:
o First Pillar is Economy, emphasizing on Quantum Jump rather than Incremental change.
o Second Pillar is Infrastructure.
o Third Pillar is Our System, a special reference has been made to technology and contemporary policies as
part of this system.
Why the package is being criticized?
o Fourth Pillar is Our Demography.
• The key criticism regarding the package is that the
o Fifth pillar is Our Demand. government doesn’t seem to be raising its total
• The package has tried to address all sectors of the expenditure by much. (Overall rise in Government
economy in different parts viz.: expenditure due to the package is close to 1% of the
o Part 1: Businesses including MSMEs. GDP.)
o Part 2: Poor including migrants and Farmers. • Lack of immediate support: Several experts and
o Part 3: Agriculture. commentators have highlighted that the economic
o Part 4: New Horizons of Growth. package lacked immediate relief to cope with current
o Part 5: Government Reforms and Enablers. crises.
• The package has also highlighted the importance • Exclusion of some structural reforms in agriculture
sector: Several structural reforms like decentralised
of preferring local products. In the light of this,
procurement of perishable commodities, expansion of
citizens are urged to be vocal about their local the rural jobs scheme and efforts to protect farmers’
products and help these local products become asset bases by giving seeds, fodder, fingerlings and
global. day-old chicks were argued to be more critical to help
Way forward farmers survive the current crisis.
To enable the vision of Atmanirbhar Bharat, several large scale and long-term measures like making subsidies
performance dependent and strengthening public regulation will have to be taken in conjunction with aforesaid
measures. More importantly, increased investment in Education and Skill development is imperative to
complement the structural reforms announced in the package.
Refer the appendix at the end of the document for the details of Atmanirbhar Bharat.
3.2. STATUS PAPER ON GOVERNMENT DEBT

Why in news?
Recently, the Central Government released the
Ninth Edition of the Status Paper on the
Government Debt, which provides a detailed
analysis of the overall Debt Position of the
Government of India.
More on the news
• The status paper analyzes conventional
indicators of debt sustainability such as
Debt/GDP ratio, interest payment to revenue
receipts, shares of short-term Debt/ External
Debt/ Floating Rate Bonds (FRBs) in total debt
• It contains Debt Management Strategy (DMS)
of the Central Government for the financial
years from 2019-20 to 2021-22 which guides
the borrowing plan of the Government.
• The objective of the DMS is to ensure that the
government's financing requirements and payment obligations are met at the lowest possible cost, consistent
with prudent degree of risk.

Recent Trends in Govt Debt
Parameters 2017-18 (as 2018-19 (as Remarks
percentage of percentage of
GDP) GDP)
Public Debt 41% 40.0% Decreased.
Internal debt 37.4% 37.3% Decreased.
Marketable debt 32.8% 31.5% Decreased.
Non-marketable debt 5.3% 5.8% Increased.
External debt 2.8% 2.7% Decreased
Other Liabilities 5.3% 5.2% Decreased
Central Govt. (GoI) 45.8% 45.7% Decreased.
Liabilities
General Government Debt 68.7% 68.6% Decreased. It comprises of consolidated debt of
(GGD) the Central Government and State Governments.
Significance of managing Government debt Important terms

• Affects investor confidence: Due to • Debt to GDP ratio: The debt-to-GDP ratio is the ratio of a country's
public debt to its gross domestic product (GDP). It indicates a
higher debt burdens there is an
particular country’s ability to pay back its debts.
increased risk of default which
• Roll over risk: It is a risk associated with the refinancing of debt—
downgrades the sovereign credit specifically, that the interest charged for a new loan will be higher
ratings by the credit rating agencies. than that on the old. Generally, the shorter-term the maturing
This impacts investor confidence, debt, the greater the borrower's rollover risk.
reducing FDI/FII in India, and makes • Currency or foreign exchange risk relates to vulnerability of the
future borrowing expensive. debt portfolio to depreciation in the value of the domestic
• Impacts fiscal capabilities of the currency vis-à-vis the currency of denomination of external loans
government: As borrowing increases, and the associated increase in the Government's debt servicing
the government has to pay more cost.
interest rate payments to bondholders. • Interest payment to revenue receipts (IP-RR): It is the ratio of
total interest payments made towards the debt to the revenue
This can lead to a greater percentage of
receipts of the government.
tax revenue going to debt interest
• Floating Rate Bonds (FRBs): These are securities issued at variable
payments. coupon rates.
• Crowding out effect: As more money is • The gross fiscal deficit (GFD) is the excess of total expenditure
lent to the government rather than (including loans net of recovery) over revenue receipts (including
invested in the market, corporate external grants) and non-debt capital receipts.
sector is crowded out leading to slower • Short-term debt of the Central Government refers to the total
industrial and capital asset growth and amount of debt maturing within the next 12 months.
potential loss of employment. o It includes 14-day intermediate treasury bills, regular treasury
• Fiscal repression of commercial banks: bills, dated securities maturing in the ensuing one year and
When the government borrows more, it external debt with remaining maturity of less than one year.
• Treasury bills are discounted instruments which help the
forces Public Sector Banks to purchase
Government in managing its short term cash flow mismatches.
more of Government Securities (GSecs) o Central Government currently issues treasury bills of tenor of
which reduces the capital availability to 91, 182, and 364 days.
the private sector and affects • 14-day Intermediate Treasury Bills (ITBs) are non-marketable
profitability of the banks. instruments issued to the State Governments (and select Central
• Inflationary pressure: High debt can Banks) to enable them to deploy their short-term surplus cash at
force governments to print money and a fixed interest rate.
thus lead to inflation and reduction in
real interest rates.
• Exchange rate risk: The reduced demand of domestic securities relative to foreign securities (due to poor
credit rating) might push the exchange rate down and weaken the domestic currency.
• Higher taxes in the future: If the debt to GDP rises rapidly, the government may need to increase taxes and/or
limit spending to reduce debt levels in the future.
• Vulnerability to volatile international capital markets: High share of external debt exposes economy to capital
flight.

Approach of the Central Government towards sustainable debt management
• Dedicated agency to manage debt: Institutionally, the Government has decided to set up a statutory Public
Debt Management Agency (PDMA) to bring both, India's external and domestic debt under one roof.
o The first step towards this direction was the establishment of a Public Debt Management Cell (PDMC) as
an advisory body within Budget Division, Ministry of Finance in 2016.
• Government’s Medium-Term Debt Management Strategy (2019-2022): Several steps will be taken by the
government under it based on three broad pillars viz.,
o Low cost of borrowing-
✓ Elongating maturity profile of the debt portfolio.
✓ Rationalisation of interest rates on small savings schemes and other instruments like PF, special
securities, etc. in line with the interest rates prevailing in the economy.
✓ Advising other Divisions of Department of Economic Affairs, engaged in the negotiations of external
loans as regards cost, tenure, currency, etc. with a view to help them arrive at the best terms for
external loans.
o Risk mitigation-
✓ Setting benchmarks for certain indicators such as share of short term debt and external debt, Floating
Rate Debt etc. to ensure minimal risk in terms of Roll-over Risk and risks associated with movement
in interest rates and exchange rates. E.g. Share of short-term debt should be maintained within 10 per
cent of total outstanding Marketable Debt stock with a leeway of ± 3 per cent.
o Market development-
✓ Maintaining transparency in the market borrowing programme, conducting regular investor
interaction and consultations with other stakeholders and issuing a variety of instruments to help
investors manage their portfolio more efficiently.
✓ Creating benchmarks of desired tenors by issuing sizeable volumes to enhance investor participation
and liquidity.
✓ Supporting development of domestic investor base and calibrated opening of the Government
securities market to foreign investors.
India’s performance on indicators of debt sustainability
According to the status paper, presently the Government’s debt portfolio is characterized by favorable sustainability
indicators:
• The debt to GDP ratio for the Central Government declined from 47.5 per cent in 2011- 12 to 45.7 per cent in 2018-
19.
• Gross Fiscal Deficit (GFD) as a percentage of GDP has been on a declining trend since 2012-13.
• The share of short-term debt is within safe limits and has stabilised after some rise during 2005 to 2012.
• The Government has adopted a conscious strategy of elongating maturity to reduce roll-over risk.
o 69.9 per cent of total securities issued during 2018-19 were in the maturity bucket of 10 years and above.
• Most of the Government debt is at fixed interest rates, with floating internal debt constituting only 0.9 per cent of
GDP in 2019, which minimises the impact of interest rate volatility on the budget.
• Low share of external debt implies that currency risk and the susceptibility of debt portfolio to volatile international
capital markets is not substantial.
• The ratio of interest payments to revenue receipts (IP-RR) of the Central Government was 37.5 per cent in 2018-19
as compared to 35.6 per cent in 2012-13.
State Government Debt
• The debt-GDP ratio of States has decreased to 24.8 per cent in 2019 from 25.0 per cent in 2018.
• The outstanding liabilities of the State Governments have been consistently registering double digit growth since
2012-13 with the exception of 2014-15 and 2018-19.
• The share of public debt increased within the overall debt portfolio of the State Governments and constituted 19.1
per cent of their GDP.
• Within the public debt, the share of market borrowings increased while that of borrowings from the National Small
Savings Fund (NSSF) exhibited a steady decline to 9.4 per cent in 2019 from a high of 24.4 per cent in 2012.
• Loans from the Centre have been decreasing over the years and accounted for 3.7 per cent of total liabilities in 2019.

3.3. SARFAESI ACT
Why in News?
A five-judge Constitution Bench of the Supreme Court (SC) recently held that cooperative banks can use the
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act)
for recovery of debts from its defaulters and can seize and sell their assets to recover dues.
More on the news
• The SC judgment addressed the following issues pertaining to cooperative banks (CBs) in view of several
conflicting decisions by high courts:
o Competence of the parliament to regulate debt Cooperative banks
• They are customer owned financial entities
recovery procedure of CBs registered under
established on a co-operative basis which provide a
state-specific acts (including multi-state CBs
wide range of regular banking and financial services.
registered under the Multi State Cooperative • They are registered under the States Cooperative
Societies Act, 2002 (MSCS Act, 2002)). Societies Act or MSCS Act, 2002.
o Whether SARFAESI Act, 2002 can be applied to • They also come under the regulatory ambit of the
these CBs and questioned the validity of - Reserve Bank of India (RBI) under two laws, namely,
✓ central government notification in 2003 the Banking Regulations Act, 1949, and the Banking
which had brought co-operative societies Laws (Co-operative Societies) Act, 1955.
within the purview of the SARFAESI Act and
✓ the amendment of SARFAESI Act in 2013 which included a ‘multi-state co-operative bank’ (MSCB)
within its definition of ‘bank’.
o Petitioners also questioned whether CBs fall under Union List (Entry 45-‘banking’) or state list (Entry 32-
‘cooperative societies').
✓ Clarity was needed about whether the definition of 'banking company' in the Banking Regulation
Act, 1949 (BR Act, 1949) Security: It is a fungible, negotiable financial instrument that holds some
covers all CBs. type of monetary value. They can be broadly categorized into two
• The Constitution bench held that: distinct types:
o Parliament has legislative Equity security: It represents ownership interest held by shareholders in
competence to provide for an entity (a company, partnership or trust), realized in the form of shares
procedure for recovery of loan for of capital stock.
all CBs under the SARFAESI Act. Debt security: It represents money that is borrowed and must be repaid,
✓ Recovery of dues was held as with terms that stipulate the size of the loan, interest rate,
and maturity or renewal date.
an essential function of any
Security Interest
banking institution.
• A security interest on a loan is a legal claim on collateral that the
o CBs registered under state laws borrower provides that allows the lender to repossess the collateral
(including MSCBs) are covered and sell it if the loan goes bad.
within the ambit of Entry 45 of • A security interest lowers the risk for a lender, allowing it to charge
Union list. lower interest on the loan.
o CBs involved in the activities Security receipt
related to banking are covered • It means a receipt or other security, issued by an ARC to any
under ‘banking company’ for the qualified institutional buyer as an evidence of purchase or
purposes of the BR Act, 1949 and acquisition of the financial asset involved in securitization.
any other legislation applicable to banks under RBI Act.
• The judgment holds significance for co-operative banks as it will help them expedite recovery of their bad
loans using provisions of SARFAESI Act.
About SARFAESI Act, 2002
• The act was framed in order to address the problem of Non-Performing Assets (NPAs) or bad assets of
banks/financial institutions through different mechanisms.
• It allows only secured creditors (lenders whose loans are backed by a security such as mortgage) to take
possession over a collateral security if the debtor defaults in repayment.

• The act provides procedure for registration and regulation of asset reconstruction company (ARC) and allows
them to carry out the business of-
o Asset reconstruction: It is the activity of converting a NPAs or bad assets into performing assets. The ARCs
can acquire financial assets (NPAs) from banks and try to recover dues through measures such as:
✓ the proper management of the business of the borrower, by changing or taking over the management
✓ the sale or lease of a part or whole of the business
✓ rescheduling of payment of debts payable etc.
o Securitization: It is the process of conversion of existing loans into marketable securities by ARCs through
issue of security receipts.
• Enforcement of Security interests by lenders without the intervention of the Court: After giving a notice
period of 60 days to the defaulting borrower, banks/financial institutions can-
o take possession of the pledged
Insolvency and Bankruptcy Code (IBC), 2016 and SARFAESI Act
assets of the borrower,
• The IBC, 2016 was formulated to consolidate various laws,
o take over the management of such
regulations and rules concerning insolvency, bankruptcy and
assets, liquidation of non-financial entities, systematically and
o appoint any person to manage them comprehensively.
or o Insolvency is the inability of an entity to pay its bills as and
o ask debtors of the borrower to pay when they become due and payable.
their dues too, with respect to the o Bankruptcy is a situation when an entity is declared incapable
asset. of paying their due and payable bills.
• Creation of a Central Registry: by the • It did away with overlapping provisions contained in various laws–
Central Government for the purposes of o Sick Industrial Companies (Special Provisions) Act, 1985,
registration of transaction of Recovery of Debts Due to Banks and Financial Institutions Act,
1993, SARFAESI Act, 2002 and Companies Act, 2013.
securitization and reconstruction of
• The IBC created a new institutional framework, consisting of a
financial assets and creation of security regulator, insolvency professionals, information utilities and
interest. adjudicatory mechanisms to facilitate a formal and time bound
• Application against measures to insolvency resolution process and liquidation.
recover secured debts: can be filed by Differences between IBC and SARFAESI Act:
borrowers/lenders with Debt Recovery • SARFAESI Act, 2002 covers only secured financial creditors while
Tribunal (with appeal to Debts Recovery IBC protects the rights and interests of both secured and
Appellate Tribunal) established under unsecured creditors.
Recovery of Debts due to Banks and • Section 14(1)(c) of the IBC, 2016 provides that during the
Financial Institutions Act, 1993. insolvency resolution process as defined in the Code, the Code
takes precedence over the SARFAESI Act.
• Provisions of this Act not applicable to:
• IBC provides for separate adjudication authorities for companies
o any security interest created in
and Limited Liability Partnerships (LLP) (dealt by the National
agricultural land Company Law Tribunal (NCLT)) and individuals and unlimited
o any case in which the amount due is partnership firms (under jurisdiction of DRT).
less than twenty per cent of the o While the SARFAESI Act assigns DRT as the adjudication
principal amount and interest authority on matters pertaining to the act.
o any security interest for securing
repayment of any financial asset less than one lakh rupees.
Note: For more details on Cooperative banks, refer to VisionIAS Current Affairs-October 2019 edition.
3.4. TRIPS FLEXIBILITIES

Why in news?
India has asked the G20 members to work on an agreement that would enable countries to use the flexibilities
under TRIPs.
More about news
• India called for an agreement to enable the use of TRIPS (Trade Related Intellectual Property Rights) flexibilities
to ensure access to essential medicines, treatments and vaccines at affordable prices.
o India uses these flexibilities under Patent Act, 1970 for the public health and emergency purposes.

• The reason for which India is asking for such an agreement is will make possible for nations to issue compulsory
licenses to make generic copies of essential patented medicines that could be made available to people at
prices much lower than the patented versions.
About TRIPS Flexibilities
• TRIPS flexibilities are ‘policy spaces’ for countries to mitigate the impact of patents (i.e., the excessively high
price of patented medicines due to lack of competition).
• TRIPs agreement and subsequent Doha Declaration on TRIPS and Public Health of 2001 provide some
flexibilities in this regard.
• Flexibilities aim to permit developing and least-developed countries to use TRIPS-compatible norms in a
manner that enables them to pursue
o their own public policies, either in specific fields like access to pharmaceutical products or protection of
their biodiversity,
o in establishing macroeconomic, institutional conditions that support economic development.
• Some major flexibilities under TRIPs are:
o Compulsory Licensing: Compulsory licensing enables a competent government authority to license the
use of a patented invention to a third party or government agency without the consent of the patent-
holder.
o Parallel importation: It is importation without the consent of the patent-holder of a patented product
marketed in another country either by the patent holder or with the patent-holder’s consent.
✓ It enables access to affordable
About TRIPS Agreement
medicines because there are • The TRIPS Agreement, which came into effect in 1995, is the
substantial price differences most comprehensive multilateral agreement on intellectual
between the same pharmaceutical property.
product sold in different markets. • It was negotiated between 1986 and 1994 during the
o Exemptions from patentability: The Uruguay Round of the General Agreement on Tariffs and
agreement does not require the Trade (GATT), which led to the establishment of the World
patenting of new uses of known Trade Organization (WTO).
products including pharmaceuticals and • It sets out the minimum standards of protection to be
permits countries to deny protection for provided by each Member.
o Agreement is in line with the main conventions of the
such uses of lack of novelty, inventive
WIPO, the Paris Convention for the Protection of
step or industrial applicability.
Industrial Property (Paris Convention) and the Berne
o Limits on Data Protection: As a Convention for the Protection of Literary and Artistic
condition for permitting the sale or Works (Berne Convention).
marketing of a pharmaceutical product, • It contains provisions on civil and administrative
drug regulatory authorities require procedures and remedies, provisional measures, special
pharmaceutical companies to submit requirements related to border measures and criminal
data demonstrating the safety, quality procedures.
and efficacy of the product. • The Agreement makes disputes between WTO Members
✓ The TRIPS Agreement requires that about the respect of the TRIPS obligations subject to the
WTO Members protect undisclosed WTO's dispute settlement procedures.
test data, submitted to drug • The areas of intellectual property that it covers are:
o copyright and related rights,
regulatory authorities for the
o trademarks,
purposes of obtaining marketing o geographical indications,
approval, against unfair commercial o industrial designs,
use. o new varieties of plants;
✓ However, some limits are allowed to o layout-designs of integrated circuit,
use the data for the generation of o trade secrets and test data.
generic drugs for public health. • Membership in the WTO includes an obligation to comply
o Extension of transition period for Least- with the TRIPS Agreement.
Developed Countries (LDCs): The
amendment to Doha Declaration extended the transition period for LDCs for implementation of the TRIPS
obligations to 2021.

3.5. LABOUR LAW REFORMS
Why in news?
Recently, some state governments in India have temporarily suspend the operation of some labour laws in their
state.
Labour Laws framework in India
• Labour is subject in the Concurrent List of the seventh schedule, thus allowing both the Centre and states to
legislate on labour related issues.
o Currently, there are 44 labour laws under the purview of Central Government and more than 100 under
State Governments, which deal with a host of labour issues.
• Labour laws are primarily divided into four categories
o Conditions of Work- Including the Factories Act, 1948; the Contract Labour (Regulation and Abolition) Act,
1970.
o Wages and Remuneration- including the Minimum Wages Act 1948; the Payment of Wages Act 1936.
o Social Security- including the Employees Provident fund Act, 1952; the Workmen's Compensation Act,
1923.
o Employment security and Industrial Relations- including the Industrial Disputes Act 1947; the Industrial
Establishments (Standing Orders) Act, 1946
• The multiplicity of labour laws and difficulty in coping with them are the impediment to industrial development
in India. Many of the laws are obsolete and are required to be reviewed to align them with current economic
situation
• Also, these labour laws protect only 7-8% of the organised sector workers employed at the cost of 92-93%
unorganised sector workers.
Some recent changes made to labour laws in states-
• Madhya Pradesh-
o The employers have been exempted from some obligations under various labour laws, like Madhya
Pradesh Industrial Relations Act, Industrial Disputes Act, Contract Labour Act etc. for 1,000 days.
o The newly established factories need not file annual returns..
o The employers will be allowed to hire and fire workers at their convenience.
o An increase of working hours in factories from eight to 12 hours.
o The factories will be allowed to operate without following safety and health norms. Also, new factories
will be exempted under the Factories Act, 1948 from inspection from the Labour Department and
permitted the flexibility to conduct third party inspections at will.
• Uttar Pradesh-
o It has brought in Uttar Pradesh Temporary Exemption from Certain Labour Laws Ordinance, 2020, to
exempt factories, businesses, establishments and industries from the purview of all key labour laws for the
next three years.
o All details of employed workers will be maintained electronically.
o The worker will be paid above minimum wages of the state government and within the time limit as per
the Act.
Need for these reform
• To overcome COVID shock: Industrial and economical activities have been severely affected due to COVID 19.
Given the temporary nature of suspension in these laws, it will allow the enterprises to improve their financial
viability and become sustainable over a period of time.
• Employment opportunity: Enabling the migrant workers to earn a living for themselves, given the
unemployment rate rose to the highest level of 27.1 per cent in recent weeks in the wake of COVID-19.
o Further, it will ease pressure on hinterland and rural areas due excess workforce in the midst of the COVID
19 migration.
• Developing manufacturing base- India has been keen to attract companies that want to shift from China by
developing large pools of land and considering other incentives.
o India must use this as an opportunity to attract MNCs and investment in the manufacturing sector.
o As per India Inc, this move will boost competition among states for reforms.

• Increase production to full capacity- Currently, some provisions under the Factories Act, require the units
running on power to compulsorily register, if they employ 10 workers. This restricts them from employing
more workers and thus limiting their production capacity.
o Increase in working hours helps to overcome shortage of manpower, which is going to hit all sectors,
especially the manufacturing sector.
Issues
• Against workers right: This move will lead to dilution of worker rights and pave the way for exploitation of
workers in an already stressed environment.
o Such an approach can spark resentment leading to increased worker agitation and activism.
• Against International Law: Governments are mandated to consult labour unions on changes to labour laws as
per International Labour Organisation (ILO) framework.
o 10 central trade unions lodged a complaint with the ILO as they see these moves in gross violation of
Right to Freedom of Association [ILO Convention 87], Rights to Collective Bargaining [ILO Convention 98]
and also the internationally accepted norm of eight hour working day.
o On this ILO has expressed “deep concern" over the labour law amendments, and has appealed to Prime
Minister to intervene and give a clear message to states on international commitments.
o Article 253 gives the parliament the special power to legislate and pass laws in order to implement
international agreements.
• Limited impact of labour law reforms- There is limited evidence that relaxing labour laws alone will increase
employment. E.g. labour reforms in Special Economic Zones has not resulted in a significant rise in
employment.
o A study by the VV Giri National Labour Institute, on four states i.e. Rajasthan, Uttar Pradesh, Andhra
Pradesh and Madhya Pradesh, found that ‘amendments in labour laws neither succeeded in attracting big
investments, boost to industrialisation or job creation’.
o Further, India ranks 58th in WEF's Global Competitiveness Index against China which ranks 62nd in the
same. Thus, lack of competitive labour markets is not the main factor driving India’s poor competitiveness
and there is little evidence that relaxing labour laws alone will attract overseas investment, especially from
the companies that are looking to leave China.
• Shallow scope of reforms- These reforms focus on labor and not employment. The actual problems of industry
are related primarily to the provisions for lay-offs, retrenchment and closure and the administrative
implementation of labour laws. Thus, a wholesale removal of so many labour laws may not be the panacea for
job crisis.
Way Forward
• To promote an enabling business environment, the overall interests of Labour like wages, employment, social
security, working environment, health and safety etc. should be duly addressed.
• To improve employment, government should consider reforms such as developing apprentices’ ecosystem
and rural employment ecosystem around MGNREGS, rather than merely invoking labour law reforms.
• The government should focus on creating a comprehensive integrated legal framework for labour (as
envisaged in the idea of 4 labour codes.)
o There should have uniform definitions of key terms like ‘industry’, ‘worker’, ‘employee’, as currently most
laws have different definitions which result in long drawn disputes and confusion.
3.6. IMPACT OF ENERGY EFFICIENCY MEASURES FOR THE YEAR 2018-19

REPORT
Why in news?
Bureau of Energy Efficiency released the Report titled “Impact of energy efficiency measures for the year 2018-
19”.
More about report
• Bureau of Energy Efficiency (BEE) conducted an annual study comparing the actual energy consumption in
2018-19 with the estimated energy consumption had the current energy efficiency measures not been
undertaken i.e. counterfactual.

• The overall objective of the Bureau of Energy Efficiency (BEE)
study is to assess the impact of • BEE is a statutory body under Ministry of Power, setup under the
all the energy efficiency provisions of the Energy Conservation Act, 2001.
schemes/ programmes in India • Its mission is to assist in developing policies and strategies with a thrust on
in terms of total energy saved self-regulation and market principles, within the overall framework of the
and reduction in the amount of Energy Conservation Act, 2001 with the primary objective of reducing
CO2 emissions in 2018-19. energy intensity of the Indian economy.
o Energy Intensity is measured by the quantity of energy required per
India’s Energy Efficiency (EE) unit output or activity (or GDP).
Measures- A Background
• Realising the importance of energy efficiency in promoting
low carbon transformation, India had launched the Energy
Conservation Act in 2001.
• It had further directed its policies by setting up the Bureau
of Energy Efficiency (BEE) and then initiating the National
Mission for Enhanced Energy Efficiency (NMEEE).
• Along with BEE, there are other organizations at national
level that are also supporting in energy efficiency by
launching its own set of schemes. These schemes are
spanning across major energy consuming sectors in India
such as Industry, Commercial, Residential, etc., along with
cross cutting mechanisms for realization of energy savings.
• Currently India is running several Energy Efficiency
schemes/Programmes. These include
Large Industry Perform, Achieve and Trade (PAT) Scheme
Industry- MSME BEE SME Program, GEF – World Bank – BEE Programme
Domestic- Lighting & appliances Standards & Labeling (S&L), UJALA
Domestic- Buildings Eco Niwas Samhita, Residential Labeling
Commercial Buildings ECBC– Commercial Building, BEE – Star Rating Programme, Building Energy
Efficiency Programme (BEEP)
Agriculture- Appliances (Star Rated Agriculture Demand Side Management Programme (AgDSM)- (Star Rated Pumps)
Pumps)
Transport- Road Transport Corporate Average Fuel Economy (CAFE), Faster Adoption & Manufacturing of
Electric Vehicles (FAME)
Municipality- Lighting & Appliances Municipal Demand Side Management Programme (MuDSM) - (SLNP and MEEP)
Why focus on Energy Efficiency?
• High growth and energy demand prospects: Sustained high economic growth rates over the last two decades,
growing population, and rising aspirations of a growing middle class is driving the demand for energy
resources in India. However India’s energy sector is still dominated by fossil fuels such as coal and oil.
Moreover, India imports around 80% of its crude oil needs. This necessitates saving the energy for two prime
reasons-
o Import dependence can increase the vulnerability of the country's economy to global geopolitical and
economic risks, apart from adversely affecting
Energy Consumption Scenario in India
the trade balance.
• With a total energy consumption of 553.9 Million
o Inequity in access: Rising costs of accessing
Tonnes of Oil Equivalent (Mtoe) in 2017-18, India
resources, shrinking geological availability, the stood the third largest energy consumer in the world
risk of material exhaustion, uncertainty with after United States of America and China.
regard to long-term abundance and • India also ranks highest in terms of growth rate of
distributional challenges along with associated energy consumption in the world.
uneven and unfair access to natural resources • India’s energy consumption is expected to grow
will all pose hurdles in meeting the rising fastest among global economies and account for 11%
energy demand. of global energy demand by 2040.

• Cost Benefit: for example, the rise in India’s electricity requirement (demand plus transmission and
distribution losses) In the medium term till 2026-27 would require investment in capacity additions of more
than USD 304 billion. Energy efficiency costs less than the cost of meeting electricity demand with new
power plants.
• India’s Climate commitments: India’s Nationally Determined Contribution (NDC) targets to lower the
emissions intensity of GDP by 33-35 per cent by 2030 from 2005 levels.
o India is marching on the path of energy transition, shifting away from fossil fuels and focusing on
decentralized energy resources. Energy Efficiency will be central to this transition process as it helps to
make the transition faster and more economical.
• A focus on energy efficiency is also necessary to reduce the heavy pollution- especially air pollution- caused
due to industry and transport sector. E.g. transition to BS-VI vehicles directly from BS-IV vehicles.
• Energy efficiency is one of the important foundations for various government projects such as NAPCC (8
Missions), Smart City Projects, AMRUT, DDUGJY, SAUBHAGYA, National Smart Grid Mission, KUSUM etc. which
seek to reduce the pollution, enhance the total energy consumption in a sustainable and efficient manner.
Overall, Energy efficiency remains one of the most
cost-effective measures because it not only conserves
energy at end-use, but also saves on the cost of the
energy produced. Concerns regarding energy
affordability, accessibility, availability, and security, as
well as environmental considerations, have only
amplified the interest in the energy efficiency
potential of all sectors.
Impact of various Energy Efficiency Interventions in
India
• Adoption of energy efficiency schemes/
programmes have led to overall electricity savings
to the tune of 9.39% of the net electricity
consumption.
• PAT scheme contributed to 57.72% of the total
energy savings, while S&L and UJALA accounted
for 36.26% of the total energy saving from all
major interventions carried out during the FY18-
19.
• Overall, various energy efficiency measures have
translated into savings worth INR 89,000 crores
(approximately) and contributed in reducing
151.74 Million Tonnes of CO2 emission.
Conclusion
• Current schemes/programs are largely successful in achieving significant energy savings across various sectors
viz. Industry, building (domestic and commercial), municipal, agriculture, and transport. However, the future
landscape would be driven by disruptive technologies and economic mega-trends such as smart cities, e-
mobility etc. which are changing the dynamics of energy sector.
• The BEE has developed a National Strategy Plan - Unlocking National Energy Efficiency Potential (UNNATEE).
Activities to operationalize it would not only focus on available technology to make improvements but would
also include relatively new technologies such as E-mobility, fuel cell vehicles (FCVs), integration of renewables
& storage, net zero buildings, etc. for decarbonizing various sectors of the economy.
UNlocking NATional Energy Efficiency potential (UNNATEE)
• It is a national strategy document for accelerating energy efficiency in India. It describes a plain framework and
implementation strategy to establish a clear linkage between energy supply-demand scenarios and energy efficiency
opportunities. It does so by clearly delineating the energy efficiency targets for the respective demand sectors upto
the state levels.

UNNATEE Implementation Strategy
• Favourable Regulations - through an overarching energy efficiency policy, which includes targets, incentives and
penalties.
o Agriculture- Inclusion of agro projects under the National Clean Energy Fund
o Buildings- Introduction of incentives for purchasing energy efficient houses.
o Industry- Increasing the scope of the PAT programme.
o Transport- Roll out of the proposed FAME-II scheme.
• Institutional Framework - through strong enforcement mechanism at state levels, which would lend further strength
to the national and local level program.
o Agriculture- A single window system for export of products and services will improve the competitiveness of
sector R&D.
o Buildings- A reporting framework for where the states are required to update their progress in implementation
of Energy Conservation Building Code in their state.
o Industry- Creation of an energy management cell.
• Availability of Finance - in the form of a revolving fund, risk guarantee, On-bill financing, Energy Savings Insurance,
Energy Conservation Bonds.
• Other important components include use of technology, stakeholder engagement, data collection via setting up of a
Nodal Agency and setting State wise targets.
3.7. ENERGY TRANSITION INDEX REPORT

Why in news? Fostering Effective Energy Transition Initiative
Recently, the World Economic Forum released the • It aims to accelerate the speed of the global energy
Energy Transition Index 2020. transition by promoting the adoption of effective
policies, corporate decisions and public‑private
About Energy Transition Index (ETI) collaboration for the transition to a secure, sustainable,
affordable and inclusive future energy system.
• The ETI is a fact-based ranking intended to
• It offers a platform to establish a common understanding
enable policy-makers and businesses to plot the among all stakeholder groups on the end‑state of the
course for a successful energy transition. energy transition, necessary imperatives, market and
o It is a composite score of 40 indicators policy enablers, and the resulting human impact.
which benchmarks 115 countries on the
speed and direction of their
energy transition and
identifying opportunities for
improvement.
• An effective energy transition is
a timely transition towards a
more inclusive, sustainable,
affordable and secure energy
system that provides solutions to
global energy‑related challenges,
while creating value for business
and society, without
compromising the balance of the
energy triangle.
• ETI is a part of the World Economic Forum’s Fostering Effective Energy Transition Initiative.
o It is a continuation of the annual energy system benchmarking series, previously published as the Energy
Architecture Performance Index (EAPI) series
Challenges due to COVID-19
from 2013 to 2017.
• The erosion of almost a third of global energy demand
• The ETI framework consists of two parts i.e. the • Unprecedented oil price volatilities and subsequent
current energy system performance and the geopolitical implications
enabling environment for the energy transition. • Delayed or stalled investments and projects
(Refer the infographics). • Uncertainties over the employment prospects of
millions of energies‑sector workers.

Key findings of the ETI 2020
• ETI 2020 Rankings- Sweden (1), Switzerland (2), Finland (3), India (74), China (78).
• A majority of countries have made varying degrees of progress on the three dimensions of the energy triangle:
o However, the lack of consistent progress in many countries, highlights the challenges in navigating the
complexity of the energy transition.
• The gaps between the top performers and the rest have been steadily decreasing, mainly due to rising levels
of political commitment and improving access to capital for investment in emerging economies.
o This highlights the need for transformative and breakthrough solutions to unlock the next wave of
substantial gains for advanced economies.
3.8. SUGAR INDUSTRY IN INDIA

Why in news?
Recently, a NITI Aayog task force on sugarcane and sugar industry submitted its report to the government.
More on news
• This task force was constituted on the sugar industry to find a long-term solution to the problems faced by the
sector so as to rationalise their dependence on states' assistance
• Its mandate included recommendations on crop diversification to reduce adverse impact on ground water and
aligning sugar industry with global markets.
Significance of Sugar Industry in India
• Important agro-based industry that impacts rural livelihood of about 50 million sugarcane farmers and around
5 lakh workers directly employed in sugar mills.
o Employment is also generated in various ancillary activities relating to transport, trade servicing of
machinery and supply of agriculture inputs.
• Global sugar space: The sugar industry plays a leading role in global market with India being world’s second
largest producer after Brazil, producing nearly15 and 25 per cent of global sugar and sugarcane respectively.
• Linkage with other industry: Sugar industry is involved to make avail of sugar complexes by manufacturing
sugar, bio-electricity, bio-ethanol, bio-manure and chemical.
Growth of Sugar industry in India
• A major step to liberate the sugar sector from controls was taken in 1998 when the licensing requirement for
new sugar mills was abolished.
• Delicensing caused the installed capacity in the sugar sector to grow at almost 7% annually between 1998-99
to 2011-12 compared to 3.3% annually between 1990-91 to 1997-98.
• Delicensing also contributed significantly to a structural transformation in the sugar industry. Till 1997-98,
sugar cooperatives dominated the sugar industry but by 2011-12 this changed significantly with the private
sector contributing the largest share of total installed capacity.
• Although delicensing removed some regulations in the sugar sector, other regulations (i.e. pricing policy,
compulsory jute packaging etc.) persisted. The drivers for regulations were:
o the highly perishable nature of sugarcane;
o the small land holdings of sugarcane farmers; and
o the need to keep the price of sugar at reasonably affordable levels while making it available through the
Public Distribution System (PDS).
Issue faced by Sugar Industry in India
Issues due to regulations
• Cane reservation area and bonding: Every designated mill is obligated to purchase from cane farmers within
the cane reservation area, and conversely, farmers are bound to sell to the mill. This ensures a minimum
supply of cane to a mill, while committing the mill to procure at a minimum price.
o However, this arrangement reduces the bargaining power of the farmer. He is forced to sell to a mill even
if there are cane arrears (occurs when sugar mill owners delay payment to farmers for the sugarcane
supplied).

o Mills, on their part, lose flexibility in Sugarcane pricing in India
augmenting cane supplies, especially The pricing of sugarcane is governed by the statutory provisions of
when there is a shortfall in sugarcane the Sugarcane (Control) Order, 1966 issued under the Essential
production in the cane reservation Commodities Act (ECA), 1955.
area. Mills are also restricted to the Fair and Remunerative Price (FRP)
quality of cane that is supplied by • It is the cane price announced by the Central Government on
farmers in the area. the basis of the recommendations of the Commission for
Agricultural Costs and Prices (CACP) after consulting the State
• Minimum distance criterion: Under the
Governments and associations of sugar industry.
Sugarcane Control Order, the central
• FRP is minimum price paid by mills to farmers.
government has prescribed a minimum • It replaced the erstwhile Statutory Minimum Price.
radial distance of 15 km between any two o Under the FRP system, the farmers are not required to
sugar mills. This regulation is expected to wait till the end of the season or for any announcement
ensure a minimum availability of cane for all of the profits by sugar mills or the Government.
mills. • It assures margins on account of profit and risk to farmers,
o However, this criterion often causes irrespective of the fact whether sugar mills generate profit or
distortion in the market. The virtual not and is not dependent on the performance of any
monopoly over a large area can give the individual sugar mill.
mills power over farmers, especially • It is based on the following parameters-
where landholdings are smaller. In o Cost of production of sugarcane
o Return to the growers from alternative crops and the
addition to restricting competition, the
general trend of prices of agricultural commodities
regulation inhibits entry and further o Availability of sugar to consumers at a fair price
investment by entrepreneurs. o Price at which sugar produced from sugarcane is sold by
• Issue with sugarcane pricing (FRP and SAP): sugar producers
Dual sugarcane pricing distorts sugarcane o Recovery of sugar from sugarcane
and sugar economy and leads to cane price o The realization made from sale of by-products viz.
arrears. molasses, bagasse and press mud or their imputed value
o Sugar mills are required to pay the o Reasonable margins for the growers of sugarcane on
FRP/SAP to sugarcane farmers account of risk and profits
irrespective of market prices. • In order to ensure that higher sugar recoveries are adequately
rewarded and considering variations amongst sugar mills, the
o Sugar mills claim they are finding it
FRP is linked to a basic recovery rate of sugar, with a premium
difficult to pay FRP of sugarcane as the
payable to farmers for higher recoveries of sugar from
average production cost of sugar is sugarcane.
higher against the minimum selling State Advised Price (SAP)- Citing differences in cost of production,
price of sugar and due to which they are productivity levels and also as a result of pressure from farmers'
bearing loses. groups, some states declare state specific sugarcane prices called
• Trade policy for sugar: The government had State Advised Prices (SAP), usually higher than the FRP.
set controls on both exports and Sugar pricing Policy
imports. These controls are imposed after • Price of sugar are market driven & depends on demand &
considering the domestic availability, supply of sugar. However, with a view to protect the interests
of farmers, concept of Minimum Selling Price (MSP) of sugar
demand and price of sugarcane.
has been introduced so that industry may get atleast the
o As a result, India’s trade in the world minimum cost of production of sugar, so as to enable them to
trade of sugar is small. Even though clear cane price dues of farmers.
India contributes 17% to global sugar • MSP of sugar has been fixed taking into account the
production (second largest producer in components of Fair & Remunerative Price (FRP) of sugarcane
the world), its share in exports is only and minimum conversion cost of the most efficient mills.
4%.
o This has been at the cost of considerable instability for the sugar cane industry and its production.
• Regulations relating to by-products: Certain restrictions have been placed on by-products of sugarcane such
as molasses and bagasse.
o State governments fix quotas for different end uses of molasses and restrict their movement, particularly
across state boundaries.
o Mills are also restricted from selling power generated from bagasse to other states. Such restrictions
impede the revenue realization from cogeneration and reduce economic efficiency.

• Compulsory sugar packing in jute only: Under Jute Packaging Material (JPM) Act, 1987, 20% of the sugar shall
be mandatorily packed in diversified jute bags. The sugar industry estimates that this leads to an increase in
cost by about 40 paise per kg of sugar besides adversely impacting quality.
Other issues
• High production cost of sugar- The production cost for sugar was Rs 3,580/quintal in 2017-18, compared with
the international price of Rs 2,080/quintal. This increased cost of production subsequently increases FRP.
o The reasons behind this include high sugar cane cost, uneconomic production process, inefficient
technology and high taxes exercised by the state and the central governments.
o India has the largest area under sugar cane cultivation in the world but the yield per hectare is extremely
low and is even lower in North India than in South India. This increase the cost of production and
subsequently FRP.
o Average rate of sugar recovery from the sugar cane is less than 10 per cent which is much lower than
other sugar producing areas like Java, Hawaii and Australia, up to 14 per cent.
• Seasonal nature of industry - The sugar industry has a seasonal character and the crushing season normally
varies between 4 and 7 months in a year leaving the mill and the workers idle for almost half of the year.
• Inefficiency of sugar mill: Most of the factories in the private sector were set up five- to six decades ago. The
cost of production of such units is unduly high owing to less 'mechanical efficiency
• Demand-Supply Mismatch due to emergence of alternative sweeteners replacing sugar, slowdown in the pace
of demand growth while continuous increase in overall production.
Some recent steps taken by the government
• Changes in levy of duty- The import duty was increased from 50% to 100%, along with the removal of the 20%
export duty.
• Duty Free Import Authorisation Scheme- under which exporters are allowed to import sugar at zero duty
within three years.
• Export allowed- The government allowed export of two million tonnes of sugar until the end of the 2017-18
marketing year, in order to clear surplus stocks and improve cash flow to millers for making payment to
sugarcane farmers.
• Stock holding limit on sugar mills- by the Central Government since June, 2018 indicating the mill-wise
quantity of white/ refined sugar prescribed for domestic sale/despatch for that particular month.
o Government has fixed the maximum monthly sugar sale quota and minimum ex-mill sugar sale price
under this.
• Building of buffer sugar stock of 30 lakh tonnes- in order to cut the large inventory with sugar mills and help
contain a slide in the prices of the sweetener and boost the mills’ margins.
• Other subsidies- The government also provided production subsidy, transport subsidy and 50 lakh tons export
quotas.
• Ethanol Blending Program- The Central Government notified the mandatory 10% ethanol blending with petrol
across the country.
o New Bio-fuel Policy in 2018 allows sugar mills/distilleries to make ethanol from cane juice, molasses,
foodgrains, potato etc. It also envisages an indicative target of 20% blending of ethanol in petrol and 5%
blending of bio-diesel in diesel by 2030.
Suggestions of NITI Aayog of Task Force
• Increased Minimum Selling Price- The government can consider a one-time increase in minimum selling price
(MSP) for sugar to Rs 33/kg (from Rs 31) to unburden mills.
o It would help sugar mills to cover the cost of production, including interest, maintenance costs, etc.
o Further, the MSP for sugar should be reviewed after six months of the notification to enhance it.
• Imposition of Sugar cess- of Rs 50/quintal (excluding exports) for three years.
o It could mobilise around Rs 4,500 crore, which would help provide bridge funding or act as a comfort for
banks providing soft loans to mills for improving technologies or paying to farmers.
• Nudging farmers away from sugar cropping- The government can consider capping of farmer’s land use for
sugarcane at 85% of total holding.
o Further, a cash incentive of Rs 6,000/hectare could be given for farmers shifting to alternative crops from
sugarcane.

● Support to farmers- Introduce Revenue sharing formula with a price stabilisation fund to protect farmers
from receiving prices below fair and remunerative price (FRP).
o Earlier, C Rangarajan Committee had recommended that there should be a sharing of the revenues/value
created in sugarcane value chain between farmers and millers in equitable manner.
3.9. DRAFT NATIONAL FISHERIES POLICY 2020

Why in news?
Recently the Department of Fisheries released the Draft National Fisheries Policy (NFP) 2020.
Need for policy
• Fisheries sector has been facing constraints which have had led to stagnation in growth. Constraints include:
o Limited scope for expansion due to overcapacities in territorial waters, weak regulation, inefficient
management and prevalence of traditional fishing practices.
o Inadequate infrastructure especially fishing harbours, landing centers, cold chain and distribution
systems, poor processing and value addition, wastage, traceability and certification, non-availability of
skilled manpower, etc.
o In inland capture fisheries, seasonal nature of fishing operations, depleted stocks in natural waters, issues
related with tenure and lease rights, use of obsolete technology for harvesting coupled with low capital
infusion are some of the significant limiting factors.
o Disease, absence of species diversification and genetic improvement, poor brood and seed are species
specific constraints.
Fisheries sector in India
o Other issues include: high input cost, • Fisheries are an important source of food, nutrition,
lack of access to institutional credit, employment and income in India.
credit guarantee and insurance, o The sector provides livelihoods to about 16 million fishers
environmental sustainability etc. and fish farmers at the primary level and almost twice the
• Hence, National Fisheries Policy seeks to number along the value chain.
consolidate the sectoral gains and ensure o The sector accounts for about 6.58 per cent share of
sustainable growth through policy Agricultural GDP.
support in order to enable and accelerate • The marine exports stand at about 5% of total exports of India
fisheries development. and constitute 19.23 % of Agri-exports (2017-18).
• In the recent years, the fish production in India has registered
o It will serve as an overarching policy
an average annual growth rate of more than 7%.
framework which will provide
• India is second largest producer in fishery sector.
guidance to States and UTs in
• There are two benches of fishery sector namely Inland
developing state specific policies and Fisheries and Marine Fisheries. The total fish production has
legislations having both regulatory nearly 65% contribution from the inland sector and rest form
and developmental features to be marine fishing.
implemented through short, medium • Fisheries being a State subject, the States play a pivotal role in
and long term plans. fisheries governance.
Key Features of the draft Policy: o While Inland Fisheries are fully managed by State
Governments, Marine Fisheries are a shared responsibility
• Fisheries Management Plan (FMPs): The between the Central and Coastal State/UT Governments.
Centre will formulate FMPs for scientific o Coastal States/UTs are responsible for development,
management and regulation of marine management and regulation of fisheries in the sea waters
fisheries resources of the country in inside the 12 nautical mile (22 km) territorial limit.
consultation with the concerned State by o Centre is responsible for the development, management
adopting Ecosystem Approach to Fisheries and regulation of fisheries in the EEZ waters beyond 12
(EAF). nautical miles and up to 200 nautical miles.
• Integrated Fisheries Development Plan (IFDP): The government will prepare and implement IFDP for Islands
to enhance the share in their economy.
• Fisheries Spatial Plans (FSP): The State governments will prepare FSP based on guidelines prepared by the
central government for data management, analysis, modeling and decision making, after taking cognizance of
Coastal Regulation Zone (CRZ) rules.
• Legislation: The center will also enact a comprehensive legislation (“National Marine Fisheries (Regulation
and Management) Bill, 2019”) for holistic resource utilization in EEZ.

• Database: Government will implement a ‘National Objectives of the draft policy
Fisheries Data Acquisition Plan’, involving Central and • Optimally harness the capture and culture
State Governments, and other stake holders to collect fisheries potential
and report field data about various fisheries resources. • A robust management and regulatory
• National Fisheries Development Council: It will be framework
established to provide overall guidance for the • Promote Inland fisheries and aquaculture
implementation of the Policy, review its objectives and through standardized SoPs
progress. • Strengthen and modernize value chain
• National Marine Fisheries Authority: It will have the • Market, trade and export of globally competitive
fish benchmarked with global standards.
powers to ensure sustainable fishing, implementing
• Access to institutional credit
fisheries management plan, capacity building etc. • Ensure food and nutritional security
• Private investment: A robust system of public private
partnership will be developed where the private sector, industry, farmers, communities, government,
research institutes and civil societies are part of it.
• Cluster approach for development of aquaculture: based on production strengths of various geographical
regions in order to enable focused and coordinated development of market and export oriented higher value
species.
• Welfare & Gender equity: Gender equity as well as mainstreaming will be made integral part across fisheries
and aquaculture value chain for socio-economic well-being of women.
• Contract Farming: States will encourage and strengthen, if permissible, Contract farming and Collaborative
farming in fisheries sector by processors and fishers/fish farmers on agreed terms for their mutual benefits.
• Various interventions in different sector include:
o Fisheries Management:
✓ In ‘Areas Beyond National Jurisdiction’ (ABNJ) where there is considerable scope to harvest fishery
resources in the high seas, the Government will promote harnessing the fishery resources.
✓ Foreign fishing vessels will not be allowed to fish or undertake fishing related activities in India’s
sovereign waters.
o Mariculture:
✓ Genetically Modified (GM) species shall not be allowed for mariculture activity.
✓ Within the identified mariculture zones, the government shall designate certain areas as mariculture
technology parks.
o Inland Fisheries:
✓ Population of native species in the rivers will be enhanced through seed ranching of native stock by
developing dedicated seed production units in the vicinity.
✓ State/ UTs may declare certain water bodies as “Reserves for fish” to conserve important fish species
in a suitable wetland.
✓ Introduction of suitable high value species to boost culture fisheries in cold waters in association with
advanced countries e.g. Salmon, Sturgeon, Brown Trout etc.
o Freshwater Aquaculture: Efforts will be made by States to enhance fish production and productivity
through application of technology and formation of Farmers Producer Organizations (FPOs) to cater small
pond holder’s needs.
o Brackish Water Aquaculture: In order to ensure that the fish produced from waste water aquaculture is
safe for consumption, appropriate regulatory, management and precautionary measures will be put in
place in coordination with relevant agencies.
3.10. RICE EXPORT PROMOTION FORUM

Why in news?
Recently, government set up Rice Export Promotion Forum (REPF) under the aegis of the Agricultural and
Processed Foods Export Promotion Development Authority (APEDA).
About REPF
• Its objective is to identify, document particulars and reach out to stakeholders across the entire production/
supply chain of export of rice for increasing these exports significantly to the global market.

o It will monitor, identify and anticipate About APEDA
developments pertaining to rice • APEDA was established under the Agricultural and Processed
production and exports and Food Products Export Development Authority Act, 1985.
recommend necessary policy • It is under Ministry of Commerce and Industry.
measures. • It is mandated with the responsibility of export promotion
o It will be in touch with rice producers, and development of products such as Fruits, Vegetables,
exporters and other relevant Meat, Poultry, Dairy Products, Floriculture, Alcoholic and Non-
stakeholders and hear their problems, Alcoholic Beverages etc.
and facilitate, support and provide o Under ‘Agriculture Export Promotion Scheme of APEDA’,
APEDA provides financial assistance to the registered
solutions to them.
exporters under sub-components of the Scheme - Market
• It will comprise representatives from the Development, Infrastructure Development, Quality
rice industry, exporters, officials from Development and Transport Assistance.
APEDA, Commerce Ministry, Agriculture • APEDA has also been entrusted with the responsibility to
Ministry and Directors of Agriculture from monitor the import of sugar as well.
major rice producing states such as West
Bengal, Uttar Pradesh, Punjab, Haryana etc. Rice production in India
• India is the second largest producer of rice
Need for a dedicated forum
in the world and has been the largest
• Rice is the largest commodity in India’s agri-export basket: exporter of rice after the shipments of the
Rice shipments stood at $7.77 billion in 2018-19, with non-basmati were allowed from 2011.
basmati exports at $4.72 billion and non-basmati at $3.05 • Major share of rice is cultivated during
billion. Kharif season while a small share of rice is
grown in rabi /summer season with
• Overcome rice exporters’ challenges: Major challenges that
assured irrigation.
affect the sector’s global competitiveness and need • India’s rice production has grown from
involvement of various stakeholders for their effective around 96 million tonnes in 2010-11 to
resolution are- 117.47 million tonnes in 2019-20 (22%
o Rise in minimum support price (MSP) irrespective of the increase), per Second Advance Estimates.
international prices.
o Compliance with international standards regarding pesticide residue etc.
o Restriction on exports in case of domestic price rise.
o Logistic issues such as improper warehouse management and transport facilities etc.
• Capitalizing on global demand of India’s Rice varieties: This can be achieved via educating stakeholders at all
levels in fields such as marketing, technological developments in rice production etc.
• Exploring new markets and establishing the Indian brand: To tap the potential of Indian rice in major rice
consuming zones of the world, long term promotional plans need to be designed and carried out.
• Lack of awareness: Updated information and knowledge in context to the export procedures/ certification
needs focused approach.
Direct seeding of rice (DSR)
• Punjab and Haryana could face a shortage of labourers to undertake transplantation of paddy in upcoming kharif
season.
o This now has encouraged them to adopt DSR in place of conventional transplanting.
About DSR
• DSR refers to process of establishing a rice crop from seeds sown in field rather than by transplanting seedlings from
nursery.
o In transplanting, farmers prepare nurseries where paddy seeds are first sown and raised into young plants. These
seedlings are then uprooted and replanted 25-35 days later in main field with standing water.
✓ It ensures a uniform plant stand and gives rice crop a head start over emerging weeds.
• In DSR, water is replaced by real chemical herbicides.
o In transplanting, standing water acts as herbicide and prevents growth of weeds by denying them oxygen in
submerged stage.
• Advantage of DSR: saving irrigation water, labour, energy, time, reduces emission of greenhouse-gases, etc.
• Disadvantage of DSR: high weed infestation, evolution of weedy rice, increase in soil borne pathogens (nematodes),
nutrient disorders, exposure to birds and rats incidence, rice blast, brown leaf spot etc.

3. ECONOMY
3.1. MONETIZATION OF DEFICIT
Why in News?
Primary vs. Secondary Market
Some economists including former RBI governor C • The primary market is where securities are
Rangarajan have suggested that the government should created, while the secondary market is where
monetize the deficit. those securities are traded by investors.
• In the primary market, companies sell new
What is meant by Monetization of Deficit? stocks and bonds to the public for the first time,
If the expenditure of the government exceeds its income, such as with an initial public offering (IPO).
the government is said to have incurred a fiscal deficit. This • The secondary market is basically the stock
deficit financing has to be done either by borrowing from market and refers to the BSE, NSE, New York
Stock Exchange, the Nasdaq, etc.
the market or monetisation of deficit through RBI.
• In simple words, monetization of fiscal deficits involves the financing of such extra expenses with money,
instead of debt to be repaid at some future dates. So, it is a form of "non-debt financing". As a result, under
monetization, there is no increase in net (not gross) public debt.
• It can occur only through one of two modalities:
o Direct Monetization (DM): Under this method, RBI prints new currency and purchases government bonds
directly from the primary market (from the government) using this currency. As a result, this supports the
spending needs of the government.
✓ For instance, debt would originate if treasury were to simply borrow the money from the RBI therefore
this would not constitute true monetization of the deficits.
o Indirect monetization (IM): In this method, deficits are monetized as the government issues bonds in the
primary market and the RBI purchases an equivalent amount of government bonds from the secondary
market in the form of Open Market Operations (OMOs).
✓ This modality replicates the same effects of the first if the central bank commits to the following
actions: i) hold the purchased bonds in perpetuity, ii) roll over all the purchased bonds that reach
maturity, and iii) return to government the interests earned on the purchased bonds.
Historical context on Monetization of deficit
• Monetisation of deficit was in practice in India till 1997, whereby the central bank automatically monetised
government deficit through the issuance of ad-hoc treasury bills.
o Treasury bills are money market instruments, are short term debt instruments issued by the Government
of India and are presently issued in three tenors (91, 182 and 364 days).
• In 1994 and 1997, two agreements were signed between the government and RBI to completely phase out
funding through ad-hoc treasury bills. Later on, with the enactment of Fiscal Responsibility and Budget
Management (FRBM) Act, 2003, RBI was completely barred from subscribing to the primary issuances of the
government.
• The FRBM Act as amended in 2017 contained an escape clause which permits monetisation of the deficit
under special circumstances.
What warranted such a step now?
As India battles the impact of the Covid-19 pandemic, economic indicators like tax revenue, government
expenditure, household savings, demand as well as supply are adversely hit.
• Combined fiscal deficit of the central and the state governments could cross 10% of the GDP during this year
which was about 7-7.5% last year.
• To meet this deficit, usually government has to borrow. However, these borrowings increase government
debt and negatively impacts debt-to-GDP ratio which is already worsening because of growth slowdown and
possible contraction because of COVID-19 lockdown.
o India’s debt-to-GDP ratio is likely to increase to 84% in FY21 from an already high level of 72% as per rating
agencies like Moody’s and Fitch.

Should monetization of deficit be implemented?
Arguments in favour Concerns raised
• Sovereign ratings: all top 3 rating agencies i.e. S&P, Moody’s and Fitch have • Rise in inflation in the long-term: as
placed India just one notch above the junk category status (BBB-) in terms opposed to temporary expansion in
of investment and this sovereign rating is very likely dependent on money supply in OMOs, monetization of
stabilizing rising public debt and debt-to-GDP ratio. A further downgrade deficit creates a more permanent one
may lead to flight of foreign capital from India. which can lead to inflation as more
• Prevents crowding out effect: large scale domestic borrowing by money is being pumped into economy
government can make it harder for private sector to raise money and which will stimulate demand/spending.
interest rates can also rise because of such competition. • Devaluation of rupee: aggressive DM
• Similar expansion in Money supply: it is argued that whether Central Bank could devalue the currency, causing
acquires government bonds from secondary markets (through OMOs) or foreign investors to lose confidence and
directly from Treasury, effect on money supply (all the currency and other pull out money, putting the existing
liquid instruments measured in terms of M0, M1 etc.) is similar as long as fiscal financing plan at risk.
inflation is kept under control. • Possibility of Inefficient Spending:
• Less risk of inflation in immediate term: transmission of base money (M0) usually fiscal profligacy is seen among
to broad money (M3) is likely to be slow because of slower credit growth governments when money is easily
which leads to lower velocity of money (frequency at which one unit of available to exploit and it may also lead
currency is used to purchase domestically- produced goods and services to rise in corrupt practises.
within a given time period). This low velocity and lesser transmission
reduces the inflation risk.
Measures of Money Supply
• Reserve Money (M0): also called High Powered money, monetary base, base money etc. M0= Currency in Circulation+
Bankers’ Deposits with RBI + Other Deposits with RBI.
• Narrow Money (M1) = Currency with public + Demand deposits with the Banking system (current account, saving account)
+ other deposits with RBI.
• M2 = M1 + Savings deposits of post office savings banks.
• Broad Money (M3) = M1 + Time deposits with the banking system.
• M4 = M3 + All deposits with post office savings banks.
Conclusion
In this pandemic situation, at a time when demand and inflation are already low and unemployment is high,
monetization is not likely to create negative effects as it does in normal situations. It has the possibility to set off
virtuous cycle of liquidity easing, leading to a reduced level of insolvency and also a positive impact on the
economy which will reduce debt-to-GDP ratio. Moreover, it is suggested that past fiscal profligacy should not stop
deficit monetisation and the decision should be based on present ground situation.
Apart from that, the government could look at innovative ways to shore up tax revenues- like selling land banks
or by stimulating demand by cutting GST and income-tax rates. Also, government would do well by prioritizing its
expenditure.
3.2. SUSPENSION OF INSOLVENCY AND BANKRUPTCY CODE (IBC)

Why in News?
Recently, an ordinance was approved to amend the IBC so as to provide relief for corporates as the pandemic
and subsequent lockdown had significantly impacted economic activities.
About the ordinance
• Section 10A has been introduced thereby suspending Sections 7, 9 and 10 of the IBC.
o It states that no application shall ever be filed for initiation of corporate insolvency resolution process of
a corporate debtor for any default arising on or after 25th March, 2020 for a period of six months which
could be extended up to a year.
o While sections 7 and 9 provide for initiation of insolvency proceedings by financial creditors and
operational creditors, respectively, section 10 is for initiation of insolvency resolution proceedings by a
corporate applicant.
Rationale of the move
• Economic stress because of COVID-19: Industries are grappling with supply chain breakdown, slowdown in
demand, unavailability of labour and inability to complete contracts. Moreover, service sectors such as

hospitality or aviation are facing reluctance of the customers in indulging in such activities. The by-product
of this slowdown will be increased stress and default by debt-laden Indian corporates.
• Tough IBC regime: Under the IBC, an entity can seek insolvency proceedings against a company even if the
repayment (of more than 1 crore) is delayed by just one day. The approach of Creditor-in-Control regime and
strict time frame of resolution has created an environment where corporate debtors try to avoid IBC as they
may lose control over management otherwise.
• Concern on value recovery: Of the total 221 resolved cases under IBC, just 44 per cent amount of debt has
been recovered since the inception of the law in 2016. Moreover, for every one case resolved, four cases end
up in liquidation, where the recovery falls down sharply to 15-25%. This means that creditors have to undergo
large haircuts on their loans.
Some important features of IBC
• Huge litigation pressure on judiciary: judicial system
• Covers: all individuals, companies, Limited Liability
would not have been able to handle a huge influx of Partnerships (LLPs) and partnership firms.
cases triggered by economic downturn. • Adjudicating authority: National Company Law
Concerns regarding suspension of IBC Tribunal (NCLT) for companies and LLPs and Debt
Recovery Tribunal (DRT) for individuals and
• Ballooning of liabilities without resolution: when partnership firms.
creditors and even corporate applicant itself can not • The insolvency resolution process can be initiated by
initiate the insolvency proceedings, it may restrict the any of the stakeholders of the firm: firm/ debtors/
exit of a business and lock-up its assets, thereby creditors/ employees.
further deteriorating their value and leading to losses. • If the adjudicating authority accepts, an Insolvency
resolution professional or IP is appointed.
• Use of alternative debt resolution mechanisms:
• The power of the management and the board of the
suspension will negate the two states objectives of firm is transferred to the committee of creditors
faster resolutions and value maximization under IBC (CoC) which comprises of all financial creditors of the
and creditors will be forced to turn to older adhoc corporate debtor.
mechanisms (see box) to address defaults. • The IP has to decide whether to revive the company
o Diversion from IBC to other methods may (insolvency resolution) or liquidate it. If they decide
alternatively result in myriad recovery cases and to revive, they have to find someone willing to buy
the firm.
enforcement of security cases being filed, thereby • They choose the party with the best resolution plan,
burdening the courts further. that is acceptable to the majority of the creditors
• Mounting NPAs: in the absence of any definite and (66% for critical decision and 51 % for routine
timely resolution, NPAs of banking sector may rise decisions), to take over the management of the firm.
which may lead to increment in lending rates, hamper • The law prescribes that this insolvency resolution
the investment and credit cycle and lower investor process has to be completed within 180 days. It can
be extended by 90 days if the case is complex. If a
confidence. This will hamper the potential growth of
decision is not reached within the time frame, the
economy in long run. firm will be liquidated.
• Higher provisioning norms for Banks: Prudential
Framework for Resolution of Stressed Assets by RBI requires the lenders to undertake a prima facie review
of the debtor upon the occurrence of a default. It
Alternative methods of debt recovery
provides a system of disincentives in the form of
• Creditors can take possession and sell immovable
additional provisioning for delay in properties under Securitisation and Reconstruction of
implementation of resolution plan or initiation of Financial Assets and Enforcement of Security Interest
insolvency proceedings. Act (SARFAESI 2002) or file a criminal complaint for
• Potential of misuse: as proceedings under IBC dishonoured cheques for recovery of outstanding
can never be filed for default occurring in the money under Negotiable Instruments Act 1881.
suspension period, so: • Corporate restructuring scheme under Section 230-
o Promoters of companies that have the 232 of the Companies Act: scheme process is premised
capacity to repay dues could force a default on ‘debtor-in-possession’ and scheme is binding on the
company and all its creditors and shareholders.
during this period and never be held
accountable under the IBC.
o While only pandemic-related cases should get the benefit of this reprieve, it will be tough to pinpoint this
as the reason for the non-servicing of loans.
o It can adversely affect operational creditors, such as vendors and suppliers, as they would not be able to
file insolvency proceedings that may lead to artificial delays in payments accrued to them by corporate
debtors.

• No suspension against personal guarantors of a company: if directors or promoters of a company have
provided personal guarantees to its lenders, they may still be taken to the insolvency court under IBC.
• The ordinance does not grant any relief to such applicants whose resolution plans recently got approved.
Their ability to implement the said plans will be directly impacted by such disruptions going forward.
Way Forward
India will do well by addressing the above concerns. Further, other countries are flattening the bankruptcy curve
by adopting methods like:
• In Germany, two conditions have to be satisfied by the corporate debtor for a suspension. First, the reason
for insolvency must be based on the effects of the pandemic. Also, under scrutiny would be the prospects of
restructuring the company.
• The United Kingdom has allowed for a much shorter moratorium without the creditor approval.
• In Singapore, to get the benefit of the moratorium, corporate debtors have to prove they were unable to
perform a contract because of COVID-19 pandemic.
Finally, in view of the suspension of the IBC, the government must do the necessary reforms to create an
alternative framework. In the absence of this, financial health of companies may deteriorate leading to value-
destruction which should not be an unwanted consequence of this move.
3.3. BANKING REGULATION (AMENDMENT) ORDINANCE 2020

Why in news?
President recently promulgated the Banking Regulation (Amendment) Ordinance 2020.
Background
• The Ordinance seeks to amend the Banking Regulation Act, 1949 (Act), which regulates the functioning of
banks and provides details on various aspects such as licensing, management, and operations of banks.
• It aims to bring all the Urban Cooperative Banks (UCB) and Multi State Cooperative Banks under the direct
supervision of Reserve Bank of India (RBI).
• Earlier, Punjab and Maharashtra Cooperative (PMC) Bank crisis due to irregularities like fraudulent loans,
excessive lending brought into focus the poor condition on the management and regulation of UCB in India.
• Also, recently, RBI had cancelled licenses of two Co-Operative Banks ‘The Mapusa Urban Co-operative Bank
of Goa Ltd’ and ‘The CKP Cooperative Bank Ltd’ over poor performance.
• In this context, to give RBI more powers over regulations of UCBs, Banking Regulation (Amendment)
Ordinance 2020 was promulgated. Earlier, Banking Regulation (Amendment) Bill, 2020 was introduced in Lok
Sabha, but could not be passed.
Key features of the Ordinance
• Ordinance also allows RBI to make a scheme of reconstruction or amalgamation of a banking company
without imposing moratorium. Earlier, RBI had to first place a bank under a moratorium before preparing a
revival scheme for stressed bank.
• Under the original Act, during moratorium, no legal action can be initiated or continued against the bank for
a period of up to six months. Also, the bank cannot make any payment or discharge liabilities during this
period.
o Ordinance adds that during the moratorium, the bank cannot grant any loans or make investments in
any credit instruments.
• Ordinance allows UCB to issue equity shares, preferential shares, special shares, unsecured debentures or
bonds with the prior approval of the RBI.
• Ordinance enables RBI can supersede board of a UCB registered under a State Law, after consultation with
the concerned state government.
o Under the Act, it was allowed only for multi-state cooperative banks.
• Ordinance does not affect existing powers of the State Registrars of Co-operative Societies under state co-
operative laws.
• The amendments do not apply to Primary Agricultural Credit Societies (PACS) or co-operative societies whose
primary object and principal business is long-term finance for agricultural development.

Benefits of the Ordinance
About Cooperative Banks
• Putting a bank under moratorium often • Co-operative banks are financial entities established on a
leads to panic and loss of confidence in the co-operative basis and belonging to their members. This
banking system among the public. RBI is means that the customers of a co-operative bank are also its
now being allowed to deal with stressed owners.
banks without creating panic among the • Classification-
public or disruption in the financial system. o Rural
• With the Ordinance, Banking Regulation Act ▪ Short-term credit institutions
will enjoy supremacy over cooperative ✓ State cooperative banks
banks. Power of RBI to remove management ✓ District Central cooperative banks
✓ Primary Agricultural Credit Societies
or draw up plans to merge/dissolve
▪ Long-term credit institutions
cooperative banks will override the power of ✓ State Cooperative and agriculture rural banks
the state registrar of cooperatives. This will ✓ Primary Cooperative and agriculture rural
address issues concerning poor banks
management of cooperatives, which was o Urban
earlier out of reach of RBI. ▪ Scheduled or non-scheduled Cooperative Banks
• The provision to allow cooperative banks to ▪ Single-state or multi-state Cooperative Banks
raise capital through securities will help • Urban Cooperative Banks (UCBs) are registered as
increase capital base for cooperative banks. cooperative societies under the provisions of, either the
State Cooperative Societies Act of the State concerned or
Equity capital acts as a buffer to protect
the Multi State Cooperative Societies Act, 2002.
depositors from smaller losses of the bank.
• UCBs in India are under dual regulation, by RBI and the
• Jurisdiction of RBI will bring more Registrar of Cooperative Societies (RCS) under the
transparency in the working of the co- government.
operative banks and the interest of the • Banking operations are regulated and supervised by the
depositors will be safeguarded. RBI, which lays down their capital adequacy, risk control,
lending norms, issuing licenses, new branches etc.
Challenges that still persist for UCBs
o They are governed under two laws, namely, the Banking
• Structural issues: Most UCBs are single- Regulations Act, 1949, and the Banking Laws (Co-
branch banks and have the problem of operative Societies) Act, 1955.
correlated asset risk. This means the entire • Registration and management related activities are
bank can come down if there is a local governed by the Registrar of Cooperative Societies (RCS) in
case of UCBs operating in single State and Central RCS
problem of significant scale.
(CRCS) in case of multi-State UCBs.
• Operational issues: UCBs face stiff
competition from other financial
institutions such as small finance banks, payment banks, NBFCs and so on. As a result, they offer unreasonably
high interest rates to depositors.
• Simultaneous jurisdiction of both Co-operative Societies Acts and the RBI appears to be parallel and
overlapping as there is no identified dichotomy in their respective jurisdictions.
• Management issues: Many of the UCBs are dominated by vested political interests, which leads to
interference in functioning like, favoritism in appointments, sanction of fraudulent loans which are later
written off, and forcing government employees to hold salary accounts with cooperative banks and so on.
Way forward
• Fair recruitment: In order to improve efficiency, increase transparency and promote fairness, the decision-
making processes pertaining to staff administration, granting of credit and new membership should be clearly
laid down.
• Independent auditing: As suggested by Madhava Rao Committee, audit of UCB should be done by
independent external auditors like commercial banks.
• Recently, RBI proposed an umbrella Organisation for UCBs which, apart from extending liquidity and capital
support to its member UCBs, would also set up Information and Technology (IT) infrastructure to enable them
to widen their range of services. This can be setup.
• As ordinance gives more powers to RBI, for it to regulate and supervise UCBs better, RBI also needs to ramp
up its supervisory capacity.

3.4. PAYMENTS INFRASTRUCTURE DEVELOPMENT FUND
Why in news?
Reserve Bank of India (RBI) announced creation of a Payments Infrastructure Development Fund (PIDF).
About PIDF Points of Sale (PoS) machines
• The 500 crores PIDF seeks to encourage • Under the facility of cash withdrawal at PoS terminals,
acquirers to deploy Points of Sale (PoS) cardholders can withdraw cash using their debit cards
infrastructure for both physical and digital and open system prepaid cards issued by banks in India.
modes. • However, credit cards cannot be used under this facility.
• Cash can also be withdrawn at PoS terminals through
• RBI will make an initial contribution of ₹250
Unified Payments Interface (UPI) as well as through use
crore to the PIDF, covering half of the fund. of electronic cards that are linked with overdraft facility
• The remaining contribution will be from card- provided along with Pradhan Mantri Jan Dhan Yojana
issuing banks and card networks operating in (PMJDY) accounts.
the country.
• It will also receive recurring contributions to cover operational expenses from card-issuing banks and card
networks. RBI will also contribute to yearly shortfalls, if necessary.
• The PIDF will be governed through an Advisory Council and managed and administered by RBI.
• The setting up of this fund is in line with the
Other recommendations of Committee on Deepening of Digital
recommendations of the report of the
Payments chaired by Nandan Nilekani
committee on deepening of digital • Removal of import duties from point-of-sale (POS) devices
payments, chaired by Nandan Nilekani. and waiving GST on Immediate Payment Service (for
• Last year, RBI announced setting up of transaction charges upto Rs 5000).
Acceptance Development Fund to improve • Government payments must be done through digital
the last- mile payments network in rural India means, including payments for goods and services
to transact digitally. procured, Direct Benefit Transfer, salaries and pensions.
• Use of validation services such as Public Financial
Expected benefits of PIDF
Management System and National Payments Corporation
• It will help to shift POS terminals of India to reduce the incidence of transaction failure
concentration from tier 1, tier 2 cities to tier- because of wrong account / Aadhaar details.
3-6 cities and north eastern states, which are • Dedicated grievance redressal mechanism, particularly in
left out due to high cost of merchant vernacular language to process connectivity and
acquisition and merchant terminalisation. authentication errors in DBT.
• It will give fillip to the digital payments and • Digital payment subcommittee should be setup at state
level to map financial institutions and identify gaps and RBI
improve infrastructure across the country
should develop a Financial Inclusion Index to compare
especially in the underserved areas. As per different areas.
S&P Global India’s card and mobile payments
as a percentage of GDP rose to 20% in the October-December quarter of 2019.
• PIDF will significantly increase the merchant base for accepting digital payments.
3.5. BILATERAL INVESTMENT TREATY (BIT)

Why in news?
As India attempts to attract investments, there have been calls to review India’s model Bilateral Investment Treaty
(BIT) 2016.
International Centre for Settlement of Disputes (ICSID)
About Bilateral Investment Treaty (BIT) • ICSID is the world’s leading institution devoted to
• Bilateral investment treaties (BITs) are treaties international investment dispute settlement.
between two countries aimed at protecting • ICSID was established in 1966 by the Convention on
investments made by investors of both countries. the Settlement of Investment Disputes for legal
• These treaties impose conditions on the regulatory dispute resolution and conciliation between
behaviour of the host state and limit interference international investors.
• ICSID convention is ratified by 155 countries. India
with the rights of the foreign investor.
is not a party to the ICSID convention.
• Some of these conditions include,

o Restricting host state from expropriating (take property from owner) investments, barring for public
interest with adequate compensation;
o Imposing obligations on host states to accord Fair and Equitable Treatment (FET) to foreign investment.
o Allowing for transfer of funds subject to conditions given in the treaty.
o Allowing individual investors to bring cases against host states if the latter’s sovereign regulatory
measures are not consistent with the BIT.
• There is International Centre for Settlement of Disputes (ICSID) under investor-state dispute settlement
(ISDS) mechanism for dispute redressal between international investors.
India and BIT
• India started signing BITs in early 1990s and signed the first BIT with the United Kingdom (UK) in 1994, since
then India has signed BITs with 84 countries.
• BITs have been one the major drivers of FDI inflows into India. Total FDI to India has increased from $4,029
million in 2000-2001 to $43,478 in 2016-17.
• However, a penalty awarded by an Investor-State Dispute Settlement (ISDS) tribunal in the White Industries
case in 2011, and subsequent ISDS notices served against India in a wide variety of cases involving regulatory
measures led to a review of the BITs.
• Thus, India adopted new model BIT in 2016, moving somewhat to a protectionist approach concerning foreign
investments. This model BIT is to serve as a framework for the renegotiation of India's BITs worldwide.
• Since its adoption, India has unilaterally terminated 66-odd BITs between 2016 and 2019. Since then, India
has signed just three treaties, none of which is in force yet.
Current scenario of investment in India
Key features and concerns in India model BIT 2016 • India ranked among the top 10 for FDI in
• Definition of Investment in the Model BIT has moved away 2019 and has rank 63 in World Bank’s
from a broad asset-based definition of investment to an ‘Ease of Doing Business 2020, still the
enterprise-based definition where an enterprise is taken foreign investment has remained at 2
together with its assets. per cent of GDP.
o Concerns: Definition contains vague criteria such as the • FDI-equity inflows to India during 2019-
requirement of enterprises to satisfy ‘certain duration’ of 20 were $49.9 billion, substantially lower
than the annual flow of remittances of
existence without specifying how much, or, investments
$83 billion in the same period.
having ‘significance for development’ without specifying
what amounts to ‘significant’ contribution.
o It heavily narrows down the definition of “investment” needed to qualify for BIT protection.
• Most Favoured Nation (MFN): MFN provision in BIT aims to create a level-playing field for all foreign investors
by prohibiting the host state from discriminating against investors from different countries.
o India’s model BIT completely excludes the MFN clause to prevent foreign investors from taking advantage
of provisions in other BITs by ‘borrowing’ them through the MFN clause.
o Concern: Not having an MFN provision in the BIT means exposing foreign investment to the risk of
discriminatory treatment, which could offer preferential treatment to one foreign investor over other.
• Fair and Equitable Treatment (FET): It means that the foreign investor is protected against unacceptable
measures of the host state by rules of international law which are independent of those of the host state.
o The 2016 Model BIT does not contain an FET provision because ISDS tribunals often interpret this
provision too broadly. Instead, it contains a provision entitled ‘Treatment of Investments’ that prohibits
country from subjecting foreign investments to measures that constitute a violation of customary
international law.
o Concern: It narrows down the scope of protection available to foreign investors because of ambiguity in
regarding how such breach will it be determined.
• ISDS Mechanism: In 2016 Model BIT, India has qualified its consent to ISDS by requiring that a foreign investor
should first exhaust local remedies at least for a period of five years before commencing international
arbitration.
o Concern: According to the ‘Ease of Doing Business 2020’ report, India currently ranks 163 out of 190
countries in ease of enforcing contracts, and it takes 1,445 days and 31% of the claim value for dispute
resolution. This reduces confidence in foreign investors.

Way forward
• As per studies, there is evidence that BIT regime in India has played an important role in attracting foreign
investment. Thus, having a balanced BIT regime would help foreign investors to do business easier in India
without due regulatory interventions to safeguard their investment.
• India is not just an importer but also an exporter of capital, hence protectionist provisions under BIT may be
reciprocated in host state and reduce protection for Indian companies abroad.
• Significance of BITs for foreign investors in India also assumes importance due to larger goals of India for
good governance and strengthening of rule of law.
• India’s desire to increase foreign investment inflows, especially under projects like Make in India and
liberalisation policies needs to adopt a more balanced approach in the BIT model.
• Also, to meet objective of making domestic firms competitive and mobile in the value chain, as envisaged in
the Atmanirbhar Bharat package, there is need for favourable decisions on FDIs.
• Now, global companies are moving their investments away from China, thus, there is an opportunity to review
the BIT model from protectionist approach to a more pragmatic one.
3.6. INTERNATIONAL COMPARISON PROGRAM OF WORLD BANK

Why in News?
Recently, World Bank released new PPPs for reference year 2017 under its International Comparison Program
(ICP).
About ICP
• ICP is worldwide data-collection initiative that is managed by World Bank under auspices of UN Statistical
Commission.
• The main objective of the ICP is to produce comparable volume measures of GDP and its expenditure
components based on Purchasing Power Parities (PPPs).
• India has participated in ICP rounds since its
Related terms
inception in 1970. Ministry of Statistics and
• Actual individual consumption refers to all goods and
Programme Implementation is National
services actually consumed by households. It
Implementing Agency for ICP in India. encompasses consumer goods and services purchased
• India was co-Chair of the ICP Governing directly by households, and services provided by non-
Board along with Austria for the ICP 2017 cycle. profit institutions and the government for individual
• Next ICP comparison will be conducted for consumption (e.g., health and education services).
reference year 2021. • Gross fixed capital formation is defined as the
acquisition of produced assets, including the
Data with respect to India
production of such assets by producers for their own
• In 2017, India was third largest economy and use, minus disposals of fixed assets.
accounted for 6.7% of global GDP in terms of PPPs • PLI is ratio of a PPP to its corresponding market
(US$ 8.05 trillion) as against China (16.4%) and exchange rate. It is used to compare price levels of
United States (16.3%), respectively. economies. If an economy’s PLI is less than that of
• PPP of Indian Rupee per US$ at GDP level was another economy, then its items or expenditure
20.65 in 2017 (15.55 in 2011). aggregates are less expensive than those in the other
economy.
• Price Level Indices (PLI) of India is 47.55 in 2017
(42.99 in 2011).
• India is also third largest economy in terms of its PPP-based share in global Actual Individual Consumption
and Global Gross Capital Formation.
• India is second largest economy in Asia-Pacific, accounting for 20.83% of regional GDP in terms of PPPs with
China first and Indonesia third.
Purchasing Power Parities (PPPs).
• PPP is the rate at which currency of one country would have to be converted into that of another country to buy
same amount of goods and services in each country.
o E.g. if a pair of shoes costs Rs 2500 in India. Then it should cost $50 in USA when the exchange rate at PPP is 50
between the dollar and the rupee.
• PPPs numbers are
o Used to compare living standards across countries

o Used by World Bank to construct measures of global poverty
o Relevant for estimating non-traded goods and services such as price of taxi ride etc.
• PPP exchange rates are relatively stable than market exchange rates.
• However, PPP is harder to measure than market-based rates as ICP is a huge statistical undertaking, and new price
comparisons are available only at infrequent intervals.
• Also, ICP does not cover all countries, which means that data for missing countries must be estimated.
• Market-based exchange rate: It is the exchange rate at which one currency will be exchanged for another in foreign
exchange market. It is determined by supply and demand factors of currencies.
3.7. WORLD INVESTMENT REPORT 2020

Why in news?
The World Investment Report released by UNCTAD, focuses on trends in foreign direct investment (FDI)
worldwide, at the regional and country levels and emerging measures to improve its contribution to development.
Key Finding
• FDI flows to South Asia increased by 10% to $57 billion. The rise was driven largely by a 20% increase in
investment in India, the largest South Asian FDI recipient, to $51 billion.
• India jumped from 12th position in 2018 to 9th in 2019 on
the list of the World’s top FDI recipients. United Nations Conference on Trade and
Development (UNCTAD)
o India is biggest FDI host in the subregion, with more
• Established in 1964 as a permanent
than 70% of inward stock intergovernmental body
o Most of the investments were in the information and • It is the principal organ of the United Nations
communication technology (ICT) and the construction General Assembly dealing with trade,
industry investment and development issues.
o Singapore is the largest source of FDI in India during the • Its headquarters is in Geneva.
last fiscal. It was followed by Mauritius, the Netherlands, • Reports published by it are:
o Trade and Development Report
the US, Caymen Islands, Japan and France.
o World Investment Report
o US has the largest inflow of FDI followed by China and o The Least Developed Countries Report
Singapore o E-commerce and Development Report
• Global FDI flows will decrease by up to 40% in 2020, from o Review of Maritime Transport
their 2019 value of $1.54 trillion due to COVID-19 lockdown, o Technology and Innovation Report
supply chain disruptions and economic slowdown.
o FDI is projected to decrease by a further 5% to 10% in 2021.
o Investment flows are expected to slowly recover starting 2022.
3.8. EMPOWERED GROUP OF SECRETARIES AND PROJECT

DEVELOPMENT CELLS
Why in news?
Government approves setting up of an Empowered Group of Secretaries (EGoS) and Project Development Cells
(PDCs) in Ministries/Departments for attracting investments in India.
Empowered Group of Secretaries (EGoS)
• Composition: Cabinet Secretary is Chairperson, CEO of NITI Aayog is member.
o Other members: Secretaries of various departments including Department for Promotion of Industry and
Internal Trade, Department of Commerce, Revenue, Economic Affairs etc.
• Objectives of EGoS
o To bring synergies between Ministries/Departments and among the Central and State Governments in
investment related policies.
o Attract investment and facilitation to global investors through fast track Investment Clearance.
o Facilitate investment in targeted manner and maintain policy stability and consistency in investment
environment.
o Evaluate investments put forward by departments and further provide completion targets to respective
departments.

Project Development Cell (PDC)
• PDC is approved for development of investible projects in India in coordination with central and state
governments.
• It will create projects with all approvals, land available for allocation and with the complete Detailed Project
Reports for adoption/investment by investors.
• It will identify issues that need to be resolved in order to attract and finalise the investments and put forth
these before the Empowered Group.
• PDC will conceptualize, strategize, implement and disseminate details of investible project.
Expected benefits
• In current COVID-19 pandemic, as industries are thinking to diversify their investments in different localities,
EGoS and PDC aim to make India a more investor-friendly destination for domestic and FDI.
• It will give fillip to Aatmanirbhar Bharat Abhiyan and boost the economy by opening up investment and
employment in domestic industries to realise vision of a $5 trillion economy by 2024-25.
• Ramping up industrial production to help India become player in the global value chain and serve big markets
in the U.S., the EU, China etc.
3.9. COMMERCIAL COAL MINING

Why in news?
Recently, government launched auction process of 41 coal blocks for commercial mining under ‘Aatmanirbhar
Bharat Abhiyan’.
Background
• India has the world’s fourth largest coal reserve and is second largest producer after China, still India stands
as second largest coal importer.
• To ensure energy security through assured coal supply, address poor working conditions etc., coal mining
was nationalised in 1973 by Coal Mines (Nationalisation) Act, 1973.
• So, private sector firms were only allowed to mine coal for use in their captive (own) use, e.g. cement, steel,
power and aluminium plants etc.
• However, in 2014, Supreme Court cancelled 204 coal mines/blocks which were allocated between 1993-2014,
on the grounds of C&AG report, alleging loss of 1.85 lakh crore to Government.
• Later the government brought in the Coal Mines (Special provisions) (CMSP) Act of 2015 to allocate coal
blocks through auction.
• Prior to the enactment CMSP Act, coal mines were never given out through bidding. Companies used to apply
for coal blocks and rights were given to them after scrutiny by an inter-ministerial committee.
• Recently, government came with the Mineral Laws (Amendment) Act, 2020 which amends the Mines and
Minerals (Development and Regulation) Act, 1957 (MMDR Act) and the Coal Mines (Special Provisions) Act,
2015, under which current auction process is launched.
Expected benefits of commercial coal mining
• Economic gains: Proposed auction of 41 coal blocks for commercial mining will create more than 2.8 lakh jobs
and attract capital investment worth 33,000 crore. Allowing FDI in coal mining industry will facilitate adoption
of new technology.
• Reduction in imports: Involvement of private players and investment by them will help meet domestic coal
requirement and save forex reserve by reducing imports. The 41 mines proposed for auction are expected to
hit peak production of 225 million tonne (mt) and expected to account for around 15% of India’s total coal
production in 2025-26.
• Reduced cost to customer: Higher production and surplus availability of coal, may reduce the cost of
electricity, as currently coal-fired plants generate about 70 per cent of India’s electricity.
• Revenue to the Government: It is expected that commercial coal mining will add ₹20,000 crore annually to
the state governments’ revenue.
• Development of the coal bearing regions: Revenue generated through coal production will raise contribution
to District Mineral Foundation Fund (setup under MMDR Amendment Act 2015) and could be spent on
welfare schemes for locals and tribal in surrounding area.

Challenges
• Cost of power production through renewable energy is increasingly getting lower, hence private players also
shifting investment in renewable energy sources rather than conventional sources like coal.
• Central Electricity Authority (CEA) expected that coal-based thermal power plant’s capacity utilization will
fall to 48% by 2022, as additional non-thermal electricity generation capacities rise. This might further
discourage investors.
• CIL estimated that only about 21 billion tonnes (BT) could be extracted technically and economically. Thus,
India may run out of easily extractable coal down to the depth of 300 metres in the next few years. This will
mean that companies will need to mine deeper, which would require increased mechanisation with an
increase in the cost of production.
• Some states are raising concerns that Other recent steps taken in coal sector
disregarding powers of state • The coal linkages have been rationalized in order to reduce the
distance in transportation of coal from the coal mines to the
governments and Gram Sabha to
consumer.
recognise mines allocation is against o Under the coal linkage policy, power producers are linked to
cooperative federalism and leads to the coal producers. The commitments under the linkages are
loss of revenue to States/villages. binding and the coal cannot be transferred to other consumers.
• There are socio-economic concerns • Environment Protection Act was amended to drop mandatorily
like acquisition, rehabilitation and washing coal for supply to thermal power plant, citing reason it
resettlement of people affected and prompts industries to import coal. Instead, thermal power plants
risk of environmental degradation. were directed to install the technology for handling ash content.
• Amendment in the guidelines of preparation, processing and
Way forward approval of Mining Plan with simplified guidelines, and measures
are being taken to formulate an online single window clearance
• Setting up of an independent
system.
regulatory body for the coal sector to
• Amendments were made to Mineral Concession Rule 1960 to
carve out coal blocks, oversee provide more flexibility in plan and operation.
investments and also carry out • Mineral Laws (Amendment) Act, 2020 includes provisions like
valuation. Coal Regulatory Authority removal of restriction on end-use of coal, Composite license for
Bill, 2013 was introduced for this prospecting and mining etc. to promote ease of doing business in
purpose, but was lapsed. coal mining.
• There should be fine balance between • Announcements under Atmanirbhar Bharat Abhiyan, including
short-term cost savings and long- spending ₹50,000 crore on creating infrastructure for coal
term environmental impact by extraction and transport; rebate on revenue share payable to
promoting sustainable coal government for early production, producing excess of the
scheduled target and for coal used in gasification etc.
consumption and reducing waste
discharge, through combining smaller
mining areas to develop into one single mine of large capacities.
For more details on Mineral Laws (Amendment) Act, 2020 refer MINERAL LAWS (AMENDMENT) BILL, 2020 article
in March 2020 Monthly Current Affairs.
For more details on announcements under Aatmanirbhar Bharat in coal sector refer May 2020 Monthly Current
Affairs.
3.10. SOCIAL STOCK EXCHANGE

Why in news?
Expert panel setup by the Securities and Exchange Board of India (SEBI) has prepared draft norms for Social Stock
Exchanges (SSE).
About Social Stock Exchanges (SSE)
• Social Stock Exchange (SSE) is an electronic fundraising platform that allows investors to buy shares in a social
enterprise that has been vetted by the exchange.
• Social enterprises include is a revenue-generating business whose primary objective is to achieve a social
objective, for example, providing healthcare or clean energy.

• Idea of a SSE for listing of social Key recommendations of the panel
enterprise and voluntary • Give tax sops, such as an exemption from the securities
organisations for raising capital as transaction tax (STT) and capital gains tax (CGT), to ensure that
equity, debt or like a mutual fund was SSEs take off in the country.
mooted in the Union Budget 2019-20. • Make philanthropic donors be eligible to claim 100% tax
• Later, SEBI constituted panel to exemption on investments.
suggest norms for SSEs. • Allow first-time retail investors to avail a 100 per cent tax
exemption on their investments.
• The most prominent SSEs in the world
• Setup INR 100 crore “capacity building fund” to create a capacity
are in UK, Canada, USA, South Africa,
building unit that will foster overall sector development.
Singapore and Mauritius. • Consider funding to non-profit organisations (NPOs) on SSEs as
Benefits of Social Stock Exchange (SSE) corporate social responsibility (CSR).
• This will unlock funds from donors, • Allow trading of CSR spends between companies with excess CSR
philanthropic foundations, Corporate spends and those with deficient CSR spends on SSEs.
• Suggested reporting and disclosure framework to ensure
Social Responsibility (CSR) spenders
transparency.
and impact investors for social
• SSE can be housed within the existing Bombay Stock Exchange
development. As per Brookings India, and the National Stock Exchange to enable leveraging of the
currently only 57% of the social existing infrastructure and client relationships.
enterprises have access to debt and
equity, which is barrier to growth and sustainability.
• Listing of social enterprises on an SSE would also improve visibility of social enterprises in the eyes of large
investors and philanthropic organisations. Also, SSEs will provide investors a better understanding of social
sector for routing their investment.
• Banks, NBFCs and other investors can also raise capital from SSE to participate in the growth journey of the
social enterprises and thereby deepen their impact.
• SSE will help to improve essential social services and important social sectors like education, health,
agriculture and clean energy by channelling greater capital to them.
• SSE is expected to unlock large pools of social capital, and encourage blended finance structures so that
conventional capital can partner with social capital to address the urgent challenges of COVID-19.
Challenges in setting up SSE
• There is no consensus about what is and isn’t a social enterprise. Prof Muhammad Yunus definition of social
business can be adopted which who defined it as “a non-loss, non-dividend paying company which is created
and designed to address a social problem.”
• Valuing social initiatives, welfare and non-profits organisations is difficult, because there is no set benchmark,
no uniform structures to set minimum thresholds to enable their listing.
• Apart from equity capital, social enterprises need debt particularly to meet working capital requirements, but
only handful of private impact investors provide debt to early-stage social enterprises.
• India has more than 2 million social enterprises (non-profits, for-profits and hybrid model), which needs
careful planning while designing a social stock exchange.
Way forward
• Social impact assessment can be adopted as way to assess social initiatives, welfare and non-profits
organisations.
• Bringing policy and regulatory reforms to support investors and facilitating research and development for
small social enterprises.
• Educating market participants about the valuation metrics weighing both on social and financial returns.
• Transparency and accountability can be achieved by online platform, similar to NITI Aayog's Darpan portal,
which provides platform for interface between Voluntary organisations/ NGOs and Government Ministries.
3.11. INDIAN GAS EXCHANGE (IGX)

Why in news?
India’s first gas exchange — the Indian Gas Exchange (IGX) — was launched recently as wholly owned subsidiary
of Indian Energy Exchange.

About IGX Indian Energy Exchange (IEX)
• It is a digital trading platform that will allow buyers • It is the first and largest energy exchange in India
and sellers of natural gas to trade both in the spot providing a nationwide, automated trading platform
for physical delivery of electricity, Renewable Energy
market and in the forward market for imported
Certificates and Energy Saving Certificates.
natural gas across three hubs —Dahej and Hazira in • It is regulated by the Central Electricity Regulatory
Gujarat, and Kakinada in Andhra Pradesh. Commission (CERC).
• Imported Liquified Natural Gas (LNG) will be • IEX is one of the two power exchanges in India.
regassified and sold to buyers through the (Other being Power Exchange India Ltd (PXIL))
exchange, removing the requirement for buyers and
sellers to find each other.
o The bidding is done in an anonymous manner, where the buyer and seller do not know their counterpart.
• The price of domestically produced natural gas is decided
Spot and Forward Market
by the government and it will not be sold on the gas
• The spot market is a public financial market in
exchange.
which financial instruments or commodities
o Domestic production of gas has been falling over the are traded for immediate delivery.
past two fiscals as current sources of natural gas have • A forward market is an over-the-counter
become less productive. marketplace that sets the price of a financial
o Domestically produced natural gas currently accounts instrument or asset for future delivery.
for less than half the country’s natural gas
consumption; imported LNG accounts for the other half. Hence, IGX encourages trading in imported LNG.
• The contracts traded at IGX are for compulsory specific physical delivery and settlement of the trade are
subject to the condition that such contracts are non-transferable in nature.
Expected Benefits
• The exchange is expected to facilitate transparent price discovery in natural gas, and facilitate the growth of
the share of natural gas in India’s energy basket.
o India has set a policy target of increasing the share of natural gas in India’s energy basket from current
6.5% to 15% by 2030.
• Trading platform will also drive competition across the value-chain, leading to innovative business models and
efficient cost-structures, thus supporting the overall affordability of gas.
3.12. REAL TIME MARKET IN ELECTRIC ITY

Why in news? • Indian Energy Exchange Limited (IEX) is the first energy
exchange in India, providing automated trading platform for
Recently, pan-India Real Time Market in
delivery of electricity, Renewable Energy Certificates and
electricity was launched.
Energy Saving Certificates.
About Real Time Market in electricity • Power Exchange India Limited (PXIL) is India’s first
institutionally promoted power exchange providing electronic
• Real time market is organised market platform for transactions in power and allied products.
platform enabling buyers and sellers to
meet their energy requirement closer to real time operation.
• Under this, auctions will be held 48 times a day,
Power System Operation Corporation Limited (POSOCO)
once every half an hour.
• It is a wholly owned Government of India enterprise
• It became operational on two platforms: Indian under the Ministry of Power.
Energy Exchange (IEX) and Power Exchange • It facilitates competitive and efficient wholesale
India Limited (PXIL). electricity markets and administer settlement systems.
• Power System Operation Corporation Limited • It consists of 5 Regional Load Despatch Centres and a
(POSOCO) will route electricity from supply National Load Despatch Centre (NLDC) to ensure
sources to consumption point with help of integrated operation of the national power system with
Regional Load Despatch Centres. Reliability, Economy and Sustainability.
• To implement the Real Time Market as
amendments were made to: Power Market regulations, Indian Electricity Grid Code (IEGC) Regulations, and
Open Access in inter-state transmission regulations.

Benefits of Real Time Market in electricity
• Ensure optimal utilization of the surplus electricity as electricity producers, who may see generation more
than their committed demand, can sell surplus energy in market.
• Manage diversity in the demand pattern, as electricity DISCOMS faced with sudden shortage of supply can
purchase energy.
• Real Time Market would help to mitigate challenges to the grid management due to intermittent and
variable nature of renewable energy generation (especially solar and wind energy). Thus, it can lead to
integration of higher quantum of renewable energy resources into the grid.
• Shorter bidding time, faster scheduling, and defined processes will enable the participants to access
resources throughout the all India grid for promoting competition.
• It will lead to cost optimisation of power purchase and serve consumers with reliable power supply.
• The concept of ‘gate closure’ ensures firmness in schedules during the hours of market operation. Gate
closure implies the closure of the gate for trading in real-time market after which the bids submitted to the
Power Exchange cannot be modified for a specified delivery period.
3.13. AGRIDEX
Why in news? Futures
National Commodity and Derivatives Exchange • These are a type of derivative instrument.
(NCDEX) announced the commencement of trading in o A derivative is an instrument whose value is
derived from the value of one or more
the country’s first agriculture futures index called
underlying assets, which can be commodities,
AGRIDEX precious metals, currency, bonds, stocks, stocks
More on news indices, etc.
o Common examples of derivative instruments are
• NCDEX AGRIDEX is India’s first return based Forwards, Futures, Options and Swaps.
agricultural futures Index which tracks the • In futures, there is an agreement to buy or sell a
performance of the ten liquid commodities (both specified quantity of financial instrument or physical
kharif and rabi seasons) traded on NCDEX commodity in a designated future month at a price
platform. agreed upon by the buyer and seller.
o Ten commodities include Castor seed, Chana, About NCDEX
Coriander, Cotton Seed Oil cake, Guar Gum, • It is the country’s leading agricultural commodity
Guar Seed, Jeera, Mustard Seed, Ref Soya oil exchange, which offers services across the entire
value-chain of agricultural commodities.
and Soy bean.
o No group of related commodities may • It offers a wide range of benchmark products across
agriculture commodities.
constitute more than 40% of the total
• It brings buyers and sellers together through its
weightage in the index in order to ensure
electronic trading platform.
diversification.
• It will facilitate the participants in hedging their commodity risk based on price anticipation of the products.
• It is based on the revised guidelines issued by the Securities and Exchange Board of India (SEBI), which
allowed futures trading in commodity indices.
• NCDEX has partnered with National Stock Exchange (NSE) Indices, a leading Index service provider, to
maintain and disseminate real-time NCDEX AGRIDEX values.
3.14. ANIMAL HUSBANDRY INFRASTRUCTURE DEVELOPMENT FUND

Why in news?
Cabinet Committee on Economic Affairs has recently approved the establishment of Animal Husbandry
infrastructure Development Fund worth Rs. 15000 crores.
About Animal Husbandry Infrastructure Development Fund (AHIDF)
• AHIDF would facilitate investments in establishment of infrastructure for dairy and meat processing and
value addition infrastructure and establishment of animal feed plant in the private sector.
• Eligible beneficiaries: Farmer Producer Organizations (FPOs), MSMEs, not-for-profit companies, Private
Companies and individual entrepreneurs.

• Funding: Minimum 10% margin money to be Animal Husbandry Sector Statistics in India
contributed by beneficiary. The balance 90% • During 2016-17, the value of output from livestock
would be the loan component to be made sector at current prices is about 31.25% of the value of
available by scheduled banks. output from agricultural and allied sector.
• Interest subvention: Government of India will o India continues to be the largest producer of milk in
provide 3% interest subvention to eligible the world, with per capita availability of milk 394
beneficiaries. grams per day during 2018-19. (World per capita
o There will be 2 years moratorium period for availability is 229 grams per day).
• As per the latest and 20th Livestock census, the total
principal loan amount and 6 years
livestock population is 535.78 million.
repayment period thereafter.
• Credit Guarantee Fund: Government of India would also set up Credit Guarantee Fund of Rs. 750 crores to be
managed by NABARD. Credit guarantee would be provided to those sanctioned projects which are covered
under MSME defined ceilings.
• Expected Benefits:
o Investment: AHIDF is expected to leverage around seven times private investment. It will ensure
availability of capital to meet upfront investment, enhance overall returns and pay back for investors.
o Employment generation: AHIDF would help in direct and indirect livelihood creation for 35 lakh people.
o Benefit for Farmers: Almost 50-60% of final value of dairy output in India flows back to farmers. Thus,
growth in this sector would directly impact farmer’s income. Also, it would motivate farmers to invest
more on inputs thereby driving higher productivity.
o It would promote exports of the processed and value-added commodities.

3. ECONOMY
3.1. MULTIDIMENSIONAL POVERTY INDEX (MPI) 2020
Why in News? Oxford Poverty and Human Development Initiative (OPHI)
2020 Global Multidimensional Poverty • It is an economic research centre within the Oxford Department of
Index was released by the United Nations International Development at the University of Oxford.
Development Programme (UNDP) and the • OPHI aims to build and advance a more systematic methodological
and economic framework for reducing multidimensional poverty,
Oxford Poverty and Human Development
grounded in people’s experiences and values.
Initiative (OPHI). • OPHI works towards this by: broadening poverty measurement,
What is Global MPI? improving data on poverty, building capacity and impacting policy
• OPHI’s work is grounded in Amartya Sen’s capability approach and
• MPI is the product of the incidence of it works to implement this approach by creating real tools that
poverty (proportion of poor people) inform policies to reduce poverty.
and the intensity of poverty (average
deprivation score of poor people) and is therefore
sensitive to changes in both components.
• The MPI ranges from 0 to 1 and higher values imply
higher poverty.
• It examines each person’s deprivations across 10
indicators in three equally weighted dimensions—
health, education and standard of living (see infographic)
and identify both who is poor and how they are poor.
• In the global MPI, people are counted as
multidimensionally poor if they are deprived in one-
third or more of 10 indicators.
o Each indicator is equally weighted within its
dimension, so the health and education indicators are
weighted 1/6 each.
• MPI – with its information on both the How is MPI better than other models?
level and composition of poverty – • Multidimensional approach: MPI takes advantage of the
provides the data needed to pinpoint availability of multipurpose household surveys which allows data
where and how poverty manifests on different dimensions to be drawn from the same survey. It
itself. identifies the people who experience overlapping deprivations.
o MPI replaced the Human Poverty Index (HPI) which was in use
Key highlights of MPI 2020 from 1997-2009.
• The 2020 update of the global MPI • Better Comparison: MPI can show the composition of
covers 107 countries and 5.9 billion multidimensional poverty across different regions, ethnic groups or
any other population sub-group, with useful implications for policy.
people in developing regions.
o HPI could not identify which specific individuals, households or
• Across 107 developing countries,1.3 larger groups of people were poor.
billion people (22%) live in • Complement to income-based poverty measures: Income poverty
multidimensional poverty. Among data come from different surveys, and these surveys often do not
them 82.3 percent are deprived in at have information on health, nutrition etc.
least five indicators simultaneously. o People may be above the poverty line but still deprived of
o Half of multidimensionally poor needs such as housing.
people (644 million) are children MPI and COVID-19
under age 18. One in three children • COVID-19 affected two indicators of MPI severely: nutrition and
is poor compared with one in six children’s school attendance.
adults. • Progress in tackling multidimensional poverty is at risk.
• It will likely negatively affect multidimensional poverty through
o 107 million multidimensionally
reductions in regular immunizations because of the disruptions,
poor people are age 60 or older—
physical distance measures and parental concerns about exposing
a particularly importantly figure children to COVID-19 during regular doctor visits.
during the COVID-19 pandemic.

• About 84.3% of multidimensionally poor people live in Sub-Saharan Africa and South Asia.
• In every developing region the proportion of people who are multidimensionally poor is higher in rural areas
than in urban areas.
o 84.2 percent of multidimensionally poor people live in rural areas, where they are more vulnerable to
environmental shocks
• 65 countries reduced their global MPI value significantly in absolute terms. Absolute change (annualized) is
the difference in a poverty measure between
Limitations of MPI
two years, divided by the number of years • Less sensitive: To be considered multidimensionally poor,
between surveys households must be deprived in at least six standard of
• Largest reduction in multidimensional living indicators or in three standard of living indicators
poverty was in India, where approximately and one health or education indicator. This requirement
273 million people moved out of makes the MPI less sensitive to minor inaccuracies.
multidimensional poverty between • Unable to capture inequality: While the MPI goes well
2005/2006–2015/2016.India also halved it beyond a headcount to include the intensity of poverty
MPI value in this period. experienced, it does not measure inequality among the
o However, 37.7 crore people lived under poor.
• Unable to capture Intra-household inequalities: Intra-
multidimensional poverty as of 2018.
household inequalities may be severe, but these could not
Benefits of using MPI vis-à-vis SDGs be reflected precisely because there is no individual-level
information for all the indicators.
• Leave No One Behind: MPI analysis tracks • unavailability of data: There are limits to the cross-
progress on poverty for different groups for country comparability of the MPI. The estimates
example sub-national regions, by rural and presented are based on publicly available data and not all
urban areas, and by groups such as children, countries have data on all indicators. Better and more
ethnic groups, and caste. frequent data on poverty is urgently required.
• Monitoring Progress: MPI is used to track and
compare multidimensional poverty over time. National MPIs are used to compare regions and groups within
a country; a regional or global MPI can also compare countries.
• Integrated, coordinated policy: MPI is used by senior policy makers to coordinate policy and to understand
and track impact of their policies on the poor.
• Universal relevance: National and regional MPIs are tailored to the context and policy priorities. They address
moderate or acute poverty and reflect contextual values and definitions.
Global Multidimensional Poverty Index and the Sustainable Development Goals
• It shows the interlinked deprivations of people in the same household across 10 indicators that relate to SDGs 1 (No
Poverty), 2 (Zero Hunger), 3 (Good Health and Well-Being), 4 (Quality education), 6 (Clean water and sanitation), 7
(Affordable and Clean Energy) and 11 (Sustainable cities and communities).
• MPI and Immunization: There is a negative, moderate, and statistically significant correlation between global MPI
value and coverage of diphtheria, tetanus and pertussis (DTP3) vaccine.
o Ten countries account for 60% of unvaccinated children, and 40% of children unvaccinated for DTP3 live in just
four countries: Nigeria, India, Pakistan and Indonesia.
• MPI and Education: Sub-Saharan African countries have the highest percentages of people who are multidimensionally
poor and deprived in years of schooling.
• MPI and rural-urban divide: for instance, in South Asia 29.2% of overall population is multidimensionally poor
compared with 37.6% in rural areas
• MPI and climate change and the environment: Poor and disadvantaged people carry a double burden: they are
vulnerable to environmental degradation and must cope with immediate environmental threats from indoor air
pollution (SDG 3.9), lack of clean water (SDG 6.1) and unimproved sanitation (SDG 6.2).
o Deprivations in environmental indicators are most acute in Sub-Saharan Africa: at least 53.9% of the population
is multidimensionally poor and faces at least one environmental deprivation.
• MPI and work and Employment: There is a strong correlation between MPI value and child labour. Agricultural
employment plays an important role in raising overall employment and reducing poverty in many developing
countries.

3.2. PRIVATE PARTICIPATION IN RAILWAYS
Why in News? Why do we need more private participation?
Ministry of Railways has invited IR faces certain challenges like:
private participation for operation • Inability to meet demand: As per Railway Board, 5 crore intending
of passenger train services over 109 passengers could not be accommodated during 2019-20 for want of
Origin Destination (OD) pairs of capacity, and there was 13.3% travel demand in excess of supply during
routes using 151 modern trains on summer and festival seasons.
• Lack of modernisation and poor services: services offered to passengers
existing rail infrastructure.
are considered poor like poor cleanliness, quality of food, safety issues,
Background delays etc.
• Indian Railways (IR) is the largest • Decreasing modal share of railways: Despite being more economical
passenger and fourth largest mode than road transportation, railways is losing its share in modal
freight transporting railway transportation mix.
o An analysis by Economic Survey, shows that a steady shift to other
system globally.
modes of travel was affecting economic growth by as much as 4.5%
• Bibek Debroy Committee in of GDP-equivalent.
2015 recommended that private • Losses in passenger services to IR: phenomenon of cross-subsidy for
entry into running both freight passengers in low-cost trains through higher freight tariffs is being
and passenger trains should be implemented. It also adversely affects the growth of freight transport.
allowed. • Need for resources: Rakesh Mohan Committee observed that Indian
o Idea was to bring in Railways over the past decade (1991-2002) has fallen into a vicious cycle
competition with Indian of under investment, mis-allocation of scarce resources, increasing
railways via “liberalisation indebtedness, poor customer service and rapidly deteriorating economics.
and not privatisation” in
order to allow entry of new operators “to encourage growth and improve services.”
o It also noted that passengers were willing to pay more, if they had guaranteed and better quality of travel
and ease of access.
• Consequently, Indian Railway Catering and Tourism Corporation Limited (IRCTC), in which the government is
the majority shareholder, was given pilot Tejas operations which were the first trains allowed to be run by a
‘non-Railway’ operator.
About the recent step
• It would be the first initiative of private investment for running passenger trains over Indian Railways
network attracting investments of an estimated ₹30,000 crore which is expected to begin in 2023.
• Objectives:
o to introduce modern technology rolling stock with reduced maintenance,
o reduced transit time, boost job creation, provide enhanced safety,
o provide world class travel experience to passengers,
o reduce demand supply deficit in the passenger transportation sector.
• 109 OD Pairs have been formed into 12 Clusters across the Indian Railway network.
o Each Train shall have a minimum of 16 coaches. Trains shall be designed for a maximum speed of 160
kmph.
• The invitation (officially termed as Request for Qualification (RFQ)) had been issued under the Make in India
policy. So, the coaches would have to be manufactured in India and the local component would be as specified
in the policy.
• Responsibility of Private Entity:
o It shall be responsible for financing, procuring, operation and maintenance of the trains.
o The operation of the trains by the private entity shall conform to the key performance indicators like
punctuality, reliability, upkeep of trains etc.
o Private firms will have the freedom to decide fares and stoppages, and also the basket of services on
offer in these trains.
• Responsibility of IR:
o The driver and guard of the trains will Railway officials who will operate these trains, maintain track
infrastructure etc.

o The safety clearance of trains will be done by Railways only.
• Private sector will be allowed to run these trains for a 35-year period in return for a share in the revenues
they earn, apart from payments in the form of fixed haulage charges and energy charges for using public
infrastructure.
Arguments against the move
• Absence of any independent regulator: There are apprehensions that if IR itself plays the role of regulator (or
there is no independent regulator) then it would be detrimental to the competition and interests of private
sector.
o If same entity is effectively the policy maker, regulator and service provider, then as Bibek Debroy
committee pointed out, it will be a “clear conflict of interest”. It may also lead to corruption as private
operators will try to bribe to solve any problem.
o Government has approved to setup Rail Development Authority for promoting competition, efficiency,
ensure consumer welfare but it will be mostly advisory in nature and more powers to decide on
operational issues are needed.
• Railways is a public service: Rakesh Mohan committee report had pointed out that the international
experience on privatising railways showed that it was “exceedingly difficult and controversial”.
o For example: When Britain privatized its railways, it offloaded assets including tracks and routes that led
to an underinvestment in infrastructure.
• Unfair competition: Railways also tend to cross-subsidise passenger fares through freight revenue. This
translates to below cost pricing, which will make it difficult for private players to compete.
• High saturation and over-utilized capacity on popular routes: since passenger and freight traffic move on
same tracks in India, increasing speed or capacity has been difficult. And it remains to be seen whether the
dedicated freight corridors can free up enough capacity.
o IR’s golden quadrilateral and its diagonals make up only 15 per cent of the total route of the railways but
it transports 52 per cent of passenger traffic and 58 per cent of total freight load.
Way Forward
• Set up an independent regulator: As recommended by various expert committees like Bibek Debroy
committee, there is a need for such regulator which needs to ensure transparency.
• Better utilization of existing infrastructure to address congestion: Prioritize ongoing projects to improve
capacity utilization. Timely completion of these projects will also generate more revenue.
• Rationalize fare structures and subsidies: Revisit IR’s pricing model to make the passenger and freight
segments sustainable. Focus should shift on improving efficiency and quality at the same time.
• Ensuring quality and less costs:
o IR can corporatize the entire production-unit assemblage as a first step. It has the potential of kick-starting
public-private partnerships (PPPs) to introduce better technology in manufacturing of coaches and
locomotives.
o Another method of ensuring efficiency is having different operators owning and managing seamlessly
different segments of the railways, such as rolling stock, tracks, stations and passenger services like
catering and cleaning.
3.3. PRIVATISING DISCOMS

Why in news?
The government is planning to privatise the electricity distribution companies (discoms) in Union Territories (UTs)
by January 2021.
Overview of the power sector in India
Power generation, transmission, and distribution are the three main processes involved in the power sector.
• Power generation: India’s installed capacity for power generation recorded a compounded annual growth rate (CAGR)
of 8.9%, an increase from 124 GW to 344 GW between 2006 and 2018. India is now the third largest electricity
generator in the world. Also, India is at 106th position in terms of per capita consumption in 2017, according to world
energy statistics published by the IEA

• Transmission: The generated electricity is then transported over hundreds of kilometres to load centers using
transmission lines and transmission towers to supply power to consumers. This stage connects electricity producers
and end-consumers. Transmission has taken rapid strides in India, with a CAGR of 7.2% between fiscals 2012 and 2018,
raising India’s transmission line capacity to 3.9 lakh ckm (circuit kilometre).
• Distribution: The third stage which involves the distribution of power to all the consumers across the nook and corner
of the country is where the DISCOMs come into the picture. DISCOMs in UTs are administered directly by the central
government while the respective state governments govern those in the states.
o Private DISCOMs are also operational in India but are limited to a few cities such as Tata Power Delhi Distribution
Ltd and Reliance Energy Ltd in Mumbai.
Other Key Challenges facing the Power Sector are:
• Fuel Security Concerns: Thermal capacity addition is plagued by the growing fuel availability concerns faced by the
Industry. While a significant gas based capacity of more than 20,000 MW is idle due to non-availability of gas. Coal
supplies by CIL is restricted to around 65% of actual coal requirement by coal based thermal plants, leading to
increased dependence on imported coal with the cascading result of high power generation costs.
• Under-procurement of Power by States: Increasing power generation costs due to limited fuel availability, poor
financial health of State Discoms, high AT&C losses have contributed in suppressed demand projections by State
Discoms.
• Inimical Financing Environment: Over the last 4-5 years, the leading rates have increased significantly from the time
of project appraisal resulting in project cost overrun and hence higher end tariffs.
• Policy Paralysis: The micro level policies governing the fuel cost pass-through, mega power policy, competitive bidding
guidelines are not in consonance with the macro framework like The Electricity Act 2003 and the National Electricity
Policy.
More on news
• Efforts would also be made to privatise a number of discoms in major states such as Uttar Pradesh, Gujarat,
Haryana, Karnataka, Madhya Pradesh, Jharkhand and Assam.
• In states where privatisation doesn’t seem feasible, commissioning of independent directors is being proposed
to improve the corporate governance of discoms.
Need for privatisation in discoms
The distribution sector in India continues to be the weakest link in India’s electricity value chain due to multiple
reasons such as-
• Indebtedness: According to the Ministry of Power’s (MoP) payment ratification and analysis portal (PRAAPTI)
power producers' total outstanding dues owed by distribution firms rose over 47 per cent year-on-year to Rs
1.33 lakh crore in June 2020.
• Financial incompetency: There have been multiple reports of DISCOMs delaying payments owed to solar and
wind energy developers in Andhra Pradesh, Tamil Nadu, Madhya Pradesh, and Telangana. This has made
attracting investments into the sector extremely challenging.
• Operational inefficiencies due to huge technical and commercial losses (AT&C), which are primarily caused by
power theft, poor payment collection procedures, and inadequate tariff hikes.
o India’s average aggregate technical and commercial loss is at 21.4% leading to overdue bills affecting not
only power producers but also contributing to twin balance sheet crisis in the banking sector
o Banking sector faces the possibility of an estimated ₹ 175,000 crore worth of non-performing assets due
to the power sector.
• Increasing open access transactions: A steep fall in prices of power generated by solar and wind energy
projects are driving their most resourceful commercial and industrial (C&I) customers to engage in private
power purchase through open access.
• Lack of political will and transparency in dealing with phasing out of energy subsidies.
• Decline in demand during lockdown: Agricultural consumers and domestic consumers pay a lower tariff which
is compensated by a higher tariff for commercial & industrial establishments. As a result of lockdown,
operations of commercial establishments and industries came to a grinding halt, affecting the revenue for
DISCOMs.
• Lack of progress in earlier initiatives: The government, under various regimes, has tried to improve the
condition of DISCOMs in India through relief packages. For eg- under UDAY programme, state governments
took over 75% of DISCOMS’ debt, issuing low-interest bonds to service the rest of the debt. DISCOMs were

further supposed to reduce instances of Other initiatives by the government to improve the
operational and financial mismanagement. condition of discoms
Although there were some initial signs • Bailout package of ₹90,000 crore as part of a ₹20 trillion
of progress under UDAY, the program has not stimulus package to revive the economy. These funds
been able to help minimize DISCOM losses. were to be given to discoms against state government
guarantees and accompanied by a temporary tariff
Benefits of privatising discoms reduction.
• Examples from other states: There are • Proposed distribution reforms scheme—tentatively
sufficient case studies when private players named Atal Distribution System Improvement Yojana
(Aditya)—to cut electricity losses below 12%. The scheme
have been proved to run cash strapped Discoms
aims to ensure continuous supply of power, adopting
successfully via more efficiency, increased models such as privatizing state-run discoms and
revenue and improved consumer services. For promoting competition.
eg.- The aggregate technical & commercial • Power sector reforms, including implementing the direct
(AT&C) losses in Delhi after the privatization in benefit transfer (DBT) scheme in the electricity sector for
2002 has been brought down from a high of better targeting of subsidies and instilling financial
53% to around 8%. discipline at discoms.
• Operational autonomy through improved • According to draft amendments to the Electricity Act,
network efficiency and lack of political 2003, the government has pitched for a cost reflective
interference. tariff and setting up an Electricity Contract Enforcement
Authority to enforce power purchase agreements (PPAs).
• Operational efficiencies: Privatization will
• One-time relaxation in working capital borrowing limits
eliminate issues such as payment delays, imposed under Ujwal Discom Assurance Yojana (UDAY).
curtailment, power cuts, and lack of market- Discoms will be allowed working capital borrowings from
based electricity pricing and stimulate banks and financial institutions that may be up to 25% of
economic activity. last year’s revenues to clear dues to power generation
• Better services for consumers: Smart prepaid and transmission firms.
meters will allow transparency for consumers • New tariff policy focusing on improving consumer
and also help DISCOMs reduce AT&C losses and rights, promoting industry and ensuring the
ensures billing accuracy which leaves no scope sustainability of the sector to be released soon.
for human errors.
• Generating private sector appetite amongst Indian and international investors, various PPP models will be
tested and it will also provide confidence to larger states and utilities to undertake privatisation based on
improvements achieved.
Way forward
• Need replication in states: Power being a concurrent subject in our federal set up, the Centre may set
policy direction, but it is the states that will have to implement, including the decision to privatise. The UTs
are a good place to start, though it should be propagated further into the state owned di scoms.
o At the same time, analysts note that the privatisation model will offer little for large states by way of
learning, primarily because the ability of private actors to manage the diverse consumer base in large
states is not proven.
• More autonomy to regulatory bodies: Privatization of DISCOMs will not work until the systemic challenges
are addressed. For eg. State Electricity Regulatory Commissions (SERCs) do not formulate tariff orders on time
and defer tariff hikes, which adds to the inability of DISCOMs to generate profit.
• Reinventing revenue model: Decentralized renewable power generation through rooftop solar and direct
sourcing from corporate PPAs has increased in the total energy mix. It is of prime importance for the DISCOMs
to reinvent their revenue model that is conducive to the growth of rooftop solar and open access power. This
will also enable the next set of reforms for the sector towards the disintegration of content and carriage.
3.4. AFFORDABLE HOUSING

Why in news?
Recently, the Cabinet approved the development of affordable rental housing complexes (ARHCs) for
urban migrants and poor as a sub-scheme under the Pradhan Mantri Awas Yojana (Urban).

Key Features of the ARHCs Scheme Pradhan Mantri Awas Yojana (Urban)
• Under the scheme, ARHCs shall be • PMAY (U) was launched in 2015 to provide housing for all in urban
developed for exclusive use as rental areas by year 2022.
housing for a minimum period of 25 • It is implemented by the Ministry of Housing and Urban Affairs
years, using two models: (MoHUA).
o Converting existing vacant • The Mission addresses urban housing shortage among the
Economically Weaker Section (EWS), Low Income Group (LIG) and
government funded housing
Middle-income groups (MIG) categories including the slum dwellers.
complexes through Concession
• The scheme has four verticals:
Agreements. o ‘In-situ’ Slum Redevelopment (ISSR) using land as a resource
o Special incentives for private/ o Credit Linked Subsidy Scheme (CLSS)
public entities to develop ARHCs o Affordable Housing in Partnership (AHP) with private or public
on their own available vacant sector
land. o Beneficiary-led Construction/ Enhancement (BLC/ BLE)
• Target beneficiaries: Workforce • Presently, 105.6 Lakh houses have been sanctioned and 35.1 Lakh
involved in manufacturing industries, houses have been completed under PMAY (U).
service providers in hospitality, • The Mission also promotes women empowerment by providing the
health, domestic/commercial ownership of houses in name of female member or in joint name.
establishments, and construction or
other sectors, laborers, long term tourists/ visitors, students etc.
o Approximately, 3 Lakh beneficiaries will be covered initially under ARHCs.
• A Technology Innovation Grant of Rs 600 Crore will be released for projects using identified innovative
technologies for construction.
• Intended Benefits of the scheme:
o Economically productive use of Government funded vacant housing stock.
o Conducive environment for Entities to develop AHRCs on their own vacant land.
o New investment opportunities and promotion of entrepreneurship in rental housing sector.
o Investment under ARHCs is expected to create new job opportunities.
Need for Affordable Housing in Urban Areas
• Rapid urbanization: By the year 2030, more than 40% of the Indian population is expected to live in urban
India which is likely to create a demand for 25 million additional affordable housing units.
• Majority in low- and middle-income group: Urban housing shortage will be primarily driven by Below Poverty
Line (BPL), Economically Weaker
Section (EWS) and Low-Income Government Initiatives to ensure affordable housing
Group (LIG) households due to • Draft National Urban Rental Housing Policy (NURHP) was released in
2015 with a vision to create a vibrant, sustainable and inclusive rental
their low disposable income,
housing market in India.
irregular income, ever increasing
• Affordable housing has been accorded the infrastructure status which
real estate prices etc. has associated benefits such as lower borrowing rates, tax
• Better livability: Affordable concessions and increased flow of foreign and private capital.
housing is fundamental to the • GST rate on affordable housing projects was lowered from an effective
health and well-being of people 8% to 1%.
and to the smooth functioning of • A dedicated Affordable Housing Fund (AHF) was created in the National
the economy. Housing Bank to boost demand and supply of low-cost homes.
• To deter illegal encroachment of • Real Estate (Regulation and Development) Act, 2016: It established the
land: Rural to urban migration Real Estate Regulatory Authority (RERA) for regulation and promotion of
usually leads to development of the real estate sector. The act aims to protect the interest of home
buyers, while ensuring that the sale/purchase of real estate project is
illegal slums and informal/
carried in an efficient and transparent manner.
unauthorized colonies in peri-
• Draft Model Tenancy Act, 2019 proposes to establish a framework for the
urban areas due to lack of regulation of Tenancy matters (residential and commercial) and to
affordable alternatives. balance the rights and responsibilities of landlords and tenants including
• Resolving urban congestion: a process of fast adjudication process for resolution of disputes.
Making housing available at
affordable prices close to the place of work and cut down unnecessary travel, congestion and pollution.

• Informal Rental housing sector in India: It leads to exploitation of tenants through inflated pricing, lack of
proper maintenance, forced evictions etc.
• Reverse migration triggered by COVID-19: Lack of affordable housing, resulting in mass exodus of workers/
urban poor living in cities highlighted the need for affordable housing.
Challenges
• Lack of clear definition for affordable housing: It should be redefined clearly keeping in view the different
geographies in India.
• Poor access to organized finance: EWS and LIG categories often finds it difficult to secure formal housing
finance due to inability to produce formal pay slips and other relevant documentation to establish
creditworthiness.
• Connectivity to workplace: Lack of affordable and adequately sized land parcels in inner urban localities has
driven the development of Affordable Housing to urban peripheries.
• Archaic Laws: Landowners find rental housing unattractive as restrictive rent control laws increase the cost of
transaction, lower residential yields and put them at high risk of property litigation.
• Other Issues:
o Liquidity crunch in Non-Banking Financial Companies (NBFCs) has adversely impacted funding
availability.
o High land cost in urban cities: Land often constitutes more than 50% of the project cost for developers
making affordable housing projects unviable.
o Regulatory hurdles: Delays in the land use conversion, building and construction approval processes etc,
lead to cost escalation.
o Low Profitability in affordable sector: Private real estate developers prefer luxury, high-end and upper-
mid housing segment due to their higher returns.
o High fees and taxes: Various forms of taxes and levies like VAT, Service Tax, Stamp Duty etc. increases the
cost of home ownership.
Way Forward
• Inclusive definition “affordable housing”: It should take into consideration different geographies in India and
cover factors such as property taxes, operational and maintenance costs, transport costs, payments of basic
utilities such as water, electricity, cooking fuel etc.
• Innovative micro mortgage financing mechanisms and the reach of Self-Help Groups (SHGs) can be utilized
to ensure that housing finance is available to large sections of LIG and EWS populations.
• Formalization of rental housing sector by revising rent control laws to attract investment in the sector. Single
window clearance and electronic submission of documents for approval for building permits.
• Focus on Long-term planning and land-management processes: to balance land and housing supply with
projected future housing demand and population growth. Land records can be digitized to improve planning
and utilisation of land.
• Zoning reforms: Land-use planning tools like Inclusionary Zoning can be used, which reserves land or earmarks
zones to be exclusively used for affordable housing.
• Encouraging Rental management companies (RMCs) to bring efficiency especially in operation, maintenance
and management of large-scale rental housing projects/schemes.
• Public-private-partnership [PPP] model: Collaboration between the public and private sectors creates a huge
pool of resources and helps in addressing stakeholder concerns.
• Tapping foreign direct investment (FDI): Ministry of Housing and Urban Affairs, recently aid that it is open to
the idea of allowing 100% FDI in affordable rental housing projects.
3.5. SPECIAL LIQUIDITY SCHEME FOR NBFCS AND HFCS

Why in News?
As a part of Aatma Nirbhar Bharat Abhiyaan, Special Liquidity Scheme for NBFCs/HFCs was approved last month
and RBI has now laid down the eligibility criteria for these lenders to avail the facility.

Background
• Most NBFCs do not have substantial on-balance sheet liquidity as they operate via asset-liability mismatch
i.e. these firms borrow funds from the market for short duration at low interest rate and lend for longer
tenures at higher interest rate. So, they need refinancing to repay their own liabilities.
• However, following the unexpected default by a major shadow lender IL&FS in 2018, it became tough for
other NBFCs to refinance their debt as investors like Mutual funds and other banks turned risk averse.
o Shadow banking system is a term for the collection of non-bank financial intermediaries that provide
services similar to traditional commercial banks but outside normal banking regulations.
• This led to a liquidity crunch for NBFCs.
o Due to liquidity crisis, NBFCs were forced to reduce lending to MSMEs, a vital pillar of the Indian economy
that contributes majorly to the GDP.
• So, the stress among NBFCs can lead to spillover effects that can become a systemic risk to whole economy
as well as hinder improvements in banks’ asset quality.
About Non-banking finance companies (NBFCs)
• A NBFC is a company registered under the Companies Act, 1956 engaged in the business of loans and advances,
acquisition of governmental or other marketable securities, leasing, hire-purchase, insurance business, chit business.
• It does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase
or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable
property.
• Difference from Banks:
o NBFC cannot accept demand deposits (but some can accept Time deposits and such NBFCs are called Deposit
taking NBFCs)
o NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself;
o Deposit insurance facility is not available to depositors of NBFCs
o Unlike banks, CRR does not apply on any NBFCs while a lower SLR of 15% applies only to Deposit taking NBFC.
o NBFCs get license under Companies Act, 1956 and Banks under Banking regulation Act.
• Types of NBFCs: NBFCs can be categorised under two broad heads:
o On the nature of their activity: includes Housing Finance Company, Investment Company, Micro Finance
Company/Institutions (MFIs) etc.
o On the basis of deposits: Deposit accepting NBFCs and Non-deposit accepting NBFCs (these are further
categorised into systemically important and other non-deposit holding companies (NBFC-NDSI and NBFC-ND)).
Housing Finance Company (HFC)
• A HFC is a company registered under Companies Act, 1956 which primarily transacts or has as one of its principal
objects, transacting of the business of providing finance for housing, whether directly or indirectly.
• HFC is considered a NBFC under the RBI’s regulations.
• Last year, regulation of HFCs was handed over to RBI from National Housing Bank.
About the Scheme
• RBI has announced a special liquidity scheme for non-banking finance companies (NBFCs)/HFCs through a
Special Purpose Vehicle (SPV).
• Scheme aims to help NBFCs and HFCs to improve their liquidity position and avoid any potential systemic
risks to the financial sector.
o With asset quality risk for NBFCs/ HFCs set to rise sharply in the coming months due to reduced
economic activity, many medium and small-sized players are likely to face severe liquidity challenges.
• The SPV will purchase short-term papers from eligible
NBFCs/ HFCs of debt up to ₹30,000 crore, who will utilise
the proceeds under this scheme solely for the purpose of
extinguishing existing liabilities.
o SBI Capital Markets, a unit of State Bank of India,
has set up a SPV to manage this operation.
• Eligibility: NBFCs and HFCs should have- net non-
performing assets (NPAs) less than 6%; net profit in at
least one of the last two preceding financial years; not
reported under SMA-1 or SMA-2 category during last one year prior to 1 August 2018.

Reasons behind precarious financial situation of NBFCs
• Difficulties in access to credit: The mutual fund is among the biggest fund provider to NBFCs via commercial
papers and debentures. These investors are getting reluctant to lend post the IL&FS crisis.
o Recently, a mutual fund house Franklin Templeton had to shut down its 6 debt schemes following the
unprecedented redemptions fuelled by apprehensions of credit risk.
• Crisis accentuated by pandemic: In a recent report,
Banks classify borrowers into special mention accounts
Moody credit rating agency said the inability of
based on their delay in repayment.
borrowers to repay loans amid the Covid-19 crisis,
• Special mention account-0 (SMA- 0) loans are
coupled with a six-month moratorium on repayment where the repayment overdue is between one and
allowed by RBI, will lead to a disruption of inflow for 30 days,
NBFCs, even as outflow will have to continue. • SMA-1 between 31 and 60 days
o According to ratings firm ICRA, asset quality of • SMA-2 from 61 to 90 days
HFCs will come under pressure following the • The asset turns NPA after 90 days of being overdue.
economic impact of pandemic as salaried class
and self-employed will face the prospect of a job loss or salary cuts and defer home purchases.
• Multiple regulatory bodies: RBI doesn’t regulate all the NBFCs. Other institutions such as SEBI, Insurance
Regulatory and Development Authority (IRDAI), etc. are also involved depending on the type of NBFC.
• Riskier Lending Pattern: Unlike banks, NBFCs are less cautious while lending. For example, NBFCs have grown
their portfolio of small and micro loans in a big way where there are risks of lack of credit history, scale and
historically high NPAs.
o The unsecure loan segment is also on the rise in the NBFC segment.
• Cascading effect of Infrastructure Leasing and Financial Services (IL&FS) default: Default followed by
downgrade of IL&FS recently has created a liquidity squeeze for the entire non-banking financial company
(NBFC) sector.
Some recent steps taken by the government
• Delayed Projects: Many
• Targeted long-term repo operations (TLTRO): It was introduced
infrastructural projects financed by
twice. Under TLTRO 2.0, funds had to be invested in investment
NBFCs are stalled due to various grade bonds, Commercial Papers and Non-Convertible Debentures
reasons like delayed statutory of NBFCs, with at least 50% of the total amount availed going to
approvals, problems of land small and mid-sized NBFCs and MFIs.
acquisition, environmental clearance, • Partial Credit Guarantee Scheme (PCGS) 2.0 worth Rs 45,000 crore
etc. which has impacted their financial has been launched where sovereign guarantee of up to 20% of first
health. loss will be provided to state-owned banks for purchase of bonds or
CPs of NBFCs, MFIs and HFCs having a credit rating of AA or below,
Way Forward including unrated paper with original maturity of up to one year.
• Better Regulatory Regime: The • RBI announced a special refinance facility of Rs 50,000 crore to
Financial Sector Legislative Reform NABARD, SIDBI and NHB to help them meet funding requirements
of agriculture and the rural sector, small industries, HFCs, NBFCs
Commission (FSLRC) recommendation
and MFIs.
of creating a body with powers to
• RBI has prescribed limits for HFCs for exposure to commercial real
monitor risk-cutting across sectors estate (maximum 20% of capital fund), capital market (maximum
should be implemented. 40% of net worth total exposure) or group entities (25% of owned
• Timely Project clearances: Ensuring fund and 15% to single entity)
timely clearances, especially to o In DHFL, a chunk of retail loans were found to have been
infrastructural projects is a must to diverted to group companies which led to its downfall.
minimise cost inflation of these
projects.
o Expanding the “Plug and Play” approach to other sectors can be a possible solution. ‘Plug and play’
concept normally refers to ready facilities in terms of building, power-water-sewage connectivity, road
connectivity, beside other basic things including clearances in hand required to start the industry.
• Suggestions for RBI:
o RBI must encourage NBFC to securitise their assets that can be purchased by banks.
o RBI may also open special window for mutual funds to get refinance against collateral.
o A coordinated and consultative approach at this point of time to address the various problems of the
sector is critical to national economic health and stability.

3.6. FINANCING OF MSME SECTOR
Why in news?
World Bank and Government of India recently signed a $750 million Agreement for Emergency Response
Programme for Micro, Small, and Medium Enterprises (MSMEs).
MSME Sector in India
• Micro, Small, and Medium
Enterprises in India are
classified as per a
Composite Criteria based
on Investment in Plant & Machinery/equipment and Annual Turnover (see table).
• Significance of MSME sector in India
o Employment generation: In India, at present, there are about 55.8 million enterprises in various
industries, employing close to 124 million
Challenges faced by MSME sector other than financing
people. • Limited capital and knowledge
▪ Of these, nearly 14 per cent are women- • Technological Backwardness
led enterprises, and close to 59.5 per cent • Inadequate infrastructure facilities including access to
are based in rural areas. power, water, & road
o Exports: The MSME sector accounts for 29 per • Low production capacity and constraints in
cent of India’s GDP and 45 per cent of exports. modernisation & expansions which inhibits the sector
o MSME sector also plays a key role in income to profit from ‘economy of scale’
augmentation, building rural infrastructure, • Ineffective marketing strategy
women empowerment, promotion of • Non-availability of skilled labour at affordable cost
traditional goods, innovation etc. • High competition from cheap imports
Major constraints in Financing the MSME Sector

• Poor access to formal capital: Only about 8 Government Initiatives for Financial Support to MSMEs under
percent of MSMEs are served by formal credit Atmanirbhar Bharat package
channels. This can be attributed to factors such • Emergency Credit Line Guarantee Scheme (ECLGS):
as: Under the Scheme, 100% guarantee coverage to be
o Lack of credit history and reliable financial provided by National Credit Guarantee Trustee Company
Limited (NCGTC) for Collateral Free Automatic Loans up
statements: which makes carrying out
to Rs. 3 lakh crores to eligible MSMEs and interested
credit appraisals of MSMEs difficult and
MUDRA borrowers, in the form of a Guaranteed
results in high transaction costs for lenders. Emergency Credit Line (GECL) facility.
o Lack of hard assets: that are essential for • Fund of Funds created to infuse equity worth Rs.50,000
securing formal credit in most cases. crore in the MSME Sector to help potential MSMEs in
o Apprehension among lenders due to high expansion.
default rates on MSME loans: Between • Credit Guarantee Scheme for Sub-ordinate Debt
December 2017 and December 2019, the (CGSSD): Guarantee cover worth Rs. 20,000 crores will be
non-performing asset (NPA) rate on MSME provided to the promoters who can take debt from the
loans of public sector banks varied between banks to further invest in their stressed MSMEs as equity.
16.6 per cent and 18.7 per cent. • Global tenders to be disallowed for Government tenders
o Low financial and digital literacy: among up to Rs.200 crore to enable MSMEs to participate in the
MSME operators, limits their ability to seek Government procurement process.
cheaper formal credit through digital • ICT based system ‘CHAMPIONS’ portal: has been
means. launched by the Ministry of MSME. The portal will help in
handholding MSMEs, providing guidance to grab the new
• Limited funding capacity and accessibility of
business opportunities and in the long run, become
NBFCs and SFBs: These form key market- national and international Champions.
oriented channels of credit and respond to the • Dues of MSME will be cleared by the government and
urgent and varied needs of the MSMEs. Public Sector Units within 45 days.
• Exclusion of individual entrepreneurs in
current schemes: Large number of entrepreneurs such as truck owners, agriculture equipment owners etc.

are not registered as MSMEs and take business loans in their individual capacity. They are currently not eligible
for additional lending under ECLGS.
• Uncertainty during COVID-19 pandemic: has affected financial stability of MSMEs due to reasons such as
delayed payments, burden of fixed costs such as rent and repayment of bank dues, rising raw material prices
etc.
Way Forward
• Expansion of current government schemes to include individual entrepreneurs and incentivizing individuals
to officially register as MSME to gain benefits under various initiatives.
• Leveraging digital platforms can play an important role by enabling lenders, suppliers, and buyers to reach
firms faster and at a lower cost, especially small enterprises that currently may not have access to the formal
channels.
• Credit Risk Database for lenders to pool the large amount of data, related to MSME loans, being generated at
various lending institutions. This will reduce risk for lenders and help them make informed decisions.
• Awareness generation is needed to inform MSME operators of the latest government schemes and
programmes.
• Temporary Deferment of property taxes, rent and other utilities can be provided to distressed enterprises in
order to avoid further costs and liquidity shortfalls.
• Strengthening NBFCs and SFBs by focusing on refinance facility for NBFCs and direct support to Small Finance
Bank (SFBs) through loans and equity, since they form major sources of credit to MSMEs.
3.7. UNIFIED GAS PRICE SYSTEM

Why in news?
Government is planning to cut down the cost of transportation of natural gas by setting a fixed tariff for the
transportation of natural gas for longer distances to boost gas consumption.
Background
• Currently, tariffs for pipeline usage are divided into zones of 300km, with the tariff increasing for zones
further away from the point where gas is injected.
• Thus, these tariffs increase the cost for buyers of gas further away from the point of injection of natural gas.
All of India’s imported natural gas arrives at terminals on the west coast leading to costs for buyers increasing,
the further east they are located.
• The government is proposing a unified price system with one price for those transporting gas nearby within
300 km and one price for those transporting gas beyond 300km.
• Also, Petroleum and Natural Gas Regulatory Board (PNGRB) has published a discussion paper on moving from
a system where buyers of gas are charged for every pipeline, to a single charge across a pipeline network.
Expected benefits of unified gas pricing system
• Reduced overall cost: Currently, transport cost accounts or as much as 10% of the final cost of gas to an
industry because of low international prices. Usually, it accounts for around 2-3% of the price of natural gas.
• Reduction in tariffs: Currently, if a buyer needs multiple pipelines even from the same operator, that transport
tariff would increase by adding the tariffs under different zones.
• Single market: It would facilitate in creating a single gas market by attracting investment to complete the Gas
Grid as well as ensuring equitable access to natural gas across the country.
• Gas based economy: It would enable improving the affordability of gas across the country and attracting
investments into the gas infrastructure. This will help achieve government’s aim to increase the share of
natural gas in the country’s energy mix to 15% by 2030, from 6% today.
• Development of new gas markets: Present system causes wide disparity in pipeline tariffs, and thus it hinders
the development of new demand centers in far-flung and remote areas.
Other challenges in gas pricing
• Pricing mechanism: Under Domestic Natural Gas Pricing Guideline 2014 domestically produced gas is priced
at the average rate prevailing in gas exporting countries such as the US, UK, Canada, and Russia.

o The formula has no mention about gas actually imported into India, which means the pricing of domestic
gas is not on the lines of market demand and supply.
o Also, domestic Gas prices are notified with a lag of one quarter. The time lag of a quarter mean that the
domestic gas price movement is often out of sync with current international prices.
• Multiple pricing mechanisms: There are multiple
Steps taken for better pricing
pricing regimes existing in the country for Natural
• Gas price pooling, 2015: Under the plan, price of
gas supplies, with Administered Price Mechanism
cheaper domestic gas will be averaged or pooled with
for subsidized sectors such as fertilizers. This cost of expensive imported LNG to create a uniform
controlled pricing may result in disincentivizing rate for fertilizer plants.
investments in the sector, especially foreign • Indian Gas Exchange (IGX) launched recently, as a
players. digital trading platform that will allow buyers and
• Not under GST: As gas prices are not under GST, it sellers of natural gas to trade both in the spot market
has led to varying tax rates on natural gas and in the forward market for imported natural gas
production and related value chain, such as across three hubs —Dahej and Hazira in Gujarat, and
pipelines and retailing in different states. Kakinada in Andhra Pradesh.
• Hydrocarbon Exploration Licensing Policy: All gas
Way forward production from new discoveries can be sold at
market-based prices, though it remains subject to a
• Decontrolling of prices: India has to end central
price ceiling.
controls on gas pricing as it seeks to attract foreign
investment to lift local output.
• Unbundling of transportation and the marketing of gas is to increase private participation and for the
development of the pipelines network.
• Better regulation: Strengthen and clarify the roles and responsibilities with regard to the regulatory
supervision of natural gas market activities (upstream, midstream and downstream).
• Include under GST: International Energy Agency (IEA) suggested to ensure gas is treated on a level playing
field with other fuels for taxation and is included under the GST.
• Grant infrastructure status to natural gas pipelines, to incentivize investments which are prerequisite for
increasing natural gas demand and thus reducing cost.
3.8. BUNDLING SCHEME FOR ROUND-THE-CLOCK (RTC) POWER SUPPLY

Why in news? National Solar Mission
Recently, Ministry of power issued guidelines for supply of RTC • It is one of the eight key National
power to distributors through a Bundling Scheme, which is first Mission’s which comprise India’s National
Action Plan on Climate Change (NAPCC).
of its kind scheme in world.
• Objective of is to establish India as a global
About Bundling scheme leader in solar energy by creating the
policy conditions for its deployment across
• It is a plan to sell renewable energy (RE) and thermal power the country.
in a bundle so that end users can get uninterrupted supply of • Mission has set target of deploying 20,000
power. MW of grid connected solar power by
o First phase of National Solar Mission provided for such a 2022, which was revised to 1,00,000 MW
scheme to facilitate grid connected solar power. in 2015.
• It will provide RTC power to DISCOMs from RE sources • Mission adopted a 3 - phase approach,
complemented/balanced with coal based thermal power. Phase 1 (2012 - 13), Phase 2 (2013 - 17) and
• Scheme will facilitate renewable capacity addition and Phase 3 (2017 - 22).
fulfillment of Renewable Purchase Obligation (RPO) requirement of DISCOMs.
• It will enable procurement of power at competitive prices in consumer interest, improve bankability of
projects and ensure reasonable returns to the investors.
• Scheme will provide a framework for an Intermediary Procurer as an Aggregator/Trader for the inter-state/
intra-state, long-term, sale-purchase of power.
• As per the guidelines:
o Power generators have to ensure at least 85% availability both annually and during peak hours.

o Bidders will have to supply at least 51% of the power About Renewable purchase obligation (RPO)
from renewable sources. Bidders can club smaller • RPO is a mechanism by which the obligated
thermal projects to tie-up with their renewable entities are obliged to purchase certain
projects. percentage of electricity from Renewable
▪ RE component can include solar and non-solar Energy sources, as a percentage of the total
sources such as wind, hydro, or any combination consumption of electricity.
of the same. o Obligated Entities include Discoms, Open
o Bidder will have to pay a penalty equivalent to 25% of Access Consumers and Captive power
producers.
the shortfall in energy terms.
• RPOs are categorized as Solar and Non Solar
Benefits of Bundling Scheme RPO.
• It will address issues of intermittency (random energy • RPOs are provided under Electricity Act 2003
generation from RE sources), limited hours of supply and and the National Tariff Policy 2006.
low capacity utilisation of transmission infrastructure.
o These issues made DISCOMs to procure balancing power from other sources for grid stability and during
periods of non-availability of RE
• It will bring down the overall cost of power supplied to utilities and will increase RE penetration.
• Through this approach, thermal power can be utilized to balance RE and provide RTC power to the DISCOM.
• Bundling will ease financial burden on Concerns about the scheme
DISCOMS and help them clear their dues. Also, • Government will have no role in the bundling, apart from
power generators will get payments on time setting rules and initiative would have to be taken by
and their money instead of getting blocked can the power producers themselves.
be ploughed back. • Because of limited number of potential bidders, the
• It will help in providing long-term power tie-up scheme would not attract very competitive bids and may
opportunity to thermal power plant therefore not be cost attractive for DISCOMS.
producers, which have been struggling to sell • Both thermal and RE projects are facing payment delays
from the states. Also, several states do not honor the
their power in present competitive market.
Power Purchase Agreements they sign with renewable
• It will help obligated entities in meeting RPO power projects.
and also in grid-connected solar power • Scheme has not addressed concern on the cost which is
generation. highly dependent on cost of coal, on equipment cost in
• It will improve thermal power capacity case of solar and on market demand in case of wind.
utilisation as new coal-based thermal power
plants have quite a high ramp rate (how quickly a power plant's power output is changing).
3.9. MODEL CONCESSION AGREEMENT FOR BOT MODEL

Why in news?
Recently, an inter-ministerial group (IMG) has approved changes to the model concession agreement (MCA) used
for building privately-funded highways on the Build-Operate and Transfer (BOT) toll model.
Background
• BOT toll model accounted for almost 96% of NHAI’s all project awards in 2011-12, which came down almost
to zero in the last two fiscals, due to various issues in existing MCA for BOT (Toll) projects.
• This has forced NHAI to shift to Engineering Procurement and Construction (EPC) and Hybrid Annuity Model
(HAM). (See box)
• However, overdependence on EPC and HAM is adversely impacting the finances NHAI. Thus, new changes in
BOT model were proposed to attract private investors.
Key features and expected benefits of modified MCA
• Revised revenue assessment: Under the clause, in every five years during the concession period, the revenue
potential of a project will be re-assessed, against every 10 years now. Therefore, if need be, the concession
could will be extended early in the tenure of the contract, adding to certainty of cash flows.
• Land acquisition: The work order for building highway projects will be issued only when 90 per cent of the
land is acquired and this will form a part of the condition precedent. Delays in land acquisition and approvals

have led to significant delays in project Types of investment models
completion and have been the prime • Build Operate and Transfer (BOT) Toll model: Under this model,
reason for significant cost overruns. a road developer constructs the road and he is allowed to
• Dispute resolution board (DRB): It recover his investment through toll collection. There is no
provides for setting up a dispute government payment to the developer as he earns his money
resolution board which will act as a invested from tolls.
continuous dispute resolution mechanism • BOT Annuity Model:
and provides for timely redressal within o A developer builds a highway, operates it for a specified
duration and transfers it back to the government.
90 days. This is a welcome step, as
o The government starts payment to the developer after the
arbitration processes have been dragged launch of commercial operation of the project.
for years, leading to significant lock-up of • Engineering, Procurement and Construction (EPC) Model:
developers' funds. o Under this model, the cost is completely borne by the
Concerns that remain government. Government invites bids for engineering
knowledge from the private players.
• No compensation: There is no provision o Procurement of raw material and construction costs are
for compensation in case a competing met by the government.
road comes in and causes traffic diversion o The private sector’s participation is minimum and is limited
from the project. to the provision of engineering expertise
• Reduced traffic due to axle load: Recent • Hybrid Annuity Model (HAM)
o HAM is a mix of BOT Annuity and EPC models.
revision permitting vehicles to carry
o As per the design, the government will contribute to 40% of
increased load has caused a reduction in the project cost in the first five years through annual
traffic volume and thus, loss in the payments (annuity).
revenue for the developers which is not o The remaining payment will be made on the basis of the
addressed in the changed MCA. assets created and the performance of the developer.
• Fast-track resolution of arbitration
awards remains a challenge, as the decision of DRB remains recommendatory in nature and courts remain
the arbitration authority for dispute resolution for claims above Rs 25 crore in case the parties do not agree
on dispute resolution board for arbitration.
Conclusion
NHAI should look into concerns like traffic risks, and others as Private developers/investors in the BOT (toll) space
seek a firm, clear and bankable concession contract to ensure elimination of all ambiguities and safeguarding of
their investment.
3.10. NATIONAL LAND MANAGEMENT CORPORATION

Why in news?
The government is planning to set up a National Land Management Corporation (NLMC) to facilitate monetizing
state-owned surplus land assets in a systematic and specialised way.
Background
• Earlier, government panel on boosting infrastructure investment had recommended setting up a National
Land Management Corporation which will act as a facilitator for land monetisation and an asset manager for
surplus lands owned by government of India and Central Public Sector Enterprises.
o ‘Surplus’ land or property are those that are not needed or are not appropriate for provision of public
service for which the agency owning the property is responsible.
• NLMC would pursue land lease or concessions as a primary mode of commercial exploitation, including option
of sale of land.
• Key Responsibilities of NLMC would be:
o Development/co-development of land belonging to Central government ministries or CPSEs etc.
o Maintaining an inventory of public land.
o Developing model concession agreements for land developments.
o Raising money from the market backed by land assets.
o Legal management of litigation/encumbrances relating to land.

o Resettlement and rehabilitation/eviction of occupiers.
o Functions related to change of land usage and revenue management.
Need for such a body in India
• Absence of specialised organization: to handle commercial development of government land. Apart from
Railways and Defence, other government departments do not have such bodies.
• Utilisation of the surplus land assets of government and CPSEs: CPSEs and local bodies can reduce their debt
burdens by monetizing their asset portfolio for further investment in creation of assets.
• Proper utilisation of unused land, acquired by governments: As per Government Land Information System
(portal that records total area, geo-positioning maps, details such as ownership rights etc.) there is large
amount of land that remains unused by various public sector enterprises.
• Restricted supply of land: Excessive holdings by the government generate an artificial scarcity of land for
developmental purposes, and increases project costs.
• Encouraging participation of private sector: Asset monetization can enhance involvement of long-term
institutional investors in the management of infrastructure assets.
• Freeing up unused resources for investment in infrastructure: It is estimated that India would need to spend
$4.51 trillion on infrastructure by 2030 to realize the vision of a $5 trillion economy by 2025.
• Expedite decision making process: An independent body can effectively deal with the politically-sensitive
issue of land, speeding up the process of land monetisation. It can also identify potential real estate
opportunities and optimize value of public assets for the taxpayers.
Way forward
For competent management of public assets, NLMC must ensure that:
• Land Concession should follow a competitive and transparent process.
• All stakeholders, public and private, should receive fair compensation for the land that they make available,
to incentivize further participation.
• Land-owning departments, including states or local bodies, also get a share of the proceeds, to incentivize
release of land for commercial development.

3. ECONOMY
3.1. NATIONAL STRATEGY FOR FINANCIAL EDUCATION (NSFE) 2020 -
2025
Why in News?
Recently, Reserve Bank of India (RBI) released the National
Strategy for Financial Education (NSFE): 2020-2025.
About NFSE
• First NFSE was released in 2013 for the period 2013-2018.
• NSFE intends to empower various sections of the
population to develop knowledge, skills, attitude and
behaviour which are needed to manage their money
better and to plan for their future.
• NSFE recommends multi-stakeholder-led approach for
creating a financially aware and empowered India.
• NSFE, has been prepared by the National Centre for
Financial Education (NCFE) in consultation with all the
Financial Sector Regulators (RBI, SEBI, IRDAI and PFRDA),
DFS and other Ministries and other stakeholders (DFIs,
SROs, IBA, NPCI).
• Technical Group on Financial Inclusion and Financial
Literacy would be responsible for periodic monitoring and
implementation of NSFE.
What is Financial Literacy and Financial Education?
Financial Education and Financial Literacy are related concepts
but not the same. People achieve Financial
Literacy through the process of Financial
Education.
• Financial Literacy is defined as a
combination of financial awareness, Components of Financial Education
knowledge, skills, attitude and behavior • Basic Financial Education: It consists of fundamental
necessary to make sound financial decisions and tenets of financial well-being such as importance and
ultimately achieve individual financial well- advantages of savings, staying out of unproductive loans,
borrowing from formal financial sector, time value of
being.
money etc. It acts as a foundation for sector-specific and
• Financial Education, on the other hand is defined process education.
as the process by which financial • Sector specific financial education: It is being imparted
consumers/investors improve their by Financial Sector Regulators and focuses on “What” of
understanding of financial products, concepts the financial services and the contents cover awareness
and risks and through information, instruction on ‘Do’s & Don’ts’, ‘Rights & Responsibilities’, ‘Safe usage
and/or objective advice, develop the skills and of digital financial services’ and approaching ‘Grievance
confidence to Redressal’ Authority.
o Become more aware of financial risks and • Process education: It is crucial to ensure that the
opportunities. knowledge translates into behavior. Some of the aspects
to be covered include how to use an ATM card, how to
o Make informed choices.
do an UPI Transaction etc.
o Know where to go for help.
o Take other effective actions to improve their financial well-being.
• Thus, the achievement of Financial Literacy empowers the users to make sound financial decisions which result
in financial well-being of the individual.

Why is the process of financial education important?
• Lack of financial education is a major impediment to eradication of economic poverty, enhancement of
livelihood opportunities, building asset base, supporting income generating activities and expanding range
of choices available to the population.
• According to a survey, more than 75% of Indian adults do not adequately understand basic financial
concepts. It’s even worse when it comes to women. More than 80% of women are financially illiterate.
o Financial literacy is central to ensure that the accounts opened through financial inclusion efforts are used
by the people by availing products/ services relevant to them.
• A thrust on financial education is essential to make financial inclusion more meaningful and enabling for
citizens’ reach to economic well-being.
• It is needed under heightened uncertainty and volatility of the financial sector with increased influence of
private players, shrinking public support system, rise of cost of living and availability of large number of
financial products and services to choose from.
• Financial education will help people achieve financial well-being by accessing appropriate financial products
and services through regulated entities.
Status of Financial Literacy in India
• NCFE has carried out an All India Financial Inclusion and Financial Literacy Survey in 2019 to find out the status of
financial literacy in India.
• Key Findings:
o 27.18 % of the respondents have achieved minimum target score/minimum threshold score in each of the
components of financial literacy (Financial Knowledge, Financial attitude, Financial Behavior) prescribed by OECD.
o Though there has been an improvement over the period, further efforts are needed to improve financial literacy
among women.
o East, Central and North Zone need more attention.
o Rural India, groups with lower education and group of age 50 and above need focused attention.
Financial Literacy initiatives by various stakeholders
• NCFE through financial education campaigns for all sections of the population through seminars, workshops etc.
o National Centre for Financial Education (NCFE) is a Section 8 (Not for Profit) Company promoted by Reserve Bank
of India (RBI), Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority
of India (IRDAI) and Pension Fund Regulatory and Development Authority (PFRDA).
• RBI through Financial literacy guides, public awareness campaigns etc. RBI in collaboration with Organization of
Economic Development (OECD) has issued a concept paper, promoted a financial literacy website, and set up credit
counseling centers to provide advice on personal finance.
• NSE, BSE, MCX, and others also have programs on investor awareness and regularly release articles and propaganda
related to financial literacy.
What are the challenges to this process of financial education?
• Low income levels: A large number of people who have come into the financial system now have low or
uncertain incomes. With little or no savings, they hardly have any incentive to acquire Basic Financial
Education.
• Information asymmetry: Difficulty of consumers in identifying and understanding the fine print from the large
volume of convoluted information, leads to an information asymmetry between the financial intermediary
and the customer.
• Low technological inclusion: The hesitation to use ATMs, mobile banking, net banking etc. act as a
technological barrier in the acquisition of process education.
• Too much documentation: Participation in formal financial services requires various documents of proof
regarding persons' identity, income, birth certificates, etc. But poor people generally lack these documents
and thus remain marginalized from the process.
• Absence of reach and coverage: Many of the schemes that are useful to the poor don’t reach them further
closing the paths that can help poor enter the financial system.
Way forward: Vision provided by NSFE 2020-2025
• Inculcation of financial literacy concepts among the various sections of the population through financial
education to make it an important life skill. Financial education should start at school, for people to be
educated as early as possible.

• Improve usage of digital financial services in a safe and secure manner.
• Manage risk at various life stages through relevant and suitable insurance cover. For example, planning for
old age and retirement through coverage of suitable pension products.
• Document also recommends adoption of a ‘5 C’ approach for dissemination of financial education:
o Content: Creating Financial literacy content for all.
o Capacity: Develop the capacity of various intermediaries who can be involved in providing financial literacy
and develop a ‘Code of Conduct’ for financial education providers.
o Community: Evolve community led approaches for disseminating financial literacy in a sustainable
manner.
o Communication: Use technology, mass media channels and innovative ways of communication for
dissemination of financial education messages.
o Collaboration: Integrate financial education content in school curriculum, various Professional and
Vocational courses.
3.2. RULES OF ORIGIN

Why in news? About Certificate of Origin (CO)
The Department of Revenue has recently notified the • A CO is an important international trade
'Customs (Administration of Rules of Origin under Trade document that certifies that goods in a particular
Agreements) Rules, 2020' which would come into force export shipment are wholly obtained, produced,
on September 21, 2020. manufactured or processed in a particular country.
o They declare the ‘nationality’ and ‘content’ of
What are Rules of Origin? the product and also serve as a declaration by
the exporter to satisfy customs or trade
• These are the criteria prescribed to determine the
requirements.
national origin of an imported product in a country.
• An exporter has to submit a CO at the landing port
• These are mainly used: of the importing country.
o to implement measures and instruments of
commercial policy such as anti-dumping duties and safeguard measures;
o to determine whether imported products shall receive most-favoured-nation (MFN) treatment or
preferential treatment;
o for the purpose of trade statistics;
o for the application of labelling and marking requirements; and
o for government procurement.
• Rules of Origin are primarily of two types:
o Non-preferential rules of origin: These apply in the absence of any trade preference, where certain trade
policy measures such as quotas, anti-dumping or “made in” labels may require a determination of origin.
o Preferential rules or origin: These apply in reciprocal trade preferences (i.e. regional trade agreements or
customs unions) or in non-reciprocal trade preferences (i.e. preferences in favour of developing countries
or least-developed countries (LDCs)).
World Trade Organization’s Agreement on Rules of Origin
✓ Each trade agreement has its • The agreement aims at long-term harmonization of non
own set of Rules of Origin that is preferential rules of origin and to ensure that such rules do not
agreed upon by involved nations, themselves create unnecessary obstacles to trade.
which includes guidelines for • It sets out a work programme for the harmonization of rules of
issuing a legitimate Certificate of origin, negotiations for which are still ongoing. For this process
Origin (CO). two institutions were established:
✓ Preferential rules of origin are o A Committee on Rules of Origin within the framework of the
more restrictive than non- WTO, open to all WTO Members.
preferential ones. o A Technical Committee on Rules of Origin, created under
the auspices of the World Customs Organization.
• Criteria commonly used to determine
• The agreement also provides general principles for prescribing
the country of origin of goods:
rules of origins, such as transparency, positive standards,
o Wholly obtained criterion: These administrative assessments, judicial review etc., which shall also
include goods produced or obtained apply to preferential rules of origin.
in a given country without
incorporation of any input material from other country.

o Substantial/sufficient transformation criterion: Under it goods are required to undergo substantial
transformation in a country for the good to be qualified as originating. Some methods used, in
combination or standalone, to meet this criteria are-
✓ Value Content Method: A good is considered substantially transformed when the value added of a
good in a country increases up to a specified level.
✓ Change in Tariff Classification (CTC) Method: A good is considered substantially transformed when
the good is classified in a heading or subheading different from all non originating materials used.
✓ Process Rule Method: A good is considered substantially transformed when the good has undergone
specified manufacturing or processing operations.
o De minimis or tolerance rule: It permits a specific share of the value or volume of the final product to be
non-originating without the final product loosing its originating status.
Significance of ROO
• Addressing trade distorting practices: Determination of product origin is essential to implement trade policy
measures in a country for purposes like-
o correcting “unfair trade” (e.g. imposition of anti-dumping or countervailing duties against imported
products causing material injury to domestic industry)
o protecting local industry (e.g. safeguard measures to protect against an unforeseen increase of imported
products causing serious injury to a specific domestic industry).
• Ensuring effectiveness of Trade Agreements: Stringent rules of origin can check the wrongful practice of
availing concessional customs duty by routing exports to India through preferential trade countries.
• Transparency in customs procedures: Rules of origin make it clear for the businesses in India and abroad to
know the exact procedures that would be adopted for custom clearance.
• Implementing environmental or sanitary measures: For e.g. preventing the import of contaminated foodstuff
or plants from a specific country or import of nuclear and hazardous material and their waste.
• Administering “buy national” policies: for adjusting balance of payment with specific countries.
• Ensuring national security or political policy: by controlling trade in strategic weapons or specific products to
which sanctions are applied.
About Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020 (CAROTAR, 2020)
• These rules will be applicable on import of goods into India where the importer makes claim of preferential
rate of duty in terms of a trade agreement (TA).
• CAROTAR, 2020 aims to supplement the operational certification procedures related to implementation of
the Rules of Origin, as prescribed under the respective TAs of India viz. Free Trade Agreement (FTA),
Preferential Trade Agreement (PTA), Comprehensive Economic Cooperation Agreement (CECA),
Comprehensive Economic Partnership Agreement (CEPA) etc.
• Key Provisions: Concerns related to Rules of Origin
o To claim preferential rate of duty under a • Effect on international trade flows: Rules of origins and
TA, the importer, at the time of filing bill of related procedures be used as instruments to reinforce
entry, has to- protectionist tendencies.
✓ make a declaration in the bill that the • Restrictive origin regulations can affect investment
imported products qualify as flows: since they might lead to excessive investments in
originating goods for preferential rate the territories of major importers to satisfy local content
of duty under that agreement. requirements to meet the origin criteria.
✓ produce certificate of origin (CO). • Increased administrative burdens: Strict regulations can
make it difficult for genuine importers to avail the
o The claim of preferential rate of duty may
benefits of trade agreements.
be denied by the proper officer without
• High cost of trade: Studies have revealed that origin
verification if the CO- certificates cost about 5% of the goods’ value.
✓ Is incomplete or • Lack of Uniformity: WTO’s General Agreement on Tariffs
✓ has any alteration not authenticated by and Trade (GATT) has no specific rules governing the
the issuing authority or determination of the country of origin of goods in
✓ has expired. international commerce. Each contracting party of a
o The importer also has to submit all relevant trade agreement is free to determine its own origin rules.
information related to country of origin
criteria, including the regional value content.

o An officer may, during the course of customs clearance or thereafter, request for verification of CO from
verification authority where there is a doubt regarding genuineness or authenticity of the certificate.
Conclusion
The rules of origin enable the preferential agreements to be correctly implemented, which promotes the
development of trade and encourages investment. Measures that can ensure their productive use include:
• Clearly defined terms and procedures, where any changes are published promptly
• Ensuring that they do not create restrictive, distorting or disruptive effects on international trade and do not
require the fulfilment of conditions not related to manufacturing or processing of the product in question
• Administering the rules in a consistent, uniform, impartial and reasonable manner
• Facilitating review of any administrative action in relation to the determination of origin by judicial, arbitral
or administrative tribunals.
• Non-disclosure of confidential information without the specific permission of the person providing such
information.
3.3. TRANSPARENT TAXATION – ‘HONOURING THE HONEST' PLATFORM

Why in News?
• Recently a platform – “Transparent Taxation — Honouring the Honest” was launched by Prime Minister to
strengthen the efforts of reforming and simplifying India's tax system.
About the platform
• It is aimed at easing the tax compliance and also rewarding honest taxpayers.
• Main features of Platform are Faceless Assessment, Faceless Appeal and Taxpayer Charter.
o Faceless assessment: To eliminate direct contact between Taxpayer and Income Tax officer.
✓ Under this system, the selection of a taxpayer will be done only through systems using data analytics
and AI.
o Faceless appeals: Appeals will be randomly allotted to any officer in the country and identity of the officer
deciding the appeal will remain unknown.
o Taxpayer charter: It outlines the rights and responsibilities of both tax officers and taxpayers. It is likely to
empower citizens by ensuring timely services by the IT Department.
• It aims to resolve the problems of a taxpayer instead of entangling him further and ensure that there is no
direct contact in all matters of scrutiny, notice,
Direct Tax
survey or assessment.
• It is the tax where the incidence and impact of
• The new platform apart from being faceless is also taxation fall on the same entity.
aimed at boosting the confidence of the taxpayer o In simple words, a direct tax is a tax that you
and decreasing the fear associated with the taxation directly pay to the authority imposing the tax.
process. • It is termed as a progressive tax because the
o It helps to maintain the privacy and proportion of tax liability rises as an individual or
confidentiality of income taxpayers. entity's income increases.
o It seeks to eliminate corrupt practices by doing • It is of various types such as income tax, corporate
away with the territorial jurisdiction of income- tax, dividend distribution tax, securities transaction
tax offices tax, fringe benefit tax and wealth tax.
• It is a shift towards rationalization, simplification, greater transparency, ease of managing tax issues and
creating an overall taxpayer-friendly ecosystem.
• Faceless Assessment and Taxpayers Charter have come into force from 13th August 2020 while the facility of
faceless appeal will be available for citizens across the country from 25th September.
Need for Direct Tax reforms
• Rationalization and simplification of Income Tax Structure: The rate structure has broadly remained the same
in the last 20 years. Further, there is a need for rationalization of exemptions and a rethink of incentives on
savings (such as small savings schemes like PPF).
• Simplify corporate tax rate structure and phase out exemptions: Exemptions are not equitable vertically
(small firms end up paying more taxes) and also there is a loss of revenue due to large number of exemptions.

• Widen tax base: It will help to deal with the problem of potential revenue loss due to lower tax rates and
simplified tax structure.
• Reducing tax litigations: Tendency of tax officials to initiate an action without the necessary justification or
assessment is reflected from low success rate of appeals (~30%). There is a need for providing alternate ways
of dispute resolutions.
• Need of Technology infusion in the tax administration to improve efficiency of tax collection as well as to aid
the taxpayer
• Better sync with global economy: Since India is much more integrated with the world globally in terms of
business linkages and capital account convertibility, the differential treatment of foreign and domestic
companies in the country should be gradually phased out.
Recent steps taken to improve direct tax ecosystem
• Personal Income Tax - Finance Act, 2020 has provided an option to individuals and co-operatives for paying income-tax
at concessional rates if they do not avail specified exemption and incentive.
• Abolition of Dividend Distribution Tax (DDT) - In order to increase the attractiveness of the Indian Equity Market and
to provide relief to a large class of investors companies are not required to pay DDT with effect from 01.04.2020.
• Vivad se Vishwas: To provide for resolution of pending tax disputes which will not only benefit the Government by
generating timely revenue but also the taxpayers as it will bring down mounting litigation costs.
• Faceless E-assessment Scheme – It provides for making assessment by eliminating the interface between the Assessing
Officer and the assessee, optimizing use of resources through functional specialization and introducing the team-based
assessment.
• Document Identification Number (DIN) - In order to bring efficiency and transparency in the functioning of the Income
Tax Department, every communication of the Department is mandatorily having a computer-generated unique DIN.
• Simplification of compliance norms for Start-ups - Start-ups have been provided hassle-free tax environment which
includes simplification of assessment procedure, exemptions from Angel-tax, constitution of dedicated start-up cell etc.
• Raising of monetary limit for filing of appeal - To effectively reduce taxpayer grievances/ litigation monetary thresholds
for filing appeals have been raised from Rs. 20 lakh to Rs. 50 lakh for appeal before Income Tax Appellate Tribunal,
from Rs. 50 lakh to Rs. 1 crore for appeal before the High Court and from Rs. 1 crore to Rs. 2 crore for appeal before the
Supreme Court.
India’s Tax penetration status

• 57.8 million Individuals filed the income tax return (~5% of the population) of which only 15 million (~1.15% of the
population) actually paid taxes.
• India’s Tax-to-GDP ratio stands at around 17% in FY 20 (direct tax is ~6% and indirect tax is ~11%) which still remains
below that of emerging economies (~21%) and much below OECD average (~34%).
o The ratio of central taxes to GDP slid to a 10-year low of 9.88 % (direct tax fell to its lowest in 14 years, at 5.1 per
cent, while the indirect tax was at a 5-year low at 4.6 per cent in FY20).
About Tax-to-GDP ratio
• It is a representation of the size of the government's(Centre +States) tax revenue expressed as a percentage of the
GDP.
• Ratio determines the extent to which government is able to finance its expenditure from tax collections, it is also an
indicator of tax compliance.
• Higher Tax-to-GDP ratio means that an economy's tax buoyancy is strong as the share of tax revenue rises in sync
with rise in country's GDP.
3.4. EXPORT PREPAREDNESS INDEX (EPI) 2020

Why in News?
Recently, NITI Aayog in partnership with the Institute of Competitiveness released the Export Preparedness Index
(EPI) report 2020.
About EPI 2020
• It is a data-driven effort to identify the core areas crucial for export promotion at the sub-national level.
• Primary goals of the Index are to inculcate competition among all states in India in order to:
o Bring favorable export promotion policies.
o Ease regulatory framework to prompt subnational promotion of exports.
o Create necessary infrastructure for exports.

o Help in identifying strategic recommendations for improving export competitiveness.
• It attempts to provide with an extensive framework for the continual assessment of export readiness of
Indian States and UTs and intends to serve the following purposes:
o Ranking of states and UTs based on their index score.
o Examining export preparedness and performance of Indian States.
o Identification of challenges and opportunities
o Enhancing effectiveness of government policies.
• Structure of the EPI includes 4
pillars and 11 sub-pillars (refer
infographic).
o Policy: A comprehensive trade
policy provides a strategic
direction for exports and
imports.
o Business Ecosystem: An
efficient business ecosystem
can help states attract
investments and create an
enabling infrastructure for
individuals to initiate start-ups.
o Export Ecosystem: aims to assess the business environment, which is specific to exports.
o Export Performance: It examines the export performance of states and UTs to identify focus areas and
track improvements.
Key Findings of the report
• On the whole, India has scored an average of 39 on the index. Both Policy and Business Ecosystem are the
two highest scoring pillars, with the Export Ecosystem being the least scoring pillar.
• Most of the Coastal States are the best performers. (States are classified geographically – coastal, landlocked,
Himalayan, and UTs/city states.)
o Top 3 states in overall ranking: Gujarat, Maharashtra, Tamil Nadu.
o Top 3 landlocked states: Rajasthan, Telangana and Haryana.
o Top 3 Himalayan states: Uttarakhand, Tripura and Himachal Pradesh.
o Top 3 UTs/City states: Delhi, Goa and Chandigarh.
India’s trends in Global Market
• India’s merchandise exports have witnessed growth from USD 275.9 billion in 2016–17 to USD 331.0 billion in
2018–19.
• India’s share in global trade is less than 2% (1.7% in 2018).
• As of present, 70% of India’s export has been dominated by five states – Maharashtra, Gujarat, Karnataka,
Tamil Nadu and Telangana.
• Key measures adopted by the government post-2016 for promotion of merchandise exports:
o A mid-term review of the Foreign Trade Policy 2015-20 was conducted in 2017 to assess the policy
interventions required to boost the export levels.
✓ For labour-intensive/MSME sectors,
incentive rates were revised by 2% and
also interest equalization at 3% (both pre
and postshipment) was introduced.
o A new Logistics Division was established in the
Department of Commerce to organize the
integrated development of the logistics sector.
o Trade Infrastructure for Export Scheme (TIES)
was launched in April 2017 to address the
existing export infrastructure gaps.

o Other sector-specific policies such as Agriculture Export Policy were rolled out to target export
contribution at a micro-level.
o Transport and Marketing Assistance scheme was also introduced for the export of specified agriculture
products to mitigate the disadvantage of the higher cost of transportation.
• Missed opportunities
o Weakened global trade during 2014-2016, severely affected the exporting capacities of some of the top
contributing nations such as China. This created opportunities for other nations to take over.
✓ China’s poor performance can be attributed to less import of raw materials from other developing
nations, inconsistent and unpredictable valuation of Yuan, falling global demands etc.
o China has also rapidly moved up the Global Value Chains (GVC) in the same period.
✓ GVCs break up the production process so different steps can be carried out in different countries.
o Bangladesh and Vietnam successfully managed to integrate the above GVCs, which were previously
dominated by China.
o India missed the opportunity, despite cheaper labour supply and emphasizing on core sectors to produce
large-scale exporting products, because of issues in product specialization.
The Index highlighted that India faces three fundamental challenges in export promotion:
• Intra- and inter-regional disparities in export infrastructure.
• Poor trade support and growth orientation among states.
• Poor R&D infrastructure to promote complex and unique exports.
Way Forward: Recommendations suggested by the report
• Convergence: Creation of Export Infrastructure is a capital-intensive process. By convergence with various
national infrastructure development plans and coordinating the joint development of export infrastructure,
Central government can reward states that have taken significant steps towards export promotion.
• Robust government–industry–academia linkages: Every state must actively create channels for such linkages
by facilitating and encouraging the capacity building of SMEs and establishment of general export councils.
• Creating state-level engagements for economic diplomacy: Under the newly christened ‘Economic Diplomacy
and States’ vertical of the Ministry of External Affairs, NITI Aayog should create capacity within states and build
frameworks to facilitate direct engagements with such transnational trade bodies.
• Focus on designs and standards to make products export-ready: Central and state governments will have to
coordinate and engage with design institutions within the country to create a national discourse on the
importance of designs and standards needed for exports.
• New use cases for products such as coconut coir, woven textiles, and bamboo, will have to be identified with
design thinking so that the vast export potential of the Indian micro-enterprises gets adequately harnessed.

3.5. AGRICULTURAL EXPORTS
Why in news?
Recently, the High-Level Expert Group (HLEG) on Agricultural Exports set up by the Fifteenth Finance Commission
had submitted its report to the Commission.
Terms of reference of the HLEG
• To assess export & import substitution opportunities for Indian agricultural products in the changing
international trade.
• To recommend strategies and measures to increase farm productivity and enable higher value addition.
• To identify the impediments for private sector investments along the agricultural value.
• To suggest appropriate performance-based incentives to the state governments for the period 2021-22 to
2025-26.
India’s status in Agricultural Export
• India is the second largest agriculture producer in the world and has the largest arable land of 156 million
hectares.
• In 2019, India exported USD 38.7 billion of agricultural goods, which is only 7% of Indian agriculture
production.
• India ranks 13th in the world in agriculture exports Significance of Agriculture Export
despite being leading producer of milk, bananas, • High growth potential: India’s agricultural
mangoes etc. export has the potential to grow from USD 40
o One key cause of the discrepancy between rank in billion to USD 70 billion in a few years.
production and exports is the large domestic • Job creation: Additional exports are likely to
demand of a population of 1.34 bn people. create an estimated 7-10 million jobs.
• From 2013 to 2018, growth has slowed down relative
• Enhancing farm income: A growth in agri
to the impressive growth of 2009 to 2011.
exports can lead to doubling of farm income,
o Exports dropped by 10% CAGR due to a drop in
expansion of diversified markets for Indian
global process and back to back drought in 2014,
agricultural commodities etc
2015 and 2016.
• Earns foreign exchange
• India exports 70% of its commodities and agricultural
product exports to nearby
Agri Export Policy 2018
geographies, including the Middle
• Implemented by the Department of Commerce under Ministry of
East, Africa and Asia Pacific, only
Commerce and Industry.
exporting 30% to Europe and the • It aims to double agricultural exports from US$ 30+ Billion (2018) to
Americas showing low agri market US$ 60+ Billion by 2022 and reach US$ 100 Billion in the next few years
diversification. thereafter.
• India has a 2018 Agri Export Policy • It tries to promote novel, indigenous, organic, ethnic, traditional and
which is framed with a focus on non-traditional Agri products exports.
agriculture export-oriented • It tries to provide an institutional mechanism for pursuing market
production, export promotion, access, tackling barriers and deal with sanitary and phytosanitary
better farmer realization and issues.
synchronization within policies and • It has both strategic and operational elements.
o Strategic elements include both general and commodity specific
programmes of Government.
measures, Infrastructure and logistics, Greater involvement of
Why there is a slowdown in Agri Export State Governments and multiple ministries in Agriculture Exports.
growth? o Operational elements include focusing on clusters, marketing and
promotion of “Brand India”, establishment of Strong Quality
• Low productivity: Indian farms are Regime, creation of Agri-start-up fund etc.
smaller (1-2 hectares on average), Agricultural and Processed Foods Export Development Authority (APEDA)
making it harder to achieve • It is an apex body responsible for the export promotion of agricultural
economies of scale. products established under the Agricultural and Processed Food
Products Export Development Authority Act, 1985.
• It works under Ministry of Commerce and Industry.

• Low mechanization: It is relatively low and Indian farmers do not utilise many high-yield input varieties used
in other agri-producing countries.
Changes in Global food and agriculture trends due to Covid 19
• High logistics costs: India's cost of logistics is
• Shift in consumer behaviour towards health and wellness is
currently around 14% of GDP – higher than
driving higher transparency (e.g., clean ingredients lists
developed country exporters like the US replacing artificial low-calorie ingredients, fresh produce and
(9.5%). organics)
• Limited value addition: India is a more • Increased global and local regulatory scrutiny driven by
prolific exporter of primary commodities political pressure (e.g., EU adopting new rules imposing
than of value-added agriculture products – harmonisation of quality and safety requirements for
th fertiliser).
the country ranks 10 globally in processed
th
meat, 18 in the export of processed fruits • COVID-19 crisis has increased the threat of global food
th
and vegetables and 35 in dairy. insecurity through a combination of job losses and food
o Reasons for low value addition include price volatility.
relative lack of private sector investment • Countries with heavy dependency on food imports look to
secure supplies through long-term contracts.
and adequate incentives.
• Import substitution in agriculture becomes more of a
• Decreasing incentives to agri exports: While priority as countries vie to become self-reliant.
India has invested heavily in a broad range of
export promotion schemes such as Agriculture Export Zones (AEZ), India’s export incentives have declined
over time.
• Non-tariff barriers (NTB): Indian agriculture exports also face non-tariff barriers stringent sanitary and
phytosanitary (SPS) standards, residue Limits for various pesticides, antibiotics, etc in attractive markets
such as Europe (e.g., more stringent shrimp inspections than for other top exporting countries).
o NTB refer to restrictions that result from prohibitions, conditions, or specific market requirements that
make importation or exportation of products difficult and/or costly.
o SPS measures are biosecurity measures which are applied to protect human, animal or plant life or health
risks arising from additives, toxins and contaminants in food and feed. These measures are governed by
the WTO Agreement.
• COVID 19: The pandemic has accentuated the global food and agriculture trends, which may result in decrease
of agricultural exports.
Recommendations of HLEG
• Crop value chains: Focus on 22 crop value chains with demand driven approach with a potential of taking
Indian exports from USD ~40 bn today to USD ~70 bn in a few years.
o HLEG also identified 7 “must-win” lighthouse value chains using parameters of competitiveness, export
potential, agricultural diversity etc. These are rice, shrimps, buffalo, spices and fruits and vegetables,
vegetable oils and wood.
• Target markets for export: Identify markets with high export potential for competitive value chains and sign
beneficial bilateral or multilateral trade agreements with them, raising sanitary and phytosanitary production
levels to meet their quality standards and negotiating with them to remove non-tariff barriers.
• Solve Value Chain Clusters (VCC) holistically with focus on value addition: The clusters would also serve to
converge the government’s spends and schemes, as well as seek any additional funding required, for building
the necessary infrastructure at competitive costs for value addition, promoting research and development
and promoting “Brand India” in global markets.
• Creating State-led Export Plan: It is a business plan for a crop value chain, that will lay out the opportunity,
initiatives and investment required to meet the desired value chain export aspiration.
• Centre as an enabler: Centre should play an active role in enabling the players involved in the agriculture
exports and encourage them for more production.
• Private investment: To make the proposed state-level plans viable, both the central and state governments
will need to incentivise private investors as well as provide viability gap funding, wherever necessary.
• Robust institutional mechanism to fund: Funding through the convergence of existing schemes, Finance
Commission allocation and private sector investment should be promoted.
• Long term contracts: Due to Covid 19 large food importers may seek to enter into long-term contracts with
exporters that can assure supply during crises also.
o India could position itself well to capitalise on these emerging opportunities.

3.6. AGRICULTURE INFRASTRUCTURE FUND (AIF)
Why in News?
Recently, Prime Minister launched a new Central Sector Scheme of a financing facility under Rs. 1 Lakh Crore
Agriculture Infrastructure Fund.
About AIF
• It is a Central Sector Scheme, under Ministry of Agriculture & Farmers Welfare, to provide medium - long term
debt financing facility through interest subvention and credit guarantee.
• Beneficiaries include farmers, Primary Agricultural Credit Societies (PACS), Farmer Producers Organizations
(FPOs), Agri-entrepreneurs, Startups, Central/State agency or Local Body sponsored Public-Private Partnership
Projects etc.
• Eligible projects include:
o Post Harvest Management Projects like: Supply chain services including e-marketing platforms,
Warehouses, Silos, Sorting &grading units, Cold chains, Logistics facilities etc.
o Building community farming assets like Organic inputs production, Infrastructure for smart and precision
agriculture, supply chain
About Agricultural Infrastructure
infrastructure for clusters of crops
• Agricultural infrastructure primarily includes wide range of public
including export clusters etc. services that facilitate production, procurement, processing,
• Under AIF, Rs. 1 Lakh Crore will be preservation and trade.
provided by banks and financial • It can be grouped under following broad-based categories:
institutions as loans with interest o Input based infrastructure: Seed, Fertilizer, Pesticides, Farm
subvention of 3% per annum on loans up equipment and machinery etc.
to Rs. 2 crore. o Resource based infrastructure: Water/irrigation, Farm
• The Scheme will be operational from power/energy
2020-21 to 2029-30. Disbursement in four o Physical infrastructure: Road connectivity, Transport,
storage, processing, preservation, etc.
years starting with sanction of Rs. 10,000
o Institutional infrastructure: Agricultural research, extension
crore in the first year and Rs. 30,000 crore
& education technology, information & communication
each in next three financial years. services, financial services, marketing, etc.
• Moratorium for repayment may vary
subject to minimum of 6 months and maximum of 2 years.
• AIF will be managed and monitored through an online Management Information System (MIS) platform.
• National, State and District Level Monitoring Other schemes that impact agricultural infrastructure
Committees will ensure real-time monitoring and • National Agriculture Market (eNAM): It is a pan-India
effective feedback about the implementation of electronic trading portal which networks the existing
scheme. APMC mandis to create a unified national market for
Need for a better agricultural Infrastructure agricultural commodities.
• Pradhan Mantri Krishi Sinchayee Yojana (PMKSY): It
• For ~58% of total population of India, agriculture has been formulated with the vision of extending the
and allied activities are the primary income coverage of irrigation 'Har Khet ko pani' and improving
source and adequate infrastructure raises farm water use efficiency 'More crop per drop.
productivity and lowers farming costs. • Integrated Scheme for Agricultural Marketing (ISAM):
• India has limited infrastructure connecting To promote creation of agricultural marketing
farmers to markets and hence, 15-20% of yield is infrastructure, creation of scientific storage capacity,
wasted which is relatively higher vs. other framing of grade standards and quality certification etc.
countries where it ranges between 5-15%. • Pradhan Mantri Gram Sadak Yojana (PMGSY): It linked
India’s hinterland to towns and cities speaks to the
• Value addition, packing, branding and good
multiplier effect that enabling infrastructure can have
marketing network also adds to the income of the on rural communities.
farmer. • Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY):
• Provide testing facilities to assess the quality of It aims to provide free electric connections to the
product thereby help in fixing better rates in the underprivileged. DDUGJY is crucial for its feeder
market. separation. It separated agricultural and non-
o It can help the farmers to assess the quantity agricultural power supply.
in a better manner to predict the outcome.

• Modernize the trading activities helping the farmers/traders to instantly decide and convey the decisions to
initiate the action as early as possible (Ex: e-trading and internet auctions).
Role played by the scheme
Stakeholder Intended benefits of Scheme
Farmers • Improved marketing infrastructure to allow farmers to sell directly to a larger base of consumers
(including and hence, increase value realization for the farmers.
FPOs, PACS, • Investments in logistics infrastructure will reduce post-harvest losses and number of intermediaries.
Cooperative • Community farming assets for improved productivity and optimization of inputs will result in
Societies) substantial savings to farmers.
Government • It will be able to direct priority sector lending in the currently unviable projects by supporting
through interest subvention, incentive and credit guarantee.
• Government will further be able to reduce national food wastage percentage thereby enable
agriculture sector to become competitive with current global levels.
• Central/State Government Agencies or local bodies will be able to structure viable PPP projects for
attracting investment in agriculture infrastructure.
Agri • With a dedicated source of funding, entrepreneurs will push for innovation in agriculture sector by
entrepreneurs leveraging new age technologies including IoT, AI, etc.
and startups • It will also connect the players in ecosystem and hence, improve avenues for collaboration between
entrepreneurs and farmers.
Banking • With Credit Guarantee, incentive and interest subvention, lending institutions will be able to lend
ecosystem with a lower risk.
• This scheme will help to enlarge their customer base and diversification of portfolio.
• Refinance facility will enable larger role for cooperative banks and RRBs.
Consumers • With reduced inefficiencies in post-harvest ecosystem, key benefit for consumers will be a larger
share of produce reaching the market and hence, better quality and prices.
3.7. AGRICULTURAL EDUCATION

Why in news?
The Prime Minister recently pitched for taking agricultural education to middle school level using reforms
proposed by National Education Policy (NEP), 2020.
What is Agricultural education?
• Agricultural education focuses on, but is not limited to, study in horticulture, forestry, conservation, natural
resources, agricultural products and processing, production of food and fiber, aquaculture and other
agricultural products, mechanics, sales and service, economics, marketing, and leadership development.
• It encompasses the study of applied sciences (e.g., biology, chemistry, physics), and business management
principles. One of the major purposes of agricultural education is to apply the knowledge and skills learned in
several different disciplines to agriculture.
• Current status in India: Formal agricultural education in India is mostly confined to higher educational
institutions. Currently, there are three central agricultural universities, around 65 State Agricultural
Universities (SAUs) and 4 Deemed-to be-Universities (DUs) in India which focus on imparting formal education
in the field of agriculture.
Significance of agricultural education in India
• Self-reliance of a village/rural economy: Streamlining the flow of knowledge about agriculture, its modern
farming techniques and marketing, to farmers will improve profitability of agriculture and promote agro-
entrepreneurship in the country.
o The growth of farmers and overall farm sector will lead to creation of jobs and supplement the efforts of
poverty alleviation at village level.
• Emerging food processing industry: Agriculture sector in India suffers from high post- harvest losses and
fragmented food processing industry and needs technical and skills based intervention in food processing
technologies, storage infrastructure, marketing etc. This can be facilitated through agricultural education.
• Promoting Sustainable agricultural practices: Technical education in the field of rainwater harvesting, micro
irrigation, organic farming, climate resilient agriculture, zero budget farming, accurate use of chemical

fertilizers etc. will enable farmers to minimize environmental damage, ensure food security in the future and
adapt and mitigate for climate change.
• Boosting agricultural exports in changing globalized scenario: Development of analytical and professional
skills and knowledge in areas such as Intellectual property Rights (IPRs), WTO’s Sanitary and Phytosanitary
Measures (SPS), techno-legal specialties etc. is a necessity in today’s time.
• Increased access to information: A robust agricultural education system can strengthen Farmers-
Researchers linkages through cooperation of the universities in streamlining the flow of knowledge and
expertise from campus to agriculture fields.
• Expanding agricultural research: India needs skilled students for research in technologies such as biosensors,
precision farming, genetic engineering, bio-fuels, nanotechnology, farm equipments etc.
• Transforming agricultural market and economy: There is need for agricultural graduates having knowledge,
skills and entrepreneurship to provide a class of economics and market-based services such as market
intelligence, avenues for development of corporate and contract farming etc.
Challenges to agricultural education
• Difficulty in attracting talented rural and urban youth: Low returns, poor quality of education and limited
career opportunities make agricultural education a less preferred choice amongst students.
• Shortage of competent faculty: There exists high number of vacancies, especially in disciplines like Agricultural
Economics, Agricultural Meteorology, Agricultural Statistics etc., in agricultural institutions with limited
opportunities for faculty to improve and update their knowledge.
• Issues in State institutions: Lack of significant efforts by states have led to deteriorating conditions in some
SAUs. Since agriculture is a state subject, central bodies such as the Indian Council of Agricultural Research
(ICAR) can play only a facilitating role.
• Inadequate funding support: Over the years, increase in the level of public finances of the states to the
agricultural universities has been far below their requirements in the context of contemporary needs of higher
agricultural education.
• Integrating Agricultural Education with job creation: Due to absence of a creditable system of assessment of
job profiles and skills needed in the sector, agricultural graduates in various streams often find difficulty in
accessing gainful employment.
• Outdated curriculum: Curriculums have not been changed keeping in view the advances in science and
technology in general and agriculture and allied sectors in particular, changing economic status, life styles,
food habits and demand for processed/value added foods.
• Lack of holistic education: Agricultural education in India concentrates mainly on primary agricultural
activities, such as crop production and management, etc and lack components relating to supply chain
management like processing, grading, packaging, transportation, marketing etc.
o There is also a need to shift from information-based syllabus to skill-based curriculum.
Way Forward
• Extending Non-formal education in rural regions to tap the agricultural potential of workforce.
o Basic agricultural subjects can also be introduced at pre-high school and higher secondary level with the
purpose of imparting firsthand knowledge on a particular agro-business or agricultural production self-
earning aspects.
• Updating course curriculum: Agricultural education needs to keep pace with the changing agricultural
scenario and developing technology and incorporate aspects of agro-business management and sustainable
practices.
• Training the academic staff and collaborating with other national or international centres of excellence can
give better exposure to the teachers.
• Providing students guidance and counseling: through training and placement cells to attract students in
agriculture and to prepare them for job markets.
• Effective accreditation system should be evolved for monitoring the quality of SAUs and they can be
incentivized to adopt the Model Act for Agricultural Universities in India (2009) developed by the ICAR
through performance-based grants.
• Release of fund through the ICAR Development Grant should be directly made available to the colleges with
a freedom to the Deans for better utilization of the fund in the areas of specific need.

• Public–private partnerships in education: Models of public-private partnerships must be evolved for
curriculum delivery and educational research which can encourage hands on training and experience in real
life situations.
Conclusion
Agriculture is the primary source of livelihood for 58 per cent of India’s population and the sector contributed
16.5 per cent to India’s Gross Value Added (GVA) in 2018-2019. Therefore, for a holistic development of the sector
and to achieve the goal of doubling farmers' income by 2022, it becomes imperative to expand the scope of
agricultural education in India.
Government Initiatives for Agriculture Education
• Attracting and Retaining Youth in Agriculture (ARYA): The scheme aims to attract and empower the Youth in Rural
Areas to take up various Agriculture, allied and service sector enterprises for sustainable income and gainful
employment through skill development.
• Dedicated Agriculture Education Portal: It was developed as a single window platform for providing vital education
information, e-learning resources etc. from Agricultural Universities across the country in an easy and fast way.
• Student READY (Rural Entrepreneurship Awareness Development Yojana) programme: It provides job based and
entrepreneurial training to students and consists of — Experiential learning (Business Mode); Hands on training (Skill
Development Mode); Rural Awareness Work Experience (RAWE); In Plant Training/ Industrial attachment; and students
projects.
• National Agricultural Higher Education Project (NAHEP): It is designed to strengthen the national agricultural education
system in India with an overall objective to provide more relevant and high-quality education to agricultural university
students.
• International collaborations: ICAR coordinates the India-Africa Forum Summit (IAFS), Indo-Afghan Fellowship Scheme
etc. to support the agricultural human resource development in India.

3. ECONOMY
3.1. AGRICULTURAL REFORMS
Why in news?
Recently, the Government of India passed three Acts with an aim to reform agriculture in India, namely- The
Farmers' Produce Trade and Commerce (Promotion and Facilitation) Act, 2020, The Farmers (Empowerment and
Protection) Agreement on Price Assurance and Farm Services Act, 2020 and The Essential Commodities
(Amendment) Act, 2020.
What was the need for these reforms?
• Unremunerative of farming: The infographic highlights the trends of increasing indebtedness, stagnation of
trade and migration patterns among others.
• Issues with APMCs: The
Standing Committee on
Agriculture (2018-19)
identified following issues:
o Most APMCs have a
limited number of
traders operating,
which leads to
cartelization and
reduces competition.
Traders, commission
agents, and other
functionaries organize
themselves into
associations, which do
not allow easy entry of
new persons into
market yards, stifling
competition.
o Undue deductions in
the form of
commission charges and market fees.
o The Acts are highly restrictive in promotion of multiple channels of marketing (such as more buyers,
private markets, direct sale to businesses and retail consumers, and online transactions) and competition
in the system.
• Other motivations:
o A High-Powered Committee of seven Chief Ministers recommended changes to the Essential
Commodities Act, 1955 (which provides for control of production, supply, and trade of essential
commodities) for attracting private investment in agricultural marketing and infrastructure.
Why is there opposition to these reforms?
The opposition to the Acts has been coming from farmers as well as traders. Apart from the issues and
apprehensions from the Acts (they are mentioned alongside the analysis of the Bills), there were other procedural
issues with the implementation of the Bill also-
• Violating the federal spirit of the Constitution: Various State Governments like Punjab and Haryana have
objected that since Agriculture is a State subject, the passage of national laws, on a state subject, undermines
India’s federal consensus.
• Interfering in state subjects is administratively unwise: The Constitution assigned jurisdiction over agriculture
markets to states due to the very localized nature of farm production. The first sale between the farmer and

the trader is linked with the production process. This is location specific and it is states who are best placed
to determine the contours of production and sale including, taxation, credit, building farmer producer
organizations and physical markets.
• Not inclusive of farm organizations: Various organizations have stated that no consultations were held with
major farm organizations.
• Limited discussion in Parliament: The opposition parties have been protesting the fact that very limited
discussion happened on the Act and all political parties were not approached as part of the deliberations.
Other recent initiatives reforms taken by the Government
KRITAGYA Hackathon
• With an aim to promote potential technology solutions for enhancing farm mechanization with special emphasis on
women-friendly equipment, the Indian Council of Agricultural Research (ICAR) has announced KRITAGYA (Krishi-Taknik-
Gyan) hackathon under the National Agricultural Higher Education Project (NAHEP).
o NAHEP aims to develop resources and mechanism for supporting infrastructure, faculty and student advancement,
and providing means for better governance and management of agricultural universities. The project is proposed
on 50:50 cost sharing basis between the World Bank and the Government of India, implemented at the Education
Division, ICAR, New Delhi.
• Students, faculties, and innovators or entrepreneurs from universities and technical institutions can apply and
participate in the event in the form of a group.
Centralized Farm Machinery Performance Testing Portal
• The portal was launched by the Minister for Agriculture and Farmers Welfare. It was developed by the Department of
Agriculture, Cooperation and Farmers Welfare to improve services of farm machinery testing institutions and create
transparency in the process of testing and evaluation of machines.
• It will facilitate manufacturers in applying, communicating and monitoring the progress of testing of their machines in
a seamless manner from any location.
3.1.1. THE FARMERS' PRODUCE TRADE AND COMMERCE (PROMOTION AND

FACILITATION) ACT, 2020
Key features of the Act
• Trade of farmers’ produce: The Act allows intra-state and inter-state trade of farmers’ produce outside: (i)
the physical premises of market yards run by market committees formed under the state APMC Acts and (ii)
other markets notified under the state APMC Acts.
• Electronic trading: It permits the electronic trading of scheduled farmers’ produce (agricultural produce
regulated under any state APMC Act) in the specified trade area. An electronic trading and transaction
platform may be set up to facilitate the direct and online buying and selling of such produce through electronic
devices and internet.
o The following entities may establish and operate such platforms: (i) companies, partnership firms, or
registered societies, having permanent account number under the Income Tax Act, 1961 or any other
document notified by the central government, and (ii) a farmer producer organization or agricultural
cooperative society.
• Market fee abolished: The Act prohibits state governments from levying any market fee, cess or levy on
farmers, traders, and electronic trading platforms for trade of farmers’ produce conducted in an ‘outside trade
area’.
Intended benefits of the Act
• Reduced role of intermediaries: The new legislation could create an ecosystem where the farmers and traders
will enjoy freedom of choice of sale and purchase of agri-produce. Thus, ending the monopoly exercised by
traders and other intermediaries resulting in full realization of the price.
o For example, a turmeric farmer now could sell her produce to BigBasket in Delhi, without any mandi tax
or trader commission, at a mutually agreed upon price.
• Integrated Market: Barrier-free inter-state and intra-state trade and commerce would enable farm surplus to
move freely from surplus to deficit regions. It will advance the idea of ‘one Nation, one Agri-market’.
o Currently, the agricultural markets are very fragmented. For instance, the monthly average price of rice in
2019 ranged from ₹2,042 per quintal in Agra (Uttar Pradesh) to ₹5,102 in Gangtok (Sikkim). The variation
is more pronounced in case of vegetables. (see inforgraphic)

• Encouraging APMC
reforms: Private markets
could put pressure on
APMC markets (the Act
does not repeal the
APMC laws) to infuse
more transparency and
efficiency in their
functioning. The State
governments have a
significant role in
reforming the APMC
system:
o depoliticize the
committees and make them more farmer friendly.
o to allow APMC markets to compete with private markets; the cess levied on market transactions can be
waived.
o privatizing mandis that are not viable.
Potential issues from the Act
• Sudden changes in market mechanisms may not bode well for the market. For instance, in 2006, Bihar
repealed its APMC Act with an objective to attract private investment in the sector and gave charge of the
markets to the concerned sub-divisional officers in that area. This resulted in:
o Erosion of the existing infrastructure over time due to poor upkeep.
o farmers facing issues such as high transaction charges and lack of information on prices and arrival of
produce.
• The Act creates an artificial distinction between “market areas” (regulated by the mandi system under state
governments) and “trade areas” (now under the central Acts), thus risking a problem of dual regulatory
market.
o Also, the new unregulated market space called the ‘trade area’ will have no oversight and the
government will have no information or intelligence about who the players are, who is transacting with
who for what quantities and at what prices.
• The newly created ‘trade areas’ would have a clear regulatory advantage over ‘market areas’ vis-à-vis the
mandi tax. This could potentially lead to a collapse of the APMC system and initiatives like e-NAM which are
riding on top of physical mandi structure in the country.
• The Act leaves a critical institutional space- how state-specific implementation investments, crucial for
running efficient markets, will be negotiated and managed, if APMC are bypassed.
• State Governments will lose mandi tax, which is a major source of revenue for States like Punjab and Haryana.
3.1.2. THE FARMERS (EMPOWERMENT AND PROTECTION) AGREEMENT ON PRICE

ASSURANCE AND FARM SERVICES ACT, 2020
• Farming agreement: The Act provides for a farming agreement between a farmer and a buyer prior to the
production or rearing of any farm produce.
o The minimum period of an agreement will be one crop season, or one production cycle of livestock. The
maximum period is 5 years, unless the production cycle is more than 5 years.
• Pricing of farming produce: The price of farming produce should be mentioned in the agreement. For prices
subjected to variation, a guaranteed price for the produce and a clear reference for any additional amount
above the guaranteed price must be specified in the agreement.
o Further, the process of price determination must also be mentioned in the agreement.
• Dispute Settlement: A farming agreement must provide for a conciliation board as well as a conciliation
process for settlement of disputes. The Board should have a fair and balanced representation of parties to
the agreement.

o At first, all disputes must be referred to the board for resolution. If the dispute remains unresolved by
the Board after thirty days, parties may approach the Sub-divisional Magistrate for resolution. Parties will
have a right to appeal to an Appellate Authority (presided by collector or additional collector) against
decisions of the Magistrate.
o Both the Magistrate and Appellate Authority will be required to dispose of a dispute within thirty days
from the receipt of application. The Magistrate or the Appellate Authority may impose certain penalties
on the party contravening the agreement. However, no action can be taken against the agricultural land
of farmer for recovery of any dues.
• Promote Contract Farming: Giving a legal framework to contract farming will ensure groups of growers and
entrepreneurs come together in a contractual relationship which will provide a ready market for growers for
their produce, and ready access to raw material for the entrepreneurs (sponsors).
o The Act empowers farmers to engage with processors, aggregators, wholesalers, large retailers, exporters
etc., on a level playing field without any fear of exploitation.
• Lower risk for farmers: It will transfer the risk of market unpredictability from the farmer to the sponsor.
Due to prior price determination, farmers will be shielded from the rise and fall of market prices.
• Improved inputs: It may provide farmer access to high quality seeds, better technology, fertilizers and
pesticides along with impetus to research and new technology in agriculture sector.
• Attracting investments: This Act will act as a catalyst to attract private sector investment for building supply
chains for supply of Indian farm produce to national and global markets, and in agricultural infrastructure.
• Reduced cost of marketing for farmers: Since, after signing contract, farmer will not have to seek out traders.
The purchasing consumer will pick up the produce directly from the farm.
• Dispute Resolution: The Act also provides for effective dispute resolution mechanism for clear timelines.
Potential Issues from the Act

• Farmers have expressed apprehension that once these Acts are passed, they would pave the way for
dismantling of the minimum support price (MSP) system and leave the farming community at the "mercy" of
big corporates.
o As a corollary, the farmers feel that the proposed legislations will suit big corporations more than farmers
who will subsequently dominate the market.
o However, the Government has clarified that these Acts would not have any impact on the Minimum
Support Price (MSP) mechanism which will continue.
• The Act, while offering protection to farmers against price exploitation, does not prescribe the mechanism
for price fixation or a methodology for regulatory oversight.
• According to the Act, companies are not required to have a written contract with the farmer, making it
difficult for farmers to prove terms.
o As a result, if a farmer gets into a dispute regarding her/his contract with a private company, it will be very
difficult for the farmer to have the dispute settled in her/his favor.
o Also, in case of disputes, the District Administration has been entrusted with the responsibility to resolve;
but it may not be well equipped to settle disputes.
3.1.3. THE ESSENTIAL COMMODITIES (AMENDMENT) ACT, 2020

• Regulation of food items: The Act provides that the central government may regulate the supply of certain
food items including cereals, pulses, potatoes, onions, edible oilseeds, and oils, only under extraordinary
circumstances. These include: (i) war, (ii) famine, (iii) extraordinary price rise and (iv) natural calamity of grave
nature.
o The Essential Commodities Act, 1955 empowered the central government to designate certain
commodities (such as food items, fertilizers, and petroleum products) as essential commodities. The
central government may regulate or prohibit the production, supply, distribution, trade, and commerce
of such essential commodities.

• Stock limit: The Act requires that imposition of any stock limit on agricultural produce must be based on price
rise. A stock limit may be imposed only if there is: (i) a 100% increase in retail price of horticultural produce;
and (ii) a 50% increase in the retail price of non-perishable agricultural food items.
o The increase in price will be calculated over the price prevailing immediately preceding 12 months, or the
average retail price of the last five years, whichever is lower.
• Ends harassment of Businessmen and traders: Governments had restrictions on hoarding on food
commodities and could seize any excess stocks maintained by the traders. This resulted in widespread
harassment of traders and rent-seeking behavior. Now with the new Act, inventories can be managed without
such interference.
• Helps reduce wastage as storage facilities improve: Despite India losing a third of the agri. produce post-
harvest, businesses found it difficult to devise solutions to decrease that loss, mainly due to the regulation.
• Likely to attract private investment in Cold Storage, warehouses and processing: These reforms may
accelerate growth in the sector through private sector investment in building infrastructure and supply chains
for farm produce.
• Will bring price stability and raise farm incomes: Exempting selected commodities from ECA will improve the
marketability of the crop for growers. Processors, exporters and traders will now be able to build inventory
without fear of penal action.
Potential Issues from the Act
• Some experts fear that the Act would effectively legalize hoarding, as licenses will no longer be required to
trade in these commodities.
o Such a situation can lead to anti-competitive behavior by particular buyers in the food chains.
• Complete deregulation of these commodities could lead to dangerous situation of food supply problems
during extraordinary circumstances as the Government will have no information on who the players are, and
the levels of stocks are not clear.
3.2. LABOUR CODES

Why in News?
Parliament has passed the three Labour Code bills – the Occupational Safety, Health and Working
Conditions Code, 2020; the Industrial Relations Code, 2020; and the Code on Social Security, 2020 in a major
boost to Labour reforms.
Background
• In 2019, the Ministry of Labour and Employment introduced four Bills to consolidate 29 central laws. These
Codes regulate: (i) Wages, (ii) Industrial Relations, (iii) Social Security, and (iv) Occupational Safety, Health and
Working Conditions.
• While the Code on Wages, 2019 has been passed by Parliament, Bills on the other three areas were referred
to the Standing Committee on Labour. The Standing Committee has submitted its report on all three Bills. The
government has replaced these Bills with new ones in September, 2020.
Labour Laws framework in India
• Labour is subject in the Concurrent List of the seventh schedule, thus allowing both the Centre and states to
legislate on labour related issues.
• Currently, there are 44 labour laws under the purview of Central Government and more than 100 under State
Governments, which deal with a host of labour issues.
3.2.1. CODE ON INDUSTRIAL RELATIONS, 2020

• It combines the features of three erstwhile laws:
o Trade Unions Act 1926,
o Industrial Employment (Standing Orders) Act, 1946
o Industrial Disputes Act, 1947

Major provisions under the code:
• Definition of worker: It defines a ‘worker’ as any person who work for hire or reward. It excludes persons
employed in a managerial or administrative capacity, or in a supervisory capacity with wages exceeding Rs
18,000.
• Standing Orders: All industrial establishment with 300 workers or more must prepare standing orders on the
matters relating to:
o classification of workers,
o manner of informing workers about work hours, holidays, paydays, and wage rates
o termination of employment, and
o grievance redressal mechanisms for workers. Lay-off refers to an employer’s inability
• Prior permission of the government for closure, lay-off and to continue giving employment to a
worker in the face of adverse business
retrenchment: It is required for an establishment having at least
conditions.
300 workers to seek prior permission of the government before
closure, lay-off, or retrenchment. Central government is Retrenchment refers to the termination
of service of a worker for any reason
empowered only to allow an increase in the threshold through
other than disciplinary action.
notification.
• Negotiating Union and Council
o Sole Negotiating Union: If there are more than one registered trade union of workers functioning in an
establishment, the trade union having more than 51% of the workers as members would be recognised as
the sole negotiating union.
o Negotiation Council: In case no trade union is eligible as sole negotiating union, then a negotiating council
will be formed consisting of representatives of unions that have at least 20% of the workers as members.
• Tribunals for settlement of disputes: for the settlement of industrial disputes. Each Industrial Tribunal will
consist of a Judicial member and an Administrative member.
o The code classifies any dispute in relation to discharge, dismissal, retrenchment, or otherwise termination
of the services of an individual worker to be an industrial dispute.
o In case of disputes relating to termination of individual worker, the worker may apply to the Industrial
Tribunal for adjudication of the dispute 45 days after the application for the conciliation of the dispute
was made.
• Fixed term employment: Fixed term employment refers to workers employed for a fixed duration based on
a contract signed between the worker and the employer. It may allow employers the flexibility to hire workers,
reduce the role of a middleman such as an agency or contractor, and also benefit the worker and help improve
the conditions of temporary workers in comparison with contract workers who may not be provided with such
benefits.
• Re-skilling fund: To re skill those workers who are fired from their jobs. Contributions for the fund will be
made from the employer of an industrial establishment amounting to fifteen days wages last drawn by the
worker immediately before the retrenchment along with the contribution from such other sources.
Key issues with the code
• May impact ability of workers to strike & employers to lock out workers:
o The code has expanded to cover all industrial establishments for the required notice period and other
conditions for a legal strike. A prior notice of 14 days is required before a strike or lock-out and prohibits
strikes and lock-outs under certain conditions.
o Earlier these provisions were applicable only for public utility services (railways, airlines, and
establishments that provide water, electricity, and telephone service) under the Industrial Disputes Act,
1947. The rationale for extending the provisions on notice to all establishments is unclear.
o The National Commission on Labour (2002) had justified the rationale of treating such industries
differently, considering their impact on the lives of a vast majority of people.
• Violation of the principle of separation of executive and judiciary:
o The code gives extensive power to government to modify or reject tribunal awards through executive
action and raises a question of conflict of interest.

o It states that the awards passed by a Tribunal will be enforceable on the expiry of 30 days. However, the
government can defer the enforcement of the award in certain circumstances on public grounds affecting
national economy or social justice.
▪ The Industrial Disputes Act, 1947 had similar provisions. In 2011, the Madras High Court struck down
these provisions on constitutional grounds.
• Impact on formation of trade unions: It is unclear as to what will happen in case there are multiple registered
trade unions which enjoy this support (of 10% of members) but no union has the required support of at least
20% workers to participate in the negotiating council.
• Provisions on fixed term employment
o Power to renew such contracts lies with the employer. This may result in job insecurity for the employee
and may deter him from raising issues about unfair work practices, such as extended work hours, or denial
of wages or leaves.
o Does not restrict the type of work in which fixed term workers may be hired. Therefore, they may be hired
for roles offered to permanent workmen.
▪ 2nd National Commission on Labour (2002) had recommended that no worker should be kept
continuously as a casual or temporary worker against a permanent job for more than two years.
▪ The Standing Committee on Labour also recommended the conditions under which, and areas where
fixed term employment may be utilised should be clearly specified.
• Certain terms not defined in the Code: it does not define the terms ‘manager’, ‘supervisor’, ‘contractor’ and
‘establishment’ leaving them open to wider interpretation.
3.2.2. CODE ON SOCIAL SECURITY, 2020

The Code replaces nine laws related to social security. These include the Employees’ Provident Fund Act, 1952,
the Maternity Benefit Act, 1961, and the Unorganised Workers’ Social Security Act, 2008 among others.
Major provisions of the code
• Applicability: The code is applicable to any establishment (subject to size-threshold as may be notified by the
central government).
• Social security fund: The code states that the central government will set up such a fund for unorganised
workers, gig workers and platform workers.
Gig workers refer to workers outside the traditional
Further, state governments will also set up and employer-employee relationship.
administer separate social security funds for
Platform workers are those who access organisations or
unorganised workers.
individuals through an online platform and provide
• Provisions for registration of all three categories of services or solve specific problems.
workers - unorganised workers, gig workers and
platform workers.
• National Social Security Board: for the purposes of welfare of above three categories of workers and
recommend and monitor schemes for them. The Board will comprise of (i) five representatives of aggregators,
nominated by the central government, (ii) five representatives of gig workers and platform workers,
nominated by the central government, (iii) Director General of the ESIC, and (iv) five representatives of state
governments.
• Contribution for Schemes: schemes for gig workers and platform workers may be funded through a
combination of contributions from the central government, state governments, and aggregators.
• Changes in definitions: These include expanding the definitions of (i) ‘employees’ to include workers
employed through contractors, (ii) “inter-state migrant workers” to include self-employed workers from
another state, (iii) “platform worker” to additional categories of services or activities as may be notified by the
government, (iv) audio-visual productions to include films, web-based serials, talk shows, reality shows and
sports shows
• Term of eligibility for gratuity for journalists: The code reduces the gratuity period from five years to three
years for working journalists.
• Offences and penalties: The code changes the penalties for certain offences. For example, the maximum
imprisonment for obstructing an inspector from performing his duty has been reduced from one year to six
months.

• Additional powers during an epidemic: The code adds new clauses which may become applicable in the cases
of an epidemic. For example, the central government may defer or reduce the employer’s or employee’s
contributions (under PF and ESI) for a period of up to three months in the case of a pandemic, endemic, or
national disaster.
Key issues with the code
• No Universal social security:
o Benefits, such as pension and medical insurance, continue to be mandatory only for establishments with
a minimum number of employees (such as 10 or 20 employees). All other categories of workers (i.e.,
unorganised workers), such as those working in establishments with less than 10 employees and self-
employed workers may be covered by discretionary schemes notified by the government. A large number
of workers may continue to be excluded.
▪ Periodic Labour Force Survey Report (2018-19) indicates that 70% of regular wage/salaried employees
in the non-agricultural sector did not have a written contract, and 52% did not have any social security
benefit.
o The code continues to treat employees The National Commission on Labour (2002) (NCL) had emphasised
the need for universal and comprehensive social security coverage
within the same establishment
to avoid deprivation of basic needs of workers
differently based on the amount of
wages earned. For instance, provident The Standing Committee on Labour (2020) had also made following
recommendations in this regard that includes: (i)expanding the
fund, pension and medical insurance
definition of “establishment” to include agricultural and own
benefits are only mandatory to account enterprises, (ii) expanding definitions of “employees” to
employees earning above a certain include Asha and Anganwadi workers, and “unorganised workers”
threshold (as may be notified by the to include agricultural workers and(iii) creating a separate fund for
government) in eligible establishments. inter-state migrant workers.
o The code continues to retain the
existing fragmented set up for the delivery of social security benefits. These include: (i) a Central Board
of Trustees to administer the EPF, EPS and EDLI Schemes and (ii) an Employees State Insurance Corporation
to administer the ESI Scheme.
• Provisions on gig workers and platforms workers are unclear : The code introduces definitions for different
categories of workers, however, there may be some overlap between their definitions. For example, a driver
working for an app-based taxi aggregator is a gig worker, a platform worker and an unorganised worker at the
same time due to his nature of job. With such overlap across definitions, it is unclear how schemes specific to
these categories of workers will apply.
o The Standing Committee on Labour recommended (i) expanding the definition of “unorganised workers”
to include gig and platform workers, (ii) making the definition of “gig worker” more specific to avoid
misinterpretation but it was not incorporated in the code.
• Mandatory linking with Aadhaar may violate Supreme Court judgement: The code mandates an employee
or a worker (including an unorganised worker) to provide his Aadhaar number to receive social security
benefits or to even avail services from a career centre. This may violate the Supreme Court’s Puttaswamy
judgement.
o In its judgement, the Court had ruled that the Aadhaar card/number may only be made mandatory for
expenditure on a subsidy, benefit or service incurred from the Consolidated Fund of India.
3.2.3. CODE ON OCCUPATIONAL SAFETY, HEALTH AND WORKING CONDITIONS,

2020
It consolidates 13 existing acts regulating health, safety and working conditions. These include the Factories Act,
1948, the Mines Act, 1952, and the Contract Labour (Regulation and Abolition) Act,1970.
Major provisions under the code:
• Threshold for coverage of establishments
o Factory: It defines a factory as any premises where manufacturing process is carried out and it employs
more than: (i) 20 workers, if the process is carried out using power, or (ii) 40 workers, if it is carried out
without using power.

o Establishments engaged in hazardous activity: It includes all establishments where any hazardous
activity is carried out regardless of the number of workers.
o Contract workers: Code will apply to establishments or contractors (including the offices of the central
and state governments) employing 50 or more workers (on any day in the last one year) and prohibits
contract labour in core activities (to be determined by the appropriate government). It also defines a list
of non-core activities comprising 11 works including: (i) sanitation workers, (ii) security services, and (iii)
any activity of intermittent nature.
• Work hours and employment conditions
o Daily work hour limit: fixes the maximum limit at eight hours per day.
o Employment of women: women will be entitled to be employed in all establishments for all types of
work. In case they are required to work in hazardous or dangerous operations, the government may
require the employer to provide adequate safeguards prior to their employment.
▪ Exemption: The code empowers the state government to exempt any new factory from the provisions of the
Code in order to create more economic activity and employment.
▪ Inter-state migrant workers
o Definition of inter-state migrant worker: any person who moves on his own to another state and obtains
employment there and is earning a maximum of Rs 18,000 per month, or such higher amount which the
central government may notify.
o Benefits for inter-state migrant workers: include: (i) option to avail the benefits of the public distribution
system either in the native state or the state of employment, (ii) availability of benefits under the building
and other construction cess fund in the state of employment, and (iii) insurance and provident fund
benefits available to other workers in the same establishment.
o The code removed the provision for Displacement allowance which was there in the 2019 bill to pay a
displacement allowance to inter-state migrant workers at the time of their recruitment, which was
equivalent to 50% of the monthly wages.
o Database for inter-state migrant workers: the central and state governments to maintain or record the
details of inter-state migrant workers in a portal and the migrant worker can register himself on the portal
on the basis of self-declaration and Aadhaar.
o Social Security Fund for the welfare of unorganised workers: The amount collected from certain
penalties under the Code will be credited to the Fund. The government may prescribe other sources as
well for transferring money to the Fund.
Key Issues with the code:
• Rationale for some special provisions unclear
o It contains general provisions which apply to all establishments. These include provisions on registration,
filing of returns, and duties of employers. However, it also includes additional provisions that apply to
specific type of workers such as those in factories and mines, or as audio-visual workers, journalists, sales
promotion employees, contract labour and construction workers.
o While special provisions for hazard-prone establishments such as factories and mines and categories of
vulnerable workers such as contract labour seems justified, the rationale for mandating special provisions
for other workers is not clear.
• Civil Court barred from hearing matters under the Code
o Under the existing 13 health and safety laws, claims which affect the rights of workers such as wages, work
hours, and leave, are heard by labour courts and industrial tribunals.
o However, the code bars the jurisdiction of civil courts. The only recourse available would be to directly file
a writ petition before the relevant High Court. It can be argued that the bar on civil courts may deny
aggrieved persons an opportunity to challenge certain issues before a lower court.
To know more on Labour Laws such as Role of labour laws in an economy, Evolution of labour laws in India and what can
be the way forward to improve the labour law scenario in India, refer to our Weekly Focus document – “Reform and
Codification of India’s Labour Laws”.

3.3. AMENDMENTS TO PUBLIC PROCUREMENT ORDER, 2017
Why in news?
Recently, Public Procurement (Preference to Make in India) Order, 2017 was amended to give more preference
to local suppliers.
Key highlights of the amended order
• Enables nodal Ministries/ Departments to notify higher minimum ‘local content’ requirement for Class-I &
Class-II local suppliers.
o Earlier, Class-I local suppliers were defined as those having local content equal to or more than 50%, Class-
II suppliers as having local content between 20 and 50%.
o Local content is defined as the total value of the item procured less the value of imported content in the
item as a proportion of the total value.
• Specifying foreign certifications/ unreasonable technical specifications/ brands/ models in the bid document
is considered restrictive and discriminatory practice against local suppliers.
o Foreign certification shall be stipulated only with the approval of Secretary of the Department concerned.
• Entities of countries which do not allow Indian companies to participate in their government procurement
for any item, shall not be allowed to participate in government procurement in India for all items related to
that nodal ministry or department, except for the list of items published by the ministry or department
permitting their participation.
• All administrative Ministries/ Departments whose procurement exceeds Rs. 1000 Crore per annum shall notify
their procurement projections for the next 5 years on their respective website.
• An upper threshold value of procurement beyond which foreign companies shall enter into a joint venture
with an Indian company to participate in government tenders shall be notified.
About Public Procurement (Preference to Make in India), Order 2017
• It was issued under General Financial Rules 2017 to promote domestic value addition in public procurement.
• Under this, as revised in June
2020, only Class-I and Class- Other measures for promotion of local supplies in public procurement
II local suppliers are eligible • Public Procurement Policy for Micro and Small Enterprises (MSEs) Order,
to bid in procurement of 2018.
all goods, services or works, o It was notified under Micro, Small and Medium Enterprises
and with estimated value of Development Act, 2006.
purchases less than Rs. 200 o Under this, every Central Ministry /Department / PSUs shall set an
crores. annual target for 25% procurement from MSE Sector.
o Global tender enquiry can o A sub-target of 4% and 3% out of 25% is earmarked MSEs owned by
be issued with the SC/ST and Women entrepreneurs respectively.
o 358 items are also reserved for exclusive purchase from MSE sector.
approval of the competent
• Government eMarketplace (GeM).
authority for purchases o GeM was launched in 2016 as an end-to-end e-portal for procuring
less than Rs. 200 crores. common-use goods and services by Central and State Government
• It is applicable on procurement Departments, PSUs, autonomous institutions and local bodies.
of goods, services and works o It aims to bring in transparency, promote ease of doing business,
(including turnkey works) by a simplify the process of procurement.
Central Ministry, Department, o The purchases through GeM by Government users have been made
attached, subordinate offices, mandatory by Ministry of Finance.
autonomous bodies controlled • Defence Acquisition Procedure (DPP) 2020
by the Government of India, o It proposes increasing the Indigenous Content (IC) stipulated in
various categories of procurement by about 10% to support the ‘Make
Government companies, their
in India’ initiative.
Joint Ventures and Special o It also proposes, New Category Buy (Global – Manufacture in
Purpose Vehicles. India) with minimum 50% IC on cost basis of total contract value.
• For the verification of the local
content, self-certification would be necessary. Nodal Ministries may also constitute committees with internal
and external members for independent verifications of the self-declarations.

• A committee in Department for Promotion of Industry and Internal Trade will oversee the implementation
of this order.
Issues faced by local suppliers
• Some departments and PSUs impose mandatory eligibility clauses, such as a minimum turnover limit and the
number of purchase orders previously executed for the procurement of materials.
• The time, cost and effort required for the tendering process, inadequate opportunities for buyer-seller
interactions, inadequate information, complex vendor registration processes acts as obstacles to domestic
suppliers.
• Many MSMEs complain that several traders have become vendors through GeM platform, which is hurting
the interests of genuine MSEs.
Suggestions
Public procurement from MSE has been growing 3-4% year-on-year. From 23.11% in 2017-18, the procurement
went up to 30.95% in 2019-20. Some suggestions to further improve this are:
• There needs to be a digitised, easily-accessible central database of MSE vendors across the country.
Authorities must also relax the qualification criteria of MSMEs vis-a-vis their large corporate counterparts to
level the playing field.
• The major procuring ministries must undertake measures for training MSE vendors as well as PSUs and their
procurement officers to inculcate greater knowledge of the sector and markets amongst them to encourage
better cooperation and efficiency.
• Semi-independent testing labs should be established in every state to ensure fair and quick testing of the
products.
• A feedback and grievance redressal portal, as well as an on-ground team, shall be set up.
3.4. BILATERAL NETTING

Why in news?
Recently Bilateral Netting of Qualified Financial Contracts Act, 2020 was enacted with an aim to ensure financial
stability and promote competitiveness in Indian financial markets.
About Bilateral Netting
• A bilateral netting agreement enables two
counterparties in a financial contract to offset claims
against each other to determine a single net payment
obligation due from one counterparty to the other.
o Netting refers to offsetting of all claims arising
from dealings between two parties, to determine
a net amount payable or receivable from one
party to other. (see infographic)
• Similarly, a multilateral netting agreement Important terms
allows counterparties to offset claims against • Derivatives: They are defined as the type of security in
each other through a Central Counterparty which the price of the security depends/is derived from the
(CCP) in a clearing house under the Payment price of the underlying asset. The common types of
and Settlement Systems (Amendment) Act derivatives include Options, Futures, Forwards, Warrants
(2015). and Swaps.
• Earlier, Indian financial contract laws did not • Over the Counter (OTC) derivatives: They are contracts
traded between two parties (bilateral negotiation) without
permit bilateral netting, however, they did
going through an exchange or any other intermediaries.
allow multi-lateral netting.
• Qualified financial contracts (QFC): QFC means any
• In India, Bilateral contracts constitute 40% of bilateral contract notified as a QFC between two qualified
total financial contracts, while multilateral financial market participants where at least one party is an
contracts constitute 60%. entity regulated by the relevant authority.

• Netting is very common in advanced economies where the settlement is based on net positions in bilateral
or multilateral financial arrangements rather than by gross positions.
o At present, major jurisdictions such as the U.S., U.K., Australia, Canada, Japan, France, Germany,
Singapore and Malaysia have legal provisions in place for netting agreements.
o Global regulatory bodies such as the Financial Stability Board (FSB) and the Basel Committee on Banking
Supervision have supported the use of such netting.
About Bilateral Netting of Qualified Financial Contracts Act, 2020
• It seeks to provide a legal framework for bilateral netting of qualified financial contracts (QFC) which are
over the counter derivatives (OTC) contracts.
• Act seeks to provide
o designation of any bilateral agreement or contract or transaction, or type of contract, as qualified
financial contract by the Central Government or any of the regulatory authorities namely:
▪ Reserve Bank of India (RBI),
▪ Securities and Exchange Board of India (SEBI),
▪ Insurance Regulatory and Development Authority of India (IRDAI),
▪ Pension Fund Regulatory and Development Authority (PFRDA)
▪ International Financial Services Centres Authority (IFSCA).
o determination of the net amount payable under the close-out netting in accordance with the terms of
the netting agreement.
o imposing of certain limitations on powers of administration practitioner.
Significance of this move
• Reduce credit risk and regulatory capital burden for banks, freeing up capital for other productive uses and
also reduce systemic risk during defaults.
o Without bilateral netting, Indian banks have had to set aside higher capital against their trades in the over-
the-counter (OTC) market, which impacts their ability to participate in the market.
o The capital saving would enable banks to provide price efficiency in offering hedging instruments to
businesses in India, and catalyse the corporate bond market through developing the credit default swap
(CDS) market.
• Reduce hedging costs and liquidity needs for banks, primary dealers and other market-makers, thereby
encouraging participation in the OTC derivatives market to hedge against risk.
o Increased market participation in the CDS market would also provide an impetus for corporate bond
market development.
• Establish an efficient recovery mechanism for financial contracts under instances of default by a counterparty.
• Adhere to India’s G20 and FSB commitment to implement global regulatory reforms in the OTC derivatives
market.
o A strong netting system generally gives rise to a thriving derivatives market, as it provides the most
accurate picture of a company’s financial position, solvency and liquidity risk.
3.5. COMPANIES (AMENDMENT) ACT, 2020

Why in News? About Companies Act 2013
Recently, Companies (Amendment) Act, 2020 • This law regulates incorporation of a company, responsibilities
was. of a company, directors, dissolution of a company.
• It also introduced mandatory Corporate social responsibility
Background (CSR) contributions for large companies.
• National Financial Reporting Authority (NFRA) and National
• The Companies (Amendment) Act, 2020
Company Law Tribunal (NCLT) is established under this act.
has been based on the Company Law
Committee (CLC) which was set up under the Chairmanship of Shri Injeti Srinivas in September, 2019.
• The CLC was constituted with a view to decriminalize offences and provide ease of doing business as part of
the government Covid-19 relief package to the corporates and other stakeholders.

Key amendments made
• Decriminalising offenses: Amendment removes the penalty, imprisonment for 9 offenses which relate to non-
compliance with orders of the national company law tribunal (NCLT), and reduces the amount of fine payable
in certain cases.
o However, there will be no relaxation for serious offences, including fraud and those that cause "injury to
public interest or deceit"
o Also under the Act, one-person companies or small companies are only liable to pay up to 50% of the
penalty for certain offences.
▪ Amendment extends this provision to all producer companies and start-up companies.
• Exclusion from listed companies: Amendment empowers the Centre in consultation with the SEBI, to exclude
companies issuing specified classes of securities from the definition of a “listed company”.
• Producer companies: Under the 2013 Act, certain provisions from the Companies Act, 1956 continue to apply
to producer companies. These include provisions on their membership, conduct of meetings, and
maintenance of accounts.
o Amendment removes these provisions and adds a new chapter in the Act with similar provisions on
producer companies which will particularly benefit to Farmers Producer companies.
o Producer companies include companies which are engaged in the production, marketing and sale of
agricultural produce, and sale of produce from cottage industries.
• Corporate Social Responsibility (CSR): Under 2013 Act, companies with net worth, turnover or profits above
a specified amount are required to constitute CSR Committees and spend 2% of their average net profits in
the last three financial years, towards its CSR policy.
o Now, Amendment exempts companies with a CSR liability of up to Rs 50 lakh a year from setting up CSR
Committees. Also, eligible companies under CSR provision will be allowed to set off any amount spent in
excess of their CSR spending obligation in a particular financial year towards such obligation in subsequent
financial years.
• Benches of NCLAT: Amendment seeks to establish benches of the National Company Law Appellate Tribunal
in New Delhi.
• Remuneration to non-executive directors: Amendment extends special provisions for payment of
remuneration to non-executive directors, including independent directors if the company has inadequate or
no profits in a year.
Related News
Insolvency and Bankruptcy Code (Second Amendment) Act, 2020
• Recently Insolvency and Bankruptcy Code (Second Amendment) Act, 2020 was also enacted as an step to improve
ease of doing business.
• It amends the Insolvency and Bankruptcy Code, 2016 which provides a time bound process for resolving insolvency in
companies and also among individuals.
• The legislation seeks to temporarily suspend initiation of the corporate insolvency resolution process (CIRP) under the
Code.
o It provides that for defaults arising during the six months from 25th of March this year, CIRP can never be initiated
by either the company or its creditors.
o Central government may extend this period to one year through notification.
o Insolvency is a situation where individuals or companies are unable to repay their outstanding debt.
• It replaces the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 promulgated in June this year.
• Amendments were brought due to the Covid-19 situation to give the immunity to the business from insolvency
proceedings in this critical situation.
Factoring Regulation (Amendment) Bill, 2020
• Recently, The Factoring Regulation (Amendment) Bill, 2020 was passed in Lok Sabha.
• Bill seeks to amend the Factoring Regulation Act, 2011 to widen the scope of entities which can engage in factoring
business.
• Bill seeks to help micro, small and medium enterprises by providing additional avenues for getting credit facility,
especially through Trade Receivables Discounting System.
• 2011 Act was enacted to provide for regulating the assignment of receivables to factors, registration of factors
carrying on factoring business and the rights and obligations of parties to the contract for assignment of receivables.
o Factoring business is a business where an entity (referred as factor) acquires the receivables of another entity
(referred as assignor) for an amount.

o Receivables is the total amount that is owed or yet to be paid by the customers (referred as the debtors) to the
assignor for the use of any goods, services or facility.
o Factor can be a bank, a registered non-banking financial company or any company registered under the Companies
Act.
3.6. BUSINESS REFORM ACTION PLAN- EASE OF DOING BUSINESS

RANKING
Why in News?
Recently, Department of
Industrial Promotion and
Internal Trade (DPIIT) in
collaboration with World
Bank, released 4th edition
of Business Reform Action
Plan (BRAP) ranking of states.
About BRAP
• DPIIT has developed BRAP
for State Reforms since
2015 and circulated it with
States/UTs for implementation. It is designed keeping in mind 2
factors viz. Measurability and Comparability across States.
• Under BRAP, DPIIT provides a set of recommendations meant to
reduce the time and effort spent by businesses on compliance with
regulation.
o It also recommends all states have a single-window system that
provides all necessary information on permits and licenses
required for starting a business.
o DPIIT recommends that the duration of licenses be extended or
that they be renewed automatically based on self-certification or
third-party verification.
o A state is also rewarded if a set of regulations (like labour or
environment laws) are not applicable to it.
• BRAP aims to achieve the larger objective of attracting investments and increasing Ease of Doing Business
(EoDB) in each State by introducing an element of healthy competition through a system of ranking.
o State rankings will help attract investments, foster healthy competition and increase EODB in each State
BRAP Report 2018-19
• It includes 180 reform points covering 12 business regulatory areas such as Access to Information, Single
Window System, Labour, Environment, etc.
o For the first time since its inception in 2015, the BRAP rankings relied entirely on the feedback it received
from the businesses for whom these reforms were intended.
• States are required to submit proof of implementing each reform on the DPIIT’s EoDB portal and submit a list
of users of these reforms.
• Ranking categorises states as: Top Achievers (Above 95% compliance); Achievers (90 - 95%); Fast Movers (80
- 90%); Aspirers (Below 80%).
o Uttar Pradesh from North India, Andhra Pradesh from South India, West Bengal from East India, Madhya
Pradesh from West India and Assam from North East India topped the ranking. Among Union Territories,
Delhi bagged top spot.

3.7. RESTRUCTURING OF LOANS
Why in News?
Recently, Reserve Bank of India (RBI) appointed K V Kamath committee submitted its report on resolution
framework for bank loans which were stressed on account of the COVID-19 pandemic.
More about News
• Earlier, RBI announced “Resolution Framework for COVID-19 related Stress” as a one-time restructuring
scheme for lenders.
• It will allow lenders to change repayment terms for their borrowers. Lenders will be able to consider
borrower’s account as standard and will not have to tag them as defaulters or their account as a non-
performing loan.
o The accounts turn non-performing assets (NPAs) after 90 days of overdue in making payments.
The accounts are classified as standard before this 90-day period.
• Kamath committee was set up to make recommendations on the required financial parameters to be
factored in the resolution plans, along with sector specific benchmark ranges for such parameters.
About Loan restructuring
• It is a process used by companies and individuals facing financial distress or on the brink of insolvency to
lower and renegotiate their debts and restore liquidity so that companies can continue their business.
• Basically, loans are restructured to avoid the risk of default on existing debt. The restructuring enables
borrowers to reschedule their loan payment, get a limited loan repayment holiday, or lower interest rates on
their existing loans.
Key Findings/Suggestions made by the Committee
• It recognizes that COVID-19 pandemic has affected the best of companies, these businesses were otherwise
viable under pre-COVID-19 scenario, its impact is pervasive across several sectors but with varying severity –
mild, moderate and severe.
o A segmented approach of bucketing these accounts under mild, moderate and severe stress, may ensure
quick turnaround.
• About 70% of banking sector loans have been impacted due to the COVID-19 pandemic, adding that about
45% were stressed even before the pandemic, and only 30% is impacted due to COVID-19 and the consequent
lockdown.
• The Committee identified financial ratios related to solvency, liquidity, and coverage for assessment of
resolution plans.
o Solvency ratios (such as total debt to earnings before interest, depreciation and tax ratio) denote the
ability of a company to meet long-term financial obligations.
o Liquidity ratio or current ratio denotes the ability to meet short-term obligations.
o Coverage ratio (such as debt service coverage ratio) denotes the extent to which cash flow can cover debt
payments (in a given time period).
• Based on the outstanding and the severity impact, the Committee selected 26 sectors including power,
construction, NBFCs and real estate, for the purpose of recommending financial parameters to be factored in
the Resolution plan.
3.8. REVISED PRIORITY SECTOR LENDING (PSL) GUIDELINES

Why in news?
The Reserve Bank of India (RBI) revised priority sector lending (PSL) guidelines to include entrepreneurship and
renewable resources, in line with emerging national priorities.
What is Priority Sector Lending (PSL) and how it works?
The concept of ‘Priority sector lending’ focuses on the idea of increasing the lending of the banks towards few
specified sectors and activities in the economy. The banks are mandated to encourage the growth of such sectors
with adequate and timely credit.

Following are the key features of PSL methodology: Priority Sector includes the following categories:
• The rate of interest on bank loans is as per directives (i) Agriculture
issued by the Department of Banking Regulation of RBI, (ii) Micro, Small and Medium Enterprises
(iii) Export Credit
from time to time. Priority sector guidelines do not lay
(iv) Education
down any preferential rate of interest for priority sector
(v) Housing
loans. (vi) Social Infrastructure
• The provisions of PSL apply to every Commercial Bank (vii) Renewable Energy
[including Regional Rural Bank (RRB), Small Finance Bank (viii) Others
(SFB), Local Area Bank] and Primary (Urban) Co-operative
Bank (UCB) other than Salary Earners’ Bank licensed to operate in India by the Reserve Bank of India.
o All scheduled commercial banks and foreign banks (with a sizable presence in India) are mandated to set
aside 40% of their Adjusted Net Bank Credit (ANDC) for lending to these sectors.
o Regional rural banks, co-operative banks and small finance banks have to allocate 75% of ANDC to PSL.
✓ Total PSL target for urban cooperative banks will also be increased from present 40% of their adjusted
net bank credit (ANBC) to 75% by 31 March 2024.
• To ensure continuous flow of credit to priority sector, the compliance of banks is monitored on ‘quarterly’
basis.
• Shortfall on PSL targets:
o Banks having any shortfall in lending to priority sector are allocated amounts for contribution to the Rural
Infrastructure Development Fund (RIDF) established with NABARD and other funds with
NABARD/NHB/SIDBI/ MUDRA Ltd., as decided by the Reserve Bank from time to time.
o Non-achievement of priority sector targets and sub-targets is also taken into account while granting
regulatory clearances/approvals for various purposes.
Priority Sector Lending Certificates (PLSCs)
• Under the PSLC mechanism, the seller sells fulfilment of priority sector obligation and the buyer buys the obligation
with no transfer of risk or loan assets.
• This enables banks to achieve the priority sector lending target and sub-targets by purchase of these instruments in
the event of shortfall.
• This also incentivizes surplus banks as it allows them to sell their excess achievement over targets thereby enhancing
lending to the categories under priority sector.
What has been changed in the revised PSL guidelines?
For this review, RBI considered the recommendations made by the UK Sinha-led expert committee on Micro,
Small and Medium Enterprises and the MK Jain led Internal Working Group to Review Agriculture Credit apart
from discussions with all stakeholders. Some of the salient features of revised PSL guidelines are:
• Fresh categories included in the PSL category:
o bank finance of up to ₹50 crore to start-ups.
o loans to farmers both for installation of solar power plants for solarisation of grid-connected agriculture
pumps.
o for setting up compressed biogas (CBG) plants.
• Higher weightage has been assigned to incremental priority sector credit in ‘identified districts’ where priority
sector credit flow is comparatively low.
o Accordingly, from FY 2021-22, a higher weight (125%) would be assigned to the incremental priority sector
credit in the identified districts where the credit flow is comparatively lower and a lower weight (90%)
would be assigned for incremental priority sector credit in the identified districts where the credit flow is
comparatively higher.
• The targets prescribed for ‘small and marginal farmers’ and ‘weaker sections’ are being increased in a phased
manner.
• Higher credit limit has been specified for farmer producer organisations (FPOs)/farmers producers
companies (FPCs) undertaking farming with assured marketing of their produce at a pre-determined price.
• Loan limits for renewable energy have been doubled.
• For improvement of health infrastructure, credit limit for health infrastructure (including those under
‘Ayushman Bharat’) has been doubled.

What are potential benefits from this revision?
• Provide support to farmers: Provisions like support for installation of solar power plants and support to small
and marginal farmers provide the requisite financial support farmers, thus encouraging the agricultural
sector.
o Also, higher credit limit to FPOs/FPCs would encourage development of such institutions.
• Address regional disparities: New guidelines have the potential to address the regional disparities in the flow
of priority sector credit via the new ‘identified districts’ methodology.
• Create environmentally friendly lending policies: Encouragement to sectors like renewable energy and
development of Biogas Plants also aim to encourage and support environment friendly lending policies to help
achieve Sustainable Development Goals (SDGs).
• Health Infrastructure: The revision in PSL guidelines will incentivise credit flow towards health infrastructure
thus providing increased financial space to developing agencies in COVID and post-COVID financial scenario.
3.9. BANKING REGULATION (AMENDMENT) BILL, 2020

Why in News?
Recently, parliament passed the Banking Regulation (Amendment) Bill 2020 that seeks to protect depositors of
cooperative banks and empower the Reserve Bank of India (RBI) to regulate banking activities of cooperative
societies.
More in News
• Bill comes in the backdrop of the Punjab & Maharashtra Co-operative Bank Scam and seeks to strengthen
cooperative banks by increasing their professionalism, enabling access to capital, improving governance and
ensuring sound banking through the RBI.
o As of March 2019, as many as 277 Urban cooperative banks are reporting losses; 105 UCBs are unable to
meet minimum regulatory capital requirements; 47 are having negative net worth and 328 UCB having
more than 15% Gross NPA ratio.
• Bill will replace the Banking Regulation (Amendment) Ordinance, 2020.
o In June, the union cabinet approved the ordinance to bring 1,482 urban and 58 multi-state cooperative
banks under the supervision of the RBI.
o The Ordinance sought to amend the Banking Regulation Act, 1949 (Act), which regulates the functioning
of banks and provides details on various aspects such as licensing, management, and operations of banks.
Key Feature of the bill
• Issuance of shares and securities by cooperative banks: Cooperative bank may issue equity shares,
preference shares, or special shares on face value or at a premium to its members or to any other person
residing within its area of operation. Further, it may issue unsecured debentures or bonds or similar securities
with maturity of ten or more years to such persons.
o Such issuance will be subject to the prior approval of the Reserve Bank of India (RBI), and any other
conditions as may be specified by RBI.
• Power to exempt cooperative banks: RBI may exempt a cooperative bank or a class of cooperative banks from
certain provisions of the Act through notification. These provisions are related to employment, the
qualification of the board of directors and, the appointment of a chairman.
• Supersession of Board of Directors: RBI may supersede the Board of Directors of a multi-state cooperative
bank for up to five years under certain conditions. These conditions include cases where it is in the public
interest for RBI to supersede the Board, and to protect depositors.
o In case of a co-operative bank registered with the Registrar of Co-operative Societies of a state, the RBI
will supersede the Board of Directors after consultation with the concerned state government, and within
such period as specified by it.
• Bill allows the central bank to initiate a scheme for reconstruction or amalgamation of a bank without placing
it under moratorium.
o If the central bank imposes moratorium on a bank, the lender cannot grant any loans or make investments
in any credit instruments during the moratorium tenure.

• Exclusions: The Act does not apply to
About Cooperative Banks
certain cooperative societies. These are:
• Co-operative banks are financial entities established on a
o primary agricultural credit societies
co-operative basis and belonging to their members. This
(PACS), means that the customers of a co-operative bank are also its
o cooperative land mortgage banks, and owners.
o any other cooperative societies (except • Broadly, co-operative banks in India are divided into two
those specified in the Act). categories - urban and rural.
o Rural cooperative credit institutions could either be
Significance of the bill
short-term or long-term in nature.
• Address management issue: By bringing co- ▪ short-term cooperative credit institutions are
operative banks under the regulatory further sub-divided into State Co-operative Banks,
framework of RBI, it will address issues District Central Co-operative Banks, Primary
concerning poor management of Agricultural Credit Societies.
▪ Long-term institutions are either State Cooperative
cooperatives.
Agriculture and Rural Development Banks
• Increase capital Base: The provision to allow (SCARDBs) or Primary Cooperative Agriculture and
cooperative banks to raise capital through Rural Development Banks (PCARDBs).
securities will help increase capital base for o Urban Co-operative Banks (UCBs) are either scheduled
cooperative banks. or non-scheduled. Scheduled and non-scheduled UCBs
• Boost public confidence in cooperatives: By are again of two kinds- multi-state and those operating
allowing RBI to prepare a reconstruction in single state.
scheme without having to first make an • Urban Cooperative Banks (UCBs) are registered as
order of moratorium on barring deposit cooperative societies under the provisions of, either the
State Cooperative Societies Act of the State concerned or
withdrawals would reduce disruption in the
the Multi State Cooperative Societies Act, 2002.
financial system and increase confidence in
• Regulation of UCBs is split between RBI and centre/state-
the banking system among the public. governments, while that of smaller co-operative banks is
o At present, when the RBI finds divided between National Bank for Agriculture and Rural
something wrong in a bank, it has to Development (NABARD) and state governments.
impose a moratorium and appoint an • Registration and management related activities are
administrator. governed by the Registrar of Cooperative Societies (RCS) in
case of UCBs operating in single State and Central RCS (CRCS)
Challenges that still persist for UCBs in case of multi-State UCBs.
• Small rural cooperative bank: Bill excludes
Small rural cooperative bank, though the problem of misgovernance and frauds are more in smaller co-
operative banks since these entities are largely run by local politicians. Often, these banks don’t follow
processes and engage in dubious transactions.
• Dual regulation: In the past, the biggest issue faced by the co-operative banking sector was the issue of dual
regulation. Bill only strengthen supervisory power of RBI, but doesn’t address the issue of dual regulation
holistically.
• Structural issues: Most UCBs are single branch banks and have the problem of correlated asset risk. This means
the entire bank can come down if there is a local problem of significant scale.
• Operational issues: UCBs face stiff competition from other financial institutions such as small finance banks,
payment banks, NBFCs and so on. As a result, they offer unreasonably high interest rates to depositors.
• Poor Salary & Wage Structure: Highly professional staff is not eager to work in the UCBs due to their poor
Wage Structure. This blocks the development of professional attitude and approach among them.
• Debt Waiver Schemes: Because of the various Debt Waiver & Relief Schemes by Central & State Governments,
UCBs continue to face recovery problems, in the belief that fresh package/incentive would be provided to
them, which ultimately increases its NPA.
Way Forward
• Budgetary Support: Government can provide budgetary support for weak and sick UCBs.
• Salary of Staff: The Government can fix Salary & Wages of Urban Banks staff at par with State Government
salaries. This will boost the morale and efficiency of the working staff and they will give better service to the
banks’ customers.

• Single Regulator: single control of RBI would bring qualitative improvement in the working of UCBs.
• Exchange of Information & Experience: There is need for an exchange of information and experience between
the various UCBs working in the area, and the promotion and creation of co-operative and banking related
projects in a co-ordinated manner.
• Separate Laws for UCBs: The Government should frame separate laws for UCBs which will help them to
recover loans and advances from the borrowers without any scope for wilful defaulters.
3.10. INNOVATION ECOSYSTEM: WHAT, WHY AND HOW?

Why in News?
Recently, India’s rank improved in the Global Innovation Index (GII) by four places to 48th place in 2020 from 52nd
position last year.
About GII
• It has been developed by the World Intellectual Property Organization (WIPO) together with top business
universities like Cornell University, INSEAD etc.
• It measures the innovative capacity and outputs of 131 economies, using 80 indicators ranging from standard
measurements such as research and development investments and patent and trademark filings, to mobile-
phone app creation and high-tech net exports.
Key Findings of the document
• COVID-19 crisis will impact innovation, leaders need to act as they move from containment to recovery.
o The pharmaceuticals and biotechnology sector are likely to experience R&D growth. Other key sectors,
such as transport, will have to adapt faster as the quest for clean energy is receiving renewed interest.
• The financial system is sound so far but money to fund innovative ventures is drying up. Venture Capital deals
are in sharp decline across North America, Asia, and Europe.
• Geography of innovation is continuing to shift, as evidenced by the GII rankings. Over the years, China,
Vietnam, India, and the Philippines are the economies with the most significant progress in their GII
innovation ranking over time. All four are now in the top 50.
• Despite some innovation catch-up, regional divides exist with respect to national innovation performance:
Northern America and Europe lead, followed by South East Asia, East Asia and Oceania, and more distantly by
Northern Africa and Western Asia, Latin America and the Caribbean, Central and Southern Asia, and Sub-
Saharan Africa, respectively.
• For the first time, the GII 2020 presents the top 100 clusters ranked by their S&T intensity—that is, the sum
of their patent and scientific publication shares divided by population.
o The top 100 clusters are located in 26 economies, of which 6— Brazil, China, India, Iran, Turkey, and the
Russian Federation— are in middle-income economies. The U.S. continues to host the largest number of
clusters (25), followed by China (17), Germany (10), and Japan (5).
What is an Innovation Ecosystem?
• An innovation ecosystem refers to a loosely interconnected network of companies and other entities that co-
evolve capabilities around a shared set of technologies, knowledge, or skills, and work cooperatively and
competitively to develop new products and services.
o It is made up of different actors, relationships and resources who all play a role in taking a great idea to
transformative impact at scale.
o The effectiveness of each part is moderated by other parts of the system (e.g. entrepreneurs depend on
being able to access financing).
o A change to one part leads to changes in other parts of the innovation ecosystem (e.g. an increase in
internet connectivity will accelerate the design and testing of new technologies).
• The three defining characteristics of an innovation ecosystem are the dependencies established among the
members, a common set of goals and objectives and a shared set of knowledge and skills.
Why innovation ecosystems are important?
• Innovation ecosystems create an active flow of information and resources for ideas to transform into reality.
It can develop and launch solutions to solve real-world problems, faster.

• Technological innovation is considered as a major source of
economic growth. It increases productivity and generate
greater output with the same input.
• Countries depend on innovation as new digital technologies
and innovative solutions create huge opportunities to fight
sickness, poverty and hunger.
• An effective innovation ecosystem enables entrepreneurs,
companies, universities, research organisations, investors
and government agencies to interact effectively to
maximise the economic impact and potential of their
research and innovation.
• Innovation is a key driver for sustenance and prosperity of
start-ups, conglomerates, governments by helping them
improve their service delivery and performance.
What are the challenges faced by innovation ecosystems in
India?
• Indian innovations are invariably incremental and not
disruptive- They are often ‘first to India’ and not ‘first to the
world’.
• Lack of Scalability- to create competitive marketable
products with speed, scale and sustainability.
• Slower progress - Even though India is within touching
distance of breaking into the top-50 innovator countries in
the world, it is still quite far from a China, which filed, for
instance, 53,345 patent applications with the WIPO in 2018
versus India’s 2,013.
• Weak university research: India is an odd juxtaposition of
stellar successes like the Chandrayaan and digital payments
and a large number of unemployable engineering graduates and institutes that have very limited autonomy.
Moreover, while our top-rung universities and institutes (IITs Delhi & Mumbai, IISc) do well regionally, they
have consistently remained out of the global 100.
• Quality of the STEM talent pool- the gross enrollment ratio at the tertiary education level in India is a low 26%
meaning, a vast reserve of potential research talent is lost.
Steps taken to improve the innovation ecosystem
• The India Innovation Growth Programme (IIGP) 2.0 is a unique tripartite initiative of the Department of
Science and Technology (DST), Government of India, Lockheed Martin and Tata Trusts which enables
innovators and entrepreneurs through the stages of ideation, innovation and acceleration, to develop
technology-based solutions for tomorrow.
• Fiscal incentives by Government’s Department of Scientific and Industrial Research (DSIR) for R&D activities
performed by institutions, academia, and industry for supporting, nurturing, and leading their innovations
towards fruition.
• SIDBI manages the India Innovation Fund—a registered venture capital fund that invests in innovation-led,
early-stage Indian firms.
• Innovate India: It is a unique platform to display, promote and recognize innovations happening across the
nation. It has been launched in collaboration with AIM-NITI Aayog and MyGov. Citizens from all parts of the
country are eligible to share the innovation on the platform.
• Technology Development Board (TDB) provides soft loans and promotes the equity of Indian industry through
the development and commercialization of indigenous technology and by adapting imported technology for
domestic applications.
• Accelerating Growth of New India's Innovations (AGNIi): It aims to support the ongoing efforts to boost
the innovation ecosystem in the country by connecting innovators across industry, individuals and the
grassroots to the market and helping commercialize their innovative solutions.

• Various schemes such as Ramanujan Fellowship Scheme, the Innovation in Science Pursuit for Inspired
Research (INSPIRE) Faculty scheme and the Ramalingaswami Re-entry Fellowship, Visiting Advanced Joint
Research Faculty Scheme (VAJRA), Knowledge Involvement in Research Advancement through Nurturing
(KIRAN), ATAL Innovation Mission (AIM), Self-Employment and Talent Utilization (SETU) etc.
Conclusion
India has the potential to boost its innovation ecosystem if it can tap all its ecosystem stakeholders
simultaneously i.e. sectors like the government, industry, academia and society will have to work in tandem. The
synergy created by simultaneous action will automatically provide the much-desired link between industry,
academia and the research institutions. This link will also increase investments and encourage private sector
participation in the ecosystem.
3.11. RESULTS OF RANKING OF STATES ON SUPPORT TO STARTUP

ECOSYSTEMS
Why in news? Status of Startups in India
The Department for Promotion of Industry and • India is the 3rd largest startup ecosystem in the world.
Internal Trade (DPIIT) recently conducted the second • Around 28,000 startups are recognized by DPIIT.
edition of the States’ Startup Ranking Exercise. • India is home to 32 unicorns (startups with valuation
greater than $1 billion) with a combined valuation of
What is a Startup? more than $100 billion.
• The entire startup ecosystem raised $50 billion funding
An entity will be considered a startup if it fulfills the
between 2014 and 2019.
conditions mentioned below: • Leading sectors that pervade the Indian startup
• Entity Type: Incorporated as a private limited landscape are: Fintech, E-Commerce, Logistics,
company (as defined in the Companies Act, 2013) Enterprises, Health-Tech.
or Registered as a partnership firm (under the Partnership Act, 1932) or Registered as a limited liability
partnership (under the Limited Liability Partnership Act, 2008) in India
• Turnover: Must not exceed 100 crore rupees in any fiscal year
• Age: Below 10 years from date of incorporation
• Nature of Activity: Given that the entity is working towards – Innovation, Development or improvement of
products/processes/services, Scalability, Job Creation or Wealth Creation.
About States’ Startup Ranking Framework 2019
• A total of 22 States and 3 Union Territories participated in the exercise.
• The framework has 7 broad reform areas
Significance of Startups in India
consisting of 30 action points ranging
• Boosts employment: The startup ecosystem, tangibly adds to
from Institutional Support, Easing job creation in the nation. On an average 12 jobs created per
Compliances, Relaxation in Public startup totaling up to more than 3.5 Lakh jobs.
Procurement norms, Incubation support, • High potential for growth: It is estimated that the number of
etc. unicorns in India will increase by three times, to 95 in 2025 with
• To establish uniformity and ensure a cumulative valuation of approximately $390 billion.
standardization in the ranking process, • Fulfilling societal needs: Startups hold the key to address the
States and UTs have been divided into critical needs of the country in areas like affordable healthcare,
two groups- education, financial inclusion, etc.
o Category ‘Y’- with UTs except Delhi • Fostering a culture of Innovation and technology: Startups work
in an environment of changing technology and try to maximize
and all States in North East India
profits by innovation. This also induces backward and forward
except Assam linkages which stimulate the process of economic development
o Category ‘X’- All other States and UT in the country.
of Delhi • Attracting foreign Investment and stimulating domestic
• For ranking, States are classified into 5 investment: Indigenous startups have the potential to grow into
Categories: Best Performers, Top large multinational firms and enterprises and thus can initiate an
Performers, Leaders, Aspiring Leaders attractive and flourishing investment environment.
and Emerging Startup Ecosystems.

Rankings
• Category X: Best Performer- Gujarat and Top Performers- Karnataka and Kerala
• Category Y: Best Performer- Andaman and Nicobar Islands and Leader- Chandigarh
• Leaders across 7 Reform Areas-
o Karnataka for reforms in areas of Institutional Leaders, Regulatory Change Champions and Procurement
Leaders
o Gujarat for reforms in areas of Incubation Hubs, Awareness and Outreach Champions and Scaling
Innovations Leaders
o Bihar for reforms in areas of Seeding Innovation Leaders.
3.12. PANDEMIC RISK POOL

Why in news?
A working group of IRDAI has recommended setting up of an Indian Pandemic Risk Pool with public-private-
government participation to provide coverage for losses resulting from pandemics like COVID-19 in future.
What is pandemic risk pool?
• A pool refers to the practice of insurance companies coming together and committing funds to meet claims
arising out of any particular insured risk in proportion to the business they do. In this manner, claim pay-out
is shared among all pool participants.
• This method is followed when there is too much uncertainty about the risk for any insurer to take a call, like
in nuclear risks, or when the losses are high and companies are reluctant to issue policies.
• Currently, it was suggested in the backdrop of COVID-19, which has affected not just health but all sectors of
the economy, including but not limited to manufacturing, aviation, tourism, transportation, construction,
services, agriculture and many others
• Thus, a risk pool could offer protection for business interruption without material damage, loss of income
and livelihood and other related pandemic related losses currently not insured in India.
• Thus, IRDAI has proposed the mechanism of a Pandemic Risk Pool and setup a committee to recommend the
structure and operating model for the pool.
• Similar pandemic pool proposals across the General Insurance Corporation of India (GIC Re)
world, including in the US, France and • GIC Re was setup in 1972, under the Companies Act, 1956.
Germany, are in various stages of approval. • It was formed for the purpose of superintending, controlling
Key recommendations of the committee and carrying on the business of general insurance.
Indian Terrorism Pool
• Formation and Structure: Risk pooling • India has created a Pool for Terrorism in 2002, that covers
mechanism with public-private-government loss, damage, cost or expense directly caused by, resulting
participation would be more appropriate as from or in connection with any action taken in suppressing,
the quantum of loss due to an controlling, preventing or minimizing the consequences of
epidemic/pandemic risk event is huge and an act of terrorism by the duly empowered government or
hence is beyond the capacity of public and/ military authority.
or private companies and/or government • The Pool is administered by GIC Re.
alone. Indian Nuclear Pool
• Indian Nuclear Insurance Pool was created in 2015 by GIC-
• Administration: General Insurance
Re, along with several other Indian Insurance Companies.
Corporation of India (GIC Re), which has • It has a capacity of ₹1500 crore to provide insurance to
experience of managing the Indian Terrorism cover the liability as prescribed under Civil Liability for
Pool and Indian Nuclear pool shall be Nuclear Damage Act, 2010.
administrator for the proposed pandemic
pool.
• Size and Financial capacity: Suggested setting up of a pandemic risk pool with a Rs 75,000 crore backstop (as
security) guarantee from the government in the initial stages, with a view to help MSME workers and migrant
labourers facing loss of income.
o In the subsequent phases, the pandemic coverage will be extended to other lines of business, then the
exposure will go up and the government backstop requirement will peak up to Rs 1,25,000 crore and then
it will start gradually reducing.

Advantages of Pool Structure
• Affordability of coverage: With pooling a large share of country’s exposure to an event like pandemic,
aggregate cost of coverage would be lower than individual insurers could achieve on their own.
• Risk diversification: A single pool providing coverage for all the MSME’s of a country on mandatory basis would
create a more diversified portfolio of risks and reduce the anti-selection.
• Reduced cost of reinsurance: The cost of reinsurance tends to decline as the level of participation from the
government increases so the cost to reinsure a single and diversified pool of risks with public participation
would be lower.
• Maximizing the role of private insurers: The objective of pandemic pool should be to maximize the
contribution of private markets to providing coverage over a period of time.
• Anti-selection: A compulsory cover through pandemic pool can eliminate the possibility of anti-selection. Anti-
Selection occurs when an employee or group of employees purchase or select coverages with a greater than
likely loss at the expense of an insurance company.
3.13. GREEN TERM AHEAD MARKET

Why in News?
Recently, Central Electricity Regulatory Commission (CERC) approved Green term ahead market (GTAM) contracts
on the Indian Energy Exchange (IEX) platform.
About Indian Energy Exchange (IEX)
More on news • IEX is the first and largest energy exchange in India
• This step comes after Real Time Market (RTM) providing a nationwide, automated trading platform
for physical delivery of electricity, Renewable
trading was approved in power exchanges in June
Energy Certificates and Energy Saving Certificates.
2020.
• IEX is regulated by Central Electricity Regulatory
• IEX currently trades through following models: Commission.
o Day Ahead Market (DAM), where transactions in
electricity are allowed for a day in advance;
o Term Ahead Market (TAM), where electricity is traded the same day to up to 11 days in advance;
o Renewable Energy Certificate (REC), where green energy attributes of electricity are traded; and
o Real time Market (RTM), where auction sessions are conducted at even time blocks on the hour, and
delivery commences one hour after the trade session is closed.
• Though the renewable penetration in the country is increasing, the participation of renewable energy in the
existing DAM and TAM segment has remained negligible (less than 1%) as there has been no segregation
between conventional power and green
power by the system. To overcome this
issue, an alternative new model, namely
GTAM was introduced.
About GTAM
• GTAM has been specifically introduced for
selling off the power by the renewable developers in the open market without getting into long term Power
Purchase Agreements (PPAs).
• GTAM will provide an exclusive platform for short-term trading of Renewable Energy.
• Key features of GTAM:
o Energy scheduled through GTAM contract shall be considered as deemed RPO compliance of the buyer.
✓ Earlier, buyer of power from wind or a solar company could not claim that he had met RPO.
o Also, transactions through GTAM will be bilateral in nature with clear identification of corresponding buyers
and sellers, there will not be any difficulty in accounting for Renewable Purchase Obligations (RPO).
o There will be separate contracts for both Solar and Non-Solar energy to facilitate Solar and Non-Solar RPO
fulfillment.
o It will have Green Intraday (Ten Hourly Contracts for Same Day), Day Ahead Contingency (Hourly Contracts
for Next Day), Daily (All or a block of Hours in a single day) and Weekly Contracts (Monday to Sunday).
o Price discovery will take place on a continuous basis i.e. price time priority basis.

Potential Benefits About Renewable purchase obligation (RPO)
• It would lessen the burden on RE-rich States and incentivize• RPO is a mechanism by which the obligated
entities are obliged to purchase certain
them to develop RE capacity beyond their own RPO.
percentage of electricity from Renewable
• This, along with the recently launched real-time trading in Energy sources, as a percentage of the total
electricity will support seamless integration of RE power consumption of electricity.
• It would enable Obligated entities to procure renewable o Obligated Entities include Discoms,
power at competitive prices to meet their RPO. Open Access Consumers and Captive
• Promote RE merchant capacity addition and help in power producers.
achieving RE capacity addition targets of the country. • RPOs are categorized as Solar and Non
• GTAM platform will lead to increase in number of Solar RPO.
participants in RE sector. Buyers of RE through competitive • RPOs are provided under Electricity Act
2003 and the National Tariff Policy 2006.
prices and transparent and flexible procurement and RE
sellers by providing access to pan- India market
o GTAM witnessed an encouraging response since its launch and has registered trade of three million units
(MU) in the first 11 days.
• It will provide a platform to environmentally conscious open access consumers and utilities to buy green
power.

3. ECONOMY
3.1. POVERTY AND SHARED PROSPERITY
Why in news?
World Bank recently released the report titled “Poverty and Shared Prosperity 2020: Reversals of Fortune” which
examines how the COVID19 crisis, compounding the risks posed by armed conflict and climate change, is
affecting poverty trends, inclusive growth, and the characteristics of the poor around the world.
Key findings
• Reversal of extreme poverty trends: Extreme poverty is defined as living below the international poverty
line of $1.90 or roughly Rs 145-150 per day. Global extreme poverty is expected to rise in 2020 for the first
time in over 20 years mainly due to three reasons:
o COVID-19 and its associated economic crisis:
✓ Current projections suggest that, in 2020, between 88 million and 115 million people could fall
back into extreme poverty as a result of the pandemic—returning global poverty rates to 2017
levels—with even larger numbers in 2021.
✓ South Asia will be the hardest hit region, with 49 million additional people pushed into extreme
poverty followed by South Africa.
o Armed conflicts:
✓ More than 40 percent of the world’s poor now live in conflict-affected countries, a number
expected to rise further in the coming decade.
✓ Conflict destroys assets and livelihoods. In the Middle East and North Africa, for example, extreme
poverty rates nearly doubled between 2015 and 2018, spurred by the conflicts in the Syria and
Yemen.
o Climate change:
✓ Under present scenarios, the combined effects of climate change could push between 68 million
and 132 million more people into poverty by 2030.
✓ With their livelihoods predominantly based on primary activities, the poorest are least able to
adapt, more vulnerable and less resilient to the impacts of climate change. The impacts of climate
change can also raise food prices, worsen people’s health, and increase exposure to disasters.
• Shared Prosperity: Shared prosperity is defined as the growth in the income of the poorest 40% of a country’s
population. A high level of shared prosperity is an important indicator of inclusion and well-being in any
country.
o During 2012-2017, the growth was inclusive and the incomes of the poorest 40 per cent of the population
grew at 2.3% per annum. However, average global shared prosperity may stagnate or even contract over
2019-2021 due to the reduced growth in average incomes as a result of COVID crisis. This may lead to an
increase in income inequality, resulting in a world that is less inclusive.
• Changing profile of global poor: The poor remain predominantly rural, young, and undereducated. However,
the current COVID crisis is creating millions of “new poor.” The new poor” probably will:
o be more urban than the chronic poor.
o be more engaged in informal services and manufacturing and less in agriculture.
Way forward suggested by the report
• Policy responses need to reflect the changing profile of the poor : Safety net programs will in particular need
to reach people in the informal sector in both rural and urban areas
• Poverty action needs to address hot spots of conflict, climate change and COVID-19.
• Learning lessons from emergency actions taken during COVID and long-term development experiences :
o Closing the gap between policy aspiration and attainment: Much more attention needs to be given not
just to “getting policies right” but to building the capability of the administrative systems that are tasked
with implementing them.
o Enhancing and improving data: Data limitations create doubts among the general public, obstruct
scientific progress, and hinder the implementation of sound, evidence-based development policies.

o Investing in preparedness and prevention: An example of successful international cooperation in disaster
preparedness is the Indian Ocean Tsunami Warning and Mitigation System (IOTWMS) which is
operational since 2013.
o Expanding cooperation and coordination: The fact that all are affected in the current crisis is an
opportunity for leaders to promote a sense of social inclusion and collective resolve, to improve the
empirical foundations of policy making, and ensure that governments’ decisions are trusted.
Poverty in India
• India remains the home of 364 million poor people (28 percent), out of a global population of the 1.3 billion as per
Human Development Index (HDI), 2019.
• 271 million people came out of poverty between 2005-15. However, as per Niti Aayog's SDG Index 2019, Indians have
fallen back into poverty, hunger and income inequality in the past two years.
• Measures taken for poor during the COVID include package under Pradhan Mantri Garib Kalyan Yojana, cash
transfers under PM Kisan scheme, more liberal financing under the Mahatma Gandhi National Rural Employment
Guarantee Act, 2005, empowering the poor, labourers, migrants through the Atma Nirbhar bharat scheme etc.
• Poverty estimation in India is carried out by NITI Aayog’s task force through the calculation of poverty line based
on the data captured by the National Sample Survey Office under the Ministry of Statistics and Programme
Implementation (MOSPI).
• Poverty line estimation in India is based on the consumption expenditure and not on the income levels.
3.2. NOBEL PRIZE IN ECONOMICS

Why in news?
What is an auction?
This year’s Nobel Economics Prize has • An auction is a price discovery mechanism of various goods and
been awarded to U.S. economists Paul services.
Milgrom and Robert Wilson for their • In any auction, potential buyers place competitive bids on the
works on auction theory. goods and services (put for bidding) either in an open or closed
format.
More in news • Generally, in any auction, the private entities want to maximize their
• They won the Nobel Economics Prize revenue, whereas government may give priority to the factors
other than maximizing revenue.
for improvements to auction theory
• For instance, instead of allocating the spectrum to the highest bidder
and invention of new auction
government may choose a bidder who would make the telecom
formats that could also be applied to accessible to the poor.
selling of goods and services (such as o In fact in India, before auctions became the norm for limited
radio frequencies) that are difficult to resources such as radio waves, governments used to allocate
sell through traditional auction them through licensing mechanism to the private entity best
formats. suited for ensuring social benefits like accessibility to the poor.
• The discoveries have benefitted o This approach, however, led to a proliferation of lobbying.
sellers, buyers and taxpayers around • Key variables that determine the outcome of an auction:
the world. o Rules of the auction
o Value (personal or professional) attached to the good put to
What is auction theory? vote
o The uncertainty involved in bidding
• It is a concept of transparent
allocation of resources or items of business in a free market to the best bidder for optimum utilization.
• It is a branch of applied economics and prescribes different sets of rules or designs for transactions.
• Essentially, it is about how auctions lead to the discovery of the price of a commodity. Auction theory studies:
o How auctions are designed?
o What rules govern the auctions?
o How bidders behave in auction?
o What outcomes are achieved through auction?
• Benefits of the auction theory:
o It helps to understand the bidders’ behaviours
o It helps in choosing the best design/format of the auction for various goods and services.
o It also helps understand the evolving nature of auction and pricing of items and resources in a country or
globally.

o It helps to understand the outcomes of different rules for auction and consequent final prices.
o It also helps to understand why governments across the world should not put too much emphasis on
maximizing revenues
✓ For instance, in India the spectrum is allocated to the highest bidder; this is also one of the reasons
why telecom sector is under heavy debt.
✓ To avoid such problems in auction India should chose the ‘second-price’ auction theory that allows
the winning bidder (or the highest bidder) to pay what the second-highest bidder offered.
Individuals contributions
• Winners curse: Wilson worked on common value principle and opined that the rational bidders tend to place
bids below their own best estimate of the common value to evade the winner’s curse.
o It is possible to overbid ($50 when the real Common value and Private value
value is closer to $25) due to various • These terms refer to the benefits that a person may derive
reasons, in such cases one wins the from a particular good or service.
auction but loses out in reality. • Common value: Common value is the real monetary value
• Multi stage bidding: Milgrom opined that (realized as well as unrealized) of the goods/ services. It is
private values differ from bidder to bidder. He same for everyone.
demonstrated that an auction format will give o Examples include the future value of radio
the seller higher expected revenue when frequencies or the volume of minerals in a particular
area or cost involved in a making a painting.
bidders learn more about each other’s
• Private value: It is the personal value attached to the
estimated values (which depends on both
goods/ services by an individual. It differs from person to
private as well as common value) during person.
bidding. o An art loving person will value a painting more than a
o Therefore, allowing multi-stage bidding is philistine; someone may attach his/her status to
a good way to get more value as every winning the auction at any cost.
participant gets more time to
match/outbid the previous highest bid.
o He analysed the bidding strategies in a number of well-known auction formats, and demonstrated that an
auction format will give the seller higher expected revenue when bidders learn more about each other’s
estimated values during bidding.
3.3. ASSET RECONSTRUCTION COMPANIES

Why in News?
Recently, former central bankers favored role of Asset reconstruction companies (ARCs) in insolvency resolution.
About ARCs
• ARC is a special type of financial institution that buys the debtors of the bank at a mutually agreed value and
attempts to recover the debts or associated securities by itself.
• Narsimham Committee – I (1991) envisaged setting up of a central Asset Reconstruction Fund to facilitate
Banks to improve their balance sheets by cleaning up their non-performing loans portfolio. Later, Narsimham
Committee – II (1998) proposed ARCs.
• ARC is incorporated under the Companies Act and registered with Reserve Bank of India under the
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act,
2002.
o RBI regulates ARCs as Non-Banking Financial Companies.
• ARCIL was the first ARC set up by ICICI Bank, State Bank of India and IDBI. There are around 24 ARCs now and
Edelweiss is the largest one.
• Role of ARCs as defined under SARFAESI Act:
o Acquisition of financial assets
o Change or takeover of Management / Sale or Lease of Business of the Borrower
o Rescheduling of Debts
o Enforcement of Security Interest
o Settlement of dues payable by the borrower

Advantages of ARCs
• Centralization of bad loans in one or a few hands and provides scope for special legislative powers to a few
ARCs rather than to each bank.
• Regular banking relations are not affected as banks are left with cleaner balance sheets and do not have to
deal with problem clients.
• It can mix up good assets with bad ones, as it deals with a larger portfolio, and make a sale which is palatable
to buyers.
• Means of boosting the entrepreneur’s confidence, and gives other options than filing for bankruptcy or
insolvency in times of stress.
• Benefits whole economy as a previously non-performing asset is now with operationality and functionality.
Investors will be able to spot an undervalued product, acquire it at low cost, work to restoring it somewhere
nearer to its true value and sell it off for a healthy profit.
Issues with ARCs functioning
RBI’s Financial Stability Report (2019) indicates fairly low recovery for banks through the ARC model between
2004 and 2018. The maximum average recovery by ARCs as a percentage of total bank claims stood at 21.5% in
2010. Since then, it has steadily declined and reached 2.3% in 2018. The key reasons for the non-performance
of ARC model were:
• Earlier, ARCs were required to hand over the distressed business back to the original promoter once they
had generated enough value to repay the debt. Thus, they had little incentive to turn around distressed
businesses.
• ARCs were not adequately capitalized to meet the requirement of banks to transfer NPAs.
• Valuation of NPA remains a concern as there is always a difference of opinion on recovery period, method of
valuation, and data collection.
• Difficult to expeditiously aggregate loans from all other creditors even if an ARC acquires the NPA of a
particular bank. Also, developing and possessing requisite skill sets in managing the acquired distressed
companies is a big challenge for ARCs.
• Lack of flexibility in controlling structure of an ARC, as it is either owned by the private parties or the bank
(i.e. not by the government) with restrictions on a controlling stake and minimum investment by a single
party.
• Regulatory ambiguty in functioning of ARCs. For ex: Insolvency and Bankruptcy Code, 2016 (IBC) has provisions
for submission of ‘resolution plans’ by financial entities (including an ARC), the SARFAESI Act does not
explicitly permit ARCs to ‘invest’ in or acquire equity in firms.
Way forward
• Bridging NPA valuation gap by introducing set of guidelines to be carried out by an external agency before
the sale.
• Setting up of a Distressed Loan Sales Trading Platform for receiving bids for NPAs for better price discovery.
• Preparing a panel of sector specific management firms/ individuals having expertise in running firms/
companies which could be considered for managing the (acquired distressed) companies.
• A relaxation of controlling structure norm would encourage more private entities to have a presence in this
sector bringing more depth to this sector. This will bring specialists into the game and the sector will be more
competitive and transparent.
3.4. SWAMITVA SCHEME

Why in News?
The SVAMITVA (Survey of Villages and Mapping with Improvised Technology in Village Areas) scheme was recently
launched by the Prime Minister on the occasion of National Panchayati Raj.
About SVAMITVA Scheme
• It is a Central Sector Scheme that aims to provide an integrated property validation solution for rural India,
engaging the latest Drone Surveying technology, for demarcating the inhabitant (Aabadi) land in rural areas.

o It aims to update the ‘record-of-rights’ in the revenue/property registers and issue property cards to the
property owners in rural areas.
About Survey of India
• It is a collaborative effort of the Ministry of Panchayati Raj
• It is the National Survey and Mapping
(MoPR) (Nodal Ministry for implementation of the scheme), Organization of the country under the
State Panchayati Raj Departments, State Revenue / Land Department of Science & Technology.
Records Departments and Survey of India (technology • It was set up in 1767 and is the oldest
partner for implementation). scientific department of the Govt. of India.
• Key Components of the scheme • It takes a leadership role in providing user
o Establishment of CORS network: Continuously focused, cost effective, reliable and quality
Operating Reference Stations (CORS) is a network of geospatial data, information and intelligence
reference stations that supports establishment of for meeting the needs of national security,
Ground Control Points, which is an important activity sustainable national development, and new
information markets.
for accurate Georeferencing, ground truthing and
demarcation of Lands.
o Large Scale Mapping (LSM) using Drone: Rural inhabited (abadi) area would be mapped by Survey of India
using drone Survey to generate high resolution and accurate maps to based on which, property cards
would be issued to the rural household owners.
o Information, Education and Communication: Awareness program to sensitize the rural population about
the surveying methodology and its benefits.
o Enhancement of Spatial Planning Application “Gram Manchitra”: The digital spatial data/maps created
under drone survey shall be leveraged for creation of spatial analytical tools to support preparation of
Gram Panchayat Development Plan (GPDP).
o Online Monitoring and reporting dashboard would monitor the progress of activities.
o Program Management Units: The scheme will be implemented through the regular departmental
mechanisms, which will be assisted by Programme Management Units at the National and State level.
• Coverage: The Pilot Phase for the year 2020-21 will extend to six States (Haryana, Karnataka, Madhya Pradesh,
Maharashtra, Uttar Pradesh and Uttarakhand) covering approx. 1 lakh villages and CORS network
establishment is planned for two States (Punjab and Rajasthan).
o The scheme aims to cover all 6.62 lakh villages in the country by the end of financial year 2023-24.
Intended Benefits of the scheme
• Financial stability to the citizens in rural India: A ‘record of rights’ will enable rural households to use their
property as a financial asset for taking loans and other financial benefits.
• Enhanced collection of property tax: Updation of property and asset register will strengthen tax collection
and demand assessment process of Gram Panchayats.
o The 2018 Economic Survey estimated only 19% of the potential property tax was being collected by Gram
Panchayats
• Making land marketable: The property cards will help increase liquidity of land parcels in the market.
• Reduction in property related disputes and legal cases: through creation of accurate land records.
• Improved quality of GPDP: GIS maps of Gram Panchayat and community assets like village roads, ponds,
canals, open spaces, school, Anganwadi, Health sub-centres, etc. can be used to prepare better-quality GPDP.
o Further, these GIS maps and spatial database would also help in preparation of accurate work estimates,
allocation of construction permits, elimination of encroachments, etc.for various works undertaken by
Gram Panchayats and other Departments of State Government.
• Aid relief work: Accurate land records will make relief and compensation work easier in disaster affected
areas.
Potential issues in implementation of the scheme
• Reluctance in community: Land and boundaries are sensitive topics among rural poeple, which can discourage
them to participate in such policy reforms.
• Exclusion of vulnerable people: Dalits, women, tenant farmers and tribal communities are often excluded
from accessing land, even though they may legitimately have a claim.
• Lack of functional market in rural areas for the using land as a marketable collateral

Way Forward
• Engaging the community from the beginning: Involving the community and ensuring high level of
transparency can create an environment of greater acceptance of the process and reduce potential for
disputes.
• Protecting the most vulnerable people: It would be important to build safeguards in the implementation
process to ensure legitimate claims of the most vulnerable people are not crowded out.
• Establish a grievance redressal system: A grievance redressal system will effectively addresses people’s
concerns in a transparent and fair manner and will aid in smooth implementation of the program.
• Enable markets to work: States should simplify the legislative and regulatory procedures to build consumer
confidence and encourage transactions in these areas.
Conclusion
Modernising land records is one of the foundational steps towards mending and reimagining broken institutional
arrangements, which are pivotal in today’s circumstances. This scheme will go a long way towards building
financial strength and independence of the local self-governance institutions, the Gram Panchayats.
3.5. ACCELERATED IRRIGATION BENEFITS PROGRAMME (AIBP)

Why in news?
Recently, the Public Accounts Committee submitted its report on the Accelerated Irrigation Benefits Programme
(AIBP).
Accelerated Irrigation Benefits Programme
(AIBP)
• Central Government launched the AIBP
in the year 1996-97 to provide Central
Assistance to major/medium irrigation
projects in the country.
• It is being implemented by Ministry of
Jal Shakti.
• Objectives:
o To accelerate implementation of
such projects which were beyond
the resource capability of the states.
o To focus on faster completion of
ongoing Major and Medium
Irrigation including National
Projects.
• After launch of Pradhan Mantri Krishi
Sinchai Yojana (PMKSY) in 2015-16, AIBP
became a part of PMKSY.
o PMKSY aims to ensure access to
some means of protective irrigation
to all agricultural farms in the
country, to produce ‘per drop more crop’, thus bringing much desired rural prosperity.
o AIBP component of PMKSY focuses on major and medium irrigation projects that involve an area of more
than 2000 hectares.
• Since its inception, 297 Irrigation / Multi-Purpose Projects have been included for funding under AIBP.
Shortcomings in AIBP
• Frequent modification in design and scope of the work: This happened due to the following deficiencies in
preparation and planning of Detailed Project Reports (DPRs) like
o Inadequate surveys

o Inaccurate assessment water availability
o Inaccurate calculation of Cost Benefit (CB) ratio.
o Revision in cost estimates after commencement of work also adversely affecting the schedule of
implementation of the project.
• Violation of project guidelines: According to the PAC projects and schemes were included in the programme
in violation of project guidelines resulting in irregular release of Rs. 3,718 crore.
• Deficiencies in financial management: The PAC noted many cases of non/short release of funds, delay in
release of funds at various levels and non-adjustment of unspent balances of funds in the subsequent release.
o According to the PAC, the utilisation certificates of funds, amounting to Rs. 2187 crore, that constituted
37% of the total central assistance received by the state agencies were not submitted to the
implementing ministry in time.
o Instances of diversion of funds, short or non-realisation of revenue, tardy implementations of projects
were also observed by the PAC.
• Deficiencies in monitoring: Lax monitoring by the central and state agencies is also a major problem.
Way ahead
• Comprehensive revision of the guidelines:
o Ministry of Jal Shakti should consult all the stakeholders and state governments and assess the need for
a comprehensive revision of the guidelines.
o Ministry should also frame timelines for the inclusion of projects, which may include the possibility of
changes, so as to remove the need for frequent revisions.
o Concrete action should be taken to adhere to the guidelines and timelines thus formed.
• Changes in implantation of the projects:
o The deficiencies in preparing and processing of DPRs such as delays, inadequate surveys, and inaccurate
assessment of command area should be rectified.
• Fiscal management:
o A uniform parameter for calculation of CB ratio should be adopted.
✓ CB ratio for projects should be reviewed continuously and be based on realistic assumptions.
o The government should take strict actions on instances of short/non- realisation of revenue.
o The government should form a separate cell to examine cases of undue benefits to contractors.
• Transparency and Accountability:
o The PAC has advised that more DPRs of the projects being implemented under AIBP should be open for
audits
o The government should put in place a mechanism to monitor the due diligence of states in adhering to
guidelines.
• Improving monitoring of the scheme:
o The use of satellite imagery and field reports can increase effective monitoring of the irrigation
potential.
o Strengthening the participatory model of irrigation through Water Users Associations to tackle various
issues related to irrigation.
o Ministry of Jal Shakti should also increase its efforts in facilitating the formation of Water Users
Associations in all states.
3.6. NATURAL GAS MARKETING

Why in news?
The Cabinet Committee on Economic Affairs has approved ‘Natural Gas Marketing Reforms’, taking another
significant step to move towards gas based economy.
Natural Gas Marketing Reforms
• Standardized e- bidding procedure: The Director General of Hydrocarbons (DGH) will propose a standardized
e-bidding platform to promote market price discovery of natural gas.
• Producers will be barred from participating in the bidding: Gas producing companies themselves will not be
allowed to participate in the bidding process but affiliate companies would be allowed to bid.

• Marketing freedom to Field Development Pricing of domestically produced natural gas
Plans: This would be granted for those • Administered Price Mechanism (APM)
Blocks in which Production Sharing o Price is set by the Government of India every six months.
Contracts already provide pricing o It is weighted average of prevailing prices in US, UK,
freedom. This is to bring uniformity to the Canada and Russia.
bidding process across various contractual o Presently, it is USD 1.79 million Btu far less than the price
regimes and policies to avoid ambiguity. of imported LNG.
o This pricing regime covers almost 80% of the domestically
Benefits expected from the reforms produced natural gas.
• Non-Administered Price Mechanism (Non-APM) or Free
• Ease of doing business: It would be
Market gas
enhanced due to the following reasons: o This mechanism is applicable on contractual agreements
o Uniformity in the bidding process based gas production.
o Marketing and pricing freedom to the o These are only 20% of the total domestic production.
new investors o The new reform would cover beneficiaries in this regime.
o Freedom of choice to the producers as
there will be more than one e-bidding platform
o Role of regulator has been defined
• Step ahead towards Atmanirbhar Bharat: These reforms will encourage investments in the domestic
production of natural gas and help in reducing import dependence.
o The domestic production will further help in increasing investment in the downstream industries such as
City Gas Distribution and related industries.
• Gas based economy: It is expected to add 40 million standard cubic meters per day of more natural gas
through domestic production.
• Reduction in pollution: The increased gas production consumption will help in improvement of environment.
• Employment generation: These reforms
Natural gas
will also help in creating employment
• Natural gas is a mixture of gases which are rich in hydrocarbons
opportunities in the gas consuming consisting of methane, nitrogen, carbon dioxide etc.
sectors including MSMEs. • Natural gas reserves are deep inside the earth near other solid &
Issues in the reforms liquid hydrocarbons beds like coal and crude oil.
• It is not used in its pure form; it is processed and converted into
• Very limited impact: Nominated fields, cleaner fuel for consumption.
accounting for almost 80% of India’s gas • It could be used in following ways: Feedstock in the manufacture
production at present, will be outside the of fertilizers, Fuel for electricity generation, Cooking in domestic
benefit zone of the new policy. households, Transportation fuel for vehicles.
• Disincentive for the old players: As only Natural Gas scenario in India
new entrants are given the benefit. The • Natural gas comprises about 6.2% of India’s primary energy mix,
new entities will take advantage of e- far behind the global average of 24%.
• The government plans to increase this share to 15% by 2030.
bidding platform and discover the viable
• Domestically produced natural gas contributes to only 48% of
price. The older players would be at
India’ total consumption of domestic gas.
disadvantage. • It is being supplied from the oil & gas fields located at western
• Allowing only affiliates: Principle behind and southeastern areas viz. Hazira basin, Mumbai offshore & KG
this is not very clear and only time would basin as well as North East Region (Assam & Tripura).
tell how not allowing the main gas
producing companies would be beneficial to the sector.
Way ahead
The recent step, in principle, is very good for enhancing domestic production of natural gas. However, this step
should be complemented with following reforms to harness the expected benefits:
• Doing away with APM: Prices under the APM regime is half of what India pays for the import of LNG. Such
pricing mechanism has reduced incentives for domestic producers to raise supplies. According to IEA this
price mechanism focuses too much on reducing the price level rather than the creation of a market-based
system to reflect the domestic supply-demand structure in India,

• Tax reforms: Since natural gas does not fall under the GST, gas consumption suffers from cascading effect of
tax. According to IEA, "Bringing natural gas under the GST and introducing a postage stamp gas transport tariff
would reduce these costs and create a level playing field with other fuels.”
• Gas exchange hub (IGX): Trading through this platform is open only for imported liquefied natural gas (LNG).
Allowing domestic producers to trade on this platform would further the transparent price discovery on the
basis of buyers and sellers interacting in an open market. According to IEA this may also pave the way for
removal of multiple price regimes.
3.7. COASTAL SHIPPING BILL, 2020

Why in news?
Recently, the Shipping Ministry has issued draft 'Coastal Shipping Bill, 2020' for public consultation.
Provisions of the bill
• Mandatory licencing for all foreign vessels.
• National Coastal and Inland Shipping Strategic Plan: It aims for the seamless integration of inland waterway
routes with maritime coastal transport. The aim is to enable transportation of goods solely via water-based
modes of transport, from inland waterways to coastal shipping routes.
• National Register of Coastal Shipping: It contains all information about the coasting trade of India. Such a
register would ensure transparency of procedure and aid in information sharing between the regulators,
industry and other participants.
• Schedule of Penalties: It enables the Central Government to revise fines without amending the Act and thus,
makes it easier to revise fines to keep up.
Importance of the bill
• Potential of India: Coastal shipping in India holds great potential owing to our vast coastline of around 7500
kilometres and proximity to important global shipping routes.
• Cost of transport and production: Currently, maritime transport handles around 70% and 90% of India’s
trading in terms of value and volume respectively. It will further reduce transportation and production costs
with integration of coastal maritime transport with inland waterways.
• Policy prioritisation: Separate legislation on coastal shipping helps to recognize the policy priorities to meet
the demands of the India’s growing and evolving shipping industry.

3. ECONOMY
3.1. CHANGES IN BANK LICENSING FRAMEWORK
Why in news?
Recently, the Reserve Bank of India’s (RBI’s) Internal Working Group (IWG) has suggested revised the licensing
norms for the Banking Industry.
What is a Banking License?
According to the Banking Regulation Act, 1949, no company in India shall carry on banking business, unless it
holds a license issued in that behalf by the Reserve Bank of India and any such license may be issued subject to
such conditions as the Reserve Bank may think fit to impose.
The licensing arrangement facilitates the regulation of the sector by ensuring that the banking activity is seamless
and adheres to financial probity and adequate protection is provided to the depositors by the Bank.
What are the suggested changes by the IWG?
• Large corporate and industrial houses may be allowed as promoters of banks.
o The cap on promoters' stake, in the long run, might be raised from the current level of 15 per cent to 26
per cent of the paid-up voting equity share capital of the bank.
o It suggested increasing the initial paid-up capital or net worth required to set up a new universal bank to
₹1,000 crore; for SFBs to ₹300 crore and for urban cooperative bank transiting to SFBs, it is ₹300 crore in
five years.
o The report offers industrial houses two options — either make a straightforward application for a license,
or those that already have lending operations can convert their existing businesses to a bank.
• Well-run large non-banking finance companies (NBFCs), with an asset size of Rs 50,000 crore and above,
including those which are owned by a corporate house, may be considered for conversion into banks, subject
to completion of 10 years of operations.
• Other changes suggested by the report:
o Small Finance Banks and Payment Banks: The panel also suggested that payments banks can convert into
small finance banks after three years of operations, potentially benefiting Paytm, Jio and Airtel payments
banks.
o Capping of banks’ investment in any new or existing entity to 20%. However, they may be permitted to
make total investments in a financial or non-financial services company, which is not a subsidiary or joint
venture or associate up to 20% of the bank’s paid-up share capital and reserves.
The report also stated that whenever a new licensing guideline is issued, if new rules are more relaxed, the benefit
should be given to existing banks, immediately. If new rules are tougher, legacy banks should also confirm to new
tighter regulations, but transition path may be finalized in consultation with affected banks.
3.1.1. BANKING LICENSE TO LARGE CORPORATE HOUSES

Introduction
Since the nationalization of 14 large private banks in 1969, the RBI has not given licenses to large corporate and
industrial houses for setting up banks. At present, there are 12 old and nine new private banks (established in the
post-1991 period) with the majority of ownership held by individuals and financial entities. This is set to change if
large corporate and industrial houses are allowed to act as promoters of banks.
This step comes a decade after the global financial crisis, after which most developed nations turned cautious on
this idea. For instance, in the recent past, RBI has not been very liberal with banking licenses. The last two licenses
were given seven years ago to IDFC First Bank and Bandhan Bank with a specific objective of achieving financial
inclusion. Before these, RBI gave two licenses to Kotak Mahindra Bank and YES Bank.
Potential benefits from implementation of the suggestion
• Aid in capitalization: The recommendations could usher in a fresh wave of consolidation in the sector as
several lenders are struggling to meet minimum capital norms because of a surge in bad loans. Larger play by
private sector in the lending space could help in capitalization of the sector as state’s capacity is limited.

o A direct corollary of capitalization by the private sector would be decreased pressure on the fiscal balance
sheet with regard to recapitalization of PSBs.
• Re-entry of India Inc in the Banking Sector: Many of the biggest industrial groups had aspired for this ever
since private players were allowed into banking after 1993. This may help enlarge the Banking industry in India
which is nascent when compared at the global stage.
• Greater Competition: The entry of corporate players would engender greater competition in the Indian
banking sector by increasing the supply of financial products available for customers.
• Diversifying banking option for depositors: Recommendations promote more open access to the country's
deposit base, while charting a future course for asset specialists too. Business models that stand on a single
solid leg (asset or liability) will see future in partnership or merger.
Potential challenges arising from its implementation
• The problem of connected lending: Connected lending when promoters of private banks, corporate and
industrial houses channel large sums of low-cost depositors’ money into their own group companies.
o During 1947-58, connected lending practices were rampant in India. These practices created a scenario
where bank failures ballooned, for instance, 361 banks of varying sizes failed in India.
o Also, over the years, the potential risks associated with connected lending have increased manifold
because of the quantum leap in size and complexities in corporate India.
• Circular Banking: Under circular banking, a corporate-owned bank A would finance the projects of corporate-
owned bank B, B would finance the projects of corporate-owned bank C, and C would finance the projects of
A, completing the cycle. This creates a backdoor for bypassing the regulations against connected lending.
• Large stakes: India follows a bank-based financial system with banking assets accounting for 75% of the total
assets held by the financial system. Entry of large corporates into the banking sector could endanger the sector
because of governance and financial stability concerns. Endangering the banking sector in turn could lead to
a collapse of the overall financial framework.
o Further, corporate ownership of banks would further concentrate economic power in the hands of a few
corporate and industrial houses. Increased economic concentration would have adverse effects on the
domestic economy and politics leading to issues like Crony Capitalism.
• Excessive competition could be counter-productive: There is a growing recognition in academic and policy
circles that increased competition in the banking industry may be good for efficiency and innovation but bad
for financial stability. The 2008 global financial crisis is a case in point. Maintaining a fine balance between
efficiency levels of competition and financial stability remains a key challenge for bank regulators.
• Corporate Governance Issues: The IWG has admitted that- “the prevailing corporate governance culture in
corporate houses is not up to the international standard and it will be difficult to ring fence the non-financial
activities of the promoters with that of the bank.”
o In India, incidents of frauds and defaults are increasing at an alarming rate across the spectrum. For
instance, the Satyam Computer Services scandal reflects the loopholes prevalent in Corporate Governance
framework.
Way forward
The IWG recommends that large corporate/industrial houses may be permitted to promote banks only after
necessary amendments to the Banking Regulations Act, 1949 to deal with connected lending and exposures
between the banks and other financial and non-financial groups.
Alongside this amendment, efforts should be made to ensure that the financial stability of the banking sector is
not disturbed and internal reforms within the organizations are nudged, thus moving them towards more honest
and robust corporate governance.
3.1.2. BANKING LICENSE FOR NBFCS

Introduction
If RBI allows the large industrial houses to convert their NBFCs to full-scale banks, they straightaway will be bigger
than many mid-sized banks thus inducing big changes in the banking landscape. This step becomes even more
significant in the light of large-scale consolidation of the Public Sector Banks (PSBs).

Potential benefits from implementation of the suggestion
• The asset liability mismatch issue highlighted by the IL&FS crises: The current change in thinking in the RBI
and the government is also because of the risk large NBFCs pose to the financial system. The debacle of IL&FS
and Dewan Housing Finance Corporation Limited (DHFL) has shown that asset liability mismatches could create
a problem for the entire financial services sector.
• Access to deposits: The access to public deposits which the NBFCs will enjoy after converting to a bank would
help the sector riddled with liquidity crunch. This may help resolve the liquidity problems faced by the financial
sector as a whole.
• Opportunity of better oversight: Major NBFCs with regard to their size of operation deserve to get bank
license in the private sector. They are already regulated and supervised by the RBI. Turning them into banks
will give RBI the opportunity for greater oversight.
Potential challenges arising from its implementation
• Associated costs in becoming a bank: Maintenance of cash reserve ratio, statutory liquidity ratio and cap on
promoter shareholding are some of the rules that may make it expensive for NBFCs to become a bank.
• Possible reluctance of NBFCs: Indian business houses may not be entirely comfortable with the potential
increase in oversight on their group company activities that the banking regulator may have. Increased
regulation would mean less freedom and flexibility in conducting business.
• Poor performance of NBFCs: In the recent past, the financial performance of NBFCs has not been up to the
mark which will make investors skeptical. In this regard, the investor confidence and the potential success of
this step is to a large extent dependent on the performance of NBFCs in the next few quarters.
Way forward
Conversion of larger non-banking financial companies (NBFCs) to bank can help through reduced dependence on
wholesale liabilities, better regulatory supervision, timely regulatory intervention in case of a failure and asset
diversification in loner run. But this needs to be accompanied by incentives for the NBFC sector and simultaneously
governance reforms in the sector to improve investor confidence.
3.2. GST TUSSLE

Why in news?
Recently, a tussle had ensued between the Centre and States as there was an estimated shortfall of Rs. 30,000
crores in the GST Compensation Cess.
What is GST Compensation Cess and the tussle over it?
GST was implemented through the GST (101st Amendment Act), 2016 as a long pending indirect tax reform. It is a
single tax that replaces multiple other indirect taxes. The Centre lost out on its power to levy taxes such as excise
duty, while the States could no longer levy entry tax, VAT etc. To allay the fears of States regarding loss of revenue,
following mechanism was made:
• GST (Compensation to States) Act, 2017 was enacted:
o Under the Act, the percentage of annual revenue growth of a State has been projected to be 14%. If the
annual revenue growth of a State is less than 14%, the State is entitled to receive compensation under the
statute.
o The compensation payable to a State shall be provisionally calculated and released at the end of every
two months period.
• The generation of revenue under the Act would happen through a GST Compensation Cess:
o The cess comprises the cess levied on sin and luxury goods for five years.
o The entire cess collected during the year is required to be credited to a non-lapsable Fund (the GST
Compensation Cess Fund).
o The collected compensation cess flows into the CFI and is then transferred to the Public Account of India,
where the GST compensation cess fund has been created.
The issue arose when payments due for August-September 2019 were delayed. Since then, all subsequent payouts
have seen cascading delays. The problem has aggravated and further compounded due to following reasons:

• Persistent Economic Slowdown: The slowdown has impacted the demand and consumption levels and has
thus dented the overall GST collections (both Centre and States).
• Effect of the Pandemic: The pandemic has given an economic shock to the Indian Economy which has dented
the tax collection expectations (including the collections from GST Compensation Cess) of both Centre and
States.
• Estimation of 14% revenue growth unrealistic: The high rate of 14%, which has compounded since 2015-16,
has been seen as delinked from economic realities. In the initial meetings of the GST Council, a revenue growth
rate of 10.6% (the average all-India growth rate in the three years preceding 2015-16) was proposed but 14%
revenue growth was accepted “in the spirit of compromise”.
As a result of these issues, the stalemate reached at a point where States were looking at the GST shortfall of Rs.
30,000 crore and the Centre being in no position to provide for it.
What is State’s stance on the issue?
Since the GST Compensation acts as a harbinger of State’s trust on Centre, non-compliance on this agreement has
the potential to erode the trust between the Centre-State relationship. In this context, several States have
expressed following issues:
• Centre not honoring its moral and legal obligation: Finance Ministers of both Kerala and Punjab have argued
that the Central Government has a legal, and a moral obligation to compensate the State Governments for the
revenue shortfall. A deadlock so early in the implementation of GST has made States skeptical about the future
of Fiscal Federalism.
• Ineffectiveness of the GST Council: Any dispute regarding GST is to be handled by the GST Council but in the
recently concluded 39th GST Council meeting, no steps were taken to create such a dispute resolution
mechanism. With a 1/3rd voting power, the Centre has a virtual veto over the decision making in the council
(since 3/4th majority is needed to pass a decision). This has made the States question the functioning structure
of the Council itself.
• Resort to legal proceedings: In the absence of an alternate remedy, the only option left for states like Kerala
and Punjab is to approach the Supreme Court under Article 131 of the Constitution. Such a judicial remedy to
establish fiscal federalism of the states would erode even the limited institutional capital present between
Centre and States.
What is Centre’s stance on the issue?
The stand of the Centre on these issues is not based solely on the response to the States but in the background of
low economic growth and negative tax buoyancy rates (percentage change in tax revenue to percentage change
in GDP) which is in addition to almost 25% reduction in collection of Corporate taxes. In this background, the
Centre has taken following stands:
• The Centre has refused to compensate the States immediately but has provided the States with two options
(to make good either the shortfall in compensation arising from GST implementation or the overall shortfall).
o Option 1: It offered states to borrow the shortfall arising out of GST implementation, to be borrowed
through issue of debt under a special window coordinated by the Ministry of Finance. The option is to
ensure steady flow of resources similar to the flow under GST compensation on a bi-monthly basis.
o Option 2: It has offered the states to borrow the entire compensation shortfall (including the COVID-
impact portion) through issue of market debt. The states will not be required to repay the principal from
any other source. However, the interest shall be paid by the states from their own resources.
• The Centre has alongside contended that the revenue shortfall is on account of the COVID-19 pandemic, which
is an ‘Act of God’, stating that it has no legal obligation to compensate the States in this scenario.
• It has also argued that the inflows to the GST Compensation Fund are to be made from the GST Compensation
Cess and if that is inadequate, the Centre is not obligated to supplement it by diverting flows from other
sources.
The Resolution
The stalemate was finally broken with all 28 States and 3 UTs with legislatures going with the Option 1 provided
by the Centre. Under this option, the Centre has operationalized a special borrowing window of 1.1 lakh crore of
which 30,000 crore has been already borrowed by Centre on behalf of the States.

The primary advantage states have here is that the interest on the borrowing under the special window will be
paid from the cess as and when it arises until the end of the transition period. After the transition period, principal
and interest will also be paid from proceeds of the cess, by extending the cess beyond the transition period for
such period as may be required. The states will not be required to service the debt or to repay it from any other
source. Moreover, states will also be given permission to borrow the final instalment of 0.5 per cent of GDP (to be
availed under Atmanirbhar Bharat Abhiyan) even without meeting the pre-conditions.
As this being the debt of the State, it will not reflect in the fiscal balance sheet of the Centre thus creating a win-
win in the short term for both sides.
What are the concerns that remain?
Although the immediate issue has been resolved but the helplessness experienced by the States and Centre’s
response on the issue has highlighted several potential concerns for the future:
• Apprehensions regarding changing Dynamics of Fiscal Federalism: The estimated Rs 30,000 crore shortfall
has come at a time when waning fiscal federalism is a burning issue. For instance, Centre’s latest decision to
suspend the Members of Parliament Local Area Development (MPLAD) Scheme and divert that money to the
Consolidated Fund of India is being cited as a step towards the centralization of country’s financial resources.
• Persistence of crises in the absence of revenue augmentation: The central issue in the GST tussle is the
shortage of fiscal resources available collectively to both Centre and States. If the revenues do not get
augmented, either one or both will have to face the brunt.
• Expression of doubt by States on Centre fiscal credibility: Many of the states have expressed doubt over
transparency in handling of GST Compensation Cess. For instance, the CAG had reported that the Union
government in the very first two years of the GST implementation wrongly retained Rs 47,272 crore of GST
compensation cess that was meant to be used specifically to compensate states for loss of revenue.
Way forward
• Rebuilding institutional capital to soothe the Centre-State relationship: Efforts could be made rejuvenate
and rekindle the Inter-State Council as the body not only has constitutional backing but its mandate and
nature of participation is ideally suited for a larger federal role.
o Alongside the Inter-State Council, efforts could be made to increase political capital through institutions
like Chief Minister’s Conference.
• Widening the ambit of GST for revenue augmentation: The current coverage of GST excludes electricity,
petrol, diesel and real estate, as also agriculture. Widening the ambit of GST could provide a larger base for
taxation in the long run.
• Structural reforms: The augmentation of revenue in the long-term will require structural reforms like
reviewing of GST on continuous basis and increasing tax compliance.
• Increasing transparency in Fiscal management: Increasing transparency in areas like working of GST Council,
adhering to the procedure established by the GST Compensation Act, and decreasing over-reliance on cesses
and surcharges could repose the lost faith of States in Centre’s Fiscal Management.
3.3. INFLATION TARGETING

Why in news?
In March 2021, the Inflation Targeting regime in India will complete 5 years. This has brought to the fore the need
for a performance review of the current framework.
What is inflation targeting (IT)?
A central bank commits to keeping inflation below a certain threshold and use tools like interest rates and other
liquidity adjustment measures to achieve this objective while maintaining growth. For example, if inflation is high,
RBI can increase the Repo rate which decreases the available liquidity in the market and consequently the Inflation.
In the recent past, several countries have been opting for inflation targeting as a monetary policy objective due to
following reasons:

• Strong correlation with market demand: Various studies have shown that price levels have a direct correlation
with market demand. As a result, inflation targeting has the potential to tweak demand for ensuring both
financial stability and continuous growth.
• Predictable and easy to understand for private sector and residents: Under IT, monetary policy is designed
towards an unambiguous goal of achieving price stability upon which the private sector can anchor its
expectations about future inflation. Also, inflation as a nominal anchor is simple and easily communicated by
the public at large.
• Targeting mechanisms generally increase transparency: The targeting regime is generally accompanied by
regular communication of Monetary Policy standing through regular publication of policy statements and
policy reports. This transparency enables the government and the public to assess information about whether
the central bank has achieved its objectives.
• Impact on other economic parameters: Some countries have seen other benefits like declining exchange rate
volatility and improved financial credibility of government post implementation of an IT regime.
How the inflation targeting framework operates in India?
The IT framework in India was initiated through the Inflation targeting agreement of 2015 which further
culminated into the amendment of the RBI Act in 2016. The Act provided for the following framework:
• It tasked the monetary policy with the goal of achieving price stability while keeping in mind the objective of
growth.
• To fulfill this objective, a Monetary Policy Committee (MPC) was created by amendment of the Reserve Bank
of India Act, 1934.
o MPC consists of six members- three internal and three external: The internal members comprise of the
Governor of the RBI as the Chairperson, the Deputy Governor incharge of monetary policy and one officer
of the RBI to be nominated by the Central Board of the Why CPI was chosen as measure of Inflation?
RBI. The three external members are to be appointed by CPI measures the inflation levels at the level of
the Central Government. The external members should the consumer expenditure. By virtue of its
have knowledge and experience in the field of economics, construction, it has following advantages:
or banking or finance or monetary policy. • CPI represents consumer baskets better
o The MPC has been entrusted with the task of fixing the than the other measures like WPI.
policy rate required to achieve the inflation target. • CPI provides information on price
• The Act adopted year-on-year changes in the headline movements in services sector also.
Consumer price Index (CPI) as the measure of inflation target. • CPI includes Food Inflation which is a
The target was fixed at 4% with an upper and lower tolerance critical part of price stability objective in
emerging markets like India.
band of 2%.
o This target is to be reviewed every five years. (Note that the law requires a review of the inflation target
and not the framework as a whole)
• The Act has mandated following working methodology for the MPC:
o The policy rate (different from the Inflation Target) is determined by majority voting among the members
of the MPC. In case of equality of votes, the Governor will have a casting vote.
o It requires that MPC must meet at least four times in a year.
o The resolution adopted by the Monetary Policy Committee must be published after the meeting of the
MPC.
o RBI must publish minutes of the MPC meeting after every meeting.
o RBI must publish a report on monetary policy twice a year. The report should outline the sources of
inflation and short-medium term forecasts of inflation.
o In the event of failure to achieve the inflation target, the Act lays down that the RBI will inform the Central
Government-
✓ The reasons for failure to achieve the inflation target.
✓ The remedial actions it proposed to take.
✓ An estimate of the time within which the inflation target shall be achieved after the implementation
of the remedial actions.

Performance of Inflation targeting in India
• Control over inflation: Inflation reduced from a high of more than 10% before 2014 to a more comfortable
value after IT. For instance, the average inflation rate between October 2016 and March 2020 was below 4%.
• Stability in Inflation expectations: The inflation forecasts of financial professionals and the responses to
inflation forecasts of households declined with the shift to IT, although household expectations of inflation
continue to consistently exceed actual outcomes. As a result, increases in actual inflation now do less to excite
inflation expectations, indicative of improved anti-inflation credibility.
• Behavior of ancillary variables: The IT regime has had a stabilizing effect on ancillary variables like exchange
rates, equity markets etc. For example, the money market conditions have been broadly orderly and in tandem
with the changes in repo rate.
• Increased expression of diversity at policy level: The working of MPC has saw expression of independent
viewpoints from both external and internal members. This indicates towards improved robustness of the
Monetary Policy Framework which indirectly ensures a delicate balance between price stability and economic
growth.
What are the challenges that still remain?
• Narrow objective: Some experts argue that RBI has objectives to take care of other parameters like economic
growth, stable exchange rate and financial stability, and cannot restrict itself to the single objective of inflation.
o For instance, some market stakeholders believe that the RBI does not cut rates easily or as much as they
would like to see. This is interpreted as the RBI not giving growth as much importance as inflation.
• Pre-requisites of effective inflation targeting: IT demands a number of pre-conditions for its successful
implementation in the long-term such as independence of central banks, well developed financial markets,
flexible exchange rate, etc. Most emerging economies, including India may not be able to fulfil it in the near
future.
o The consequence of not fulfilling these preconditions could be that the transmission mechanism of the IT
system in the country may not be very strong. For example, sometimes change in Repo Rate by RBI is not
effectively transmitted to change in inflation levels.
• Issue of accuracy and limited availability of data: An inflation-targeting regime requires vast amount of data
in the form of assessment of inflation in the medium term, forecasts on economic growth and other indicators
of financial stability like estimates of foreign investment etc. There is a limited buffet of indicators that the RBI
can use. Also, several institutions including the RBI have questioned the accuracy of the data given large
discrepancies and considerable time-lag in data collection.
• Designed for demand driven inflation systems: It is argued that the IT system is mainly designed for countries
where the inflation is due to demand factors, whereas in India, it is the supply side factors which are causing
inflation.
COVID-19 and Inflation targeting
The outbreak of such pandemic and its effect on the economy creates a precarious situation where the economy faces a
negative supply shock as well as a negative demand shock, as firms halt investment projects and households increase their
precautionary saving and see their incomes fall.
This creates ambiguity for the IT regime because raising the policy rates can further dampen the demand and economic
growth. Also, cutting the policy rates could spur inflation and decrease the confidence of market participants in the IT
regime consequently triggering non-responsiveness on MPC decisions.
Being on the safe side, the standard course of action for an inflation-targeting central bank would be to cut rates – or at
least to refrain from raising them – if the negative supply shock is temporary. If the shock is temporary, there will be higher
prices and inflation now but lower prices and less inflation, or even deflation, in the future. The central bank should therefore
be able to “look through” today’s inflation and adopt a relatively long horizon when formulating its inflation forecast.
What can be done to overcome these challenges and further strengthen the IT regime?
• Coordination between Monetary Policy and Fiscal Policy: Many central banks (e.g., UK) worldwide have the
concept of a non-voting representative from the Treasury who attends meetings, expresses the views of the
Ministry of Finance, and participates in the discussions. A government non-voting member is a way to
coordinate and yet not interfere. This could ensure the much-needed balance between inflation control and
economic growth.

• Improving data collection and analysis framework: Reforming the data collection methodologies and
framework on lines of draft National Statistical Commission Bill, 2019 can be envisaged.
3.4. LIQUIDITY TRAP

Why in news?
Recently, the IMF economist Gita Gopinath stated that
the global economy may be heading towards a liquidity
trap.
What is a liquidity trap?
A liquidity trap is a contradictory economic situation in
which interest rates are very low and savings rates are
high, rendering monetary policy ineffective. It leads to a
scenario where any additional money supply that is
generated in the economy get channeled towards
savings rather than investment thus rendering the economy to remain at same liquidity level.
Is the global economy stuck in a liquidity trap?
The economic situation created by the pandemic has led to following developments which indicate towards a
liquidity trap:
• Very low interest rates: 60 per cent of the global economy -- including 97 per cent of advanced economies --
central banks have pushed policy interest rates below 1 percent. In one-fifth of the world, they are negative.
As a result, central banks have little room to further cut interest rates if another shock strikes.
• Global demand still sluggish: Despite the extremely low interest rates, the global demand is still sluggish due
to the impact of the COVID-19 pandemic.
• Threat of a potential currency war: Due to decrease in interest rates, money supply around the world would
increase which can potentially trigger a currency war due sliding exchange rates in the trading arena.
• Effects reaching the developing world: Generally, the developing countries are unlikely to develop this
problem due to high average interest rates. But recently, developing countries like Peru and Chile have almost
brought the borrowing costs to zero due to their crashing economies, thus signaling a liquidity trap.
Should India worry?
The second-order effects of lockdown in India could later see demand slump again to drag India’s economy down. In this
context, we risk slipping into a liquidity trap if inflation fails to fall below 6% within a quarter or so, as projected by the
RBI. (As the policy rates have been brought close to 4%) This calls for a circumspect approach on part of India with regard to
its fiscal as well as monetary policy.
What could be done as remedial measures?

• Global synchronized fiscal push: Fiscal authorities can actively support demand through cash transfers to
support consumption and large-scale investment in medical facilities, digital infrastructure and environment
protection.
• Coordination and collective easing of the monetary policy: Increased global coordination can potentially
deter a global deflationary path which may lead to prolonged recession. This would be akin to the Quantitative
Easing (QE) measures which were initiated by US.
• Revisiting global economic arrangements: Reevaluating the global arrangements like trade agreements and
global supply changes could help better invest the calibrate the available liquidity.
3.5. MSP AND PROCUREMENT

Why in news?
The recently passed Agri.-reform Bills have created apprehensions among farmers that these legislations will
ultimately lead to the dismantling of the MSP regime.

Procurement regime in India
The procurement mechanism in India functions as an assured market for farmers and plays a role to guide the
cropping patterns and incentivize production. To enable procurement Government has instituted a floor price for
agricultural produce, namely Minimum Support Price (MSP).
MSP serves as a Procurement Price and is used as a market price benchmark. Government notifies MSPs annually
for 23 commodities inclusive of 14 kharif, 7 rabi and 2 calendar year season crops. In addition to these 23 crops,
Government also notifies Fair and Remunerative Prices (FRP) for sugarcane and jute. The Government notifies
MSPs based on the recommendations of an independent body, called Commission for Agricultural Costs and
Prices (CACP).
A2 vs. C2 debate
The CACP determines the MSP based on the expenses incurred by the farmer. It is determined in following manner:
• Expenses incurred (A2) is estimated by considering cost of production, changes in input price, trends in market prices,
demand and supply situation, inter-crop price parity, effect on general price level, effect on cost of living, international
market price situation, etc.
• The final MSP is determined as a function of expenses incurred (A2) and the imputed value of family labour (FL).
There have been demands for considering a different costing method (C2). Adopting C2 will entail following changes:
• It would include the rent paid for any leased-in land, the imputed rent for the owned land, the interest on owned fixed
capital, and imputed value of wages to family labour, in addition to the Cost A2.
• It is also argued that 50 per cent of Cost C2 should be added as the profit component, for determining the MSP.
With the aforesaid framework for MSP, the existing procurement mechanisms by the government are
implemented under:
• Price Support Scheme (PSS): Applicable in case of MSP notified crops.
• Market Intervention Scheme (MIS): To support commodities, for which MSPs are not notified -
fruits/vegetables/other horticultural products.
• Price Stabilization Fund (PSF): A scheme to protect consumers from rising prices.
• Food Corporation of India operations for Central Pool: Wheat and Paddy is procured to meet buffer norms
and for meeting targets of the public distribution system.
Reform initiated through PM-AASHA
An umbrella scheme has been initiated to further ensure remunerative prices to the farmers for their produce,
namely Pradhan Mantri Annadata Aay SanraksHan Abhiyan (PM-AASHA). Following are the key components of the
Scheme:
• Price Support Scheme (PSS): In Price Support Scheme PSS, physical procurement of pulses, oilseeds and Copra
will be done by Central Nodal Agencies with proactive role of State governments.
• Price Deficiency Payment Scheme (PDPS): Under PDPS, direct payment of the difference between the MSP
and the selling/modal price will be made to pre-registered farmers selling his produce in the notified market
yard through a transparent auction process. All payment will be done directly into registered bank account of
the farmer. This scheme does not involve any physical procurement of crops.
• Pilot of Private Procurement & Stockist Scheme (PPPS): In addition to PDPS, it has been decided that for
oilseeds, states have the option to roll out Private Procurement Stockist Scheme (PPSS) on pilot basis in
selected district/APMC(s) of district involving the participation of private stockist.
What are the prevalent issues with the procurement framework in India?
• Limited reach of procurement: Status of procurement linked to MSP has not been secular either in terms of
crops covered or geographic spread. For example, in case of wheat, of the average of 33 per cent of marketed
surplus procured, 90 percent procurement is accounted only from Punjab, Haryana and Madhya Pradesh.
• Largely benefited wheat and paddy farmers: The procurement of other MSP notified commodities has not
been very encouraging. For instance, procurement of oilseeds remained at abysmally low 0.66 percent of the
total production.
• Poor operation of the Price Support Scheme as can be seen with total procurement of pulses being at only 10
percent of the marketed surplus.

• Procurement of perishables under MIS is still negligible.
• Delayed action: Market participants have argued that delayed intervention on part of the government in
distress situation benefits the intermediaries more than the farmers.
• Shift in production and consumption patterns: The price and procurement-based interventions have
contributed towards higher supply and a supply driven shift towards rice-wheat consumption and cropping.
The unseen consequence of this calorie-dominant food security approach has been nutritional deficiency.
What can be done to overcome these issues and strengthen the procurement system in India?
Following recommendations have been suggested by the Report of the Committee on Doubling Farmer’s Income
(chaired by Ashok Dalwai):
• Adopting a more robust system of procurement: It recommended, that in addition to strengthening the
existing procurement schemes, more such tools be developed and deployed to enhance the support and its
reach across the country & across crops, besides improving speed of response and effectiveness of
procurement, in cases where prices may drop below MSP.
• Timely market interventions: Market interventions are also triggered by price linked eventualities. The extent
and time of any market intervention should aim also at normalizing the fluctuations in market prices and more
importantly the downslide of prices due to temporal post-harvest gluts.
• Increasing diversification in procurement interventions There is need to revisit the strategy on demand and
supply, including PDS system, for balancing the nutritional security of the population. Such interventions
should therefore have differentiated outcomes and appropriate sunset clauses.
3.6. PRODUCTION LINKED INCENTIVE (PLI) SCHEME

Why in news?
Recently, the Government had announced addition of 10 sectors to the Production Linked Incentive (PLI) Scheme.
What is Production Linked Incentive (PLI)?
Production Linked Incentive refers to a rebate given to producers. This rebate is calculated as a certain percentage
of sales of the producer (sales referred in it can be total sales or incremental sales). For example, PLI scheme for
Electronics Sector offered a rebate of 4-6% on the incremental sales of the producer.
Government announcement and PLI Scheme in India
Before this announcement, the Centre had rolled out the PLI scheme already for Mobile Manufacturing and
Specified Electronic Components, Critical Key Starting materials/Drug Intermediaries and Active Pharmaceutical
Ingredients and Manufacturing of Medical Devices.
With this announcement, the Government has expanded this scheme to 10 more sectors with incentives worth 2
lakh crore over a 5-year period. The additional sectors are:
• Advance Chemistry Cell (ACC) Battery
• Electronic/Technology Products
• Automobiles & Auto Components
• Pharmaceuticals drugs
• Telecom & Networking Products
• Textile Products: MMF segment and technical textiles
• Food Products
• High Efficiency Solar PV Modules
• White Goods (ACs & LED)
• Specialty Steel
The final proposals of PLI for individual sectors will be appraised by the Expenditure Finance Committee (EFC) and
approved by the Cabinet. Savings, if any, from one PLI scheme of an approved sector can be utilized to fund that
of another approved sector. Any new sector for PLI will require fresh approval of the Cabinet. With regard to
nature of the scheme, following can be cited as key features of the PLI Scheme-

• The scheme is outcome-based, which means that incentives will be disbursed only after production has taken
place.
• The calculation of incentives is based on incremental production at a high rate of growth.
• The scheme focuses on size and scale by selecting those players who can deliver on volumes.
• The selection of sectors covering cutting-edge technology, sectors for integration with global value chains,
job-creating sectors and sectors closely linked to the rural economy, is highly calibrated.
• Also, the design of the earlier PLI scheme for electronics is such that it is compatible with World Trade
Organization commitments as the quantum of support is not directly linked to exports or value-addition.
What are the potential benefits that may incur from the Scheme?
• Increasing strategic autonomy: Efforts have been made to become self-sufficient (or ‘Atmanirbhar’) in sectors
which are of strategic importance. For instance-
o Telecom equipment forms a critical and strategic element of building a secured telecom infrastructure
and India aspires to become a major original equipment manufacturer of telecom and networking
products.
• Utilizing the Comparative advantage: In some sectors the domestic industry has comparative advantage over
other countries, focusing on these sectors could generate higher returns. For instance-
o The Indian pharmaceutical industry is the third largest in the world by volume and 14th largest in terms
of value. It contributes 3.5% of the total drugs and medicines exported globally. India possesses the
complete ecosystem for development and manufacturing of pharmaceuticals and a robust ecosystem of
allied industries.
• Increased ability to tap the high global and domestic demand: This will help satisfy the growing domestic
demand in the respective sectors and also give a fillip to exports.
o India is expected to have a USD 1 trillion digital economy by 2025. Additionally, the Government's push
for data localization, Internet of Things market in India, projects such as Smart City and Digital India are
expected to increase the demand for electronic products.
• Developing the nascent but high-potential sectors: These sectors may not be significant but in the present
socio-economic context, present high potential.
o The growth of the processed food industry leads to better price for farmers and reduces high levels of
wastage. Specific product lines having high growth potential and capabilities to generate medium- to
large-scale employment can be tapped.
• This step has been touted as a ‘game-changer’ for the manufacturing sector as it is expected to attract foreign
players, generate employment in the country (with focus on labour intensive sectors like Textile), increase
exports and consequently integrate the economy with the global supply chain.
• From the perspective of industry, the scheme indicates an attitudinal shift from ‘discouragement’ to
‘encouragement’ for large industries and simultaneously provides the much-needed fiscal space required
during the Pandemic.
What are the potential issues with the scheme?
• Gradual withdrawal of scheme critical to long-term development: The incentives should be well-crafted and
temporary so that the industries receiving support can mature and become economically viable without
protection. Keeping them in place for too long may slow down, rather than accelerate growth in these sectors.
• Designing sector specific incentives: The implementation of PLI scheme in the Electronics sector and
Pharmaceutical sector has highlighted that every sector has to have different eligibility thresholds. Given the
large range of activities covered in the 10 sectors, effectively determining the thresholds for each could
become a difficult task.
• May interfere natural economic processes: In the long run, an economy can become competitive only when
sectors can die and be born. Resources get reallocated to sectors that see higher productivity growth. External
interference may hinder optimized allocation of resources.
• The sectors that don’t get an incentive are at a relative disadvantage: The limited resources of the economy
in the form of Capital and human resources will be nudged towards incentivized sectors thus indirectly
disincentivizing other sectors.

What can be done to ameliorate these issues and further improve the scheme?
• Pre-defined Sunset clause on scheme: It will not only be beneficial for the sector in the long-term, it will also
encourage the individual players to see it as a one-time opportunity for capacity building.
• Improve technological competence: The breathing room created by these incentives could be used by the
industry players to increase their technological competence and transition towards becoming globally
competitive.
• Improve business environment: It can be done by improving transparency and predictability in the policy
framework. For example, simplification of taxation regime or easing the land acquisition process etc. This
becomes even more important for industries which are outside the purview PLI Scheme.
• Managing the real exchange rate better to strengthen the export regime: The real exchange rate (adjusted
for inflation) in India has appreciated 19% in the last decade on account of both Foreign Direct Investment
(FDI) and Foreign Portfolio Investment (FPI). This appreciation negatively effects the overall exports. Thus,
ensuring minimal real exchange rate appreciation is critical to boosting exports in the long run.
• Reinvigorating the National Infrastructure Pipeline (NIP): Several industry experts have highlighted that large
scale production can only be achieved if the supply side bottleneck of infrastructure is satisfied. The plan
proposed by the NIP can provide a way forward.
3.7. SOLAR MANUFACTURING IN INDIA

Why in news?
Recently, India has received proposals for setting up 10 GW of solar equipment manufacturing capacity.
Present capacity of solar manufacturing
• India’s renewable energy generation capacity is the fourth largest in the world (currently 136 GW which is
36% of total capacity). It is growing at the fastest speed among all major countries.
o By 2022, share of renewable capacity will increase to 220 GW.
o Demand for locally-produced panels will also grow to 36 GW over three years.
• The current capacity of solar cell manufacturing
Potential of Solar Manufacturing in India
in India is about 2,500 MW. In case of solar
• Employment generation: It has a potential to create
modules as well, 7,000 MW of capacity is being
50,000 direct jobs and at least 125,000 indirect jobs in
added in addition to existing capacity. the next 5 years.
• The nation has around 9 GW of annual solar • Expanding overseas market: India has taken a lead in
module manufacturing capacity and around 3 the International Solar Alliance (ISA), which will help in
GW of annual solar cell production capacity. the transfer of solar technologies across members.
o A solar cell is the basic building block of a o India also sees this as an opportunity for the
solar module. domestic solar industry to find inroads in some of
• India needs to increase its solar manufacturing the smaller and untapped markets like Africa and
capacity and overcome challenges faced in South America.
increasing this capacity.
Main technologies utilised for harnessing solar energy
Why there is need to develop solar manufacturing • Solar Photovoltaics (PV): It is based on the
capacity? photovoltaic effect, by which a photon (the basic
unit of light) impacting a surface made of a special
• Harvest potential and Self-reliant: India need to fully material generates the release of an electron.
use its solar power potential, this is not possible • Concentrating Solar Power (CSP): It uses sunlight
unless making India self-sufficient in the manufacture to heat a fluid (depending on the particular
of solar cells and modules, batteries and ancillary application, it can be water or other fluid)
equipment.
• To curb import dependency: Currently, 80% of solar cells and modules used in India are imported from China
and comprise $2.16 billion of imports in 2018-19. Hence, domestic solar power manufacturing capacity needs
to be improved to save tremendous foreign exchange.
• Meet domestic demand: India’s solar manufacturing capacity is insufficient, under-utilised and unviable, as
out of 2.5 GW demand in 2020 only 15% was met through domestic manufacturing.
• To achieve target: India’s current solar power installed capacity is 35.73 GW. Hence, domestic manufacturing
is needed to achieve set target of 175 GW of renewable energy by 2022, which includes 100 GW from solar

power generation and increase share of non-fossil-based power capacity to about 40 percent by 2030, under
Intended Nationally Determined Contribution target.
Challenges faced by solar manufacturing in India
• Investment crunch: Firstly, to achieve Steps taken in solar manufacturing sector in India
the 100 GW target, India needs to • Performance linked incentive (PLI) to solar panel manufacturers is
invest $65 billion in the next four to give a boost to the domestic companies.
years, but major part investment is • National Solar Mission: It is an initiative under National Action Plan
raised within the country and there is on Climate Change (NAPCC) to promote solar power in India and to
less investment from foreign direct establish India as a global leader in solar energy by creating the policy
investment (FDI). conditions for its deployment across the country.
• Tariff and non-tariff barriers: To promote domestic manufacturing
• Technology and R&D: India in
and check Chinese solar cells, modules and inverter imports India has
comparison to China does not bring imposed tariff and non-tariff barriers. Which make imported cells
latest (next generation) technology at and modules even more expensive and encourage domestic
a competitive price, which hampers manufacturing.
development of solar manufacturing • Atma Nirbhar Bharat Abhiyaan and Vocal for local: It aims to make
in India. the country independent and self-reliant against the tough
• Uncompetitive cost: Indian solar cells competition in the global supply chain for this package of 20 lakh
are, on average, 20-30% more crore was announced to promote manufacturing in India,
expensive than cells manufactured in consequently will boost solar power manufacturing in India.
China. Hence, manufacturer tend to • Make in India: Initiatives like Make in India, the introduction of SEZs,
increasing export incentives, launching phased manufacturing
choose affordable equipments
programme (PMP) and Modified Special Incentive Package Scheme
through import from China.
have helped India grow into a lucrative market for investment and
• Quality control issues: Some progress.
companies have voiced their • Solar PV Manufacturing Scheme: To create end to end solar PV
concerns about the quality of Indian manufacturing capacity in India by way of building up manufacturing
made cells and reported some capacity of solar PV modules, under this viability gap funding (VGF)
manufacturers falsely label their 380 and Performance linked incentive (PLI) will be provided for domestic
Wp (capacity of a solar in watt peak) and global players to build large-scale solar PV capacity in India.
cells as 400 Wp because there are no • Domestic content requirement (DCR): It mandates use of both solar
government entities to ensure the photovoltaics calls and modules manufactured domestically.
quality of these cells. • Foreign direct investment: FDI up to 100% is permitted in the
renewable energy sector (includes solar energy) under the automatic
• Policy issues: Only those models and
route, and no prior government approval is required in India.
manufacturers that are included in
the approved list of models and manufacturers (ALMM) for solar PV cells and modules will be eligible to
participate in projects under government programs.
• Challenge at the World Trade Organisation (WTO): US has challenged India's solar energy policy before the
World Trade Organisation (WTO), on the line of domestic sourcing of solar panels, which was upheld by WTO.
Way forward
• Developing an Ecosystem: Indian government must focus on creating manufacturing clusters throughout the
country similar to solar parks, with the availability of the entire supply chain, research and development (R&D)
centres, equipment manufacturing, universities, and laboratories.
• Comprehensive solar manufacturing policy: It is needed which clearly mention about robust supply networks,
lower cost supply agreements, subsidies on cost of power, financing and capex, incentives for R&D etc.
• Costs competitiveness: Solar manufacturing has to deal with significant costs related to setting up assembly
lines, land acquisition, labour needs, taxes, power costs and other working capital requirements. Hence,
government need to incentivize companies to boost or set up new solar component manufacturing capacity.
• Manufacturing excellence: India should deal with manufacturing excellence to build and continuously
innovate the cutting-edge manufacturing mindset as opposed to build and forget approach.

3.8. HYBRID RENEWABLE ENERGY
Why in news?
Ministry of New and Renewable Energy (MNRE) recently proposed the scheme for “Development of Wind Parks/
Wind-Solar Hybrid Park”.
About the proposed scheme
• Sites have been identified across seven states, Tamil Nadu, Andhra Pradesh, Karnataka, Telangana, Gujarat,
Rajasthan and Madhya Pradesh.
• The capacity of each park proposed is around 500 MW
and more but shall not be less than 50 MW.
• Centre will provide financial assistance for
development of parks.
o State Government will select park developer and
facilitate the park developer in acquisition/
leasehold of the identified site, in obtaining all
statutory clearances.
• Wind Energy Park will provide a plug and play solution
(availability of land, transmission, necessary
infrastructure and necessary approvals) to the
investors for installing wind/ wind-solar power
projects.
o Jaisalmer Wind Park, Rajasthan with installed
capacity of 1,064 MW is largest wind park in India.
• Also, MNRE issued tariff-based competitive bidding
guidelines for power procurement from grid-connected solar-wind hybrid projects (hybrid renewable energy).
• Recently, government also cleared land allotment for a mega renewable energy hybrid park in Kutch region
with capacity 41,500-megawatts (solar and wind).
What is hybrid renewable energy?
• Hybrid renewable energy usually comprises of two or more renewable energy sources combined in such a
way to provide an efficient system with appropriate energy conversion technology connected together to
feed power to local load or grid.
• Renewable Energy Hybrids are the solution to a reliable, affordable and dispatchable integration of
renewable energies, from the combination and integration of renewable energy generation sources with one
another, such as wind and solar.
• There are different types of hybrid renewable energy systems like Biomass-wind-fuel cell, Photovoltaic-wind,
Hydro-wind and Photovoltaic-Biomass etc.
Benefits of hybrid renewable energy parks
• Enhanced and flatter power output: Hybrid parks make power generation profile flatter over time compared
to a pure wind or solar installation to eliminate rapid voltage and power fluctuations in the electrical grid,
make power dispatch more schedulable.
• Optimised the use of the network: Number of instruments connectable is limited and hence maximise the
use of the existing network/instruments.
• Continuous power supply: The hybrid solar systems provide power continuously, due to integration of
multiple renewable sources like solar, wind, hydro etc.
• Efficient use of land: Due to common use of land for different energy resources in hybrid energy parks
improves land use efficiency.
• Lower consumer price of power: Lower investment, running and transmission cost in hybrid renewable energy
parks will reduce the cost of power.
• Reduced losses: They are beneficial in terms of reduced line and transformer losses, reduced environmental
impacts, increased system reliability, improved power quality and increased overall efficiency.

Concerns with hybrid renewable energy parks
• High installation cost: Initial investment for the installation of a hybrid renewable energy systems is high as
compared to installation of pure wind or solar systems.
• Grid security and stability: These systems can be connected to a utility grid and often frequency mismatch
arises between both systems leads to instability of the overall system.
• Environmental impact: There are concern about the impact of renewable energy parks on ecology and wildlife
in the region.
• Resource location: Hybrid renewable energy plants require large areas of space, hence availability and
acquisition of such large scale of land delaying the installation of parks.
• Weather condition: As energy generation from park is dependent on associated local weather and if
favourable weather is not available then operating capacity of park becomes inefficient and unfeasible.
Way forward
• Financial support: Funds are required for R&D, conducting training and workshops, which helps to evaluate
progress in technology, and the presentation of renewable energy technologies across the country.
• Resolving intermittency issue: The intermittency of wind and solar can be balanced by adding a fast ramping
source of power; for example, an open cycle gas turbine.
• Technical advancement: It is equally important to have proper R&D for such systems so that they can be used
effectively.
Related information
National wind-solar hybrid policy
• The main objective of the Policy is to provide a framework for promotion of large grid connected wind-solar PV
hybrid system for optimal and efficient utilization of transmission infrastructure and land and achieving better grid
stability.
• Policy aims to encourage new technologies, methods and wayouts involving combined operation of wind and solar
PV plants.
• Implementation strategy
o Configurations and use of technology
✓ Wind-Solar Hybrid- AC integration: In this configuration the AC output of the both the wind and solar
systems is integrated either at LT side or at HT side.
✓ Wind-Solar Hybrid- DC integration: In this DC output of the both the wind and solar PV plant is connected
to a common DC bus and a common invertor suitable for combined output AC capacity is used to convert
this DC power in to AC power.
o New Wind-Solar Hybrid Plants and hybridisation of existing wind/solar PV plants.
o Battery Storage: Battery storage may be added to the hybrid project to reduce the variability of output power
and higher energy output as well as to ensure availability of firm power for a particular period.
• Regulatory requirements: The Central Electricity Authority and CERC shall formulate necessary standards and
regulations for wind-solar hybrid systems.
• Standard and quality: For wind turbines, solar modules and balance of systems, the technical guidelines issued by the
Ministry from time to time for grid connected systems will be followed.
• Incentives: The Government will encourage development wind-solar hybrid systems through different schemes and
programmes. All fiscal and financial incentives available to wind and solar power projects will also be made available
to hybrid projects.
• Research and development: Government will support the technology development projects in the field of wind-solar
hybrid systems. Besides, support will be provided for development of standards for hybrid systems.
3.9. MODEL TENANCY ACT, 2019

Why in News?
Ministry of Housing and Urban Affairs has released the draft Model Tenancy, 2019.
Need of the Model Tenancy Law
• Lack of a sound rental policy as despite acute housing shortage, there are over 1.10 Crore homes lying vacant
in the country’s urban areas.

o Further, according to the National Census, vacant houses comprised around 12% of the total share of the
urban housing stock.
• Land is a state subject - Since land comes under state list, States have their own laws with long drawn legal
provisions which result in lengthy litigation to resolve disputes.
• Owner side concerns:
o Low rental yield is accrued from residential properties – averaging not more than 3% in major cities.
o Existing rent control laws that put a ceiling on rent are restrictive in nature.
• Tenant side concerns:
o The affordability to own a house is a challenge especially for low-income households.
✓ Non-availability of affordable accommodation was the key reason behind migrant leaving towns
amidst COVID-19 pandemic.
o Exorbitant increase in year-on-year rent and interference by landlord too have caused disputes.
• This has made rental housing financially unattractive resulting into informal sub-standard rental market
lacking basic amenities.
About Draft Model Tenancy Act, 2019
• It envisages to balance the interest and rights of both the owner and tenant and to create an accountable
and transparent ecosystem for renting the premises in disciplined and efficient manner.
• The Model Act provides for its applicability for the whole of the State i.e. urban as well as rural areas in the
State.
• Features
o Establish Rent courts and Tribunals
✓ Rent Authority may direct for compensation on the person responsible for cutting off or
withholding the essential supply.
✓ To ensure speedy redressal of disputes, it also proposes to establish Rent Court and Rent Tribunal
that have to dispose off the cases within 60 days.
✓ Act provides for fast-track quasi-judicial mechanism for adjudication of disputes. Officer of the rank
of deputy collector or higher will act as rent authority to adjudicate any issue arising out of a rental
disagreement
o Rent: All premises (residential or commercial) shall be rented only after a written agreement on mutually
agreed terms.
✓ Landlord cannot arbitrarily increase the rent in variance with what has been agreed to in the
agreement and Property owner has to give 3 month notice before increasing rent.
o Security Deposits: It proposes to cap the security deposit to maximum of two month’s rent in case of
residential properties and Security deposit to be refunded by the landlord at the time of taking over
vacant possession of the premises.
o Repair and Maintenance: If the landowner refuses to carry out the required repairs, the tenant can
get the work done and deduct the same from periodic rent.
✓ A landowner cannot enter the rented premises without 24-hour prior notice to carry out
repairs or replacement.
o Agreement
✓ A digital platform will be set up in local vernacular language of the State for submitting tenancy
agreement and other documents.
✓ The tenant cannot sublet a part of or the whole property or carry out any structural change without
execution of supplementary agreement between landlord and tenant.
✓ Landowner cannot cut power and water supply in case of a dispute with the tenant.
✓ Act acknowledges property manager (the one who manages property on behalf of the landlord) as a
legal entity. It further provides for duties of property manager and consequences of violation of
duties.
How will the Model Tenancy Law be Beneficial?
• It will encourage private participation in rental housing for addressing the huge housing shortage across the
country.

• It provides relief for both tenants and landlords and helps take some load off India’s overburdened litigation
process.
• It will enable creation of adequate rental housing stock for various income segments of society including
migrants, formal and informal sector workers,
professionals, students etc. Issues that may arise:
• The Act formalizes the existing arrangements;
• It will increase access to quality rented
thereby the rents might also increase.
accommodation and enables gradual formalization
• The Act is not binding on the states, as it is a model
of rental housing market. act. Thus, like in the case with RERA, the fear is that
• It complements the government’s vision of ‘Housing states may choose not to follow guidelines, diluting
for All’ by 2022. the essence of the Model Act.
• It will bring transparency and accountability in the
existing system of house renting.
Conclusion
With an estimation of 50% (presently, 31.6%) of the Indian population be living in Urban areas by 2050, this act
provides a much-needed breakthrough to create affordable housing for all and relieve the massive pressure and
demand on the housing sector.

3. ECONOMY
3.1. DEDICATED FREIGHT CORRIDORS
Why in news?
The Prime Minister recently inaugurated the
New Bhaupur- New Khurja section and the
Operation Control Centre of Eastern Dedicated
Freight Corridor.
More on news
New Bhaupur- New Khurja section is a 351-km
section between Khurja and Bhaupur in Uttar
Pradesh and state-of-the-art Operation Control
Centre is located in Prayagraj, UP.
Dedicated Freight Corridor Corporation of India Limited
Background: Emergence of Dedicated Freight (DFCCIL)
Corridors • It was incorporated as a company under the Companies
Act 1956 in 2006 to undertake planning & development,
• Freight contributes the revenue share of 67 mobilization of financial resources and construction,
percent. But, the saturation of existing railway maintenance and operation of the dedicated freight
lines has led to congestion and loss in the freight corridors.
market share for Indian Railways (from 90 • As the dedicated agency to make the vision into reality,
percent in 1950 to <40 percent in 2017). DFCCIL's mission is:
o The existing trunk routes of Howrah-Delhi on o To build a corridor with appropriate technology that
the Eastern Corridor and Mumbai-Delhi on enables Indian railways to regain its market share of
the Western Corridor were highly saturated, freight transport.
with line capacity utilization varying between o To set up Multimodal logistic parks along the DFC.
o To support the government's initiatives toward
115% to 150%.
ecological sustainability.
• This along with growth of Indian economy has
created the need for highly efficient, and amplified design features to enable railways overcome with the
burden on existing rail lines and ensure faster, timely and cost-effective freight transportation.
• This led to the conception of the dedicated freight corridors along the Eastern and Western Routes in 2006
to be implemented by a Special Purpose Vehicle named "Dedicated Freight Corridor Corporation of India
Limited (DFCCIL).
About Dedicated Freight Corridors
• It is a high-speed and high-capacity railway corridor dedicated exclusively for freight movement and built to
affirm a higher throughput per train and a more significant share in the freight market.
• The DFC consists of two arms- Eastern Dedicated Freight Corridor and Western Dedicated Freight Corridor.
o Additionally, four more corridors namely, East Coast (Kharagpur-Vijaywada), East-West (Kolkata-
Mumbai), and North-South (Delhi-Chennai) and Southern (Chennai-Goa) Sub-Corridor are also in the
pipeline.
• Eastern Dedicated Freight Corridor (EDFC):
o It will be the 1,856 km long from Sahnewal in Punjab to Dankuni in West Bengal having double electrified
tracts. It will run across six States.
o The Corridor is projected to cater to a number of traffic streams-
§ coal for the power plants in the northern region of U.P., Delhi, Haryana, Punjab and parts of Rajasthan
from the Eastern coal fields,
§ finished steel, food grains, cement, fertilizers, lime stone from Rajasthan to steel plants in the east
and
§ general goods.
o It is also proposed to set up Logistics Park at Kanpur in U.P. and Ludhiana in Punjab to be developed on
Public Private Partnership mode by creating a sub-SPV for the same.

• Western Dedicated Freight
Corridor (WDFC)
o It will be 1,504 km long will
stretch linking Dadri in
National Capital Region
(NCR) to Jawaharlal Nehru
Port (JNPT) in Mumbai. It
will run across six States and
is proposed to join Eastern
Corridor at Dadri.
o It is proposed to set up
Logistics Parks at Mumbai
area, Gujarat, Jaipur, & NCR.
Significance of DFCs
• Reduction in Logistics costs: An
Assocham study in 2016 put
India’s logistics costs at 14 per
cent of GDP, compared to 9.5
per cent for the US and 8 per
cent for Germany. Through
DFCs, the speed of the freight
train would increase by 3 times
and would be able to carry
double the volume of goods. This will help reduce the cost and allow faster transportation of goods.
o Reduced logistics cost would make India’s products competitive that would give a boost to India’s
exports.
• Modal shift in transportation: India still largely depends on the more expensive road transport to carry goods,
moving 57 per cent of its freight by road and 36 per cent by rail. This will also help in decongesting roads in
the longer run and reducing the cost of transportation.
• Benefits for existing Railway lines: Freight trains plying on DFCs will help decongest the existing lines of Indian
Railways (IR), more passenger trains can be pumped in and better train punctuality can be achieved.
o IR is already planning to privatise certain busy Related Challenges
passenger routes along with creation of high-speed • Delays in project completion: DFC Project has
railway network, for which there is an urgent need already missed several deadlines after its launch
to separate freight traffic from passenger traffic. in 2006 and as of July, 2020, only 56% of WDFC
• Enhanced investment opportunities due to improved and 60% of EDFC was completed. Delays are
Ease of doing business environment as a result of Faster mainly due to Sluggish work by contractors, the
transportation and reduced cost. law and order situation at some places, slow
• Connecting India’s hinterland: A large part of our progress in land acquisition, by almost all states.
o Recent COVID pandemic induced disruption
population that is residing is in the land-locked
of work is expected to further delay the
hinterland, especially in the northern states such as project deadline from December 2021 to
Rajasthan, MP will be served by the routes under the June 2022.
DFCs. • Renewable resources v/s coal: With an inclination
o Agriculture sector would also be a beneficiary as towards using renewable resources in future,
Farmers can send their produce through Kisan rail viability of the EDFC could be a concern since the
to any big markets across the country, safely and at majority of the traffic was expected to be coal for
a low price. power plants in northern India from the coal fields
• Economic gains: The project will immensely benefit in the east.
ports, exporters, and importers, shipping lines and container operators and other consumers of Rail transport
and will act as a catalyst for the development of industry and areas along the corridor.
• Employment generation: The DFC will generate large number of employment opportunities during its
construction and due to industrialisation facilitated by it such as Delhi-Mumbai Industrial Corridor(DMIC).

Apart from this, it will help in Skill Up-gradation by providing Training for Enhancing employability of people
under its CSR initiatives.
• Environmental benefits: The operation of trains on DFC will help reduce CO2 emissions by saving of fuel
through modal shift, regenerative braking and other operational efficiencies. This will help India achieve its
targets for reducing carbon emissions.
o Carbon footprint analysis conducted by the Indian Railways finds that the DFC will generate 2.25 times
less greenhouse gas emissions over a 30-year period compared to business as usual.
3.2. DRAFT INDIAN PORTS BILL 2020

Why in News?
Recently, Ministry of Ports, Shipping and
Waterways circulated draft Indian Ports Bill 2020
for public consultation.
About the Draft bill
• It will repeal and replace Indian Ports Act,
1908 to create an enabling environment for the
growth and sustained development of the
ports sector in India.
• Key Features in the bill:
o Constitution of Maritime Port Regulatory
Authority with following functions:
ü To advise the Central Government on
matters relating to the National Port
Policy and Plan.
ü Formulate short-term and perspective
plans for development of the Port
Sector.
ü Co-ordinate the activities of the
planning agencies for optimal Significance of draft Bill
utilization of the Coastline of India to • Better port Conservation: It will provide measures to
sub serve the interest of the national facilitate conservation of ports, taking into account the
economy. prevalent situation with respect to the high number of non-
o Formulation of the National Port policy operational ports.
and National Port plan in consultation • Bring investment: It shall further ensure greater investment
in the Indian maritime and ports sector through the creation
with Coastal State Governments, State
of improved, comprehensive regulatory frameworks for the
Maritime Boards and other stakeholders. creation of new ports and management of existing ports.
o Formulation of specialised Adjudicatory • Simplified regulations: It seeks to provide increased
Tribunals namely Maritime Ports Tribunal opportunities for public and private investments in the
and Maritime Ports Appellate Tribunal to Indian maritime and ports sector by way of removing
curb any anti-competitive practices and barriers to entry, simplifying processes and establishment of
act as a speedy and affordable grievance agencies and bodies to plan and enable growth of the ports
redressal mechanism. sector.
• Sustainable development: Provisions of the Bill would
India’s potential in port sector
ensure safety, security, pollution control, performance
• India is strategically located on the world’s standards and sustainability of Ports and also incorporate all
shipping routes with a coastline of conventions /protocols to which India is a party.
approximately 7,517 km and 14,500 km of • Impetus to self reliance: Enhancing ‘Ease of Doing Business’,
potentially navigable waterways. it will provide greater impetus to a self-reliant domestic
• Maritime transport handles around 70% of investment climate in the maritime sector, towards
India’s trading in value terms. Aatmanirbhar Bharat initiatives of the government.
• India has 204 ports, out of which 12 are major ones and handle 55% of the cargo traffic.
o Major ports together had handled around 700 million tonnes (MT) of cargo during 2018-19.

o Jawaharlal Nehru Port Trust is the largest major port in India.
• Port development in India is a concurrent subject.
o Presently, Major ports are regulated by central government under Major Ports Act, 1963 and non-major
ports governed by state governments under the Indian Ports Act 1908.
o Gujarat accounts for ~70% of non-major port cargo, while Andhra Pradesh accounts for ~16%,
Maharashtra, ~7% and Odisha, ~4%
Other major steps taken for port sector
• Cargo traffic in the country is expected to rise
• Major Port Authorities Bill 2020: Lok Sabha recently
to 2,500 MT by 2024-25.
passed this bill which seeks to provide autonomy to India’s
o The government has also introduced major ports and improve their efficiency and
various fiscal and non-fiscal incentives for competitiveness.
enterprises that develop, maintain and • Sagarmala project: Launched in 2015 to strengthen port
operate ports, inland waterways and infrastructure and enhance capacity, improve operational
shipbuilding in India. efficiencies etc.
• Central Port Authority (CPA) Act: This law was passed in
Challenges faced by Port sector in India
2016 to grant more autonomy to the major ports.
• Port congestion, customs clearance, shipping • National Maritime Development Programme (NMDP): It
line issues & charges, documentation & is an initiative to develop the maritime sector, with an
paperwork, and regulatory clearance. outlay of USD 11.8 billion.
• Lack of standardized operations: Costs and • Foreign Direct Investment (FDI): It has allowed FDI of up
to 100% under the automatic route for port and harbour
time for key processes are unpredictable and
construction and maintenance projects.
there is an unacceptable level of variation
across ports as well as within the port.
• Lack of private participation: Financial viability of port projects is a major deterrent for private developers as
well as financiers.
• Red-tapism: Because of delays in obtaining government approvals, environmental clearances, as well as
compliance with coastal regulations.
• High Turnaround time: Because of issues like inadequate road networks within the port area, inadequate
cargo-handling etc.
• Lack of infrastructure: Equipment incapable of handling large volumes, deficient dredging capabilities,
outdated navigational aids and IT systems, lack of proper logistics companies, lack of proper equipment
handling training etc.
• Poor connectivity: Poor hinterland connectivity, road, and railway problems make it challenging to export
goods in a timely manner in India.
Other steps that can be taken to enhance port sector in India
• Complete relaxation of cabotage: To enhance shipping capacity for coastal movement and facilitate
availability of adequate vessels at lower cost.
o Cabotage is the restriction of the operation of sea, air, or other transport services within or into a particular
country to that country's own transport services.
• Increasing investments and cargo traffic point towards a healthy outlook for the Indian ports sector:
Providers of services such as operation and maintenance (O&M), pilotage and harbouring and marine assets
such as barges and dredgers are benefiting from these investments.
• Digital transformation in shipping: Through technologies such as Internet of Things (IoT), Blockchain, Machine
Learning, Artificial Intelligence (AI), Analytics, and Augmented & Virtual Reality shipping process can be made
faster and hassle-free.
• Certain policy reforms: It should be aimed at upgrading infrastructure at Indian ports, implementing new
land policy for major ports, establishing a port regulator at all ports to monitor and regulate services and
technical and performance standards, simplifying the environmental clearance process for port projects,
establishing a special purpose vehicle for making investments in ports, developing major new ports, and so
on.

3.3. FARM MECHANISATION
Why in news? Initiatives taken by the government
The government is focusing on farm mechanisation • Sub mission on Agricultural Mechanization (SMAM) was
with a target to double farm mechanization per launched in 2014- 15 to increase the reach of farm
hectare in next 10 years. mechanization to small and marginal farmers and to the
regions where availability of farm power is low.
About Farm Mechanisation o Under the scheme, assistance is provided to State
governments to impart training and demonstration
• It refers to the development and use of
of agricultural machinery, provides assistance to
machines that can take the place of human and farmers for procurement of various agricultural
animal power in agricultural processes with the machineries and equipment and for setting up of
end objective to enhance the overall Custom Hiring Centre.
productivity and production with the lowest • Multilingual Mobile App, 'CHC-Farm Machinery' also
cost of production. known as “FARMS-app” developed by Ministry of
• Farm mechanisation in India stands at about 40- Agriculture, connects farmers with Custom Hiring Service
45% with states such as UP, Haryana and Punjab Centres situated in their locality to take machines on
having very high mechanisation levels but north rental basis for agriculture practices.
eastern states having negligible mechanisation. • Government has given massive thrust to promoting
latest agricultural machineries, like laser leveller, happy
o However, it has been lower in India
seeder technology, combine harvesters and small
compared to other countries such as USA equipment like power weeders.
(95 per cent), Brazil (75 per cent) and China • Crop Residue Management (CRM) scheme by Ministry of
(57 per cent). Agriculture & Farmers Welfare was initiated in 2018 with
• Farm mechanization market in India has been an objective of moving away farmers of northern region
growing at a CAGR of 7.53 per cent during 2016- from the practice of crop residue burning causing
2018 due to thrust given by various government pollution.
policies. This is also reflected by increasing sale o Under the scheme farmers are provided machinery
of tractors in India. for in-situ management of crop residue through
o Indian tractor industries have emerged as establishment of CHCs (Custom Hiring Centres).
the largest in the world and account for about one- third of total global tractor production.
• Factors emphasizing the need for Farm Mechanization includes:
o Increased migration of rural workers to urban areas increases the cost of farm labour. According to the
World Bank estimates, percentage of agricultural workers in total work force would drop to 25.7% by 2050
from 58.2% in 2001.
o Due to intensive involvement of labour in different farm operations, there is a need for high cost
machinery for better turnout in shorter time.
o Sustainable agricultural productivity.
o Over dependence on monsoons.
o The use of tractors enhanced agricultural productivity due to better seed-bed preparation, timeliness of
operations and precision in distribution and placement of seed and fertilizer.
Benefits of Farm mechanisation
• Input savings: Studies have shown a direct relationship between farm mechanization (farm power availability)
and farm yield. Farm mechanization is said to provide a number of input savings:
o Seeds (approximately 15-20 percent)
o Fertilizers (approximately 15-20 percent)
• Increase in efficiency: It is estimated that farm mechanization can help reduce time by approximately 15-20
percent thus increasing the efficiency of farm labour and reducing drudgery and workloads. Additionally, it
helps in improving the harvest and reducing the post-harvest losses and improving the quality of cultivation.
• Social benefits: There are various social benefits of farm mechanization:
o It helps in conversion of uncultivable land to agricultural land through advanced tilling techniques and
also in shifting land used for feed and fodder cultivation by draught animals towards food production.
o Decrease in workload on women as a direct consequence of the improved efficiency of labour.
o Improvement in the safety of farm practices.

o Helps in encouraging the youth to join farming and attract more people to work and live in rural areas.
• Dealing with increasing cost of labour: The cost of deploying labour for agriculture operation is increasing
substantially. For instance, daily wages of men has increased from approx. Rs. 70 in 2006-07 to nearly Rs. 230
in 2013-14. Farm mechanization is the way to reduce labour cost and can reduce the cost of farming by 20
per cent.
• Improvement in the cropping intensity and making agricultural land commercially more viable: Effective use
of agriculture machinery helps to increase productivity & production of output, undertake timely farm
operations and enable the farmers to quickly rotate crops on the same land. This boosts farm output and thus
farm income.
• Sustainable Agriculture: Farm mechanization provides optimal utilization of land and water resources that
can influence the environmental footprint of agriculture leading to sustainable outcomes.
Challenges with farm mechanisation in India
• Economies of scale and operations:
o India has very small average land holding size (2.66 acres as per Agri Census, 2015-16) and that too is
scattered over different places in small parcels. This is making individual ownership of agriculture
machinery economically unviable. (In comparison, in U.S.A. the average size of a holding is about 145
acres and in Canada it is 235 acres).
o To ensure return on investment and make investment profitable in farm mechanization, area under
operation should be grown. Increasing the gross cropped area has limitations due to unavailability of
assured irrigation facility and unfavourable climatic conditions.
• Low income level of farmers: 86 percent of farmers in India are small and marginal and earns on an average
Rs 6,426 per month as per 2016 NSSO report. This hinders huge investment needed for mechanisation of
agriculture.
• Credit procedure: The procedure to avail agriculture term loan for various activities helping farm
mechanization is very cumbersome. Also, the rate of interest is higher for such loans in comparison to crop
loans.
• Subsidy limitations: Farm mechanization requires substantial investment. Central Govt. and various State
Govts. have been providing subsidy for Individual/ Group of farmers/ Cooperative to invest. These subsidies
are however available based on the budget allocation, and not on farmer’s requirement basis.
• Dependent population: The level of farm mechanization behaves inversely with population engaged in the
agriculture. 70 percent of India’s rural households still depend primarily on agriculture for their livelihood.
Unless and until, there is lucrative alternate option for Recommendations of Committee on Doubling
livelihood, promotion of farm mechanization will not be Farmers’ Income headed by Ashok Dalwai
successful. • Farm power: The consumption of farm power in
• Low awareness: Farm mechanization, is viewed as only India stands at an average of 2.02 kW/ha in
usage of tractors, power tillers, combine harvesters and 2017-18 and compares very poorly even with
threshers. There are many other machines suitable for Asia-Pacific countries. A target of at least 4
small land holdings and can be used by even individual kw/ha should be the aim by 2022.
farmers. Farmers are not aware about these kind of • R&D: Considering the preponderance of small &
machineries and implements and methods of using marginal holdings in the country, R and D should
aim at developing and designing scale-neutral
them.
machinery. Further, machinery that can suit
• Variability in farm power: Power availability varies different terrain of the geography deserves
highly from one state to the other as well as according priority attention.
to the agro-climatic regions. Lack of access to power • ‘State/Regional Services’ possessing more
results in slow uptake of farm mechanization and hence sophisticated and heavier machineries, that can
non-intensification of farm productivity, particularly service larger areas to meet certain specific
among small and marginal farmers. demands; and also possess ICT/GIS/ Space
technology based services.
Way forward
• CHCs at different levels, should be supported to
• Consolidation of land holdings: Small farmers will broaden their technologies to include modern
continue to be the mainstay of Indian agriculture. It is, systems like drones, sensor based applications,
therefore, necessary to consolidate the land holdings to etc. and also those needed in the sub-sectors of
reap the benefits of agricultural mechanization. animal husbandry, fisheries, etc.

• Small farm machineries / implements (individually operated) need to be promoted keeping in view the
versatility of various crops, cropping pattern and agriculture operations.
• Advanced machineries and implements: ‘Make in India’ initiative can be used to support the manufacture of
inputs and farm implements currently being imported. This would help in reducing the overall capital cost.
• Need to innovate custom hiring service or a rental model by institutionalization for high cost farm machinery
such as combine harvester, Sugarcane harvester, paddy transplanter, laser guided land leveller etc. to reduce
the cost of operation.
• Ease of financing : Like KCC, procedures to avail term loan may be simplified with minimum documentation.
Capacity building of bank staff dealing with agriculture term loan products may be ensured.

3. ECONOMY
3.1. REGULATION OF NBFCS
Why in news?
Recently, the RBI has proposed a significant shift in its regulatory approach towards India’s non-banking financial
companies (NBFCs).
What is a NBFC and what role does it play in India’s Banking sector?
A NBFC is a company registered under the Companies Act, 1956 engaged in the business of loans and advances,
acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other
marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business etc.
Following can be cited as key characteristics of NBFCs:
• NBFCs do not include any institution whose principal business is that of agriculture activity, industrial activity,
purchase or sale of any goods (other than securities) or providing any services and sale/purchase/
construction of immovable property.
• NBFCs are categorized:
o in terms of the type of liabilities into Deposit and Non-Deposit accepting NBFCs,
o non deposit taking NBFCs by their size into systemically important and other non-deposit holding
companies (NBFC-NDSI and NBFC-ND) and
o by the kind of activity, they conduct.
• Major categories of NBFC include Asset Finance Companies, Investment companies, Loan companies,
Infrastructure Financing companies (IFCs), Systemically Important Core Investment Company (CIC-ND-SI),
Infrastructure Debt Funds (IDFs), NBFC-Micro Finance Institution (MFI), NBFC-Factors, Mortgage Guarantee
Companies (MGC) and NBFC- Non-Operative Financial Holding Company (NOFHC) among others.
• These companies get NBFC License with the
Reserve Bank of India (RBI). But they are
regulated by different agencies based on the
role they play. (See infographic)
Significance
NBFCs as a collective play a crucial role in the
banking sector by increasing the penetration of
financial products to unbanked areas, providing
innovative products for both rural and urban
customers, catering to the need of infrastructure
lending and to other areas where long term
financing is needed.
Status
In the recent times, the NBFC sector has seen
tremendous growth. For instance, in last five years
alone, size of balance sheet of NBFCs has more than
doubled from Rs 20.72 lakh crore (2015) to Rs 49.22
lakh crore (2020). As of now, there are close to
9,560 NBFCs in India.
Why is there a need for change in regulation of
NBFCs?
The growth of NBFCs has simultaneously generated
challenges vis-à-vis integration with other elements
of financial sector, management within NBFCs etc.

Following can be cited as immediate challenges which have generated the need for regulatory reform:
• Threat of systemic risks: Financial issues faced by key NBFCs like Infrastructure Lending and Financial Services
Limited (IL&FS) and Dewan Housing Finance Corporation Limited (DHFL) has raised the threat of systemic risks
posed by the NBFC sector to the overall financial sector.
o The crises faced by IL&FS can be primarily attributed to the Asset-Liability Mismatch (ALM) due to short-
term borrowing alongside investments in infrastructure projects with long gestation periods.
o The crises faced by IL&FS lowered the credibility of all major NBFCs. Alongside this, DHFL faced an
allegation that its promotors were involved in a scam to siphon of money. Compounding these factors,
share of DHFL plummeted and is currently struggling to pay INR 900 crore worth of debt.
• Allowing large NBFCs to seamlessly become banks: Recently, RBI’s Internal Working Group (IWG) has revised
the licensing norms for the Banking Industry. Since key NBFCs are to potentially become Banks, there is a need
to bring consistency in regulation of Banks and NBFCs, so that the transition of NBFCs to Banks is seamless.
o For example, if a large NBFC has a Capital Adequacy Ratio (CAR) similar to banks, it would be easier for it
transition to become a bank as compared to with a lower CAR.
• Emergence of FinTech Sector: Emergence of the Financial Technology sector has changed the way Banking
sector operates by creating innovative financial services which do not fit in traditional definitions. In this light,
reforms in regulation of NBFCs can bring synergy between seamless operation and interaction of Banks, NBFCs
and newly emerging element of FinTech.
What are the changes that RBI has proposed?
Broadly, RBI has proposed to move from a general approach of light touch regulation to one that monitors larger
players almost as closely as it
does banks. To enable this
idea, it has proposed
following changes:
• Creation of four-layer
regulatory framework
which includes a Base
layer, a Middle layer,
Upper layer and a Top
layer. The degree of
regulation in each sector
is proportional to the
perception of risk in that
sector.
• Classification change for
NPAs: It has also
proposed classification of non-performing assets (NPAs) of base layer NBFCs from 180 days to 90 days overdue.
What would be the potential impact of these changes?
• Balance between flexibility of NBFCs and the potential systemic risks: The four-layered structure entails a
largely laissez-faire approach for smaller NBFCs, plugging some of the arbitrages available to mid-sized NBFCs
vis-à-vis banks, and imposing tougher ‘bank-like’ capitalization, governance and monitoring norms for the
largest players and those which could pose a systemic risk due to the nature of their operations.
• Improved trust and confidence in the NBFC Sector: Stricter regulation by RBI alongside early reporting of
NPAs will instill confidence in the NBFC market potentially driving up the share prices, attracting more
depositors and translation to better credit ratings.
• Increased transparency in the sector: The primary issue that the NBFC sector faced was the lack of
transparency which created financial risks for the overall banking system. Thus, more transparency in NBFCs
via regulatory route would enable seamless flow of information, thus improving the transparency and risk
assessment for the whole financial sector.

Conclusion
Given the banking sector’s own woes over the past two years (PMC Bank, Yes Bank, Lakshmi Vilas Bank), a holistic
reboot of the oversight mechanism for NBFCs and banks is critical to retain confidence and maintain financial
stability. Regulation of NBFCs which can lend for activities banks often do not support, be it micro-loans or
infrastructure projects, if adequately formalized has the potential to ensure that the fledgling economic recovery
is not hampered by funding constraints.
3.2. DIGITAL LENDING

Why in news?
The Reserve Bank of India (RBI) has
constituted a working group on digital
lending.
More about news
• Recent spurt and popularity of
online lending platforms/ mobile
lending apps has raised certain
serious concerns which have wider
systemic implications.
• Against this backdrop, the
Working group is constituted by
RBI to study all aspects of digital lending activities in the regulated financial sector as well as by unregulated
players.
• The working group will evaluate digital lending activities and assess the penetration and standards of
outsourced digital lending activities in RBI regulated entities
• It will also identify the risks posed by unregulated
digital lending to financial stability, regulated
entities and consumers and recommend regulatory
or statutory measures and robust fair practices code
for digital lending players.
• RBI had earlier clarified that legitimate public
lending activities can be undertaken by banks, non-
banking financial companies (NBFCs) registered
with RBI and other entities that are regulated by the
State governments under statutory provisions, such
as the money lending acts of the States concerned.
• Further the RBI mandated digital lending platforms
used on behalf of banks and NBFCs to disclose name
of the bank or NBFC upfront to the customers.
About digital lending
• Digital lending is the process of offering loans that
are applied for, disbursed, and managed through
digital channels, in which lenders use digitized data
to inform credit decisions and build intelligent
customer engagement.
• The digital lending ecosystem is complex and
evolving. Around the world, digital lending models
(see infographic) are characterized by distinct
market structures, regulatory environments, and
customer needs.

• In India government already created stack of public digital identity, payments, and documentation
infrastructure, which conducive to digital lending.
• Also, Aadhaar Enabled Payments System (AEPS) and high smartphone penetration and a focus on digital
India programme adds complements to India’s enabling regulation.
How digital lending will impact financial service ecosystem in India?
• Efficiency and reach: Digital lending are enabling financial service providers (FSPs) to offer better products to
more underserved clients in faster, fair, efficient and inclusive manner.
• Innovation and competitiveness: Cost-efficiency gains from FinTech models drive product innovation, which
will diversify and specialise
business models to target
wider markets. Also, it will
increase participation of non-
traditional players.
• Credit risk management:
Enhancements to
underwriting/ credit models
using data from non-traditional
data sources will improve
robustness in credit risk
management.
• Ecosystem of growth and
partnership: Supportive and
collaborative regulators will aid
further growth of the FinTech
ecosystem in convenience of
segmentation, targeting and
positioning (STP) online models
and consumers to increase financial inclusion and mobile penetration.
What are the challenges faced by the digital lending ecosystem in India?
• Unauthorised digital lenders: There are cases about individuals and small businesses falling prey to a growing
number of unauthorised digital lending platforms/mobile apps.
• Over-indebtedness and NPA: Taking out multiple simultaneous loans due to ease of access, limited or no
evaluation of capacity to repay, limited customer understanding, could lead to over-indebtedness of
consumers and NPA of lenders.
• High interest rates and aggressive collection: Unauthorised digital lending platforms are charging excessive
rates of interest and high-handed recovery methods.
• Data privacy: There are concerns raised about misuse of agreements to access data on the mobile phones of
the borrowers by digital lending platforms.
How challenges in digital lending ecosystem can be tackled?
• National Lending Corporation (NLC): An umbrella body NLC focussed on regulation over lending on line of the
National Payments Corporation of India (NPCI) needs to be formed under the oversight of RBI.
• Use of technology: Application of artificial intelligence, machine learning, and blockchain in the lending space
should be increased to evaluate capacity of consumers to overcome problem of Over-indebtedness and NPA.
• Financial literacy: It is vital to make aware consumers about frauds by unauthorised digital lenders and
understand the digital lending ecosystem well.
• Data protection: There must be clear guidelines to ensure data security, privacy and confidentiality of
consumers.
• Code of conduct: Digital lenders should proactively develop and commit to a code of conduct that outlines the
principles of integrity, transparency and consumer protection, with clear standards of disclosure and grievance
redressal.

3.3. STARTUP ECOSYSTEM IN INDIA
Why in news?
Recently, Prime Minister inaugurated the ‘Prarambh: Startup India International Summit’. This is the largest
Startup India International Summit organized by the Government of India since the launch of the Startup India
Initiative in 2016.
More on news
• Prarambh is expected to bring together top policy makers, industry, academia, investors, startups and all
stakeholders from across the globe in order to attain objectives like-
o Deliberating on good practices from best of the ecosystems across the world.
o Showcase the spread and depth of entrepreneurship based on innovation in India.
o Attain attention of global capital for startups in India, mobilize domestic capital, provide opportunities
for accessing international markets and evolve enabling policy provisions.
• It is being organized by Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of
Commerce and Industry.
• Over 25 countries and more than 200 global speakers including members of BIMSTEC (Bay of Bengal Initiative
for Multi-Sectoral Technical and Economic Cooperation) countries participated in the inaugural event.
What is a Start-up?
The Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry has defined a start-
up as an entity that is incorporated as a private limited company (as defined in the Companies Act, 2013) or
Registered as a partnership firm (under the Partnership Act, 1932) or Registered as a limited liability partnership
(under the Limited Liability Partnership Act, 2008) in India.
Furthermore, the department has stated that, an entity will be considered a start-up:
• Up to a period of ten years from the date of incorporation/registration,
• Provided it has an annual turnover not exceeding Rs 100 crore in any preceding financial year,
• If it works towards innovation, development or improvement of products or processes or services, or if it's a
scalable business model with a high potential of employment generation or wealth creation.
What is current status of Start-up Ecosystem in
Socio-economic impact created by startups
India?
Startups have showcased positive disruptive impact in the
• India is currently the third-largest startup economic sphere with encouraging employment, accelerating
ecosystem in the world with close to 38 adoption of technology and filling the prevalent economic gaps.
unicorns (as of 2019) and with a collective Alongside, the startups are also changing the demographic
characteristics of today’s business-
valuation at around $130 billion.
• 44 per cent recognized startups have women directors and
• Growth of the Start-up has increased at an
number of women working in these start up is very high.
average rate 15% year on year. Also, this • 45 per cent startups are in tier 2 and tier 3 cities, working as
growth in not limited to one or two sectors the brand ambassadors of the local products.
but is spread across sectors. • Every state is supporting and incubating startups as per local
o Enormous growth has been experienced possibilities and 80 percent of districts of the country are now
in technology centric startups in health part of the Startup India mission.
sector, education sector, agriculture etc. • Youth from all types of background are able to realize their
employing latest technologies like potential in this ecosystem resulting in a mindset change
Internet of Things, Blockchain, Artificial from aspiring for a job to being a job creator.
Intelligence among others.
What are the challenges Startup face in the current ecosystem?
• Raising funds: A recent report indicated that 85% of the new companies are underfunded in the Indian startup
parlance. Primary reason for this can be cited as weak Venture Capitalist and Angel investor framework
alongside low risk appetite of the Indian market.

• Revenue generation: Startups generally require a certain amount of incubation time before they are able to
generate revenue. This support remains inconsistent and also, difficulty in finding orders further compounds
the revenue problem.
• Inadequate supporting infrastructure: The supporting infrastructure in the form of technology parks, logistical
availability, business development centres still remains sporadic.
• Bureaucratic hurdles: Hurdles like poor Ease of Doing business in the form large number of regulatory
compliances, complex labour laws etc. and inconsistent stance on emerging technologies like cryptocurrency,
5G among other further complicate the growth process.
• Lack of mentorship and support: Most of startups have brilliant ideas and/or products, but have little or no
industry, business and market experience to get the products to the market. In this context, absence of this
institutional ecosystem could bring a potentially good idea to an end.
How Startup India initiative aims to help address these challenges and encourage startups?
Launched in 2016, Startup India is a flagship initiative of the Government of India, intended to catalyse startup
culture and build a strong
and inclusive ecosystem for
innovation and
entrepreneurship in India.
Startup India Initiative has
rolled out several programs.
These programs are
managed by a dedicated
Startup India Team, which
reports to DPIIT.
Startup India aims at
resolution of problems via a
3-pronged strategy. (Refer
infographic)
With the completion of 5
years of Startup India, its
contribution to Startup
ecosystem can be seen on
following lines-
• Between 2016 and
August 2020, Startup
India programme has
recognised over 34,800
startups.
• Over $1 Mn worth
benefits were given to
5,500 startups as part of
over 150 startup
innovation programmes
and challenges
organised by Startup
India. Also, Incubators
and accelerators have
grown by 11% reaching close to a number of 5,000.
• Over INR 3000 Cr has been committed by the government to 47 venture capital firms and similar amount
has already been invested in 323 startups from the fund of funds corpus managed by Startup India through
Invest India.

• Startup India enabled global market access and knowledge for Indian startups through bilateral government
collaborations with Russia, South Korea, Portugal, Japan, Netherlands, United Kingdom, Sweden, Finland,
Israel, and Singapore.
o Also known as a Startup Bridge, these collaborations enable startups, investors, incubators, accelerators
and aspiring entrepreneurs of both countries to connect with one another by providing them with
resources to expand and become global entities.
• More than 8,000 startups have been registered on Government e-Marketplace (GeM portal), with whom
government has done business worth 2300 crore.
• The base created by Startup
India enabled growth of
startups even in COVID times.
For instance, 11 start-ups
entered the ‘unicorn club’ in
2020.
Despite these initiatives the
startup ecosystem is still hindered
by systemic challenges like poor
ease of doing business in the form
of bureaucratic hurdles, limited
capital availability in the market,
absence of culture of innovation
in higher education institutions
and most importantly the disproportionate level of risk that the entrepreneurs have to take.
Way forward
In the light of these challenges, initiatives for startups should be complemented with structural changes such as
creation of large scale infrastructure, encouraging innovation in education, strengthening industry-academia
linkage and making entrepreneurship inclusive vis-à-vis region, gender, caste or socio-economic status. Providing
these linkages to the Startup ecosystem will be essential in ensuring the idea of a- ‘Of the Youth, By the Youth,
For the Youth’ startup ecosystem.
3.4. FIXED TERM EMPLOYMENT

Why in news?
The Ministry of Labour and Employment (Ministry) has notified the draft of the Model Standing Orders, 2020 for
all manufacturing, mining and services sector. The draft document has explicitly mentioned Fixed Term
Employment as one of the classifications of a worker.
More on news
• The draft order has inserted fixed-term employment as a category of employment but has removed “casual
work" from the list. The list includes six categories of workers, namely Permanent, Temporary, Apprentices,
Probationers, Badlis and Fixed Term Employment.
o A badli is a worker who is appointed against the post of a permanent worker or probationer who is
temporarily absent.
• The draft order will be applicable to all manufacturing and mining establishments with 300 or more workers.
• The order will be finalized and integrated with the Industrial Relations Code Act 2020 after receiving feedback
from experts, academics, and others.
Background on Statutory status of Fixed Term Employment
• As per the Industrial Employment (Standing Order) Act 1946, Fixed-term employment was initially made available
only to apparel manufacturing sector in 2016 and then to Footwear manufacturing sector in 2017 through
amendments.
• Industrial Employment (Standing Orders) Central (Amendment) Rules, 2018 allowed all industries to hire workers on
contract with a fixed tenure.
• On those lines, the Union Ministry of Labour (in 2018) had urged all States to issue separate orders permitting fixed-
term employment (FTE) across all industries.

What is Fixed Term Employment?
Broadly, fixed-term employment is a contract in which a company or an enterprise hires an employee for a specific
period of time. In most cases, it is for a year but can be renewed after the term expires depending on the
requirement.
The Standing Order has provided following facets with regard to fixed term employment-
• According to it, “Fixed-term employment” means the engagement of the worker on the basis of a written
contract of employment with an employer for a fixed period, but subject to following conditions-
o His hours of work, wages, allowances and other benefits shall not be less than that of a permanent
worker doing the same work or work of similar nature.
o He shall be available for all statutory benefits available to a permanent worker proportionately according
to the period of service rendered by him even if his period of employment does not extend to the
qualifying period of employment required in the statute.
o He shall be available for gratuity, if he renders service under the contract for a period of one year.
(Gratuity refers to a sum of money paid to an employee at the end of a period of employment.)
o For every completed year of service or part thereof in excess of six months, the employer shall pay
gratuity to the worker at the rate of 15 days wages.
• The order has also clarified that termination of the service of a worker as a result of completion of tenure will
not be considered as retrenchment.
• The draft proposes that salary payment will be more transparent and all remuneration will be paid within a
maximum of seven days after completion of the wage period of a worker.
• It also states that the wage rates should be displayed on an electronic device or notice board and website or
human resources portal of the industrial establishment in Hindi, English or the local language in which
majority of the workers are conversant.
• Unlike most countries, there is no cap on the number of times private firms can renew fixed-term contracts
in India.

What was the need for introducing fixed term employment?
• Demand of changing work culture and new forms of employment: In response to the growing gig-economy
and entrepreneurial culture, statutory flexibility has been increased vis-à-vis expansion of definition of
employment.
• Need of seasonal and demand based industries: Some industrial sectors like leather-based industries, textile
market, meals industries and many others are seasonal or demand based in nature. The option of fixed term
employment enables employers to tap the talented workforce for a short period of time.
• Elimination of middlemen: Within the new framework, and in conjunction with the Industrial Relations Code
(IRC 2020), firms will be able to directly hire contract workers through the fixed-term contract without a middle
man in the way.
• Delay in payment to workers: Delay in payment of remuneration has been a constant debate for decades and
several industrial confrontations, including the recent one at iPhone manufacturer Wistron in Karnataka, was
believed to have been linked to delay in payment to workers. The provision of release of renumeration within
7 days in the order will help address the same.
• Alternative for contractual employment: Under Fixed term employment, the person shall be eligible for
getting all advantages which can be found for permanent workman for a similar work content material, in
contrast to the contractual work.
What are concerns associated with it?
• Potential threat to job security: While industries favour fixed-term employment, trade unions have been
against it claiming that it goes against the concept of job security.
o For instance, trade unions have been apprehensive of the ambiguity in conversion of currently permanent
employees to fixed term employment. Although, government has assured that no permanent employee
will be moved to fixed term employment.
• Difficulty in enforcement of agreements: The basis for Fixed-term employment is a written contract, which
will be difficult for employees to enforce given that financial capacity and ability to clearly understand the
contracts for majority of the workforce is limited.
o Also, contractual employment arrangements can be misused. For example, illiterate workforce can be
subject to economic exploitation through deceptive contractual arrangements.
Way forward
The Notification is a step which signals the intent of the Central Government to retain India on the manufacturing
world map, without significantly compromising on labour interests. But its effectiveness will be subject to effective
implementation of the order and implementation of complementary labour reforms in the form of Labour
Codes.
3.5. COMMERCIAL COAL MINING

Why in news?
Coal in India
Recently, a new online single window • India has the world’s fifth-largest reserves of coal, yet it is the world’s
clearance portal was launched to second-largest importer.
speed up the operationalization of o In 2019, India imported about 235 million tonnes of coal (both
coal mines alongside the signing thermal and coking coal) mainly from Indonesia, South Africa,
ceremony for the first tranche of coal Australia, and Russia.
blocks to be auctioned for • Currently, India produces about 729 million tonnes of coal per year with
commercial use. 83% of the production coming from Coal India Ltd (CIL).
Background • Coal fired plants accounts for 72% of India’s electricity generation.
• Coal reserves are located mainly in states of: Jharkhand, Odisha,
• Through ‘the Coal Mining Chhattisgarh, West Bengal, Madya Pradesh, Telangana, Maharashtra.
Nationalisation (CMN) Act, 1973’ • Indian coal reserves are primarily of Lignite and Bituminous types (other
all the coal mines were handed two types are Peat and Anthracite.
over to the government-owned • Indian coal has lower calorific value and high ash content.
Coal India Limited.
o Before the 1970s, coal sector consisted mostly of private coal mines. Nationalisation was needed to
improve the poor working and living conditions and poor safety standards for labour.

• As the economy was liberalized, in 1993 the CMN Act, 1973 was amended to allow captive mining by Private
companies, and Public Sector Undertaking (PSUs) (for use in their own industrial units) in the power, steel,
cement, aluminum sectors.
• But theses mine allotments were cancelled by the Supreme Court in 2014 on the grounds that they were
made arbitrarily.
• Therefore, Coal Mines (Special Provisions) Act, 2015 was passed paving the way for captive coal mining
through auction.
• Mineral Laws (Amendment) Act, 2020 was enacted for amendments in Mines & Mineral (Development and
Regulation) Act 1957 and the Coal Mines (Special Provisions) Act, 2015 to end the captive coal regime and
clearing the path for commercial coal mining.
Legislative framework on mining
• In the federal structure of India, the State Governments are the owners of minerals located within their respective
boundaries. The Central Government is the owner of the minerals underlying the ocean within the territorial waters
or the Exclusive Economic Zone (EEZ) of India.
• The regulatory framework for the mining industry is governed by both Central and State laws by virtue of the Seventh
Schedule of Constitution of India.
o ‘Regulation of mines and mineral development’ in the State list is subject to the provision of Union list of the 7th
schedule of the Constitution.
o Union list states that the ‘Regulation of mines and mineral development to the extent to which such regulation
and development under the control of the Union is declared by Parliament by law to be expedient in the public
interest.’
• Accordingly, Parliament passed the legislation ‘Mines & Minerals (Development and Regulation) (MMDR) Act, 1957
for governing the mineral sector (other than Petroleum and Natural Gas) of the Country.
• Under MMDR Act, 1957, matters relating to regulation of mining of minor minerals and control of illegal mining of all
minerals lie in the domain of State Governments.
o The Ministry of Mines notifies ‘minor minerals’ which at present are 55.
• In the case of ‘major minerals’, States substantially regulate and develop minerals subject to provisions of the Act.
o In the case of Coal, Lignite and Atomic Minerals, States are required to take prior approval of the Central
Government to grant concessions.
• The Central Government retains the power of revision, fixation of royalty etc. in respect of major minerals.
• The Ministry of Coal determines policies and strategies in respect of exploration and development of coal and lignite
reserves, sanctioning of important projects of high value and related issues.
About New commercial coal mining regime
Commercial mining allows the private sector to mine coal commercially without placing any end-use restrictions.
The private firms have the option of either gasification of the coal or exporting it. They can also use it in their own
end-use plants or sell them in the markets. Key features of new regime:
• No previous mining experience is required for participating in bidding.
• 100% foreign direct investment (FDI) through automatic rule is allowed for coal mining.
• The revenue sharing will be on an ad valorem (the value of the transaction) basis and not on the basis of a
fixed amount.
• The present bidding terms also allow other minerals to be extracted from these blocks.
• The Ministry of coal will help the private sector in getting statutory approvals like environment and other
approvals.
Benefits from commercial coal mining
• Reducing India’s dependence on import: India meets a fifth of its annual requirement of coal through imports
which costs about Rs 1 lakh crore. Commercial coal mining can cut the import bill by Rs 30,000 crore.
• Modernizing the coal sector: The expectation is that the new mining majors will set new benchmarks in terms
of mechanization, automation, mining practices, etc. Thus, the new regime will spur improvements across the
industry.
• Enhancing productivity of the coal sector: By ending the monopoly of CIL and bringing in competition. Also,
earlier captive coal mining entities had no incentive to enhance their production beyond their own needs.
• Meeting the demand: To meet its growth requirements and become self-sufficient, India need to expand its
production to 1,500 million tonnes per year.

• Revenue for the State: In captive coal mining companies were not required to pay royalty to states as mined
coal was meant for their own end use. But mines auctioned under new norms will generate total revenues of
around Rs 7,000 crore per annum.
• Development of aspirational districts: Most of the mines auctioned under new norms are in aspirational
districts. These mines would create more than 69,000 jobs once they are operationalised. Central Government
will also spend money in creating infrastructure in these regions that means additional job and economic
opportunity to such districts.
Hurdles in India’s new commercial coal regime
• Opposition from state governments that may ensue legal battles: Jharkhand government has challenged the
auctions under the new regime arguing that it stands to lose vital forest cover, its tribal communities will be
displaced, and yet it hasn’t been consulted.
• Purported shallow competition which may keep bid prices low: This is due to a smaller number of bidders as the
auctions are held in the middle of COVID-19 pandemic. Additionally, no foreign firm has placed a bid as there
is declining trend in corporate and financial interest in coal due to rising concerns over its environmental and
social fallouts.
• Eligibility criteria are broad enough to encourage non-serious bidding: Non serious bidders may use coal mines as
assets to leverage in the market, without any intention of actually mining them as happened during the 2000s.
• Deep pockets and risk management capabilities are needed for beginning the production: After winning a
coal auction state and mining permits are required, rehabilitation and resettlement needs to be managed.
Very few firms in India today have the financial and risk management capabilities to go through all of this.
Further steps required to make the new commercial coal regime a success
• Addressing the concerns of the state regarding their declining revenue share: There are massive community
and environmental externalities of coal mining borne by states harbouring these mines. Under new regime
states would lose an estimated Rs. 48 to Rs. 115 per tonne.
o Therefore, improving the design of auction is needed to address the revenue concern of States. This would
also do away any prospective legal challenge by states by bringing them on board.
• Enact ‘Sustainable Coal Mining Code’ for removing the overlapping jurisdictions of multiple bodies: The code
should consolidate all statutory provisions governing opening/closing and environment/forest matters related
to coal mines. It should also establish an independent, multi-disciplinary unified authority for ensuring
compliance with various clearance and regulatory requirements.
• Indicating the recoverable reserves instead of geological reserves would attract more bidders: At present
the offer document for coal blocks indicate Geological reserves. This is a quasi-scientific estimation of the
reserves in a block which may or may not be extractable by employing usual technologies.
• Technological upgradation for making coal mining environmentally sustainable: Replacing blasting
technology with cutting technologies for producing coal, introduction of ‘in-pit' crushing, adoption of pipe belt
conveyors for transportation of coal to silos or railway sidings and transition to pan-India use of only washed
coal will help the sector.
o Incentives should be offered to bidders for adopting the state-of- the- art mining technologies. This
would ensure the infusion of new generation technology in the coal mining sector, where adoption of
new-age technologies has been practically non-existent or very slow
3.6. ELECTRICITY (RIGHTS OF CONSUMERS) RULES, 2020

Why in news?
Recently, Ministry of Power released Electricity (Rights of Consumers) Rules, 2020 which gives rights to
consumers to get the reliable services and quality electricity.
Electricity (Rights of Consumers) Rules, 2020
• These rules are framed under the Electricity Act, 2003, which has a consumer charter.
• These rules empower the consumers of electricity by allowing consumers in India to access continuous supply
of quality, reliable electricity.
• It lay down rights that make distribution companies (DISCOMs) more accountable to consumers.

• These rights will
o empower the consumers of electricity and ensure improved standard of living as it has influence on a
household’s use of appliances.
o ensure savings for the consumer. Direct savings to consumers come from lower energy cost and reactive
power tariffs. Indirect savings are gained by avoiding circumstances such as damage and premature aging
of equipment, loss of production or loss of data and work.
o further the ease of doing business across country.
Challenges in ensuring consumer Key areas are covered in the Electricity (Rights of consumers) Rules
rights • Rights of consumers and Obligations of Distribution licensees: Every
distribution licensee is obliged to supply electricity on request and the
• No mechanism for effective consumers have the right to have minimum standards of service.
monitoring: Due to lack of • Release of new connection and modification in existing connection:
effective mechanism it is Transparent, simple and time bound processes.
difficult to hold DISCOMs • Metering arrangement: No connection shall be given without a meter and it
accountable. This is the shall be the smart pre-payment meter or pre-payment meter.
reason why many states • Billing and Payment to pay bills online or offline.
despite having rules in place • Disconnection and Reconnection provisions.
could not protect consumers’ • Reliability of supply: Recognize 24x7 power supply to the consumers as their
rights as they could not right. However, for some categories like agriculture, power regulator may
implement the provision of specify lower hours of supply.
compensation in spirit. • Consumer as prosumer (those who consume as well as produce energy):
While prosumers will maintain consumer status, they will also have right to
• Purported conflict of interest:
set up Renewable Energy generation unit – either by themselves or through
The proposed Consumer a service provider.
Grievance Redressal Forum • Standards of Performance of licensee: Compensation amount to be paid to
which is supposed to remedy the consumers by the distribution licensees for violation of standards of
complaints against DISCOMs performance
would be headed by a senior • Compensation Mechanism: A consumer can claim compensation for no
officer of the DISCOMs. This supply, interrupted electricity supply, time taken for replacement of
causes conflict of interest and defective meters etc. from the discoms.
may result in decisions which • Call Centre for Consumer Services: Distribution licensee shall establish a
may go against the interests of centralised 24x7 toll-free call centre.
consumers, thereby eroding • Grievance redressal mechanism: Consumer Grievance Redressal Forum
(CGRF) which, would include consumer and prosumer representatives.
its credibility.
• Disparity amongst states: Many States
have not been able to provide quality Related information
supply, especially to rural and small • A recent joint study by Smart Power India (SPI), NITI Aayog and
the Rockefeller Foundation showed that
electricity consumers.
o Only 55% customers were satisfied with the quality of
o Guarantee of round the clock supply their electricity supply.
is a provision that the Rules o Appliance damages in the past one year played an important
emphasise, which might be missing role for the customers to decide upon the quality of supply
in State regulations. of power
• Ambiguity on net metering: Net o Overall, a total of 63% of the surveyed customers are
metering is a billing mechanism that satisfied with the service provided to them.
credits solar energy system owners for o 74% of the urban customers are satisfied with the reliability
the electricity they add to the grid. against the 60% satisfied customers in rural areas.
o Rules guarantee net metering for a solar rooftop unit less than 10 kW, but there is no clarity if those above
10 kW can also avail net metering. This could lead to a change in regulations in many States based on their
own interpretations. Leading to possibilities of litigation.
• People may not raise the complaint: In absence of public awareness, consumer complaint mechanism is,
generally, adopted by only few resourceful.
Way ahead
• Measuring the performance of DISCOMS: This could be done through Power Quality Indices.

o The Central Electricity Authority of India could be directed to collect supply quality data from DISCOMs,
publicly host them on online portals and prepare analysis reports.
• Consumer Grievance Redressal Forum: This office has a critical role to play in protecting the consumers’ rights,
hence there is need to ensure their effective role during grievances.
o For example: State regulations in Delhi strictly bar the DISCOM employee, who was in service in the last
two years, from being appointed as a forum member.
• Real time data reporting with smart systems: Mandating smart systems for networks which communicate
the real time information and power quality deviations existing in upstream and downstream to all
stakeholders.
• Power quality monitoring system: Mandating installation of power quality monitoring instruments at
transmission, sub-transmission and distribution substation. Monitoring frequency and responsibilities need to
be additionally incorporated in existing frameworks.
o Moreover, DISCOMs could be directed to ensure automatic metering at least at the 11 kV feeder level and
making this data available online.
• Consumer awareness programmes: State Electricity Regulatory Commission (SERRC) should organise public
processes to make consumers aware about their rights as well as to raise their concerns.
Conclusion
Good quality power supply is more requisite today than ever before and to fulfill the targets of SDG 7 to ensure
affordable, reliable, sustainable and modern energy for all. The consumer satisfaction will be cutting edge in the
competitive environment in the 21st century. Above all, without accountability, consumer compensation
remains elusive. Therefore, an effective mechanism to uphold accountability must be devised.
3.7. PRADHAN MANTRI KISAN SAMMAN NIDHI (PM-KISAN)

Why in News?
Recently, a RTI reply from Ministry of Agriculture revealed that PM-KISAN payments worth ₹1,364 crore have
been wrongly made to more than 20 lakh undeserving beneficiaries.
More on News
• As per the data, two categories of undeserving beneficiaries were identified- ineligible farmers (44.41%) and
income tax payee farmers (55.58%).
• A major chunk of these ineligible beneficiaries belonged to five states — Punjab, Assam, Maharashtra, Gujarat
and Uttar Pradesh.
About PM-KISAN Scheme
• It is a Central Sector Scheme with 100% funding from Government of India.
• Under the scheme Income support of Rs.6000/- per year is provided to all land holding farmer families across
the country, irrespective of land size, in three equal instalments of Rs.2000/- every four months.
o Amount is released by the Central Government directly into the bank accounts of the eligible farmers
under Direct Benefit Transfer mode.
• Objective of the scheme is to
o Provide income support to all landholding farmers' families (irrespective of the landholdings) in the
country.
o Supplement financial needs of farmers for procuring various inputs related to agriculture and allied
activities as well as domestic needs.
• Farmer's family is defined as a family comprising of husband, wife and minor children. There are around 11
crore beneficiaries registered under the scheme.
• Responsibility of identification of beneficiary farmer families rests with the State / UT governments.
• The benefit shall be paid to only those farmers families whose names are entered into the land records except
for Forest dwellers, North-eastern states and Jharkhand which has separates provisions for land records.
• Scheme provides exclusion criteria for certain category of farmers (refer infographic).

• Other Benefits provided by scheme include:
o Making farmers credit worthy as
financial institutions have assured cash
flow for this vulnerable section.
o Scheme has significantly stimulated the
Krishi Vigyan Kendra's impact on the
adoption of modern cultivators.
Issues identified
• Lack of Farmer Data Base: The scheme was
hurriedly announced, and the government
did not have proper database of farmers.
Many states like West Bengal, have delayed
or did not submit the data related to farmers.
• Difficulty in Identifying Beneficiary Farmers:
Land holding does not determine the
number of farmer families present in the
country as there are multiple owners for a
single land or a single owner for multiple
landholdings.
o For ex: Number of landholdings in Punjab
(agricultural census 2015-16) were 10.39
lakh but number of beneficiaries farmers
in PM-kisan data base list were 17.52
lakh till October 2019.
• Role of Banks: There are reports that several
bank branches adjusted the deposit money
against past liabilities of few farmers. This
kind of scenarios may lead to subversion of
the objectives of the income support
scheme.
• Neglect of lessee cultivators: Benefits accruing to lessee Similar Income support schemes
cultivators or sharecroppers under PM-KISAN have not • Telangana’s Rythu Bandhu scheme: provides
been explicitly mentioned. Also, identification of these Investment Support for Agriculture and
lessee cultivators continues to be a huge challenge. Horticulture crops by way of grant of Rs.
5,000/- per acre per farmer each season for
• Inadequate financial support: The amount offered by PM-
purchase of inputs like Seeds, Fertilizers,
KISAN, is largely insufficient for even bare minimum
Pesticides, Labour and other investments.
sustenance of vulnerable farmers. • Odisha’s Krushak Assistance for Livelihood
• Lack of grievance redressal mechanism: Scheme does not and Income Augmentation (KALIA) scheme:
provide a clear design of transfers and a framework for Provides financial, livelihood, cultivation
effective grievance redress. In such scenario, state support along with insurance support to
governments will struggle to resolve complaints and curb small, marginal and the landless farmers.
corruption.
Way Forward
• Strengthening IT backbone: States with robust IT infrastructure will be in a better position to implement PM-
KISAN.
• Targeting updation of land records: It will ensure that eligible cases are not deprived. Similarly, fraudulent
claims will also be avoided.
• Focus on other reforms: Any income support scheme can’t cover all the farm households and therefore,
enhancing investments in rural infrastructure (roads, irrigation, marketing infrastructure, etc.) and agri R&D
will be helpful.

• More freedom to states: A bottom-up strategy and well-planned implementation mechanism would allow
weaknesses to be identified and rectified at the local level. The most effective modalities can then be scaled
nationally.
• Better timing of providing installments: Reports highlight that farmers receiving PM-KISAN benefits in the
agricultural peak season are more likely to spend it on agriculture, and those getting it in the off-season are
more likely to spend it on consumption. As a result, improved timing of installments would improve the
efficacy of the schemes.
3.8. PM FASAL BIMA YOJNA

Why in news? Features of the PMFBY
PM Fasal Bima Yojna (PMFBY) has completed 5 years • Coverage of Farmers: All farmers growing notified
of its operation. crops in a notified area during the season who have
insurable interest in the crop are eligible.
About PMFBY • Coverage of Crops: State government notifies major
• PMFBY is a Central Government’s flagship crop crops for the Rabi and Kharif seasons.
insurance scheme launched in 2016 that replaced • Premium Rates: Farmers pay just 1.5 per cent
the earlier two schemes National Agricultural premium for rabi, 2 per cent premium for kharif and 5
Insurance Scheme and Modified NAIS. per cent for commercial crops. Balance premium is
paid by the state and central governments in equal
• It aims to provide insurance and financial
proportion.
support to farmers in the event of crop failure • Area-based Insurance Unit: all farmers in a particular
and targets to bring 50 per cent of cultivated area area must pay the same premium and have the same
under crop insurance to: claim payments. The area approach reduces the risk of
o stabilise farmer’s income, moral hazard and adverse selection.
o ensure the flow of credit and • Coverage of Risks: It aims to prevent sowing/planting
o encourage farmers to innovate and use risks, loss to standing crop, post-harvest losses and
modern agricultural practices. localised calamities. The sum insured is equal to the
cost of cultivation per hectare, multiplied by the area
Achievements of the scheme
of the notified crop proposed by the farmer for
The PMFBY was conceived as a milestone initiative to insurance.
provide a comprehensive risk solution at the lowest • Innovative Technology Use: It recommends using
uniform premium across the country for farmers. drones to estimate crop loss; and using mobile phones
• Average sum insured per hectare has increased to reduce delays in claim settlements.
from Rs 15,100 during the pre-PMFBY schemes to • Cluster Approach for Insurance Companies: It
encourages bidding amongst insurance companies
Rs 40,700 under PMFBY.
before being allocated to a district to ensure fair
• Covers over 5.5 crore farmer applications year on competition.
year and claims worth Rs. 90,000 crore paid as of
Jan 2021.
• Speedy claim settlement directly into the farmer accounts Rationale for Crop Insurance in India
through Aadhar linkage. • Small and marginal farmers with less than two
• During COVID-19 lock down period, 70 lakh hectares of land account for 86.2 percent of all
farmers benefitted and claims worth Rs. 8741.30 crores farmers in India but own only 47.3 percent of
were transferred. the crop area. Such small average holdings do
• The scheme was made voluntary for all farmers, (which not allow for surpluses that can financially
was one of the challenges in success of the scheme) after sustain families.
• 70 per cent of agricultural production is
its revamp in February 2020. Further, the states have also
vulnerable to vagaries of monsoon. Sixty per
been provided flexibility to rationalise the sum insured cent fluctuation in yield is caused by weather
so that adequate benefit can be availed by farmers. shocks which results in fluctuating incomes
Issues with the scheme and unstable livelihoods.
• Structural Issues: • The commercialisation of agriculture leads to
o Discretionary powers with the State government: It an increase in credit needs, but most small
is unclear how states should choose the major crops and marginal farmers cannot avail credit
during a season for different districts, which results in from formal institutions due to the massive
the exclusion of farmers who grow non-notified crops. defaulting caused by repeated crop failure.

o No provision for farmer’s revenue protection: Being only a yield-protection insurance, this scheme fails
to take into account revenue protection. In case of a low or negative wholesale prices of food articles,
farmers are rendered unable to breakeven their investment for crop production, and left with little income
security for the next season.
o Crop cutting experiments(CCE’s) to estimate crop loss are not reliable: There is a lack of trained
professionals to handle the CCEs, and the current technology is not reliable. This has led to delays in
assessment and settlement of claims.
o Lack of farmer awareness: According to the CAG, out of 5,993 farmers surveyed, only 37% were aware of
the schemes and knew the rates of premium, risk covered, claims, loss suffered, etc. highlighting the fact
that publicity of the schemes was not adequate or effective.
o Low participation of tenant farmers and sharecroppers due to non-uniform land lease policies of state
governments.
✓ For instance, leasing agricultural land is prohibited in Kerala and J&K, while states such as Bihar,
MP, UP and Telangana have conditions on who can lease out land, which prevents many tenant
farmers from buying insurance.
o No provision for competitive pricing: As per the scheme guidelines, every cluster has a specific insurance
company selling insurances, creating infrastructure and manpower for three years. Lack of competition
serves as a disincentive for insurance companies to improve or upgrade their products and pricing, and
creates a monopoly over a scheme.
o One-size fits all approach: All the farmers in the country have been treated as similar without any option
to choose an insurance that meets the specific needs of their region.
• Financial Issues:
o Delays in claim settlement: Claim settlements are not done as per 45-day norm by the insurance
companies. As on November 2019, insurance claims worth ₹25.11 billion had been due from more than 1
year. This has generated trust deficit among farmers.
✓ Payment of claims gets delayed due to reasons such as delayed transmission of yield data, late release
of their share in premium subsidy by some States, yield-related disputes between insurance
companies and States, etc.
o Impact on state finances: High premium as compared to claims paid by insurance firms has impacted state
finance and led to exit of state governments from PMFBY. For instance, Bihar discontinued PMFBY from
Kharif 2018–2019 and started Bihar Rajya Fasal Sahayata Yojana (BRFSY) crop insurance scheme.
o Skewed pattern of benefit ratio: It has been observed that only 50 districts have repeatedly accounted
for 50 per cent of all claims under PMFBY. Southern states of Kerala had the highest benefit ratio of 72 per
cent, followed by Karnataka (49%), Andhra Pradesh (47%), and Tamil Nadu (40%). Lowest benefit ratio
was obtained for Jharkhand (7%) and Bihar (8%).
Way forward to revamp the scheme
• Strict compliance with timelines for claim settlement to ensure adequate and timely compensation to
farmers. The claim-settlement chain or the logistics behind doling out claims must be improved to process
claims faster.
• Ensuring inclusivity: It is crucial to include women farmers, tenant farmers and sharecroppers to help
formalise this economy, protecting revenue and jobs. Inclusivity in the agricultural sector is key to achieving
the Sustainable Development Goals.
• Incentivising the development and use of technology: The use of remote-sensing, drones, satellite imagery
and digitisation of land records should be urgently promoted for effective implementation of the PMFBY.
States must fund, train and implement these practices to facilitate the success of this scheme.
• Competitive Pricing: The provision of at least two insurance companies in a cluster of villages in one state will
help farmers benefit from competitive pricing for insurance products.
• Increasing penetration of crop insurance: Mandatory awareness programmes on the benefits of crop
insurance must be developed and made available to farmers. Role of village-level authorities is crucial for
awareness and enrolment of farmers in crop insurance.
o In West Bengal, for instance, the gram panchayat, took aggressive efforts to promote State crop insurance
scheme and as a result, in the first year itself farmers adopting crop insurance registered a growth rate of
216.1 per cent as compared to 5.6 per cent at the national level.

• Linking crop insurance with climatic changes and redesigning insurance products to make them not just risk
transfer tools but a tool to reduce the risk and loss of crops.
• Offering insurance as priority insurance on the lines of priority sector lending can increase penetration of
crop insurance in rural areas.
Conclusion
An effective crop insurance system is crucial in cushioning income losses for farmers, financing inputs for
agricultural production, and increasing access to agricultural credit to boost agricultural productivity. Tackling the
fundamental flaws that exist in the scheme is necessary protect the vulnerable farming population and to
promote financialization and formalisation of the agricultural economy.
3.9. WORLD ECONOMIC SITUATION AND PROSPECTS REPORT 2021

Why in News?
Recently, United Nations Department of Economic and Social Affairs, United Nations Conference on Trade and
Development (UNCTAD) and the five United Nations regional commissions jointly released WESP report.
About the Report Findings related to India
• It is an annual UN flagship publication • Informal workers, accounting for over 80% of workers in
on the state of the world economy, Bangladesh, India and Pakistan have indeed been far more
viewed through the lens of the 2030 exposed to loss of employment than formal workers.
Agenda for Sustainable Development. • By mid-2020, unemployment rates had quickly escalated to
record highs of 23% in India.
• WESP 2021 report presents various
• India stands out in terms of building competitive services exports.
findings about world economy that was
• Ambient water quality improved during lockdowns, for example,
hit by a once-in-a-century crisis a Great in the Yamuna River and Sabarmati River in India.
Disruption unleashed by the COVID-19 • India’s economic growth has fallen from 4.7 per cent in 2019 to -
pandemic in 2020. 9.6 per cent in 2020, as lockdowns and other containment efforts
Key Highlights of report slashed domestic consumption without halting the spread of the
disease, despite drastic fiscal and monetary stimulus.
• Impact on economic growth
o World gross product fell by an estimated
4.3% in 2020—the sharpest contraction of
global output since the Great Depression.
In contrast, world output had shrunk by
1.7% during the Great Recession in 2009.
o Developed economies were hit the
hardest.
o Among G20 economies only China
managed to register a positive growth in
2020.
• Impact on Job loss and poverty
o Full or partial lockdown measures had
affected almost 2.7 billion workers, about 81% of the world’s workforce. Women have been particularly
hit by the pandemic, as they account for more than 50% jobs in labor-intensive service sectors.
o With the crisis accelerating the pace of digitalization, automation and changing economic structures,
millions of jobs that were lost in 2020 will not come back.
o Total number of people living in poverty is expected to increase by 131 million in 2020 alone.
• Massive fiscal responses prevented a Great Depression-like economic catastrophe worldwide. At 15.8%
($12.7 trillion) of world gross output in 2020, this is the largest fiscal response since the Second World War.
• Report warns about risks of financial instability due to excessive liquidity and low inflation, rising protectionist
tendencies, weakening the role of World Trade Organization.
• New technologies, accelerating the pace of digitalization and automation, are redefining comparative
advantages in global trade, bringing production systems closer to consumers. However, global digital divide
will place many developing countries at a competitive disadvantage.

Suggestions given in the report
• Report cautioned against austerity as it will inevitably weaken the speed and quality of the recovery and
undermine resilience to future shocks.
• Need for universal social protection is felt because of increasing vulnerability of hundreds of millions of
people to economic, health and environmental shocks.
• Developing countries need to reassess their development strategies and explore models of the dynamic com-
parative advantages to be derived from digitalization and the expansion of service-related activities.
• Global Value Chains (GVCs) should be more flexible and robust through diversification of the supply base and
a shortening of the distance between suppliers and the retail base.
• The pandemic responses need to prioritize efforts to reduce inequality not only in income and wealth but
also in access and opportunities.
• COVID-19 pandemic can also serve as positive momentum for WTO reform. Pandemic highlighted that
keeping trade flowing and limiting protectionist and nationalist measures are vital to ensuring the safety of
lives and livelihoods.

3. ECONOMY
3.1. FIFTEENTH FINANCE COMMISSION REPORT
Why in News?
The Fifteenth Finance released its report which was recently tabled in the Parliament.
About the Fifteenth FC Finance Commission
The Finance Commissions are commissions periodically constituted
• The Commission was chaired by Mr. by the President of India under Article 280 of the Indian
N.K. Singh and the report was titled Constitution. Following are key functions assigned to it-
‘Finance Commission in COVID times.’ • Distribution of 'net proceeds' of taxes between Center and the
• The Commission was required to submit States, to be divided as per their respective contributions to the
two reports. The first report, consisting taxes.
of recommendations for the financial • Determine factors governing Grants-in-Aid to the states and the
year 2020-21. The final report with magnitude of the same.
recommendations for the 2021-26 • To make recommendations to the president as to the measures
period. needed to augment the Fund of a State to supplement the
resources of the panchayats and municipalities in the state on
o Also, this is also the first ever
the basis of the recommendations made by the finance
Commission to have given commission of the state.
recommendations spanning a • Any other matter related to it by the president in the interest of
period of six years, that is, 2020-26. sound finance.
• The Commission was asked to prepare a
report on a many new and unique demand via its Terms of Reference (ToR).
How the Terms of Reference (ToR) of Fifteenth FC were different from previous commissions?
• Fiscal Consolidation Roadmap: The Commission was asked to review the current finances of both state and
central government and recommend a fiscal consolidation roadmap for sound fiscal management.
o This task became all the more difficult with the outbreak of the Pandemic, as the need for fiscal room
became dire.
• Indirect Taxation System: The commission was asked to evaluate the impact of the GST, including the need
for payment of compensation for possible loss of revenues for 5 years, and abolition of a number of cesses.
• Measurable Performance Incentives: The Commission was asked to consider proposing of measurable
performance-based incentives for States, at the appropriate level of government in areas like deepening of
tax nets, population control, power sector reforms etc.
• Using 2011 population against 1971 population data: The Commission had to use the population data of 2011
while making its recommendations. This was tricky as there was an active opposition from Southern States on
usage 2011 population data.
• Other unique demands:
o Analyzing the possibility of creation of a non-lapsable defense fund.
o Reviewing the present arrangements on financing Disaster Management initiatives.
What are the recommendations given by the Fifteenth FC Report for 2021-26 period?
Vertical Devolution The commission has recommended maintaining the vertical devolution at 41%.
• The idea is to maintain the same level of devolution as recommended by 14 th FC (i.e., 42%),
the adjustment of about 1% has been made due to the changed status of the erstwhile State
of Jammu and Kashmir into the new Union Territories of Ladakh and Jammu and Kashmir.
• Gross tax revenue for 5-year period is expected to be 135.2 lakh crore. Out of that, Divisible
pool (after deducting cesses and surcharges & cost of collection) is estimated to be 103 lakh
crore.
Horizontal Devolution The horizontal devolution is primarily based on three principles namely need of states, equity
among states and performance of states. To balance all three principles, six criteria are used to
calculate tax distribution- Income Distance, Area, Population (2011), Demographic Performance,
Forest and Ecology and Tax and Fiscal Transfers.

• Income distance: Income distance is the distance of a state’s income from the state with the
highest income. Income of a state has been computed as average per capita GSDP during
the three-year period between 2016-17 and 2018-19. A state with lower per capita income
will have a higher share to maintain equity among states.
• Demographic performance: The demographic performance criterion has been used to
reward efforts made by states in controlling their population. States with a lower fertility
ratio will be scored higher on this criterion.
• Forest and ecology: This is calculated as the share of the dense forest of each state in the
total dense forest of all the states.
• Tax and fiscal efforts: This criterion has been used to reward states with higher tax collection
efficiency. It is measured as the ratio of the average per capita own tax revenue and the
average per capita state GDP during the three years between 2016-17 and 2018-19.
Grants to States • Revenue deficit grants: 17 states will receive grants worth Rs 2.9 lakh crore to eliminate
revenue deficit.
• Sector-specific grants: Sector-specific grants of Rs 1.3 lakh crore will be given to states for
sectors like health, education, implementation of agricultural reforms etc. A portion of
these grants will be performance-linked.
• State-specific grants: The Commission recommended state-specific grants of about 0.5 lakh
crore. These will be given in the areas of social needs, administrative governance and
infrastructure etc.
• Grants to local bodies: The total grants to local bodies will be Rs 4.36 lakh crore (a portion
of grants to be performance-linked).
o Grants to local bodies (other than health grants) will be distributed among states based
on population and area, with 90% and 10% weightage, respectively.
o Also, no grants will be released to local bodies of a state after March 2024 if the state
does not constitute State Finance Commission and act upon its recommendations by
then.
• Disaster risk management: The Commission recommended retaining the existing cost-
sharing patterns between the centre and states for disaster management funds. The cost-
sharing pattern between centre and states is: (i) 90:10 for north-eastern and Himalayan
states, and (ii) 75:25 for all other states. State disaster management funds will have a corpus
of Rs 1.6 lakh crore (centre’s share is Rs 1.2 lakh crore).
• Incubation of new cities: Finance Commission has recommended Rs 8,000 crore to states
for incubation of new cities, granting Rs 1,000 crore each for eight new cities. The focus of
urban grants for million-plus cities is improvement in air quality and meeting the service level
benchmark of solid waste management and sanitation.
Total transfers • Including total grants of Rs. 10.33 lakh crore and tax devolution of Rs. 42.2 lakh crore (41%
of 103 lakh crore), aggregate transfers to States is estimated to remain at around 50.9 per
cent of the divisible pool during 2021-26 period.
• Total transfers (devolution + grants) constitutes about 34 per cent of estimated Gross
Revenue Receipts of the Union.
Fiscal Management The Commission suggested that the centre bring down fiscal deficit to 4% of GDP by 2025-26. For
and Consolidation states, it recommended the fiscal deficit limit (as % of GSDP) of: (i) 4% in 2021-22, (ii) 3.5% in
Roadmap 2022-23, and (iii) 3% during 2023-26.
• Extra annual borrowing worth 0.5% of GSDP will be allowed to states during first four years
(2021-25) upon undertaking power sector reforms including: (i) reduction in operational

losses, (ii) reduction in revenue gap, (iii) reduction in payment of cash subsidy by adopting
direct benefit transfer, and (iv) reduction in tariff subsidy as a percentage of revenue.
• It recommended forming a high-powered inter-governmental group to: (i) review the Fiscal
Responsibility and Budget Management Act (FRBM), (ii) recommend a new FRBM
framework for centre as
well as states and oversee
its implementation.
• The inverted duty structure
between intermediate
inputs and final outputs
present in GST needs to be
resolved. Revenue
neutrality of GST rate
should be restored which
has been compromised by
multiple rate structure and
several downward
adjustments.
• A comprehensive
framework for public
financial management
should be developed. An
independent Fiscal Council
should be established with powers to assess records from the Centre as well as states.
Other • Disaster Management Fund: Setting up the state and national level Disaster Risk Mitigation
recommendations Fund (SDRMF), in line with the provisions of the Disaster Management Act.
• Defense Modernization Fund: Creation of a separate non-lapsable fund for modernization
of defense and internal security. The objective is to bridge the gap between defense budget
allocations and the projected budgetary requirements.
o The Commission has also recommended that Rs 1,000 crore per annum should be
allocated from this fund for the welfare of families of the defense and CAPF personnel
who sacrifice their lives in frontline duties.
• Health: States should increase spending on health to more than 8% of their budget by 2022.
Primary healthcare expenditure should be two-thirds of the total health expenditure by
2022.
• Centrally sponsored schemes (CSS): A threshold should be fixed for annual allocation to CSS
below which the funding for a CSS should be stopped (to phase out CSS which outlived its
utility or has insignificant outlay)
3.2. DRAFT BLUE ECONOMY POLICY FOR INDIA

Why in news?
Ministry of Earth Sciences (MoES) has rolled out the Draft Blue Economy policy for India in the public domain
inviting suggestions and inputs from various stakeholders including industry, NGOs, academia, and citizens.
About Blue Economy
• According to World Bank, Blue Economy refers to sustainable use of ocean resources for economic growth,
improved livelihood and jobs, and ocean ecosystem health.
• Blue Economy seeks to promote economic growth, social inclusion and the preservation or improvement of
livelihoods as well as ensuring environmental sustainability of the oceans and coastal areas.
• The economic philosophy of the Blue Economy was first introduced in 1994 by Professor Gunter Pauli at the
United Nations University (UNU) to reflect the needs of future growth and prosperity, along with the threats
posed by global warming.

Draft Blue Economy Policy:
• The draft blue economy policy document outlines the vision and strategy that can be adopted by the
Government of India to utilize the plethora of oceanic resources available in the country.
• The policy document aims:
o to enhance contribution of the blue economy to India’s GDP,
o improve lives of coastal communities,
o preserve marine biodiversity,
o maintain the national security of marine areas and resources.
• It is in line with the Government of India’s Vision of New India by 2030 stressing the need for a coherent
policy integrating different sectors so as to improve the lives of the coastal communities and accelerate
development and employment.
o 6th Dimension of Vision 2030 deals with scaling up Sagarmala, India’s coastline and ocean waters will
power development.
• It highlights blue economy as one of the ten core dimensions for national growth.
• The draft policy framework emphasizes policies across several key sectors to achieve holistic growth of India’s
economy.
• The document recognizes the following seven thematic areas-
✓ National accounting framework for the blue economy and ocean governance: A new robust mechanism
to generate and collect reliable data pertaining to the Blue Economy would be developed.
✓ Coastal marine spatial planning and tourism: India needs to adapt the Coastal Marine Spatial Planning
(CMSP) approach of the Intergovernmental Oceanic Commission (IOC)-UNESCO guidelines and to establish
a national level authority to define the scope and nature of CMSP. This will allow integration of various
sectors of blue economy, local communities private players and government to meet local and national
needs.
✓ Marine fisheries, aquaculture, and fish processing: To increase sustainability of marine fisheries through
a new national policy along with proper legal and institutional framework for effective its management.
✓ Manufacturing, emerging industries, trade, technology, services, and skill development: To ensure high
capital infusion through public-private partnership (PPP) and enhance Ease of Doing Business in the sector.
✓ Logistics, infrastructure and shipping, including trans-shipments: Government should formulate a 30
year holistic shipbuilding plan across existing and Greenfield shipyards under Atmanirbhar Bharat to boost
shipping and ship building sector.
✓ Coastal and deep-sea mining and offshore energy: Envisaged to launch a National Placer Mission to
explore workable placer deposits and evolve a roadmap for their extraction. India will also take a lead role
in exploration of cobalt rich Sea Mount Ferro Manganese Crust (SFMC) in the Indian Ocean.
✓ Security, strategic dimensions, and international engagement: MDA needs to be strengthened by
integrating national geo-intelligence framework and space applications along with international
partnerships with key partner countries.
Placer deposit
Significance of Blue Economy • It is an accumulation of valuable minerals formed
by gravity separation from a specific source rock
• Economic Growth- Indian Ocean Region is of during sedimentary processes.
strategic importance to India’s economic growth as • India is rich in Placer minerals like nickel, uranium,
the most of the country’s oil, and gas is imported copper, thorium, titanium, poly metallic sulphides,
through the sea. Further, this dependency is poly metallic manganese nodules, coastal ilmenite,
expected to rise by 2025 exponentially. garnet and zircon etc.
o India’s Exclusive Economic Zone of over 2 • Polymetallic nodules and polymetallic massive
million square kilometers has a huge living and sulphides are the two mineral resources of
non-living resources with significant commercial interest to developers in the Indian
Ocean.
recoverable resources such as crude oil and
o Typically found at 4 to 5 km in water depth,
natural gas.
polymetallic nodules are golf-to-tennis ball-
• Harnessing Ocean Wealth- Mining of polymetallic sized nodules containing nickel, cobalt, iron,
nodules present in the seabed in the Central Indian and manganese that form over millions of years
Ocean Basin can help India improve availability of on the sediment of the seafloor.
nickel, copper, cobalt and manganese. Through an
agreement with the International Seabed Authority, India has a right to explore and mine polymetallic
nodules over 750,000 square km.
• Trade potential- The Indian Ocean Region presents tremendous trade potential for the country. The countries
in the Indian Ocean Rim Association (IORA) exhibited significant dynamism in the past few years as the trade
in the region increased by over four
times.
• Fisheries and Aquaculture- India
has a National Fisheries policy for
promoting 'Blue Growth Initiative'
which focus on sustainable
utilization of fisheries wealth from
the marine and other aquatic
resources.
• Sustainable Development- The
Ocean-based Blue Economy is the
next sunrise issue for
development experts. Blue
Economy is based on the idea to
use locally available resources and employ renewable inputs, for example, ‘ocean-as-a-resource’ that
addresses the problems of resource scarcity and enables sustainable development.
✓ This marine based economic development will reduce environmental risks and mitigate ecological
challenges. As a result, the optimized and responsible resource utilization will enable to achieve balanced
socio-economic development.
Way Forward
• Encourage emerging industries: There are other emerging industries such as aquaculture, marine
biotechnology, ocean energy and sea-bed mining that have the potential to create jobs and spur worldwide
economic growth.
• Inclusive Framework: Indian Ocean region needs a sustainable and inclusive framework for international
partnerships. Countries in the region need to not only coordinate and manage the growing security challenges
in the region but also realize the substantial economic potential the Indian Ocean area presents.
• Cooperation: India’s commitment to strengthen its cooperation with the regional partners and build a
sustainable ocean economy aligns well with its domestic mega-modernisation projects that will enable the
nation to harness the full potential of the Ocean based Blue Economy.
• Economic incentives: The granting of economic incentives to small fishermen to adopt sustainable practices,
or the increase in protected maritime areas, to recover the habitats and productivity of the seas.
3.3. COMPANIES (CORPORATE SOCIAL RESPONSIBILITY (CSR) POLICY)
AMENDMENT RULES, 2021
Why in news?
Recently, Ministry of Corporate Affairs brought
into effect the Companies (CSR Policy)
Amendment Rules, 2021 by amending amend
the Companies (CSR Policy) Rules, 2014.
About Corporate Social Responsibility (CSR)
• It is a management concept whereby
companies integrate social and
environmental concerns in their business
operations and interactions with their
stakeholders.
• In 2013, Companies Act 2013 introduced
changes with respect to company
formation, administration, and governance,
and incorporated an additional section i.e.
Section 135 on CSR obligations for
companies listed in India.
o With this, India became the first
country to legislate CSR activities under
Companies Act 2013.
• Every qualifying company requires spending
of at least 2% of its average net profit
(Profit before taxes) for the immediately
preceding 3 financial years on CSR activities
in India.
• Companies applicable to
o annual turnover of 1,000 crore and more
or
o net worth of Rs. 500 crore and more or
o net profit of Rs. 5 crore and more.
• CSR is also applicable to branch and project
offices of a foreign company in India.
• Various CSR activities includes:
o eradicating extreme hunger and poverty,
o promotion of education, promoting
gender equality and empowering
women,
o reducing child mortality and improving
maternal health ensuring environmental
sustainability,
o employment enhancing vocational skills,
o social business projects.
o Contributions to the PM CARES Fund or
any other fund set up by the Central
government for socio economic
development and relief and welfare of
the schedule caste, tribes, other
backward classes, minorities and women will also be considered for CSR
• In 2019, amendments introduced, which require companies to deposit the unspent CSR funds into a fund
prescribed under the Act within the end of the fiscal year.
Newly amended rules
• Exclusion from CSR activities:
o Activities undertaken in pursuance of
normal course of business of the
company.
✓ Exception: A company engaged in
R&D of a new vaccine, drugs and
medical devices in their normal
course of business may undertake
such activities related to Covid 19
for the financial year 2021, 2021-22
& 2022-23 as CSR.
o Activities undertaken outside India,
except training of National or
International level Indian sportspersons.
o Contribution of any amount to any
political party;
o Activities benefitting employees of the
company, as under Code on Wages,
2019.
o Activities supported by the company on
sponsorship basis, for deriving
marketing benefits for its
products/services.
o Activities carried out for fulfilment of any other statutory obligations under any law in force in India.
• Mandatory registration: Entities have to register itself with the Central Government and fill the CSR-1 Form
electronically with the Registrar of Companies from April 1, 2021.
• Engagement of external organizations for design, evaluation, capacity building and monitoring of CSR projects
has also been permitted.
• Annual Action plan: CSR committees of Companies shall be required to formulate an annual action plan and
recommend the same to the board of the company.
• Administrative overheads: Board of company needs to ensure administrative overheads do not exceed 5% of
the total CSR expenditure for a financial year.
o Administrative overheads mean the expenses incurred for general management and administration of
CSR functions in the company and explicitly excludes any expenses incurred for the designing,
implementation, monitoring, and evaluation of a particular CSR project.
• Surplus cannot be utilised for other purposes: Surplus from any project cannot be utilized for any business
profits and must be reinvested into the same CSR project or may be transferred into fund.
• Impact assessment: Any corporation with a CSR obligation of Rs 10 Cr or more for the 3 preceding financial
years would be required to hire an independent agency to conduct impact assessment of all of their projects
with outlays of Rs 1 Cr. or more.
• Mandatory disclosure of CSR projects: It would be placed on the website of the company to ensure
accountability of companies and a closer check on the compliance of rules.
Challenges and criticism of Corporate Social Responsibility (CSR)
• Tool to tax: CSR is also criticized as a tool to tax corporates which already face high taxation in the country,
which makes India unattractive for business.
• Skewed pattern of spending: About 65% of CSR spending was incurred on education and healthcare while
eradication of hunger, rural development and environmental protection are at lower side of expenditure.
• Regional disparity: Companies usually undertake CSR activities in areas where work can be done without any
hardship. This may be the reason that aspirational districts and North-east region with their poor infrastructure
and development level, are not in the focus of companies

• Non-compliance: It is found that 50% of the companies were unable to spend the mandated amount on CSR
and in the past five years after the act was enforced, 70% of the companies still do not have a strategy to
implement CSR activities.
• Cheating and favoured donations: It is found out that companies made donations to charitable trusts, which
are well known and then received them back after deduction of minor commissions.
Way forward
• 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: Facilitating collaboration between NGOs, agencies involved in environmental and
social work will enable better utilization of CSR funds.
• Evaluation and monitoring: CSR activities and projects needs to be monitored periodically to prevent
fraudulent activities and complete project within stipulated time.
• Fair and balanced expenditure: Encouraging corporates to spend in neglected areas such as aspirational
districts and North east region to have regional parity in socio-economic development.
• Relaxation and incentives: Government should further provide relaxation and incentives in corporate tax to
corporates complying with CSR regulations.
3.4. DIGITAL PAYMENT ECOSYSTEM

Why in news? Need for directions
Reserve Bank of India (Digital Payment Security • To tackle burgeoning instances of outages, frauds and
Controls) directions, 2021 has been published to cyber breaches in digital payments ecosystem.
strengthen India's digital payments architecture. • Improve security, control and compliance among banks,
gateways, wallets and other non-banking entities.
About Reserve Bank of India (Digital Payment • Protect the confidentiality of customer data and integrity
Security Controls) directions, 2021 of data and processes associated with the digital product/
services offered.
• Directions are issued to set up a robust • Efficient and effective dispute resolution mechanism and
governance structure and implement handling of customer grievance.
common minimum standards of security • Helps to achieve its goal of a less-cash and cash less
controls for digital payment products and economy.
services in following way.
• Applicability: Applicable to Regulated Entities
(REs) scheduled commercial banks, small finance banks, payment banks and credit card-issuing NBFCs.
o It is also applicable to third-party payment applications, payment operators and gateways.
• Under the directions
o REs shall formulate a policy with approval of Board for digital payment products and services.
o REs shall implement multi-tier application architecture, segregating application, database and
presentation layer in the digital
payment products and services,
by following ‘secure by design’
approach.
o REs shall have Fraud Risk
Management.
o A real time/ near-real time
reconciliation framework for all
digital payment transactions
between RE and all other
stakeholders.
o Customer Protection, Awareness
and Grievance Redressal
Mechanism.
o Internet banking, Mobile
payments application, Card payments security controls.
About Digital Payment Ecosystem in
India
• Payment and Settlement Systems
Act, 2007 (PSS Act, 2007) defines
Digital Payments/electronic funds
transfer as any transfer of funds by
way of instruction, authorization or
order to a bank to debit or credit an
account maintained with that bank
through electronic means and
includes point of sale transfers; ATM
transactions, direct deposits or
withdrawal of funds, transfers
initiated by telephone, internet and,
card payment.
• Digital payment can be done by different modes like NEFT, RTGS, IMPS, debit and credit cards, UPI etc.
• In India volume segment of digital payments is dominated by Debit Cards, PPIs and IMPS and constitute close
to 50 % of the total volume.
• While, value segment is Various initiatives taken to promote digital payments
dominated by RTGS and • Payment and Settlement Systems (PSS) Act 2007: It provides for the
NEFT and constitute about regulation and supervision of payment systems in India and designates RBI as
the authority for that purpose and all related matters.
53 % of the total value of
• Rationalisation of Merchant Discount Rate (MDR)
Digital Payments. o MDR is the rate charged to a merchant for the payment processing of
• Digital transactions per debit and credit card transactions.
capita increased from 2.38 • Payments Infrastructure Development Fund (PIDF) by RBI to encourage
transactions per capita in acquirers to deploy Points of Sale (PoS) infrastructure.
financial year 2014 to 22.42 • DigiShala: Free Doordarshan DTH educational channel for creating awareness
in financial year 2019. regarding various forms of electronic payment.
• Vittiya Saksharta Abhiyan: It aims to actively engage the youth/ students of
Challenges in digital payment Higher Education Institutions to encourage and motivate all payers and payees
ecosystem to use a digitally enabled cashless economic system for transfer of funds.
• Technological: Lack of
integration of online payment systems which run
across different platforms. This results in results
in processing, payment delays etc.
• Security: Digital transactions are vulnerable to
cybercrimes and risks for data theft is the biggest
concern.
o Hacking and security breaches can cause
financial loss of consumers and reputational
loss for the company.
• Infrastructure: Small Service providers don’t
have enough resources to invest in electronic
payment infrastructure. (E.g. Point of Sales
machines).
o A report by Nielson in 2019 concluded that
70% of the rural population does not have
an active internet facility with states like
West Bengal, Bihar, Jharkhand and Odisha
having the lowest internet penetration.
• Digital illiteracy: According to NSSO data, only
4.4% of rural households and 23.4% of urban
households own computers, while out of this
42% of urban households have a computer with an internet connection and only 14.9% of rural households.

• Transaction charges and Merchant discount rate: Transaction charges for consumers and MDR for retailers is
seen as the additional tax, hence they hesitate to prefer digital mode of transaction.
Further initiatives required to improve digital payments ecosystem
• Standardisation of devices and browsers: It is needed to make payments uniform across all kinds of browsers,
devices, and gateways and engage the confidence of users in digital payment systems.
• Awareness and education: Many consumers are still wary about using digital payments and technology; hence
companies need to educate their customers on the security advantages of digital payments in more traditional
manner.
• Internet and mobile phone accessibility: Currently, internet and mobile phones accessibility at rural and
remote areas is poor, hence government and stakeholders involved needs to take initiatives in improving
internet penetration.
• Incentives and rewards: More consumers will switch to digital payments if they receive higher rewards and
redeeming rewards with simplicity and faster.
3.5. ASSET RECONSTRUCTION COMPANY (ARC)

Why in news?
Union budget 2021-22 has proposed a new ARC/Bad Bank to consolidate and take over existing bad loans.
About the Proposal
• The ARC/bad bank proposed in the Budget will be set up by banks (both state-owned and private sector
banks), and there will be no equity contribution from the government.
o However, the Government may provide sovereign guarantee that could be needed to meet regulatory
requirements.
• It will have an Asset Management Company (AMC) to manage and sell bad assets.
o AMC manages funds for individuals and companies. They make well-timed investment decisions on behalf
of their clients to grow their finances and portfolio.
• It will look to resolve stressed assets of Rs 2-2.5 lakh crore that remain unresolved in around 70 large
accounts.
• The transfer of stressed assets to the ARC will happen at net book value.
• The bank will get 15% cash and 85% security receipts against bad debt that will be sold to the ARC.
• This structure will reduce the load of stressed assets on the bank balance sheet and look to resolve these bad
debts in a market-led way.
About Asset Reconstruction Company (ARC)
• An ARC or bad bank is a special type of financial institution (FI) that buys the debtors of the bank at a mutually
agreed value and attempts to recover the debts or associated securities by itself.
o A bad bank makes a profit in its operations if it manages to sell the loan at a price higher than what it
paid to acquire the loan from a commercial bank.
• Narsimham Committee – I (1991) first envisaged setting up of a central Asset Reconstruction Fund to facilitate
Banks to improve their balance sheets by cleaning up their non-performing loans portfolio.
• Asset Reconstruction Company (India) Ltd or Arcil, was first ARC set up in 2002 by four banks: SBI, ICICI Bank,
PNB and IDBI Bank.
• ARCs are incorporated as company under the Companies Act.
• They are registered with Reserve Bank of India (RBI) under SARFAESI Act, 2002.
• RBI mandates ARCs to maintain a minimum NOF (Net Owned Fund) of Rs 100 crore and a capital adequacy
ratio of 15% of its risk weighted assets.
• The Insolvency and Bankruptcy Code (IBC), 2016, allows ARCs to acquire equity through conversion of debt
into equity. However, they are not allowed to bid for equity in stressed companies directly.
• Since the enactment of SARFAESI Act, many ARCs have come into existence. However, the establishment of
new ARC was driven by the fact that existing ARCs were not able to deal with the problems of NPA as
o Exiting ARCs are thinly capitalized: Of the existing ARCs, only 3-4 are adequately capitalised, while more-
than-dozen remaining are thinly capitalized. This necessitates the need to set up a new structure to resolve
stressed assets urgently.
o Slow resolution: Most commercial loans
Related information
are granted by a group of 8-10 banks.
SARFAESI (Securitisation and Reconstruction of Financial
Under the existing resolution mechanism,
Assets and Enforcement of Security Interest) Act 2002
some banks would typically oppose the • The SARFAESI Act helps reconstruction of bad assets/
resolution due to differences. This slowed non-performing asset (NPAs) without the intervention
the resolution process. With most banks of courts.
expected to be on board in the proposed • Act mandates the ARCs with the task of facilitating
ARC, the resolution is expected to be faster. securitisation and asset reconstruction of bad
assets/NPA thereby earliest resolution and bringing the
Need for ARCs
liquidity in the system.
• Consolidation of bad loans & Tackling the issue o Asset reconstruction is the acquisition of any right
of rising bad loans: ARC can help consolidate all or interest of from Banks in loans, advances granted
bad loans of banks under a single exclusive or debentures etc. for the purpose of its realisation.
o Securitisation is the acquisition of financial assets
entity.
from Banks either by way of issuing security receipts
o Banks’ gross non-performing assets to Qualified Buyers or any other means. Such
(GNPAs) is expected to rise sharply from security receipts would represent an undivided
7.5% of gross advances in September 2020 interest in the financial assets
to at least 13.5% of gross advances in Insolvency and Bankruptcy Code (IBC),
September 2021. • It provides for a time-bound process to resolve
• Complementing the IBC mechanism: While the insolvency for maximisation of value of assets, to
IBC infrastructure is well capable of handling promote entrepreneurship and balance the interests of
steady-state incremental stressed assets, the all the stakeholders.
enormous existing stock bad assets need a one- • Applicable to: Individuals, Limited Liability partnerships
(LLPs) and companies.
time exceptional resolution mechanism.
• Ease the burden on banks: Banks have unused
Bad loan
funds lying in their balance sheets in the form
• A bad loan or a bad debt is an amount owed to a creditor
of provisioning against bad loan. The proposed
that is unlikely to be paid and, or which the creditor is
ARC, by taking up the bad loan, would free up not willing to take action to collect because of various
this unused capital and enabled banks to lend reasons.
again to customers without constraints. • As per RBI, NPAs/bad loans are any commercial loans
o Regular banking relations are not affected which are more than 90 days overdue and any consumer
as banks are left with cleaner balance loans which are more than 180 days overdue.
sheets and do not have to deal with o Sub-standard is when the NPAs have aged less than
problem clients. or equal to 12 months.
• Boost economy: ARC will help in boosting the o Doubtful is when the NPAs have aged more than 12
entrepreneur’s confidence, and gives other months.
o Loss asset is when the bank or its auditors have
options than filing for bankruptcy or insolvency
identified the loss, but it has not been written off.
in times of stress • For agricultural loans, if the interest and/or the
Challenges associated with ARCs instalment or principal remains overdue for two harvest
seasons; it is declared as NPAs. But, this period should
• Mere shift of bad asset: ARCs will merely shift not exceed two years. After two years any unpaid
bad assets from the government owned PSBs loan/instalment will be classified as NPA.
to government backed ARC.
• May not ease the bad loan crisis of PSBs: Unlike private sector banks, PSBs are managed by bureaucrats who
may not have any incentive to ensuring these lenders’ profitability. To that extent, ARC does not really address
the root problem of the bad loan crisis.
• Huge risk of moral hazard: The safety net provided by a bad bank gives commercial banks more reason to lend
recklessly. Thus, it may further exacerbate the bad loan crisis.
Way ahead
India’s past experiments with bad banks ended as failures because crucial design imperatives were ignored. The
new ARC should address the existing issues. Also, there is a need to give more teeth to existing ARCs so that they
could deal with the issue of bad loan smoothly. This could be done in following ways:

• The Malaysian experience post the Asian crisis provides ways to address the crucial design imperatives:
o Effective management: The ARC has to be manned by seasoned distressed debt management
professionals.
o Fair price for asset purchases: The transfer of stressed assets to the ARC has to be at just right price neither
too high, nor too low. This would ensure that neither is the resolution process impaired, nor do
supernormal profits accrue to any stakeholder.
o Support from stakeholders
o ARC should have a pre-defined, limited shelf-life.
• Closing regulatory gap between the SARFAESI Act and IBC: The SARFAESI Act should be amended to allow
ARCs to acquire equity directly in companies sold under the IBC. This would improve the probability of
distressed companies receiving resolution plans.
• Setting up of a Distressed Loan Sales Trading Platform for receiving bids for NPAs for better price discovery.
• Governance reforms in the banks: There is a need for reforms in critical governance pillars such as the conduct
and operations of risk management departments in financial institutions, auditors, boards, rating agencies,
independent analysts and regulatory supervisors.
o Also, PSBs have to be provided professional autonomy and a level playing field with their private sector
counterparts.
3.6. INTEGRATED OMBUDSMAN SCHEME

Why in news?
Recently, Reserve Bank of India (RBI) announced an integrated ombudsman scheme “One Nation One
Ombudsman” to improve grievance redressal mechanism for bank customers.
More about News
• Currently, there are three separate ombudsmen for banks, non-banking finance companies (NBFCs) and
non-bank prepaid payment issuers (PPIs) that are wallets.
• These are operated by the RBI from 22 ombudsman offices located across the country.
• Now, the RBI has decided to integrate the three Ombudsman schemes and introduce centralised processing
of grievances following a ‘One
Related information
Nation One Ombudsman’ Internal Ombudsman (IO) Scheme, 2018
approach. • It was launched by the RBI to strengthen the internal grievance
• The move is expected to make redressal system of banks and ensure the complaints of the customers
the ombudsman mechanism are redressed at the level of the bank itself.
simpler, efficient and more • All Scheduled Commercial Banks having more than 10 banking outlets
responsive. (excluding Regional Rural Banks), are required to appoint IO in their
• The Integrated Ombudsman banks.
Scheme will be rolled out in June • The IO is mandated to examine customer complaints related to the
2021. deficiency in service on the part of the bank (including those listed in
the BOS 2006).
About Bank Ombudsman (BO) • Banks are mandated to internally escalate all the complaints which
• BO is quasi-judicial authority are not fully redressed to their respective IOs before conveying the
which is an Alternate Dispute final decision to the complainant.
Redressal mechanism for o Thus, the customers of banks need not approach the IO directly.
• Banks’ internal audit mechanism is required to monitor the scheme
resolution of disputes between a
apart from regulatory oversight by RBI.
bank and its customers. Ombudsman Scheme for Digital Transactions (OSDT)
o RBI in 1995 introduced the BO • RBI launched OSDT in 2019 under Payment and Settlement Systems
scheme under Section 35A of Act, 2007.
the Banking Regulation Act, • It provides a cost-free and expeditious complaint redressal
1949. mechanism relating to deficiency in customer services in digital
o In 2006, the RBI revised the transactions conducted through non-bank entities (like mobile wallets
BO scheme under which the or tech enabled payment companies using UPI for settlements)
BO and the staff in the offices regulated by RBI.
of the BO are drawn from the • Ombudsman for Digital Transactions is a senior official appointed by
serving employees of the the RBI (appointed for a period not exceeding 3 years at a time).
Reserve Bank.
• It is fully funded by the RBI and virtually covers all banking transactions related grievances except their
business decisions like sanctioning of credit etc
• It covers grievances of the customers against Commercial Banks, Scheduled Primary Cooperative Banks and
Regional Rural Banks.
• One can file a complaint before the BO if the bank rejects the complaint or the satisfactory reply is not
received from the bank within a period of one month after the bank concerned has received one's complaint.
Advantages of the Bank Ombudsman
• Accessible and simple: Customers are not required to approach the judiciary. This makes grievance redressal
under the OBS smoother and accessible.
• Not bound with the precedents: Ombudsman can dispense justice without being restricted by precedents.
In exceptional situations, the ombudsman can even overlook the technicalities and legal formalities of
evidence when settling the contestation between the individual and the bank.
• Maintaining the financial health: This is ensured due to strengthening the fiduciary relationship between
banks and customers by the Ombudsman.
3.7. AGRICULTURAL INFRASTRUCTURE FUND (AIF)

Why in News?
In the Union Budget 2021-22, Finance Minister announced that Agricultural Produce Marketing Committees
(APMCs) will become eligible beneficiaries to utilize Agriculture Infrastructure Fund (AIF).
More on News
• The step will help in strengthening the Mandi infrastructure. The move has come in the context of farmer
protests and their apprehensions regarding moving away mandi based marketing mechanisms.
• Union Budget also announced a new agriculture infrastructure development cess (AIDC) on petrol, diesel
and several other imported items. Although, the Finance Minister assured that this cess will be conjunction
with decrease in other taxes like decrease in excise duty, so as to ensure that consumers not additionally
burdened.
o The move has irked states as cesses fall outside the divisible pool of sharable revenue. This may lead to
decrease in overall transfers provided to states.
• These steps is in addition to the creation of Agri-market Infrastructure Fund (AMIF) created in 2018-19 for
development and upgradation of Agricultural Marketing Infrastructure in Gramin Agricultural Markets
(GrAMs) and registered APMC markets.
About AIF
• It is a Central Sector Scheme, under Ministry of Agriculture & Farmers Welfare, to provide medium - long term
debt financing facility through interest subvention and credit guarantee.
• Beneficiaries include farmers, Primary Agricultural Credit Societies (PACS), Farmer Producers Organizations
(FPOs), Agri-entrepreneurs, Startups, Central/State agency or Local Body sponsored Public-Private Partnership
Projects, APMCs etc.
About Agricultural Infrastructure
• Eligible projects include:
• Agricultural infrastructure primarily includes wide range of
o Post Harvest Management Projects public services that facilitate production, procurement,
like: Supply chain services including processing, preservation and trade.
e-marketing platforms, Warehouses, • It can be grouped under following broad-based categories:
Silos, Sorting &grading units, Cold o Input based infrastructure: Seed, Fertilizer, Pesticides,
chains, Logistics facilities etc. Farm equipment and machinery etc.
o Building community farming assets o Resource based infrastructure: Water/irrigation, Farm
like Organic inputs production, power/energy
Infrastructure for smart and o Physical infrastructure: Road connectivity, Transport,
precision agriculture, supply chain storage, processing, preservation, etc.
o Institutional infrastructure: Agricultural research,
infrastructure for clusters of crops
extension & education technology, information &
including export clusters etc. communication services, financial services, marketing, etc.

• Under AIF, Rs. 1 Lakh Crore will be provided by banks and financial institutions as loans with interest
subvention of 3% per annum on loans up to Rs. 2 crore, this subvention will be available for a maximum period
of 7 years.
o Further, credit guarantee coverage will be available for eligible borrowers from this financing facility
under Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme for a loan up to
Rs. 2 crore. The fee for this coverage will be paid by the Government.
• The Scheme will be operational from 2020-21 to 2029-30. Disbursement in four years starting with sanction
of Rs. 10,000 crore in the first year and Rs. 30,000
Other schemes that impact agricultural infrastructure
crore each in next three financial years.
• National Agriculture Market (eNAM): It is a pan-India
• Moratorium for repayment may vary subject to electronic trading portal which networks the existing
minimum of 6 months and maximum of 2 years. APMC mandis to create a unified national market for
• AIF will be managed and monitored through an agricultural commodities.
online Management Information System (MIS) • Pradhan Mantri Krishi Sinchayee Yojana (PMKSY): It
platform. has been formulated with the vision of extending the
o National, State and District Level Monitoring coverage of irrigation 'Har Khet ko pani' and
Committees will ensure real-time monitoring improving water use efficiency 'More crop per drop.
and effective feedback about the • Integrated Scheme for Agricultural Marketing
implementation of scheme. (ISAM): To promote creation of agricultural marketing
infrastructure, creation of scientific storage capacity,
Need for a better agricultural Infrastructure framing of grade standards and quality certification
• Impact on farm productivity: For ~58% of total etc.
population of India, agriculture and allied • Pradhan Mantri Gram Sadak Yojana (PMGSY): It
activities are the primary income source and linked India’s hinterland to towns and cities speaks to
adequate infrastructure raises farm productivity the multiplier effect that enabling infrastructure can
have on rural communities.
and lowers farming costs.
• Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY):
• Reduction in wastage: India has limited It aims to provide free electric connections to the
infrastructure connecting farmers to markets and underprivileged. DDUGJY is crucial for its feeder
hence, 15-20% of yield is wasted which is relatively separation. It separated agricultural and non-
higher vs. other countries where it ranges agricultural power supply.
between 5-15%.
• Improving farmer’s income: Value addition, packing, branding and good marketing network also adds to the
income of the farmer.
• Provide testing facilities: to assess the quality of product thereby help in fixing better rates in the market.
o It can help the farmers to assess the quantity in a better manner to predict the outcome.
• Modernize the trading activities: helping the farmers/traders to instantly decide and convey the decisions to
initiate the action as early as possible (Ex: e-trading and internet auctions).
Role played by the scheme
Stakeholder Intended benefits of Scheme
Farmers • Improved marketing infrastructure to allow farmers to sell directly to a larger base of consumers
(including and hence, increase value realization for the farmers.
FPOs, PACS, • Investments in logistics infrastructure will reduce post-harvest losses and number of
Cooperative intermediaries.
Societies) • Community farming assets for improved productivity and optimization of inputs will result in
substantial savings to farmers.
Government • It will be able to direct priority sector lending in the currently unviable projects by supporting
through interest subvention, incentive and credit guarantee.
• Government will further be able to reduce national food wastage percentage thereby enable
agriculture sector to become competitive with current global levels.
• Central/State Government Agencies or local bodies will be able to structure viable PPP projects
for attracting investment in agriculture infrastructure.
Agri • With a dedicated source of funding, entrepreneurs will push for innovation in agriculture sector
entrepreneurs by leveraging new age technologies including IoT, AI, etc.
and startups • It will also connect the players in ecosystem and hence, improve avenues for collaboration
between entrepreneurs and farmers.
Banking • With Credit Guarantee, incentive and interest subvention, lending institutions will be able to lend
ecosystem with a lower risk.
• This scheme will help to enlarge their customer base and diversification of portfolio.
• Refinance facility will enable larger role for cooperative banks and RRBs.
Consumers • With reduced inefficiencies in post-harvest ecosystem, key benefit for consumers will be a larger
share of produce reaching the market and hence, better quality and prices.
APMCs • With access to low-cost credit, APMCs can set up post-harvest infrastructure such as sorting and
grading units, assaying units, drying yards, cold storages, and warehouses etc. This will result in
better price realization for farmers of quality produce, ability to store and sell at a better price and
minimize post of harvest losses.
3.8. PRODUCTION LINKED INCENTIVE (PLI) SCHEME

Why in news?
Recently Cabinet approved Production Linked Incentive (PLI) Scheme for Telecom, Pharmaceuticals and IT
Hardware sectors.
Details of the PLI scheme for the sectors
Basis PLI Scheme for Telecom PLI Scheme for Pharmaceuticals PLI Scheme for IT hardware
Duration Outlay of ₹ 12195 Crores over 5 Rs 15,000 crore from 2021-2029. Rs. 7,350 crore over 4 years.
years
Objective • It will make India a global hub • Enhance India's manufacturing • Boost domestic
for manufacturing telecom capabilities by increasing manufacturing and
equipment. investment and production. attract large investments
• To create jobs and reduce • Product diversification to high in global value chain.
imports especially from China. value goods by creating global
• Seeks to promote local champions from India.
manufacturing in MSME
category.
Categories Sectors included: Scheme shall extend incentives Scheme shall extend
covered • Core transmission equipment, based on net incremental sales to incentives based on net
and • 4G/5G next-generation Radio following categories: incremental sales to Laptops,
incentives Access Network and Wireless • Category 1- Tablets, All-in-One Personal
Equipment, Biopharmaceuticals; Complex Computers and Servers.
• Access & Customer Premises generic drugs, etc
Equipment, • Category 2- Active Incentives –
• Internet of Things Access Pharmaceutical Ingredients.
Devices, • Category 3- Repurposed drugs; Scheme will offer 1-4% cash
• Other Wireless Equipment and Auto immune drugs, etc. incentives on net incremental
Enterprise equipment like Incentives - sales (over base year 2019-20)
Switches, Routers etc. • For First and Second Category: for IT products manufactured
Incentives - 10% of incremental sales value in India.
• Investor will be incentivized up for the first four year of the
to 20 times of minimum scheme, followed by 8% for the
investment threshold enabling fifth year and 6% for the sixth
them to utilize their unused year of production under the
capacity. scheme.
• Minimum Investment threshold • For Third Category:
for MSME is Rs. 10 Crores and for 5% of incremental sales value
others Rs. 100 Crores. for the first four years, 4% for
• Incentive structure ranges the fifth year and 3% for the
between 4% and 7% for different sixth year.
categories and years.
Current • India is the second-largest • Indian pharmaceutical industry • National Policy on

status and telecommunications market. is 3rd largest in the world by Electronics 2019 envisions
need for volume. India as a global hub for
Industry
• Telecom is also the second • Global Contribution- 3.5% of Electronics System Design
highest revenue earner for the drugs and medicines. and Manufacturing.
government, after income tax. • Currently, since India lacks in • Currently, laptop and
• Currently, the new National domestic high value tablet demand in India is
Digital Communications Policy production and R&D, domestic largely met through
- 2018 aims to attract USD 100 demand is met through imports.
billion worth of investments imports.
and generate 4 million jobs in
the sector by 2022.
Expected • Lead to incremental production • 20,000 direct and 80,000 • Benefit 5 major global
Benefits of ₹2.4 lakh crore, with exports indirect jobs players and 10 domestic
of about ₹2 lakh crore over five • Promote innovation and self- champions in the field of
years and bring in investments of reliance in important drugs. IT Hardware
more than ₹3,000 crore. • Expected to bring in manufacturing.
• Generate 40,000 direct and investment of Rs.15,000 crore • Employment generation
indirect employment in sector. potential of over 1,80,000
opportunities and generate tax (direct and indirect).
revenue of ₹17,000 crore. • Domestic Value Addition
• Support to MSMEs to play an to rise to 20% - 25% by
important role in telecom sector 2025 (current 5% - 10%).
and come out as national
champions.
Refer to November 2020 Monthly CA for more details on Production Linked Incentive Scheme.
3.9. MAJOR PORT AUTHORITIES BILL, 2020

Why in News?
Recently, Parliament passed the Major Port Authorities Bill, 2020.
About the Bill
• Bill seeks to provide for regulation, operation and planning of major ports in India and provide greater
autonomy to these ports.
o It seeks to replace the Major Port Trusts Act, 1963.
• Application: To major ports of Chennai, Cochin, Jawaharlal Nehru Port, Kandla, Kolkata, Mumbai, New
Mangalore, Mormugao, Paradip, V.O. Chidambaranar (Tuticorin), and Vishakhapatnam.
• Key features of the Bill include:
Major Port Authorities Bill, 2020 Major Port Trusts Act, 1963.
Major Port • A Board of Major Port Authority for each major • Under this, all major ports were managed
Authorities port will be formed. by the respective Board of Port Trusts that
Board • These Boards will replace the existing Port Trusts. have members appointed by the central
government.
Composition • Board will comprise of a Chairperson and a • Board of Port Trusts consisted of:
of Board deputy Chairperson, both appointed by central o Chairman to be appointed by the
government on the recommendation of a Central Government.
selection committee. o one or more Deputy Chairman.
• Other Members: o such number of persons, as the Central
o One each from respective state governments, Government may, from time to time
Railways Ministry, Defence Ministry, and from amongst persons namely
Customs Department. Mercantile Marine Department,
o Board will also include two to four Customs Department, Defence
independent members, and two members Services etc.
representing the interests of the employees.
Powers of the • Bill allows the Board to use its property, assets It included:
Board and funds as deemed fit for the development of • Power to raise loans.
the major port. • Power to make regulations w.r.t
• The Board can also make rules on employees.

o Declaring availability of port assets for port • Power to execute works and provide
related activities and services. appliances.
o Developing infrastructure facilities such as • Power with respect to landing places
setting up new ports, jetties. and bathing ghat.
o Providing exemption or remission from • Power of Board to order sea-going
payment of any charges on any goods or vessels to use docks, wharves, etc
vessels.
Fixing of rates • Board or committees appointed by the Board will • Currently, the Tariff Authority for Major
determine rates for assets and services available Ports, established under the 1963 Act, fixes
at ports. the scale of rates for assets and services
• Such fixing of rates will not be with retrospective available at ports.
effect.
Financial • Board may raise loans from any scheduled bank • Board had to seek prior sanction of the
powers of the or financial institution within India, or any central government to raise any loan.
Board financial institution outside India.
• However, for loans above 50% of its capital
reserves, the Board will require prior sanction of
the central government.
Adjudicatory • It provides for the constitution of an Adjudicatory • Under this Tariff Authority for Major Ports
Board Board by the central government. were constituted for this role.
Penalties • Any person contravening any provision of the Bill • There were various penalties for
or any rules or regulations will be punished with a contravening provisions of the Act.
fine of up to one lakh rupees.
Public Private • Bill defines PPP projects as projects taken up
Partnership through a concession contract by the Board.
(PPP) projects • For such projects, the Board may fix the tariff for
the initial bidding purposes.
Corporate • Board may use its funds for providing social
Social benefits. This includes development of
Responsibility infrastructure in areas such as education, health,
housing, and skill development.
Significance of the Bill
• Bill is aimed at reorienting the governance model in central ports to landlord port model in line with the
successful global practice.
• To promote the expansion of port infrastructure and facilitate trade and commerce, Bill aims at decentralizing
decision making and to infuse professionalism in governance of major ports.
• It will impart faster and transparent decision
making benefiting the stakeholders and better
project execution capability.
• It will also help in bringing transparency in
operations of Major Ports.
• It is more compact in comparison to the Major
Port Trusts Act, 1963 as the number of sections
has been reduced to 76 from 134 by eliminating
overlapping and obsolete Sections.
About Landlord port model

• In this model, publicly governed port authority acts as a
regulatory body and as landlord while private
companies carry out port operations—mainly cargo-
handling activities.
• Here, the port authority maintains ownership of the port
while the infrastructure is leased to private firms that
provide and maintain their own superstructure and
install own equipment to handle cargo.
• In return, the landlord port gets a share of the revenue
from the private entity.

3.10. ROAD SAFETY
Why in news?
World Bank released report titled ‘Traffic Crash Injuries and Disabilities: The Burden on Indian Society’.
Causes of increasing road accidents
• Increasing congestion of vehicles and traffic on roads: Due to factors like increasing urbanisation, economic
growth coupled with lack of
proportionate increase in capacity
of roads.
• Poor enforcement of laws: India’s
traffic laws are stricter than those
of other countries but these laws
are not enforced. India’s
enforcement of laws on speeding
and drunk driving are rated 3 and
4 out of 10, respectively,
compared to 8 and 9 in China. Also,
India has a paucity of traffic police.
• Poor city planning: On many roads
there are no traffic-calming
measures such as speed humps
before intersections or median
barriers. Roads should be made not
just for use by four-wheelers but
also for two-wheelers and
pedestrians.
• Inadequate driver training: In
2018, in 26% of all road accidents,
drivers who were in an accident did
not have a valid license or were
driving with a learner’s license.
Moreover, poor licensing
mechanism means licences are not
a sign that the driver is qualified.
• Improper road engineering: Road
infrastructure in India suffers from
poor design quality, poor visibility
leading to higher chances of
accidents. Presence of Potholes on
roads, Poor lighting on highways,
lack of necessary road signs etc.
increase the vulnerability.
• Needs coordination between
different stakeholders: In a federal
set up much depends on efforts of
States to mobilise data on road
accidents.
o World Health Organisation
(WHO) recommends countries
to have a national urban maximum speed limit of 50 km/hour. But some states like Uttar Pradesh fall
below this bracket with a 40 km/hour limit while those in Andhra Pradesh and Maharashtra can go up to
65 km/hour

• Other reasons include, lack of precautions by road users such as Not wearing helmets, Triple-riding, Over
speeding, Drunk driving etc.
Steps taken to improve road safety in India
• National road safety policy 2010: Policy outlines various measures such as, raising awareness about Road
Safety; establishing a Road Safety Information Database; built in safety features at the stage of design,
manufacture; strengthen the system of driver licensing and training etc.
• National Road safety Council constituted as apex body to take policy decisions in matters of road safety.
• India signed Brasilia Declaration on Road Safety (2015) which commits to reduce road accident and fatality
by half.
• Bharatmala Pariyojana that focuses on optimizing efficiency of freight and passenger movement across the
country by bridging critical infrastructure gap through effective interventions.
• Dedicated Freight Corridor Project: The Indian Railways' quadrilateral linking Delhi, Mumbai, Chennai and
Howrah, known as Golden Quadrilateral; will decongest already saturated road network & promote shifting
of freight transport to more rail transport.
• Passing of Motor Vehicle (Amendment) Act, 2019. (see box)
Suggestions to enhance road safety include
• National road safety plan by Bureau of Police Research and Development suggests the following:
o dedicated and separate agency for strict enforcement of the traffic violations across India, especially on
National Highways.
o Proposed National Highways Road Safety Police, state highway road safety police for strict enforcement
on national highways.
o Use of Artificial Intelligence: Use of Intelligent Transportation System (ITS) and Artificial Intelligence
techniques to communicate, monitor, operate and manage the highways in a sensible and organized way
etc.
• S. Sunder committee 2007 on road safety highlighted the need for scientific study of road infrastructure,
which includes effective road engineering solutions at the design stage, rectification of accident hot spots etc.
• Safe system approach of Motor Vehicle (Amendment) Act, 2019
World Health Organisation The act has amended the Motor Vehicles Act, 1988 to provide for road safety.
recognised that people’ role Some of its key provisions are-
in road safety cannot be • Compensation for road accident victims to ensure cashless treatment of road
eliminated and rather the accident victims during golden hour (time period of up to one hour following
policy approach should be a traumatic injury).
shifted towards education • Compulsory insurance covering all road users in India by constituting a Motor
and awareness for all the Vehicle Accident Fund.
strata of society. • It sets up a National Road Safety Board that will advise government on road
design and motor vehicle safety.
• Modernise the vehicle
• Good samaritans: Act defines a good samaritan as a person who renders
technology such as
emergency medical or non-medical assistance to a victim at the scene of an
collision-avoidance systems, accident. Such a person will not be liable for any civil or criminal action for
(semi-)autonomous any injury to or death of an accident victim.
vehicles, stability control, • Offences and penalties: Act increases penalties for several offences under the
improved road-vehicle Act. For example, the maximum penalty for driving under the influence of
interaction, automatic alcohol or drugs has been increased from Rs. 2,000 to Rs. 10,000.
braking systems and air • Recall of Vehicles: Act allows central govt. to order for recall of motor vehicles
cushion technology and if a defect in vehicle may cause damage to the environment, or the driver or
speed limiters on fleet other road users.
vehicles.

3. ECONOMY
3.1. NATIONAL BANK FOR FINANCING INFRASTRUCTURE AND
DEVELOPMENT (NABFID)
Why in news?
Recently, the Parliament passed
National Bank for Financing
Infrastructure and Development
(NaBFID) Bill, 2021.
About NaBFID Bill, 2021
• Bill seeks to set up NaBFID, a
Development Financial
Institution (DFI) to support the
development of long-term non-recourse infrastructure financing.
• Shareholding of NaBFID: NaBFID will be set up as a corporate body with authorised share capital of 1 lakh
crore rupees held by central government, multilateral institutions, sovereign wealth funds, pension funds,
insurers, financial institutions, etc.
o Initially, central government will own
100% shares of the institution which may
subsequently be reduced up to 26% once
the institution has achieved stability and
scale.
• Source of funds: NBFID may raise money in the
form of loans or otherwise both in Indian
rupees and foreign currencies, or the issue
and sale of various financial instruments
including bonds and debentures.
o NBFID may borrow money from central
government, RBI, scheduled commercial
banks, mutual funds, and multilateral
institutions such as World Bank and Asian
Development Bank.
• Management: NBFID will be governed by a
Board of Directors and the Chairperson
appointed by the central government in
consultation with RBI.
o A body constituted by the central government will recommend candidates for the post of the Managing
Director and Deputy Managing Directors.
o The Board will appoint independent directors based on the recommendation of an internal committee.
• Government Support: The central government will provide grants worth Rs 5,000 crore to NBFID by the end
of the first financial year.
o The government will also provide guarantee at a concessional rate of up to 0.1% for borrowing from
multilateral institutions, sovereign wealth funds, and other foreign funds.
o Costs towards insulation from fluctuations in foreign may be reimbursed by the government in part or
full.
o Upon request by NBFID, the government may guarantee the bonds, debentures, and loans issued by
NBFID.
• Investigation and prosecution: Courts will also require prior sanction for taking cognisance of offences in
matters involving employees of NBFID. No investigation can be initiated against employees of NBFID without
the prior sanction of
o the central government in case of the chairperson or other directors
o the managing director in case of other employees.

• Licences: The RBI in consultation with Evolution of DFIs in India
the government issue licences and • After Independence, government has set up the Industrial
specify conditions for setting up of Finance Corporation (IFCI) under The Industrial Finance
private sector DFIs and also RBI prescribe Corporation of India Act, 1948 and State Financial Corporations
regulations for these DFIs. (SFCs) were formed under State Financial corporations (SFCS)
Act 1951 to embark on long term term-financing for industries.
About Development Financial institution • Later in 1955, the Industrial Credit and Investment Corporation
(DFI) of India (ICICI), the first development finance institution in the
private sector set up with backing and funding of the World Bank.
• DFI known as a development bank or a
• Later Refinance Corporation for Industry (1958), Agriculture
development finance company are
Refinance Corporation (1963), Rural Electrification Corporation
institutions that provides long term Ltd and HUDCO were established.
development finance to various sectors
like industry, agriculture, housing and infrastructure.
• DFIs play a pivotal role in extending credit and boosting economies, especially in developing countries.
• DFIs can be either wholly or partially owned by the government and few have majority private ownership,
determined by the nature of the activities being financed, and their associated risk-returns profile.
• There is no specific use of the term ‘DFI’ in either the RBI Act, 1934 or the Companies Act, 1956 or various
statutes establishing DFIs, while some financial institutions under RBI Act and Companies Act perform the role
of DFIs in the broadest sense.
How DFIs are different from banks?
Parameter Commercial Bank Development financial institutions
Definition Banks that provide services to individuals and Banks that function as multi-purpose financial
industries. institutes, with a broad development agenda.
Set up Set up under the Companies Act, as Banking Set up under specialized act E.g. Industrial Finance
Companies. Corporation Act
Funds Funds are raised through investments and Funds are borrowed and acquired by grants, selling
deposits made by Depositors securities
Loan provided Short and Medium-term loans Medium and Long-term loans
Purpose To make a profit by lending money at a high rate To make a profit by lending money at a high rate of
of interest. interest.
Clients Individuals, and Business Entities Government and Corporates
Need and benefits of DFIs
• Long term finance: DFIs emphasizes the long-term financing of a project rather than collateral based financing
and support for activities to the sectors of the economy where the risks may be higher and may not be feasible
for commercial banks to finance.
• Gap filler: DFIs act as a gap-filler which was made due to incapability of commercial banks to finance big
infrastructure projects for long term to attain growth and financial steadiness.
• To improve capital Market: Tax benefits and tweaks to the Indian Stamp Act as mentioned under bill will have
positive impact on the bond market
• Reduces incidences of risk: DFIs carry out feasibility study to evaluate viability of projects. When project costs
were high and could not be financed by one DFI, rather they form loan consortia with commercial banks,
thereby reducing the incidence of risks.
• Technical support and expertise: DFIs provide skills, technical and managerial expertise to projects, which
makes projects to be more successful.
Challenges that DFIs may face
• Actionable strategy: DFIs are expected to operate at the forefront of societal and economic change and need
a strategy to guide them towards meeting their objectives. This may be made more difficult due to nature of
their governance, often complex and prone to political interference.
• Credit decisions: Avoiding a high level of Non-Performing Loans is as important for DFIs as it is for commercial
banks. Moreover, making good credit decisions has other dimensions and face specific challenges like
underwriting weak loans for the sake of volume targets and corruption.
• Counter-productive competition: There can be cases where too much money chases too few good projects,
resulting in poor resource allocation and counter-productive competition.

• Balance between private and public sectors: A DFI with a private sector character will require the government
to believe and trust the private sector and still extend such benefits to the institution as it would normally to
a state-owned DFI.
• Attracting and retaining the best staff: DFIs are in competition with the private sector to attract talent, they
are often at a disadvantage when it comes to absolute levels of remuneration. This may erode efficiency,
motivation and competence.
Way forward
• Standardised regulation: There is need for establishment of standardized and streamlined regulatory
frameworks where, despite government participation, decision-making and where executive responsibilities
are not hampered.
• Performance analysis: Advocate performance-based remuneration to retain staff and vocational training to
keep the technical competences and maintain efficiency of DFI.
• Consultation and coordination: Consultation among DFIs during the elaboration of the strategy, exchange
information, find concrete synergies and cooperate on specific operations through co-financing to make sure
that overlaps are avoided and conversely eventual markets gaps are covered.
• Strong culture of innovation: Cultivating strong culture of innovation helps to increase value-addition and
catalyse private investment in entrepreneurship especially in uncharted sectors.
3.2. NEW UMBRELLA ENTITY

Why in News?
Recently, Reserve Bank of India (RBI) extended the deadline to apply for NUE (New Umbrella Entity) to March 31.
More on News
• In August last year, RBI had released a
framework for authorization of an
umbrella entity for retail payments and
had invited applications from desirous
entities by February 26, 2021.
• According to reports, several companies
have partnered with banks and major
tech players to apply for NUEs.
About NUE
• Objective is to set up new pan-India
umbrella entity / entities focusing on
retail payment systems.
• NUE will be authorised under the
Payment and Settlement Systems Act,
2007 and shall be a company incorporated under the Companies Act, 2013.

Need for NUEs
Benefit of the move

• More such entities will encourage competition and will offer more retail payment solutions to customers.
• NUE will offer innovative payment systems to include hitherto excluded cross-sections of the society and will
also enhance access, customer convenience and safety.
o Just like NPCI runs UPI, IMPS and other payment modes, the NUEs will create similar mechanisms which
will then be used by banks and fintech companies.
• Entities planning to establish these NUEs aim to get an even bigger share in the digital payments sector.
o As per recent reports, one third of Indian households are using digital payments in some form or the other.
About National Payments Corporation of India (NPCI)
• NPCI is an umbrella organisation for
operating retail payments and settlement
systems in India.
• It is an initiative of RBI and Indian Banks’
Association (IBA) under the provisions of the
Payment and Settlement Systems Act, 2007.
o 10 core promoter banks are State Bank
of India, Punjab National Bank, Canara
Bank, Bank of Baroda, Union Bank of
India, Bank of India, ICICI Bank, HDFC
Bank, Citibank and HSBC
• It has been incorporated as a “Not for Profit” Company under Companies Act 1956 with an intention to provide
infrastructure to the entire Banking system in India for physical as well as electronic payment and settlement
systems.
Issues with NPCI
• As it is owned by banks, it may not have an incentive for promoting competition in the payments and money
transmission sector because the latter reduces the stability of deposits they may otherwise lend out.
• Its not-for-profit character and the unity of operational control and underlying infrastructure is at odds with the
objective of building innovative payments systems.
• People from rural areas & senior citizens are still in doubt with NPCI products mainly because of lack of financial
illiteracy and lack of operational knowledge.
• Being a single operator for payments system, it could also result in systemic and operational risk, lack of innovation
and upgradation and inefficiencies.
• NPCI’s role as an infrastructure provider needs to be separated from its role as instrument operator to avoid conflict
of interest.
Way forward
• Government must follow the Watal Committee recommendation to classify NPCI as a Critical Payment Infrastructure
Company to improve governance and to bring transparency in its functioning.
• Main focus of NPCI should be to create awareness of its digital products to rural areas so that the dream of Cashless
India will be a reality.
• RBI shall consider other options, like NUE, to minimise concentration risk and promote innovation and competition.
• To avoid conflict of interest, NPCI can place its payment instruments related functions in a separate profit-making
entity.

3.3. DIGITAL CURRENCY
Why in News?
Recently, China has floated its own Central Bank backed digital
currency, namely eCNY in selected cities on a trial basis.
What is a Digital currency?
In the broadest sense, a digital currency is a form of currency
that is available only in digital or electronic form, and not in
physical form. It is also called digital money, electronic money,
electronic currency, or cyber cash.
What are potential benefits of using a Central Bank Digital
currency?
• Transactions are low cost: As payments in digital
currencies are made directly between the transacting
parties without the need of any intermediaries, the transactions are usually instantaneous and low-cost.
• Increased safety of the financial system: Allowing individuals, private sector companies, and non-bank
financial institutions to settle directly in central bank money (rather than bank deposits) significantly reduces
the concentration of liquidity and credit risk in payment systems.
• Encourage competition and innovation in the payment systems: Digital currency would create a level playing
field in the payments sector, which could encourage multiple start-ups and development of new products in
the sector.
• Improve financial inclusion: Digital Cash Account Providers are likely to reach the segments which are
currently excluded from conventional banking services.
• Possibility of a better directed monetary or fiscal policy: Digital currency provide an opportunity to
authorities to issue currency with additional conditions. For instance, these currencies can enable direct
handouts of money that expire if not used by a particular date and can make it easier for governments to track
financial transactions to stamp out tax evasion and crackdown on dissidents.
What are the challenges that may arise in adoption of digital currencies?
• Privacy issue: Central banks would have China’s Digital Currency
increased control over money issuance and Countries from Sweden to Bahamas are experimenting with
greater insight into how people spend their digital currency on some level, yet no major power is as far along
money, this data can potentially affect the as China. The development can be seen on following lines-
privacy of the users. • While the Chinese government has not officially introduced
the currency, namely, eCNY nationwide, trial has been
• Cybersecurity threats: Transactions in digital
started on a large scale.
currencies removes Banks as intermediaries • If the eCNY is successful, it will give the central bank new
which makes users all the more vulnerable to powers, including novel types of monetary policy to help
cyber frauds and increases the fragility of the the economy grow.
overall system. • Some economists have stated that China’s digital currency
• Need for large-scale digital infrastructure: would also make it easier for the renminbi to compete with
Floating a digital currency requires pre- the U.S. dollar as a global currency because it can move
requisites such as large-scale internet internationally with fewer barriers.
penetration, reliable network infrastructure • In this context, the right to issue and control digital
and handling capacity for large scale data currencies could become a ‘new battlefield’ of competition
between sovereign states.
such as data centres among others.
How has Indian dispensation responded to developments regarding digital currency?
In India, despite government threats of a ban, cryptocurrency transaction volumes have been rising and about 8
million investors now hold 100 billion rupees ($1.4 billion) in crypto investments. User registrations and money
inflows at local crypto exchanges such as ZebPay, Unocoin etc. have been soaring especially in the last 2-3 years.
In this context of large demand for digital currencies, following steps have been seen-
• The Reserve Bank of India voiced its concern against cryptocurrencies. At the same time, moving forward for
developing its own digital currency.

o To this effect, RBI issued an order in 2018 forbidding Banks from dealing in cryptocurrencies.
o This ban was struck down by Supreme Court in 2020. The court also ordered the government to take a
position and draft a law on the matter.
• In this context, the Government of India is mooting a law to ban mining, trading and holding of
cryptocurrencies.
o Also, further tightening the regulatory regime, the Ministry of Corporate Affairs (MCA) has made
amendments to rules in the Companies Act, mandating firms to disclose their investments in
cryptocurrencies.
• The measure is in line with a government agenda that called for banning private virtual currencies such as
bitcoin while building a framework for an official digital currency.
3.4. BOND YIELDS

Why in News?
Recently, the US 10-year Treasury Bond yields have witnessed a sharp increase. Experts estimate that this
development will have an indirect effect on the Indian Economy.
What are Bonds?
A bond is a fixed income instrument that
represents a loan made by an investor to a
borrower (typically corporate or
governmental). A bond could be thought of
as a contract between the lender and
borrower that includes the details of the
loan and its payments.
Following are the key characteristics of
Bonds-
• Face value is the money amount the
bond will be worth at maturity; it is also
the reference amount that is used for
calculating the interest payments.
• The coupon rate is the rate of interest the bond issuer will pay on the bond. For example, a 5% coupon rate
means that bondholders will receive 5% of the face value of the bond as interests.
• The maturity date is the date on which the bond will mature, and the bond issuer will pay the bondholder the
face value of the bond.
Bonds are of several types including Corporate Bonds, Municipal Bonds, Agency based bonds and Government
Bonds. In general parlance, discussion on Bonds and Bond Yields invariably refers to the Government Bonds (in
most cases the 10-year tenored Government Securities). Henceforth, further discussion would be in context of
the Government Bonds.
What are Bond Yields and how are they determined?
• Bond Yields in essence shows the financial return, the owner of the bond is going to get from the bond at any
given time. The simplest version of yield is calculated in the following manner:
• Yield = [coupon amount x 100]/price. If the price of the bond remains constant (i.e., equal to the face value),
then the yield of the bond is same as the coupon rate.
• But the Bond prices seldom remain constant and are subject to change on a daily basis due to factors like
money supply in the economy, interest rates etc. (we shall see these relationships in the next section) The
fluctuations in prices of Bonds leads to two scenarios-
• Bonds trading at a premium: If the Bond is trading at a value higher than its face value, it is said to be
trading at a premium. In this case, Yield of the bond goes lower than the coupon rate.
• Bonds trading at a discount: If the Bond is trading at a value lower than its face value, it is said to be
trading at a discount. In this case, Yield of the bond goes higher than the coupon rate.
As can be seen from the example, when Bond prices increase, Bond yields decrease and vice versa. Therefore, it
can be said that the Bond Prices have an inverse relationship with Bond Yields.

How Bond Yields interact with other key economic variables?

• Interest Rates and Monetary Policy: Prevailing interest rates in
the market indirectly determine what is the market rate of return
for the investment. The Bond yields are evaluated against this
market return.
o For example, if the market rate of return is 10% and Bond
coupon rate is 5%, the investors will not find the Bond
attractive, and its price will decrease. On the other hand, if
the market rate of return is 1% and the Bond coupon rate is
5%, investors will find the Bond attractive, and its price will increase. Also, the increase in the bond price
will lead to decrease in Bond Yield and vice versa.
• Stock Prices: The government bond yields act as a proxy for the ‘risk-free rate’ prevailing in the market.
Therefore, if government Bond yields are higher, the return provided by the stock market becomes less
attractive, thus driving down the general demand and price of the stocks. Also, if the yields are lower, opposite
outcome would take place.
o The higher bond yields also indirectly push up the borrowing costs for companies as well as individuals.
This reduces the earnings available for shareholders as dividends and directly affects the budgets of retail
borrowers.
Reasons for rising US Bond Prices
What could be the impact of rising US Bond Yields on India? • A potential recovery of the US Economy after it
was hit severely hit by the COVID-19 crisis.
Since capital flows from one country to another, changing • Tightening of Monetary Policy by US Fed and
market dynamics of one large economy directly or indirectly consequent rise in Inflation in the US Economy.
has an impact on other large economies. Impacts of rising • These reasons have resulted in the rising of yield
US Bond prices could be of following nature- on the benchmark 10-year Treasury note in US.
• Decreased flow of investment: The US is a source of flow into equity markets of other countries, including
India, and a rise in rates in the US makes keeping money in domestic bonds lucrative for the country’s
investors.
• Potential depreciation of Rupee: The flow of capital that gets decreased due to rising yields can directly affect
the prevalent Rupee-Dollar market equilibrium and may lead to depreciation in Rupee.
• Driving up domestic borrowing costs: If bond yields in the US push up yields in India, this can affect the returns
of companies by increasing their borrowing costs.
Way Forward
The rising US Bond Yields could have a noticeable impact on the Indian Economy. But, at the same time, most
experts expect monetary policy from the world’s central banks to remain accommodative and hence global bond
yields to remain broadly low. This warrants a measured and patient approach from the perspective monetary and
fiscal management.

3.5. CAPITAL GAINS TAX
Why in News?
Recently, the Finance Bill, 2021 proposed an amendment to
the regulations relating to Capital Gains Tax (CGT).
More about the News
• The amendment imposes CGT on any assets or shares
received by a partner of a company when s/he retires.
o The guideline also clarified that where a partner
receives any money or other asset at the time of
dissolution or reconstitution of the firm/association,
the profits or gains that arise shall be chargeable under
‘capital gains’.
• Further, the tax will be levied on notional gain i.e., the gain
realized from the difference between the fair market value
and the actual cost in the case of asset transfer.
What is Capital Gains Tax (CGT)?
Capital Gains Tax is a tax on growth of value of investments
incurred when individuals and corporations sell those
investments. Following can be cited as the key characteristics of the CGT levied in India-
• The tax doesn't apply to unsold investments, so stock shares that appreciate every year will not incur capital
gains taxes until they are sold, no matter how long they are held.
• Capital gains treatment only applies to “capital assets” such as stocks, bonds, jewelry, coin collections, and
real estate property among others. In other words, it applies only to transactions which are capital in nature
i.e., result in change of assets or liabilities.
• Capital gains are not applicable to an inherited property as there is no sale, only a transfer of ownership.
However, if the person who inherited the asset decides to sell it, capital gains tax will be applicable.
• The CGT framework divides the tax in two types based on the time for which they are held-
o Short-term Capital Gains Tax (STCG) on Short-term capital asset: When an asset is held for a period of 36
months or less, it is termed as a short-term capital asset.
ü The criteria of 36 months have been reduced to 24 months for immovable properties such as land,
building and house property. For instance, if you sell house property after holding it for a period of
less than 24 months, any income arising will be treated as short-term capital gain.
o Long-term Capital Gains Tax (LTCG) on Long-term capital asset: An asset that is held for more than 36
months is a long-term capital asset.
3.6. ELECTRIC VEHICLE FINANCING

Why in News?
NITI Aayog and Rocky Mountain
Institute India (an independent
non-profit) released a new report
‘Mobilising Electric Vehicle
Financing in India’.
Key findings of the report
• Report highlights that India’s
transition to electric vehicles
(EVs) will require a total
capital investment of $266
billion in EVs, charging
infrastructure, and batteries
over the next decade.

• EV financing industry will use a market size of $50 billion by 2030, which amounts to about 80% of the current
size of India’s retail vehicle finance industry, worth $60 billion today.
Report identified certain toolkit of solutions for catalyzing the required capital
3.7. VEHICLE SCRAPPING POLICY

Why in News?
Ministry of Road Transport and Highways (MoRTH) announced Vehicle Scrapping Policy (VSP).
Key proposals in VSP
• De-registrations of vehicles
o Commercial vehicles to be de-registered after 15 years in case of failure to get the fitness certificate.

o Private Vehicles be de-registered after 20 years if
found unfit or in case of a failure to renew
registration certificate.
o All government vehicles may be de-registered and
scrapped after 15 years from the date of
registration.
• Incentives to scrap old and unfit vehicles through
registered scrapping centres (RSC).
o State governments to offer road tax rebate of up
to 25% for personal vehicles and 15% for
commercial vehicle.
o Manufacturers to provide 5% discount on
purchase of a new vehicle against the scrapping
certificate.
o Registration fees may also be waived for purchase
of new vehicle against the scrapping certificate.
• Setting up of highly specialised Registered Vehicle Scrapping Facilities (RVSFs) across India by encouraging
public and private participation.
o MoRTH also announced draft rules to promote setting up of Registered Vehicle Scrapping Facility across
India.
Related News
What is vehicle scrapping? • Ministry of Road Transport and Highways (MoRTH) has approved a
• It is the process in which End of proposal to levy a “Green Tax” on old vehicles which are polluting the
life – vehicles (ELV) are disposed environment.
of, typically using shredders that • Main principles to be followed while levying the Green Tax are:
o Transport vehicles older than 8 years could be charged Green Tax at
tear them down into tiny pieces
the time of renewal of fitness certificate, at the rate of 10 to 25 % of
of metal which can then be
road tax.
recycled. o Higher Green tax (50% of Road Tax) for vehicles being registered in
o It covers activities such as highly polluted cities.
depolluting, dismantling, o Differential tax, depending on fuel (petrol/diesel) and type of vehicle.
segregation of material, safe o Revenue collected from the Green Tax to be used for tackling
disposal of non-reusable pollution.
parts etc. • Benefits of a Green Tax includes:
o If 1990 is taken as base year, o Dissuade people from using vehicles which damage the environment.
there are approximately 37 o Motivate people to switch to newer, less polluting vehicles.
lakh Commercial Vehicles o Green tax will reduce the pollution level, and make the polluter pay
for pollution.
(CV) and 52 lakh Personal
Vehicles (PV) eligible for voluntarily scrapping.
• ELV means all vehicles
o No longer validly registered,
o With cancelled registrations under Motor Vehicle Act, 1988 or due to an order of court,
o Self-declared by owners as a waste vehicle due to circumstances that may be arising from fire, damage,
natural disasters, riots, accidents etc.
Challenges to such a policy
• Lack of supporting infrastructure: India currently has very less automated fitness test centres which is
inadequate to cater to the market.
• Complex deregistration process: Present process for deregistering vehicles deters many owners who are
interested to sell or get their old vehicles.
• Environment challenges: About 25% of waste material coming from an ELV poses a potential environmental
threat, due to the presence of heavy metals, waste oils, coolants, ozone depleting substances, etc.
• Lack of consensus: In 2018, road ministry proposed to make vehicle scrapping mandatory from 2020 onwards.
However, PM’s Office did not agree to it and directed ministry to make scheme voluntary and consult states.
• Uncertain Numbers: It is difficult to arrive at definitive numbers for older and end-of-life vehicles, as the
vehicle registration database in India is cumulative and not corrected for retirement and scrappage.

• Impact on sale of used vehicles: Scrapping old
vehicles will raise the price of second-hand
vehicles. This will hit all poorer car owners.
Way forward
• Policy needs to provide fiscal stimulus package
for replacement of older heavy-duty vehicles
with BSVI vehicles.
• Notify new manufacturer/producer
responsibility so that vehicles should not
contain toxic metals like lead, mercury, cadmium
or hexavalent chromium other than specified
conditions.
• Scale up environmentally sound vehicle
scrappage infrastructure nation-wide for safe
disposal of waste and for material recovery for
recycling like steel, aluminum and plastics etc.
• Integrate the informal sector as it plays an
important role in the collection, dismantling, and
recycling of ELVs.
• Cleaning up of the vehicle database to estimate
accurately the quantum of legacy vehicles across
all regions. MoRTH’s initiative to create an online
VAHAN database for active vehicle permits and
registration is an important step.
• Better coordination particularly between
MoRTH, Ministry of Environment, Forests and
Climate Change, and Central Pollution Control Board to harmonize the regulatory framework and coordinate
implementation.

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ECONOMICS

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3.2. STATUS PAPER ON GOVERNMENT DEBT

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Significance of managing Government debt Important terms

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3.4. TRIPS FLEXIBILITIES

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3.6. IMPACT OF ENERGY EFFICIENCY MEASURES FOR THE YEAR 2018-19

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3.7. ENERGY TRANSITION INDEX REPORT

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3.8. SUGAR INDUSTRY IN INDIA

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3.9. DRAFT NATIONAL FISHERIES POLICY 2020

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3.10. RICE EXPORT PROMOTION FORUM

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3.2. SUSPENSION OF INSOLVENCY AND BANKRUPTCY CODE (IBC)

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3.3. BANKING REGULATION (AMENDMENT) ORDINANCE 2020

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3.5. BILATERAL INVESTMENT TREATY (BIT)

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3.6. INTERNATIONAL COMPARISON PROGRAM OF WORLD BANK

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3.7. WORLD INVESTMENT REPORT 2020

3.8. EMPOWERED GROUP OF SECRETARIES AND PROJECT

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3.9. COMMERCIAL COAL MINING

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3.10. SOCIAL STOCK EXCHANGE

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3.11. INDIAN GAS EXCHANGE (IGX)

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3.12. REAL TIME MARKET IN ELECTRIC ITY

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3.14. ANIMAL HUSBANDRY INFRASTRUCTURE DEVELOPMENT FUND

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3.3. PRIVATISING DISCOMS

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3.4. AFFORDABLE HOUSING

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3.5. SPECIAL LIQUIDITY SCHEME FOR NBFCS AND HFCS

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