TABLE OF CONTENTS

1. STATE OF THE ECONOMY 2022-23: RECOVERY COMPLETE .................................................. 6

1.1 Introduction .......................................................................................................................................................... 7

1.2. The global economy battles through a unique set of challenges: ................................... 8

1.3. Macroeconomic and Growth Challenges in the Indian Economy ..................................... 9

1.4. India’s Economic Resilience and Growth Drivers .......................................................................... 11

1.5. India’s Inclusive Growth ............................................................................................................................... 13

1.6. Outlook: 2023-24 ..............................................................................................................................................14

2. INDIA'S MEDIUM-TERM GROWTH OUTLOOK: WITH OPTIMISM AND HOPE ....................... 15

2.1. Introduction .........................................................................................................................................................15

2.2. Product and Capital Market Reforms .................................................................................................15

2.3. Reforms for New India-Sabka Saath Sabka Vikaas ...................................................................16

2.4. Returns to the Economic and Structural Reforms after 2014 ................................................18

2.5. Growth Magnets in this Decade (2023-2030) ............................................................................. 20

3. FISCAL DEVELOPMENTS: REVENUE RELISH ............................................................................21

3.1. Introduction ......................................................................................................................................................... 21

3.2. Developments in Union Government finances ............................................................................. 21

3.3. Overview of State Government Finances ....................................................................................... 25

3.4. Debt Profile of the Government: ............................................................................................................ 27

3.5. Conclusion .......................................................................................................................................................... 27

4. MONETARY MANAGEMENT AND FINANCIAL INTERMEDIATION: A GOOD YEAR ..............28

4.1. Monetary developments: ......................................................................................................................... 28

4.2. Liquidity Conditions ...................................................................................................................................... 29

4.3. Developments in the G-sec Market ................................................................................................... 29

4.4. Banking Sector ................................................................................................................................................ 29

4.5. Non-Banking Financial Companies (NBFCs) Continue to Recover................................ 30

4.6. Progress made under the Insolvency and Bankruptcy Code .............................................. 31

4.7. Development in Capital Markets ..........................................................................................................32

1
 4.8. Foreign Portfolio Investments .................................................................................................................33

4.9. IFSC – GIFT City................................................................................................................................................ 34

4.10 Developments in the Insurance Market .......................................................................................... 34

4.11. Pension Sector .................................................................................................................................................. 37

5. PRICES AND INFLATION..........................................................................................................38

5.1. Introduction ....................................................................................................................................................... 38

5.2. Domestic Retail Inflation ........................................................................................................................... 38

5.3. Domestic Wholesale Inflation ................................................................................................................ 39

5.4. Monetary Policy Measures for Price Stability............................................................................... 39

5.5. Housing Prices: Recovering Housing Sector After the Pandemic .................................... 40

5.6. Keeping check on Pharmaceutical Prices ..................................................................................... 40

5.7. Conclusion ......................................................................................................................................................... 40

6. SOCIAL INFRASTRUCTURE AND EMPLOYMENT: BIG TENT .................................................. 41

6.1. Introduction .........................................................................................................................................................41

6.2. Social Sector Expenditure Keeping Pace with Growing Importance of the Sector 42

6.3. Improving Human Development Parameters ............................................................................. 42

6.4. Transformation of Aspirational Districts Programme ............................................................. 43

6.5. Progressing Labour Reform Measures ............................................................................................. 43

6.6. e-Shram portal ............................................................................................................................................... 44

6.7. Aadhaar: The Many Achievements of the Unique Identity .................................................. 44

6.8. Improving Employment Trends ............................................................................................................ 44

6.9. Ensuring Quality Education for All........................................................................................................ 46

6.10. Quality and Affordable Health for All ................................................................................................. 48

6.11. Development of India’s Aspiring Rural Economy ....................................................................... 48

7. CLIMATE CHANGE ANDENVIRONMENT: PREPARING TO FACE THE FUTURE ..................... 50

7.1. Introduction ....................................................................................................................................................... 50

7.2. Progress on India’s Climate Action..................................................................................................... 50

7.3. Finance for Sustainable Development ............................................................................................. 55

7.4. Major Decisions at COP 27 ....................................................................................................................... 55

2
 7.5. India’s Initiatives at the International Stage ................................................................................. 56

7.6. Initiatives Related to other Environmental Issues ..................................................................... 56

8. AGRICULTURE AND FOOD MANAGEMENT: FROM FOOD SECURITY TO NUTRITIONAL

SECURITY................................................................................................................................ 59

8.1. Introduction ....................................................................................................................................................... 59

8.2. Progress in Agriculture ............................................................................................................................... 59

8.3. Conclusion ......................................................................................................................................................... 64

9. INDUSTRY: STEADY RECOVERY ............................................................................................ 65

9.1. General Trends in Industrial Sector .................................................................................................... 65

9.2. Industry Groups and their Challenges ............................................................................................. 68

9.3. India’s Prospects as a Key Player in the Global Value Chain ..............................................70

9.4. India and Industry 4.0 ................................................................................................................................... 71

9.5. Conclusion and Outlook .............................................................................................................................. 71

10. SERVICES : SOURCE OF STRENGTH ....................................................................................... 73

10.1. Introduction ........................................................................................................................................................ 73

10.2. Trends in high-frequency indicators.................................................................................................. 73

10.3. Major Services: Sub-Sector-Wise Performance ..........................................................................74

10.4. Outlook .................................................................................................................................................................. 77

11. EXTERNAL SECTOR: WATCHFUL AND HOPEFUL ................................................................... 78

11.1. Introduction ........................................................................................................................................................78

11.2. Trade Helping India Reap the Benefits of Globalized World ................................................78

11.3. Global Scenario ...............................................................................................................................................78

11.4. India’s Growing and Diversifying Trade ............................................................................................79

11.5. Foreign Trade Policy ..................................................................................................................................... 82

11.6. International Trade Settlement in Indian Rupees...................................................................... 82

11.7. Initiatives to Enhance Trade ................................................................................................................... 83

11.8. India’s Global Trade Engagements .................................................................................................... 84

11.9. Balance of Payments in Challenging Times ................................................................................. 85

11.10. Balance of Payments and Foreign Exchange Reserves ........................................................ 85

3
 11.11. Exchange Rates Moving in Tandem with Global Developments ..................................... 86

11.12. International Investment Position: A Reflection of India's Financial Soundness ......87

11.13. Safe and Sound External Debt Situation.......................................................................................... 88

11.14. Outlook for the External Sector: Cautious amidst Global Headwinds ........................... 89

12. PHYSICAL AND DIGITAL INFRASTRUCTURE: LIFTING POTENTIAL GROWTH ..................... 90

12.1. Introduction ....................................................................................................................................................... 90

12.2. Vision and Approaches of Government for Infrastructure Development .................. 90

12.3. Developments in Physical Infrastructure Sectors ...................................................................... 93

12.4. Developments in Digital Infrastructure ............................................................................................ 95

12.5. Conclusion/Outlook ......................................................................................................................................97

4
5
 STATE OF THE ECONOMY 2022-
1 23: RECOVERY COMPLETE

6
1.1 Introduction

 At least three shocks have hit the global economy since 2020: Pandemic-induced
contraction of the global output, Russian-Ukraine conflict causing worldwide surge
in inflation, followed by policy rate hikes by the Central Banks across economies led
by the Federal Reserve to curb inflation.
 The rate hike by the US Fed drove capital into the US markets causing the US Dollar
to appreciate against most currencies. This led to the widening of the Current
Account Deficits (CAD) and increased inflationary pressures.
 Measures taken by the government and RBI, along with the easing of global
commodity prices, managed to bring retail inflation below the RBI upper tolerance
target.
 The challenge of the depreciating rupee, although better performing than most other
currencies, persists with the likelihood of further increases in policy rates by the US
Fed.
 The widening of the CAD may continue as global commodity prices remain elevated
and the growth momentum of the Indian economy remains strong.
 Despite these, agencies worldwide continue to project India as the fastest-growing
major economy at 6.5-7.0 per cent in FY23 owing to the resilience of the Indian
economy.
 The uptick in private consumption has given a boost to production activity resulting
in increased capacity utilization across sectors.
 The rebound in consumption was engineered by the near universal vaccination
coverage overseen by the government.
 The world’s second-largest vaccination drive involving more than 2 billion doses
also served to lift consumer sentiments. It facilitated the return of the migrant workers
to construction sites in the cities.
 The Capital Expenditure (Capex) of the central government increased by 63.4 per
cent in the first eight months of FY23, was another growth driver of the Indian
economy in the current year, crowding in the private Capex since the January-March
quarter of 2022.
 The improved financial health of well-capitalized public sector banks has
positioned them better to increase the credit supply.
 The credit growth to the Micro, Small, and Medium Enterprises (MSME) sector has
been remarkably high, over 30.6 per cent, on average during Jan-Nov 2022, supported
by the extended Emergency Credit Linked Guarantee Scheme (ECLGS) of the Union
government.
 There is an increased employment generation as seen in the declining urban
unemployment rate and in the faster net registration in the Employee Provident
Fund.
 Schemes like PM-Kisan and PM Garib Kalyan Yojana have helped in ensuring food
security in the country, and their impact was also endorsed by the United Nations
Development Programme (UNDP).

7
 The results of the National Family Health Survey (NFHS) also show improvement in
rural welfare indicators from FY16 to FY20, covering aspects like gender, fertility rate,
household amenities, and women empowerment.
 Global growth has been projected to decline in 2023 and remain generally subdued
in the following years.
 The slowing demand will likely push down global commodity prices and improve
India’s CAD in FY24.
 Growth is expected to be brisk in FY24 as a vigorous credit disbursal, and capital
investment cycle is expected to unfold in India with the strengthening of the balance
sheets of the corporate and banking sectors.
 Further support to economic growth will come from the expansion of public digital
platforms and path-breaking measures such as PM GatiShakti, the National
Logistics Policy, and the Production-Linked Incentive schemes to boost
manufacturing output.

1.2. The global economy battles through a unique set of challenges:

 Survey of the Global Economic Turbulence: Before the third decade of the new
millennium commenced, incidents of global economic turbulence were generally
spaced out, allowing economies breathing time to recover before preparing for the
next challenge.
 Six Simultaneous challenges in the third decade of the Century: The Covid-19
pandemic, breakout of the Russia-Ukraine conflict causing inflationary pressures.
Monetary tightening also drove capital flows to safe-haven US markets, contributed
to rising sovereign bond yields, and depreciation of most currencies against the US
dollar. This slowed cross-border trade followed by China experiencing a
considerable slowdown induced by its policies. The sixth medium-term challenge to
growth was seen in the scarring from the pandemic brought in by the loss of
education and income- earning opportunities.
 Impact of the Russia- Ukraine Conflict: The conflict disrupted the restoration of the
supply chains disrupted earlier by lockdowns and limited trade traffic. It caused the
prices of critical commodities such as crude oil, natural gas, fertilizers, and wheat
to soar.
 Response by the Central Banks: Inflation and monetary tightening led to a
hardening of bond yields across economies and resulted in an outflow of equity
capital from most of the economies around the world into the traditionally safe-haven
market of the US. This led to the strengthening of the US Dollar against other
currencies leading to the widening of the CAD and increasing inflationary pressures
in the net importing economies.
 Effect on Global Economy: Rising inflation and monetary tightening led to a
slowdown in global output beginning in the second half of 2022.

8
 Slowdown in China: Compounding the bleak global growth outlook have been the
slowdown in economic activity in China caused by the government’s zero Covid
policy, a contracting real estate sector, and a tepid fiscal expansion.
 Situation in India: India’s debt burden has declined over this period, mainly because
of the country’s banking sector balance sheet clean-up and the corporate sector’s
deleveraging exercise undertaken during the last decade.

1.3. Macroeconomic and Growth Challenges in the Indian Economy

 Effect of Pandemic on Growth: India witnessed a significant GDP contraction in FY21.

The following year, FY22, the Indian economy started to recover despite the Omicron
wave of January 2022.

9
 Effect of Conflict in Europe: India’s retail inflation went above the RBI’s tolerance
range in January 2022. It was characterized by the rising international commodity
prices, local weather conditions like excessive heat and unseasonal rains. The
government cut excise and customs duties and restricted exports to restrain
inflation while the RBI, like other central banks, raised the repo rates and rolled back
excess liquidity.
 Effect of Monetary Tightening: With monetary tightening, the US dollar has
appreciated against several currencies, including the rupee. However, for FY23, India
has sufficient forex reserves to finance the CAD and intervene in the forex market
to manage volatility in the Indian rupee.
 Effect of slowdown in Global Trade: As per United Nations Conference on Trade and
Development (UNCTAD) latest global trade update, global trade growth turned

10
 negative during the H2:2022, and geopolitical frictions, persisting inflationary
pressures, and subdued demand are expected to suppress global trade further in
2023. This is likely to affect many countries, including India, with the prospects of
sluggish exports .

1.4. India’s Economic Resilience and Growth Drivers

 Measures taken by RBI: Monetary tightening by the RBI, the widening of the CAD, and
the plateauing growth of exports have essentially been the outcome of geopolitical
strife in Europe. Many agencies worldwide have been revising their growth forecast of
the Indian economy downwards. IMF estimates India to be one of the top two fast-
growing significant economies in 2022, and is expected to grow between 6.5 and 7.0
per cent, and that too without the advantage of a base effect highlighting the
resilience of the Indian Economy.

 Domestic Stimulus to Growth: The surge in exports in FY22 and the first half of FY23
induced a shift in the production processes to cruise mode. Manufacturing and
investment activities consequently gained traction. Private Consumption as a
percentage of GDP stood at 58.4 percent in Q2 of FY23, the highest among the
second quarters of all the years since 2013-14, supported by a rebound in contact-
intensive services such as trade, hotel and transport, which registered sequential
growth of 16 per cent in real terms in Q2 of FY23 compared to the previous quarter.
 Universal Vaccination Coverage: The contact-based service providers like
restaurants, hotels, shopping malls, cinemas, and tourist destinations, among others,
soon ran up a thriving business.
 Rebound in consumption owing to pent-up demand: The rebound in consumption
has been supported by the release of “pent-up” demand, influenced by a rise in the
share of consumption in disposable income. The “release of pent-up demand” was
reflected in the housing market and housing loans too.

11
 Enhanced Capital Expenditure: Apart from housing, construction activity, in general,
has significantly risen in FY23 as the much-enlarged capital budget (Capex) of the
central government and its public sector enterprises is rapidly being deployed. Like
the central government, states also have a larger capital budget supported by the
center’s grant-in-aid for capital works and an interest-free loan repayable over 50
years. An increased capex was a part of a strategic package aimed at crowding-in
private investment along with disinvestment.

 Banking sector: The Year-on-Year growth in credit since the January-March quarter
of 2022 has moved into double-digits and is rising across most sectors. The credit
growth to the MSME sector has been remarkably high, over 30.5 per cent, during Jan-
Nov 2022, supported by the extended ECLGS of the central government. Banks' Non-
Performing Assets (NPAs) have been fast-tracked for quicker resolution/liquidation
by the Insolvency and Bankruptcy Board of India(IBBI).

12
 RBI’s projection on Inflation: RBI has projected headline inflation at 6.8 per cent in
FY23, which is outside its target range. At the same time, it is not high enough to deter
private consumption and also not so low as to weaken the inducement to invest.
Declining Inflation would reduce the interest cost of domestic credit inducing a
further increase in demand for credit by corporates and retail borrowers.

1.5. India’s Inclusive Growth

 Growth with Job Creation: The Periodic Labour Force Survey (PLFS) shows that the
urban unemployment rate for people aged 15 years and above declined from 9.8
per cent in the quarter ending September 2021 to 7.2 per cent one year later (quarter
ending September 2022). This is accompanied by an improvement in the labor force
participation rate (LFPR) as well.
 Rural Welfare Indicators: The scheme implemented by the government under the
Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) has been
rapidly creating more assets. In addition, schemes like PM-KISAN, which benefits
households covering half the rural population, and PM Garib Kalyan Anna Yojana
have significantly contributed to lessening impoverishment in the country. In addition,
the National Family Health Survey (NFHS) in India shows improved rural welfare
indicators from FY16 to FY20, covering aspects like gender, fertility rate, household
amenities, and women empowerment.

 Balancing the External Challenges: The economy withstood the challenge of

mitigating external imbalances caused by the Russian-Ukraine conflict without
losing growth momentum. India’s stock markets had a positive return in FY22,
unfazed by withdrawals by foreign portfolio investors. Strong consumption rebound,
robust revenue collections, sustained capex in both the public and the private
sector, growing employment levels in the urban as well as the rural areas, and
targeted social security measures further underpin the prospects for economic and

13
 social stability and sustained growth. India is the third-largest economy in the world
in PPP terms and the fifth- largest in market exchange rates.

1.6. Outlook: 2023-24

 The government’s increased capital expenditure to 2.7X in the last seven years,
from FY16 to FY23. Structural reforms such as the introduction of the Goods and
Services Tax and the Insolvency and Bankruptcy Code enhanced the efficiency and
transparency of the economy and ensured financial discipline and better compliance.
 Global growth is forecasted to slow from 3.2 per cent in 2022 to 2.7 per cent in 2023
as per IMF’s World Economic Outlook, October 2022.
 Entrenched inflation may prolong the tightening of the monetary policy and therefore,
borrowing costs may stay higher. However, the scenario of subdued global growth
presents two silver linings – oil prices will stay low, and India’s CAD will be better
than currently projected.
 The upside to India’s growth outlook arises from (i) limited health and economic
fallout for the rest of the world from the current surge in Covid-19 infections in China
(ii) No significant or or persistent inflation impulses from the reopening of China’s
economy (iii) recessionary tendencies in major AEs triggering a cessation of
monetary tightening and a return of capital flows to India (iv) this leading to an
improvement in animal spirits and providing further impetus to private sector
investment.
 Against this backdrop, the survey projects a baseline GDP growth of 6.5 per cent in
real terms in FY24.


14
 INDIA'S MEDIUM-TERM GROWTH
2 OUTLOOK: WITH OPTIMISM AND
HOPE

2.1. Introduction

 The Indian economy has undergone a transformative process of New Age reforms in
the last eight years aimed at enhancing the ease of living and doing business at the
fundamental level.
 The use of technology, in particular digital technology, undergirds the reforms along
with economic energy and positive mindset.

2.2. Product and Capital Market Reforms

Initiation of the reforms- 1991:

 The macroeconomic imbalances of the late 1980s and early 1990s.
 The high combined deficit of the central and state governments, elevated inflationary
pressures, and unsustainable Current Account Deficit (CAD) led to a balance of
payments crisis.
 In response to the situation, trade and investments were liberalized in 1991.
 Import licensing on almost all intermediate inputs and capital goods was done away
with, and the entry restrictions for firms were simplified.
 It encouraged the entry of private sector firms by ending the public sector monopoly
in many sectors and initiating the automatic approval policy for FDI up to 51 per cent.
 The exchange rate was made flexible and allowed to depreciate as necessary to
maintain competitiveness. The rupee was made fully convertible on the current
account and partially on the capital account.
 Real growth went up from an average of 5.5 per cent during the 1980s to 6.3 per cent
from FY93 to FY2000 due to these reforms.
 Trade liberalization had a visible effect on external trade as the total goods and
services trade to GDP rose from 17.2 per cent in 1990 to 30.6 per cent in 2000.

15
 The Fiscal Responsibility and Budget Management (FRBM) Act was passed to
address the historic highs of the combined Gross fiscal deficit of the Government.
 The deregulation of interest rates and the enactment of the SARFAESI Act 2002 for the
reform of the credit situation in the Indian economy.

India’s Participation in The Global Boom of 2003-08:

 While the global growth averaged 4.8 per cent during 2003-2008, the Indian
economy grew at more than 8 per cent on average.
 The economic growth during the period was supported by strong capital inflows
which indicated favorable domestic and external factors. Some of these included
sustained momentum in domestic economic activity, better corporate
performance, a conducive investment climate, positive sentiments for India as a
preferred investment destination, and encouraging global liquidity conditions/
interest rates.

2.3. Reforms for New India-Sabka Saath Sabka Vikaas

 The broad principles behind the reforms were creating public goods, adopting trust-
based governance, co-partnering with the private sector for development, and
improving agricultural productivity.
 This approach reflects a paradigm shift in the growth and development strategy of
the government, with the emphasis shifted towards building partnerships amongst
various stakeholders in the development process, where each contributes to and
reaps the development benefits (Sabka Saath, Sabka Vikaas).

Creating public goods to enhance opportunities, efficiencies and ease

of living:
 A quantum leap in policy commitment and outlay for infrastructure is now visible in
the last few years The dedicated programs for road connectivity (Bharatmala), port
infrastructure (Sagarmala), electrification, railways upgradation, and

16
 operationalising new airports/ air routes (UDAN) have significantly improved the
physical infrastructure in the last few years.
 With the National Infrastructure Pipeline (NIP) in 2019 and the National Monetization
Pipeline in 2021, a strong baseline for infrastructure creation and development has
been put in place, providing a multitude of opportunities for foreign investment and
engagement.
 The NIP was launched with 6,835 infrastructure projects with a projected infrastructure
investment of ₹111 lakh crore. This has expanded to over 9,000 projects across 35 sub-
sectors and covers economic and social infrastructure projects jointly funded by the
Central Government, State Governments, and the private sector.

Trust-based Governance:
 Building trust between the government and the citizens/businesses unleashes
efficiency gains through improved investor sentiment, better ease of doing business,
and more effective governance. Simplification of regulatory frameworks through
reforms such as the Insolvency and Bankruptcy Code (IBC) and the Real
Estate(Regulation and Development) Act (RERA) have enhanced the ease of doing
business.
 Another significant reform to enhance doing business has been the decriminalization
of minor economic offenses under the Companies Act of 2013.
 Despite tax rationalization, a positive trend of higher tax buoyancy is visible in the
economy. The positive GST revenue collection trends have strengthened further
despite the pandemic. The average monthly gross GST collection has increased from
₹0.90 lakh crore in FY18 to ₹1.49 lakh crore in FY23. The buoyancy of the indirect tax
system replaced by GST has improved in the post-GST regime.

17
 The Corporate tax collections for April to November 2022 have increased by 21.1
percent on a YoY basis compared to a longer-term average YoY growth of 10.3
percent during the corresponding period from FY13 to FY19.
 Significant initiatives have been introduced under Atma Nirbhar Bharat and Make in
India pr
 Production incentives under Atma Nirbhar Bharat also incentivise foreign
investments for domestic production. India’s gross FDI has increased from an average
of 2.2 per cent of GDP during FY05-FY14 to 2.6. per cent in FY15-FY22 .
 The highest-ever annual gross FDI inflow of USD 84.8 billion was recorded in FY22.
These trends are an endorsement of India’s status as a preferred investment
destination amongst global investors.

Enhancing productivity in agriculture:

 The agriculture sector in India has grown at an average annual growth rate of 4.6 per
cent during the last six years owing to good monsoon years and partly to the various
reforms undertaken by the government to enhance agricultural productivity.

2.4. Returns to the Economic and Structural Reforms after 2014

Shocks that the economy faced during 2014-22:

 As per the data from the Bank for International Settlements, India’s non-financial
private sector debt to GDP ratio went up from 72.9 per cent in March 2004 to 113.6 per
cent by December 2010.
 Despite limited economic reforms, global capital flows and optimism about BRICS
(Brazil, Russia, India, China and South Africa), the twin deficits – fiscal and external -
crisis of 2013 appeared.

18
 Thereafter the non-financial private sector debt to GDP ratio began to come down
from 2015.
 A negative correlation (-0.5) between the Gross NPAs and credit growth shows that
the banks’ credit supply was severely constrained due to stress in their balance sheet.
 The government and the RBI took several policy initiatives to help the financial sector
recoup the balance sheet stress during the 2010s. Some of these such as the
amendment to the SARFAESI Act 2002, implementation of the Insolvency and
Bankruptcy Code (IBC), launch of ‘Asset Quality Review’ (AQR), introduction of
prompt corrective action (PCA) framework, recapitalisation of Public Sector Banks
(PSB), and merger of PSBs among others, helped in cleaning up the balance sheets
of banks/corporates.

The Period 2014-2022 is Analogous to the Period 1998-2002:

19
2.5. Growth Magnets in this Decade (2023-2030)

India is prepared to grow at its potential once the one-off shocks recede:
 A recent IMF Working paper analyzes the trends in the Credit- to-GDP ratio gap, bank
balance sheets and the GDP growth in India since 2012; and shows that better-
capitalized banks would result in higher credit growth, which further translates into
higher GDP growth.
 The evolving geo-political situation also presents an opportunity for India to benefit
from the diversification of global supply chains [Chief Economists Outlook 2023
(World Economic Forum)].
 India will achieve an average of 6.5 per cent real GDP growth in the medium term with
India's potential GDP growth to be 7-8 per cent per annum in the medium term.


20
 FISCAL DEVELOPMENTS:
3 REVENUE RELISH

3.1. Introduction

 The slowing global growth, rising interest rates, persistently high inflation rates and
uncertain global environment have thus posed certain pertinent questions for fiscal-
policy experts to motivate the overarching fiscal policy strategy.
 Against this backdrop, the Government of India adopted a calibrated fiscal response
to the pandemic and planned to withdraw the fiscal stimulus gradually as it moves
along the glide path outlined in the Budget FY22.

3.2. Developments in Union Government finances

 The fiscal deficit of the Union Government

reached 9.2 percent of GDP during the
pandemic year FY21, moderated to 6.7
percent of GDP in FY22 and is further
budgeted to reach 6.4 percent of GDP in
FY23. Hence, the Union Government is on
track to achieve the Fiscal deficit target for
FY23.
 Conservative budget assumptions
provided a buffer during global
uncertainties.

Performance of Union Government

Non-debt Receipts:
 The Union government's non-debt
receipts comprise revenue receipts (tax and non-tax) and non-debt capital
receipts. The shortfall in the non-debt receipts to meet the expenditure requirement
is met by borrowings of the government (called fiscal deficit).

Sustained revenue buoyancy over the last two years:

 After plummeting during the pandemic-affected year FY21, revenue receipts
registered robust growth in FY22 PA.
 This revenue revival was attributed to a rebound in the collection of all major direct
and indirect taxes (except excise duties) in FY22.
 Reforms like the introduction of GST and the digitalisation of economic transactions,
the Faceless Assessment and Appeal, simplification of return filing, assistance to
taxpayers in getting familiar with the systems, generation of e-way bills under the GST

21
 system, and information sharing between government departments among others,
have nudged higher tax compliance through technology and artificial intelligence.

Direct taxes propelling the growth in Gross tax revenue:

 Direct taxes, which broadly constitute half of the Gross Tax Revenue, have registered
a YoY growth of 26 per cent from April to November 2022, enabled by corporate and
personal income tax growth.

Customs and Excise duties act as Flexi-fiscal policy tools:

 The excise duty collection declined by 20.9 percent from April to November 2022 on
a YoY basis while high imports during the current year have led to a 12.4 per cent YoY
growth in the customs collection from April to November 2022

Stabilising Goods and Services Tax yielding returns:

 The Goods and Services Tax (GST) has evolved and stabilized as a vital revenue
source for central and state governments.
 It registered a YoY growth of 24.8 per cent . The improvement in GST collections has
been due to the combined effect of the rapid economic recovery post-pandemic, the
nationwide drive against GST evaders and fake bills along with many systemic
changes introduced recently, and various rate rationalization measures undertaken
by the GST Council to correct inverted duty structure.
 Consistent efforts have resulted in a doubling of the GST net, with the number of GST
taxpayers increasing from nearly 70 lakh in 2017 to more than 1.4 crore in 2022.

22
Center on track to meet Non-Tax Revenue targets:
 The non-tax revenue to the Centre mainly includes interest receipts on loans to
States and Union Territories, dividends and profits from Public Sector Enterprises
and the Reserve Bank of India, and external grants and receipts for services the
Union Government provides.
 Budget FY23 envisaged a lower collection of non-tax revenue receipts during the
current year relative to FY22 (around 22.5 per cent lower than FY22 PA).

Pragmatic expenditure policy of re-prioritisation:

 Last few years have underlined the importance of countercyclical fiscal policy
measures to support the economy during a crisis.
 The pandemic mandated additional expenditure requirements during FY21. The total
expenditure of the Union Government in FY21 rose to 17.7 percent of GDP, higher than
the previous 5-year average.
 The capital expenditure by the Centre has steadily increased from a long-term
average of 1.7 percent of GDP (FY09 to FY20) to 2.5 percent of GDP in FY22 PA. It is
further budgeted to increase to 2.9 percent of GDP in FY23.

Capex-led growth to bring back animal spirits and manage debt levels:
 In absolute terms, the Government of India had budgeted an unprecedented ₹7.5
lakh crore of Capital Expenditure for FY23, of which more than 59.6 percent had been
spent from April to November 2022.
 The Government's thrust on Capital expenditure, particularly in the infrastructure-
intensive sectors like roads and highways, railways, and housing and urban affairs,
has longer-term implications for growth.

23
 Capital expenditure strengthens aggregate demand and crowds-in private
spending in times of risk aversion; it also enhances the longer-term supply-side
productive capacity.

Geopolitical developments stretched the Revenue Expenditure

requirements:
 With the winding up of the pandemic-related support, the revenue expenditure of the
Union government was brought down from 15.6 percent of GDP in the pandemic year
FY21 to 13.5 percent of GDP in FY22 PA.
 This contraction was led by a reduction of the subsidy expenditure as the economy
recovered from the pandemic. The subsidy expenditure was brought down from 3.6
percent of GDP in FY21 to 1.9 percent of GDP in FY22 PA. It was further budgeted to
reduce to 1.2 percent of GDP in FY23.

24
Additional Information:

Major reforms in the Union budget over the last few years:
 Improved fiscal transparency and realistic revenue assumptions in the Budget
 Discontinuation of Plan-Non plan classification
 Merger of railway Budget with the Main Budget
 Shifting the date of the Budget to 1 February

3.3. Overview of State Government Finances

Performance of State finances:

 The combined Gross Fiscal Deficit (GFD)
of the States, which increased to 4.1
percent of GDP in the pandemic-
affected year, was brought down to 2.8
per cent in FY22. Given the geopolitical
uncertainties, the consolidated GFD-GDP
ratio for States has been budgeted 3.4
per cent in FY23.
 The capital outlay of States grew by 31.7
per cent in FY22 due to strong revenue
buoyancy and the support provided by
the Centre in terms of advance releases
of payments to the states, GST
compensation payments, and interest-
free loans.

Transfer from Centre to States:

 Transfer of funds to the States comprises the share of States in Union taxes devolved
to the States, Finance Commission Grants, Centrally Sponsored Schemes (CSS),
and other transfers.

 The Finance Commission had recommended allocation of an amount of ₹1.92 lakh

crore for FY23 in respect of post-devolution revenue deficit grants, grants to local

25
 bodies, health sector grants, and disaster management grants under Article 275 of
the Constitution.

Supporting the GST compensation payments during crisis:

 To meet the shortfall in GST compensation for States, the Government, in addition to
the release of regular GST compensation from the Fund, borrowed ₹ 2.69 lakh crore
during FY21 and FY22 and passed it onto States on a back-to-back basis.
 Moreover, the cess payments and tax devolution installments to the States were
frontloaded to give them early access to funds.

Enhanced limit of borrowing for the States and incentives for reforms:
 The Net borrowing Ceiling of the State Governments was kept above the Fiscal
Responsibility Legislation (FRL) threshold. It was fixed at 5 per cent of GSDP in FY21, 4
percent of GSDP in FY22 and 3.5 per cent of GSDP in FY23. A part of this additional
borrowing was linked to reforms encouraging the States to undertake them. on
implementing the 'One Nation One Ration Card' System, ease of doing business
reform, urban Local body/ utility reforms, and power sector reforms.
 The Fifteenth Finance Commission had recommended performance-based
additional borrowing space of 0.50 per cent of Gross State Domestic Product (GSDP)
to the States in the power sector. This special dispensation has been recommended
for each year for four years, from FY22 to 2024-25.

Centre's support towards States' capital expenditure:

 The Union government has provided 50-year interest-free loans to state governments
under the 'Scheme for Special Assistance to States for Capital Investment' for the
last three years.
 A part of the allocation for FY22 was earmarked for providing incentives to the States
for privatization/disinvestment of the State Public Sector Enterprises (SPSEs) and
monetization/ recycling of assets.

26
3.4. Debt Profile of the Government:

 The IMF projects the global government

debt at 91 percent of GDP in 2022, about
7.5 percentage points above the pre-
pandemic levels.
 Total liabilities of the Union Government
moderated from 59.2 percent of GDP in
FY21 to 56.7 percent in FY22 (P).
 Of the Union Government's total net
liabilities in end-March 2021, 95.1 per cent
were denominated in domestic currency,
while sovereign external debt constituted
4.9 per cent, implying low currency risk.
 Public debt in India is primarily
contracted at fixed interest rates, with
floating internal debt constituting only 1.7
percent of GDP. The debt portfolio is,
therefore, insulated from interest rate volatility.
 Over the last few years, the proportion of dated securities maturing in less than five
years has declined, whereas long-term securities have shown an increasing trend.

Consolidating General government finances:

 The General Government Debt to GDP ratio increased from 75.7 percent at the end-
March 2020 to 89.6 percent at the end of the pandemic year FY21. It is estimated to
decline to 84.5 percent of GDP by end-March 2022.
 The emphasis on capex- led growth will enable India to keep the growth-interest
rate differential positive. A positive growth- interest rate differential keeps the debt
levels sustainable.
 A comparison of the change in General Government debt to GDP ratio from 2005 to
2021 across the countries highlights a substantial increase for most countries. For
India, this increase is modest, from 81 percent of GDP in 2005 to around 84 per cent of
GDP in 2021.

3.5. Conclusion

 Various measures have led to a greater formalization of the economy, enhanced

compliances and better reporting of the income by the public and imparted
credibility to the government's commitment to fiscal management
 The Centre should continue incentivizing the States for reforms and higher capital
spending to ensure a stronger General government. The capex-led growth strategy
will ensure sustainable debt levels in the medium term.


27
 MONETARY MANAGEMENT AND
4 FINANCIAL INTERMEDIATION:
A GOOD YEAR

4.1. Monetary developments:

 Inflationary pressures dominated the global economic landscape in FY23 and has
triggered the sharp and synchronous monetary tightening cycle.
 Retail inflation has crossed the upper limit of RBI’s tolerance band since January
2022.
 In its April 2022 meeting, MPC introduced the Standing Deposit Facility (SDF), which
allowed for the deposit of excess funds by banks with the RBI without the necessity of
collateral in the form of government securities, thereby allowing effective liquidity
management in a collateral-free manner.
 The SDF, introduced at a rate of 3.75 per cent, replaced the reverse repo rate as the
new floor of the Liquidity Adjustment Facility (LAF) corridor.
 In its latest meeting of December 5-7, 2022, the MPC hiked the policy repo rate by 35
bps, and reiterated its focus on withdrawal of accommodation to ensure that inflation
remains within the target, while supporting growth.
 Reserve money (M0) increased by 10.3 per cent year-on-year compared to 13
percent last year.
 Growth in Currency in Circulation (CIC) broadly remained stable after Covid-19,
barring a marginal increase in the immediate aftermath of the outbreak of the Russia-
Ukraine conflict.

 The money multiplier – the ratio of M3 and M0 – has broadly remained stable at an
average of 5.1 over April – December 2022 period.

28
4.2. Liquidity Conditions

 With the MSF rate retained at 25 bps above the policy repo rate, the LAF corridor
became symmetric around the policy repo rate - the corridor width was thus restored
to 50 bps, the position that prevailed before the pandemic.
 The RBI’s move to hike the CRR by 50 bps resulted in a withdrawal of primary liquidity
from the banking system.
 Lending and deposit rates of banks increased during FY23 in consonance with the
policy repo rate changes. Hence, there was effective Monetary Policy Transmission.

4.3. Developments in the G-sec Market

 After remaining steady through 2020 and 2021, the yield on the 10-year government
bond rose in 2022. The trading volume in G-Secs (including T-Bills and SDLs) reached
a two-year high of ₹27.7 lakh crore during Q2 FY23, registering a growth of 6.3 percent
reflecting the growing interest of market players/ traders in the government security
market.

4.4. Banking Sector

Resilient and well-capitalized Banking System:

 RBI and the government have made dedicated efforts like strengthening the
regulatory and supervisory framework, implementation of 4R’s approach of
Recognition, Resolution, Recapitalisation and Reforms to clean and strengthen the
balance sheet of the banking system.
 The GNPA ratio has decreased from 8.2 per cent in March 2020 to a seven- year low
of 5.0 per cent in September 2022, while Net Non-Performing Assets (NNPA) have
dropped to a ten-year low of 1.3 per cent of total assets.

29
 The CRAR of SCBs has been rising
sequentially in the post-asset quality review
period. It remains well above the minimum
capital requirement, including Capital
Conservation Buffer (CCB) requirements of
11.5 per cent.

4.5. Non-Banking Financial Companies

(NBFCs) Continue to Recover

 NBFCs could absorb the shocks of the

pandemic. They built up financial soundness
during FY22, marked by balance sheet
consolidation, improvement in asset quality,
augmented capital buffers and profitability.

 The continuous improvement in asset quality is seen in the declining GNPA ratio of
NBFCs from the peak of 7.2 per cent recorded during the second wave of the
pandemic (June 2021) to 5.9 per cent in September 2022, reaching close to the pre-
pandemic level.
 NBFCs continued to deploy the largest quantum of credit from their balance sheets to
the industrial sector, followed by retail, services, and agriculture. Loans to the
services sector (share in outstanding credit being 14.7 per cent) and personal loans
(share of 29.5 per cent) registered a robust double-digit growth.

30
4.6. Progress made under the Insolvency and Bankruptcy Code

Ease of doing business: Facilitating the process of ‘Exit’:

 The Insolvency and Bankruptcy Code (IBC) has facilitated the exit of distressed
firms, thereby allocating scarce economic resources towards more productive use.
Since the inception of the IBC in December 2016, 5,893 Corporate Insolvency Resolution
Processes (CIRPs) had commenced by end-September 2022, of which 67 per cent
have been closed.
 The Code also provides for a Corporate Debtor (CD) to voluntarily liquidate itself
subject to the fulfillment of certain conditions as prescribed under the Code.

 Sectoral analysis reveals that 52 per cent of the ongoing CIRPs belong to industry,
followed by 37 per cent in the services sector by September 2022.
 Further, within the industry, 74 percent of the initiated CIRPs were from the
manufacturing sector. Of these, the textile, basic metals and food sectors accounted
for 48 percent of the ongoing CIRPs.

31
 While in the services sector, 60 percent of the ongoing CIRPs belong to real estate,
renting and business activities.

4.7. Development in Capital Markets

Primary Market:

Equity: Large number of SMEs coming out with the public offer:

 Compared to FY22 (until November 2021), this year, not only did the number of SMEs
coming with IPOs almost double, but the total funds raised by them were almost
three times the funds raised by them in the same period last year.
 Further, this year also witnessed the largest IPO ever in the history of India. In May
2022, the Central Government diluted its stake in the Life Insurance Corporation (LIC)
of India and listed it on the stock exchanges, thereby making LIC’s IPO the largest IPO
ever in India and the sixth biggest IPO globally of 2022.

Secondary Market:
Stock Market Performance: Indian stock market witnessing a resilient
performance:

 The Indian stock market saw a resilient performance, with the blue chip index Nifty 50
registering a return of 3.7 per cent during the same period.
Retail Participation in the Capital Market:

 The share of individual investors in the cash segment marginally declined during FY23
(April-November 2022) compared to the same period during FY22.

32
4.8. Foreign Portfolio Investments

Strong macroeconomic fundamentals ensure India remains an

attractive destination:
 The total assets with FPIs increased by 3.4 per cent at the end of November 2022
compared to November 2021.
 The overall net investments by Foreign Portfolio Investors during FY23 registered an
outflow of ₹16,153 crore at the end of December 2022 from an outflow of ₹5,578 crore
during FY22 at the end of December 2021, with both the equity segment and the debt
segment witnessing net FPI outflows.
 Large capital outflows from EMDEs such as India and China, which are importers of
commodities, were matched by inflows into commodity export-oriented markets
such as Indonesia, Malaysia and Brazil.
 Investments by Domestic Institutional Investors (DIIs) acted as a countervailing
force against FPI outflows during recent years, rendering the Indian equity market
relatively less susceptible.
 Net DII inflows and net investment by mutual funds in equities were observed during
FY23 (until November 2022).

Other Developments
Necessity of a common approach to regulating the crypto ecosystem:

 The recent collapse of the crypto exchange FTX and the ensuing sell-off in the crypto
markets have placed a spotlight on the vulnerabilities in the crypto ecosystem.
 Crypto assets are self-referential instruments and do not strictly pass the test of
being a financial asset because they have no intrinsic cash flows attached to them.
 The geographically pervasive nature of the crypto ecosystem necessitates a
common approach to the regulation of these volatile instruments. In this context, the
global response to cryptos is evolving.

33
 Cross country analysis: Regulation of Cryptocurrency
Regulation of Cryptocurrency

 The crypto asset market has been very volatile, with its total valuation swinging
from almost US$ 3 trillion in November 2021 to less than US$ 1 trillion in Jan 2023.
 Monitoring and regulating cryptocurrencies have been tricky, and regulators
across the globe find it challenging to keep track of the new and emerging issues in
the fast-moving uncharted field.

4.9. IFSC – GIFT City

 The aim is to facilitate India to emerge as a significant economic power by

accelerating the development of a strong base of International Financial Services in
the country.

GIFT IFSC - emerging as a Preferred Jurisdiction for international

financial Services
 IFC is a jurisdiction with a high concentration of financial institutions such as
Banks, Stock Markets & related entities, Insurance firms, Fund Managers, FinTech
firms, etc., which offer specialized financial services to non-residents and residents,
in an environment that promotes financial innovation and facilitates cross border
transactions.
 Government established the first of its kind, unified and agile financial sector
regulator for IFSCs viz International Financial Services Centres Authority (IFSCA)
through an Act of Parliament in 2019. It assumed the power of four domestic sector
regulators, namely RBI, SEBI, IRDAI & Pension Fund Regulatory and Development
Authority of India (PFRDAI).
 Global Financial Centres Index, London Report (March 2022) put IFSC in GIFT City at
the top, among 15 centers globally, which is likely to become more significant over
the next 2 to 3 years.
 GIFT IFSC has more than 390 + entities registered across a full spectrum of
financial services, including Banks, Capital Markets, Insurance, FinTech, Aircraft
Leasing, Bullion Exchange, etc.

4.10 Developments in the Insurance Market

 The potential and performance of the insurance sector are generally assessed
based on two parameters, viz., ‘insurance penetration’, which refers to the ratio of
total insurance premiums to Gross Domestic Product (GDP) in a year and
‘insurance density’, which refers to the ratio of insurance premium to population,
i.e.; insurance premium per capita and is measured in US Dollar, as they reflect the
level of development of the insurance sector in a country.

34
 In 2021, total global insurance premiums grew by 3.4 per cent in real terms, with the
non-life insurance sector registering 2.6 per cent growth..
 The US remained the largest insurance market in the world, with total premiums
(non-life and life) of US$ 2.8 trillion in 2021, followed by China and Japan.
 India poised to emerge as one of the fastest-growing insurance markets in the
coming decade.
 Insurance penetration in India increased steadily from 2.7 percent around the turn of
the millennium to 4.2 per cent in 2020 and remained the same in 2021.
 Life insurance penetration in India was 3.2 per cent in 2021.
 The insurance density in India has increased from US$ 11.1 in 2001 to US$ 91 in 2021
(density for Life insurance was US$ 69 and Non-Life insurance was US$ 22 in 2021) in
keeping with the relatively faster expansion of the insurance market in the country.

35
 A rapidly maturing insurance market has provided a lucrative opportunity to the
government to privatize its stake in the insurance business. Accordingly, the General
Insurance Business (Nationalization) Amendment Act, 2021 allows the central
government to pare its stake to less than 51 per cent of the equity capital in a
specified insurer.
 To facilitate the penetration of insurance to the lower income segments of the
population, the Insurance Regulatory and Development Authority of India (IRDAI)
issued IRDAI (Micro Insurance) Regulations, 2015, which provide a platform for
distributing insurance products that are affordable for the rural and urban poor and
promote financial inclusion.
 A list of various Government Insurance schemes and progress made so far is given
in the table below:
Scheme
Brief Description Achievement
Name
The scheme provides health Since inception, 19.7 crore
coverage of ₹5 lakh per beneficiaries have been provided
beneficiary family per annum to Ayushman cards, and over 4.3
Ayushman poor and vulnerable families crore hospital admissions worth
Bharat identified based on select over ₹0.49 lakh crore have been
Yojana deprivation and occupational authorized through a network of
criteria. 28,667 empanelled health care
providers, including 13,115 private
hospitals as of 20th January 2023.
Under the scheme, risk coverage Since its inception, 31.3 crore
Pradhan
of ₹2 lakh for accidental death beneficiaries have been enrolled
Mantri
and complete disability and ₹1 under the scheme, and 1.07 lakh
Suraksha
lakh for partial disability is given claims have been disbursed as of
Bima Yojana
to beneficiaries. 30th November 2022.
Under the scheme, risk coverage Since its inception, 14.4 crore
Pradhan
of ₹2 Lakh is credited to the beneficiaries have been enrolled
Mantri
savings bank account of the under the scheme, and 6.3 lakh
Jeevan Jyoti
holder in case of the death of the claims have been disbursed as of
Bima Yojana
insured. 30th November 2022.
Under the scheme, old age A total number of 8.6 lakh
income security is provided to subscribers with a subscription
Pradhan
senior citizens through the amount of ₹84,659.4 crore
Mantri Vaya
provision of an assured deposited by these subscribers
Vandana
pension/return linked to the have benefited under the scheme
Yojana
subscription amount based on a as of 30th September
government guarantee to LIC. 2022

36
 Under the scheme, risk During 2016 and 2022, 2763.9 lakh
insurance is provided to applications were received under
Pradhan farmers against crop damage the scheme, and claims of about ₹
Mantri Fasal due to non-preventable natural 1.28 lakh crore have been paid to the
Bima risks from pre-sowing to post farmers.
Yojana harvest for the crops/areas
notified by the concerned State
Government
Source: DFS, PIB, PMFBY Dashboard

4.11. Pension Sector

 In 2021, pension assets in OECD countries stood at US$ 38.5 trillion, 66.9 percent of the
GDP. In some of the OECD countries, pension assets were over 100 per cent of the GDP.
The United States recorded the largest holdings in pension funds, followed by the
United Kingdom and Australia.
 In India, the benefit of the Employees State Insurance Corporation (ESIC) pension
scheme was extended to even those who have lost earning members due to Covid-
19. Dependent family members of such persons were entitled to a pension equivalent
to 90 per cent of the average daily wage drawn by the worker.. The insurance benefits
under the Employees Deposit Linked Insurance (EDLI) scheme were also enhanced
and liberalized.
 The Government of India is implementing various pension schemes such as the Indira
Gandhi National Old Age Pension Scheme (IGNOAPS), Indira Gandhi National Widow
Pension Scheme (IGNWPS), Indira Gandhi National Disability Pension Scheme
(IGNDPS) under the National Social Assistance Programme (NSAP) with a total
beneficiary coverage of 4.7 crore.
 The National Pension System (NPS) was introduced in January 2004, the primary
pension system for government employees with a pay-as-you-go defined benefit
plan. NPS was extended to all the citizens of the country in the age group of 18-70
years, including the unorganized sector workers (on a voluntary basis) in 2009. In
order to ensure that an avenue for savings is available to all sections of society, PFRDA
launched “NPS-Corporate Sector Model” in 2011 to provide NPS to the employees of
corporate entities, including PSUs.
 The Government introduced Atal Pension Yojana in June 2015 as a part of the
overarching objective of providing universal social security. The scheme applies to all
individuals aged 18-40 years, with an emphasis on underprivileged, unorganized, and
low-income individuals.
 PFRDA, under the aegis of the Financial Stability and Development Council (FSDC),
has taken several steps to enhance financial education so that consumers can make
informed decisions.


37
 5 PRICES AND INFLATION

5.1. Introduction

 In recent years, India's inflation rate has been below the target rate set by the Reserve
Bank of India, which has been a source of comfort for policymakers. In 2020, supply-
side disruptions due to the pandemic led to inflation surpassing the upper tolerance
limit of 6% set by the Reserve Bank of India. This caused cost-push inflation in the
country.
 The conflict in Russia-Ukraine then contributed to worldwide inflation, driven by
rising prices of crude oil and other commodities. As a result, developed economies
were forced to raise interest rates and saw unprecedented rates of inflation, with
advanced economies projected to increase from 3.1% in 2021 to 7.2% in 2022.
Meanwhile, emerging markets saw a rise in inflation rate from 5.9% in 2021 to 9.9% in
2022.

5.2. Domestic Retail Inflation

 FY22 witnessed lower CPI-Combined (CPI-C) based retail inflation as compared to

FY21. Even so, inflation remained on the higher side when compared to the moderation
seen during the years prior to the pandemic. During FY22, some sub-groups such as
‘oils & fats’, ‘fuel & light’ and ‘transport & communication’ reported high inflation.
This was mainly driven by supply disruptions caused by pandemic-induced

38
 lockdowns. The subsequent year (FY23) began with the Russia-Ukraine crisis that led
to high headline inflation rate in April 2022.

5.3. Domestic Wholesale Inflation

 WPI-based inflation was low during the Covid-19 pandemic, but increased as
economic activities resumed and was exacerbated by the Russia-Ukraine conflict,
leading to a rise in the wholesale inflation rate to about 13.0% in FY22 due to increased
prices of items such as petroleum products, basic metals, chemicals, and edible
oils.

 The inflation in WPI 'fuel and power' was driven by high international crude oil prices
due to OPEC cuts and increased demand after easing of Covid-19 restrictions.

5.4. Monetary Policy Measures for Price Stability

 Reserve Bank of India's Monetary Policy Committee (MPC) increased the policy repo
rate under the liquidity adjustment facility (LAF) by 2.25 per cent (225 basis points)
from 4.0 percent to 6.25 per cent between May and December 2022.

How is the Current Inflation Different from the 1970s?

 The current global inflation resembles the experience of the 1970s, particularly the
aftermath of the oil crises.
 The current crisis is different in several respects, such as proportionally smaller oil
price rises, pervasive price increases across a wider range of commodities,
supply disruptions playing a smaller role, low inflation prior to the current rise,
and central banks having clearer institutional frameworks for price stability.
 Despite these differences, the impact of the current crisis is still significant and
supply disruptions may intensify in the future.

39
5.5. Housing Prices: Recovering Housing Sector After the Pandemic

 The National Housing Bank (NHB) has been supporting the Housing Finance Sector
by providing liquidity through various schemes over the last three years. These include
the Liquidity Infusion Facility Scheme, Special Refinance Facility, SRF 2021 and
concessions under refinance as part of Azadi Ka Amrit Mahotsav.

Additional Information:

 The National Housing Bank (NHB) publishes two Housing Price Indices (HPI),
namely ‘HPI assessment price’ and ‘HPI market price quarterly’, with FY18 as the
base year.
 HPI assessment price is based on the valuation prices of residential units collected
from primary lending institutions.
 In contrast, the HPI market price is based on the market prices for unsold inventories
collected from developers.
 A composite index is calculated for 50 cities across India using the population of the
cities as weights.

5.6. Keeping check on Pharmaceutical Prices

 The National Pharmaceuticals Pricing Authority has fixed the ceiling prices for 890
formulations of 358 drugs/medicines until December 31, 2022 under the National List
of Essential Medicines (NLEM) 2015.
 The NLEM 2022 was introduced in September 2022 and the retail prices for 2,196
formulations have been fixed under the Drugs (Prices Control) Order (DPCO) 2013.

5.7. Conclusion

 The inflation rate in India is expected to be lower in the financial year 2024 compared
to the current financial year, due to factors such as falling international crude oil
prices and decreased global commodity prices.
 However, there are still some risks to inflation, such as supply chain disruptions
caused by the re-emergence of Covid-19 and the impact of geopolitics on oil prices.
 In addition, domestic prices for some goods like cereals and spices are expected to
rise due to supply shortages, and high feed costs may cause a spike in milk prices.


40
 SOCIAL INFRASTRUCTURE AND
6 EMPLOYMENT: BIG TENT

6.1. Introduction

 India is making progress in the social sector with improved school facilities, affordable
healthcare, growing formal employment, empowered women's collectives, and
increased access to basic amenities such as sanitation, drinking water, and electricity.
 It is also focused on attaining the Sustainable Development Goals (SDGs) through
various initiatives with positive outcomes.

41
6.2. Social Sector Expenditure Keeping Pace with Growing Importance of
the Sector

 The government's spending on social services has been increasing since FY16, with
a focus on improving citizens' well-being. In FY23 (BE), the share of expenditure on
social services in the total government expenditure was 26.6%, an increase from 25%
from FY18 to FY20.
 The expenditure increased by 8.4% in FY21 and 31.4% in FY22, due to the pandemic
and the need for enhanced spending in the health and education sectors.
 The social sector expenditure of the central and state governments was 12.8 lakh crore
in FY19 and has increased to 21.3 lakh crore in FY23 (BE).

6.3. Improving Human Development Parameters

 The UNDP report shows a global decline in human development due to the impact of
the Covid-19 pandemic and the Russia-Ukraine conflict. India ranks 132 out of 191
countries in the 2021/2022 HDI report with a value of 0.633 in 2021, lower than in 2019
but still above the South Asia average.
 India has been improving its human development through investment in social
infrastructure such as health and education.
 India's Gender Inequality Index score is 0.490 in 2021 and ranks 122, better than the
South Asian average and close to the world average of 0.465. The 2022 UNDP report
on MPI showed that 16.4% of India's population (228.9 million people in 2020) was
multidimensionally poor, with 18.7% (260.9 million) being vulnerable. The intensity of
deprivation was 42% and the MPI value was 0.069. The data used was from 2019-2021.

42
6.4. Transformation of Aspirational Districts Programme

 The Government of India launched the Aspirational Districts Programme (ADP) in

2018 with a goal to improve living standards and promote inclusive growth.
 The programme focuses on 117 districts identified by NITI Aayog and aims to achieve
progress through convergence of schemes, collaboration, and competition among
districts.
 The progress of each district is measured by ranking based on 49 Key Performance
Indicators and a template has been developed by NITI Aayog for district plans, with a
primer also provided for improvement of indicators.
 The ADP has become a model for good governance, especially in challenging regions.
Two programs have been designed based on the ADP model: "Mission Utkarsh" and
"Aspirational Blocks Programme".
 "Mission Utkarsh" was launched on January 22, 2022, where 15 central ministries
identified 10-15 underperforming districts and used the ADP template to improve
them.
 The central and state governments have come together to use the ADP model to
identify and develop the most underdeveloped blocks in the country, with 500 blocks
being identified for rapid development.

6.5. Progressing Labour Reform Measures

 In 2019 and 2020, 29 central labor laws were consolidated into 4 labour codes aimed
at meeting the changing labor market trends and providing for the minimum wage
and welfare needs of unorganized sector workers.
 The codes aim to ease compliance, promote ease of doing business, and ensure
worker safety, health, and social security. The rules are made by the central and state
governments and are subject to pre-publication and public consultation.
 As of December 13, 2022, a majority of states have pre published the draft rules for the
codes.

43
6.6. e-Shram portal

 The Ministry of Labour and Employment has developed the eShram portal to create
a national database of unorganized workers in India.
 The portal, linked with Aadhaar, captures details of workers for better employment
opportunities and social security benefits.
 As of December 2022, over 28.5 million workers have registered on the portal, with
52.8% being female and 61.7% being in the 18-40 age group.
 The top states for registration are Uttar Pradesh, Bihar, and West Bengal, with
agriculture sector workers accounting for 52.4% of total registrations.

6.7. Aadhaar: The Many Achievements of the Unique Identity

 Aadhaar is a 12-digit unique ID number that provides digital identity to Indian

residents and ensures authentication. It simplifies the multiple ID system for various
purposes and strengthens the relationship between the government and the
individual.
 The initiation of Aadhaar in 2010 has contributed to the development of a digital
economy, giving India a competitive advantage in the movement of money and
goods.
 The Aadhaar system is used to aid in financial inclusion and provide digital identity.
When linked to a bank account, it can be used for financial transactions such as
withdrawal and deposit through Aadhaar Payment Bridge.

6.8. Improving Employment Trends

 The employment trends in the country are studied through both household surveys
(PLFS) and Enterprise surveys (ASI, QES) to provide a complete view of the labour

44
 market. Employment indicators have improved with unemployment rates falling and
net addition to EPFO payroll steadily increasing, especially among the youth.

Supply side of employment:

 The labour force participation rate, worker population ratio, and unemployment rate
in 2020-21 (July-June) improved compared to the previous years for both males and
females in both rural and urban areas.

 The current weekly status, which is a stricter benchmark, showed a swift recovery of
labour market indicators for both males and females.
 While rural labour markets have improved, the urban labour markets are slightly
behind pre-Covid levels, but the recovery is discernible based on recent Quarterly PLFS
reports.
 The share of self-employed increased and that of regular wage/salaried workers
declined in 2020-21, with a slight decline in casual labor in rural areas.

45
 The noticeable rise in Rural Female Labour Force Participation Rate (FLFPR) from 19.7
per cent in 2018-19 to 27.7 per cent in 2020-21 is a positive development.

Demand Side of Employment:

 The Labour Bureau's QES covers 9 major sectors (83% of total employment) with
10 or more workers, including manufacturing, construction, trade, transport,
education, health, accommodation & restaurants, IT/BPOs, and financial services.
 98.0% of the employed were employees, while 1.9% were self-employed and
Gender-wise, 31.8% of the estimated employed were women and 68.2% were
men.

6.9. Ensuring Quality Education for All

 The Union Government launched Samagra Shiksha in 2018 as an overarching

programme for the school education sector extending from pre-school to class XII.

46
School Enrolment:
 The enrolments increased across all levels viz., Primary, Upper- Primary, Secondary,
and Higher Secondary except for the Pre-Primary level.

School Drop-out:

 School dropout rates at all levels have witnessed a steady decline in recent years.
The decline is for both girls and boys.

School Infrastructure:

 The Government launched a Centrally Sponsored Scheme (CSS) called PM Schools

for Rising India (PM SHRI). These schools will be equipped with modern infrastructure
and showcase the implementation of the NEP. Under the scheme, there is a provision
for setting up more than 14,500 PM SHRI Schools, over the period FY23 to FY27.

Higher Education:

 The total enrolment in higher education has increased to nearly 4.1 crore in FY21 from
3.9 crore in FY20.

Initiatives for higher education:

 Guidelines for pursuing two academic programmes simultaneously.

 Interest subsidy on education loan.

Equipping the Workforce with Employable Skills and Knowledge in

Mission Mode:

 PLFS FY21 shows that formal vocational/technical training among youth (age 15- 29
years) and the working population (age 15-59 years) have improved in FY21 over
FY19 and FY20.
 The improvement in skills has been for males and females, both in rural and urban
sectors.

Skill India Mission:

 The government is implementing various skill development schemes across the

country. These include Deen Dayal Upadhyaya Grameen Kaushalya Yojna (DDU-
GKY), Rural Self Employment Training Institutes (RSETI), Deen Dayal Antyodaya
Yojana- National Urban Livelihood Mission (DAY-NULM). MSDE is implementing
Schemes such as Pradhan Mantri Kaushal Vikas Yojana (PMKVY), Jan Shikshan
Sansthan (JSS), National Apprenticeship Promotion Scheme (NAPS) and
Craftsmen Training Scheme (CTS).

47
6.10. Quality and Affordable Health for All

Health Expenditure Estimates:

 The NHA estimates for FY19 show that there has been an increase in the share of
Government Health Expenditure (GHE) in the total GDP from 1.2 per cent in FY14 to 1.3
per cent in FY19.
 Due to several such steps, Out- of-Pocket Expenditure (OOPE) as a percentage of THE
has declined substantially from 64.2 per cent in FY14 to 48.2 per cent in FY19.

6.11. Development of India’s Aspiring Rural Economy

 The percentage of the population living in India’s rural areas was as high as around
80 per cent in the 1960s and remained over 70 per cent till 2007. It presently stands at
65 per cent for 2021. Further, 47 per cent of the population is dependent on
agriculture for livelihood.

Enhancing Rural incomes

 Deendayal Antyodaya Yojana-National
Rural Livelihood Mission (DAY-NRLM)
 NRLM aims to enable economically weak
households to access gainful self-
employment and skilled wage
employment opportunities resulting in
sustainable and diversified livelihood
options for them.
 The cornerstone of the Mission is its
‘community-driven’ approach.
 Nearly 4 lakh SHG members have been
trained as Community Resource Persons.

48
Mahatma Gandhi National Rural Employment Guarantee Scheme:
 The Mahatma Gandhi National Rural Employment Guarantee Act 2005 (MGNREGA)
aims at enhancing the livelihood security of households in rural areas of the country
by providing at least 100 days of guaranteed wage employment in a financial year
to every household whose adult members volunteer to do unskilled manual work.

Deen Dayal Upadhyaya Grameen Kaushalya Yojana (DDU-GKY)

 It is a placement-linked skill development programme for rural poor youth under the
NRLM. It is a market-led, placement-linked skill development programme for
providing wage employment to rural poor youth.

Pradhan Mantri Awaas Yojana –Gramin (PMAY-G)

 It was launched in November 2016 with the aim of providing around 3 crore pucca
houses with basic amenities to all eligible houseless households (SECC 2011) living
in kutcha and dilapidated houses in rural areas by 2024.

Jal Jeevan Mission

 Jal Jeevan Mission (JJM) was announced in 2019, to be implemented in partnership
with States, to provide tap water connection to every rural household and public
institutions in villages like schools, Anganwadi centers, ashram shalas (tribal
residential schools), health centers, Gram Panchayat building, etc., by 2024.

Mission Amrit Sarovar

 The Mission is aimed at developing and rejuvenating 75 water bodies in each district
of the country during this Amrit Varsh, 75th Years of Independence.

Swachh Bharat Mission (Grameen)

 Andaman & Nicobar Islands has declared all its villages as ODF plus model, thus
becoming the first Swachh, Sujal Pradesh.

Pradhan Mantri Ujjwala Yojana 2.0, Swachh Indhan Behtar Jeevan

 The ‘Pradhan Mantri Ujjwala Yojana’ (PMUY) was launched in May 2016 as a flagship
scheme to make clean cooking fuel such as LPG available to rural and deprived
households.

Pradhan Mantri Gram Sadak Yojana (PMGSY)

 The objective of PMGSY is to provide single all-weather road connectivity to all
eligible unconnected habitations of the designated population size (500+ in plain
areas, 250+ in North-Eastern and Himalayan States) in rural areas of the country.

SAUBHAGYA- Pradhan Mantri Sahaj Bijli Har Ghar Yojana:

 It was launched in 2017 with the objective to achieve universal household
electrification by providing electricity connections to all willing un-electrified
households in rural areas.


49
 CLIMATE CHANGE
7 ANDENVIRONMENT: PREPARING
TO FACE THE FUTURE

7.1. Introduction

 Actions to reduce carbon emissions and adapt to the changing climatic conditions
are required urgently. For instance, it is estimated that by 2030, about 700 million
people worldwide will be at risk of displacement by drought alone (U.N. SDG Portal).
 One way to strive for it is to reduce emissions of GHG, including carbon. Nations have
pledged to reduce their net emission to zero by 2050, 2060 or by 2070.
 The Intergovernmental Panel on Climate Change (IPCC), highlighted that the
challenges faced due to global warming are mainly due to cumulative historical and
current GHG emissions of developed countries.
 The IPCC’s Sixth Assessment Report (AR6) notes that high human vulnerability
global hotspots are found particularly in West, Central & East Africa, South Asia,
Central, and South America, Small Island Developing States, and the Arctic.
 As per the report, Asia is most vulnerable to climate change, especially to extreme
heat, flooding, sea level rise, and erratic rainfall. The burden of adaptation is highest
for those who have contributed the least to global warming.
 India, considered to be one of the most vulnerable countries given its long coastline,
monsoon-dependent agriculture, and large agrarian economy. It has contributed
only 4 per cent (until 2019) to the cumulative global emissions and its per capita
emission is far less than the world average.
 Recognising the differentiated responsibility of countries (in view of their role in GHG
emissions) and the higher developmental needs of the developing countries, UNFCCC
and Paris Agreement call for a collective action based on the principles of equity and
Common But Differentiated Responsibility and Respective Capabilities (CBDR-RC).
 The collective action has translated into NDCs-through which each country has made
a commitment to work towards a collective goal of keeping temperature rise to
below 2° C above pre-industrial levels.

7.2. Progress on India’s Climate Action

 In 2008, India launched the National Action Plan on Climate Change (NAPCC),
establishing eight National Missions.

50
 National Adaptation Fund for Climate Change (NAFCC), a central sector scheme,
was initiated in 2015-16 to support adaptation activities in the States and Union
Territories (UTs) vulnerable to the adverse effects of climate change
 The new NDC with enhanced targets with the idea “Panchamrit” at the UNFCCC
Conference of Parties (COP 26) in Glasgow, 2021. It mentions sustainable lifestyles
and climate justice to protect the poor and vulnerable from the adverse impacts of
climate change.

India’s updated Nationally Determined Contribution (NDC):

 Article 4 of the Paris Agreement provides that each Party shall communicate or
update its NDC every five years. Therefore, in accordance with the aforesaid
provision of the Paris Agreement, India submitted the following updates to its first
NDC of 2015.
 Propagate a healthy and sustainable way of living based on traditions and
values of conservation and moderation, including through a mass movement
for ‘LIFE’– ‘Lifestyle for Environment’ as a key to combating climate change.
 To reduce the Emissions Intensity of its GDP by 45 per cent by 2030, from the
2005 level.
 To achieve about 50 per cent cumulative electric power installed capacity
from non-fossil fuel-based energy resources by 2030.
Source: Ministry of Environment, Forest and Climate Change

51
Status of Forest and Tree Cover:
 The country ranks third globally with respect to the net gain in average annual forest
area between 2010 and 2020.
 Schemes like the Green India Mission (GIM), Compensatory Afforestation Fund
Management and Planning Authority (CAMPA), National Afforestation Programme
(NAP), Green Highway Policy - 2015, Policy for enhancement of Urban Greens,
National Agroforestry Policy, and Sub-Mission on Agroforestry (SMAF), etc. are
among the most important ones.

Carbon Stock in India’s Forest and Tree Cover:

 The Indian State of Forest Report (ISFR) estimates the carbon stock of forests to be
about 7,204 million tonnes in 2019, which is an increase of 79.4 million tonnes of
carbon stock as compared to the estimates of the previous assessment for 2017.

 Among the Indian States, Arunachal Pradesh has the maximum carbon stock in
forests (1023.84 million tonnes), followed by Madhya Pradesh (609.25 million tonnes).
Jammu & Kashmir has the maximum per-hectare carbon stock of 173.41 tonnes.

Preservation of Ecosystems: A Critical Adaptation Action:

 The Ramsar Convention, signed on February 2, 1971, is one of the oldest inter-
governmental accords signed by member countries to preserve the ecological
character of their wetlands of international importance. India has 75 Ramsar sites
covering an area of 13.3 lakh ha, and 49 of these have been added in the last 8 years.
 Mangroves and coastal wetlands form the first line of defense for coastal
communities against increased storm surges, flooding, and hurricanes.
 As per a recent study, certain mangrove species in Chilika and Sundarbans along
the east coast and Dwarka and Porbandar along the west coast of India are likely to
reduce and shift landward by 2070 due to a decline in suitable habitats.
 The National Coastal Mission Programme on ‘Conservation and Management of
Mangroves and Coral Reefs’ is being implemented. Regulatory measures are
implemented through Coastal Regulation Zone (CRZ) Notification (2019) under the

52
 Environment (Protection) Act, 1986; the Wild Life (Protection) Act, 1972; the Indian
Forest Act, 1927; the Biological Diversity Act, 2002.
 As per the ISFR 2021, the mangrove cover in the country has increased by 364 sq. km.
in 2021 as compared to 2013.

River Conservation and Rejuvenation:

 The Government is working on mapping and converging the 5Ps’ - People, Policy,
Plan, Programme and Project.
 The Central Sector Scheme of Namami Gange for River Ganga and its tributaries,
and the Centrally Sponsored Scheme of National River Conservation Plan (NRCP) for
other rivers are being implemented to reduce polluted stretches in rivers.

Approach to Transition to Renewable Energy Sources:

 The target to achieve 40 percent of the installed electric capacity from non- fossil
fuel sources by 2030 in the initial NDC submitted in 2015 has already been achieved.
India is now striving to achieve the target of 50 per cent by 2030 in line with updated
NDCs.
 As per the Renewables 2022 Global Status Report, during the period 2014 -2021, total
investment in renewables stood at US$ 78.1 billion in India.

53
Green Hydrogen-A critical source of alternative energy:
 Green Hydrogen will
be crucial for
achieving
decarbonisation of
harder-to-abate
sectors such as
fertilizers, refining,
methanol, maritime
shipping, iron & steel
and long-haul
transport. Green
hydrogen is an
important element of
India’s Long Term Low
Emissions
Development
Strategy (LT-LEDS).
 With a vision to make India an energy-independent nation, and to decarbonise critical
sectors, the Government approved the National Green Hydrogen Mission on January
4, 2023. It will facilitate demand creation, production, utilization and export of Green
Hydrogen.
 A report by NITI Aayog in June 2022 shows that in the case of India, renewable tariffs
have fallen in recent years, and electrolyser costs are expected to fall in the future.

54
 Critical Minerals-Key to Green Transition:
 Cobalt, copper, lithium, nickel, and rare earth elements (REEs) are critical for
producing electric vehicles and batteries and harnessing solar power and wind
energy.
 Lithium, nickel, cobalt, manganese and graphite are crucial to battery
performance, longevity and energy density.

Long-Term Low Emissions Development Strategy (LT-LEDS):

 India submitted its Long-Term Low Carbon Development Strategy (LT-LEDS) on
November 14, 2022, at COP 27. The salient features of LT-LEDS are:
 Focus on the rational utilization of national resources with due regard to energy
security.
 Encompasses the objectives of the National Hydrogen Policy.
 Increased use of biofuels, especially ethanol blending in petrol. India aspires to
maximize the use of electric vehicles, ethanol blending to reach 20 per cent by
the Ethanol Supply Year 2025-26.
 Climate-resilient urban development will be driven by smart city initiatives.
 India’s industrial sector will continue on a strong growth path, with the vision of
‘Aatmanirbhar Bharat’ and ‘Make in India’.
 The LT-LEDS is driven by the vision of LiFE, Lifestyle for the Environment.

7.3. Finance for Sustainable Development

 India has scaled up its efforts towards greater mobilization of private capital to meet
its ambitious climate action goals.

Green Bonds:
 Green bonds are financial instruments that generate proceeds for investment in
environmentally sustainable and climate-suitable projects. As per SEBI’s data on
green debt securities, during the period of 2017 to September 2022, 15 Indian
corporates have issued green bonds of value ₹4,539 crore.
 In keeping with the ambition to reduce the carbon intensity of the economy
significantly, the Union Budget 2022-23 announced the issue of Sovereign Green
Bonds.
 A Green Finance working committee has also been set up to oversee and validate
key decisions on the issuance of Sovereign green bonds.

7.4. Major Decisions at COP 27

 The COP 27 to the UNFCCC was held in Sharm el-Sheikh, Egypt.

 India participated in COP 27, with a focus on mainstreaming the theme of LiFE -
Lifestyle for Environment, which is a pro-people and pro-planet effort seeking to shift

55
 the world from mindless and wasteful consumption to mindful and deliberate
utilization of natural resources.
 The Just Transition and Mitigation Work Program and the agreement on Joint work
on the implementation of climate action on agriculture and food security to be
conducted over four years were among the other things approved.
 During COP 27, developing nations strongly voiced setting up a separate fund for
loss and damage. A transitional committee has been established to work out the
modalities.
 COP 27 also saw progress on adaptation, with governments agreeing on how to move
forward on the Global Goal on Adaptation, which will conclude at COP 28 and inform
the first Global Stocktake in 2023.
 It was also recognised that the target of US$ 100 billion per year is yet to be achieved.

7.5. India’s Initiatives at the International Stage

 It is a treaty-based inter-governmental organization working to

create a global market system to tap the benefits of solar power
International and promote clean energy applications.
Solar Alliance  Its mission is to unlock US$ 1 trillion of investments in solar by
(ISA) 2030 while reducing the cost of the technology and its financing.
 It is the first international intergovernmental organization to be
headquartered in India.
 It aims to promote the resilience of infrastructure systems to
Coalition for climate and disaster risks, thereby ensuring sustainable
Disaster development.
Resilient  As on 29 June 2022, thirty-one Countries, six International
Infrastructure Organisations and two private sector organizations have joined
as members of CDRI.
Leadership  It gathers countries and companies that are committed to
Group for achieve the Paris Agreement.
Industry  It was launched by the governments of Sweden and India at the
Transition UN Climate Action Summit in September 2019 and is supported
(LeadIT) by the World Economic Forum.

7.6. Initiatives Related to other Environmental Issues

Ensuring the Conservation of Biodiversity:

 India ranks eighth in the world and fourth in Asia among the mega-diverse countries
in the world. It is also rich in fauna, and nearly 62 per cent of the recorded amphibian
species are endemic to India, which is majorly found in the Western Ghats.
 The 1992 Earth Summit held at Rio de Janeiro led to the adoption of an internationally
binding legal instrument, the Convention on Biological Diversity (CBD), with the
objectives of conservation, sustainable use, and fair and equitable sharing of benefits

56
 arising from the use of biological diversity. The fifteenth meeting of the Conference of
Parties (COP 15) to the Convention on Biological Diversity (CBD) took place in
December 2022 in Montreal, Canada. Key outcomes of the COP 15 include-
 Effective conservation and management of at least 30 percent of the world’s
lands, inland waters, coastal areas, and oceans.
 Cut global food waste in half and significantly reduce overconsumption and
waste generation.
 Mobilize by 2030 at least US$ 200 billion per year in domestic and international
biodiversity related funding from all sources – public and private.
 Raise international financial flows from developed to developing countries to at
least US$ 20 billion per year by 2025 and to at least US$ 30 billion per year by
2030.
 In conformity with the spirit of the CBD, India enacted the Biological Diversity Act in
2002. The Act mandates the implementation of the objectives through a decentralized
system with the National Biodiversity Authority at the national level, the State
Biodiversity Boards at the State level, and Biodiversity Management Committees at
the local body level.

Project Cheetah
 The introduction of Cheetahs in India is being done under Project Cheetah, the
world’s first inter- continental large wild carnivore translocation project.
 The cheetah was declared extinct from India in 1952. Under the scheme, eight
Namibian wild cheetahs were introduced on 17 September 2022 in Kuno National
Park, Madhya Pradesh.

Wildlife - Its Preservation and Protection:

 A comprehensive legislation was enacted called the Wildlife (Protection) Act 1972 to
provide special legal protection to our wildlife and the endangered species of fauna.
 Animals such as tigers, lions, and elephants are keystone and flagship species whose
preservation benefits the entire ecosystems.
 As of 10 August 2022, India is home to 53 Tiger Reserves covering approximately
75,796.8 sq. km area in 18 States, with about 75 percent of the wild tiger population at
the global level. India achieved the goal of doubling the tiger numbers in 2018, four
years before the targeted year 2022. In addition, 17 Tiger Reserves in the country have
CA|TS international accreditation, and two have received International Tx2
Award15. Similar increase has been found in the population of Asiatic Lions, Leopards,
and Indian Elephants.

Plastic Waste Management and Elimination of Identified Single-Use

Plastics:
 According to a report on Plastic Waste Management released by the Ministry of
Housing and Urban Affairs, the global average of plastic per capita consumption is
28 kg, and India has a per capita plastic consumption of 11 kg.

57
 The Ministry of Environment, Forest and Climate Change, Government of India,
notified the Plastic Waste Management Amendment Rules, 2021.
 On July 1, 2022, a ban was imposed on the manufacture, import, stocking, distribution,
sale and use of identified single-use plastic items, which have low utility and high
littering potential, all across the country.
 The Ministry of Environment, Forest and Climate Change notified the Guidelines on
Extended Producer Responsibility for plastic packaging vide Plastic Waste
Management Amendment Rules, 2022.
 The amendment provides a statutory framework for biodegradable plastics after
conforming to BIS Standards and the Central Pollution Control Board (CPCB)
certification.
 The rules mandate that environmental compensation shall be levied based upon the
polluter pays principle.
 The waste management infrastructure in the States/UTs is also being strengthened
through the Swachh Bharat Mission.

Battery Waste Management:

 The Government published the Battery Waste Management Rules, 2022, to ensure
environmentally sound management of waste batteries.
 The rules cover all types of batteries, viz. Electric Vehicle batteries, portable
batteries, automotive batteries, and industrial batteries.
 The rules function based on the concept of Extended Producer Responsibility (EPR),
where the producers (including importers) of batteries are responsible for the
collection and recycling/refurbishment of waste batteries and the use of recovered
materials from wastes into new batteries.

E-waste Management:
 The Government notified the E-Waste (Management) Rules, 2022.
 These rules will replace the E-waste (Management) Rules, 2016
 These rules will launch a new Extended Producer Responsibility (EPR) regime for e-
waste recycling.
 Applicable to every manufacturer, producer, refurbisher, dismantler, and recycler who
must register with CPCB.
 Management of solar PV modules /panels/ cells is added in new rules.


58
 AGRICULTURE AND FOOD
8 MANAGEMENT: FROM FOOD
SECURITY TO NUTRITIONAL SECURITY

8.1. Introduction

 The Indian agriculture sector has been growing at an average annual growth rate of
4.6 per cent during the last six years.
 India has emerged as the net exporter of agricultural products. In 2020-21, exports of
agriculture and allied products from India grew by 18 per cent over the previous year.
During 2021-22, agricultural exports reached an all-time high of US$ 50.2 billion.

8.2. Progress in Agriculture

Record Production of Foodgrains:

 Changing climate has been impacting agriculture adversely. The year 2022 witnessed
an early heat wave during the wheat-harvesting season, adversely affecting its
production. The year experienced a decline in the sown area for paddy cultivation
too in the Kharif season due to delayed monsoons and deficient rainfall.

59
MSP to Ensure Returns Over the Cost of Production:
 The Government has been increasing the MSP for all 22 Kharif, Rabi and other
commercial crops with a margin of at least 50 per cent over the all-India weighted
average cost of production since the agricultural year 2018-19.

Enhanced Access to Agricultural Credit:

 The Kisan Credit Card Scheme (KCC) was introduced in 1998.
 Government of India extended the KCC facility to fisheries and animal husbandry
farmers in 2018-19. As of 17 October 2022, 1.0 lakh KCCs have been sanctioned for the
fisheries sector and 9.5 lakh (as of 4 November 2022) for the animal husbandry sector.

Farm mechanization- Key to Improving Productivity:

 Under the Sub Mission on Agricultural Mechanisation (SMAM), State Governments
are being assisted in training and demonstrating agricultural machinery and helping
farmers procure various farm machinery and equipment besides setting up Custom
Hiring Centers (CHC).
 It needs to have machines that have equipment suitable for small sized holdings, as
there is increased fragmentation of land.

Chemical-free India: Organic and Natural Farming:

 India has 44.3 lakh organic farmers, the highest in the world, and about 59.1 lakh ha
area was brought under organic farming by 2021-22.
 The Government has been promoting organic farming by implementing two
dedicated schemes, i.e., Paramparagat Krishi Vikas Yojana (PKVY) and Mission
Organic Value Chain Development for North Eastern Region (MOVCDNER) since 2015
through cluster/ Farmer Producer Organisations (FPOs) formation.
 Promotion of natural farming began in 2019-20, when Bhartiya Prakritik Krishi
Paddhati (BPKP), a sub-scheme of PKVY, was launched to assist farmers in adopting
traditional indigenous practices for encouraging all forms of ecological farming,
including Zero-Budget Natural Farming (ZBNF).

Other Important Initiatives in Agriculture:

 PM KISAN Scheme: It is a Central Sector Scheme to supplement the financial needs
of land-holding farmers. The financial benefit of ₹6,000 per year is transferred into
the bank accounts of farmer families through DBT. It is one of the largest DBT schemes
in the world.
 Agriculture Infrastructure Fund (AIF): AIF is a financing facility operational from the
year 2020-21 to 2032-33 for the creation of post-harvest management
infrastructure and community farm assets, with benefits including 3 per cent interest
subvention and credit guarantee support.
 Pradhan Mantri Fasal Bima Yojana (PMFBY): The scheme promises minimal
financial burden on the farmer, with farmers paying only 1.5 per cent and 2 percent

60
 of the total premium for the Rabi and Kharif seasons, respectively, with Centre and
State Governments bearing most of the premium cost.

Additional Information:

Pradhan Mantri Fasal Bima Yojana (PMFBY):

 PMFBY was launched in the 2016 Kharif season to provide comprehensive insurance
coverage to farmers in case of crop failure, helping stabilize their incomes. The
scheme is implemented through empanelled general insurance companies. The
Scheme covers all Food & Oilseeds crops and Annual Commercial/Horticultural
Crops.
 The scheme is implemented on an ‘Area Approach’ basis.
 PMFBY is currently the largest crop insurance scheme in the world in terms of
farmer enrolments, averaging 5.5 crore applications every year and the third
largest in terms of premiums received.
 To better resolve grievances within the scheme, National Crop Insurance Portal has
been developed to handle all grievances from end to end.
 Grievance Redressal Committee (DGRC), State Level Grievance Redressal
Committee (SGRC). Further, a provision of Stratified Grievance Redressal
Mechanism, viz. District Level has been made in the Revised Operational Guidelines
of the Scheme to resolve such complaints.

 Mission for Integrated Development of Horticulture (MIDH): The scheme to promote

horticulture covering fruits, vegetables, roots and tuber crops, spices, flowers,
plantation crops etc., was introduced in 2014-15. The government has identified 55
horticulture clusters, of which 12 have been selected for the Cluster Development
Programme (CDP) pilot phase.
 National Agriculture Market (e-NAM) Scheme: The Government of India launched
the National Agriculture Market (e-NAM) Scheme in 2016 to create an online
transparent, competitive bidding system to ensure farmers get remunerative prices
for their produce.
 Climate-Smart Farming Practices: This is slowly gaining acceptance with farmers
using clean energy sources like solar for irrigation. The farmers have been
incentivised to transfer electricity generated through solar to the local grid. Crop
yield prediction models using artificial intelligence and drones for monitoring soil
and crop health have been initiated. Smart farming also enables crop diversification,
which will help farmers reduce their dependence on monsoons for water. There are
over 1,000 agritech start-ups in India which assist farmers in improving farming
techniques.

Allied Sectors:
 The livestock sector grew at a CAGR of 7.9 per cent during 2014-15 to 2020- 21 (at
constant prices), and its contribution to total agriculture GVA (at constant prices) has

61
 increased from 24.3 per cent in 2014-15 to 30.1 per cent in 2020-21. Similarly, the
annual average growth rate of the fisheries sector has been about 7 per cent since
2016-17 and has a share of about 6.7 per cent in total agriculture GVA.

 India ranks first in milk production in the world, third in egg production and eighth in
meat production in the world.
 As a part of the Atma Nirbhar Bharat (ANB) stimulus package, the Animal Husbandry
Infrastructure Development Fund (AHIDF) worth ₹15,000 crore was launched in
2020.
 The National Livestock Mission (NLM) scheme has been restructured for 2021-22 to
2025-26.

Sahakar-Se-Samriddhi: From Cooperation to Prosperity:

 There are 8.5 lakh registered cooperatives in the country, having more than 29 crore
members mainly from the marginalized and lower-income groups in the rural areas,
and 98 per cent of villages are covered by Primary Agriculture Credit Societies
(PACS).
 Currently, around 19 per cent of agriculture finance is through cooperative societies.
A full-fledged Ministry of Cooperation was established in July 2021 to provide greater
focus to the cooperative sector.
 The Multi-State Cooperative Societies Act, 2002 (MSCS) was enacted after repealing
the Multi-State Cooperative Act 1984, to facilitate the democratic functioning and
autonomous working of Multi-State Cooperative Societies in line with the established
Cooperative Principles.
 The MSCSs include 66 Multi-State Cooperative Banks with deposits of approx. ₹2.6
lakh crore. Maharashtra leads 661 cooperatives, followed by Delhi and Uttar Pradesh.

Food Processing Sector-The Sunrise Sector:

 During the last five years ending FY21, the food processing industries sector has been
growing at an average annual growth rate of around 8.3 per cent. As per the latest

62
 Annual Survey of Industries (ASI) 2019-20, 12.2 percent of persons in the registered
manufacturing sector were employed in the food processing sector. The value of
agri-food exports, including processed food exports, was about 10.9 per cent of India's
total exports during 2021-22.
 The Ministry of Food Processing Industries, through the component schemes of
Pradhan Mantri Kisan SAMPADA Yojana (PMKSY), provides financial assistance for
the overall growth and development of the food processing sector. The Ministry also
launched in 2020 the Prime Minister's Formalisation of Micro Food Processing
Enterprises (PMFME) Scheme as part of the ANB Abhiyan to enhance the
competitiveness of individual micro-enterprises in the unorganized segment and
promote the formalization of this sector by providing financial, technical and business
support for upgradation/setting up of 2 lakh micro units in the country. The scheme
adopts the One District One Product (ODOP) approach to reap the benefit of scale in
procuring inputs, using shared services and marketing products.
 The Production Linked Incentive Scheme for Food Processing Industry (PLISFPI),
launched in March 2022, has the specific mandate to incentivise investments to
create global food champions.

Food Security- Social & Legal Commitment to the People of the Nation:
 The Government is currently running the most extensive legislation-based food
security programme in the world, covering about 80 crore of India's population under
the National Food Security Act (NFSA), 2013.
 The food management programme in India comprises procurement of food grains
from farmers at remunerative prices, distribution of food grains to consumers,
particularly the vulnerable sections of society, at affordable prices and
maintenance of food buffer stock for food security and price stability.
 Till December 2022, the NFSA provided, for coverage of up to 75 per cent of the rural
and up to 50 per cent of the urban population highly subsidized food grains at ₹1/2/3
per kg for coarse grains/ wheat/rice, respectively, at the rate of 35 kg per family per
month to households covered under Antyodaya Anna Yojana (AAY) and at the rate
of 5 kg per person per month to priority households.
 Government initially launched Pradhan Mantri Garib Kalyan Anna Yojana
(PMGKAY) for the period from April to June 2020. However, keeping in view the need
for continuous support to the poor and the needy, the scheme has been extended and
implemented in various phases (Phase VII is the latest covering October-
December,2022). Under the scheme, 5 kg of additional food grains per person per
month has been/is being provided free of cost to NFSA beneficiaries in all the phases.
 One Nation One Ration Card (ONORC) scheme enables intra-State and inter-State
portability of ration cards. It helps the migrant beneficiaries access their food
security entitlements from any fair price shop (FPS).

63
8.3. Conclusion

 A focus on the horticulture sector and the thrust towards allied activities have
diversified farmers’ income making them more resilient to weather shocks.
 A greater focus on the development of the food processing sector can reduce
wastage/ loss and increase the length of storage, ensuring better prices for the
farmers.
 Initiatives like e-NAM and the Promotion of FPOs formation have been introduced to
strengthen the agricultural market.
 With the interventions including PMKSY, PMFME, PLI, etc., attempts have been made to
boost the food processing industries to harness its linkages with the agriculture sector.


64
 9 INDUSTRY: STEADY RECOVERY

9.1. General Trends in Industrial Sector

9.1.1 Introduction:
 Industry holds a prominent position in the Indian economy, accounting for 31 % of GDP,
on average, during FY12 and FY21 and employing over 12.1 crore people. Sectors
relevance is highlighted through the direct and indirect linkages it has with other
sectors:
 It ensures that domestic production can accommodate domestic demand and
reduces the reliance on imports.
 Industrial growth has multiplier effects.
 Industrial growth spurs growth in services sectors.
 Overall Gross Value Added (GVA) by the Industrial Sector, based on data available
for the first half of FY23, rose 3.7 per cent.

9.1.2 Demand Stimulus to Industrial Growth:

 Russian-Ukraine conflict broke out and led to a sharp rise in the prices of many
commodities like edible oil, crude oil, fertilizers and food grains.
 Fearing demand impact, the industry has been gradually passing on the higher
production costs, which has led to sticky but non-rising core retail inflation. Non-core
retail inflation, on the other hand, comprising food and energy components, has
been declining as local weather extremities have eased and interventions by the
government to restrict price rises have proven effective.
 Robust domestic conditions since FY22 have provided a demand stimulus to
industrial growth. Further, the strong export performance of FY22 continued somewhat
in the first half of FY23. In this half of the year, exports of goods and services as a share
of GDP have been the highest since FY16.
 However, the performance began to wane in the first half itself as the Year-on-
Year (YoY) growth of exports declined from Q1 to Q2 due to persistently high
inflation and rising interest rates in the advanced economies.
 The increase in investment demand has emerged as another powerful stimulus to
industrial growth. It has been triggered by the augmented capex of the central
government in the current and the previous year as compared to the pre-pandemic
years. The leap also has crowded in private investment, already upbeat on the pent-
up demand, export stimulus, and strengthening of the corporate balance sheets.

65
9.1.3 Supply Response of Industry:
 Input cost pressures, improving supplier delivery times, robust export orders, and
future output have experienced easing.

 The growth of the eight core industries of coal, fertilisers, cement, electricity, steel,
and refinery products has held steady, reflecting a broad momentum in industrial
activity.

66
 Automobiles and electronics registered impressive performances while sectors
such as textiles have been showing tepid growth.
 Seasonality has contributed to constraining the growth of production.

9.1.4 Robust Growth in Bank Credit to Large Industries and MSMEs:

 Credit to industry started recovering from the beginning of the year and credit to
MSMEs has also seen a significant increase in part, assisted by the introduction of the
Emergency Credit Linked Guarantee Scheme (ECLGS).
 All segments within the manufacturing sector except the textile industry witnessed
growth in credit offtake in November 2022.

9.1.5 Resilient FDI Inflow in Manufacturing Sector:

 Inflows stayed well above the pre-pandemic levels, driven by structural reforms
and measures improving the ease of doing business, making India one of the most
attractive FDI destinations in the world.

FDI Policy Reforms to Bolster Investment

 In FY20, 100 per cent FDI under automatic route was permitted for the sale of coal,
and coal mining activities, including associated processing infrastructure, subject
to provisions of relevant acts.
 26 per cent FDI under the government route has been permitted for uploading/
streaming of News & Current Affairs through Digital Media.
 100 per cent FDI has been permitted in Intermediaries or Insurance Intermediaries,
including insurance brokers, reinsurance brokers, insurance consultants, corporate
agents, third-party administrators, Surveyors and Loss Assessors and such other
entities as may be notified by the IRDA from time to time.
 To curb opportunistic takeovers/acquisitions of Indian companies due to the Covid-
19 pandemic, the government amended the FDI policy, according to which an entity
of a country which shares a land border with India or where the beneficial owner of

67
 investment into India is situated in or is a citizen of any such country, can invest
only under the Government route.
 Under the new regime, the process for granting FDI approvals has been simplified,
wherein the work relating to the processing of applications for FDI has been
delegated to the concerned Ministries/ Departments, and DPIIT is the nodal
department for facilitating the process.
 A revamped portal, “Foreign Investment Facilitation Portal (FIF Portal)”, has been
launched as the online single-point interface of the Government of India for
investors to facilitate Foreign Direct Investment. The portal facilitates single
window clearance of applications which are through the government approval
route. The FIF Portal has been integrated with the National Single Window System
(NSWS).

9.2. Industry Groups and their Challenges

9.2.1 Electronics Industry:

 In the mobile phone segment, India has become the second-largest mobile phone
manufacturer globally, with the production of handsets going up from 6 crore units
in FY15 to 29 crore units in FY21.
 Electronic goods were among the top five commodity groups exhibiting positive
export growth in November 2022, with the exports in this segment growing YoY by
55.1%.
 PLI scheme for Large Scale Electronics Manufacturing, the PLI scheme for IT
hardware, the Scheme for Promotion of Manufacturing of Electronic Components
and Semiconductors (SPECS) are some of the initiatives and incentives provided by
the government to nurture and enhance the electronics manufacturing base .

9.2.1.1 Incentives to Encourage Semiconductor Manufacturing in the US

and India:
 The United States’ Creating Helpful Incentives to Produce Semiconductors and
Science Act, 2022 (CHIPS and Science Act, 2022) aims to catalyze investments in the
domestic semiconductor manufacturing capacity of the US.

68
 Recognising that even though India possesses 20% of the world’s semiconductor
design engineers but a minuscule share in the intellectual property (IP), the
Government of India has also announced a Design Linked-Incentive (DLI) scheme.
 Israel-based International Semiconductor Consortium has signed a Memorandum of
Understanding (MoU) to invest ₹ 22,900 crore in Karnataka to set up India’s first
chip-making plant. Domestic players such as Vedanta and Tata have also
indicated plans to establish semiconductor fabs in the country.

9.2.2 CoaI Industry: Key in maintaining energy self-reliance during

uncertain times:
 In April-December, 2022, coal production rose by 14 per cent on a YoY basis and was
21 per cent higher than the pre-pandemic of FY20. Further, the coal stock at power
plants improved to 12 days as of 30 December 2022 compared to 10 days on 30 June
2022 and 8 days a year ago.
 The coal industry is expected to grow at 6-7% annually to reach a production level
of 1 billion tonnes by FY26 and about 1.5 billion tonnes by 2030. The enhanced domestic
coal production is expected to meet domestic coal demand, replace substitutable
imports, and escalate exports.

9.2.3 Infrastructure Sector & Construction Activity to drive Steel

Industry:
 The steel sector’s performance in the current fiscal year has been robust.The growth
in finished steel production is aided by double-digit growth in consumption (11% on a
YoY basis), bolstered by a pick-up in the infrastructure sector significantly driven by
increased Capex of the government.

9.2.4 Government Support to Textile Industry:

 In the current financial year, the textile industry has been facing the challenge of
moderating exports compared to FY22. FDI inflows into the textile sector are yet to
recover to pre-pandemic levels.

69
 The government approved the setting up of seven PM Mega Integrated Textile Region
and Apparel (PM MITRA) Parks which will not only reduce logistics costs and
improve the competitiveness of Indian Textiles but also boost employment
generation, attract domestic investment and FDI.

9.2.5 Growth Momentum in Pharmaceuticals Industry sustains after the

pandemic:
 The performance of pharma exports has been robust, sustaining positive growth
despite the global trade disruptions and drop in demand for Covid-19-related
treatments. The cumulative FDI in the pharma sector crossed the US$ 20 billion mark
by September 2022.
 Cumulative FDI in the pharma sector crossed the US$ 20 billion mark in September
2022. Further, FDI inflows have increased four-fold over five years until September
2022, to US$ 699 million, supported by investor-friendly policies and a positive
outlook for the industry.

9.2.6 India’s Automobile Market:

 The sector’s importance is gauged by the fact that it contributes 7.1 per cent to the
overall GDP and 49 per cent to the manufacturing GDP while generating direct and
indirect employment of 3.7 crore at the end of 2021.
 The automotive industry is expected to play a critical role in the transition towards
green energy. The domestic electric vehicles (EV) market is expected to grow at a
compound annual growth rate (CAGR) of 49 per cent between 2022 and 2030 and is
expected to hit one crore units annual sales by 2030. The EV industry will create 5
crore direct and indirect jobs by 2030.

9.3. India’s Prospects as a Key Player in the Global Value Chain

 The risk of supply chain shocks has become even more severe with the US-China
trade war, the Covid-19 pandemic, and the war in Ukraine. This has presented India
with a unique opportunity to become a global manufacturing hub this decade.

70
 The three primary assets to capitalize on this unique opportunity are the potential for
significant domestic demand, the Government’s drive to encourage
manufacturing, and a distinct demographic edge, including a considerable
proportion of the young workforce.

9.3.1 Make in India 2.0 and the PLI Schemes:

 To further enhance India’s integration in the global value chain, ‘Make in India 2.0’ is
now focusing on 27 sectors, which include 15 manufacturing sectors and 12 service
sectors.
 The PLI scheme is expected to attract a capex of approximately ₹3 lakh crore over
the next five years. The scheme will benefit the MSME ecosystem in the country.
 Some of the latest developments under the PLI programme include the launch of a
design- led PLI in June 2022 to promote the entire value chain in telecom
manufacturing and to build a strong ecosystem for 5G as part of the PLI Scheme for
Telecom & Networking products. The Cabinet has approved PLI Scheme (Tranche II)
on ‘National Programme on High-Efficiency Solar PV Modules’ to build an
ecosystem for manufacturing of high-efficiency solar PV modules in India, thus
reducing import dependence in the area of renewable energy.

9.3.2 Fostering Innovation:

 The government has also strengthened its IPR regime by modernizing the IP office,
reducing legal compliances and facilitating IP filing for start-ups, women
entrepreneurs, small industries and others.
 This has resulted in a 46 per cent growth in the domestic filing of patents over 2016-
2021, signaling India’s transition towards a knowledge-based economy.

9.4. India and Industry 4.0

 The advent of the Fourth Industrial Revolution (industry 4.0) integrates new
technologies such as cloud computing, IoT, machine learning, and artificial
intelligence (AI) into manufacturing processes, leading to efficiencies across the
value chain. India has made significant strides in internet penetration which is one of
the key requisites of industry 4.0.
 The government initiatives SAMARTH (Smart Advanced Manufacturing and Rapid
Transformation Hubs) Udyog Bharat 4.0 under the Ministry of Heavy Industries and
Public Enterprises, aims to encourage technological solutions to Indian
manufacturing units through awareness programmes and demonstrations.

9.5. Conclusion and Outlook

 Capacity utilization in the manufacturing sector has been rising and credit growth
in the industry has also increased remarkably.
 On the downside, volatile international commodity prices and supply disruptions in
raw materials can weigh on industrial growth in the wake of new disruptions at the
global level.

71
 The re-emergence of Covid-19 in China can trigger supply chain disruptions, as was
the case during the pandemic period. On the other hand, if China returns to normalcy
from Covid-19, there can be an increase in commodity demand - thus reversing the
recent decline in commodity prices.


72
 10 SERVICES : SOURCE OF STRENGTH

10.1. Introduction

 India's services sector witnessed a swift rebound in FY22, growing Year-on-Year (YoY)
at 8.4% compared to a contraction of 7.8% in the previous financial year.

10.2. Trends in high-frequency indicators

10.2.1. Services PMI (Purchasing Managers Index):

 PMI Services remained in the contractionary zone for several months during 2020
and 2021 on account of the restrictions imposed to tackle the Covid-19 pandemic,
recovered swiftly with the waning of the Omicron variant at the beginning of 2022. It
witnessed a setback again with the outbreak of the Russia-Ukraine conflict.

10.2.2. Bank Credit:

 The credit to services sector saw a YoY growth of 21.3 per cent in November 2022, the
second highest in 46 months, compared to a 3.3% growth in November 2021.

10.2.3. Services trade:

 Buoyancy caused by spending on travel, Information and Communication
Technology (ICT) services, and financial services, world services trade volume
surpassed its pre-pandemic peak in the second quarter of 2022.

73
 Financial and ICT Services have been so far most resilient to the slowing global
economy, whereas construction services and container shipping fell into
contraction territory.
 India was among the top ten services exporter countries in 2021, among services
exports, software exports have remained relatively resilient during the Covid-19
pandemic as well as amid current geopolitical uncertainties.
 Transport and travel exports have been the most impacted sub-components of the
services exports in FY21 and FY22.

10.2.4. Foreign Direct investment (FDI) in Services:

 In FY22 India received the highest-ever FDI inflows of US$ 84.8 billion including US$
7.1 billion FDI equity inflows in the services sector.
 To facilitate investment, various measures have been undertaken by the Government,
such as the launch of the National Single-Window System.
 For liberalization of investment in various industries, the Government has permitted
100 per cent foreign participation in telecommunication services, including all
services and infrastructure providers, through the Automatic Route.
 The FDI ceiling in insurance companies was also raised from 49 to 74 per cent,
under Automatic Route.

10.3. Major Services: Sub-Sector-Wise Performance

10.3.1. Tourism and Hotel Industry:

 The hotel industry closed the year 2020 with an average hotel occupancy rate of 33-
36%, reflecting a decline of 32%.
 Small-to-medium-sized domestic MICE (Meetings, Incentives, Conference,
Exhibitions) events also made a comeback, fuelling demand for hotels.
 Aiding the revival of travel demand was the high vaccination rate in the country.
 A significant decline in Foreign Tourist Arrivals in India was witnessed in FY21.

74
 Foreign tourist arrivals in India in FY23 have been growing month-on-month with the
resumption of scheduled international flights and the easing of Covid-19 regulations.
Yet, the arrivals are below the pre-pandemic level.
 The way India has handled the Covid situation and also prepared itself for future
shocks, trust in India’s medical infrastructure has improved. This will give a big push
to Medical Value Tourism (MVT) which is expected to grow to US$ 13 billion by 20228.
 The G20 presidency presents a unique opportunity for the Indian travel and tourism
industry.

10.3.2. Real Estate:

 The measures taken by the government during the pandemic, such as lower interest
rates, reduction in circle rates, and cut in stamp duties on transaction of
sale/purchase of immovable property, the extension of the Real Estate Regulation
Act (RERA) also played a significant role in post-pandemic rebound of Real Estate
sector.
 With a volatile international market, the surge in prices of construction materials
has pushed developers to halt ongoing construction. The Wholesale Price Index for
Cement, Lime & Plaster has increased from 127.1 in December 2021 to 137.6 during
December 2022, indicating an uptick in the input cost for construction.
 The recent government measures, such as the reduction in import duties on steel
products, iron ore, and steel intermediaries, will cool off the construction cost and
help to check the rise in housing prices.
 Regulatory initiatives such as the Model Tenancy Act and digitisation of land registries
& market data through the Dharani and Maha RERA platforms have helped to
broaden the market and bring more formalization to the sector.
10.3.2.1. Policy Interventions by the Government to Boost Housing Sector:

 Measures like ‘Housing for All’, Aatmanirbhar Bharat, etc., provided an impetus to the
Housing Finance sector.
 The interest subvention under Pradhan Mantri Awas Yojana-Credit Linked Subsidy
Scheme Urban) (PMAY-CLSS (U)) has been the demand-side driver in the residential
housing space.
 The Affordable Housing Fund (AHF) created sufficient liquidity in the sector for viable
growth.

10.3.3. IT-BPM Industry:

 According to NASSCOM’s report, India’s IT-BPM industry has been exceptionally
resilient during the pandemic, driven by increased technology spending,
accelerated technology adoption, and digital transformation. This is evident in the
swift and wide-scale remote working adoption of one of the world’s largest IT
workforces.
 IT-BPM revenues registered YoY growth of 15.5% during FY22 compared to 2.1% growth
in FY21, with all sub-sectors showing double-digit revenue growth.

75
 Growth in exports was seen across all the major markets, with the USA, Europe (excl.
UK), and the UK continues to be the major market. Many firms are now focusing on
new markets, more prominently the Middle East and Latin America.
 The industry recorded nearly 10 per cent estimated growth in direct employee pool in
FY22 with a highest-ever net addition to its employee base. The domestic technology
industry is estimated to grow at 10 per cent on account of enterprise digital
acceleration and transformation.

10.3.4. E-commerce:
 In terms of order volume and valuation, post-Covid-19 years have been the most
successful years for Indian E-commerce start-ups. Lockdowns and mobility
restrictions disrupted consumer behavior and gave an impetus to online shopping.
 According to the Global Payments Report by Worldpay FIS, India’s e-commerce
market is projected to post impressive gains and grow at 18 per cent annually
through 2025.
 The expansion of e-commerce to newer segments like grocery, fresh-to-home fruits
and vegetables, and general merchandise has contributed to the expansion of the
customer base beyond traditional buyers.
 A recent study by IIFT analyzing the impact of the interaction between MSMEs and e-
commerce found that in recent years, MSMEs that adopted digital solutions fared far
better than offline MSMEs.
 New E-commerce companies like Trell, Meesho, and shop 101, are expanding and
gaining popularity in Tier 3 and 4 cities.
 The Government E-Marketplace (GeM) has also witnessed tremendous growth in
Gross Merchandise Value (GMV) and is catching up with E-commerce giants like

76
 Amazon and Flipkart. GeM has taken a host of steps to onboard products of Self-
Help Groups (SHGs), tribal communities, artisans, weavers, and MSMEs.
 57% of the total business on GeM has come through the MSME units, and female
entrepreneurs have contributed over 6%.
 One District – One Product (ODOP) initiative has been facilitating the onboarding of
sellers of identified products on e-Commerce platforms to provide greater visibility
for small businesses from the rural sector.
 E-marketplace www.tribesindia.com portal through Tribal Cooperative Marketing
Development Federation of India Limited (TRIFED) has been onboarding tribal
artisans with their products for online sales, ensuring tribal products find a larger
audience in the international market as well.
 The Open Network for Digital Commerce (ONDC) is also playing a significant role in
democratizing digital payments, enabling interoperability, and bringing down
transaction costs.

10.3.5. Digital Financial Services:

 Over the last few years, the number of neobanking platforms and global investments
in the neo-banking segment has also risen consistently.
 Neobanks operate entirely online, with no physical presence apart from office
space in the offline world. The growth of these institutions is spurred by the need
for on-demand and easier-to-access financial solutions by a young and
increasingly digitally savvy demographic.
 Neobanks have eased availability and provided access to financial services to
MSMEs and underbanked customers and areas. The government also, through
various initiatives, has given a push to digital banking solutions.
 The introduction of the Central Bank Digital Currency (CBDC) will also significantly
boost digital financial services.
 RBI has also recently launched pilots of CBDC in both the Wholesale and Retail
segments.

10.4. Outlook

 The prospects look bright with improved performance of various sub-sectors like
Tourism, Hotel, Real estate, IT-BPM, E-commerce etc.
 The downside risk, however, lies in the external exogenous factors and bleak
economic outlook in Advanced Economies impacting growth prospects of the
services sector through trade and other linkages.


77
 EXTERNAL SECTOR: WATCHFUL
11 AND HOPEFUL

11.1. Introduction

 During FY23 (till December 2022) India’s exports have displayed resilience on the
back of record levels of exports in FY22.
 Petroleum products, gems & jewelry, organic & inorganic chemicals, drugs &
pharmaceuticals were among the leading export items.
 However, the slowdown in Indian exports is inevitable in a slowing global
economy characterized by slowing global trade.
 Balance of Payments (BoP) encountered pressures during the year under review.
While the impact of a sharp rise in oil prices was discernible in the widening of the
Current Account Deficit (CAD).
 The fortified shock absorbers of India’s external sector are in place to cushion the
global headwinds be it the formidable forex reserves, sustainable external debt
indicators, or market-determined exchange rate.
 Interest rates and prices of risk assets have been extremely volatile since April 2022,
reflecting heightened uncertainty about the economic and policy outlook,
exacerbated by low liquidity.
 The US dollar appreciated sharply against currencies of Emerging Market
Economies (EMEs) and major advanced economies facing high borrowing costs.
Thus, global financial conditions have considerably tightened especially since April
2022, and the balance of risks is significantly skewed to the downside, thereby
weakening the global economic outlook.
 Global growth is forecast to slow from 6.0 per cent in 2021 to 3.2 per cent in 2022 and
2.7 per cent in 2023 according to the International Monetary Fund (IMF).

11.2. Trade Helping India Reap the Benefits of Globalized World

 For the world as a whole, the share of trade as a percentage of world GDP has been in
the range of 50-60% since 2003 and stood at 52% in 2020, according to the World
Bank database.
 For India as well, the share of trade as a percentage of GDP has been steadily
increasing, being above 40% since 2005 (except 2020 being the pandemic year). The
ratio stands at 46% in 2021 and 50% for H1 of 2022.

11.3. Global Scenario

 Post Covid-19-induced disruptions, global trade prospects have improved in FY22.

Global trade exhibited resilience in the first half (H1) of 2022, notwithstanding the
headwinds from the Russia-Ukraine conflict.

78
 The global trade volume grew by 4.8% in H1 of 2022, on top of an impressive recovery
of 9.7% in 2021, as per the World Trade Organisation (WTO) statistics.
 Trade growth was forecasted to slow in the closing months of 2022 and into 2023,
according to the WTO Goods Trade Barometer.
 The WTO forecasts global trade to grow in 2023 by just 1%, a sharp downward revision
from the previous estimate of 3.4%.
 The United Nations Conference on Trade and Development (UNCTAD), in its Global
Trade update of December 2022 has also noted that the ongoing trade slowdown is
expected to worsen for 2023.

11.4. India’s Growing and Diversifying Trade

 Trade as a percentage of GDP for India was in the range of 12-15 per cent in the 1980s;
16-25 per cent in the 1990s and 25-50 per cent in the 2000s.

11.4.1. Trends in Merchandise Trade:

 India achieved an all-time high annual merchandise export of US$ 422.0 billion in
FY22.
 Non- petroleum and non-gems & jewelry exports in April-December 2022 were US$
233.5 billion, as compared to US$ 230.0 billion in April-December 2021.
 Petroleum, oil, and lubricants (POL) exports constituted about 21.1% and non-POL
exports were 78.9% of total exports during FY23 (until December 2022).

79
11.4.2. Bright Spots in India’s Trade Performance Exports:
 Significant strides in exports were registered in drugs and pharmaceutical,
electronic goods, engineering goods and organic and inorganic chemicals sectors
in FY22. These sectors have sustained their growth momentum despite the global
headwinds in H1of FY23.
 India’s pharma exports grew despite Covid impacted disruptions in supply
chain, increasing significantly from US$ 15.4 billion in FY15 to US$ 24.6 billion in FY22
and stood at US$ 18.8 billion during April- December 2022.
 The USA remained the top export destination in April-November, 2022 followed by
UAE and the Netherlands.
 The Netherlands has displaced China from the 3rd spot as India's exporting
partner.
 India has diversified its export destinations over time as the share of South Africa in
total exports has risen from 1.2% in FY19 to 2.0% in FY23 (April to November).
Imports:

 As the pandemic ebbed, India witnessed a revival in domestic demand resulting in

strong import growth.
 Other principal imports included electronic goods; coal, coke & briquettes;
machinery electrical & non-electrical, and organic & inorganic chemicals.
 China, UAE, USA, Russia, and Saudi Arabia have a joint share of 40% of the total
imports of India.

80
 The merchandise trade deficit for April-December 2022 was estimated at US$ 218.9
billion as against US$ 136.5 billion in April-December 2021.

11.4.3. Trade in Services:

 India maintained its dominance in the world services trade in FY22. Despite
pandemic- induced global restrictions and weak tourism revenues, India’s services
exports stood at US$ 254.5 billion in FY22 recording a growth of 23.5% over FY21 and
registered a growth of 32.7% in April-September 2022 over the same period of FY22.

81
 Software and business services together constitute more than 60 per cent of India’s
total services exports and exhibited strong growth during Q2 of FY23.
 The increase in services imports is mainly on account of payments for transport
services, travel and other business services.

11.5. Foreign Trade Policy

 The latest FTP for 2015- 2020 is in vogue at present. To provide policy stability during
the pandemic period, the five- year FTP 2015-20 was extended from 2020 to 2022. The
policy has been further extended till March 2023 on account of volatile global
economic and geopolitical situations and currency fluctuations.

11.6. International Trade Settlement in Indian Rupees

 In July 2022, the Reserve Bank of India (RBI) issued a circular permitting an additional
arrangement for invoicing, payment, and settlement of exports/imports in Indian
Rupees (INR) to promote the growth of global trade with emphasis on exports from
India and to support the increasing interest in the global trading community in INR
as an international currency.
 The framework involves invoicing of exports and imports in INR, market-determined
exchange rates between the currencies of the trading partner countries, and
settlement through special Rupee Vostro accounts opened with authorized dealer
banks in India.Under this arrangement for settlement:
 Indian importers undertaking imports through this mechanism shall make
payment in INR which shall be credited into the Special Vostro account of the
correspondent bank of the partner country, against the invoices for the supply of
goods or services from the overseas seller /supplier.

82
  Indian exporters, undertaking exports of goods and services through this
mechanism, shall be paid the export proceeds in INR from the balances in the
designated Special Vostro account of the correspondent bank of the partner
country.
 One of the prerequisites for the emergence of an international currency is that the
said currency needs to be increasingly used for trade invoicing.

11.7. Initiatives to Enhance Trade

 Some of the factors leading to the achievement of this target were putting in place of
targets by the Government, including the setting of specific targets - country- wise,
product-wise, and Export Promotion Council-wise; monitoring of the targets and
course correction where required.

11.7.1. Focus on Agricultural Products:

 India’s agricultural exports achieved the highest ever export in FY22 reaching US$ 37.8
billion and it continued to perform well in FY23 with exports of US$ 26.8 billion during
April- November 2022 backed by an effective agriculture export policy.
 Pro-active support of export promotion agencies including Export Inspection
Council, Plantation Boards, and Agricultural and Processed Food Products Export
Development Authority (APEDA), and export facilitating measures like online
issuance of certificates required for exports, aided growth of agricultural exports.
 Regular promotions were organized for agricultural products through
participation in trade fairs and special events in association with the Indian
Missions.

11.7.2. Interest Equalisation Scheme:

 This Scheme was formulated to give benefit in the interest rates being charged by
the banks to the exporters on their pre- and post-shipment rupee export credits.

11.7.3. RoDTEP Scheme:

 Remission of Duties and Taxes on Exported Products (RoDTEP) Scheme seeks
remission of Central, State and Local duties/taxes/levies at different stages at the
Central, State, and local level, which are incurred in the process of manufacturing and
distribution of exported products, but are currently not being refunded under any
other duty remission scheme.

11.7.4. Export Credit Guarantee:

 The Export Credit Guarantee Corporation (ECGC) supports Indian exporters and
banks by providing export credit insurance services. ECGC provides insurance cover
on the export consignment to protect exporters from the consequences of the
payment risks.

83
  It also provides Export Credit Insurance to Banks (ECIB) to protect the Banks from
losses on account of export credit given to exporters due to the risks of insolvency
and/or protracted default of the exporter borrower.

11.7.5. Krishi Udan Scheme:

 Krishi Udan Scheme was launched in August 2020 on international and national
routes to assist farmers in transporting agricultural products so that it improves
their value realization.
 Krishi Udan 2.0 was launched in October 2021 enhancing the existing provisions,
mainly focusing on transporting perishable food products from the hilly areas,
North- Eastern states, and tribal areas.

11.7.6. Trade Infrastructure for Export Scheme:

 The Scheme provides financial assistance in the form of grant-in-aid to
Central/State Government owned agencies for setting up or for up-gradation of
export infrastructure as per the guidelines of the Scheme.

11.7.7. Districts as Export Hubs:

 One District One Product Initiative is aimed at targeting export promotion,
manufacturing, and employment generation at the grassroots level, making the
States and Districts meaningful stakeholders and active participants in making India
an export powerhouse thereby contributing to the Atma Nirbhar mission and
achieving the vision of Make in India for the world and being Vocal for Local.

11.8. India’s Global Trade Engagements

 India has always stood for an open, equitable, predictable, non-discriminatory,

and rule- based international trading system. India considers Regional Trading
Arrangements (RTAs) as ‘building blocks’ towards the overall objective of trade
liberalization and as complementing the multilateral trading system.
 Recognising that RTAs would continue to feature permanently in world trade, India
has engaged with its trading partners/blocs with the intention of expanding its
export market since the early part of the previous decade and began concluding, in
principle agreements to move, in some cases, towards Comprehensive Economic
Cooperation Agreements (CECA) which covers FTA in goods, services, investment
and identifies areas of economic cooperation.
 India has so far concluded 13 FTAs and 6 Preferential Trade Agreements (PTAs). The
most recent in the list are the India-UAE Comprehensive Economic Partnership
Agreement (CEPA) which entered into force on 1 May 2022 and the India-Australia
Economic Cooperation and Trade Agreement (Ind-Aus ECTA), which entered into
force on 29 December 2022.
 Further, India is presently engaged in FTA negotiations with some of its trading
partners, notable among these FTAs are
 India-UK FTA,

84
  India-Canada CEPA/ Early Progress Trade Agreement (EPTA),
 India-EU FTA.

11.9. Balance of Payments in Challenging Times

11.9.1. Current Account Balance:

 India’s Current Account Balance (CAB) recorded a deficit of US$ 36.4 billion (4.4% of
GDP) in Q2 of FY23 in contrast to a deficit of US$ 9.7 billion (1.3% of GDP) during the
corresponding period of the previous year.
 For the period April- September 2022 (H1FY23), India recorded a CAD of 3.3% of GDP
on the back of an increase in the merchandise trade deficit, as compared with 0.2% in
H1FY22. However, a comparison with the position of the CAB for selected countries
shows that India’s CAD is modest and within manageable limits.

11.9.2. Invisibles:
 Net services receipts increased from US$ 51.4 billion in H1FY22 to US$ 65.5 billion in
H1FY23, primarily on account of robust computer and business services receipts.
 Similarly, the net private transfer receipts, mainly representing remittances by
Indians employed overseas, was US$ 48.0 billion in H1 FY23 against their level of US$
38.4 billion during the same period a year ago.
 Net services exports and remittances contributed to the surplus on the invisible
account, which cushioned the merchandise trade deficit.
 Remittances are the second largest major source of external financing after service
export, which contribute to narrowing the CAD and has always been a stable
constituent of the BoP.

11.9.3 Capital Account Balance:

 Foreign investment, consisting of Foreign Direct Investment (FDI) and Foreign
Portfolio Investment (FPI), is the largest component of the capital account. On a BoP
basis, the net capital inflows declined to US$ 29.0 billion in H1FY23 from US$ 65.0
billion in H1FY22 primarily driven by the FPI outflow of US$ 14.6 billion in Q1FY23.
 During April-September 2022, gross FDI inflows were US$ 39.3 billion as compared to
US$ 42.5 billion a year ago. Computer Software and Hardware attracted the highest
share of FDI equity inflow (23.4%) followed by Services (15.4%) and Trading (12.2%).
 In terms of FDI inflow, Singapore was the top investing country with a 37.0% share,
followed by Mauritius (12.1%), UAE (11.0%), and the USA (10.0%).

11.10. Balance of Payments and Foreign Exchange Reserves

 The net financial inflows fell short of the CAD, there was a depletion of foreign
exchange reserves on a BoP basis to the tune of US$ 25.8 billion in H1FY23 in contrast
to an accretion of US$ 63.1 billion in H1FY22. But huge valuation losses (US$ 48.9
billion) contributed to the net depletion of US$ 74.6 billion of reserves in nominal
terms during the period.

85
 As seen from the graph, the import coverage of foreign currency reserves has
declined since the pre-pandemic levels in most emerging market economies;
however, that of India has increased from 95% in Q4 2019 to 96.5% in Q3 2022.

11.11. Exchange Rates Moving in Tandem with Global Developments

 The exchange rate of the Indian Rupee is market-determined as the RBI's intervention
in foreign exchange market is mainly to contain instances of excessive volatility. On a
financial year basis, i.e. from April to December 2022, the INR has depreciated against
US$ by 8.3%. Over the same period, the US dollar has appreciated by 4.4 % in terms
of the US dollar index.
 The Nominal Effective Exchange Rate (NEER) of the US dollar (27 economies)
appreciated by 7.8 per cent in the calendar year 2022, up to December, while the NEER
of India (64 economies) depreciated by 4.8 per cent.

86
11.12. International Investment Position: A Reflection of India's Financial
Soundness

 The difference between an economy’s external financial assets and liabilities is the
economy’s net IIP, which may be positive or negative. The Net IIP position determines
whether a country is a net creditor or debtor nation by measuring the difference in
its external assets and liabilities.
 For India, as of end-September 2022, Indian residents’ overseas financial assets at
US$ 847.5 billion were lower by US$ 73.0 billion or 7.9% compared to the level as of
end- March 2022, mainly due to the reduction in reserve assets even as trade credit
and overseas direct investment recorded an increase.
 Reserve assets at US$ 532.7 billion, accounting for around 62.9 per cent of India’s
international financial assets fell by 12.3% over the same period.

87
11.13. Safe and Sound External Debt Situation

 India’s external debt, at US$ 610.5 billion as of end-September 2022, grew by 1.3% (US$
7.6 billion) over US$ 602.9 billion as of end-September 2021. However, external debt as
a ratio to GDP fell to 19.2% as of end-September 2022 from 20.3% a year ago. The
optimal threshold for India’s external debt is around 23-24% of GDP.
 While a major part of India’s external debt is denominated in the US dollar (55.5% as
at-September 2022), the Indian rupee-denominated component (30.2%) occupies
the second largest position, insulating the external debt from foreign currency risk,
thereby augmenting stability friendly characteristics of the external debt.
 As of end-September 2022, Sovereign External Debt (SED) amounted to US$ 124.5
billion, decreasing by 5.7% over the level a year ago. Non-SED, estimated at US$ 486.0
billion as of end-September 2022, posted a growth of 3.2% over the level a year ago.
 Deposit-taking Corporations (except the Central Bank) and non-financial
corporations accounted for the bulk of non-SED.
 India’s external debt vulnerability indicators continued to be benign. External debt
as a ratio to GDP at 19.2% as of end-September 2022 was lower than 19.9% as of end-
March 2022.
 The current stock of external debt is well shielded by the comfortable level of foreign
exchange reserves.

88
11.14. Outlook for the External Sector: Cautious amidst Global Headwinds

 The export outlook may remain flat in the coming year if global growth does not pick
up in 2023, as indicated by many forecasts. In such cases, product basket and
destination diversification which India is taking through FTAs would be useful to
enhance trade opportunities. At times when the base (global growth and global
trade) is not growing, export growth will have to come predominantly through market
share gains.
 In turn, that comes from the focus on efficiency, productivity, technology, and
innovation. Governments can open markets through FTAs but, to take advantage
of that is in the hands of private sector participants.
 India is facing competition from South Asian countries in a few of its export
competitive products.
 However, given the benefits of the lower average age of the working population
along with the advantage of economies of scale, India has the potential to cater to
the global demand for several products in a cost-effective manner.
 On the imports side, notwithstanding uncertainty surrounding the outlook on global
crude oil prices, the recent softening in its prices augurs well for India’s POL imports.
However, non-oil, non-gold imports, which are growth-sensitive, may not witness a
significant slowdown as Indian growth continues to be resilient.
 Consolidating an increasing share of non-debt flows in financing CAD over the years,
net FDI flows remained robust during the current year, while the net FPI inflows turned
positive in recent months. Thus, the CAD would be within manageable limits and
eminently financeable. The stock of India’s external debt has been prudently
managed.
 From a cross-country perspective too, India’s external sector has fared relatively
better and hence positioned relatively stronger to face the evolving adverse global
scenario as evidenced by the Indian rupee outperforming most EME currencies,
comfortable import cover and moderate CAD. To sum up, while India’s external
sector faces challenges, it is performing relatively better as compared to many of
its peers as it has inbuilt shock absorbers to weather them.


89
 PHYSICAL AND DIGITAL
12 INFRASTRUCTURE: LIFTING
POTENTIAL GROWTH

12.1. Introduction

 Investing in high-quality infrastructure is crucial for accelerating economic growth

and sustaining it in the long run.
 In order to increase the private sector participation in creation of new infrastructure
and development of existing ones, the government took initiatives like Public-Private
Partnership (PPP), National Infrastructure Pipeline (NIP) and National Monetisation
Pipeline (NMP). In addition to this, as part of the structural reforms with the objective
to enhance efficiencies and cost competitiveness, Gati Shakti and National Logistics
Policy (NLP) were also launched.
 The government has also kept its focus towards developing the traditional
infrastructure like roads, railways, airports, ports, mass transport and waterways.
These play a vital role in national integration and regional development.
 The multi-modal transport system will provide integrated and seamless connectivity
for movement of people and goods from one mode of transport to another. It will
facilitate last mile connectivity.
 In 2009, only 17 per cent of adults in India had bank accounts, 15 percent used digital
payments, 1 in 25 had a unique ID document, and about 37 per cent had mobile
phones. At present, the tele density has reached up to 93 per cent, over a billion
people have a digital ID document, more than 80 per cent have bank accounts, and
as of 2022, over 600 crore of digital payment transactions are completed per month.
 Successful vaccination drives through the one-stop Co-WIN portal, DigiLocker, Open
Network for Digital Commerce (ONDC), Open Credit Enablement Network (OCEN),
Goods and Services Tax (GST) Sahay are a few success stories among many.
 These untapped opportunities, along with the favorable ecosystem, creates a large
growth potential for FinTechs in India. Taking this vision forward, under the
government's policy initiative, a world-class FinTech Hub at Gujarat International
Finance Tec-City (GIFT) International Financial Services Centre (IFSC) has been
developed.

12.2. Vision and Approaches of Government for Infrastructure

Development

 The government has provided an increased impetus for infrastructure development

and investment through the enhancement of capital expenditure. This push has
happened at a time of crisis when the capital expenditure by the private sector has
been subdued.

90
  The outlay (target) for capital expenditure in 2022-23 (BE) was increased sharply
by 35.4% from ₹ 5.5 lakh crore in the previous year (2021-22) to ₹ 7.5 lakh crore,
of which approximately 67% has been spent from April to December 2022.
 The actual expenditure in FY23 is also 28% higher than the expenditure in FY22 for the
corresponding period.
 While the NIP and the NMP would provide the much-needed impetus for stepping up
infrastructure investment, the NLP will address the gaps in services, digital
infrastructure and skills in the logistics workforce.
 PM GatiShakti, with a multimodal approach, is designed to fill the gaps in physical
infrastructure and to integrate existing and proposed infrastructure development
initiatives of different agencies.
 As physical infrastructure requires continuous support over its long gestation
period, the government has also set up National Bank for Financing Infrastructure
and Development (NaBFID) as a development financial institution to set in motion
a virtuous investment cycle.
 An institutional mechanism to fast-track investments has been put in place, in the
form of Project Development Cells (PDCs) in all concerned Ministries/
Departments of Government of India.

12.2.1. Public-Private Partnerships (PPPs):

 In India, private participation in infrastructure programmes supports several PPP
models, including management contracts like Build-Operate-Transfer (BOT),
Design-Build-Finance- Operate-Transfer (DBFOT), Rehabilitate-Operate-Transfer
(ROT), Hybrid Annuity Model (HAM), and Toll-Operate-Transfer (TOT) model.
 Under the BOT model, there are two variants – BOT (Toll) and BOT (Annuity)
depending on who bears the traffic risk. In the case of BOT (Toll), the traffic risk is
borne by the PPP concessionaire, while in the case of BOT (Annuity), it is borne by
the public authority.
 To provide financial assistance to financially unviable but socially/ economically
desirable PPP projects, DEA launched the Viability Gap Funding (VGF) scheme in
2006. Under this scheme, economic sector projects may get up to 40 per cent of
Capex as VGF grant. The Scheme includes higher provisions of the VGF grant for social
sectors.
 A scheme for financial support for project development expenses of PPP Projects – the
‘India Infrastructure Project Development Fund Scheme’ (IIPDF) – was notified by
the government on 3 November 2022.

12.2.2. National Infrastructure Pipeline (NIP):

 The government launched the National Infrastructure Pipeline (NIP) with a forward-
looking approach and with a projected infrastructure investment of around ₹111 lakh
crore during FY20-25 to provide high quality infrastructure across the country.
 Regarding sectoral composition, the transport sector constituted more than half of
the projects.

91
 NIP is hosted on the Invest India Grid (IIG) platform and provides opportunities for
States/UTs and Ministries to collate all major infrastructure projects at a single
location.
 IIG thus acts as a centralized portal to track and review project progress across
all economic and social infrastructure sub-sectors.
 Project Monitoring Group (PMG) is an institutional mechanism put in place by the
government for resolution of issues related to large-scale projects. PMG is also
involved in the fast-tracking of approvals/clearances for projects with an
anticipated investment of ₹500 crore and above. Now, it has been proposed to
integrate NIP and PMG portals. This will save substantial time and effort by Ministries
and States/UTs and ease the monitoring of large infrastructure projects.

12.2.3. National Monetisation Pipeline – Creation through Monetisation:

 Based on the principle of ‘asset creation through monetisation’, National
Monetisation Pipeline (NMP) taps private sector investment for new infrastructure
creation.
 The process of monetisation entails a limited period license/ lease of an asset,
owned by the government or a public authority, to a private sector entity for upfront
or periodic consideration.
 The top 5 sectors (by estimated value) capture around 83% per cent of the
aggregate pipeline value: roads (27 per cent) followed by railways (25%), power
(15%), oil & gas pipelines (8%), and telecom (6%). Roads and railways together
contribute around 52 per cent of the total NMP value.

12.2.4. National Logistics Policy: Reducing the Cost of Logistics:

 Logistics costs in India have been in the range of 14-18 % of GDP against the global
benchmark of 8%.

92
 Many efforts have already been made by the Government of India to improve the
logistics ecosystem through ‘infrastructure initiatives’ such as Ude Desh ka Aam
Nagrik (UDAN), Bharatmala, Sagarmala, Parvatamala, National Rail Plan, and
through ‘process reforms’ GST, e-Sanchit, Single Window Interface for Trade
(SWIFT), Indian Customs Electronic Data Interchange Gateway (ICEGATE), Turant
Customs, and others.
 NLP was launched on 17 September 2022 for addressing the components of improving
efficiency in logistics through streamlining processes, regulatory framework, skill
development, and mainstreaming logistics among others.
 The vision of the NLP is “to develop a technologically enabled, integrated, cost-
efficient, resilient, sustainable and trusted logistics ecosystem in the country for
accelerated and inclusive growth.”
 The targets for achieving the vision of the NLP are to :
 reduce the cost of logistics in India to be comparable to global benchmarks by
2030;
 improve the Logistics Performance Index ranking - endeavor is to be among the
top 25 countries by 2030, and
 create a data- driven decision support mechanism for an efficient logistics
ecosystem.
 The Policy will be implemented through a Comprehensive Logistics Action Plan
(CLAP). The interventions under the CLAP are divided into specific key action areas,
including Integrated Digital Logistics Systems, standardization of physical assets &
benchmarking service quality standards, Logistics Human Resources Development
and Capacity Building, State Engagement, EXIM (Export-Import) Logistics, Service
Improvement framework, Sectoral Plan for Efficient Logistics and Facilitation of
Development of Logistics Parks.
 Among other steps taken to enhance logistics performance in the country, there has
been an initiative to undertake a sub-national view of the state of logistics in the
country through the Logistics Ease Across Different States (LEADS) index.

12.2.5. PM Gatishakti: A master Plan for Integrated Project Planning:

 The PM GatiShakti National Master Plan entails creation of a common umbrella
platform with all infrastructure projects pertaining to various ministries/ departments
incorporated within a comprehensive database for efficient planning and
implementation on a real-time basis.
 The projects pertaining to seven engines (roads, railways, airports, ports, mass
transport, waterways, and logistic infrastructure) in the NIP will be aligned with PM
GatiShakti framework.

12.3. Developments in Physical Infrastructure Sectors

12.3.1. Road Transport: Increased Budgetary Support by the Government

Augmented Road Connectivity:

93
 Roads supplement the other modes of transport through last-mile connectivity to the
far-flung regions of the country.
 Total budgetary support for investment in the sector has been increasing rapidly in
the last four years and stood at around ₹1.4 lakh crore during FY23 (as of 31 October
2022).
 In line with the vision of monetisation of public sector assets, National Highways
Authority of India (NHAI) launched its InvIT in FY22 not only to facilitate monetisation
of roads but also to attract foreign and domestic institutional investors to invest in the
roads sector.

12.3.2. Railways: Expansion and Modernisation, A Continuous Process:

 The capital expenditure (Capex) on infrastructure in railways has received a
tremendous boost since 2014. It has seen a continuous increase in the last four years
with Capex (B.E.) of ₹2.5 lakh crore in FY23, up by around 29% compared to the previous
year.
 Mumbai-Ahmedabad High Speed Rail (MAHSR) Project
 Dedicated Freight Corridor (DFC) Project
 GatiShakti Multi-Modal Cargo Terminal (GCT): GCTs are being developed by private
players on non-railway land as well as fully/ partially on railway land, based on
demand from industry and potential of cargo traffic. This will boost investment from
industry in the development of additional terminals for handling rail cargos.
 Induction of semi-high-speed Vande Bharata Train Sets.
 Development of Hyperloop technology: Hyperloop is an emerging transportation
technology that can be faster and greener than airplanes and railways. Indian
Railways has collaborated with IIT Madras for developing Hyperloop Technology by
setting up Centre of Excellence for Hyperloop Technology at IIT Madras at the cost
of ₹8.34 crore.
 Kisan Rail trains were introduced in FY21 to enable speedy movement of perishables
from production or surplus regions to consumption or deficient regions..

12.3.3. Civil Aviation: Revival Backed by Domestic Demand:

 The civil aviation sector in India has great potential owing to growing demand from
the middle class, growth in population and tourism, higher disposable incomes,
favorable demographics, and greater penetration of aviation infrastructure.
 This is further supported by the government through schemes such as UDAN, which
has considerably enhanced regional connectivity through the opening of airports in
India’s hinterland.

12.3.4. Ports: Handling Higher Capacity with Governance Reforms:

 For ages, the sea has been the source of opportunity and seashores have acted as
the gateways to prosperity for India. The development of ports is crucial for the
economy, given that most of the international trade is handled through ports (around
90% of international trade cargo by volume and 79.9% by value).

94
 National Logistics Portal-Marine (NLP-Marine) is already under way which will act as
a Unified Digital Platform for all maritime stakeholders.

12.3.5. Inland Water Transport: Tapping the Potential of Navigable

Waterways:
 Inland water transport holds great untapped potential as a means for the
transportation of goods and passengers. India has a large endowment of rivers,
canals, and other waterways. The total navigable length of waterways in India is
around 14,850 kilometres.
 Under the National Waterways Act 2016, 106 new waterways have been declared as
National Waterways (NWs), taking the total number of NWs in the country to 111.
 The Inland Vessels Bill 2021, which replaced the over 100 year-old Inland Vessels Act,
1917 (Act No.1 of 1917), was passed by the Parliament in August 2021.

12.3.6. Electricity: Installed Capacity Growth Driven by Renewables:

 The total installed power capacity of utilities and captive power plants (industries
having demand of 1 Mega Watt (MW) and above) was 482.2 GW on 31 March 2022 as
compared to 460.7 GW on 31 March 2021, up by 4.7%.
 Between FY22 and FY21, the maximum rise in electricity generation was recorded in
renewable energy resources for utilities and for captive plants. There has been a
gradual transition in India’s energy sector from the conventional sources to the non-
fossil fuel sources.
 India has put in place a target of achieving 50 per cent cumulative installed
capacity for generating electric power from non-fossil fuel-based energy
resources by 2030.
 In order to reduce the carbon footprint of the farm sector, Pradhan Mantri Kisan Urja
Suraksha evam Utthaan Mahabhiyan (PM-KUSUM) aims to provide energy and
water security, de-dieselise the farm sector and generate additional income for
farmers by producing solar power. In addition, the government has introduced the
Solar Park Scheme to facilitate necessary infrastructure like land, power
evacuation facilities, road connectivity, water facility, etc. along with all statutory
clearances.
 Other important incentives for renewable power generation include Hydropower
Purchase Obligation (HPO) within Non-Solar Renewable Purchase Obligation
(RPO).

12.4. Developments in Digital Infrastructure

12.4.1. Telecommunications: Accelerating provision of affordable

services
 Today, the total telephone subscriber base in India stands at 117 crore (as of November
2022). While more than 97% of the total subscribers are connected wirelessly (114.3

95
 crore at the end of November 2022), 83.7 crore have internet connections as of June
2022.
 Apart from the interstate disparity in tele-density, in rural areas the tele-density
continues to be at much lower levels compared to urban areas.

 A comprehensive initiative to connect our islands to the mainland has been realised
through the government’s initiative of the Comprehensive Telecom Development
Plan for Islands.
 As a major reform measure, the Indian Telegraph Right of Way (Amendment) Rules,
2022, will facilitate faster and easier deployment of telegraph infrastructure to enable
speedy 5G rollout.
 The National Frequency Allocation Plan 2022 (NFAP) provides a broad regulatory
framework, identifying which frequency bands are available for cellular mobile
services, Wi-fi, sound and television broadcasting, radio navigation for aircraft and
ships, and other wireless communications.
 Universal and equitable access to broadband services across the country, especially
in rural areas, is an important part of the government’s vision for national digital
connectivity. Toward realizing that vision, the GatiShakti Sanchar portal was
launched on 14 May 2022. This portal will streamline the process of Right of Way (RoW)
applications and permissions across the country.

12.4.2. Growth Story of Digital Public Infrastructure:

 To reduce the search cost for the commoners, the government launched Unified
Mobile Application for New-Age Governance (UMANG), which enables citizens to
access e-Government services offered by the Central and State Government in

96
 various sectors such as agriculture, education, health, housing, employees,
pensioners, and students’ welfare, the Public Distribution System, and others.
 Open Network for Digital Commerce (ONDC) aims to go beyond the current
platform-centric digital commerce model where the buyer and seller can use the
same platform or application for transactions. ONDC is a network-based open
protocol that would connect all the buyers and sellers on the network thus bringing
better visibility across the Business-to-Consumer (B2C) & Business-to-Business (B2B)
landscape.
 In order to promote open collaborative software development of e-governance
applications, a platform called OpenForge has been developed.
 The national AI portal has been developed with a view to strengthening the AI
ecosystem in the country by pooling together and highlighting the latest
developments happening in Central and State Governments, industry, academia,
NGOs, and civil societies.
 ‘Bhashini’, the National Language Translation Mission, aiming at nurturing
Indian language technologies and solutions as a public good, was launched in
July 2022.
 Adding to the journey, FY15 can be considered a turning point for the Indian start-
up environment. The reforms led by our government, in addition to existing inherent
advantages like demography, technological developments, entrepreneurial spirit,
and market size, have changed the landscape of the start-up ecosystem in India.
 The year 2021 marked the completion of five years of the ‘Stand-up India’
scheme (launched in January 2016), and the numbers - with more than 84,000
recognized start-ups - tell the entire story.
 India is also geared to strengthen the up-and-coming drone industry. Under Mission
'Drone Shakti', the drone start-ups and Drone-as-a-Service (DrAAS) are being
promoted.

12.5. Conclusion/Outlook

 Affordable and reliable availability of power is critical for India’s aspirations for the
manufacturing sector to be fulfilled. Further, with the growing importance of clean
energy, there has been a renewed push towards non-fossil fuel-based energy
sources in the power sector.
 With other initiatives like Co- WIN, e-RUPI, TReDS, Account Aggregators, ONDC, etc.
at different stages of implementation, India has developed a unique and cogent
digital story to tell.


97
 PW UPSC WALLAH PROGRAMS
COMPREHENSIVE FOUNDATION COURSE FOR UPSC CSE 2024
ENGLISH TITAN
START DATE 20TH FEB 2023 - END DATE 31ST DEC 2024 2.0

COMPREHENSIVE FOUNDATION COURSE FOR UPSC CSE 2024

HINGLISH SANKALP
START DATE 6TH FEB 2022 - END DATE 31 ST JAN 2024 2.0

CONCISE COURSE FOR UPSC CSE PRELIMS 2023

HINGLISH PRELIMS
START DATE 3TH JAN 2022 - END DATE 20TH APR 2023 FOCUS

COMPREHENSIVE FOUNDATION COURSE FOR UPSC CSE 2024

ENGLISH TITAN
START DATE 1ST DEC 2022 - END DATE 30TH SEP 2024 2024

COMPREHENSIVE FOUNDATION COURSE FOR UPSC CSE 2024

HINDI & HINGLISH BATCHES SANKALP
START DATE 15TH NOV 2022 - END DATE 30TH SEP 2024 2024

FAST PACED GENERAL STUDIES FOUNDATION COURSE FOR UPSC CSE 2023
HINDI & HINGLISH BATCHES PRAHAR
START DATE 7TH NOV 2022 - END DATE 30TH NOV 2023 2023

PW ONLY IAS www.pw.live

 BATCH OFFERINGS
Live Lectures
Daily Class Notes &
Dpps (Daily Practice
Problems)

Weekly Current Affairs

Classes

Regular Doubt
Sessions

Comprehensive Free
CSAT
CSAT Course

Doubt engine facility

Test Series
(Prelims & Mains)

Comprehensive
Study Material

Manthan: Monthly
CA Magazine

Previous Year
Questions Analysis

PW ONLY IAS www.pw.live

 OPTIONAL SUBJECTS OFFERED
History इ�तहास

Sociology
समाजशा�
Geography
भूगोल
PSIR

राजनी�त �व�ान एवं

Anthropology
अंतरार्�ीय संबंध

Public Administration �ह� दी सा�ह�

OPTIONAL BATCH OFFERINGS

Live lectures by India’s top faculties

PYQ analysis integrated with Lectures

Structured and timely Course Completion

Regular Doubt Sessions

Daily class notes

Downloadable Class PPTs

Comprehensive study material

Test Series and Answer Writing Program

(10 tests)

PW ONLY IAS www.pw.live

 *

INDIA’S
MOST LOVED
Educaonal Channel
And Plaorm

4.8 20M+
Rating Subscribers

8M+ 8000hrs
Downloads Video Content/Week

If you have any queries or need assistance with admission in PW Classes

here is what you can do

PW APP PW UPSC INSTAGRAM PW UPSC YOUTUBE PW UPSC TELEGRAM

Talk to our Counselor give a

www.pw.live Missed Call on:
+91-7019243492

THANKYou