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Role of MSMEs in Indian Economy
India is considered to be one of the fastest emerging economies of the world. In the light of a positive political and economic scenario, the country is making development in various segments and is strengthening its global position.
Among the many factors driving the Indian economy, The Micro, Small and Medium Enterprises segment (MSMEs) is a significant factor. All over the world, the development of MSME sector is recognized as the key driver behind growth momentum of an economy.
Contribution of MSMEs in Indian Economy
MSMEs contribute around 6.11% of the manufacturing GDP and 24.63% of the GDP from service activities as well as 33.4% of India's manufacturing output of the country. With around 63.4 million units throughout the geographical expanse of the country, the sector employs around 120 million persons and contribute around 45% of the overall exports from India. The sector has consistently maintained a growth rate of over 10%.
Rural areas consists of about 20% of the country’s MSMEs. This shows a significant shift from primarily being an agrarian economy towards an industrial economy. These enterprises are essential for creating large scale employment and thus promoting sustainable and inclusive development.
(Data source : www.cii.in)
The contribution of MSME segment to the GDP in some of the global economies is in the 25-60 per cent range. MSME sector in India has tremendous potential and its development is vital to solve employment and poverty related problems in the country.
What do we mean by Micro, Small and Medium Enterprises (MSMEs)
In Indian context, the MSMEs are generally classified on the basis of investment in plant, machinery or services equipment. The classification mentioned by Government of India is stated as below: (source: www.rbi.org.in)
The Government of India has enacted the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 in terms of which the definition of micro, small and medium enterprises is as under:
For enterprises engaged in the manufacture or production, processing or preservation of goods, the classification is:
(i) A micro enterprise is an enterprise where investment in plant and machinery does not exceed Rs. 25 lakh;
(ii) A small enterprise is an enterprise where the investment in plant and machinery is more than Rs. 25 lakh but does not exceed Rs. 5 crore; and
(iii) A medium enterprise is an enterprise where the investment in plant and machinery is more than Rs.5 crore but does not exceed Rs.10 crore.
In case of the above enterprises, investment in plant and machinery is the original cost excluding land and building and the items specified by the Ministry of Small Scale Industries.
For enterprises engaged in providing or rendering of services, the classification is:
(i) A micro enterprise is an enterprise where the investment in equipment does not exceed Rs. 10 lakh;
(ii) A small enterprise is an enterprise where the investment in equipment is more than Rs.10 lakh but does not exceed Rs. 2 crore; and
(iii) A medium enterprise is an enterprise where the investment in equipment is more than Rs. 2 crore but does not exceed Rs. 5 crore.
Strategic Government initiatives are necessary in establishing a conducive and competitive business environment. Some of the ongoing initiatives for the development of MSMEs and startups in India are listed below:
Prime Minister’s Employment Generation Programme (PMEGP) - It is a major credit-linked subsidy programme for micro-enterprises in non-farm sector. It has provided assistance to 4.49 lakh micro enterprises till December 2017.
Credit Guarantee Scheme for Micro and Small Enterprises (CGTSME) - Under this scheme collateral free credit facility to MSMEs is provided.
Credit linked Capital subsidy scheme - The objective of the Scheme is to facilitate technology upgradation in MSEs by providing an upfront capital subsidy of 15 per cent (on institutional finance of upto Rs 1 crore availed by them) for induction of well-established and improved technology in the specified/ approved sub-sectors or products.
Startup India Initiative - As part of the Startup India Action Plan, 19 action points are identified to improve access to capital and technology for startups.
The MSMEs in India are not well organized which limits their contribution to the economy. Skill development, mentoring, technology and market access are some of the challenges which can be overcome through proper partnership between government and local bodies.
Other top- down reforms that will benefit MSMEs and startups include :
- GST implementation
- Proper handling of insolvency and bankruptcy cases
- Gradual liberalization of FDI
- Increasing transparency in system
- Streamlining the processes to increase ease of doing business
September 2018 : National Nutrition Month
The National Nutrition Month is being celebrated across the country in September to mark the fight against malnutrition. During this month, the Union Ministry of Women and Child Development will organise various programmes to spread broad awareness on issues related to malnutrition like stunting, undernutrition, anaemia and low birth weight in children.
Key Focus :
- The month will focus on adolescent girls, pregnant women and lactating mothers to eliminate the deficiencies prevailing in the Health sector.
- The WCD ministry is trying to reach about 11 crore women and children during this month through various grass-root activities with the convergence of different ministries.
About National Nutrition Mission (NNM) :
The National Nutrition Mission was launched by Prime Minister Narendra Modi on March 8, 2018 in Jhunjhunu, Rajasthan to bring down stunting of children in the age group of 0-6 years from 38 per cent to 25 per cent by 2022.
The NNM is a comprehensive approach towards raising nutrition level in the country on a war footing. It will comprise the mapping of various schemes contributing towards addressing malnutrition, incentivizing states/UTs for meeting the targets, incentivizing Anganwadi Workers (AWWs) for using IT-based tools, eliminating registers used by AWWs and introducing measurement of the height of children at the Anganwadi Centres (AWCs).
It will also comprise social audits, setting-up Nutrition Resource Centres and involving masses through Jan Andolan for their participation on nutrition through various activities, among others.
The mission has been set up with a three year budget of Rs 9046.17 crore commencing from 2017-18.
Under the mission, the WCD Ministry is working on eight focused themes, which include optimal breastfeeding, growth monitoring, hygiene and sanitation, food fortification and girls' education, diet and marriage at the right age.
Key Objective :
- The mission aims to achieve improvement in nutritional status of children, adolescent girls, pregnant women and lactating mothers.
- It targets to reduce stunting, undernutrition, anaemia among young children, women and adolescent girls and reduce low birth weight by at least 2 per cent per annum.
- Though the target to reduce stunting is at least 2 per cent per annum, the mission would strive to achieve a reduction in stunting from 38.4% (NFHS-4) to 25% by 2022.
India’s policy environment for nutrition is robust and the country has seen some progress in areas such as childhood stunting and anemia among women. However, the data has revealed tremendous inter-district variability and inequity. Researchers have been digging deep into the NFHS-4 data, which was released in February 2018, to understand the drivers of India’s progress on malnutrition, to assess the emergence of new problems such as overweight and non-communicable diseases, and also to assess how policies and programs are reaching the target populations. The objective of this day-long event is to converge the emergent findings on a unified platform and rally stakeholders around these findings to encourage strategic investments and further catalyze the improvements in nutrition outcomes and enhance the effectiveness of interventions.
To support this initiative with data and evidence, International Food Policy and Research Institute (IFPRI) is co-hosting a knowledge sharing event on “Strengthening Actions for Nutrition in India: Insights from the National Family Health Survey” at the India International Center, New Delhi.
World Environment Day : Move towards a better future
Every year World Environment Day is celebrated on June 5. It is one of the flagship events of United Nations for propagating awareness and action on environmental protection.
The first such event was celebrated on June 5, 1974. Since then, every year this celebration has been held centered around one theme of the year and hosted by different countries all over the world.
‘Beat Plastic Pollution’ is the theme for 2018 and the host country is India.
Significance of the day
World environment day is celebrated to create awareness about environment and increase efforts for it protection to ensure a sustainable world for everyone.
In quest of development, mankind has widely overlooked the well being of its surroundings resulting in a scenario wherein world is continuously under threat from climatic changes, degradation in quality of soil, water and air, ecological imbalance, global warming etc.
Sustenance in such a scenario needs awareness, co-operation and participation from communities and nations all over the world.
Environmental Degradation: What is the root cause behind?
Environmental degradation arises from a combination of problems, the major being global warming, deforestation, excess usage of fossil fuels etc. Population growth and industrial advancements have been made at the cost of nature and now the mankind is slowly awakening to the dangerous reality created. Climate change all over the world is giving rise to frequent natural calamities and loss of biodiversity.
India: A picture not so bright
The current 2018 Global Environmental Performance Index (EPI) ranks India at dismal 177th position among 180 countries, haring its status with countries Nepal, Bangladesh, the Republic of Congo etc. A low rank shows serious challenges in air and water quality, biodiversity threat and green house gas emissions.
Though efforts for improvement are being taken, the ever increasing population in India becomes a perennial deterrent of their success.
Switzerland followed by France and Denmark are the front runners in 2018 Global Environmental Performance Index.
From planning to better execution
The importance of World environment day and its objective goes beyond the one-day celebration. It calls for taking proactive steps and making lifestyle changes from every person at individual and organization level.
The organizations, both civic and government, need to maintain database for various activities and ensure regular monitoring. For eg. lakhs of saplings are planted in the many cities on various occasions but efficient tracking is not done to ensure their survival and growth. Making every day changes like more usage of public transport, use of reusable items like cloth bags for shopping, prudent use of water, plantation near home and office spaces and proper waste disposal can help in slowing down the speedy rate of environmental degradation.
However, the major responsibility still remains with the government of various nations all over the world. The challenge of balancing economic development and environmental well-being is enormous and prudent decisions needs to be taken at policy level to ensure sustainable development.
NITI AAYOG - Relevance and its role
The National Institution for Transforming India, also called NITI Aayog,, which replaced Planning Commission (instituted in 1950), is the premier policy ‘Think Tank’ of the Government of India, providing both directional and policy inputs to Government through:
- Designing Strategic and long term policies and programs
- Providing technical advice to the centre and states
Constitution of NITI AYOG
NITI Aayog was formed via a resolution of the Union Cabinet on January 1, 2015 and is chaired by Prime Minister of India.
The governing council consists of all state Chief Ministers, chief ministers of Delhi and Puducherry, Lieutenant Governor of Andaman and Nicobar, and vice chairman nominated by the Prime Minister. In addition to full members, there are two part-time members and four ex-official members and a chief executive officer. The temporary members are selected from the leading universities and research institutions.
Objectives of Formation
- Foster involvement and participation in the economic policy-making process by the State Governments of India.
- Emphasis on bottom-up approach and move country towards co-operative federalism (co-operative federalism is a concept of federalism in which national, state, and local governments interact and solve issues collectively)
How different it is from Planning Commission
The major differences between NITI Aayog and Planning Commission are:
- Role of States increased, which was limited in Planning commission
- Planning Commission followed top-down approach while Niti Aayog is based on Bottom –up approach of policy formation
- While the Planning Commission used to formulate Government Plans, NITI Aayog is mainly responsible for evaluating the implementation of programmes
- The Planning Commissions function of allocating funds to States has been scraped in this new arrangement
Rural electrification in India
Access to cheap electricity is the basic necessity of people and is one of major catalysts for the growth of any country. For a developing country like India, it is not only required for improving standard of living but also to support the economic activities in the country.
As stated under Electricity Act 2003, the central and state governments have joint responsibility of providing electricity to rural areas. The electricity act paved way for the formation of National Electricity Policy in 2006, which has rural electrification as a core objective.
Policies and Initiatives
The incumbent governments have been making efforts for increasing reach of rural electrification through various schemes like Rajiv Gandhi Grameen Vidyutikaran Yojana, (RGGVY), Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY) etc. RGGVY was the first scheme launched for rural electrification in 2005 which was later subsumed by DDUGJY (started in December 2014).
Currently the target of the government is to achieve 100% village electrification by May 2018.
The latest initiative being taken is Pradhan Mantri Sahaj Bijli Har Ghar Yojana, which was launched on September. 25, 2017. The scheme aims at providing last mile electricity connectivity for all rural and urban households (estimated over 4 crore).
Under the scheme, government will provide free electricity to all households identified under Socio-Economic and Caste Census (SECC) data 2011.
Details of the scheme
- December 2018 has been targeted as the project deadline.
- The total outlay of scheme is Rs. 16, 320 crores while Gross Budgetary Support (GBS) is Rs. 12,320 crores. The Central Government will provide largely funds for the Scheme to all States/UTs.
- The Rural Electrification Corporation Limited (REC) is the nodal agency for the implementation of the scheme throughout the country
For a geographically and socially diverse country like India, providing electricity to all has its own set of challenges.
Many poor households don't have the capacity to pay for the connection charges (about Rs. 2000-3000). Even if provided the connection, the quality and durability of electricity remains questionable, with electricity being available only for a few hours daily or worse weekly. This discourages people to make any efforts from their part.
Also some of the government schemes consider a village to be electrified if it satisfies the scheme criteria, which need not be electrification of each household. According to a government data 73% of the 18k odd villages identified for electrification in 2015 have power supply but ironically only 8% of these villages have all their households electrified.
Electrification will lead to an improved quality of life with access to better connectivity, health and education services. The efficiency and development scope of all economic activities is dependent on it. With approximately 68% of Indian population living in rural areas, the need for rural electrification becomes all the more necessary.
Despite focus and concentrated efforts, about 1% of the villages in India and 25% of the rural households in the country still doesn’t have access to electricity. A planned synergy between central government, state governments, institutions and companies is necessary to realize the set targets for rural electrifications.
Euthanasia: The Right to Die with Dignity
Euthanasia has always been a topic of ethical debate for health professionals, law makers and families of terminally sick people. As per its definition, Euthanasia means the painless killing of a patient suffering from an incurable and painful disease or in an irreversible coma.
The Supreme Court ruling on March 9, 2018 declaring passive euthanasia and living will permissible, is seen as a historic move by the court.
Passive euthanasia essentially involves withdrawal of life support or discontinuation of life-preserving medical treatment so that a person with a terminal illness is allowed to die in the natural course. It is different from active euthanasia wherein death is brought by some deliberate act.
A living will gives right to people (including the terminally ill) to give advance directives to refuse medical treatment.
What is the Judgement?
A Constitution Bench, led by Chief Justice of India Dipak Misra, in three concurring opinions, upheld that the fundamental right to life and dignity includes right to refuse treatment and die with dignity. The fundamental right to a "meaningful existence" includes a person's choice to die without suffering, it held. The court has laid down a much-needed legal framework for enforcing living wills
The court has invoked its inherent power under Article 142 of the Constitution to grant legal status to advance directives which will hold good until Parliament enacts legislation on the matter.
The history behind it
Passive euthanasia was recognised by a two-judge Bench in Aruna Shanbaug case in 2011. Now the Constitution Bench has expanded the jurisprudence on the subject by adding to it the principle of a ‘living will’. The apex court's judgment came on a plea filed in 2005 by NGO Common Cause.
How the world looks at it
Netherlands was the first country to legalise euthanasia and assisted suicide in April 2002. The country follows strict guidelines and conditions, including that “the patient must be suffering unbearable pain, their illness must be incurable and the demand must be made in “full consciousness” by the patient.”
Apart from Netherlands, as of March 2018, human euthanasia is legal in Belgium, Colombia, Luxembourg, Canada and India. Assisted suicide is legal in Switzerland, Germany, Japan, and in the some US states.
Apart from these countries, in a large part of world it is still prohibited more because of religious and moral dilemmas.
The pros and cons
Burdening a terminally ill and suffering patient with continued and painful medication snatches from them the right of a dignified life. In this context, euthanasia is the hope for the patients to end their sufferings.
However, the decision needs to be taken in expert advice wherein the need of it should emerge only from the medical condition and not from other reasons like depression and financial problems. Improving the health infrastructure of the country, more so of palliative care can go a long way in decreasing the euthanasia pleas in the country.
Ayushman Bharat: Healthcare in Focus
Health sector is slowly getting its due attention from government with a slew of schemes being announced for citizens. After schemes like National Rural Health Mission (NRHM) and Rashtriya Swasthya Bima Yojana (RSBY), government has announced two major health initiatives, packaged under one umbrella programme- ‘Ayushman Bharat Programme’. These schemes are aimed at addressing both prevention and health promotion at primary, secondary and tertiary health care systems and boost India’s health infrastructure by 2022.
The details of the programme are stated as:
1. Health and Wellness Centre- 1.5 L health sub- centres will be transformed into Health and Wellness Centres (HWCs). These centres are envisioned as foundation of India’s health system according to the National Health Policy, 2017.
These centres will be providing comprehensive health care, free essential drugs and diagnostic services. Health care services for non-communicable diseases and maternal and child health services are covered under it.
Rs. 1200 crore budget has been allocated for the programme.
• Community outreach to strengthen health promotion and disease prevention.
• Enhancing the efficiency and infrastructure of the existing systems
2. National Health Protection Scheme- Under this scheme, 10 crore families will be provided Rs. 5 lakh cover per family annually for treatment.
It is supposed to be world’s largest government funded health care programme. State governments are expected to contribute 40% of the cost and are being encouraged to merge it with state funded health insurance schemes.
• Easing the financial burden of needy families facing ailments
• To provide for sufficient funding
• Capacity building in health sector in terms of skilled manpower and infrastructure.
• Prevention of fraudulent billing by hospitals
With these initiatives, government is giving health sector the much needed attention. The loopholes and failures of previous initiatives need to be properly analyzed and avoided for these initiatives to success.
Make in India: Status and Scope
Make in India initiative was launched on September 25, 2014, by incumbent Prime Minister of India. The initiative was sought as a major move to boost manufacturing sector of India and in turn generate new opportunities of employment. Since then, the initiative and its impact has been much talked about and tracked.
Let’s have a brief look on its scope and current status.
Objective of the Initiative
The initiative aims to raise the contribution of the manufacturing sector to 25% of the Gross Domestic Product (GDP) by the year 2025. It is being led by the Department of Industrial Policy and Promotion.
The major goals of the scheme are listed below:
- Make India a global manufacturing hub
- Encourage multinational as well as domestic companies to manufacture their products within the country
- Promote foreign direct investment
- Facilitate innovation and skill development
- Facilitate job creation
- Sustainable development i.e. Development without environmental degradation
The scheme targets 25 sectors of the economy which includes from automobile, to Information Technology (IT) etc.
Where do we stand?
India is ranked 54 out of 144 countries in Economic Complexity Index (ECI), which ranks a country on the basis of how diversified and complex a country’s manufacturing export basket is. It means India is not into the production of goods which require high technical acumen and face scarce competition.
Currently, manufacturing is about 17% of the country’s GDP. As per the government data, the year 2015-16 witnessed 46% growth in Foreign Direct Investment (FDI) equity inflows and highest ever FDI inflows at $ 55.5 billion. Also the government website quotes International Monetary Fund statistics according to which, post the launch of Make in India initiative, India has emerged as the fastest growing major economy with GDP growth rate above 7.6% in 2015-16 and projected growth rate above 7% till 2020.
To attain our vision of accelerating manufacturing growth, we need to develop capabilities in core products and also develop ourselves for large scale production of other products.
Making India a manufacturing hub requires focus on various factors as stated below:
- Cost of capital and borrowing etc.
While the land and labor laws of the country are complex and primitive, a major part of the country faces challenges like power shortage and bad connectivity. High tax rates and skill requirement in technology also act as deterrents to build profitable businesses.
To attract and retain investments in this sector, core problems like this needs to be fixed first to portray us as a competitive and lucrative manufacturing hub.
Though the make in India initiative has not made remarkable achievements till now, yet its role in creating a conducive business environment in the country cannot be ruled out.
First demonetization (leading to less demand) and then GST (causing regulation related confusion) has acted as short term setback to the country’s manufacturing sector. However, the initiative can realize its true potential with focused policy approach and private–public partnership, more investment in skill development and R&D and focus on labor and skill based projects.
World Trade Organization (WTO): Relevance and Importance
The World Trade Organization (WTO) is the global international organization dealing with the rules of trade between nations. It is governed by the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments. The goal is to help producers of goods and services, exporters, and importers conduct their business.
The WTO's origins began with trade negotiations after World War II. In 1948, the General Agreement on Tariffs and Trade focused on reducing tariffs, anti-dumping, and non-tariff measures, following which the Uruguay Round of negotiations, from 1986 – 1994, led to the formal creation of the WTO.
World Trade Organization was established on 1 January, 1995. It has its headquarters at Geneva, Switzerland and has 164countries as its members (as on October 2017)
In 1997, the WTO brokered agreements promoting trade in telecommunications services among 69 countries. It also removed tariffs on information technology products between 40 members. It improved trade of banking, insurance, securities and financial information between 70 countries.
The Doha round began in 2000. It focused on improving trade in agriculture and services. It expanded to include emerging market countries at the fourth WTO Ministerial Conference in Doha, Qatar, in November 2001. Unfortunately, the Doha talks collapsed in Cancun, Mexico, in 2003. A second attempt also failed in 2008 at Geneva, Switzerland.
Functions of the Organization
The World Trade Organization is a global membership group that promotes and manages free trade. The major functions of the organization are listed below:
- Administering WTO trade agreements- WTO administers existing multi-lateral trade agreements wherein every member receives Most Favored Nation Trading Status. That means they automatically receive lowered tariffs for their exports.
- Forum for trade negotiations- It manages ongoing negotiations for new trade agreements. The most relevant example of this is the Doha Round in 2006. The negotiations led to easy trade relations among the member countries and provided the developing nations the much needed boost.
- Handling trade disputes- WTO has a major role in settling trade disputes. Most conflicts occur when one member accuses another of dumping. Dumping means goods are exported at a lower price than it costs to produce it. The WTO staff investigates, and if a violation has occurred, the WTO will levy sanctions.
Apart from these major functions, WTO also provides technical assistance and training for developing countries, to reduce the economic gap within developing and developed nations.
Cooperation with other international organizations
The work of WTO is complimentary to other international organizations like IMF. A smoothly flowing trade helps reduce the risk of payments imbalances and financial crisis, which in turn is necessary to establish a sound and stable international financial ecosystem. Co-operation between international organizations like IMF and WTO is critical for enabling economic growth, raising living standards, and reducing poverty around the globe.
Relevance in current time
Questions have been raised time and again on the relevance of WTO, with the members not reaching to any conclusion on some of the important topics like food security etc. However, it shouldn’t undermine the key role the organization plays to stimulate economic growth of the countries and establish a stable international ecosystem with countries supporting each other.
Financial interdependence and development of small economies goes a long way in reducing a polar world and establishing peace and harmony. So in broad scope the work of organizations like WTO remains relevant and needs to be made more efficient to serve the bigger goal.
Solar Power in India: Increasing the footprints
With traditional sources of energy depleting vast, exploring the potential and reach of renewable energy has become of utmost importance of every country in world. For a developing country like India, making power affordable and accessible to its vast population across the country has always been a huge challenge. About 300 million people in India has no access to electricity, while additionally more than 100 million have scarce resources available with them. 60% of the power generation in India is coal based, followed by hydro energy (approx. 20%) while renewable energy constitutes 16% of the share.
Solar power holds more than 50% of renewable energy generated in India. As of October, 2017 the country's solar grid had a cumulative capacity of 15.60 GW. The solar-generation capacity of India quadrupled from 2,650 MW on 26 May 2014 to 12,289 MW on 31 March 2017. 3.01 GW of solar capacity was added in 2015-2016 followed by 5.525 GW in 2016-2017, which is the highest for any year.
Unlike coal, Solar energy doesn’t create pollution and hence generate clean power. The energy is available in abundance throughout the world and has low maintenance cost.
Potential in India
The geographical footprints of the country ensure that a major part of the country receives sunlight all through the year. This makes India a preferred destination for solar energy development.
Many Initiatives are being implemented to promote usage of solar energy in India. The Jawaharlal Nehru National Solar Mission was launched on the 11th January, 2010 by the then Prime Minister of India.
Objective of the Jawaharlal Nehru National Solar mission
- To establish India as a global leader in solar energy
- To create conducive policy environment for large scale diffusion of solar energy in the country.
To fulfil the stated objectives, the Mission has adopted a 3-phase approach:
- Phase 1: 2012-13
- Phase 2: 2013-17
- Phase 3: 2017-22
The Solar Energy Corporation of India Ltd. (SECI) was set up in September, 2011, under the administrative control of the Ministry of New and Renewable Energy (MNRE), for implementation of Jawaharlal Nehru National Solar Mission and achievement of targets set therein.
India has been continuously making efforts to make renewable energy cheap, which has resulted in considerable drop in solar prices.
The major challenge of the sector is to attract investment in renewable energy sector, the growth of which is still confined by high interest rates. Also, allotment of land remains a problem in the agricultural dominated country.
India has an ambitious target of generating 100 GW of Solar energy by 2022, which means the sector needs to grow by a CAGR of 52% to achieve the target. Currently, Indian solar sector is growing quite rapidly, reflected by approximately 90% year-on-year growth projection in 2017 (in capacity addition). To popularise it's usage, a major push is being given to rooftop solar plants, the first of which was inaugurated recently in Delhi.
The promotion of Solar energy can also facilitate rural electrification in India. The rural areas are still dependent mainly on kerosene and diesel for their daily and agriculture related needs. Though more than 3 million solar lanterns have been distributed, the demand exceeds far beyond supply.
Changing Landscape of Banking Sector in India
Financial sector contributes approximately 6% of the GDP in India. It is dominated majorly by banking services which is one of the prominent and rapidly growing sectors in India. It contributes and about two million people.
Let us have a look on how this sector has evolved over time and the current trends shaping it.
Major events in the banking history
Post-independence of India, 2 major events shaped the banking sector: nationalization of banks and liberalisation of economy.
Nationalisation of banks in 1960s, during which 14 banks were nationalized (In 1980, again 6 banks were nationalized). The stated objective behind taking the ownership of banks was to facilitate expansion of banking services and make credit available to priority sectors.
Liberalisation in early 1990s, opened the door of a new era in Indian banking sector, with licensing of private banks. They brought technology based customer centric approach to the banking sector.
The banking sector undergone massive changes in operation and offered services in past two decades. Along with scheduled and non-schedule commercial banks, currently we are seeing an advent of differentiated banking. Payment banks and small finance banks are the latest examples of differentiated banking as they offer with customized products for their specified target customers.
Digitalization of services has also continuously improvising, making banking easier and accessible for everyone. Currently artificial intelligence is also being introduced with some banks offering chatbot services to enrich customer experience. It also helps in decreasing operating costs for the banks.
To sustain and grow in a competitive environment, banks are consolidating their operations and preferring a leaner structure. The current merger of SBI and its associate banks was a major step towards it.
In November 2016, government of India announced demonetization of Rs. 500 and Rs. 1000 currency notes which had a prominent impact of banking sector.
- Increase in Digital Transaction-Since the past few years, Banks have been pushing for Digital Banking. Demonetization gave a huge push to it, with people knowing more about the options availed and ways in which it can be helpful for them.
- Higher Deposits –The demonetization of notes led to huge deposits in banks leading to reduction in cost of deposits. The benefit of lower interest rates is to being passed onto customer in due course of time
- Decrease in Credit Demand – Due to slowdown in economy, the demand for credit has decreased and taking time to revive.
- Banker had to face hardship due to excessive workload due to exchange of old currencies, also leading to unfortunate casualties
Initiatives to boost the sector
The government has time and again taken initiatives to strengthen the banking sector in India, which is a pre-requisite of a stable and growing economy. Some of the prominent initiatives are listed below:
- Pradhan Mantri Jan Dhan Yojana- Launched in 2014, It was a major step towards financial inclusion in India wherein bank accounts with zero balance requirement can be opened with facilities like debit card, overdraft and insurance facilities.
- Recapitalisation of banks- The government has announces 2.11 INR trillion recapitalization package for the banks wherein recapitalization bonds worth 1.35 trillion INR is to be issued. It is considered that the move will provide banks much needed support in resolving its stressed assets and boosting the credit growth,
- The credit linked subsidy scheme (CLSS)- It is one of the key component under government’s flagship programme “Housing for all by 2022”. Under the scheme, interest subsidy on the home loan is paid to the beneficiary upfront, which reduces the amount of the equated monthly instalment (EMI) to be paid. The scheme is applicable for middle income groups, economically weaker section and low income groups
Challenges faced by the Industry
The major challenge faced by Banking sector currently is the deterioration in asset quality with an Non Performing Assets increasing continuously. Also, along with digitalization customer data security is a constant challenge, in view of constant threats of information security breaches.
The Banking Sector has undergone a lot of changes in terms of technology, regulation, focus and offered products. However, the industry needs to overcome its challenges in order increase its reach and accessibility for the benefit of a larger population base
Life Insurance Market in India - Current Scenario
Life Insurance sector is a prominent part of financial sector in India, which is 13th Largest Life Insurance Market in the World & 5th Largest in Asia in terms of total premium (Source: Swiss Re Report- No 3 /2017). The share of Life Insurance Fund in Gross Financial Savings has increased to 24.3% in FY17 from 17.6% in FY16 in India
Evolution of the sector
Post liberalization, the growth of insurance sector can be easily segregated in three phases:
From FY 05 to FY 08, industry witnessed a growth phase, expanding with a CAGR of 54%. The period between FY 09 to FY 15 was a stagnant period for the sector due to financial crisis followed by Regulatory changes.
FY 16 onwards, Indian Life Insurance market has started to show signs of revival, after a long period of flat growth. Growth is primarily driven by improvement in economic growth, lower inflation & increase in financial savings.
Life Insurance sector witnessed year-on-year growth of 14% in FY 17 on total premium basis (new business and renewal premium) and 26% growth on total new business premium basis. Total premium volume for FY 17 was 4.2 trillion INR.
LIC has the major market share in the Industry (approximately 70% on total new business premium basis), mainly supported by its group business. Private players are increasing their presence in individual segment (approximately 40% in Individual NBP), supported by corporate agent partnerships by banks.
Apart from LIC, 23 private market players are operating in this sector led by major players like ICICI Prudential, SBI Life, HDFC Life etc.
IRDAI (Insurance Regulatory and Development Authority of India is the regulatory authority of Insurance in India which aims at development of insurance industry as well as protection of policyholder interest.
Life Insurance penetration (as a percentage of GDP) has increased from 2.1% in FY 2001-02 to 2.8% in FY 2016-17. Protection Gap for India stood at US$8.5 trillion as of 2014 – the highest among Asian countries
However, with an increasing share of working population (90% of Indians projected to be below 60 years by 2020), rapid urbanization, rising standard of living and focus on financial inclusion, Indian Life Insurance industry is expected to grow faster.
With government pushing for schemes like Pradhan Mantri Jeevan Jyoti Bima Yojana and Postal Life Insurance, even the financially marginal sections of the society are becoming aware about the need and benefits of insurance.
With major players dominating the market thus limiting the scale of operations and regular tightening the norms on product and service charges, maintaining operating profit for new entrants and small players becomes very difficult.
In spite of foreign investment cap raised to 49% from 26% earlier, the new investments in the sector are below expectation mainly due to regulatory and political volatility and delay in setting up processes.
Indian Life Insurance sector is changing rapidly in terms of reach and focus with customer centricity being the focus for operations. However, for India, which is one of the fastest growing economies in the world, with significant growth in GDP per capita in the past decade, the insurance penetration and density is far below satisfactory levels.
The government and regulator needs to work in tandem with companies to create a trusted environment for the industry to flourish as per expectation.
Sovereign Credit Rating
A sovereign credit rating is the credit rating of a country or sovereign entity. A Credit rating is nothing but the assessment of a borrower in terms of its creditworthiness, i.e. their ability to repay debt, mainly with respect to a particular debt or financial obligation.
Why a credit rating is assigned
A credit rating can be assigned to any entity that seeks to borrow money. It can be an individual, corporation, state or provincial authority, or sovereign government. Rating and assessment helps the prospective investors in accessing the risk associated with investment in a particular country, thus helping them in deciding their future plans.
Therefore, it becomes of high importance for developing countries as they need good sovereign ratings in order to access funding in international bond markets.
For companies and Government, credit assessment and evaluation is generally done by agencies like Standard & Poor’s, Moody’s or Fitch. They assess economic, political environment of the country to judge its economic stability.
They are paid by the entity that is seeking a credit rating for itself or for one of its debt issues, which in turn helps the country in:
- Issuing bonds in external debt markets
- To attract foreign direct investment.
How it works
Different rating agencies have their distinct rating scale or terminology to describe the credit-worthiness of issuers.
The bifurcation of short term and long term is done on the basis of likelihood of the related party to go into default within one year or above one year respectively. In the past institutional investors preferred to consider long-term ratings which is being replaced nowadays, by short-term ratings now-a-days.
Why is it important?
In a normal cycle of operation, government spends on different welfare and development activities through the money generated by public, mainly in form of taxes.
However, if the raised money is not sufficient enough, external investment is sought in form of bonds, treasury bills etc. So naturally, a good sovereign rating is helpful in attracting sufficient investment, which in turn is used for country’s welfare.
Also the ratings help in deciding the cost of borrowing. As government tend to be the largest and safest borrower in a country, their rating acts as the benchmark for other issuers of debt in the country too.
As a consequence, the upgrading or downgrading of sovereign credit ratings can impact the cost of borrowing for companies, individuals who wants to raise money in the overseas market.
The sovereign rating needs to be monitored prudently through well-planned monetary and fiscal policies, in order to ensure investors’ trust and in turn economic stability in the country, as is a very important indicator of the country’s financial and fiscal health.
National Green Tribunal- Role and significance
In the post industrialization era, rapid development of economic activities led to widespread negligence of environmental concerns. With massive change in climate factors and depletion of resources, world is rising now to the challenge of protecting the nature in order to sustain itself.
National green tribunal is a step towards protecting our environmental concerns and promoting sustainable development.
In June 1992, during the Rio de Janeiro summit of United Nations Conference on Environment and Development, India pledged to provide judicial and administrative remedies for the victims of the pollutants and other environmental damage.
This paved the way for National Green Tribunal Act, 2010 which was enforced for the creation of a special tribunal to handle the expeditious disposal of the cases pertaining to environmental issues.
It draws inspiration from the India's constitutional provision of Article 21, which assures the citizens of India the right to a healthy environment.
The National Green Tribunal has been established on 18.10.2010 under the National Green Tribunal Act 2010.
Scope and Objective
National Green Tribunal is a specialized body having the necessary expertise to handle environmental disputes involving multi-disciplinary issues.
The major objectives of the tribunal are listed below:
- To provide effective and expeditious disposal of cases relating to environmental protection
- To facilitate enforcement of any legal right relating to environment
- To provide giving relief and compensation for damages to persons and property and for matters connected therewith or incidental thereto.
- To make environmental justices accessible
Role and Significance
The NGT has the power to hear all civil cases relating to environmental issues and questions that are linked to the implementation of laws listed in Schedule I of the NGT Act. These include the following:
- The Water (Prevention and Control of Pollution) Act, 1974;
- The Water (Prevention and Control of Pollution) Cess Act, 1977;
- The Forest (Conservation) Act, 1980;
- The Air (Prevention and Control of Pollution) Act, 1981;
- The Environment (Protection) Act, 1986;
- The Public Liability Insurance Act, 1991;
- The Biological Diversity Act, 2002.
The NGT is not bound by the procedure laid down under the Code of Civil Procedure, 1908, but shall be guided by principles of natural justice.
The significance of a separate tribunal lies in its role to facilitate sustainable development. NGT is responsible for disposal of applications or appeals finally within 6 months of filing of the same. As per the Government data, since inception (till 31.10.2017), the tribunal has made disposal of 20,696 cases.
The sanctioned strength of the tribunal is currently 10 expert members and 10 judicial members although the act allows for up to 20 of each. The Chairman of the tribunal who is the administrative head of the tribunal also serves as a judicial member. The Chairman of the tribunal is required to be a serving or retired Chief Justice of a High Courtor a judge of the Supreme Court of India.
Every bench of tribunal must consist of at least one expert member and one judicial member. New Delhi is the Principal Place of Sitting of the Tribunal and Bhopal, Pune, Kolkata and Chennai shall be the other four place of sitting of the Tribunal.
The Other Side of it
In order to increase its powers and relevance towards the set objectives, National green Tribunal needs to remove some of its loopholes. With currently operating through 5 benches, the reach of the tribunal is still limited. Since the civil courts can’t admit cases related environment now, it is difficult to approach tribunal running far from one’s native place.
Also, the government needs to ensure its credibility as an independent entity.
No doubt, setting up the National Green Tribunal has been a welcome move however, its scope and reach needs to be monitored and revised accordingly to realize its potential and thus ensure the objective of environmental conservation.
Ease of doing business in India: Myth or Reality
What does it mean?
Ease of Doing Business Index, is a benchmarking exercise conducted by World Bank every year, to access the regulatory and business process related scenario in a country
This exercise aims at quantitatively measuring the hurdles that small- and medium-sized firms encounter. Started in 2002, this annual exercise, conducted for 190 countries all over the world has become one of the important indicators to look for a country’s investment scenario.
In its latest report released in Oct 2017, India witnessed a jump in its ranking, moving up 30 ranks to 100th position, up from 130th last year. New Zealand has topped theEase of Doing Business rankings, followed by Singapore for two consecutive years in 2017 and 2018.
A questionnaire based survey is conducted in 190 countries, based on below mentioned indicators:
- Starting a business – Procedures, time, cost and minimum capital to open a new business
- Dealing with construction permits – Procedures, time and cost to build a warehouse
- Getting electricity – procedures, time and cost required for a business to obtain a permanent electricity connection for a newly constructed warehouse
- Registering property – Procedures, time and cost to register commercial real estate
- Getting credit – Strength of legal rights index, depth of credit information index
- Protecting investors – Indices on the extent of disclosure, extent of director liability and ease of shareholder suits
- Paying taxes – Number of taxes paid, hours per year spent preparing tax returns and total tax payable as share of gross profit
- Trading across borders – Number of documents, cost and time necessary to export and import
- Enforcing contracts– Procedures, time and cost to enforce a debt contract
- Resolving insolvency – The time, cost and recovery rate (%) under bankruptcy proceeding
Why it is important for India
The improvement in rating is a booster for stock markets. It improvises the country’s image on international forum and presents us as an economy trending on a progressive curve, thus projecting India as a preferred investment hub. Internally also, it restores faith in government policies, which is a pre-requisite for a stable economic and social environment more important at a time when initiatives like demonetization and GST are having transient disruptive impact on economy.
For India, growth is visible in important areas such as paying taxes (to 118 from 172 last year), getting credit (to 29 from 44) and bankruptcy proceedings (to 103 from 136). Of the 10 indicators considered, India has improved on eight, including the ones mentioned above, which has helped the overall rankings to go up by 30 notches.
The other side of it
Rankings are indicative in nature and present a partial picture of the real scenario. This exercise is meant to check the red tape scenario and doesn’t take into macroeconomic conditions or growth prospects of the economy. In this case also the impact of demonetization and GST related disruption in economy is not factored in ratings which had a major hit on the country’s micro, small and medium enterprises.
India has underperformed on indicators like starting business (the ranking has slipped to 156 from 155 last year), trading across borders (down to 146 from 143 in the last year), which needs to be paid immediate attention for success of government initiatives like start-up India, Make-in-India and improvising the ground situation.
The stagnant development for land and labour laws, prevalent corruption, trade policies and political nexus is holding the economy back from realizing its potential. With difficulty and delay in area of property registration, labour acquisition, contract enforcement etc, doing business is difficult for small enterprises rather which are the backbone of any developing economy.
Indeed, the booster jump in India’s position in the World Bank Ranking is an assuring support for economy which is facing impacts of changing regulations and policies. However, to make India a global manufacturing hub a lot remains to be done in terms of ground reality check and penetration of policies/ initiatives deep into the economy.
In focus: Pradhan Mantri Fasal Bima Yojana
India is majorly an agriculture based country with about two-third of its population dependent upon agriculture for their livelihood. The approximate share of agriculture in GDP is about 18%.
But even with a significant share of population dependent on it, the state of Farmers in India has always been far below from satisfactory. As agriculture in India is majorly dependent on natural factors, it is under the constant threat of risk associated with it.
Marred often with adverse weather conditions like flood, droughts etc., farmers have to face the consequences in form of low productivity and income and thus burden of unpaid loans.
In the year of 1999, National Agricultural Insurance Scheme (NAIS) was launched, with the objective of providing coverage to farmers against the risk of crop losses due to natural calamities. The scheme which was implemented in 14 states failed to fulfil its objectives due to its limited scope and features.
Later in 2010, Modified National Agricultural Insurance Scheme (MNAIS) was implemented which was a better version of its predecessor, with features like government share in claim liability, better monitoring and performance assessment criteria.
But, again its implementation was limited and marred with many constraints like caps on the sum assured, delayed claim process, frauds, etc. Also, a major deterrent was that only those farmers who have taken loan for purchasing agriculture machineries, crop seeds, insecticides and pesticides etc., being targeted for the insurance benefit.
To overcome the shortcomings of the earlier schemes and provide insurance coverage and thus financial stability to increased number of farmers, a new scheme was conceptualized, which replaced National Agricultural Insurance Scheme and Modified National Agricultural Insurance Scheme.
However, the weather based crop insurance scheme is still running though with modified rates.
Details of the Scheme
- The incumbent government launched crop Insurance Scheme “Pradhan Mantri Fasal Bima Yojana (PMFBY), in 2016.
- This crop insurance scheme is being administered under Ministry of Agriculture and Farmers’ Welfare.
Scope and Objectives
The scheme aims at providing insurance support to the agricultural section of the society. The government aims to cover 40% of the agricultural are under PMFBY in FY 17-18 and had made provision of approximately 9000 crore for the same.
Highlights of the Scheme
- Low premiums to be paid by customers for insurance coverage
- Along with premium subsidy, government is also sharing loss risk beyond applicable ceiling
- Scheme provides localized risk coverage and has added a number of natural calamities. For e.g. Post-harvest losses caused by rain or hailstorm, earlier which was restricted to cyclone prone regions
- Use of technology to estimate losses and facilitate payments
- Specific criteria mentioned for performance monitoring of insurance companies
- Low Coverage within the scheme - The scheme is still mainly availed by farmers taking agricultural loans, as they are mandatorily given coverage. However, awareness among the other farmers is quite low
- Delay in payments due to lack of bank accounts/ required documents. Also though the scheme provisions promote usage on technology, on ground usage of the same is still below expectation
- Lack of clarity and awareness about the provisions of the scheme, among the farmers as well as ground staff of implementing insurance companies
No doubt, Pradhan Mantri Fasal Bima Yojana is a welcome move towards reducing uncertainty associated with agriculture. However, the true success of the scheme depends on increasing awareness among its target customers about its benefits, and making it more accessible.
The intermediary organizations and the implementing agencies/staff should be well trained to solve process related issues. Also, the localized agricultural problems and crops covered under scheme needs to be properly reviewed periodically to include majority of the farmers within the ambit of the scheme.
Payment Banks: A step closer to Financial Inclusion
The financial intermediaries in India are broadly categorized under Banks and Non Banking Financial Institutions, wherein banks are mainly divided as:
- Commercial Banks
- Co-operative Banks
Commercial Banks are categorized in Public Banks, Private Banks, Foreign Banks and Differentiated Banks like Regional Rural Banks, Local Area Banks. The latest entrants to Differentiated model of banking are Payment Banks and Small Finance banks.
Herein, we are analysing the Payment banks in detail.
Indian Banking sector has been in a phase of constant evolution in the last two decades. Increasing the reach and efficiency of banking and related services has been a top priority for the regulators, for which various initiatives are being implemented time and again.
In January 2014, the Nachiket Mor committee submitted its report on “Comprehensive Financial Services for Small Businesses and Low Income Household”. Formation of Payment Banks was one of its recommendations of the report, post which RBI issued guidelines for Payment Banks in November 2014.
In August 2015, Reserve Bank of India gave "in-principle" licences to eleven entities to launch payments banks.
What can they offer
A payment bank can accept deposit up to 1 lakh per customer, can facilitate payments, issue services like ATM cards, net banking, mobile banking and can also sell third party products like insurance.
How they are different from other commercial banks
Apart from basic regulatory and statutory differences, the major difference in terms of operations for Payment banks is restriction to offer loans to customers.
Why we need Payment Bank
Including a vast population within ambit of structured and monitored financial environment requires multi-fold strategies and means. Governments over time have taken many initiatives to increase penetration of financial services like opening regional rural banks, local area banks, rural branches of commercials banks, beginning business correspondent models and launching schemes like Jan Dhan Yojana.
Payment Banks are also a step closer towards the target of financial inclusion. Mainly conceptualized as a niche category for high volume- low value transactions, they can act as a major facilitator for low income households and unorganized sectors, by providing them small savings account and payment/ remittances services. Their technology based low cost driven model is the
Among the 11 players initially granted license, below mentioned 4 players have started operations (As of Nov. 24, 2017):
- Airtel M Commerce Services
- Department of Posts
- FINO PayTech
While Cholamandalam Distribution Services, Tech Mahindra and Sun Pharmaceuticals have already withdrawn, following players are in the process of launching their services, within stipulated time-frame:
- Aditya Birla Nuvo
- National Securities Depository
- Reliance Industries
- Vodafone M-Pesa
Listed below are some of the advantages of this differentiated model of banking:
- Low Cost of operations, as no compulsion of brick and mortar based structure
- Safe for the customers due to the structured regulations in terms of investment of customer’s money
- Technology based, thus making financial services less cumbersome for the masses
The primary income source for banks is their lending activities. Since payments banks can’t offer loans, they are dependent on different income avenues like large scale of operations for generating income through transaction related services, third party product selling etc.
Along with commercial banks, other fintech players are also a competition for these banks due to their financial transaction related services.
Difference with Small Finance bank
While a payment bank and Small Finance bank share certain similarities in terms of objective of financial inclusion and target population, they have some basic differences.
- Small Finance Bank (SFB) can accept all types of deposits (current, saving, fixed etc. while a payment bank can accept only demand deposits
- Payment Banks can’t offer loans while SFBs can
PRADHAN MANTRI JAN DHAN YOJANA
On 15th August 2014, Pradhan Mantri Jan-Dhan Yojana was launched, which is a National Mission for Financial Inclusion. More than 30 cr. Beneficiaries added and more than 1 lakh Bank Mitras delivering branchless banking services
To provide easy access of financial services (Banking/ Savings & Deposit Accounts, Remittance, Credit, Insurance, Pension) to every stratum of society.
- Interest on deposit.
- Accidental insurance cover of Rs. 1 lac
- No minimum balance required.
- The scheme provide life cover of Rs. 30,000/- payable on death of the beneficiary, subject to fulfilment of the eligibility condition.
- Easy Transfer of money across India
- Beneficiaries of Government Schemes will get Direct Benefit Transfer in these accounts.
- After satisfactory operation of the account for 6 months, an overdraft facility will be permitted
- Access to Pension, insurance products.
- The Claim under Personal Accidental Insurance under PMJDY shall be payable if the Rupay card holder have performed minimum one successful financial or non-financial customer induced transaction at any Bank Branch, Bank Mitra, ATM, POS, E-COM etc. Channel both Intra and Inter-bank i.e. on-us (Bank Customer/Rupay card holder transacting at same Bank channels) and off-us (Bank Customer/Rupay card holder transacting at other Bank Channels) within 90 days prior to date of accident including accident date will be included as eligible transactions under the Rupay Insurance Program 2016-2017
- Overdraft facility up to Rs.5000/- is available in only one account per household, preferably lady of the household.
Aadhar Act, 2016
What does this mean
The Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016, was passed on the 11 March 2016 by Lok Sabha. This act is meant to give a statutory backing to the unique Aadhaar number which can be used as an identity proof for accessing different services like government benefits, subsidies etc.
The Aadhaar initiative was launched in 2009 to provide everyone in India with a unique identification number (UID). Aadhaar is world’s largest biometric identification programme with over 100 crore registrants.
Importance of the Act
The broad purpose is to establish a system of identification for the residents of the country.
It also can be helpful in:
- Financial Inclusion
- Eliminating fraudulent transaction
- Checking corruption
- Prevent leakages in Direct Benefit Transfers
The controversy around it
Experts raised apprehensions about the security of the biometric and personal data collected.
With Supreme Court of India ruling Right to Privacy as fundamental right, the Aadhar Act seems in jeopardy and the clarity on the future of the act will prevail only after the judgment of the apex court.
Right to privacy
What does this mean
According to Black’s Law Dictionary- Privacy is defined as “right to be let alone; the right of a person to be free from any unwarranted publicity; the right to live without any unwarranted interference by the public in matters with which the public is not necessarily concerned”.
Headed by incumbent Chief Justice of India J S Khehar, a nine judge bench ruled on August 24, 2017 that Right to privacy is a fundamental right (Under Article 21 and part III of the constitution) for Indian citizens under the Constitution of India.
The Apex Court in its judgment concluded, "The right of privacy is a fundamental right. It is a right which protects the inner sphere of the individual from interference from both State, and non-State actors and allows the individuals to make autonomous life choices."
With this judgment, India has joined United States, Canada, South Africa, the European union etc. in recognizing privacy as a fundamental right.
The road to it
The ruling is an outcome of a petition by Justice K.S. Puttaswamy (Retd.), challenging the constitutional validity of Aadhar.
Implications for the citizens
The verdict can have an implication of various issues like Aadhar, Section 377 of the Indian Penal Code (crimalizing same sex relationship), euthanasia, abortion, etc.
Urbanisation in India - Challenges and way forward
Urbanisation is the process of shifting from rural inhabitation to urban inhabitation in a particular time and place where 70% of people live in secondary or tertiary (service) sectors. Cities are considered ‘engines of inclusive economic growth’. Urban areas have both ‘statutory towns’ (municipal corporation, municipality, cantonment board or notified area committee), and ‘census towns’ with the criteria of minimum population of 5000 and 75% of male main workers engaged in non-agricultural activities, and population density of minimum 400 persons per sq km. According to the census of India 2011, our urban population is 37.7 crore (31.16%). Thus during 1901-2011, India's urban population increased by more than 20 percentage points. Historically, there has been almost three times growth since 1901 when India’s urban population was only 10.8% of its total population. However, this proportion of urban population is far less than that in many developing and developed countries: viz. Japan (91.2%), Brazil (84.6%), UK (81.6%), US (80.9%), France (78.6%), Germany (74.5%), Russia (73.77%) and China (50.6%), as per World Bank and census data. Ten largest cities in India are Mumbai, Delhi, Kolkata, Chennai, Bengaluru, Hyderabad, Ahmedabad, Pune, Surat and Jaipur as per 2011 census of India. During 2001-2011, Delhi added 35 lakh more population (equivalent of Agra and Vishakhapatnam together), Bengaluru added 28 lakh more population (equivalent of Kanpur), Chennai added 20 lakh more population (equivalent of Patna), Mumbai added 20 lakh more population (equivalent of Kozhikode), Hyderabad added 19 lakh more population (equivalent of Thrissur), Surat added 18 lakh more population (equivalent of Vadodara), Ahmedabad added 14 lakh more population (equivalent of Varanasi), Pune added 13 lakh more population (equivalent of Srinagar), Kolkata added 8 lakh more population (equivalent of Warangal), and Jaipur added 7 lakh more population (equivalent of Dehradun). By 2030 India's urban population will reach 40.7%.
Population growth in cities may be due to three factors: first, higher births in absolute number, second, lower mortality rate and third, migration from villages (rural to urban migration) or from small towns (urban to urban). In fact, given a fixed population size for a period in a specific city, there is less birth rate per year due to relatively less total fertility rate (TFR) of women due to their more and better education, prevalence of small family norm, more entertainment facilities in individual families, economic, spacial and social constraints in affording large family size, higher level of women’ consciousness about health hazards involved in frequent pregnancies etc. Hence increase in size of cities is usually not substantially due to high birth rate, though total births in a city do have a bearing on the growth. Further, the facilities for health, especially reproductive health, are much more accessible, spread over and are better in quality both in public and private sectors, hence the infant mortality rate (IMR) Per thousand births, under five child mortality rate (CMR) Per thousand births as well as maternal mortality ratio per lakh births are much lower in urban areas than in rural areas consequently there is a slight increase in population but this is balanced by a lesser birth rate also. However, migration (both from rural and other urban areas) contributes hugely in population growth in cities. Migration occurs usually due to both 'pull' and 'push' factors. Pull factors of cities include mainly the new and better opportunities for livelihood in both organised (public and private) and unorganised sectors, more and better opportunities for both school and higher education of children, more and better housing amenities, better cultural and entertainment facilities (cinema, clubs, theatres), more government offices and public utilities, growth of private sector, hub of political affairs giving more opportunities for political participation at different levels in various forms, more and better facilities for health and hygiene, more mass media sources giving opportunities for expression and participation, more freedom to the youth, more and better transportation and communication facilities etc. That is why the number of metros with ten lakhs plus population grew from 1 (Calcutta) in 1901 to 52 during 2011 - in 1951 it was 5, in 1961 it was 7, in 1971 it was 9, in 1981 it was 12, in 1991 it was 24, in 2001 it was 39 and in 2011 it was 52. Now, 6 cities in Maharashtra, 7 each in Kerala and UP, 4 each in MP, Gujarat and Tamil Nadu, 3 each in Jharkhand, Rajasthan and Andhra Pradesh, 2 each in West Bengal, Chhattisgarh and Punjab, and 1 each in Delhi, J&K, Haryana, Bihar and Karnataka have ten lakh plus population (2011). Ten fastest growing cities in India are Ghaziabad (23.8 lakh population), Durg-Bhilainagar (10.6), Vasai-Virar (12.2), Faridabad (14.1), Malappuram (17), Kannur (16.4), Surat (45.9), Bhopal (18.9), Aurangabad (Maharashtra 11.9) and Dhanbad (12) - annual growth rate ranging from 4.8% (Dhanbad) to 6.9% (Ghaziabad).
On the other hand, push factors in villages are primarily : lack of livelihood opportunities (agriculture having underemployment or 'disguised employment’ (as Gunnar Myrdal termed it), lack of educational and health facilities, lack of transportation and communication facilities, various restrictions on the basis of ascriptive bondages and regressive customs, especially on the women, lower castes and communities. In the last five-six decades it is also a trend that due to the problem of extremists and naxals in villages, many families have migrated en masse to urban centres in the same State or other developed State/or national capital.
Urbanisation and Economy
Urbanisation should also be seen in the proper context of India's economy. India is the second largest country (121 crore people as per 2011 census, now estimated to be about 130 crore in 2016) in terms of population in the world (sharing 17.5% of world population) next to China (138 crore population) India is the third largest economy (sharing 7.2% of world economy) after China (sharing 17.4% of world economy) and US (sharing 15.4% of world economy). In terms of GDP per capita, India has only 6.6 thousand dollars (PPP) against 57.2 thousand dollars in US, 48.2 thousand dollars in Australia, 47.5 thousand dollars in Germany, 46.2 thousand dollars in Canada, 42 thousand dollars in UK, 41.9 thousand dollars in France, 53.7 thousand dollars in Saudi Arabia, 38.7 thousand in Japan, 37.7 thousand in South Korea, 36.2 thousand dollars in Italy, 25.2 thousand dollars in Russia, 17.9 thousand dollars in Mexico, 15.2 thousand dollars in Brazil, 15.1 thousand dollars in China, 13.2 thousand dollars in South Africa, 11.6 thousand dollars in Indonesia! Thus, in HDI (human development index) ranking (2014), India ranks 130th - not only lowest among G-20 countries and BRICS, but also lower than many developing countries of the world. Paradoxically, Indian economy is growing at a fast rate of 7% per year, but the job increase is merely 1.1% annually based on 8 key sectors of non-farm economy as per Labour Bureau data (2016). Hence unemployment rate increased from 3.8% in 2011 to 5% in 2015. In 2016 total number of jobs created were 2.05 crores - 1 crore in manufacturing, 50 lakhs in education (low wages), 14.5 lakhs in trade, 12.1 lakhs in health (low wages), 10.4 lakhs in IT/BPO, 7.7 lakhs in accommodation/ restaurant, 5.8 lakh in transport, and 3.7 lakhs in construction sector But IT boom is also facing challenges especially due to global slowdown, visa restriction and downsizing by the domestic IT sector. This has affected the urban middle class households in different ways.
Problems of urbanisation
If we look at the Status of transportation and its consequences, we find that Delhi has the highest number of registered vehicles ( more than 1.05 crore on 25th May, 2017)- of these 66.49 lakhs are motorcycles/ scooters, 31.73 lakh cars and 7.46 lakh other vehicles (including 2.25 lakh goods carriers). There is a large number of high level of noise pollution and air pollution due to such vehicles. Delhi has been ranked by World Hearing Index as World’s fifth noisiest city on the basis of only noise pollution but it is ranked second in the world in terms of both most noise and maximum hearing loss - Guangzhou (China) being the first. However, Delhi is ranked first in the 50 cities of the world where hearing was most degraded ( due to all reasons, including noise pollution). In Delhi, a person has hearing capacity of anybody at least twenty years older than he or she - that is 20% less than prevailing capacity in that age. There is a close positive relationship between urban noise pollution and hearing loss - (64%). To be more specific primary sources of noise pollution in large urban areas like Delhi in India are road traffic, aircraft, trains, constructions activities and industries.
If we look at the air pollution, the situation is again grim in many Indian cities. As per State of Global Air 2017 report, long term exposure to fine particulate matter (PM2.5) contributed to 42 lakh premature deaths in 2015 in the whole world out of which India and China together shared 52% - 11.08 lakh deaths in China, 10.90 lakh deaths in India, 2.57 lakh deaths in E.U., 1.37 lakh deaths in Russia, 1.35 lakh deaths in Pakistan, 1.22 lakh deaths in Bangladesh, and 88400 deaths in U.S. Since 1990 premature deaths related to PM 2.5 have risen by 17.22% in China while in India it rose by 48% during the same period. As per Central Pollution Control Board report (August 2016), in 2015, 41 Indian Metros with 10 lakh plus population faced bad air quality in 60% of total days monitored. As per Greenpeace report ‘Airpocalypse’ study in 168 cities in 24 States and UTs revealed that, except a few cities in South India, most of Indian cities do not comply with WHO or National Ambient Air Quality Standards: against the standard limit of 60 microgram per cubic metre (PM 10) the top 20 cities in India have very high PM 10 levels between 268 and 168 (2015) - Delhi ranks first (268 microgram per cubic metre), followed by Ghaziabad (258), Allahabad (250), Bareilly (240), Faridabad (240), Jharia (228), Alwar (227), Ranchi (216), Kusunda, Jharkhand (214), Bastacola, Jharkhand (216), Kanpur (205) and Patna (200). Air pollution primarily leads to respiratory, cardiac and blood pressure problems, especially among the young and old ones. Vehicular exhaust, dust, open construction materials, garbage burning, ‘parali’ (crop residue) burning, especially in Punjab, Haryana and Western UP leading to smog in Delhi & NCR), fly ashes from brick kilns, haphazard demolition of old buildings, high emission from thermal plants, coal burning, use of fuelwood in some pockets, etc. lead to air pollution in most of Indian cities. In Delhi, vehicular of air pollution there. During 2000-2016 in Delhi Sulphur Dioxide (SO2) has dropped from 15 micrograms to 7 micrograms per cubic metre during 2000-2016 due to use of cleaner fuel in vehicles and closure of thermal plants but, on the other hand, Nitrogen Dioxide (NO2) level has gone up from 36 micrograms to 65 micrograms per cubic metre during the same period. Due to increase in number of diesel vehicles - less than 10% of cars sold in Delhi were diesel engines in 2000 but now more than 50% are diesel engines - NO2 has increased. Hence there is a need to switch from diesel to petrol and CNG fuel. Further waste and biomass burning needs to be stopped to reduce NO2. Rising level of NO2 in air is causing ozone pollution badly. In BS-II Sulphur content was 500 PPM while in BS-III it is 100 PPM and BS-IV only 50 PPM.
We celebrate every war World Water Day on 22 March more as a ritual than with a real action agenda. There is uneven distribution of water by regions, nations and sub-nations. For instance, Asia has 60% world’s population but only 36% of global run-off while South America has only 6% of World’s population but has 26% of global run-off. Similarly India, too, has 17.5% of global population but only 4% world's fresh water. One of the Millennium Development Goals was to reduce the proportion of people without access to safe drinking water by half by 2015 but we could not achieve this major goal. In urban India, we have water scarcity in different ways and proportions in different cities: e.g. in ten towns of Rajasthan water is supplied only once in three days! Further about one crore people in 35 cities in India are supplied 38% less water than the usual supply earlier. At the time of India's independence in 1947, there were about 800 ponds/ lakes in Delhi but most of these have been encroached upon and their nature has been changed due to construction of buildings, plain fields, roads and other public utilities. Further in four metros (Kolkata, Delhi, Chennai & Mumbai) 90 crore litres of dirty water is thrown out in rivers daily but only 30% is treated. So is the case of most of other cities in the country, especially in Kanpur, Allahabad, Varanasi, Lucknow, Patna, and Bhagalpur etc. India has 433 billion cubic metre of groundwater and more than 80% of rural and urban domestic water needs in India is served by groundwater. But India’s per capita water availability is declining sharply - from 6042 cubic metres in 1947 to 1545 cubic metres in 2011 and it is expected to further decline to 1340 cubic metres in 2015 and 1140 cubic metres in 2050. On the other hand, India conserves only 20% of its total rainwater while Israel scientifically conserves 80% of its total rain water! Water scarcity has often led to quarrels/ riots among common people in slums and undeveloped colonies where population density is very high but water taps/ tankers/ hand pumps available are quite less.
Smart cities are being developed in India but its number is limited and already existing cities are being converted into smart cities. Hence there is a need to develop all urban centres.
Therefore, in the backdrop of the above grim situation following steps should be taken seriously:
- As directed by NGT, all diesel vehicles of 15 years of age or more should not be allowed in cities as their exhaust is more polluting the air; production of new diesel vehicles should be discouraged and there should be very high registration and parking charges for these; now only Bharat VI ( on the pattern of Euro VI ) compliant vehicles should be produced and registered and only clean fuel should be allowed for use in vehicles
- Adequate public transport should be made available on the one hand and, on the other, public should also be inspired and motivated for the use of public transport and sharing of private vehicles by friends, neighbours and colleagues
- Odd-even formula of vehicles should be implemented with adequate preparation.
- Use of fireworks during marriages, births, festivals (Diwali) and other celebrations should be fully banned/stopped by restricting production, sale and purchase of such items in cities
- Burning of garbage, crop residues, fuelwood, leaves of trees/ plants and use of kerosene stoves should be strictly banned in cities
- All polluting factories, thermal plants, brick kilns etc. should be immediately shifted from cities and adjoining areas to other areas; further these should be made eco-friendly with new technology norms
- Rain water harvesting should be popularised by giving subsidies; and all old ponds/ tanks should be revived
- There should be well-planned tree plantation drives in cities every year and students, teachers, govt. officials, Anganwadi workers, ASHAS, voluntary organisations, municipal bodies etc. should be involved genuinely
- There should be a ban on use of high power loud speakers, D.J. etc. in residential and institutional areas to check noise pollution
- Drivers should be trained not to honk unnecessarily (as is practice in Western countries)
- For construction works there should be the well planned norms to cover, to check noise and air pollution, and not to obstruct road/ lane with construction materials
- Use of cycles and battery rickshaws (with safety devices) should be encouraged and like many European countries cycle tracks should be constructed for cycle users
- Swachhta Action Plan should also comprise of devices and mechanisms for preventing water, air and soil pollution; mechanised cleaning of at least main roads should be done at the earliest as the accumulated dust is becoming deadlier
- Every citizen should be entitled to get adequate safe drinking water as a part of the right to food in both urban and rural areas - of course, it is more chronic problem in urban slums
- Slums, shanty towns and so-called illegal colonies should be properly developed with clean drinking water, road, health, education, sewerage and other utilities on priority basis; only then the conception of ‘smart cities’ really materialise.
Let us begin our efforts in an integrated manner ‘here and now’ as a thousand miles’ journey begins with the first step.
Source: Government publication
Goods and Services Tax - Overview
Goods and Services Tax or GST is one of the biggest tax reforms after independence, it is set to revolutionize the way we do our taxes. In the words of Prime Minister Narendra Modi, the GST is a great step towards transformation and transparency. He has termed India's biggest overhaul of indirect taxes as a major step to make doing business easier.
GST is one indirect tax for the whole nation, which will make India one unified common market. It is a single tax on the supply of goods and services, right from the manufacturer to the consumer. Credits of input taxes paid at each stage will be available in the subsequent stage of value addition, which makes GST essentially a tax only on value addition at each stage. The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.
The benefits of GST can be summarized as under:
For business and industry
Easy compliance: A robust and comprehensive IT system would be the foundation of the GST regime in India. Therefore, all tax payer services such as registrations, returns, payments, etc. would be available to the taxpayers online, which would make compliance easy and transparent.
Uniformity of tax rates and structures: GST will ensure that indirect tax rates and structures are common across the country, thereby increasing certainty and ease of doing business. In other words, GST would make doing business in the country tax neutral, irrespective of the choice of place of doing business.
Removal of cascading: A system of seamless tax-credits throughout the value chain, and across boundaries of States, would ensure that there is minimal cascading of taxes. This would reduce hidden costs of doing business.
Improved competitiveness: Reduction in transaction costs of doing business would eventually lead to an improved competitiveness for the trade and industry.
Gain to manufacturers and exporters: The subsuming of major Central and State taxes in GST, complete and comprehensive set-off of input goods and services and phasing out of Central Sales Tax (CST) would reduce the cost of locally manufactured goods and services. This will increase the competitiveness of Indian goods and services in the international market and give boost to Indian exports. The uniformity in tax rates and procedures across the country will also go a long way in reducing the compliance cost.
For Central and State Governments
Simple and easy to administer: Multiple indirect taxes at the Central and State levels are being replaced by GST. Backed with a robust end-to-end IT system, GST would be simpler and easier to administer than all other indirect taxes of the Centre and State levied so far.
Better controls on leakage: GST will result in better tax compliance due to a robust IT infrastructure. Due to the seamless transfer of input tax credit from one stage to another in the chain of value addition, there is an in-built mechanism in the design of GST that would incentivize tax compliance by traders.
Higher revenue efficiency: GST is expected to decrease the cost of collection of tax revenues of the Government, and will therefore, lead to higher revenue efficiency. For the consumer
Single and transparent tax proportionate to the value of goods and services: Due to multiple indirect taxes being levied by the Centre and State, with incomplete or no input tax credits available at progressive stages of value addition, the cost of most goods and services in the country today are laden with many hidden taxes. Under GST, there would be only one tax from the manufacturer to the consumer, leading to transparency of taxes paid to the final consumer.
Relief in overall tax burden: Because of efficiency gains and prevention of leakages, the overall tax burden on most commodities will come down, which will benefit consumers.
Taxes being subsumed into GST At the Central level, the following taxes are being subsumed:
- Central Excise Duty
- Additional Excise Duty
- Service Tax
- Additional Customs Duty commonly known as Countervailing Duty
- Special Additional Duty of Customs.
At the State level, the following taxes are being subsumed:
- Subsuming of State Value Added Tax/Sales Tax
- Entertainment Tax (other than the tax levied by the local bodies), Central Sales Tax (levied by the Centre and collected by the States)
- Octroi and Entry tax
- Purchase Tax
- Luxury tax
- Taxes on lottery, betting and gambling.