Exchange Rate Regimes

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Last Updated: May 2023 (Exchange Rate Regimes)

Exchange Rate Regimes

This article deals with ‘Exchange Rate Regimes.’ This is part of our series on ‘Economics’ which is important pillar of GS-2 syllabus . For more articles , you can click here .

Types of Exchange Rate

1. Fixed exchange Rate

  • In the Fixed Exchange Rate, the central bank of a country decides the exchange rate of the local currency for foreign currency. 
  • E.g., Consider an imaginary situation where RBI fix an exchange rate of 1$ = 10 ₹. If excess dollars enter the market, the RBI will print more ₹ to absorb the extra dollars. If fewer dollars enter the market, the RBI will sell the dollars from its forex reserve to ensure ₹ doesn’t weaken.
  • It was operational in India up to March 1992.
Exchange Rate Regimes

Challenge: External Shocks & Fixed Exchange Rate

  • In some situations, if the demand for a foreign currency in India increases exponentially, then the RBI maintained equilibrium will disturb. Initially, RBI will try to stabilize the situation by selling $s from its forex reserve. But, since RBI will not have an infinite amount of dollars in its reserve, ultimately, it will be forced to devalue ₹. Hence, the biggest drawback of the Fixed Exchange Rate Regime is that it is highly prone to external factors. 

Side Note: Devaluation 

  • Central Bank uses the devaluation process in the Fixed Exchange Rate Economy to cope with the abovementioned situations.
  • Devaluation involves weakening the domestic currency vis-à-vis foreign currency. E.g., RBI reduces the exchange rate to 1$ = 11 ₹ (instead of earlier 1$ = 10 ₹) 
  • Implications of the above devaluation are as follows.  
    • The demand for foreign currency will decrease because (say) what work could be done earlier with ₹10 lakh abroad will now need 11 Lakh. So, some people will abandon their plans.
    • Tourism and Foreign Investment: A lower currency value can attract tourists and foreign investors, making visiting or investing in the country more affordable. 
    • Export Competitiveness: Devaluing a currency can make a country’s exports more affordable and competitive in international markets. A lower exchange rate makes the country’s goods and services relatively cheaper when priced in foreign currencies, boosting exports and stimulating economic growth.
How Devaluation Works

2. Floating Exchange Rate

  • In Floating Exchange Rate Regime, the Central Bank of the country doesn’t intervene at all & the market forces (i.e. demand and supply) determine the exchange rate. 
Floating Exchange Rate
  • USA and UK are the major economies following this system
  • But in this case, the exchange rate is very volatile. Along with that, this system is also prone to currency speculation.

3. Managed Floating Exchange Rate

  • It is the middle path between the two extremes (floating and fixed).
  • In this, Central Bank doesn’t decide the exchange rate. In ordinary times, Central Banks will let the market forces determine the exchange rate. But if there is too much volatility, Central Bank will intervene by buying or selling the foreign reserves to keep the volatility under control.
Managed Floating Exchange Rate
  • Canada, Japan, India (since 1992–93) etc., follow Managed Floating Exchange Rates.

Exchange Rate in India

1928 to 1948 ‘Rupee’ was linked with the British Pound Sterling.
1948 to 1975 After the formation of the IMF, India shifted to the fixed currency system and committed to maintaining the Rupee’s exchange rate in terms of gold or the US ($ Dollar).
1975 to 1992 RBI started determining the Rupee’s exchange rate with respect to the exchange rate movements of the basket of world currencies (£, $, ¥, DM, Fr.).
1992 India shifted to Managed Floating Exchange Rate.

NEER & REER

We keep on reading in the newspaper that ₹ has weakened against $. Does that mean ₹ is a weak currency & has become fragile? Nope, because the US is not the only country we trade with & $ is not the only currency we use to do all our transactions.  

  1. If we want to measure the volatility of ₹ objectively, we have to compare volatility with multiple currencies.
  2. 1$= ₹50 or 1$ = ₹40 doesn’t decide demand of goods & services between India & USA . It also depends on relative inflation.

For this, we use NEER & REER

1. NEER

  • NEER = Nominal Effective Exchange Rate
  • It is the weighted average of bilateral nominal exchange rates of home currency in terms of foreign currencies.

2. REER

  • REER = Real Effective Exchange Rate 
  • REER is the weighted average of nominal exchange rates adjusted for inflation. Hence, it captures inflation differentials between India & its major trading partners. 
  • REER = NEER X ( Indian Inflation (CPI) / US Inflation ) 

What do we get with the help of NEER & REER?

  • If REER > 100: Currency is overvalued 
  • REER < 100: Currency is undervalued

REER Trends

Indian ₹ is overvalued (since REER > 100), and according to Economic Survey, this is bad for Indian Exports)

REER Trends in India

Purchasing Power Parity (PPP)

  • It is a theoretical concept that compares the exchange rate of two currencies through their purchasing power in respective countries.
  • For example, if 1 packet of bread in India costs ₹ 20 whereas it costs $2 in the USA, then Dollar to Rupee exchange rate (PPP) will be $1 = ₹ 10. 
  • According to OECD, in PPP terms, $1=₹ 17.
  • This exchange rate can happen in real life if both countries have Floating Exchange Rate without any intervention of the respective Central banks; and if the bilateral trade is free of protectionism.
  • If we look into the GDP of various countries in terms of PPP, then India is the world’s third-largest economy. The ranking is 1) USA, 2) China, 3) India, 4) Japan and 5) Germany.

Great Fall of the Indian Rupee

Great Fall of the Indian Rupee

Why this happened?

  • Russia’s Ukraine Invasion: Due to the invasion, currencies worldwide have shown depreciation as the supply of crude oil was disrupted due to sanctions imposed on Russia.
  • The outflow of funds: Capital is moving out of India because of rising interest rates in the US, making it more attractive to invest there.
  • Current Account Deficit: Historically, India had a current account deficit, i.e. it spends more on imports than it earns from exports. A higher current account deficit puts pressure on the Indian Rupee, leading to its depreciation.
  • Inflation Differential: The rate of inflation in India is higher than in the US, which erodes the purchasing power and the value of the Rupee relative to USD.

But according to Economic Survey (2023), with monetary tightening (by US Fed Reserve), the US dollar has appreciated against several currencies, including the Rupee. However, the Rupee has been one of the better-performing currencies worldwide.

What India did to fight?

  • FPI investment limits have been relaxed to attract foreign investors to India.
  • Currency Swap Agreements have been signed with countries like Japan. 
  • Agreement with countries like Iran to buy Crude Oil directly in ₹. 

Internationalization of Rupee

The Tarapore Committee on Full Capital Account Convertibility defined international currency as ‘a currency that is widely used for international transactions. Internationalization of a currency (Rupee here) is a process to increase rupee acceptance (credibility) worldwide.

 Benefits of Internationalization of the Rupee

  1. Reduced Foreign Exchange Reserves requirement for the balance of payment. It can also reduce the imposed cost of forex on the economy by Interest Rate Differential (IRD). IRD is the change in interest rates between the currencies of two countries.  
  2. Reduced Vulnerability to External Shocks because of reduced dependence on foreign currencies. 
  3.  Mitigates Currency Risks for Indian Enterprises by eliminating foreign exchange fluctuation, reducing the cost of doing business and supporting the global growth of Indian businesses. 
  4. Enhance India’s global stature and respect, helping Indian Businesses through increased bargaining power.

Steps taken by Government in this regard

  1. Cross Border Borrowing in Indian Rupees: Introduction of Rupee Denominated Bonds or Masala Bonds
  2. Currency Swap Agreements: India has signed currency swap agreements with countries such as Japan, UAE etc.
  3. International Trade Settlement in Indian Rupees (EXPLAINED BELOW)

International Trade Settlement in Indian Rupees

Mechanism of International Trade Settlement in Indian Rupees

In July 2022, RBI issued a circular that allowed a new arrangement for conducting international trade transactions using Indian Rupees (INR) facilitated through special Rupee Vostro accounts held by authorized dealer banks in India.

A Vostro account is a type of account maintained by a domestic bank on behalf of a foreign bank in domestic currency (Rupee in the case of India), allowing domestic banks to provide international banking services to clients with global banking requirements.

In this settlement arrangement, when Indian importers engage in imports, they will make payments in Indian Rupees (INR). These payments will be credited to the Vostro account of the partner country’s correspondent bank. On the other hand, Indian exporters involved in the export of goods and services through this mechanism will receive their export proceeds in INR from the balances held in the designated Vostro account of the partner country’s correspondent bank.

The framework could largely reduce the net demand for foreign exchange, the US dollar in particular, for the settlement of current account related trade flows.

Regulatory Bodies in India

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Last Update: June 2023 (Regulatory Bodies in India)

Regulatory Bodies in India

This article deals with ‘Regulatory Bodies in India.’ This is part of our series on ‘Governance’ which is important pillar of GS-2 syllabus . For more articles , you can click here.

Introduction

Regulatory Bodies in India
  • The regulatory body is an organization set up by the government to monitor, guide and control a particular sector, such as banking, insurance, education or healthcare.
  • It is in contrast to laissez-faire which demands an entirely unregulated/free economy. But since we know the perils of a completely free market economy, regulation, up to a certain extent, is very much desirable. 
  • After Liberalization and Privatization, the state’s role changed to rule-maker and regulator. With this, we saw the emergence of a special category of regulatory systems, i.e.,  Independent Statutory Regulating Agencies. 

Need of Regulation

In the case of Natural Monopoly

  • A natural monopoly is a condition when an entire market is more efficiently served by one firm than by two or more firms. 
  • In the case of a natural monopoly, regulation is necessary to protect consumer interests, control prices, and ensure the quality of service, as there is no competition in the market.
  • In India, the sectors such as transmission and distribution of electricity and railways are still natural monopolies.  

Asymmetric Information

  • It is a situation when one party has more information than another. In India, asymmetric information is a significant reason for government intervention.
  • For example, In many sectors, like healthcare, insurance, and financial services, consumers may not possess the same expertise as service providers. Hence, regulation helps protect consumers by mandating disclosure requirements, ensuring transparency, and setting product quality and safety standards. 

Presence of Externalities

  • Negative externalities refer to the costs or harms imposed on third parties not directly involved in a transaction or activity. When negative externalities exist, market forces alone may not be adequate to address the issue. In India, regulation is often implemented to address negative externalities in various sectors. 
  • For example, Industries or activities that generate pollution or degrade natural resources often impose negative externalities on the environment and surrounding communities. India has implemented regulations governing air and water pollution, waste management, and environmental impact assessments to mitigate these externalities. 

Check Anti-Competitive practices 

Detecting and preventing anti-competitive practices is a crucial reason for regulation in India. For example, 

  1. The regulation targets cartels and collusive behaviour, where competitors engage in agreements to fix prices, allocate markets, or rig bids, aiming to restrict competition and maximize their profits. 
  2. Regulatory bodies monitor and address cases where a dominant firm exploits its market power to restrict competition, drive competitors out of the market, or engage in predatory pricing.
  3. Regulations govern mergers, acquisitions, and combinations that have the potential to reduce competition significantly. 

Promote Public Interest

  • Government regulations are implemented to safeguard the welfare, rights, and well-being of the general public.

Categories of Regulation in India

Regulation in India can be mapped under three broad categories: economic regulation, regulation in the public interest and environmental regulation. 

1. Economic Regulation

  • Economic regulation aims at preventing market failure. 
  • It is achieved by punishing market-distorting behaviour.
  • Examples include the Competition Commission of India (CCI), which addresses anti-competitive practices, and the Telecom Regulatory Authority of India (TRAI), which regulates the telecommunications sector.

2. Regulation in Public Interest

  • Public health and safety regulations aim to protect individuals and communities from health risks, hazardous substances, and unsafe practices. E.g., the Bureau of Indian Standards (BIS) sets quality and safety standards for various products  

3. Environmental Regulation

  • Regulations on environmental protection focus on conserving natural resources, preventing pollution, and promoting sustainable development. 

Reasons for the Proliferation of Regulatory Bodies from the 1990s

  • To Sustain Market Economy: The market economy demands competition. Regulatory Bodies were made to ensure a level playing field. 
  • To Attract Foreign Investment: Regulatory Bodies were made to ensure Foreign Investors that Populistic considerations will not guide decisions. 
  • After LPG, the capacity of states to answer various business problems was limited. Bureaucracy failed to answer many questions related to emerging sectors. Hence, the government decided to rope in Technocrats via Technocratic Regulators. 

Issues related to Regulatory Bodies in India

Based on the recommendations of the Damodaran Committee (formed in 2012 when the World Bank ranked India 132 on Ease of Doing Business) and the 2nd Administrative Reforms Commission.

1. Independence

Functional independence of Regulatory Bodies is curbed by the dependence of regulators on concerned line ministries for 

  • Regulatory bodies in India face financial constraints as their budgets and resources are subject to approval by the government.
  • The lack of transparent and merit-based appointment processes can undermine the independence and credibility of regulatory bodies.
  • Political pressure on regulators can impact their ability to make impartial and unbiased decisions, particularly in cases involving influential individuals or corporations.

2. Over-Regulation

India is an over-regulated country, but many of the regulations are  not implemented in the right earnest due to complex procedures & outdated regulations.

  1. RBI has been criticized for over-regulating the banking sector with numerous regulations, including stringent capital adequacy requirements, lending restrictions, and extensive reporting obligations.
  2. Real Estate Regulatory Authorities (RERAs) were established to regulate real estate and protect the interests of the homebuyer. But they have imposed excessive burdens by imposing excessive paperwork, multiple approvals, and delays in project clearances.

3. Regulatory Gaps

Regulatory gaps refer to deficiencies or shortcomings in existing regulations or the absence of regulations in certain areas. For Example

  1. Sectors like e-commerce face challenges in ensuring consumer rights, addressing grievances, and holding businesses accountable for unfair practices.
  2. Although the financial sector is regulated by various authorities, including the RBI and SEBI, regulatory gaps exist in areas such as fintech and shadow banking. 

4. Accountability

In India, there have been instances where regulatory bodies have faced criticism for a perceived lack of accountability. 

  1. SEBI has faced criticism for handling several high-profile cases, where it was perceived to have failed to ensure accountability. For example, the case of the Satyam Computer Scandal of 2009 revealed significant gaps in SEBI’s oversight, where it failed to detect the financial irregularities in Satyam’s accounts.
  2. Reserve Bank of India’s accountability has been questioned due to cases such as the Punjab National Bank (PNB) fraud involving unauthorized transactions worth billions of rupees.
  3. Central Board of Film Certification (CBFC) has faced criticism for delays in certification, leading to debates on the infringement of creative freedom and the need for greater accountability of the CBFC.

5. Regulator vs Executive

  • Executive tries to encroach space given to regulators to enforce populistic agendas  
  • E.g., Electricity Sector, where State Governments try to keep charges low to keep consumers, and farmers lobby happy 

6. Overlapping functions

In India, regulatory overlap between different regulators can sometimes occur due to the complex nature of the regulatory landscape. For example

  • Competition-related Regulation: The Competition Commission of India (CCI) and sector-specific regulators, such as the Telecom Regulatory Authority of India (TRAI) or the Securities and Exchange Board of India (SEBI), may encounter areas of regulatory overlap.
  • Financial regulation: There can be overlaps in financial regulation between different regulatory bodies such as the RBI, SEBI), IRDAI), and PFRDA.

7. Lack of Transparency

There is a lack of transparency in regulatory bodies in India

  • The Environmental Impact Assessment (EIA) process, which assesses the potential environmental impacts of projects, suffers from a lack of transparency due to non-disclosure of project-specific information, limited public participation, and inadequate dissemination of environmental impact assessment reports. 
  • Central Electricity Regulatory Commission (CERC) has faced criticism for its lack of transparency in its functioning, such as non-disclosure of tariff-related information, limited access to relevant data, and insufficient transparency in decision-making processes. 

Ways to Improve Regulatory Bodies

  • Regulate where necessary and don’t over-regulate the sector because it chokes development (2nd ARC).
  • 2nd ARC has given 5 Principles on which Regulatory Mechanism should be based. These include
    • Simplicity
    • Objectivity
    • Transparency
    • Convergence
    • Speedy Disposals
  • A Regulatory Impact Assessment (RIA) of every proposed regulation should be carried out
  • Ensure independence of regulatory bodies
  • Self Regulation is the best form of regulation. E.g. the News Broadcasters and Digital Association is an industry-led regulator regulating current affairs and news broadcasts.
  • Still, many sectors are under the regulation of State Departments—E.g., DGCA under Civil Aviation Ministry. Government should move towards Independent Statutory Regulators for all non-strategic sectors.
  • There should be constant interaction between Regulators and Policy makers and Regulators and other stakeholders so that regulators are aware of the concerns of stakeholders and also the regulator can explain the rationale of various regulatory decisions.
  • Introducing Multi-Sector Regulators:  The government should establish multi-sector regulators for sectors like communications; transport; electricity, fuels and gas. It would eliminate the proliferation of regulatory commissions. Even Justice BN Srikrishna Commission (also known as Fiscal Sector Legislative Reforms Commission (FSLRC)) has recommended to form the Unified Financial Agency (UFA), which will subsume the functions of SEBI, IRDI and PFRDA.

Example: Good Regulator vs Bad Regulators

For a regulator to work independently, it must be independent of the Executive, Pressure Groups, Industrial Lobbies etc., which can pressurize them to get favourable outcomes 

Example of Bad Regulators

  • Forward Market Commission (FMC): FMC regulated Commodity Markets but couldn’t stop NSEL Scam. Hence, it was dissolved by the government.
  • MCI (Medical Council of India): Its Chairman, Ketan Desai, took bribes to grant clearance to medical colleges.
  • Nuclear Safety Regulatory Authority (NSRA): NSRA falls under the Department of Atomic Energy. But the Promoter of any sector can’t be its Regulator. 
  • FSSAI: In 2015, FSSAI banned the sale and production of Nestle Maggi due to alleged excessive lead content and mislabeling of MSG (monosodium glutamate). However, later, the Bombay High Court overturned the ban, stating that FSSAI had failed to follow proper testing procedures and acted arbitrarily.

Examples of Good Regulators

  • RBI: It has played a crucial role in maintaining monetary stability, safeguarding financial stability, and ensuring the integrity of the financial system. 
  • TRAI: It has protected Mobile Customers against Mobile Companies by ensuring competition and regulating tariffs.
  • Competition Commission of India: CCI broke the cartelisation of cement companies 
  • SEBI: SEBI managed the Security Market well (in stark contrast to FMC)

In questions about the Independence of Regulators is necessary to regulate the sector effectively; give examples of both good and bad regulators. Don’t just stick to bad ones. 

Important Regulatory Bodies (Prelims Point of view) 

IRDA Regulator of the Insurance Sector   
SEBI Regulator of Equity Market   
CCI To check monopolistic tendencies in the market  
TRAI Regulator of the telecom sector   
CERC Central Electricity Regulatory Commission was under the Electricity Act of 2003 to regulate the sector in India.  
FMC – Forward Market Commission (FMC) was the Regulator of the Commodity Market 
– It was dissolved in 2015. Now the Commodity market is regulated by SEBI   
FSSAI – FSSAI regulates the Food Safety and Standards in India
– It establishes food safety standards for various categories of food products, permissible levels of contaminants, labelling requirements, food additives, packaging, and hygiene practices.

Issue of Hunger in India

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Issue of Hunger in India

This article deals with ‘Issue of Hunger in India.’ This is part of our series on ‘Governance’ which is important pillar of GS-2 syllabus . For more articles , you can click here

What is Food Security? 

Issue of Hunger in India

It has three aspects wrt access

Physical There should be a presence of food  
Social There should be social access to safe, sufficient and nutritious food. Consider the following situations
1. Dalits aren’t given food or given food on the ground
2. Male child is given nutritious food than the girl child
Economic People should have money to buy safe, sufficient and nutritious food  

Malnutrition

Malnutrition in India
  • It is a physiological condition due to an unbalanced intake of macro and micronutrients manifested in the form of 
    • Wasting, i.e. low weight: height ratio
    • Stunting, i.e. the height is lower wrt age.
    • Underweight, i.e. weight is lower wrt age. 
    • Anaemia, i.e. low Red Blood Cells 
  • Malnutrition at early stages reduces intelligence and affects the formation of cognitive and non-cognitive skills that affect long-term wellbeing. 
  • The cost of malnutrition is high both for individuals and nations. 

Anaemia

  • Anaemia is a condition of having a lower quantity of red blood cells or lower haemoglobin in the body. 
  • Its causes include 
    1. Inadequate intake of iron, folic acid or vitamin B12
    2. Infections such as malaria, hookworm infestation, and other parasitic diseases which cause blood loss, impairing nutrient absorption
    3. Women are vulnerable to Anaemia due to menstrual blood loss, pregnancy, and lactation

Sustainable Development Goals and Hunger

SDGs also deal with the issue of Hunger. For example,

Sustainable Development Goals and Hunger

IFPRI Global Hunger Index

  • Status of India on the Global Hunger Index (2022) released by the International Food Policy Research Institute (IFPRI)
    • Rank = 107 (out of 121 countries)
    • According to the report, India is home to the largest number of hungry in the world.    
  • But they have also appreciated MGNREGA, NRHM & ICDS programs of the government and recognized their role in reducing Hunger, but even after that, the absolute number is very high. 

Concept of Hidden Hunger

  • 2014 Report has spoken about HIDDEN HUNGER 
  • If the person is just taking Carbohydrates in his diet, he willn’t die. But this isn’t enough for the overall development of the human body. Vitamins and other micronutrients are equally important. It is known as Hidden Hunger because it often goes unnoticed.
  • More than 50% of women & children in India suffer from Anaemia. 
  • To fight Hidden Hunger, one can use  
    • Iodized Salt
    • Fortified Flour
    • Biofortification of crops 
    • PDS Reforms
    • Education 

Causes of Malnutrition

The green revolution phase saw new, fast-growing varieties of staples, especially wheat and rice; the following decades saw a steady decline in the food basket diversity, especially of traditional grains such as bajra and millet, which have nutritional value.

  • Micronutrient Deficiencies / Hangover of Green Revolution: Green Revolution phase saw new and fast-growing varieties of staples, especially wheat and rice; the following decades saw a steady decline in the food basket diversity, especially of traditional grains such as bajra and millet, which have high nutritional value. Indians suffer deficiencies in vitamins and minerals- iron, vitamin A, zinc and iodine due to faulty diet. 
  • Breastfeeding Practices:  Lack of improvement in infant and young child feeding practices are also responsible for poor nutrition status.
  • Poor Sanitation: About half of Indians defecate outside without using toilets, and from here, children pick up parasites and chronic infections that impair the ability of the intestines to absorb nutrition.  
  • Problem with Public Distribution System (PDS) 
    • Leakages in PDS: In 2012, 46% of total grains released through PDS leaked 
    • Wastage: 62,000 tonnes of wheat & rice damaged in Food Corporation of India godowns
  • Social Causes: Women in the household and Girlchild don’t get proper food (compared to other members) 
  • Social and Cultural Factors: Social and cultural factors, such as traditional food practices, dietary beliefs, and taboos, can influence food choices and dietary patterns.
  • Climate Change and Agricultural Challenges: Climate change impacts agriculture, affecting crop yields and food production affecting food availability and affordability.

Implications

Implications of NFSA

What India is doing to fight Hunger / Malnutrition

  • National Food Security Act (NFSA):  Explained below
  • Mid-Day Meals in School: The Mid-Day Meal Scheme is a school feeding program providing free meals to students in government and government-aided schools to meet their dietary requirements.
  • POSHAN Scheme:  Explained below
  • National Rural Livelihoods Mission (NRLM): NRLM aims to alleviate rural poverty by promoting livelihoods. 
  • MGNREGA: Provides guarantee of 100-day work and has increased income of poor. 
  • Swachh Bharat Mission (SBM): SBM aims to eliminate open defecation, thus contributing to reduced waterborne diseases, improving sanitation, and enhancing nutrition outcomes.
  • Integrated Child Development Program (ICDP): It focuses on the holistic development of children under six years by providing supplementary nutrition, healthcare, immunization, early childhood education, and other services through Anganwadi centres. 
  • Initiatives such as India Food Banking Network (IFBN) are promoting the concept of collaborative consumption with support from the private sector and civil society organizations. 
  • Other Schemes
    • National Iron Plus Initiative and Vitamin A Supplements 
    • Guidelines on Infant and Young Child Feeding  

National Food Safety Act (NFSA)/ Public Distribution System

National Food Safety Act
  • Central government procures the produce from farmers at MSP, store and then supply it to states at Central Issue Price.
  • State Government identifies the beneficiaries using Socio-Economic Caste Census (SECC) in a way that it cover 67% of population and then distribute cereals /allowance to them at low price through Fair Price Shops.

Eligible Households

There are two types of eligible households under NFSA, 2013

Priority Household State Governments shall prepare guidelines to prepare the list of Priority Households (consisting of 67% of population).
Antyodaya Household Houses covered under Antyodaya Anna Yojana

Entitlements under NFSA

National Food Safety Act

Criticism

  • Fiscal Deficit: There is no need to cover 67% population & it should have been a targeted scheme. Such a broad coverage leads to a Fiscal deficit.
  • The Hidden Hunger Problem remains because it doesn’t have pulses, edible oil, fruits, veggies and milk component in it. The present diet entitlement just provides carbohydrates.  
  • Nothing done to reduce leakage: GPS Truck tracking, CCTV etc., should have been used in this, but there isn’t any provision like this in the act.
  • Exclusion Errors: Deserving beneficiaries are excluded due to inaccurate identification of eligible households, ineffective ration card distribution, and corruption, thus limiting the reach of the program.
  • Quality of Food Grains: The quality of food grains provided through the PDS is often substandard due to poor quality, adulteration, and insect infestation.
  • Storage Issues: Large amount of grains rot in godowns because proper infrastructure is not present

Economic Survey is of the view that instead of this, Food Stamps should be given to target people who can buy the food of their choice from the market.  

Best Practices Introduced by States

Issue of Smart Card Haryana , Tamil Nadu, Punjab
Using GPS Chhattisgarh, Tamil Nadu
SMS based Monitoring Chhattisgarh, Tamil Nadu, UP

One Nation One Ration Card

Issue: Currently, the ration card for accessing the benefits provided under National Food Safety Act (NFSA) is location specific. Hence, if a person migrates to another state or another place in the same state, the beneficiary can’t buy cheap grains.

Way out: The government has introduced the One Nation One Ration Card, under which all the ration cards have been connected to the central server. Beneficiaries can access their entitlement to cheaper food grains anywhere in the country. 

POSHAN Scheme

  • POSHAN, or PM’s Overarching Scheme for Holistic Nourishment Abhiyaan, aims to ensure holistic development and adequate nutrition for pregnant women, mothers and children.
  • The mission’s target is to reduce stunting in children aged between 0-6 years. It also aims to reduce Anaemia among women and adolescent girls.
  • In 2021, Central Government merged schemes like the Supplementary Nutrition Programme under Anganwadi Services, Scheme for Adolescent Girls and POSHAN Abhiyaan, known as POSHAN 2.0.

Self Help Groups (SHGs) – UPSC Notes

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Last Updated: May 2023 (Self Help Groups (SHGs) – UPSC Notes)

Self Help Groups (SHGs) – UPSC Notes

This article deals with ‘Self Help Groups (SHGs) – UPSC Notes.’ This is part of our series on ‘Governance’ which is important pillar of GS-2 syllabus . For more articles , you can click here

Introduction

SHGs are an association of people(20-30 persons, primarily women, from similar socio-economic backgrounds) who choose to come together (either on their own or organized by outside Institutions like NGOs) to find ways to improve their living conditions. They help build social capital by providing mutual support, encouraging savings, and promoting entrepreneurship among their members. 

Self Help Groups (SHGs) - UPSC Notes

Success stories include ​Kudumbashree in Kerala, Jeevika in Bihar, Mahila Arthik Vikas Mahila Mandal in Maharashtra, and recently, Looms of Ladakh.

Functions of SHGs

 The main functions of SHGs are

  • Financial Inclusion: SHGs encourage savings and provide access to small loans and credit facilities. Members pool their savings, which are then used to provide loans to members at affordable interest rates. 
  • Skill Development and Capacity Building: SHGs focus on enhancing the skills and capacities of their members by providing training and support in various areas
  • Empowerment and Social Support: SHGs create an environment where individuals (particularly women) can share their experiences, discuss issues, and collectively find solutions. 
  • Collective Bargaining: SHGs enable members to negotiate collectively with various stakeholders, such as banks, suppliers, and local authorities. 
  • Social Capital to solve livelihood problem: Social Capital is the network of relationship among people living and working in a particular society, enabling that society to function effectively. Self Help Groups use the concept of Social Capital to solve the problem of livelihood and income generation by organizing the poor and marginalized people to come together to solve individual problems. They do this by pooling their resources, creating a common fund to make small interest-bearing loans among themselves.

How are SHGs formed?

Most of the SHGs have come through the help of mentor bodies (either government or NGO), which provided initial information and guidance to them.

  1. Identification of Potential Members: The first step is identifying individuals willing to join and participate in an SHG. 
  2. Formation Meeting: Once potential members are identified, a formation meeting is organized. This meeting serves as a platform to explain the concept, purpose, and benefits of an SHG.
  3. Group Formation and Membership: During the formation meeting, interested individuals formally express their commitment to forming an SHG. They agree to abide by the group’s rules and regulations and actively participate in its activities. 
  4. Group Registration (Optional): SHGs have the option to register themselves formally under various government schemes, programs, or society acts.
  5. Regular Meetings and Activities: Once the SHG is formed, regular meetings are held at a mutually agreed frequency, such as weekly or monthly. These meetings serve as a platform for members to discuss and plan their activities, share experiences, address issues, and make collective decisions. 
  6. Savings and Internal Lending: A crucial aspect of SHGs is promoting savings and internal lending. Members contribute a predetermined amount of money as savings during each meeting. These savings are pooled together and kept as a common fund, which can be used for internal lending within the group. 
  7. Capacity Building and Linkages: SHGs often collaborate with NGOs, government agencies, or other stakeholders to access training programs, skill development initiatives, market linkages, and government schemes.

Evolution of Self Help Groups in India

The Self-Help Groups (SHGs) in India have developed over the span of several decades, with the following significant milestones.

1954 The first initiative came from Gujarat. Textile Labour Association (TLA) of Ahmedabad formed its women’s wing to organize & train the women belonging to households of mill workers in primary skills like sewing, knitting, embroidery, typesetting and, stenography etc.  
1970s The MYRADA (Mysore Resettlement and Development Agency) in Karnataka initiated the formation of village-level savings and credit groups with the objective of ending poverty, which later evolved into SHGs
1980s NABARD introduced the concept of SHGs as a strategy for financial inclusion and rural development.  
1988 Kudumbashree Program was started in Kerala  
1990s NABARD launched the SHG-Bank Linkage Program in 1992 to provide formal banking services to SHGs.  
Present Presently, various SHGs are successfully working in diverse sectors. E.g., 
1. Prerna Canteens in Uttar Pradesh running community kitchens
2. Aajeevika Farm Fresh in Jharkhand selling vegetables online
3. Gamusa Masks in Assam produced masks during Covid
4. Floating Supermarkets in the backwaters of Kerala

Case Study: Kudumbashree Program

Kerala Government launched Kudumbashree Program for poverty eradication and women’s empowerment in 1998, which translates to “prosperity of the family” in Malayalam.

Kudumbashree Program

SHG-Bank linkage Program

Earlier Issue

SHG Movement was mainly started in the 1980s with the help of NGOs which wanted to provide alternate models of Credit Services to the poor. All the members of SHG were saving and anybody in the group who wanted the money could take out money from that collective savings at a nominal interest rate. 

But these groups comprised poor women. Their savings were low & hence, members cant get large loans. As a result, linking SHGs with banks was necessary, which could provide credit in multiple of savings of the SHG.

Main feature of the loans under SHG – Bank Linkage Program 

  • Lending is to the group as a whole.
  • The group decides how to use loan without outside interference 
  • Lending is without any collateral
  • SHGs have to practice the ‘Panchasutra’, i.e. regular meetings, savings, regular inter-loaning, timely repayment and updated account books to avail of loans from banks.
  • The loan is in Multiple of the savings. For groups having a good credit history, this can be up to 1:4 wrt their savings. Hence, they can get loans as large as 4 times their savings without collateral. It was the major turning point in the whole movement. 
  • NABARD refinances the banks for this project. It is the money of NABARD that these banks give to SHGs. 

Models of SHG-Banking Linkage

  • In the first model, Banks give loans to NGOs or some Microfinance Institutions, and these NGOs and MFIs lend this money to SHGs. Banks provide loans to MFIs at commercial rates, and these MFIs / NGOs charge around 24% so that they can make their administrative costs out of the difference
  • In the second model, NGOs act as facilitators between SHGs and Banks and charge 6% of the loans given by Banks to SHGs as their commission (to make up their administrative charges)
SHG-Bank linkage Program

How does making groups help?

  • SHG work as a collective guarantee system for members who propose to borrow from organized sources. As a result, commercial banks and other institutions which otherwise are not receptive to the demands of marginalized individuals start considering such groups as their potential customers. 
  • The loan is issued in the name of SHG & not to a particular person. Hence, it is the collective responsibility of the group to repay that loan. It is the main reason the repayment rate is very high in SHG loans. If the person is not paying, extreme peer pressure works in that situation 

Fodder to be used in answers: NGOs involved in SHG Movement

SEWA Ahmedabad
MYRADA  Karnataka
PRADHAN Rajasthan
ADITHI Bihar
DHAN foundation, Janodaya,  Cohesion Foundation, Jan Chetna Sansthan Other prominent NGOs in this field

Steps taken by Govt. to promote SHGs

SHG Bank Linkage Program

  • Discussed above

Village Poverty Reduction Plan

  • All the SHGs are involved in the preparation of Village Poverty Reduction Plans 

StartUp Village Entrepreneurship Program (SVEP)

  • It is a component of the Deen Dayal Upadhaya National Rural Livelihood Mission.
  • The program helps SHG members to setup non-farm enterprises at the village level.

SHG & Empowerment of Women 

In rural India, where the wind of development is yet to reach, farm labour is the primary employment for women, but this doesn’t fulfil all their needs. Hence, participation in SHG helps them in saving some money out of their daily household expenses & can also avail of loans with lower interest which has the potential to  change the situation

1. Social Empowerment

  • Members of SHG are mainly women. They can save money & invest in SHG & can use it in time of need. With money in hand, they get status in their family & this increases their self-confidence & esteem. 
  • SHGs discuss women-centred issues which help them in gaining social security. 

2. Political Empowerment

  • SHGs gave women a taste of leadership which they had never experienced earlier and gave them the aspiration to become leaders of society. 
  • Also, SHGs organized women, and they started acting as local pressure groups for and against particular candidates.

3. Social Justice

  • SHGs have taken up issues like domestic violence, bigamy, dowry deaths, prevention of child marriage, support for separated women to remarry etc.

4. Financial Inclusion

  • SHG program has contributed to reduced dependency on informal money lenders & other non-institutional sources 
  • This financial inclusion has led to increased spending on the education of children, lower drop rate, reduction in child mortality, improved maternal health & ability of the poor to combat diseases through proper nutrition. 
  • Due to loans, they have managed to come out of poverty. With these loans, women started small businesses, bought dairy animals, or helped their husbands start some work. It is argued that this program has played a most important and effective role in reducing poverty. 

5. Skill Development

  • SHGs often organize training programs to enhance the skills and capacities of their members. Women are trained in various areas, such as entrepreneurship, vocational skills, financial literacy, and leadership development.

Key Issues with SHGs

Although in a short span, a lot has been done, a lot needs to be done to make SHG a success story

1. Changing nature of SHGs today

  • After the SHG program’s success was shown to the world, the government decided to use it as a policy tool. But this changed the whole scenario. Now it has become a top-down approach. Banks are given targets to give loans to SHGs, and these targets need to be met each financial year. Hence, Banks don’t check the quality of SHG work and provide loans to untrained groups. As a result, these SHGs aren’t able to pay back loans. Hence, due to the mistake of Banks and Authorities, questions are raised on the viability of projects nowadays.

2. Moral Hazards

  • Bankers have always warned that giving low-interest loans to people living in areas where getting a loan is difficult and the rate is higher can set in moral hazards where people who get loans at lower can start giving that loans to others at even higher rates. 
  • Since credit available is large and banks don’t bother to go and check whether the loan is used in a constructive way, people have indulged in this practice.

3. Giving credit is mean and not an end in itself

  • Banks and officials think that giving easy loans is an end in itself. But it is just a means to help these people come out of poverty and empower them.
  • Only a minority of the Self-Help Groups can raise themselves from a micro-finance level to that of micro-entrepreneurship. 
  • Hence, along with loans, the government should merge these schemes with skill development and entrepreneurship programs. The time has come to take this program to a higher level. 

4. Need to Expand (to urban areas & excluded states)

  • There is a need to extend small group organizations (SHGs) to peri-urban and urban areas. As per the existing statutory provisions, NABARD’s mandate is to provide micro-finance facilities only to rural and semi-urban areas. 

5. Financial Assistance to Self-Help Promoting Institution SHPI

  • 45% of women SHGs are situated in AP because of the initiative shown by promoter NGOs called SHPI. If we want SHG to spread throughout India, the SHPI model needs to be replicated in the whole of India. 

NGOs (UPSC Notes)

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NGOs (UPSC Notes)

NGOs (UPSC Notes)

This article deals with ‘NGOs (UPSC Notes).’ This is part of our series on ‘Governance’ which is important pillar of GS-2 syllabus . For more articles , you can click here

What are NGOs?

According to the UN, NGOs are organizations that are not part of the government & are not conventional profit businesses. In case NGOs are funded totally or partially by governments, NGOs maintain their non-governmental status by excluding government representatives from membership in the organization. 

Other Names

  1. Third Sector Organizations (TSO) 
  2. Non Profit Organizations (NPO) 
  3. Voluntary Organizations (VO) 
  4. Civil Society Organizations (CSO) 
  5. Self-Help Organization (SHO)
  6. Non-State Actors 

Types of NGOs

NGOs can be classified in two ways

  1. By level of orientation 
  2. By level of operation 

By Level of Orientation

Charitable NGOs with activities directed towards meeting the needs of poor
Service NGOs with activities such as the provision of health, family planning or education
Empowering NGOs that aims to help the poor develop a clearer understanding of the social, political & economic factors affecting their lives and to strengthen their awareness about their own potential to control their life

By Level of Operation

National E.g. YMCA and YWCA
International E.g. Save The Children Org, CARE, Ford Foundation and Rockefeller Foundation

Staffing

 Not a single model 

  • Some are highly professionalized & rely mainly on paid staff.
  • Others are based on voluntary labour and are less formalized. 
  • Many NGOs are associated with the use of international staff working in developing countries, but many NGOs in both the North and South rely on local employees. 

Funding

  • Major sources of funding are membership dues, the sale of goods and services, grants from international institutions, national governments & private donations. 
  • Even though the term NGO implies independence from governments, many NGOs depend heavily on governments for their funds. 
  • Some NGOs, such as Greenpeace, don’t accept funding from government or intergovernmental organizations.

The Theoretical Explanation for the growth of NGOs

Two explanations of why NGOs emerged

1. Market Failure Theory

  • NGOs emerged to provide services that the public sector can’t or will not provide services for which businesses can’t get a sufficient return on their investments. 

2. Contract Failure Theory

  • NGOs are created to provide services where the parties who want them offered are not in a position to provide these services. These parties are donors or well-wishers of clients receiving services.

Note: The Right to Association is Fundamental Right guaranteed under our constitution. Forming NGOs is part of it.

Relationship between NGOs and the Indian State 

State policies have significantly influenced the formation of NGOs, e.g. government-sponsored and aided programs & provided financial assistance to NGOs. In addition, several government committees have acknowledged the need to involve NGOs in social development processes.

Initial years

  • After independence, some attention was given to the NGO sector by the central government mainly because NGOs were Gandhian in nature, and Balwant Rai Mehta Committee was constituted to look into the work of the Community Development Program. The committee recommended that more emphasis should be laid on NGOs. But after that, the next initiatives came in the 1980s.

From the 6th Five-Year Plan

  • The government increasingly recognized the NGO sector’s vital role & provided increasing levels of funding. In the past two decades, the government has increased engagement with NGOs at all levels. 

GO- NGO Interface

  • It was launched in March 2000.
  • The Planning Commission was made the nodal agency.
  • The message was clear; the government would work with NGOs for the development of India.
  • The main reason for this was State Minimalism after LPG reforms. NGOs became mediators and managers of development processes. 

Government-NGO Collaborations

  • Although social development has emerged as a significant sector in the 21st century & NGOs are a vital part of it, there is no institutionalized mechanism of collaboration between the Government & NGOs. Evolving long-term & sustainable collaboration between Government & NGOs is the need of the hour.
  • Andhra Pradesh Model: The Government of Andhra Pradesh has formed a State Level Coordination Committee consisting of NGOs & Governmental officials headed by the CM to promote coordination between the Government and NGOs. All states must learn from this.  
  • CAPART (Council for Advancement of Peoples Action & Rural Technology) & various Ministries have evolved their schemes to be implemented by funding NGOs. For example
    1. Swachh Bharat Abhiyan: In Swachh Bharat Abhiyan, the government has partnered with NGOs like Sulabh International, Gram Vikas, and WaterAid to promote awareness, build toilets, and implement sustainable sanitation practices nationwide.
    2. National AIDS Control Program (NACP): The program works closely with NGOs like HIV/AIDS Alliance and Naz Foundation to provide HIV testing, counselling, treatment, and support services. 
    3. National Health Mission (NHM): NGOs like CARE India, Child in Need Institute (CINI), and Jan Swasthya Sahyog (JSS) collaborate with the government in implementing NHM interventions. 
    4. National Skill Development Mission (NSDM): NGOs like Pratham Education Foundation, Gram Tarang Employability Training Services, and Srijan Foundation collaborate with the government to implement skill development projects.
  • NITI Ayog also wants to involve leading Civil Society Organizations & NGOs in taking forward social sector initiatives of the government.

The role played by NGOs in India 

At the international level, the NGOs have proved their mettle and NGOs like Red Cross & Amnesty International are even awarded the Nobel Peace Prize. UN has also accepted its constructive role, and some NGOs are allowed to participate in UN Agencies for their ability to reach people and spread awareness. In India, too, they are playing an important role.

Poverty Alleviation

  • 22% of the Indian population lives below the poverty line (according to Tendulkar Committee Report)
  • NGOs are involved in poverty alleviation in various ways. For example,
    • Oxfam India: It works towards reducing poverty through advocacy, research, and campaigns focused on various social and economic issues.
    • Goonj: Goonj addresses the clothing and sanitation needs of marginalized communities.

Woman’s Movement

NGOs play an important role in women’s emancipation by addressing issues of gender inequalities and promoting women’s rights. For example

  • Self-Employed Women’s Association (SEWA): SEWA is a trade union and NGO that organizes and empowers self-employed women workers in the informal economy.
  • Breakthrough India: The NGO aims to end violence against women and girls in India.
  • Women on Wings: Women on Wings collaborates with rural women artisans and entrepreneurs in India, providing them with business mentoring and market linkages.

Environment Conservation

NGOs play an essential role in environment conservation by raising awareness, implementing conservation projects, advocating for policy changes, and collaborating with local communities. For example

  1. Greenpeace India: Greenpeace focus on climate change, pollution, and deforestation by conducting research, campaigns, and direct actions.
  2. Kalpavriksh: It works with indigenous communities in environmental conservation and promotes environmental education.

Disaster Management

  • NGOs have always been at the forefront of providing recovery, relief & rehabilitation after natural calamities. The government has also acknowledged NGOs’ role in these situations.
  • For example 
    • Goonj: It is an important NGO working in disaster rehabilitation processes 
    • Center for Science and Environment (CSE): It is involved in advocacy work on resilience and disaster risk reduction.
    • All India Disaster Mitigation Institute (AIDMI): It focuses on training and building the capacity of communities and local governments.

Fight against Corruption

NGOs have played an essential role in the fight against corruption in India. For example

  • India Against Corruption: It has played an important role in the passage of many laws most important being the Right to Information.
  • Transparency International India (TII): TII works to raise awareness about corruption, promote ethical behaviour, and advocate for strong anti-corruption laws by conducting research, engaging in policy advocacy, and facilitating public campaigns to combat corruption.  
  • Association for Democratic Reforms (ADR): It works toward increasing transparency in political funding, improving disclosure of candidates’ criminal records, and promoting voter awareness. 
  • 5th Pillar: 5th Pillar is a Chennai-based NGO known for its “Zero Rupee Note” campaign. They distribute these notes to citizens, encouraging them to use them as a symbolic way to express their refusal to pay bribes.

Giving Voice to the Voiceless

  • Downtrodden people like Prostitutes, Bonded Workers, Displaced due to projects, LGBT, Undertrials etc., don’t have such power that they can make political parties hear their voices. NGOs take up their causes and give voice to the voiceless.  
  • Bachpan Bachao Andolan & Bandua Mukti Morcha are important NGOs working in this sector. 

NGOs as Pressure Groups

  • Working as pressure groups, NGOs have forced governments to act on juvenile Justice, end corporal punishment in schools, anti-trafficking, environment protection, and resettlement of displaced people, to name a few. 

Civil Servants, too, work as an agent of Economic and Social Development, but they don’t have a reach to the ground level in the way these NGOs have. If these NGOs & Bureaucracy work together, they can end all the problems like Naxalism, Poverty etc., that India is facing.

Strengths and Weaknesses of NGO Sector in India

Strengths

  • Strong Grassroots Links: NGOs work closely with local communities, understand their needs, and develop context-specific solutions. 
  • Ability to Mobilize Resources:  The NGO sector in India has successfully mobilized funding from domestic and international sources, including governments, corporations, foundations, and individual donors. 
  • Ability to Innovate and Adapt: The NGO sector in India exhibits a culture of innovation and has pioneered new approaches, models, and technologies to address social challenges effectively. 
  • Collaboration and Networking: NGOs in India actively collaborate, forming networks and alliances to maximize their collective impact
  • Cost-effectiveness: NGOs operate with limited resources and are adept at optimizing their expenditure.
  • Long-term commitment to the cause

Weaknesses

  • Limited finances: NGOs are known as an independent voice, but in recent years NGOs have increased in number & range of activities, but the number of donors hasn’t increased with that pace. Hence, there is large competition for funding. It adds the risk of donors adding conditions which can threaten the independence of NGOs. Additionally, Over-dependence of NGOs on official aid has the potential to dilute their stand to speak on public issues critically.
  • Fragmentation and Duplication of efforts: Numerous NGOs working on similar issues within the same geographical areas
  • Low levels of self-sustainability: Ensuring the long-term sustainability of programs is a significant challenge due to factors such as over-reliance on donor funding, difficulty in generating sustainable income streams, and limited integration of projects with government policies.  
  • Political interference: NGOs in India sometimes face political interference, mainly when they work on sensitive issues or criticize government policies. 
  • Capable of small-scale interventions only

Accountability & Transparency Issues in NGOs

  • India has 2 Million registered NGOs, but there is an accountability & transparency problem. Their credibility is questioned because there is a lack of transparency about their finances.
  • Main Problems include
    • NGOs are registered under multiple acts in India like Societies Registration Act,1860; Indian Trust Act,1882; Bombay Public Charitable Trust Act,1950 & Companies Act. Accountability requirements of all acts differ, with some not requiring any form of annual filing. 
    • NGOs are required to register annual returns with the Income Tax department, but annual returns filed by NGOs are not subject to public disclosure. 
    • While receiving Foreign funding, NGOs only need to inform Government of India and file annual reports to Home Ministry under FCRA and no public disclosure is required.

Hence, the statutory framework doesn’t require NGOs to be accountable directly to the Public. 

  • NGOs should build and regain lost public trust through better transparency in functioning. They can adopt the following.
    • External auditing  
    • Increased Information disclosure

Obstructionist Role of NGOs

NGOs running PIL Industry 

  • NGOs are tutoring victims to seek larger compensation when some development project runs on their land. They file bogus affidavits & PILs. 

Harming Internal Security 

  • They have a soft glove and apologist attitude towards Naxalites, Insurgents & Terrorists.
  • They force the government to repeal some acts like AFSPA, which can prove dangerous in some situations. 

Try to put Animal Rights above Human Rights 

  • Resulting in Street dog/monkey menace
  • Animal Right Activists NGOs vs Inconvenience to Public Issue 

They Cherry Pick Causes on Donor Priorities 

  • Initially, Chipko Movement was a success, but NGOs failed during Bhopal Gas Tragedy because foreign donors didn’t want to raise their voices against those companies. 
  • There is a particular scene that emerges when we see funding patterns from a particular nation and issues raised by NGOs who receive this fund. French Funded NGOs are soft on Maoists, German-funded are Anti-GM Crops, and US-funded are Anti-Coal. 

Intelligence Bureau Report (2014) also brought to the forefront the obstructionist role played by Foreign Funded NGOs and the loss of GDP to the tune of 2% happening due to their protests.

Further Reforms required

  • Need to shift from Protest to Pro-action Mode: This can be achieved by ensuring a ‘think-tank’ way of functioning & also providing alternative solutions.
  • Outcome Measurement: NGOs should use outcome-based approaches to evaluate the impact of their programs. 
  • Ethical Fundraising: NGOs should adhere to ethical fundraising practices and maintain transparency in their fundraising activities. 
  • Strengthening Governance: NGOs should adopt strong governance practices, like transparent decision-making processes, independent audits, and disclosure of financial information.      
  • Collaboration and Networking: NGOs should promote collaboration and networking among themselves to share best practices, resources, and knowledge.  

On the other hand, the government should also distinguish between activist & services provider NGOs.

FCRA

  • Foreign Contribution (Regulation) Act,2010 replaced FCRA,1976 
  • The Act seeks to regulate the flow of foreign funds to voluntary organizations to prevent their diversion towards activities detrimental to the national interest. 
  • NGOs have to register under FCRA to accept foreign contributions & central government can deny certification under certain conditions. 
  • Organizations must renew FCRA certification every 5 years. Dormant accounts can be weeded out using this provision.
  • NGOs can receive these foreign contributions only through designated banks ( New Delhi Branch of SBI).
  • Further, the NGO has to report to the central government any foreign contribution within 30 days of its receipt, in addition to filing annual reports.
  • If any organization receive a foreign contribution of over ₹10 lakh in an instance, the bank concerned would immediately inform the government so that the source of such fund can be tracked. 
  • NGOs cant spend beyond 20% of their foreign funding on Administrative expenses. 

Labour Reforms in India

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Labour Reforms in India

This article deals with ‘Labour Reforms in India – UPSC Notes.’ This article is part of our series on ‘Economics’ which is an important pillar of the GS-3. For more articles, you can click here.

The issue with Indian Labour Laws 

  • Labour is in the Concurrent List of Schedule 7. Hence, both Union and State can make laws on labour.
  • India has 44 labour laws at the Central level & more than 150 at State Level. Many provisions in these acts overlap, making it impossible to comply with all. It has led to bribery & inefficiency in Inspector Raj.
  • Companies prefer to remain small because if they expand, they come under a net of many regulations, increasing the cost of compliance. Hence, they can’t reap the benefit of economies of scale.
Labour Reforms in India
  • To bypass these laws, companies prefer to hire via contractors to remain outside the scope of labour laws. Hence, it has increased Contractual labour in India. 
  • Companies prefer mechanization over employing more persons due to the difficulty in complying with these acts.
  • Lack of Social Security: Despite various labour laws aimed at ensuring social security benefits for workers, a significant number of workers in India still lack access to essential benefits such as health insurance, retirement benefits, and unemployment protection. 

Hence, under existing laws, both factory owners & workers suffer because factory owners cant comply with Labour Laws & try to evade them, and labour remains in the informal sector.

Side Topic: Rise of Contract Labour in India

  • Companies that employ more than a certain number of employees come under many regulations. To avoid this, companies prefer to hire via contractors as these employees are considered employees of the contractor, and the firm stays small enough to be exempt from labour law.
  • The number of Contract Workers in India has increased at a fast pace. In 2010, 25% of the total workers in India were contract workers.
Rise of Contract Labour in India

Hiring via contractors is not an ideal solution for the firms due to the following reasons

  1. It costs more to hire via contractors (15% more expensive, according to the Indian Cellular Association).
  2. Contract workers don’t have loyalty to the firm.
  3. Contract workers don’t accumulate “firm-specific human capital” because contractors keep on changing their postings.

What kind of Labour laws are needed?

  • A balance between Labour and Employers’ Interests is the need of the hour.  
  • Market evangelists opine that employers should have the power to hire and fire, and there should be no regulation by law. The free market principles and demand and supply should decide the wages and other conditions. But, Government is not ready to completely hand over the control of terms and conditions of employment to the employers. 
  • Labour markets need to be regulated by law much more than goods markets because workers are not commodities; they are human beings and citizens, and individual workers are also the weaker party in any employer-employee relationship. 
  • Hence, the Government of India is equally concerned with protecting the interest of workers and that of the management. 
Labour Reforms in India

Side Topic: Race to Bottom

  • It refers to an economy’s tendency to provide minimum security/protection to its workers. 
  • Reason: Competition between Countries to attract MNCs to the setup manufacturing base in their country. In such a situation, MNC will set up a base in the economy with a minimum compliance cost. 

New Labour Codes

The Government created 4 labour codes instead of 44 Union Labour Laws i.e. 

  1. Code on Wages, 2019
  2. Industrial Relations Code, 2020
  3. Code on Social Security, 2020
  4. Occupational Safety, Health & Working Conditions Code, 2020 

The new codes are in line with shifting labour market trends and the welfare needs of unorganized sector workers, including the self-employed.

New Labour Codes

1. Code on Wages

  • The wage Code is based on recommendations of the 2nd National Commission on Labour.
  • It consolidates all laws relating to wages.  
  • The code will apply to all industries, trade, business, manufacturing or occupation, including government establishments. 
  • The Wage Code has introduced Statutory National Minimum Wage for different geographical areas. Hence, State Government can’t fix the minimum wage below the National Minimum Wage for that area.

2. Industrial Relation Code

  • The requirement of government permission before layoff has been increased to workers employing more than 300 (earlier 100).
  • To form a trade union, 10% of the workers must join it.
  • Removed the need to give one month’s notice before removal if the company employs more than 50 workers.
Industrial Relation Code

3. Code on Social Security

  • It will cover every worker, whether they belong to the organized or unorganized sectors.  
  • Further, the Central Government can notify that this code applies to any other establishment. 
  • Gratuity is to be payable to the employees upon termination if the employee is associated with the organization for at least 5 years. 
  • It proposes National Social Security Council (NSSC), chaired by the Prime Minister. 

Note: Earlier, almost 90% of the current workers were not covered under any social security.

4. Occupational Safety Code

  • It applies to factories with at least 10 workers (using power) and 20 workers (if not using power).
  • Annual health checks are to be made mandatory in factories.  
  • National Occupational Safety Advisory Board to recommend standards on related matters.
  • The code empowers the respective State Governments to exempt any new factory from this code to generate employment and economic activity in the sector. 

Will Labour Reforms prove to be magic wand to propel Employment Intensive Growth? 

Labour reforms will help to create jobs, as mentioned in the discussion above.

These Labour Reforms are desirable conditions but are not going to guarantee employment-intensive growth. A large number of other things are also required. 

Companies from China, where wage levels are increasing, will move to India not only because of Labour Reforms or Low Wages but along with that they need other things as well.

  • Skilled Labour: India will have to invest in Skilling the workforce. 
  • Infrastructure: For fast movement of raw materials & finished products. 
  • Taxation Policies: Governments’ Taxation policies must be attractive enough for foreign manufacturers to set up manufacturing units in India. 
  • Upgradation of Supply Chain Logistic Management.

Schemes of the Ministry of Labour

1. Shramev Jayate Karyakaram

This scheme has various components

1. Shram Suvidha Portal

  • To promote self-certification. 
  • Under the scheme, Labour Identification Number (LIN) is given to companies. 
  • The Portal also allows the companies to file online compliance for labour laws.

2. Transparent Labour Inspection Scheme 

  • Random selection of Units for inspection
  • Inspection Report has to be mandatorily uploaded to the Portal within 72 hours of the inspection.

3. Universal Account Number (UAN)

  • It is a single Employee Provident Fund (EPF) Number. 
  • A Provident Fund account is portable if an employee changes companies. Earlier, on changing jobs/companies, an employee would have to open a new EPF Account.

4. Apprentice Protsahan Yojana

  • Reimbursing 50% of the stipend paid to apprentices during their first two years of training.

2. Atma Nirbhar Bharat Rozgar Yojana

  • If a firm has up to 1000 workers, then Government will contribute 12% (of workers) and 12% (of employer) (i.e. 24%) in EPFO for new workers. 
  • If the firm has more than 1000 workers, then Government will pay 12% (of workers) only.

Side Topic: Contributions to EPF

Under the law, if a company is employing a worker at a wage below ₹15,000, under that condition, the employer and employee have to mandatorily make the following contribution to Employee Provident Fund (EPF) and Employee Pension Scheme (EPS). Due to these contributions, employers prefer to give informal jobs to the employees.

Atma Nirbhar Bharat Rozgar Yojana

3. Pradhan Mantri Shram Yogi Mandhan  (SYM)

  • It was announced in 2019. 
  • Under the scheme, 
    1. The beneficiary will get a pension of ₹3,000 per month. 
    2. Beneficiaries of the scheme include workers working in the unorganized sector having monthly salaries below ₹15,000.
    3. The pension will start once they attain the age of 60. 
    4. To get the benefits, the beneficiary will have to make a monthly contribution of ₹55 from the age of 18 or ₹100 from the age of 29.

4. e-Shram Portal

  • The Labour Ministry started this Portal in 2021 for Unorganized Sector Workers.
  • The Portal is the first-ever national database for unorganized workers in India, containing the name, Aadhar ID, occupation, address, educational qualification etc.
  • The workers who register get Universal Account Number (UAN).
  • Under the scheme, the workers must register on the e-Shram Portal. In return, Government gives a card, and workers become eligible for the Pradhan-Mantri Suraksha Bima Yojana benefits.
    1. Rs. 1 lakh for partial disability
    2. Rs. 2 lakhs for accidental death

As of 31 December 2022, over 28.5 crore unorganized workers have been registered on the e-Shram portal.

5. PM Street Vendor’s Atmanirbhar Nidhi Scheme (PM SVANidhi)

  • PM SVANidhi Scheme was launched in 2020 to empower street vendors by offering loans of up to Rs. 10,000 with a one-year tenure and free onboarding on digital payment platforms.
  • Beneficiaries are also eligible for the second tranche of loan up to `20,000 with 18 months tenure after timely repayment of the first tranche.

6. National Carrier Service

It aims to bridge the gap between  

  • Workers who need jobs and Employers who want to hire them.
  • People who are seeking career guidance and training and those who can provide the counselling and training. 

7. PENCIL

  • PENCIL Portal is an electronic portal to combat the menace of child labour and trafficking in India. 

8. Rehabilitation of Bonded Labourers

  • Labour Ministry provides financial assistance for the rehabilitation of rescued bonded labour. 

Zero-Budget Natural Farming

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Zero-Budget Natural Farming

This article deals with ‘Zero-Budget Natural Farming.’ This is part of our series on ‘Economics’, which is an important pillar of the GS-1 and GS-3 syllabus. For more articles, you can click here.

Introduction

Zero-Budget Natural Farming (ZBNF) means 

  • Zero Budget, i.e. Zero Budget means Farming without spending money to purchase inputs (seeds, fertilizers etc.). It reduces the cost of agriculture.
  • Natural Farming, i.e. Farming without using chemicals. Natural inputs like biofertilizers, earthworms, cow dung etc., are used instead.

Renowned Indian agriculturist Subash Palekar developed this technique of Farming.

Zero-Budget Natural Farming

Why in the news?

  • It was first introduced in Karnataka. Later, Himachal and Andhra governments also started to promote it.
  • NITI Aayog is promoting ZBNF.
  • Budget 2019 was also announced to encourage ZBNF.

ZBNF consists of following

It is based on the basic premise that soil has all the necessary nutrients which could be made available through the intermediation of microorganisms. It consists of the following.

  1. Beejamurtha: Seeds treated with cow dung and urine.
  2. Jeevamurtha: Soil rejuvenated with cow dung and other local materials to increase microbes.
  3. Mulching: Use straws and other organic matter to retain soil moisture and build humus.
  4. Intercropping
  5. Rainwater harvesting

Benefits of Zero-Budget Natural Farming

  1. Environment friendly: Input costs are near zero as no fertilizers and pesticides are used.
  2. Higher Yields: Yields of various cash and food crops were higher when compared with chemical Farming. E.g., yields from ZBNF plots were found on average to be 11% higher for cotton than in non-ZBNF plots. 
  3. Increase farmer’s income as it is not input intensive.
  4. Cut toxins in food, and ZBNF products are suitable for health.
  5. Improve soils and prevent soil degradation.
  6. It leads to optimum use of water and reduces water consumption up to the tune of 85%.
  7. Climate Resilient: Model ZBNF farms were able to withstand drought and flooding, which are big concerns with regard to climate change.

Challenges of Zero-Budget Natural Farming

  • Low awareness among farmers about ZBNF
  • Experts have also cautioned against the large-scale adoption of ZBNF as it could lead to a large-scale decline in crop yield and hamper food security in the long run.
  • Due to different Agro-climatic conditions in different parts of India, ZBNF cant be practised in all parts of India.
  • There is a lack of scientific studies to prove the efficacy of ZBNF. 

Organic Farming in India

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Organic Farming in India

Organic Farming in India

This article deals with ‘Organic Farming in India.’ This is part of our series on ‘Economics’, which is an important pillar of the GS-1 and GS-3 syllabus. For more articles, you can click here.

Introduction

A system of farm design for agriculture production without synthetic external inputs such as chemicals, fertilizers, pesticides and synthetic hormones or genetically modified organisms

As of 2023, 45 lakh farmers are engaged in Organic Farming, and 60 l ha is under Organic Farming in India. Additionally, Sikkim was the first Indian state to become completely organic.

Need for Organic Farming in India

  1. More From Less: ‘Green Revolution’ is input-intensive and has reached a plateau with diminishing returns. Organic Farming is not input-intensive and fetches higher prices. Hence, it can help farmers increase the return rate on investments.
  2. Organic farming products are healthier and safer than non-organic farming products.     
  3. Organic Farming is more sustainable and helps maintain the soil’s good health. 
  4. With increasing disposable income and a sizeable middle class, there is a ready market for Organic Products, especially in metropolitan cities.
  5. Export Potential is high because of higher demand in Western countries.
  6. It has indirect benefits in the form of eco-tourism, protection of biodiversity etc.
  7. Climate Change Mitigation: Organic farming practices like organic manure usage, agroforestry, and soil conservation techniques help sequester carbon in the soil, contributing to climate change mitigation.

Challenges and Concerns 

  1. Productivity per field decreases: Sikkim used to be a surplus state wrt food production. Now it has to import from other states.
  2. Limited availability of Organic Inputs: Organic Farming requires specific inputs such as organic fertilizers, pesticides, and seeds. However, the availability and accessibility of these inputs are often limited.
  3. Organic Farming caters to a very small and particular class of market. There are logistic problems in delivering products to that market.
  4. Certification and Standards: Obtaining organic certification is a rigorous process and can be time-consuming and costly for small to medium Indian farmers.
  5. To start organic Farming, the existing field has to be left fallow for a minimum of 5-6 years to cleanse it of chemical fertilizers. It poses a burden on poor farmers. 
  6. The growing period of organic products is long, decreasing the avenues of multiple cropping. 
  7. The shelf life of organic products is low.
  8. Lack of awareness and education: Many farmers in India are unaware of organic farming practices and the benefits it offers.
  9. Climate Change Vulnerability: Climate change poses a significant threat to agriculture as increased weather variability, extreme weather events, and changing pest and disease patterns can impact organic crop production 

Case Study of Sri Lanka

  • The Sri Lankan Government was promoting Organic Farming with vigour due to the great demand for organic products (especially organic tea) in the Western markets. But this decreased the crop yield exponentially, leading to food shortage and inflation.
  • Hence, the Sri Lankan government has changed its stance and again started encouraging farmers to use fertilizers and pesticides so that their output returns to its previous normal.  

Case Study of Sri Lanka for Organic Farming

Government Programs to promote Organic Farming

  1. Paramparagat Krishi Vikas Yojana (PKVY): Form a group of 50 farmers in a cluster to start Organic Farming. Every beneficiary farmer is given ₹20,000 per ha for 3 years for practising Organic Farming.
  2. Bhartiya Prakritik Krishi Padhati (BPKP): Under the scheme, Rs. 12,200 per hectare is given to the farmer per 3 years if they don’t use any chemicals on their land.
  3. National Mission for Sustainable Agriculture: The scheme promotes Organic Farming and is part of the National Action Plan to Combat Climate Change. 
  4. FSSAI Regulation on Organic Farming, 2018: It has standardized the definition of Organic Farming, set the mandatory labelling requirements & has given a Voluntary Logo (Jaivik Bharat Logo) of Organic Food. 
  5. Large Area Certification Program (LAC): The Government of India’s initiative to provide certification to areas which are traditionally involved in doing organic Farming (such as Tribal belts, Hills, Deserts, Islands etc.)
  6. Agriculture Ministry has launched the ‘Jaivik Kheti Portal’ to connect farmers doing Organic Farming with buyers.
  7. In the north-eastern states, the Government has started ‘Mission Organic Value Chain Development for North Eastern Region’ to strengthen organic agriculture in the North East.

Owing to these steps, Sikkim has become the first state in India (and the world) to become fully organic. Other states, such as Tripura and Uttarakhand, are on the verge of becoming organic. Furthermore, MP has the largest area under organic Farming among all the states.

Nuclear Energy in India

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Nuclear Energy in India

This article deals with ‘Nuclear Energy in India.’ This is part of our series on ‘Science and Technology’ which is an important pillar of the GS-3 syllabus. For more articles, you can click here

Installed capacity of Nuclear Power in India

India has been actively pursuing nuclear power as a part of its energy mix to meet its growing electricity demands and reduce its dependence on fossil fuels.

Nuclear Energy in India

Nuclear Plants in India

Nuclear Plants in India

Problems with India’s Nuclear Power

India’s domestic Uranium Reserve can support only 100 GW of energy. 

  • Our future depends upon the development of the third stage of the Nuclear Program, without which it will remain dependent on imported Uranium, as it is the case with Oil currently.

High Cost

  • Increased Cost due to New Safety Regulations: Due to new safety regulations following the Fukushima tragedy, nuclear reactors now cost substantially more per MW than thermal, solar, and wind plants. E.g., the Jaitapur plant (AREVA) is expected to cost 20 crore/ MW in comparison other sources cost 4 crore/ MW. 
  • Some argue that the Total costs of a Nuclear Lifecycle, which involves the mining of Uranium, transportation, handling of waste generated etc., is significantly more than the economic value generated during the lifetime of the functioning of the plant

Alternative Energy Options

  • Experts opine that India should focus on renewable energy like solar and wind, which are considered safer, environmentally friendly, and have rapidly declining costs. Investing in renewables can also help address energy access issues in rural areas and reduce dependence on fossil fuels.

Public Opposition and Social Concerns

  • Nuclear power projects often face opposition from local communities and environmental groups due to concerns about radiation risks, potential accidents, and the long-term impact on public health and the environment.

Current Nuclear reactors consume a significant amount of water

  • Hence most of upcoming plants will be set up near sea coasts. It will put pressure on the coastline & Western Ghats. 

Long Gestation Period

  • There are long gestation periods which increase the costs of the plant significantly.

Non-proliferation and international obligations

  • India hasn’t signed the NPT and has faced scrutiny regarding its nuclear weapons program.

Target of Terrorists

  • Nuclear installations will be the favourite targets of terrorists, which can cause irreversible damage to people. 

Should Nuclear Energy be used?

Strong arguments which justify the use of nuclear energy are 

  1. No GHG are emitted in Nuclear Power generation, a significant contributor to climate change. Hence, it helps to fight Global Warming. 
  2. Nuclear Energy is helpful in achieving Paris Pledge. India has also pledged to generate 40% of its energy from Non-fossil sources.
  3. Energy security and independence: Nuclear energy reduces dependence on imported fossil fuels, enhancing energy security for countries. 
  4. Job creation and economic benefits: Nuclear power plants require skilled workers for operation, maintenance, and construction, thus creating employment opportunities. 
  5. Increases the image of the country as a technologically advanced nation
  6. Non-fluctuating sources of renewable energy as Solar and wind energy, depend on sunshine, wind speed etc. On the other hand, Nuclear power plants provide a continuous and reliable source of electricity.
  7. Baseload power and grid stability: Nuclear power provides a stable and consistent baseload power supply, essential for maintaining grid stability. It can complement intermittent renewable energy sources,
  8. It generates very limited waste in quantity (although far more hazardous in quality). 

Arguments against use of Nuclear Energy

While there are strong arguments in favour of nuclear energy, there are also valid concerns regarding high cost, waste disposal, potential accidents, the proliferation of nuclear weapons, and the high cost of building and decommissioning nuclear plants. 

  1. Costs of power from new nuclear reactors are increasing significantly post Fukushima Disaster. New PHWR power costs between Rs. 6.2-6.5/Unit  
  2. In case of any nuclear leakage & accident in nuclear power plants, the damage is immense & incurable. 
  3. Nuclear projects face opposition from local communities and environmental groups due to land acquisition issues, the need for large water reservoirs for the reactors, & concerns about a possible tsunami scenario 
  4. Major Nuclear Companies like Toshiba-owned Westinghouse, Areva etc., are on the verge of Bankruptcy, pointing towards the fact that Nuclear Energy has become unviable.
  5. Investing in Solar and Wind Energy is a better option. The cost of Solar Energy has decreased to around ₹4.5 / kWh compared to ₹6.5 kWh of Nuclear Energy. 
  6. Uranium contamination of groundwater due to mining. E.g.,: in Rajasthan

Anti-Microbial Resistance

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Anti-Microbial Resistance

This article deals with ‘Anti-Microbial Resistance – for UPSC.’ This is part of our series on ‘Society’, which is an important pillar of the GS-1 syllabus. For more articles, you can click here.

What is Anti-Microbial Resistance?

Anti-Microbial Resistance (aka Antibiotic Resistance) happens when microorganisms (such as bacteria, parasites, viruses and fungi) evolve when they are exposed to the antibiotic and develop resistance mechanisms to it or acquire that resistance from another bacterium. 

Anti-Microbial Resistance

History

2010 It became a topic of debate in India when the British journal Lancet named an enzyme as New Delhi Metallo-beta-lactamase-1 or NDM-1, which had antimicrobial resistance  
2016 Resistance to Colistin was detected in China. Colistin is the last resort of antibiotics.   
Sept 2016 United Nations held a high-level meeting to tackle Antimicrobial Resistance.  

Note: It was only the fourth time the general assembly held a high-level meeting for a health issue (previously, it was for HIV non-communicable diseases such as heart disease and diabetes and Ebola).
2017 A US woman died from an infection that was resistant to all 26 available antibiotics. 
2023 Muscat Conference on Antimicrobial Resistance held.  Muscat Manifesto was released, calling for
1. Accelerating the political commitments in the implementation of One Health Action
2. Recognize the impact of AMR on humans as well as Animals. 

Causes of Anti-Microbial Resistance

Causes of Anti-Microbial Resistance

Significant sources of resistance: 

  • Overuse of antibiotics by human beings  (over prescription)
  • Self-medication
  • Overuse of antibiotics in the veterinary sector
  • Environmental antibiotic contamination due to pharmaceutical companies and hospital discharge. 
  • Lack of new antibiotics being developed
  • Patients not finishing treatment 
  • Poor infection control in hospitals 

Ways to control Anti-Microbial Resistance

Prescriber

Prescriber should 

  • Follow guidelines
  • Perform Antimicrobial susceptibility tests
  • Maintain hygiene, disinfection and sterilization in the hospital

Farmer

Farmers should

  • Follow guidelines.
  • Use only animal-specific antibiotics
  • Maintain hygiene

Public 

Public should 

  • Follow the prescription and don’t self-medicate himself
  • Public awareness and education should be carried out 

Politician 

Politician should

  • Establish Antibiotic Resistance related laws
  • Make National Plans and Guidelines 
  • Invigorate the antibiotic development of pharmaceutical companies

Researcher 

Researcher should 

  • Develop a new generation of antibiotics 
  • Develop Molecular Techniques for identifying resistance genes.

Initiatives taken by Government 

1. Red Line Campaign

Red Line Campaign for Anti Microbial Resistance

2. National Surveillance System for Anti-Microbial Resistance 

  • The program keeps a close watch on such cases.

3. National Action Plan on Anti-Microbial Resistance

  • The program was started April 2017  
  • It focused on
    1. Hand Hygiene and Sanitation programs
    2. One Health Strategy

4. National Health Policy, 2017

  • It had specific guidelines for the use of antibiotics and limiting the use of antibiotics.

5. Schedule H1 of Drugs and Cosmetic Rule, 1945

Schedule H1 was added to the Drugs and Cosmetic Rule 1945. Drugs in Schedule H1 are required to be sold in the country with the following conditions:-

  1. Their sale has to be registered in the register with the name of the prescriber and patient  
  2. Drugs shall be labelled with the symbol Rx & drug warning.   

International Steps

1. By WHO

  • WHO is providing technical assistance to countries to develop national action plans to combat Antimicrobial Resistance and strengthen their surveillance systems. 
  • One Health Approach: The One Health approach recognizes the interconnectedness between human, animal, and their shared environment. It emphasizes the importance of addressing health issues comprehensively by considering the interdependencies and interactions between humans, animals, and their shared environments. The ‘One Health’ approach calls for optimal antibiotic use in both humans and animals.

2. UNO

  • A high-level meeting on antimicrobial resistance was held at the United Nations General Assembly.  

3. New Antibiotics 

  • For example, ODLs are a new class of antibiotics discovered by the University of Illinois and Nosopharm, a French company.