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Plantation Crops of India

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Last Updated: Jan 2025 (Plantation Crops of India)

Plantation Crops of India

This article deals with ‘Plantation Crops of India  ’ This is part of our series on ‘Geography’, which is an important pillar of the GS-1 syllabus. For more articles, you can click here.

Introduction

  • Plantation crops are grown for the purpose of export. In India, they are generally grown in large estates on sloping hills.
  • The main plantation crops grown in India are tea, coffee, rubber, and spices. 

1. Tea

  • Tea is an evergreen plant that mainly grows in tropical and subtropical climates.
  • Tea is made from dried leaves of the tea plant. When added to boiling water, the theine in it serves as a stimulant.
  • There are at least 6 different types of Tea
    1. White Tea: Wilted and unoxidized
    2. Yellow Tea: Unwilted and unoxidized
    3. Green Tea: Unwilted and unoxidized
    4. Oolong Tea: Wilted, bruised and partially oxidized
    5. Black Tea: Wilted /sometimes crushed
    6. Post-fermented: Allowed to ferment / compost.

History

  • Although Tea is said to be indigenous to China, Major Robert Bruce noted in 1823 that tea bushes grew freely on the slopes of upper Assam’s hills.
  • In 1840, tea seeds were smuggled out of China, and commercial tea plantations were set up in the Brahmaputra valley. 
  • Presently, India is second largest producer and the fourth largest tea-exporter in the world.
  • Tea industry employs 1.16 million people directly.

Conditions required for growing Tea

Temperature The ideal temperature for its growth is 20-30°C. But temperatures above 35°C and below 10°C harm the bushes.
Annual Rainfall 150-300 cm well distributed throughout the year.
Specific factors – Heavy dew and morning fog favour the rapid development of young leaves.
– Tea is a shade-loving plant and develops rapidly when planted with shady trees.
– Although Tea requires heavy rainfall, stagnant water is detrimental to its roots. Therefore, it is grown on hill slopes where water drains away easily. But nevertheless, if drainage is good, it grows equally well in the valley.
Soil Well drained, rich in humus and iron content soils.
Labour required Tea is labour intensive crop. Cheap and skilled labour is required at the time of plucking the tea leaves. 

Producer States

In India, it is mainly grown in 

  • North East India (Assam (51%) and Darjeeling hills of West Bengal (22%))
  • South India (Nilgiri hills, Cardamom, Palani and Anaimalai Hills) 
  • North-West India (Kangra Valley and Mandi of Himachal Pradesh and Dehradun, Almora and Garhwal district of Uttarakhand)

Note: Green Tea is produced in the Kangra Valley of Himachal Pradesh.

Plantation Crops of India

Side Topic: Darjeeling Tea

  • Darjeeling Tea of India is famous worldwide for its unique aroma and taste.
  • It has the GI Tag (in fact, it was the first product from India which was granted the GI Tag).

2. Coffee

  • Coffee is a brewed beverage made from roasted coffee beans.
  • The genus ‘Coffea’ is native to Tropical Africa.
  • There are two main varieties of coffee. They are
    1. Arabica (High quality): 49% of the area under coffee cultivation in India is Arabica 
    2. Robusta (Inferior quality): 51% of the area under coffee cultivation in India is Robusta

History

  • The history of coffee in India dates back to around 1600 AD when the Indian Sufi saint named Baba Budan went on a pilgrimage to Mecca. He took seeds of coffee from Mocha, a port city in Yemen, and after returning from his pilgrimage, planted seven seeds of Mocha in his courtyard in Chikmagalur. The coffee plants gradually spread to hills now known as Baba Budan Hills. 

Conditions required for growing Coffee 

The coffee plant requires very specific conditions.

Temperature Varying between 20-27°C (It requires a high temperature and humid climate for rapid growth but a cold and dry climate for ripening of berries)
Rainfall Abundant rainfall between 100 to 200 cm
Specific conditions – Direct sunlight is harmful to coffee plants. Therefore, these are planted in the shade of taller trees, such as bananas. 
– They require well-drained land, as stagnant water is harmful to coffee plants. Hence, it is grown on slopes receiving orographic rainfall and having a height between 600 m to 1,800 m because these are well-drained and cooler. 
Labour required Large labour is required because coffee is to be hand-picked.

Producer States

  • India is the 8th largest producer of coffee globally. (Brazil is the largest producer contributing to 40% of global production).
  • India produces 2.5 % of the world’s coffee. 
  • Karnataka (71%), Kerala (22%) and Tamil Nadu (7%) are the leading producers of coffee in India. 
  • In 2024, Coffee exports from India has gone above $1 billion compared to $460 million in 2021. European Union followed by UAE and US are the major importers of Indian Coffee.
Coffee growing areas of India

3. Rubber

  • Rubber is a coherent elastic solid obtained from latex. 
  • A rubber tree is a quick-growing tall tree acquiring 20-30 m height in 5 to 7 years after planting.
  • Rubber is used for various purposes like tyres, tubes, erasers and industrial products.
  • The first rubber plantations in India were set up in 1895 on the hill slopes of Kerala. 

Conditions required for growing Rubber 

Temperature High temperature between 25 to 35°C
Rainfall High rainfall of above 200 cm, distributed around the year
Soil – Deep well, drained loamy soils on the hill slopes at an elevation ranging from 300 to 450 m above sea level. But yield starts to decline at higher elevations, and no rubber plantations are found above 700 m.  
– Soil should be acidic, with a pH in the range of 4.5 to 6.0.
– Soil should be deficient in phosphorus.
Specific conditions Daily rain followed by a strong sun is beneficial.
Labour required Large labour is required for making a cut and collecting rubber milk. Hence, cheap and abundant labour must be available.

Producer States

In India, it is produced in Kerala (92%), Tamil Nadu (3%), Kerala (2%) and Andaman and Nicobar (~2%).

Rubber growing areas of India

4. Spices

  • India has been world-famous for its spices since ancient times. 
  • These spices are mostly used for flavouring cooked food and for preparing medicines, dyes etc. 
  • Pepper, chillies, turmeric, ginger, cardamom, clove and areca nut are the major spices cultivated in India. 
  • Kerala is the leading producer of spices in India.  

Cash Crops of India

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Last Updated: Jan 2025 (Cash Crops of India)

Cash Crops of India

This article deals with ‘Cash Crops of India ’ This is part of our series on ‘Geography’, which is an important pillar of the GS-1 syllabus. For more articles, you can click here.

Introduction

  • The crops which are cultivated for commercial purposes are called cash crops.
  • These crops include sugarcane, tobacco, fibre crops (cotton and jute), tea, coffee and oilseeds.

Sugarcane

  • Sugarcane is India’s most important cash crop, and India is the second largest producer of sugarcane globally.
  • This crop provides the raw material for the sugar industry.
  • Besides providing sugar, gur and khandsari, it supplies molasses for the alcohol industry and bagasse for the paper industry.

Conditions required for growing Sugarcane 

Temperature High temperature between 21 to 27°C  
Annual Rainfall Humid climate with rainfall between 75 to 150 cm  
Specific conditions – In the latter half, the temperature around 20 °C and the open sky help in acquiring juice and thickening.
– While too heavy rainfall results in low sugar content, deficiency in rainfall produces a fibrous crop
– A short cool, dry winter during ripening and harvesting are ideal. 
– Frost is detrimental to sugarcane, and it must be harvested before frost season.   
Soil – Deep rich loamy soil is ideal.
– Soil that can retain moisture.
– Soil should be rich in nitrogen, calcium and phosphorous.
– Sugarcane exhausts soil fertility quickly and extensively, and its cultivation requires heavy doses of manures and fertilizers.  
Labour required – It is a labour-intensive crop.
– Cheap and abundant labour is a prerequisite.

Producer States

At the state level, Uttar Pradesh is the leading producer of sugarcane, followed by Maharashtra, Karnataka, Tamil Nadu, Gujarat, Punjab, Haryana and parts of MP and Bihar.

Cash Crops of India

Traditionally sugarcane areas were northern plains, especially UP. But its cultivation has gradually shifted towards the south.  The reason for this is the fact that North Indian sugarcane is :

  • Subtropical variety 
  • Low sugar content 
  • Sugar factories are shut in winter as sugarcane is grown only in summer.  

Hence, when irrigation developed in the southern states, the sugarcane industry developed there as well.

2. Cotton

  • Cotton is the most important cash crop in India. 
  • It provides raw materials to India’s most significant industry, i.e. Textile Industry. 
  • Besides the cotton fibre, its seed acts as raw material in the Vanaspati industry. Additionally, cotton seed can be used as fodder for milch cattle.
  • India ranks second next to China in the production of cotton.

Conditions required for growing Cotton 

Cotton is a tropical and subtropical crop requiring uniformly high temperatures. Conditions for its growth are 

Temperature – Uniformly high temperatures between 21 to 30° C
– Its growth is retarded when the temperature falls below 20°C.
– Frost is its enemy, and it is grown in areas having at least 210 frost-free days.
Annual Rainfall – Modest requirements varying between 50 to 100 cm
– However, it is successfully grown in areas with lesser rainfall with irrigation’s help.
– Moist and heavy rainfall during boll opening and picking is detrimental as plants become vulnerable to pests and diseases. 
Soil – Best suited soil is the Black soil of the Deccan and Malwa plateaus.
– It can also grow in the alluvial soils of the Northern Plains and Laterite soils of Peninsular India.
– Cotton quickly exhausts the fertility of the soil. Hence, regular application of manure and fertilizer is necessary.
Labour required Cotton picking is not yet mechanized and requires cheap and efficient labour.

Varieties of Cotton

There are three main varieties of cotton grown in India. 

1. Long Staple Cotton

  • It has the longest fibre, with lengths varying from 24 to 27 mm.
  • The fibre is long, fine and shining and is used for making fine and superior-quality cloth.
  • 50% of the total cotton produced in India is of this variety.
  • It is grown in Punjab, Haryana, Maharashtra, Tamil Nadu, MP, Gujarat and Andhra Pradesh.

2. Medium Staple Cotton

  • The length of its fibre is between 20 to 24 mm.
  • 44% of the total cotton produced in India is of this variety.
  • It is grown in Punjab, Tamil Nadu, Madhya Pradesh, UP, Karnataka and Maharashtra.

3. Short Staple Cotton

  • It is an inferior variety whose length is less than 20 mm. 
  • About 6% of the cotton grown in India is of this type.

Producer States

Leading producer states include Gujarat (35%), Maharashtra (21%), Andhra (14%), Haryana (8%), Punjab (7%), MP (6%), Rajasthan (4%) and Karnataka (3%).

Cotton Growing Areas in India

3. Jute

  • Jute, also known as ‘Golden Fibre’, is an important cash crop.
  • It provides the raw material for the Jute industry. It is used to manufacture gunny bags, carpets, hessian, ropes and strings, rugs, clothes, tarpaulins, upholstery etc. 
  • It has high tensile strength and low extensibility and ensures better breathability of fabrics.
  • It is 100% bio-degradable and recyclable and thus environmentally friendly. 

Conditions required for growing Jute 

It is a tropical fibre crop and requires the following conditions

Temperature High temperature varying between 24 to 35°C 
Annual Rainfall – Heavy rainfall of 120 to 150 cm with 80 to 90% relative humidity
– A large quantity of water is required to grow the jute crop and process the fibre after the crop is harvested. 
Soil – Light sandy and clayey loams.
– Jute rapidly exhausts the fertility of the soil, and the soil must be replenished annually by the silt-laden flood water of the rivers. 
Labour required A large supply of cheap labour is required to grow and process jute fibre.

Producer States

  • India suffered a great setback during the partition of India in 1947 because 75% of the jute growing areas went to Bangladesh while the jute mills remained in India. The government has made great efforts to increase the production and area under jute in India.
  • The main producer states in India include West Bengal (80% production), Bihar, Assam and Odisha.
Jute Growing Areas in India

4. Oil Seeds

  • Oilseeds are a very important group of the commercial crop in India, and oil extracted from oilseeds is an important item of our diet and used as raw material for many items like paints, varnishes, hydrogenated oil, soap, perfumery, lubricants etc.
  • Oil cake, the residue after oil is extracted from the oilseed, is used as cattle feed and manure. 
  • India is the largest producer of oilseeds in the world. But production of oilseed has always fallen short of our demand, and there has always been a need to import oilseeds. 
  • Nine major oilseeds grown in India are groundnut, sesamum, rapeseed and mustard, linseed, safflower, castor seed, sunflower and soybean. 

Groundnut

  • It is the most important oilseed in India.
  • India is the second largest producer.
  • It constitutes 50% of the oilseed production of India.
  • It contains 40-50% oil.
  • Use: Mainly as edible oil. It can also be eaten in raw form. Its oil cake is used as cattle feed.
  • It synthesizes atmospheric nitrogen and increases the fertility of the soil.
  • It requires 20-30°C temperature, 50-75 cm rainfall and well-drained light sandy loan, red, yellow and black cotton soil.
  • It is mainly grown in Andhra Pradesh, Tamil Nadu, Gujarat, Rajasthan, Karnataka and Maharashtra.

Sesamum (Til)

  • India has the world’s largest area under sesamum.
  • It contains 45-50% oil.
  • Use: Mainly as edible oil. Sesamum seeds can also be eaten in a fried form mixed with sugar or gur. Its oil cake is used as cattle feed.
  • It grows well in areas having 21-23°C temperature, 45-50 cm rainfall and well-drained light loamy soils. 
  • Sesamum is grown in all parts of the country, but West Bengal is the largest producer producing 33% of the produce. Other significant producers are Gujarat, Rajasthan, Maharashtra, Tamil Nadu and Karnataka. 

Mustard and Rapeseed

  • It is the most important oilseed next to groundnut.
  • It contains 25-45% oil.
  • Use: Mainly used as edible oil. Its oil is also used for pickles, lubricants and toiletries. Its oil cake is used as cattle feed.
  • Like wheat and gram, they thrive only in the cool climate of the Satluj-Ganga plain.
  • Its major producers include Rajasthan (46%), Haryana, MP, YP, West Bengal, Gujarat, Punjab etc. 

5. Tobacco

  • Tobacco was brought to India by the Portuguese in 1508. since then, its cultivation has spread to different parts of the country. At present, India is the major producer of tobacco in the world.
  • Apart from oral consumption, tobacco is mainly used for cigarettes, bidi, cigars and hookah. It is also used in the production of insecticides. 
  • There are two varieties of tobacco. These include
    1. Nicotiana Tabacum: High-quality tobacco used in cigarettes, cigar bidi, chewing, hookah and pipe. 90% of tobacco grown in India is of this variety. 
    2. Nicotiana Rustica: Inferior and short quality used in hookah, chewing and snuff. 10% of tobacco grown in India is of this variety.

Conditions required for growing Tobacco 

Conditions for the growth of tobacco includes

Temperature Wide range varying from 16 to 35°C.
Annual Rainfall From 50 to 100 cm of rainfall. But the rainfall should be well distributed throughout the year. Irrigation is required if the rainfall is low or erratic.
Specific factors Frost is injurious to its growth.
Soil Well-drained sandy loam, not too rich in organic matter.
Labour required Cheap and abundant labour is required at all stages of cultivation.

Producer States

It is grown in 15 states of India. But 66% of production comes from Gujarat and Andhra Pradesh. 

Tobacco growing areas in India

Food Crops of India

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Last Updated: Jan 2025 (Food Crops of India)

Food Crops of India

This article deals with ‘Food Crops of India ’ This is part of our series on ‘Geography’ which is an important pillar of the GS-1 syllabus. For more articles, you can click here

Introduction

  • Due to its large population and limited land, Indian agriculture is largely dominated by food crops.
  • Food crops include cereals and pulses, amongst which rice, wheat, jowar, bajra, maize, barley, ragi, gram and tur are important.

1. Rice

  • Rice is an indigenous crop and staple food of the majority of Indians.
  • After China, India is the second-largest rice producer in the world.

Conditions required for growing Rice

Temperature It is a tropical crop, growing with mean temperatures of 24°C.
Annual Rainfall Require high rainfall above 150 cm. It can be grown with the help of irrigation facilities in low-rainfall areas
Soil Deep fertile clayey, or loamy soils
Labour required Labour-intensive crop requiring an abundant supply of cheap labour
Important Varieties IR-8, Jaya, Padma, Hamsa, Krishna, Sabarmati, IET 1039, CR Dhan 205, AR Dhan 306, CRR 451 etc.

Producer States 

  • West Bengal (largest producer in India), UP, Punjab, Tamil Nadu, Bihar, Andhra, Odisha, Assam, & Haryana.
Food Crops of India

Issues associated with its cultivation

  • Due to the increased use of High Yielding Variety (HYV) seeds (CR Dhan 205, AR Dhan 306, CRR 451 etc.), many indigenous varieties have disappeared.
  • It is a water-guzzling crop grown in arid regions like Punjab and Haryana with the help of tubewell irrigation. It has led to a rapid downfall in the groundwater level.

2. Wheat

  • Wheat is the country’s second most important food crop, after rice.
  • India ranks 5th in the production of wheat in the world. 

Conditions required for growing Wheat 

Temperature Wheat requires a cold and moist climate at the time of sowing and a warm and dry climate at the time of ripening (10-15°C at the time of sowing and 20-25°C at the time of ripening of grains.)  
Rainfall – Requires less rainfall than rice ranging between 50 to 75 cm
– Western disturbances in North India significantly help wheat production by providing the required moisture in a cold climate.
– In drier regions, it can be grown with the help of irrigation.
Soils Well-drained clayey or loamy soil
Important varieties Sonalika, Kalyan, Sona, Sabarmati, Lerma, Roso, Heera, Shera, Sonara-64.

Producer States

  • Over 85% of India’s wheat production comes from 5 states, namely Uttar Pradesh (highest producer), Punjab (highest yield per hectare), Haryana, Rajasthan and Madhya Pradesh. 
  • Apart from these regions, the black soil tract of the Deccan covering parts of Maharashtra and Gujarat also grows wheat.
Wheat growing regions of India

3. Millets – Bajra, Jowar and Ragi

  • In this too,
    • Bajra is grown mainly in North India.
    • Jowar is grown mainly in Peninsular India 
    • Ragi is grown mainly in South India.
  • Millets have high nutritional value. 

Bajra

  • It is a coarse grain and forms the staple food for poor people. Its stalks are used as fodder for cattle and for thatching purposes.
  • Bajra is a crop in warm and dry regions.

Conditions required for growing Bajra 

Temperature  High temperatures ranging between 25 to 30°C
Rainfall They can grow well in low rainfall of up to 45 cm.
Soils Sandy soils and shallow black soil

Major Producers

  • It includes
    1. Arid regions like Rajasthan (the largest producer)
    2. Rain shadow regions of Maharashtra, Madhya Pradesh and Gujarat.  
  • Note: In Punjab, millets, especially Bajra, were grown earlier. But with the development of irrigation facilities, farmers of Punjab have adopted highly productive crops like wheat and rice in place of low-productive crops like Bajra. Therefore, a sharp decline has been noticed in the cropped area under crops like Bajra in the last few decades.

Jowar

  • Jowar is the third important food crop of our country. 
  • Although a coarse grain, it is rich in carbohydrates, protein, minerals, and vitamins. Hence, it provides cheap food to a large section of the poor population.

Conditions required for growing Jowar 

Jowar has a tendency to grow even in adverse climatic conditions. Basically, they are warm and dry climate crops.

Temperature It grows in high temperatures within a wide range of 20 to 32°C.
Rainfall It can grow well even in low rainfall of up to 30 cm.
Soils Black and Red soil

Major Producers

  • Jowar is essentially a crop of Peninsular India.
  • Maharashtra, Karnataka, and Madhya Pradesh are the leading producers of Jowar

Ragi

  • Ragi is a coarse grain but very rich in iron, calcium, other micro-nutrients and roughage.

Conditions required for growing Ragi 

They grow well in warm and dry climates. 

Temperature They grow in a warm climate
Rainfall They grow well in arid regions
Soils Red, Sandy, Loamy and Shallow Black soils.

Major Producers

  •  Karnataka is the largest producer of Ragi, followed by Tamil Nadu.

Benefits of Millets

Considering the benefits of Millets, FAO has decided to celebrate 2023 as the ‘UN International Year of Millets‘.

1. Climate Smart

  • They are climate-smart and can tolerate warm climates and droughts.
    • Millets are photo-insensitive as they don’t require specific photoperiod for flowering.
    • Millets are thermophilic as they can thrive in high temperatures and xerophilic (i.e. can survive in limited water)
  • Millets have less water requirement as compared to other crops due to an efficient root system
  • Millets are less affected by diseases and pests.
  • Carbon Sequestration: Millets are C4 Carbon Sequestration crops contributing to the reduction of CO2 in the atmosphere.

2. Nutrition

  • Millets are rich in vitamins, calcium, iron, potassium, magnesium, and zinc, which can reduce the malnourishment and hunger problem in India.
  • Millets have a low glycaemic index. They are beneficial to highly diabetic people.  
  • Millets are gluten-free. Hence, they are beneficial to gluten-intolerant people.

3. Positive Externality

  • Millets have an excellent ability to sequester carbon and assist in climate adaptation.  
  • It can get proper nutrients from Organic Fertilisers. Chemical fertilizers are not required.

4. Productivity

  • Millets have a short growing period of 65 days. It allows multiple cropping, thus helping farmers to increase their incomes.

5. Cultural Aspect

  • Millets are traditionally associated with the cultivation practice of tribals, e.g. Karnataka Ragi Habba (Festival).
  • Millets have a long history in the Indian subcontinent, and their reference can be found in poetry, ayurvedic recipes etc. Hence, millets are interwoven into the socio-cultural fabric of numerous regions of India.

6. Export Potential

  • Millet has great export potential as millet is the staple food in most of Africa. From 2013-18, India exported 15.4% of the world’s Bajra.

7. More from Less

  • Millets do not require
    • High mechanization
    • Fertilizers 
    • Large supply of water
    • Pesticides and insecticides
  • Hence, it can increase the real income of farmers because input cost is low. 

Challenges

  • Unfavourable agricultural Policy: Crop loans, subsidies, and Public Distribution System (PDS) are favourable for crops such as Rice, Wheat etc. which acts as a disincentive towards cultivating Millet.
  • Dietary Habits– Due to increasing urbanization and industrialization, people are converging towards consuming Rice and Wheat (India Council of Agricultural Research 2014.) 
  • Lack of Awareness about the socioeconomic and nutritional benefits of Millet distorts its demand and supply. Moreover, Millets have a ‘poor man’s food’ tag, further reducing their consumption. 

Efforts to promote Millets

  1. 2018 was declared the National Year of Millets.
  2. Millets are part of the National Food Security Mission (NFSM).
  3. Millets are included under Poshan Abhiyan 2.0 and Saksham Anganwadi.
  4. India has more than 500 StartUps which are involved in Millet Value Chain. Indian Institute of Millet Research is incubating 250 Millet StartUps under Rashtriya Krishi Vikas Yojana-RAFTAAR. 
  5. FAO celebrated 2023 as the ‘UN International Year of Millets‘.

Pulses

  • India is world’s top producer & consumer of pulses. But even after that, India is not self-sufficient in the case of Pulses.
Pulses production in India
  • Major pulses that are grown in India: are tur, urad, moong, masur, peas and gram.
  • Pulses can be grown in all parts of the country except the heavy rainfall areas. 

The share of different pulses in total pulse production 

Pulse Share Major producers
Gram / Chana 45% Madhya Pradesh, Rajasthan and Maharashtra
Tur / Arhar 15% Maharashtra, Karnataka and Madhya Pradesh
Urad 10% UP, Andhra Pradesh and Maharashtra
Moong 10% Rajasthan, Maharashtra and Andhra Pradesh
Masur 5% UP, Madhya Pradesh and Bihar
Others 15%  

The area under pulses has decreased in the country. The main reason is the area under pulses is being shifted to the more profitable crops like rice and wheat after the green revolution.

Importance of Pulses

  • Pulses are rich in vegetable protein. Since most Indians are vegetarians. Hence, pulses are the primary source of protein for a majority of people
  • Pulses are leguminous crops which can fix atmospheric nitrogen in the soil and hence are usually rotated with other crops.

Government Initiatives to promote Pulse Production

  1. National Food Security Mission (NFSM)-Pulses: Aims to Increase Pulses production by 3 Million tonnes 
  2. Increase in MSP of Pulses 
  3. Price Support Scheme (PSS) under PM-AASHA 
  4. Creation of Buffer Stock of Pulses by NAFED. 
  5. Price Stabilization Fund Scheme to check volatility in the prices. 

Reserve Bank of India

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Reserve Bank of India

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

Introduction

  • RBI is India’s Central Bank of India, i.e. apex monetary institution. 
  • It was established in 1935 with a share capital of ₹ 5 crores under the provisions of the RBI Act, 1934, on the recommendations of the Hilton Young Commission.
    • Initially, the share capital was owned by private shareholders.
    • Government ownership in RBI was just 4.4%. 
    • The First Governor of RBI was Sir Osborne Smith.
  • RBI was Nationalized in 1949
    • It was done using the RBI (transfer of ownership) Act 1948.
    • Now RBI is 100% owned by the Government.
    • Hence, RBI’s Governor is answerable to Parliament and pays a dividend to the Government from their profit.
  • Other important points about RBI
    • It was initially headquartered in Kolkata and later shifted to Mumbai in 1937.
    • The financial year of RBI is from 1 July to 30 June.

Functions

  • RBI is the Controller of the Money Supply in India.
  • RBI is the currency authority of India and has the sole power to print currency. 
  • RBI is the controller of Foreign Exchange through the FEMA Act of 1999.
  • RBI act as Banker to Governments & Public Debt Manager. 
  • RBI is Banker’s Bank as the Lender of Last resort to the banks. It also advises banks in monetary matters. 
  • RBI is the Regulator of all “BANKS”. RBI gets these powers through Banking Regulation Act.   
  • RBI is the Regulator of All India Financial Institutions and Non-Banking Financial Companies (Deposit Taking). 
  • RBI represents India in financial organizations such as IMF, World Bank etc.
  • RBI perform some Promotional Roles like 
    • Customer protection through Ombudsman, 
    • Financial Inclusion etc
  • RBI is responsible for Data Publications like the Report on Currency and Finance, Financial Stability Report etc. 
  • RBI is responsible for economic development by promoting financial inclusion and controlling inflation.

Structure of RBI

RBI Act provides for Governor & NOT MORE than 4 Deputy Governors. By convention, two are outsiders, and two are career officers of RBI. Their tenure usually is of 3 years. Re-appointment is also possible. Apart from that, there are 16 Non-Official Directors. 

Reserve Bank of India

RBI has 4 regions: 

  • Northern: Delhi
  • Eastern: Kolkata
  • Southern: Chennai
  • Western: Mumbai

RBI has 23 departments for looking after Banks, NBFCs, Payment Systems, Foreign Exchange Management etc. The latest department is the Enforcement Department, formed in 2017 to act against the violators of RBI directives. 

Structure of Reserve Bank of India

Issue: RBI’s Autonomy

Why RBI’s Autonomy is important?

  • Enable RBI to take decisions based on economic rationale uninfluenced by political considerations. 
  • It ensures Sustainable Economic Growth. 
  • It helps in attracting more Foreign Investment as RBI’s independence acts as an assurance to foreign investors that decisions willn’t be taken keeping the vote bank in mind.

RBI versus Government impacting RBI’s autonomy

  • Tight Money Policy: The Government always pressurizes the RBI to follow the Easy Money Policy to give cheap loans to spur growth, while RBI is mandated to follow such a monetary policy that can maintain inflation between the 2-6% range. 
  • Diluting Prompt Corrective Action framework (PCA): PCA of RBI restricted the lending of 11 state-owned banks, which irked the Government. Also, due to this, Government was not getting a dividend from these banks, impacting the finances of the Government. It led to a direct face-off between RBI and the Government. 
  • Section 7 of the RBI Act: It has never been invoked since independence. It allows the Government to instruct the RBI governor in the public interest. Governor can’t refuse the instructions given to him under Section 7 of RBI.
  • Issue of higher dividend: Recently, the Government demanded higher dividends from RBI to recapitalize Public Sector Banks and reduce the fiscal deficit. However, Governor Urjit Patel felt RBI’s higher reserves are necessary to check any financial crisis. It led to RBI’s Governor versus Government type of situation.
RBI versus Government
RBI's autonomy

Due to such issues, RBI Governor Urijit Patel resigned from his post. Although that was not the first time when RBI Governor resigned before his tenure ended like  

  • First Governor, Sir Osborne Smith, left the office before completing his three and a half years term, apparently following differences with the Government’s Member of Finance.
  • Sir Benegal Rama Rau, who served as Governor from 1949 to 1957, resigned before the end of his second extended term following serious differences with Finance Minister TT Krishnamachari. 

Issue: Public Debt Management Agency (PDMA)

RBI is the Government’s Debt manager, but this has led to a conflict of interests.

Public Debt Management Agency (PDMA)

1. As a Debt Manager

  • RBI borrows money from the market by issuing Government-securities (G-sec). These G-Secs are, in reality, issued by RBI on Government’s behalf.
  • As Debt Manager, RBI will always want to sell at the lowest interest rate (cheaper credit).

2. To control inflation

  • RBI uses the same G-sec to control money supply via OMO (Hence, depending upon the situation, RBI, in this case, has to sell it at a high rate or low rate).

If the central bank acts as a debt manager, too, it would be caught in a  conflicting dilemma of keeping the interest rates low to raise the loan at the lowest price possible for the Government while controlling inflation.

Most central banks focus on controlling inflation in the developed world, and government debt management has been shifted to separate agencies.

Timeline: PDMA

2000 – RBI proposed amendments to RBI Act to end its role as Public Debt Manager and hand it over to an independent agency.  
– But the issue of the high fiscal deficit came up. Hence, in 2002 Bimal Jalan said that debt management couldn’t be transferred to other agencies until the government controlled the fiscal deficit  
2007 Finance Minister announced in the budget to set up the statutory body for public debt management.  
2011 PDMA bill introduced  
2012 Bill not passed  
Modi Regime Modi government is keen on making PDMA.

(Reason = They can ask PDMA to borrow as much as they want | RBI is an independent agency, and it cant be pressurized above a specific limit)

Debate

Against RBI working as Debt Manager

  • Conflict Of Interest: Discussed Above 
  • Relieve RBI so that it can focus on Monetary Policy and Regulatory work.
  • Globally Accepted practice: All OECD countries follow this practice.
  • Various Committees like Percy Mistry Committee (2007), Raghuram Rajan Committee (2008), and FSLRC (2011) have accepted this

Continue as Debt Manager

  • Conflict of Interest Argument Questioned: There is no evidence in India that RBI has compromised either debt management or monetary management.  
  • Pragmatic Fiscal and Monetary Coordination: In the interest of pragmatic monetary and fiscal coordination, it is prudent to leave debt management to the RBI.  
  • The Indian situation is unlike OECD countries due to high Fiscal Deficit and Current Account Deficit levels.
  • Separation Challenged Globally: The conventional view on separation has been challenged after the financial crisis. Denmark and Iceland have shifted debt management back to the central bank.
  • Various scholars, notably Bimal Jalan, have spoken against separate PDMA in Indian conditions.

Governance & Administrative Reforms in Banking Sector

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Governance & Administrative Reforms in Banking Sector

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

Introduction

The government is trying to recapitalize the Public Sector Banks and helping them to cleanse their stressed Balance Sheets. But, if nothing much is done regarding the Governance & Administration of the Public Banks, then Banks nothing will change, and banks will carry on their operations as usual. Hence, the government has brought various Governance & Administrative reforms along with the recapitalization of banks.

1. Gyan-Sangam-I, 2015

  • Finance Ministry organized a workshop for financial regulators, Public Sector Bank, Insurance Companies etc., called Gyan Sangam.
  • It resulted in the following outcomes.
    1. PSBs’ CMD post is bifurcated into a separate 1) chairman and 2) separate MD (CEO) to ensure Separation of Power and make them more accountable and transparent. 
    2. An autonomous body called  Bank Board Bureau (BBB) will be set up to select the MD, Chairman, Directors and other top officials of PSBs (Earlier, the Government was selecting top officials of Banks, leading to the politicization of posts.)

2. Mission Indradhanush

  • Governmental reforms in Banking Governance under 7 Pillars (ABCDEGA) 
Mission Indradhanush civils edia.com (A) Appointments in transparent way (B) Bank Board Bureau to be setup (C)Capitalisa stressing by tion of PSBs reducing with Rs provisioning 70,000 cr for NPAs (E) Empowerm ent (G) Governance : Little government interference in day to day operation of banks (A) Accountability to be ensured using key performance indicators

(as such, it has become an old topic, and just an infographic will suffice)

Side Topic: Bank Board Bureau (BBB)

  • Earlier Government was selecting top officials of Banks, leading to the politicization of the posts. To deal with this issue, BBB was set up on the recommendations of the PJ Nayak Committee.
  • BBB’s primary function is to select top officials for PSBs, LIC and other public sector financial institutions. 
  • BBB also helps the banks in governance reforms, raising capital for BASEL-III etc. 
  • BBB has 1 Part-Time Chairman, 3 Part-Time Members, and 3 Ex-officio Members (from Govt & RBI side) 
  • In 2018, Bhanu Pratap Sharma (retd. IAS) replaced Vinod Rai (ex-CAG) as the new chairman of BBB. 

3. EASE Agenda

When Government announced ₹2.11 lakh crore package for the recapitalization of PSBs, at the same time, it started EASE Agenda so that employees don’t become lazy thinking that all their problems have been solved. Additionally, PSBs will have to change their arrogant and carefree attitude and focus on the 6 pillars listed below. 

EASE Agenda

4. Other Steps

  • RBI has laid down instructions for Private Sector Banks that the same person can’t hold the post of MD, CEO and Whole-time Director for more than 15 years to improve Corporate Bank Governance and reduce the concentration of power.

Further Suggestions

  • Employee Stock Option Plans (ESOPs)
    • ESOP is a type of benefit plan wherein employees are given some shares of the company apart from regular salary (companies like Facebook, Google, and many other Startups already use ESOPs).
    • Existing salary-based compensation mechanism encourages employees to prefer safety and conservatism over risk-taking and innovation. But giving them some shares via ESOP may encourage risk-taking and a possible change of mindset from an employee to an owner.
  • Allow lateral entry into higher management.
  • Allow campus recruitment of some specialists from institutions like IITs, IIMs etc.

BASEL Norms and India – UPSC Notes

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Last Updated: Feb 2025 (BASEL Norms and India – UPSC Notes)

BASEL Norms and India – UPSC Notes

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

BASEL and BASEL Norms

Bank of International Settlement (BIS) is owned by 60 Central Banks & has Committee on Banking Supervision at Basel (Switzerland), which made Basel Norms.

The rationale of BASEL Norms or Capital Adequacy Ratio 

Central Banks around the world have been making provisions to act as shock absorbers in case of a bank run (bank bankruptcy). Providing shock absorbers to banks has seen three major developments.

  1. Provision of Cash Reserve Ratio, i.e. keeping a cash ratio of total deposits mobilized by the banks (already studied).
  2. Provision of Statutory Liquidity Ratio (SLR), i.e. maintaining some assets of the deposits mobilized by the banks with the banks themselves in non-cash form (already studied). 
  3. Provision of the Capital Adequacy Ratio (CAR) norm (BASEL Norms that we will study in this article). 

BASEL III norms explained

When a bank opens after getting a license from RBI, it will initially gather capital in the form of Debt & Equity. 

How Banks get their Initial Capital

After that, when operations of the Bank start, it will receive money in the form of cash deposited by the depositors, which it will further lend in loans after keeping aside CRR & SLR Obligations. But these loans also carry RISK, which measures the probability that the loan will not return. 

Note: What Bank is getting in deposits is not capital but raw material. The capital of the Bank is what Bank will get via issuing bonds or shares.  

BASEL Norms and India - UPSC Notes

Hence, BASEL developed the concept of Risk Weighted Assets to tackle the risk that loans carry. 

  • Some loans are riskier than others. Hence, more risky loans will carry more Risk Weight. 
  • E.g., Home Loans are riskier than G-Secs. Hence they will be assigned more Risk Weight
  • Then total Risk Weighted Asset of the Bank is calculated using the following formula

Risk Weighted Asset = (Total Loan in Particular Category) X (Risk associated with that category)

BASEL Norms and India - UPSC Notes

BASEL III (wrt India) norms say that the Ratio of Capital of a Bank to its Risk Weighed Asset must be 9%  (i.e. Capital to Risk Weighted Asset Ratio (CRAR), aka Capital Adequacy Ratio (CAR), should be 9%). 

Capital Adequacy Ratio (CAR)

& in the capital, there are two types of capital – Tier I (Shares) & Tier II (Debt) so that there is a balance between debt and equity of the Bank.

Tier I & Tier II in CAR

RBI increasing Risk Weight of Certain Sectors

  • RBI can increase the Risk Weight of a certain sector if it thinks that loans given in a particular sector are riskier. It will also discourage the banks from lending in that sector as banks will have to increase their capital in order to maintain a minimum CRAR or CAR of 9% under BASEL III norms.
  • E.g., in 2023, RBI increased the Risk Weight of following sectors
Banker’s Credit Card Loans150% (from 125%)
NBFC’s Credit Card Loans125% (from 100%)
Banker’s Loan to NBFC125% (from 100%)

Domestic Systematic Important Banks (DSIB)

  • The Financial Stability Board has advised countries to identify their Systemically Important Financial Institutions and put a framework to reduce risk.
  • In pursuance of the directive, RBI has started identifying the banks that are ‘too big to fail’ and labelled them as Domestic Systematic Important Banks (DSIB). These banks are called so because of their size, cross-jurisdictional activities, complexity and interconnection. If these banks fail, they can have a disruptive effect on the whole economy.
  • Since 2015, annually, RBI has identified banks that are ‘too big to fail’ (=if they fail, it’ll severely hurt the economy)’ and labelled them as Domestic Systematic Important Banks (D-SIB), & ordered them to keep additional capital & technical norms. 
  • In India, banks whose assets cross 2% of the GDP are considered DSIBs—the list of DSIBs includes SBI, ICICI, and HDFC.

What do they have to do?

  • D-SIBs are categorized under five buckets. 
  • According to these buckets, the banks must keep additional CAR under the Tier 1 Category (Equity).
  • Three Banks: HDFC (latest entry in 2017), ICICI & SBI are D-SIBs
    • HDFC & ICICI = Bucket 1 (additional 0.20% CAR)
    • SBI = Bucket 3 (additional 0.60% as CAR)

But, the additional capital D-SIBs need to keep aside is much lower than in other nations. Therefore, RBI should develop more stringent measures.

Recapitalization of PSBs

  • For state-run banks to achieve capital adequacy standards, they require a capital infusion, known as the Recapitalization of the Bank.
  • To comply with BASEL 3 Norms, Public Sector Banks (PSBs) require additional capital. But issue is
    • Due to the weak situation of Banks, it is difficult for Banks to raise capital via the Equity route as their shares are not fetching a good amount. 
    • Interest rate to raise capital via Debt is also high due to the weak position of Banks. 
  • Along with that, there are Tier 1 and Tier 2 requirements, and Tier 1, i.e. Equity (7%) requirement, is more compared to Debt (2%).
  • Hence, Banks have stopped giving loans to decrease their Risk Weighted Assets (RWA) and, consequently, the capital required to meet the CAR target. But it negatively affects the economy as businesses and households are not getting loans. 

To solve this issue, the government decided to Recapitalize the PSBs

2015 Government to infuse ₹70,000 crores in PSBs as part of Mission Indradhanush.
2017 ₹ 70,000 crores were found to be insufficient. So the government decided to infuse ₹ 2.11 lakh crore. The plan was to raise this via Bank Recapitalization Bonds. 
2018 Even this ₹2.11 lakh crore package was found insufficient. So, the Govt. sought supplementary grants from Parliament to infuse an additional ₹41,000 crores in PSBs.

Other benefits of Recapitalization of Banks

  1. It will help create a ‘virtuous cycle of investment and jobs’ through Credit Growth. 
  2. Tackling Non-Performing Assets (NPAs) by strengthening the capital base.
  3. Provide stimulus to the economy by pulling down lending rates.
  4. Help to save large and systemically important banks from failing.

But there are concerns associated with the Recapitalization of Banks as well.

  1. Increased Fiscal Deficit of government or cuts in welfare and capital expenditures
  2.  Use of Public Funds or taxpayer money without any intrinsic changes in the PSBs governance
  3. Impact working culture as PSBs might not take adequate precautions in future while lending when they know that the government will step in to help if the loans turn sour. 
  4. No Accountability from PSBs as bank recapitalization is an ad-hoc measure with no linkage to the banks’ performance or efficiency. 

Liquidity Coverage Ratio (LCR) or High Quality Liquid Assets (HQLA)

  • BASEL-III norms have also mandated that banks must keep enough amount in High-Quality Liquid Assets (HQLA) so that Bank can survive a 30-day stress-test scenario. HQLA-eligible assets include:
    • Cash beyond CRR
    • G-Sec beyond SLR
    • High rated Marketable securities (e.g., backed by PSE, Multilateral development banks, and Foreign Governments)
  • RBI Order: From 1/1/2019, banks have to maintain HQLA for 30 days stress scenario

Cryptocurrency – Issues and Regulation

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Last Update: July 2025 (Cryptocurrency – Issues and Regulation)

Cryptocurrency – Issues and Regulation

This article deals with ‘Cryptocurrency – Issues and Regulation.’ This is part of our series on ‘Economics’ which is an important pillar of the GS-2 syllabus. For more articles, you can click here.

The genesis of Cryptocurrency

  • During the Subprime Crisis of 2008, the Central Bank of the US & other developed countries adopted Easy Money Policy & as a result, the purchasing power of $ decreased. The leading cause of the Subprime Crisis was the loans given by banks to subprime borrowers. Hence, anarchists argued that banks earned by charging interest and fees. But when loans turned bad due to their mistake, governments made common people suffer by following Easy Money Policy and reducing the purchasing power of their hard-earned money. 
  • Cyber Anarchists decided to withdraw from Banking System and start a currency that would not depend on any country’s Central Bank. This led to the creation of Bitcoin, the first cryptocurrency.
  • Hence, Bitcoin can be considered a political movement rather than a technological movement.

Timeline

  • 2008: Satoshi Nakamoto (the name of the online user, but nobody knows who he is) issued an online paper introducing Bitcoin.
  • 2009: The operation of Bitcoins started.
  • 2015: Ethereum, the second most popular cryptocurrency after Bitcoin, was launched. 
  • 2020: The price of Cryptocurrencies started to rise amidst the Corona crisis due to fear that governments would print money in excessive amounts to cover the fall in tax collections and cover unemployment benefits. 
  • 2021: In the private sector, the acceptability of Bitcoins started increasing. E.g., Elon Musk and Jack Dorsey (founder of Twitter) are investing in Bitcoin.
  • 2025: Following the election of Trump, Crypto sector experienced boom as Trump is considered pro-crypto currency.

What is Cryptocurrency?

  • Cryptocurrency is a digital currency created, stored and transacted using blockchain technology.
  • Examples of Cryptocurrencies: Bitcoin, Dogecoin, Litecoin, Ethereum etc. 
  • Bitcoin, invented by Satoshi Nakamoto (anonymous), is the most popular.
Cryptocurrency - Issues and Regulation

How Bitcoins Work?

The Gold Mine Analogy (Technically Incorrect Example)

  • Suppose there is a gold mine, and a person starts to mine it with tools. All the mined gold is converted to coins with a serial number on it by the person sitting at the exit of the mine and registered in Ledger.
  • The coin that is produced can be broken into smaller coins to pay for smaller transactions. But each time the bigger coin is broken into smaller coins, a separate Registration number is given to it, and it is registered in Ledger again. 
How Bitcoin Works (example)

Working of Bitcoin

  • Instead of Gold Mine, Satoshi Nakamoto has created a Cryptographic’ Data Cube’. This Cube can be mined using a computer. When the whole of ‘Data Cube’ is mined, 21 million bitcoins will be generated. 
  • The primary condition is the same here as well. Every coin that is generated has to be registered in Public Ledger (called Blockchain). 
  • Bitcoin is divisible up to 10^8 Satoshi. But each time Bitcoin is divided, it has to be registered in Public Ledger. Hence, every transaction is registered in Public Ledger (Blockchain) (more on this later).
How Bitcoin Works



How are Cryptocurrencies bought?

There are two ways

  1. Mining: One can mine cryptocurrency using computers.
  2. Buy from Someone: One can also buy cryptocurrency. This buying can happen in two ways
    • Peer-to-Peer Transactions: Buying directly from someone who owns that cryptocurrency.
    • Exchange facilitated transactions through exchanges such as Kuber, WazirX etc.

Bitcoin Wallet

  • Bitcoin Wallet looks like other Wallets (like Paytm Wallet). One can send money to any person using his Bitcoin Wallet’s Address and Password (Wallet address is random alpha-numeric)
  • But there is no requirement for Name, Mobile Number and KYC Norms. One can send Bitcoins to another person without knowing the identity of the other. Hence, it is very anonymous.
Bitcoin Wallet

Benefits of Cryptocurrency

  • Cost-effectiveness in International Use: Electronic transactions to other countries are expensive due to currency conversion & processing fees levied by banks. Cryptocurrencies solve this problem, as they have a single valuation globally.
  • Privacy Protection: Using pseudonyms conceals the parties’ identities, information, and transaction details.
  • They are difficult to counterfeit compared to physical currency because they use Blockchain Technology.
  • Immunity from Government’s Financial Retribution: For citizens in repressive countries, where governments can easily freeze or seize bank accounts, cryptocurrencies are immune to any such seizure by the state.

Problem with Cryptocurrencies

  • Used in carrying out Illegal Activities because of the anonymity, it offers 
    • Various sites selling Drugs and other banned substances through Bitcoins, like Silk Road, have came up.
Issues with Cryptocurrencies
  • Criminals use Bitcoins in case of cyberattacks—E.g. Wannacry episode.
Issues with Cryptocurrency (Bitcoins)
  • Crypto-Exchanges are prone to Scams: The Crypto-Exchanges used by ordinary people to buy, sell and store cryptocurrencies are also prone to scams. For example, FTX Exchange, based in Bahama, indulged in the scam, and more than Rs. 10 lakh crore of investors was stuck due to the fraud (c. 2022).
  • Money Laundering: The cryptocurrency market isn’t universally protected or regulated like Banks. Thus, it is increasingly used to launder money. In 2019, criminal entities laundered approximately $2.8 billion through crypto asset exchanges. 
  • The government is deprived of its taxes. E.g., On selling gold, government charges Capital Gains Tax, but Bitcoin transactions are difficult to trace. 
  • Climate Change: Experts estimate that cryptocurrency mining-related electricity consumption generates 38 megatons of CO2 annually (equal to that of Mumbai and more than Austria and Bangladesh).
  • Countries like Iran and North Korea are using cryptocurrencies to bypass economic sanctions.
  • Uncertainty over Consumer Protection and Dispute Settlement Mechanisms: as Cryptocurrencies are decentralized. 
  • Highly Volatile: Explained below. 
  • No intrinsic value: Explained below.

Bitcoin Bubble / High Volatility?

The crypto asset market has been very volatile, with its total valuation swinging from almost US$ 3 trillion in November 2021 to less than US$ 1 trillion in Jan 2023.

high degree of volatility in Crypto Currency Market

Whether this is Bubble or not?

  • Cryptocurrencies like Bitcoin, according to its advocates, are quickly becoming accepted forms of payment that will pose a severe threat to the national currencies issued by central banks. They, therefore, consider the increase in Bitcoin’s acceptability only a reflection of its promising future as a stateless currency.
  • Sceptics have cited the 17th-century Tulip bubble and the late-1990s Internet stocks as cautionary tales. Bitcoins lack inherent value, and emotion rather than value drives their exponential growth.
Cryptocurrency - Issues and Regulation

India and Cryptocurrencies

  • Budget 2022: Budget 2022 placed the transactions in the Virtual Digital Assets (i.e. Cryptocurrency, NFT etc.) under tax provisions
    • 30% tax has been placed on the income earned from the transactions in the Cryptocurrency.
    • The losses can’t be offset by the profits.
    • Gifting the cryptocurrency will also be taxed.
    • 1% TDS will be deducted for payment made above a certain threshold in relation to the trade of Virtual Digital Assets.
  • 2023: Cryptocurrencies and Virtual Assets have been placed under the ambit of Prevention of Money Laundering Act (PMLA). This would require all entities dealing with crypto to implement mandatory KYC processes, report suspicious activities, and require financial entities/crypto companies to maintain client details for five years.

Virtual Currencies & World

Some countries have restricted and prohibited Virtual Currencies (India, China, Bolivia etc.), while others allow their use in regulated forms (Japan, the US, Australia, South Africa etc.).

Virtual currencies and Blockchain-based things started by various countries 

1. European Union (EU)

  • European Union has issued regulations called Markets in Crypto Assets (MiCA) in 2023 to protect people from scams and frauds in crypto-currency and combat the use of crypto-assets in money laundering.

2. USA

  • Trump government has established Strategic Bitcoin Reserve and US Digital Asset Stockpile (consisting of Ethereum, XRP, Solana and Cardano) 
  • The US has passed the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act, which paves the way for the issuance of Stablecoins — asset-backed cryptocurrencies. These Stablecoins are fully backed, 1:1, by US government Treasury Bills.

3. El – Salvador

  • El-Salvador has become the first country to accept Bitcoin as legal tender in 2021.

4. Albania

  • It has legalized Crypto-assets for investment purposes.

5. Petro

In 2018, President Nicolas Maduro of Venezuela announced the following:

  • The government of Venezuela decided to issue 100 million Petro coins – a type of cryptocurrency.
  • Price of 1 Petro coin = market price of one oil barrel from Venezuela. 

6. UNICEF and Bitcoins

  • In October 2019, UNICEF announced that they would accept donations through Bitcoins and all the other sovereign currencies of the world.

7. Libra

  • Cryptocurrency announced by Facebook.
  • Unlike other Cryptocurrencies, Mark Zuckerberg has announced that it will be backed by assets in reserve. 
  • But countries like France have openly rejected Libra as it will set a precedent of currencies of MNCs and challenge the sovereignty of nation-states.

State of Education in India – Issues, Schemes and Acts

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State of Education in India – Issues, Schemes and Acts

This article deals with ‘ State of Education in India – Issues, Schemes and Acts  – 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.

State of Education in India - Issues, Schemes and Acts

Sustainable Development Goals and Education

Sustainable Development Goals and Education

Apart from that, education has an equalising impact as it increases employability, thus helping the person escape poverty. Hence, imparting education is important for achieving other SGDs, like removing poverty and achieving gender equality.

Timeline

Timeline of Education in India

Data on Education

  • Pupil-Teacher Ratio: The Pupil-Teacher Ratio, i.e. Number of Students per Teacher, has been continuously improving from 34.0 in 2013 to 26.2 in 2022.
  • Gender Parity Index: It is the (No of Females / No of Males ) at any given level of education. Although gender disparity still prevails in higher education, it has improved substantially at primary levels through measures like Beti Bachao Beti Padhao (BBBP). 
  • Gross Enrolment Ratio: The Gross Enrolment ratio has been continuously increasing. In 2021-22, the Gross Enrolment Ratio at the Secondary level has increased to 79.6%.
Trend of Gross Enrolment Ratio in India
  • Government Spending: Public spending on education is approx.—3.5% of GDP. But NEP 2020 aims to increase it to 6%. 
Public spending on education in India
  • Improving School Infrastructure: Basic facilities in the schools have been improving continuously, corroborated by the following data. 
Improvement of School Infrastructure in India

But even after that, India has the largest number of illiterates worldwide (approx. 28 crores).

Issues with Primary Education

Reasons for Poor Learning Outcomes in Primary Education

  • Input focus approach, which focuses just on inputs (like school buildings, classrooms, water and sanitation facilities etc.) and not outputs (like learning outcomes).  
  • Quality of teachers is low: Primary teaching is the least lucrative profession in India. Conversely, in Scandinavian Countries, teaching is the most lucrative profession. Even in its 12th Five Year Plan (2018-23), Bhutan has announced that teachers will provide salaries greater than civil servants of corresponding grades to attract talent to become teachers. 
  •  School Management Committees: School Management Committees (SMCs) consist of representatives from the local community, parents, teachers, and school management constituted under the provisions of the Right to Education (RTE) Act of 2009 to oversee the school’s finances, maintain infrastructure, and improving the quality of education. But SMCs are not working properly due to political interference, lack of participation in the meetings and inadequate funding. 
  • No Detention Policy: The No Detention Policy was introduced in India in 2010 as part of the Right to Education Act. Under the No Detention Policy, students from classes 1 to 8 are not detained for failing to pass the annual exams. Instead, the policy required schools to conduct continuous and comprehensive evaluations (CCE) to assess students’ learning outcomes. But Continuous Comprehensive Evaluation System (CCES) is not introduced in letter and spirit due to the lack of training of teachers to implement it. Detention Policy has become problematic in the absence of CCES. 
  • Overburdening of teachers with administrative responsibilities like election duties and government surveys
  • No Pre-School Facilities: A child’s interest in education starts from the early years. One cannot develop an interest in education at the age of 6. 3-year-old should be subjected to play-based learning. 
  • Lack of funds due to low budgetary allocation.  The government spends just 3.5% of its GDP on education. 

Suggestions to improve Primary Education

  • Focus on Output: Use SEQI (School Education Quality Index) to measure the educational outputs (as recommended by Niti Ayog) 
  • Teacher Education: More programs like Madan Mohan Malviya Teacher Training Program should be implemented. Moreover, proper training should be imparted to implement Continuous Comprehensive Evaluation System (CCES) properly.  
  • The School Management Committees should be made to work properly.
  • Reducing political activism among teachers Article 171 (3c) guarantees teachers representation in state legislative councils, and it has turned many teachers into politicians. This provision needs to be scrapped. 
  • Reap gains from the co-location of schools at all levels of schooling, which include
    • Improved utilisation of physical infrastructure – classrooms, science labs, computers etc. 
    • Improve the transition rate and reduce the dropout ratio while transitioning from primary to secondary to senior secondary. 
    • Single schools for siblings facilitate safe transport.  

Indexes about Primary Education

1. ASER Report, 2022

  • ASER (Annual Survey of Education Report) has been prepared and published by NGO named Pratham since 2006 
  • It is an annual survey aimed at knowing the status of education and learning outcomes among children in India.

Significant findings from the latest ASER-2022 Report (released in 2023)

  • Overall enrolment: The school enrolment of children aged 6 to 14 has been above 95% for the past 15 years. Contrary to expectations, the enrolment ratio has increased from 97.2% in 2018 to 98.4% in 2022 despite the closure of schools due to the pandemic. 
  • Paid private tuition classes: In a negative development, the number of Standard 1st to 8th students taking private tuition has increased from 26.4% (2018) to 30.5% (2022). It points towards the issue with the quantity and quality of teachers in the schools. 
  • Foundational skills in reading and arithmetic (learning levels): Covid has negatively impacted the children’s learning outcomes. In both public and private schools, the reading and arithmetic ability has dropped to pre-2012 levels. E.g., only 25.9% of Class 3 students were able to do simple subtraction (which was 28.2% in 2018).

2. PISA Report, OECD

  • PISA, or Program for International Student Assessment, tests the Maths, Science and Reading abilities of 15 years old students.   
  • PISA is an initiative of the OECD.
  • India decided to participate in the PISA in 2009 but was ranked at the bottom. Hence, India boycotted PISA since 2012, complaining about questions being set “out of context” with the Indian socio-cultural milieu. A decision was reached to join it again, but India didn’t participate in 2022 due to the impact of Covid on education. 

3. SEQI, NITI Aayog

  • SEQI, or School Education Quality Index, is an initiative of NITI Aayog to rank States on education quality.
  • It has the following features
    • Focus on outcomes (rather than inputs)
    • Provide objective benchmarks 
    • Encourage state-led innovations to improve quality.
  • Currently, SEQI ranks the states based on 34 indicators, with the highest weightage given to learning outcomes.

National Education Policy, 2020

NEP 2020 was launched in July 2020 to lay strong foundations for the Atmanirbhar Bharat, transforming the education sector and making it more accessible, equitable, and inclusive. It aims to increase public spending on education to  6% of GDP. It has replaced the NEP 1986.

The main objectives of the policy are to:

  • Promote universal access to quality education. 
  • Emphasize multilingualism and encourage students to learn in their mother tongues. 
  • Equity and inclusiveness: NEP aims to reduce the disparities in the education system by making it inclusive and providing equal opportunities.
  • Encourage vocational education with a focus on preparing students for the job market
  • Strengthen the use of technology in teaching and learning.
  • Promote research and innovation with a focus on interdisciplinary research.
  • Improve teacher training and quality. 
  • Ethics and human & constitutional values like empathy, democratic spirit, scientific temper etc., should be imbibed into students. 

Issues with NEP 2020

  • Funding: NEP talks about spending 6% of GDP on education. But the policy does not elaborate on how to raise this fund.  
  • Excessive stress on vocational education: Stress on vocational training from the preparatory stage, many fear, would lead to students from marginalized backgrounds dropping out early to take up jobs.
  • Multilingualism: With inter-state migration for employment, and India’s large diversity of languages, regional language will hobble some students’ learning.  
  • Federal Setup: In a federal system like India, where education is a concurrent subject, any educational reform can be implemented only with support from the States.
  • Fear of coaching classes: The NEP suggests that admission to all higher education programmes should be based on standardized test scores conducted by the National Testing Authority. It may encourage coaching classes and rote memorization

Right to Education 

RTE rests on 3 Pillars

Right to Education Act

Important Points to note from (Prelims Point of View)

  • It covers Private Institutions ( 25% of seats are to be reserved) 
  • It doesn’t cover – Boarding Schools & Minority Institutions 
  • Admission to age appropriation class 
  • Nobody will get failed – No Retention Policy 
  • Continuous Comprehensive Evaluation (CCE) – Evaluation throughout the year

Evaluation of Working of RTE Act

To evaluate the working of the Right to Education Act, we have to look at the working of various features of the RTE Act and evaluate their impact and their shortcomings

1. 25% Reservation in Private Schools

  • Private schools to keep 25% of seats reserved for children belonging to the Economically Weaker Section (EWS)
  • But, there are lacunae.
    • Children from EWS still struggle to find their seats in schools, as 18 states show zero schools implementing this provision.  
    • States have to notify per-child costs to pay the private schools=> only 14 states have notified per-child costs. 
    • Lack of awareness in ordinary people about provision.

2. No Detention Policy (Section 18)

  • Under the No Detention Policy, students from classes 1 to 8 are not detained for failing to pass the annual exams.
  • The rationale of the No Detention Policy: If children fail, chances of dropping out increase. 
  • No Retention policy is also a failure because 
    • It led to a lack of motivation to study.  
    • Parents have become less concerned about child’s studies.
    • When students are moved to a higher class without prerequisite knowledge, it leads to lower learning outcomes. 
  • Problems are not in No Detention Policy but somewhere else. No Detention Policy wasn’t the alone provision of RTE. It was suggested as a package with a Continuous Comprehensive Evaluation System (CCES) & upgradation of educational infrastructure.
  • Hence, an amendment was made to No Detention Policy in 2019. RTE was amended with a provision that there will be regular examinations in the 5th and 8th standards. If the student fails, they will be granted an opportunity for re-examination within 2 months. If they again fail, then the school can hold back the children. 

3. School Management Committees

  • School Management Committees (SMCs) consist of representatives from the local community, parents, teachers, and school management constituted under the provisions of the Right to Education (RTE) Act of 2009 to oversee the school’s finances, maintain infrastructure, and improve the quality of education. 75% of the members of this committee are Guardians of Students. 
  • It was an innovative step as it made parents a stakeholder in school administration. But SMCs are not working properly due to political interference, lack of participation in the meetings and inadequate funding. Additionally, the majority of schools haven’t formed these Committees. 

4. Continuous Comprehensive Evaluation System

  • Continuous and Comprehensive Evaluation System (CCES) means individual assessment by teachers of both academic and co-academic areas throughout the year and accordingly devote time to students to raise in those areas where he is lacking. It aims to reduce the emphasis on rote learning and memorization.
  • Geeta Bukkal Committee & Yashpal Committee has favoured Continuous Comprehensive Evaluation System.
  • But there are problems in implementing this provision.
    • There are not enough teachers in schools.  
    • Teachers are not trained to evaluate students using CCES.

5. Financial Crunch

  • It suffers because there is always a financial crunch
  • Even the Right to Education Act has no financial memorandum attached to it.

New Schemes

1. Sarva Siksha Abhiyaan (SSA)

  • Sarva Siksha Abhiyaan was started to implement the provisions of the Right to Education Act.
  • Sub-Programmes under Sarva Siksha Abhiyaan include:
    • ‘Padhe Bharat Badhe Bharat’ (PBBB) 
    • Rashtriya Avishkar Abhiyan (RAA) 
    • Vidyanjali 
    • Kasturba Gandhi Balika Vidyalayas – in educationally backward blocks to promote girls’ education.
  • Apart from that, there is a provision of EGS (Education Guarantee Scheme) and AIE (Alternative Innovative Education) for out-of-school children in areas where constructing schools isn’t possible. Such children are provided non-formal education by the government.

2. Rashtriya Aavishkar Abhiyaan

  • Rashtriya Aavishkar Abhiyaan provides mentoring by institutes like IITs/ IIMs/ IISERs  
  • The Aim is to motivate children of age group from 6-18 years in Science, Mathematics and Technology (STEM)

3. Vidyanjali Scheme

  • It is aimed at boosting the education system by delivering volunteer teachers (like NRIs, retired teachers, government officials, defence personnel, professionals, etc.) to government schools.  
  • It will not replace the regular and professionally qualified teachers in government schools. The volunteer’s responsibility is towards the overall development of the child, not academics.  

4. Padhe Bharat Badhe Bharat

This program works on 2 Track approach 

  • 2.5 Hours X 200 Days = for Reading, Writing and Comprehension
  • 1.5 Hours X 200 Days = for Mathematics 

5. PM SHRI Scheme

  • PM SHRI, or Pradhan Mantri Schools for Rising India, aims to develop 14,500 schools as Model Schools in line with New National Educational Policy (2020). These schools will include old and new schools.
  • These schools will follow a holistic learning approach. Assessment in these schools will be based on the conceptual understanding of real-life situations.
  • Such schools will be equipped with modern infrastructure such as laboratories, gymnasiums, libraries etc.
  • These schools will emerge as exemplary schools over a period of time
PM SHRI Scheme

6. National Curriculum Framework (NCF)

  • Under National Curriculum Framework (NCF), the 10+2 System will be replaced with the 5+3+3+4 System.
National Curriculum Framework (NCF)

7. Nipun Bharat 

  • Nipun Bharat, or National Mission on Foundational Literacy and Numeracy (FLN), aims to achieve universal FLN by 2026-27.
  • The Rationale of Mission: Foundational learning is the basis of all future learning for a child. Not achieving basic foundational skills of reading comprehension, writing and performing basic mathematics operations leaves the child unprepared for the complexities of the curriculum beyond grade 3. 
  • The mission will target children from preschool to Grade 3 to acquire Foundational Literacy and Numeracy (FLN) skills. Children in Grades 4 and 5 who don’t possess the required FLN skills will be provided individual teacher guidance to acquire the necessary competencies. 

8. Pilot project of Balvatika

  • Project Balvatika, also known as Preparatory Class, was launched in 49 Kendriya Vidyalayas in 2022 with the goal of developing students’ cognitive, affective, and psychomotor abilities as well as early reading and numeracy skills.

9. Mid-Day Meal Scheme

  • Under the provisions of the Scheme
    • Class 1 to 8 students are given cooked food 
    • Coverage: Government schools, Government Aided, Madrasas 
    • The minimum content of 300 calories of energy & 8-12 grams of protein per day for a minimum of 200 days. 
  • Accountability is ensured through Social Audit, food sampling, interactive voice response system (IVRS) etc.

10. Swayam Prabha (TV)

  • Swayam Prabha (TV) provides high-quality educational content through 32 DTH (direct-to-home) Television Channels.

11. National Academic Depository

  • It is the digital depository of academic awards and certificates.

Samagra Siksha Abhiyan

  • The government has decided to treat school education holistically without segmenting it into pre-school, primary, upper primary, secondary, and senior secondary levels.
  • Sarva Shiksha Abhiyaan (SSA), Rashtriya Madhyamik Shiksha Abhiyan (RMSA) and Teacher Education (TE) are to be merged into a single scheme called Samagra Shiksha Abhiyan.
  • The step has been taken based on Anil Bordia’s committee to reform Sarva Siksha Abhiyaan.

Main provisions of the scheme

  • Pre-School: Strengthen pre-school education through greater convergence with the ICDS program 
  • Integrated School: All the levels of schooling from pre-school to Class XII to be available in one place  
  • Equity and Access: The school will be accessible within a specified distance.   
  • Better curriculum  
  • Use of ICT technologies and aids 
  • Vocationalization of Education with the inclusion of practical subjects 
  • Teacher training 

Higher Education in India and Issues

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Higher Education in India and Issues

This article deals with ‘ Higher Education in India and Issues – for UPSC.’ This is part of our series on ‘Society’ which is important pillar of GS-1 syllabus . For more articles , you can click here .

Introduction

Since 27% of India’s population is in the 15-29 age bracket, India needs to invest in higher education to improve its quantity and quality to reap the demographic dividend. The Indian government has been doing this, corroborated by the increase in number of India’s premier educational institutions

  2014 2022
Medical College 387 648
IITs 16 23
IIMs 13 20
Universities 723 1113

The number of students enrolling in higher educational institutions has also increased, corroborated by the following data (for FY 2021).

Higher Education in India and Issues

Issues with Higher Education in India

  • Accessibility: The cost of education is high. As a result, the gross enrolment ratio for higher education is just 27% in India (compared to 47% in Brazil and 30% in China)
  • Lack of research funding in a higher educational institution is meagre by global standards.  
  • Lack of faculty: Pupil to teacher ratio in the country, which currently stands at 30:1, needs to improve compared to the USA (12.5:1) and China (19.5:1)   
  • Employability of pass-outs is a significant issue. The skills imparted to the graduates need to be updated.        
  • Low Autonomy: Higher Education System is regulated by many bodies, thus reducing the autonomy of Universities.
  • Locational Disparities: There is regional disparity in college density (number of colleges per lakh eligible population) which varies from 7 in Bihar to 59 in Telangana 
  • Quality: Quality of higher education is also an issue; only 3 Indian institutions feature in the top 200 world rankings of QS world university ranking. 
  • Islands of excellence: The government has developed islands of river excellence in the form of IITs and IISc and allocates the majority of funds to these institutions. At the same time, state universities and colleges remain underfunded. 

Schemes to improve Higher Education in India

1. Rashtriya Uchhattar Siksha Abhiyan (RUSA)

  • It is a Centrally Sponsored Scheme launched in 2013.
  • RUSA aims to provide strategic funding to eligible state higher educational institutions so that they can improve their infrastructure.

2. Higher Education Financing Agency (HEFA)

  • HEFA has been set up with a corpus of Rs 20,000 crore to augment research and related infrastructure.

3. National Institutional Ranking Framework (NIRF)

  • NIRF is the National Ranking of Institutions started by the Government of India in 2016. Like Times and QS Ranking of International Universities, the Indian government has developed NIRF to rank Indian institutions based on parameters well suited for Indian conditions. 
  • All education institutions are assessed on five parameters: 
    1. Teaching learning and resources
    2. Graduation outcomes
    3. Research and professional practices
    4. Outreach and inclusivity, 
    5. Perception
  • The latest such report was released in 2022 (NIRF 2022 Ranking), and IIT Madras was ranked the best institution (overall), followed by IISc Bangalore.

4. Revitalization Infrastructure and Systems in Education (RISE)  

  • Purpose: For investments in centrally funded institutions like IITs, Central Universities and other such institutes 
  • Funding will be provided through HEFA

5. Uchchtar Siksha Kosh

  • Uchchtar Shiksha Kosh is a non-lapsable fund for the promotion and up gradation of higher education.

6. Global Initiative of Academic Networks (GIAN)

  • Under GIAN Initiative, faculty from 38 countries like Russia, Japan etc., will deliver courses in Indian institutions like IIT, IIM etc.
  • Others can access on MOOCs platform  

7. Impacting Research Innovation & Technology (IMPRINT)

  • It is a joint initiative of IIT and IISc to develop a research roadmap to solve major technological and engineering challenges. 

8. Unnat Bharat Abhiyan

  • Unnat Bharat Abhiyan aims to enable higher educational institutions to work with the people of rural India in identifying development challenges and evolving appropriate solutions for accelerating sustainable growth.

9. Guidelines for Pursuing Two Academic Programs Simultaneously

  • Guidelines issued by UGC under which students can pursue two academic programs simultaneously.
  • The guidelines are in line with the National Educational Policy of 2020, which aims to promote creative combinations of multidisciplinary studies 

10. Interest Subsidy on Education Loans

  • Under this scheme, 
    • No interest is charged from the student in the moratorium period (i.e. during the course period + one year after completion)
    • No Collateral or Third Party Guarantee is required.
  • Eligibility: Students belonging to the Economically Weaker Section (EWS) with combined parental income lesser than Rs. 4.5 lakh annually.

Institutions of Eminence

  • In 2018, the Government constituted a panel headed by N Gopalaswami to identify the top 20 best higher education institutions (10 public and 10 private). The aim was to promote the development of world-class educational institutions. 
  • These Institutions of Eminence include
Institutions of Eminence

Benefits

  • UGC (Institutions of Eminence Deemed to be Universities) Regulations 2017 will govern all such institutions. These regulations will override all other UGC regulations.  
  • Institutions of Eminence will enjoy administrative and financial autonomy in a wide range of matters, including faculty and staff salaries, student fees, course offerings etc. 
  • Institutions of Eminence will get financial assistance up to Rs. 1000 Crore over the period of five years to enhance their research and academic capabilities. 
  • The status of Institutions of Eminence would bring a greater reputation, attracting greater funding and increased collaborations with world-class universities. 

Features of such institutions

  • Preferably multidisciplinary and have both teaching and research focus 
  • Apart from the regular courses, it should also offer various interdisciplinary courses.
  • The institution has a good mix of domestic and foreign students.  
  • Transparent merit-based selection in admissions
  • The faculty-student ratio should not be less than 1:10 after three years of declaration.
  • It should have student amenities comparable with that of globally reputed institutions.  
  • The institution should have a reasonably large owned campus with adequate space for expansion. 

Infrastructure

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Last Updated: December 2024 (Infrastructure)

Infrastructure

This article deals with ‘Infrastructure – upsc.’ This is part of our series on ‘Economics’ which is an important pillar of the GS-3 syllabus. For more articles, you can click here.

What is Infrastructure?

According to the Department of Economic Affairs, Infrastructure  is the set of basic facilities that help an economy to function & grow. This includes transport and logistics, energy, water and sanitation, communication and social and commercial infrastructure (like hospitals, schools, sports infrastructure, industrial parks etc.)

Since infrastructure benefits the whole economy, economists often argue that the government should fund the sector by means of taxation, partly, if not wholly. India needs to invest massive amounts to build infrastructure vouched by following data

Infrastructure

Additionally, Sustainable Development Goals (SDG) also talk about building resilient infrastructure.

SDG and Infrastructure

Why India should Invest in Infrastructure?

  • To achieve the vision of $5 Trillion Economy: To sustain the growth and achieve 5 Trillion economy, India needs to improve and invest in the infrastructure sector.
  • To create Employment: Construction activities creates large number of jobs.
  • To Support the increased Urbanization: India is urbanizing at a massive pace. Hence, the investment in infrastructure should be increased commensurately to make the process of urbanization sustainable.
  • Climate and Disaster Resilient Infrastructure: India will have to invest massively to make the existent infrastructure climate resilient in view of climate change and increased number of disasters.

Infrastructure Bottlenecks: Reasons due to which projects get stalled

Infrastructure is the lifeline of an economy. One of the biggest problems hampering the growth of the Indian Economy is infra bottlenecks.  These bottlenecks include

1. Large Number of Clearances

  • There is no ease of doing business & a large number of clearances are required for building infrastructure projects.
  • E.g., In Airport Construction, clearances are needed from DGCA, the Ministry of Defence etc. 

2. Systemic Bottlenecks

  • Land acquisition, environmental clearances, delays in procurement etc., have added to project delays.

3. Over-Leveraging

  • Aggressive bidding during the high growth phase and subsequently slowing down has made the balance sheets of companies highly debt-ridden.

4. Issues with Dispute Redressal

  • The dispute redressal process is painfully long in India. It takes 3.8 to 4.3 years on average to settle commercial disputes.

5. Credit Crunch

  • Projects have long gestation periods, and banks can’t fund such long-term projects. Moreover, Banks are suffering from high NPAs, and the corporate bond market has not developed sufficiently. Hence, many projects at various stages of completion are facing Credit Crunch and are not able to complete.

Measures to address these problems

  1. Form a specialized body to make better contracts for PPP projects so that they don’t face legal hurdles in future (E.g., 3P India).
  2. Addressing Systemic Delays  
    • Swifter Environmental Clearances should be given to linear infra projects.
    • Plug-and-Play Mode: Government agencies should ensure regulatory clearances before awarding infra projects so that the winning bidder can get to implementation straightaway.
  3. Overhauling Dispute Redressal: The BK Chaturvedi Committee was constituted in this regard. Additionally, Commercial Courts have been formed, and Arbitration and Conciliation Act has been passed.
  4. Expanding the Corporate Bond Market: Since long-term financing is required, bank lending has limited capacity. Thus, the corporate bond market must be deepened & expanded. Bankruptcy Code will help in this regard by developing Corporate Bond Market. 
  5. Infrastructure companies can use REITs & InvITs to attract funds for infrastructure projects. 
  6. The government is now emphasizing EPC (Engineering- Procurement- Construction) & Hybrid Annuity Model rather than BOT (Build-Operate-Transfer) Model.

Side Topic: Pragati Program

  • Aim: Timely implementation of government programs (especially in infrastructure, worth trillions of rupees.)
  • PM has launched  PRAGATI— Pro-Active Governance and Timely Implementation to monitor the progress made wrt these projects himself. 
  • PM holds monthly meetings with Secretaries of the Union government and Chief Secretaries of all state governments to review the progress of projects under implementation. Meetings are held through video conference. 

Side Topic: Type of Projects

Type of Infrastructure Projects
Type of Infrastructure Projects

Infrastructure Financing

The central government is one of the major financers of infrastructure in India. In recent times, the amount of the government’s capital expenditure on infrastructure has increased sharply.

Infrastructure Financing

But the government can’t fund all the infrastructure projects given the FRBM targets. Hence, the following routes can be adopted to finance infrastructure projects. 

Infrastructure Financing targets

1. National Monetization Pipeline

  • Monetization means transferring the revenue rights to a private party for a specified transaction period in return for upfront money, a revenue share and a commitment to investment in the assets. 
  • Under the Scheme, the government will first identify the already created assets, such as National Highways, Railway Lines, Power Transmission Lines, Pipelines etc. These brownfield assets will then be leased to the private sector for a certain period. The money thus raised will be used for the creation of new assets. Hence, it is a limited period transfer of Brownfield Infrastructure Assets (where investment is already being made, but assets are either languishing or not fully monetized or under-utilized) to unlock “idle” capital. 
  • The aim of the initiative is to monetize government assets through limited private participation. The target is to raise Rs. 6 Lakh Crores in the next 5 years.
  • It will promote Public-Private Partnerships, each excelling in their core competencies like the government’s ability to deliver socio-economic growth and the private sector’s ability to provide quality service.

2. National Bank for Financing Infrastructure and Development (NaBFID)

  • NaBFID was set up in 2022 as a statutory Development Financial Institution for financing infrastructure.  
  • It will provide ₹5 lakh crore long-term infrastructure funding in the next 3 years.

3. National Infrastructure Pipeline

  • In 2019, Finance Minister created National Infrastructure Pipeline (NIP) to mobilize ₹111 lakh crore for building infrastructure in the next five years (2019-20 to 2024-25). It aims to develop a comprehensive view of infrastructure development in the country, monitoring its progress at the highest levels in the government for timely completion and enabling a pipeline view for investors to plan infrastructure investments. 
  • Funds collected under NIP will be used to fund projects spread across Energy (24%), Roads (19%), Urban (16%), Railways, Irrigation etc.

4. Masala Bonds

  • Masala Bonds are offshore ₹ denominated bonds. 
  • These are already used by Railways, NHAI etc., to gather funds for building infrastructure. 

5. Infrastructure Investment Trust (InvITs)

InvITs

For more details, CLICK HERE.

6. National Investment and Infrastructure Fund (NIIF)

  • NIIF is a Sovereign Wealth Fund of India (i.e. it has the guarantee of the government of India.)
  • It has a corpus of ₹ 40,000 crores. 
  • Ownership of NIIF is as follows. 
NIIF

7. Bank Loans

Bank Loans can also be taken to fund infrastructure projects. But due to high NPA levels and the long gestation period of such projects, it is not considered a good option for financing infrastructure projects. 

8. PPP

  • The private sector is roped in the infrastructure projects via Public Private Partnerships.

9. Pension Funds

  • Pension Funds are very stable and long-term in nature.

10. Value Capture Financing

  • It is an innovative type of infrastructure financing in which the value of public infrastructure (like road building, sewage etc.) is recovered from the landowners who stand to gain from the construction of that infrastructure due to appreciation in the value of that land.

Side Topic: Harmonized List of Infrastructure Sector

Finance Ministry notifies the list of sectors included in Harmonized List of Infrastructure. Presently, there are 5 Main Sectors and 34 Sub-Sectors included in the list

  1. Transport and Logistics: Roads, Railways, Waterways, Airports, Pipelines and Multi-Modal Logistic Parks
  2. Energy: Generation, Transmission, Distribution, Storage of Oil or Gas or LNG
  3. Water and Sanitation: Solid Waste Management, Irrigation, Water Treatment Plants
  4. Communication: Telecommunication Towers and Services
  5. Social and Commercial: Educational Institutions, Sports, Hospitals, Tourism Infrastructure, Cold Chain Infrastructure, Affordable Housing, Affordable Rental Complex, Exhibition and Convention Centres.

Benefits of Inclusion in Harmonized List of Infrastructure

  1. Access to long-term credit at concessional rates from banks and financial institutions
  2. Easier access to overseas borrowings
  3. The sector becomes eligible to borrow from development banks like India Infrastructure Financing Company (IIFCL)