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DAILY CURRENT AFFAIRS, 28 MARCH 2024

CITIZENSHIP AMENDMENT ACT (CAA)

 
 
 
 
1. Context 
 
A local priest may issue an “eligibility certificate” under the Citizenship Amendment Act (CAA), 2019 to validate the religion of an applicant, according to a response received by The Hindu through the Union Home Ministry’s helpline on CAA.
 
 
2. About the Citizenship Amendment Act 2019

The Citizenship Amendment Act (CAA) of 2019 is a controversial piece of legislation enacted by the Government of India on December 12, 2019. The act amends the Citizenship Act of 1955 to provide a pathway to Indian citizenship for certain religious minorities from neighbouring countries.

Key features of the Citizenship Amendment Act include

  • Eligibility Criteria: The CAA grants eligibility for Indian citizenship to Hindu, Sikh, Buddhist, Jain, Parsi, and Christian migrants who arrived in India from Afghanistan, Bangladesh, and Pakistan on or before December 31, 2014, and have faced religious persecution on their home countries.
  • Exclusion of Muslims: Notably, the CAA excludes Muslims from its purview, leading to criticisms of religious discrimination and accusations of violating the secular principles enshrined in the Indian Constitution.
  • Criticism and Protests: The Citizenship Amendment Act sparked widespread protests across India, with critics arguing that the act undermines the secular fabric of the nation and discriminates against Muslims. Protesters also raised concerns about the potential marginalisation of Muslim communities and the exclusionary nature of the legislation.
  • Support from Government: The government defended the Citizenship Amendment Act, asserting that it aims to provide refuge and protection to persecuted religious minorities from neighbouring countries. The government argued that the act does not infringe upon the rights of Indian Muslims and is in line with the country's secular ethos.
  • Legal Challenges: Several petitions challenging the constitutional validity of the Citizenship Amendment Act were filed in the Supreme Court of India. The court has heard arguments from both sides and is expected to deliver its judgment on the matter.
 
3. The current status of the Citizenship Amendment Act, of 2019
  • The Ministry of Home Affairs (MHA) on March 11 notified the Citizenship Amendment Rules, 2024 that would enable the implementation of the Citizenship Amendment Act (CAA) passed by the Parliament in 2019.
  • Though the legislation facilitates citizenship to undocumented people belonging to Hindu, Sikh, Buddhist, Parsi, Christian and Jain communities from Pakistan, Bangladesh and Afghanistan, the rules state that the applicants will have to provide six types of documents and specify “date of entry” in India.

 

4. The concerns associated with the Citizenship Amendment Act, of 2019

The Citizenship Amendment Act (CAA) of 2019 has sparked various concerns and criticisms, both domestically within India and internationally. 

  • One of the primary concerns regarding the CAA is its exclusion of Muslims from the list of religious minorities eligible for citizenship under the act. Critics argue that this selective approach based on religion goes against the secular principles enshrined in India's constitution and promotes religious discrimination.
  • The CAA's focus on granting citizenship based on religious identity raises concerns about the secular nature of India's democracy. Critics argue that the act undermines the inclusive and pluralistic ethos of the country by favouring specific religious communities.
  • Opponents of the CAA fear that the act, coupled with other proposed policies like the National Register of Citizens (NRC) and National Population Register (NPR), could have implications for the demographic composition of India. They raise concerns about the marginalisation and exclusion of certain communities, particularly Muslims, and the potential for statelessness among vulnerable populations.
  • The constitutionality of the Citizenship Amendment Act has been challenged in the Supreme Court of India. Critics argue that the act violates the fundamental rights guaranteed by the Indian Constitution, including the right to equality and non-discrimination.
  • The implementation of the CAA has led to social and political polarization within India. The act has become a contentious issue, leading to protests, debates, and divisions along religious and ideological lines.
  • The CAA has also attracted international attention and scrutiny, with concerns raised by human rights organizations and foreign governments regarding religious freedom, minority rights, and the potential impact on vulnerable communities.
 

5. The Indian ideas and rules of citizenship in the Constitution before the Citizenship Amendment Act (CAA), 2019

Before the enactment of the Citizenship Amendment Act (CAA) in 2019, the principles and rules of citizenship in India were primarily governed by the Constitution of India, which came into effect on January 26, 1950. The Constitution lays down the framework for citizenship and enshrines certain fundamental rights and principles related to citizenship. 

  • Citizenship by Birth: According to Article 5 of the Indian Constitution, any person born in India on or after January 26, 1950, but before July 1, 1987, was automatically considered a citizen of India by birth, regardless of the nationality of their parents.
  • Citizenship by Descent: Individuals born outside India on or after January 26, 1950, but before July 1, 1987, were eligible for Indian citizenship if either of their parents was a citizen of India at the time of their birth.
  • Citizenship by Registration: The Constitution provides provisions for certain categories of persons to acquire Indian citizenship through registration. This includes persons of Indian origin who have resided in India for a specified period and meet other criteria prescribed by law.
  • Citizenship by Naturalization: Foreigners who have resided in India for a specified period and fulfilled other conditions prescribed by law were eligible to apply for Indian citizenship through naturalization.
  • Citizenship by Incorporation of Territory: Any territory that became part of India through accession or merger automatically conferred Indian citizenship on its inhabitants as per the provisions of the Constitution.
  • Fundamental Rights: The Constitution guarantees certain fundamental rights to all citizens of India, regardless of their religion, ethnicity, or place of birth. These rights include the right to equality, freedom of speech and expression, freedom of religion, and the right to life and personal liberty.

  • Citizenship Act, 1955: This act, enacted based on the Constitution's provisions, outlined ways to acquire Indian citizenship. Here are the main routes:

    • Birth: Being born in India (with some limitations) granted citizenship.
    • Descent: Children born to Indian parents abroad could become citizens.
    • Registration: People of Indian origin residing in India for seven years could register.
    • Naturalization: Foreigners meeting specific residency requirements could apply for naturalization.

The Indian Constitution before the Citizenship Amendment Act (CAA) of 2019 outlined principles of citizenship that were based on inclusivity, equality, and non-discrimination, with provisions for acquiring citizenship through birth, descent, registration, naturalization, and territorial incorporation. The CAA introduced amendments to these principles, particularly regarding eligibility for citizenship based on religious identity.

 

6. Section 6A of the Citizenship Act

Section 6A is a special provision inserted into the Indian Citizenship Act, 1955, in 1985, as part of the Assam Accord. It deals with the citizenship of people who migrated to Assam from Bangladesh:

  • It applies to people who entered Assam on or after January 1, 1966, but before March 25, 1971.
  • It grants citizenship to these people if they can prove that they were "ordinarily resident" in Assam on March 24, 1971.
  • People who claim citizenship under Section 6A must apply to a Foreigners Tribunal. The Tribunal will then decide whether or not to grant them citizenship based on the evidence they provide.

 

7. What does NRC mean?

  • NRC stands for the National Register of Citizens. It is a register maintained by the Government of India containing names and certain relevant information for the identification of Indian citizens in the state of Assam.
  • The purpose of the NRC is to create a list of genuine Indian citizens residing in Assam and identify individuals who are not legal residents of the state.
  • The NRC process in Assam has its origins in the Assam Accord of 1985, which aimed to address the issue of illegal immigration from Bangladesh and determine the citizenship status of individuals living in Assam.
  • The NRC process requires individuals to provide documentary evidence to prove their citizenship based on criteria set by the government.
  • The NRC process involves extensive documentation and verification to establish citizenship status, and it has been a contentious issue due to its impact on individuals' rights and concerns about exclusion and discrimination.
  • The implementation of the NRC in Assam has led to debates, legal challenges, and social tensions regarding citizenship and immigration issues in India.
 

8. What is NPR?

  • NPR stands for the National Population Register. It is a register of usual residents of India, which includes both citizens and non-citizens who have resided in a local area for at least six months or intend to stay for the next six months or more.
  • The NPR is prepared at the local, sub-district, district, state, and national levels under the provisions of the Citizenship Act, 1955, and the Citizenship (Registration of Citizens and Issue of National Identity Cards) Rules, 2003.
  • The main purpose of the NPR is to create a comprehensive identity database of residents in India. It collects demographic and biometric information to establish the identity of individuals and households.
  • The data collected in the NPR includes details such as name, age, gender, marital status, occupation, educational qualification, address, and other relevant information.
  • The NPR process involves house-to-house enumeration and collection of data by government officials or designated enumerators. The data collected is used for various purposes, including government planning, policy formulation, and social welfare schemes.
  • It's important to note that the NPR is distinct from the National Register of Citizens (NRC). While the NPR focuses on creating a comprehensive database of residents, the NRC specifically deals with determining the citizenship status of individuals, particularly in the state of Assam, based on documentary evidence.
  • The NPR has been a topic of discussion and debate in India, with concerns raised about privacy, data security, and potential misuse of information.

 

9. The difference between the NRC, NPR and CAA 

 

Term Description Purpose Focus
NRC (National Register of Citizens) Register of Indian citizens in Assam Identify legal residents and non-citizens Citizenship status in Assam
NPR (National Population Register) Register of usual residents (citizens and non-citizens) Create a comprehensive identity database Residents of India for planning purposes
CAA (Citizenship Amendment Act) Law providing path to citizenship for religious minorities Grant citizenship based on religion and persecution

Specific religious minorities facing persecution

 

10. Is NPR connected to NRC?

The NPR (National Population Register) is connected to the NRC (National Register of Citizens) in the sense that the data collected during the NPR exercise can be used as a basis for the NRC verification process, especially in the context of Assam.

  1. Data Collection: The NPR involves collecting demographic and biometric information about residents of India, including both citizens and non-citizens who have lived in a local area for at least six months or intend to stay for the next six months or more. This data includes details such as name, age, gender, address, marital status, educational qualification, occupation, etc.

  2. Verification: The data collected during the NPR process can be used as a basis for verifying citizenship during the NRC process, particularly in Assam. In Assam, the NRC process requires individuals to provide documentary evidence to prove their citizenship based on certain criteria. The data from NPR can be cross-referenced during this verification process.

  3. Identification: The NPR data can help identify individuals who are considered genuine Indian citizens and those who may be considered doubtful citizens or non-citizens. This identification is crucial for the NRC process, especially in states like Assam where illegal immigration has been a longstanding issue.

While the NPR data can be used as a tool for verification during the NRC process, it's important to note that the NPR itself is not the same as the NRC. The NPR focuses on creating a comprehensive population database for administrative and planning purposes, while the NRC specifically deals with determining citizenship status, particularly in Assam, based on documentary evidence and verification.

 

11. Who are ‘Citizens’?

In general terms, citizens are individuals who hold citizenship in a particular country. Citizenship is a legal status that grants individuals certain rights, privileges, and responsibilities within the nation-state to which they belong. The concept of citizenship varies across different countries, but some common characteristics of citizenship include.

  1. Legal Recognition: Citizens are legally recognized members of a country or state. They are entitled to the protection of the state and have access to its legal system.
  2. Rights and Privileges: Citizens typically enjoy certain rights and privileges that non-citizens may not have, such as the right to vote, the right to work and reside in the country, access to social services, and the right to participate in the political process.
  3. Responsibilities: Along with rights and privileges, citizenship also entails certain responsibilities, such as obeying the laws of the country, paying taxes, serving on juries if called upon, and sometimes participating in military service.
  4. National Identity: Citizenship often involves a sense of national identity and belonging to a particular community or nation. This can include shared cultural, historical, and linguistic ties that bind citizens together.
  5. Acquisition and Loss: Citizenship can be acquired through birth (jus soli or jus sanguinis), naturalization, or descent from a citizen parent. It can also be lost or renounced voluntarily or involuntarily, depending on the laws of the country.
 
12. The Way Forward
 
By adopting the strategies, stakeholders can work towards addressing concerns related to the Citizenship Amendment Act, promoting inclusivity, protecting minority rights, and upholding democratic values in India's citizenship policies and practices.
 
 
For Prelims: Citizenship Amendment Act, Minorities, Secularism, NPR, NRC, 
For Mains: 
1. The Citizenship Amendment Act (CAA) of 2019 has sparked significant controversy in India. Critically examine the Act's provisions, highlighting the key concerns and potential implications. In your opinion, does the CAA violate the secular principles enshrined in the Indian Constitution? (250 words)
2. Considering the debates surrounding the CAA, critically analyze the concept of citizenship in India. How has the concept evolved, and what are the challenges in defining and managing citizenship in a diverse democracy like India? (250 words)
 
 
Previous Year Questions

Consider the following statements: (2018)

1. Aadhaar card can be used as a proof of citizenship or domicile.
2. Once issued, the Aadhaar number cannot be deactivated or omitted by the Issuing Authority.

Which of the statements given above is/are correct?

(a) 1 only       (b) 2 only          (c) Both 1 and 2           (d) Neither 1 nor 2

 

2. What is the position of the Right to Property in India? (UPSC  2021)

(a) Legal right available to citizens only
(b) Legal right available to any person
(c) Fundamental Rights available to citizens only
(d) Neither Fundamental Right nor legal right

 

3.  With reference to the Delimitation Commission, consider the following statements: (UPSC 2012)
1. The orders of the Delimitation Commission cannot be challenged in a Court of Law.
2. When the orders of the Delimitation Commission are laid before the Lok Sabha or State Legislative Assembly, they cannot effect any modifications in the orders.
Which of the statements given above is/are correct? 
A. 1 only             B. 2 only           C. Both 1 and 2               D. Neither 1 nor 2
 
 
4. Barak Valley in Assam is famous for which among the following? (MSTET 2019)
A.  Bamboo Industry
B. Petroleum Production
C. Cottage Industries
D. Tea Cultivation
 
 
5. Which one of the following is an important crop of the Barak Valley? (Karnataka Civil Police Constable 2019)
A. Sugarcane           B.  Jute            C. Tea                    D. Cotton
 
 
6. Under Assam Accord of 1985, foreigners who had entered Assam before March 25, _____ were to be given citizenship.  (DSSSB JE & Section Officer 2022)
A. 1954           B. 1971         C.  1981           D. 1966
 
Answers: 1-D, 2-B, 3-C, 4-D, 5-B, 6-B
 
Source: The Indian Express
 
 

ARMED FORCES (SPECIAL POWERS) ACT, 1958 (AFSPA)

 
 
1. Context
Union Home Minister Amit Shah’s broad hints at the Centre’s readiness to revoke the Armed Forces Special PowersAct (AFSPA) from Jammu and Kashmir evoked cautious and guarded reactions from regional parties in the Union Territory
 
2.Armed Forces (Special Powers) Act, 1958
The Armed Forces (Special Powers) Act, 1958, often referred to as AFSPA, is an Indian law that grants special powers to the armed forces in designated "disturbed areas" in order to maintain public order. The act was originally enacted on September 11, 1958, to deal with the insurgency in the northeastern states of India.
The Act in its original form was promulgated by the British in response to the Quit India movement in 1942. After Independence, Prime Minister Jawaharlal Nehru decided to retain the Act, which was first brought in as an ordnance and then notified as an Act in 1958
 
3.Key Provisions of the Act

Key provisions of AFSPA include:

  1. Arrest and Search: Under AFSPA, security forces are empowered to arrest anyone without a warrant and to search any premises in the designated area if they have "reasonable suspicion" that the person or place is linked to unlawful activities.

  2. Shoot to Kill: In certain situations, the act provides legal immunity to armed forces personnel who use force, even if it results in the death of a person, as long as they believe it to be necessary for the maintenance of public order.

  3. Detention: The act allows for the detention of individuals without filing formal charges for up to six months, extendable by another six months with permission from the government.

  4. Legal Protections: Under AFSPA, legal proceedings against armed forces personnel can only be initiated with the prior approval of the central government, making it difficult to hold them accountable for alleged abuses.

  5. Designated Disturbed Areas: The act is typically applied in areas that are declared "disturbed" by the state or central government. This designation allows for the deployment of armed forces with these special powers.

4. Challenges around AFSPA
  • AFSPA has been a subject of significant controversy and criticism over the years. Human rights organizations and activists have raised concerns about its potential for abuse, including allegations of extrajudicial killings, torture, and other human rights violations by security forces.
  • Critics argue that the act undermines accountability and can lead to the misuse of power by the armed forces
  • The AFSPA has been criticized for giving the armed forces too much power and for violating the human rights of civilians
  • There have been numerous allegations of extrajudicial killings, torture, and other human rights abuses by the armed forces under the AFSPA
  • The AFSPA has also been criticized for undermining the authority of the state police and for creating a climate of fear and distrust among civilians
 
5. Current Status of AFSPA
  • The AFSPA is currently in force in the states of Assam, Manipur, Nagaland, and parts of Arunachal Pradesh.
  • In 2022, the Government of India partially lifted the AFSPA from parts of Assam, Manipur, and Nagaland.
  • There have been calls for the AFSPA to be repealed altogether, but the government has argued that it is necessary to maintain public order in the affected areas.
6. Way forward
Various states in India, especially in the northeastern region and Jammu and Kashmir, have experienced prolonged periods of insurgency and conflict, and AFSPA has often been applied in response to these security challenges. However, there have been calls for its repeal or significant amendment to address the concerns of human rights violations and improve accountability.
 
 
For Prelims: AFSPA, Disturbed Areas, North Eastern States, Fifth Schedule, Sixth Schedule of Indian Constitution
For Mains: 1.Discuss the historical evolution and significance of the Armed Forces (Special Powers) Act, 1958. Examine the criticisms and concerns associated with its application in conflict zones in India. What reforms, if any, are required to address these concerns?
2.Critically evaluate the international perspective on the Armed Forces (Special Powers) Act, 1958, and its impact on India's image as a democratic nation. How does AFSPA affect India's relations with neighboring countries and international human rights organizations?
 
 
 
Previous Year Questions
 
1.Recently, the Armed Forces (Special Powers) Act was completely removed from which one of the following States? (UPSC CAPF 2018)
A. Arunachal Pradesh
B. Nagaland
C. Meghalaya
D. Assam
Answer (C)
Source: indianexpress
 

ROHINGYAS

 

1. Context

The dramatic rescue of dozens of Rohingya refugees from the Indian Ocean last week after a wooden boat capsized off the Indonesian coast has once again drawn attention to the plight of the refugees who are increasingly embarking on dangerous sea journeys to seek a better life. As per the United Nations High Commissioner for Refugees (UNHCR), over 4,500 Rohingya refugees set off on dangerous journeys across the Bay of Bengal and the Andaman Sea last year. Of these, 569 people lost their lives or went missing, marking the highest death toll since 2014

2. Who is Rohingyas?

  • Rohingya are an ethnic group, representing the largest percentage of Muslims in Myanmar and predominantly live in the Western Myanmar province of Rakhine.
  • They speak a dialect of Bengali, as opposed to the commonly spoken Burmese language.
  • They are described by the United Nations (UN) as one of the most persecuted minorities in the world.
  • The Rohingya population is denied citizenship under the 1982 Myanmar nationality law. They have denied the Rohingya the possibility of acquiring a nationality.
  • The flow of Rohingya from Myanmar intensified in 2017 and the coast near the Bangladeshi city of Cox’s Bazar was taken over by refugee settlements.
  • Recently, Bangladesh started relocating Rohingya refugees from overcrowded camps at Cox’s Bazar to Bhasan Char Island, which is an ecologically fragile area prone to floods.

3. History of Islam in the Arakan region of Myanmar

  • The Rakhine (previously called Arakan) region of Northern Myanmar, is largely believed to be the original home of the Rohingyas and has shared a porous border along the Naaf River with Chittagong in Bangladesh.
  • Before the modern state of Myanmar came into being, this border was not exactly known to be a line of the division between two separate communities and historical evidence shows a frequent movement of people across the border. 
  • In pre-colonial days, the region of Arakan was an independent kingdom, separate from both the Burmese kingdoms and the Mughal empire in India and Bengal.
  • In 1459, the Arakan king is believed to have conquered Chittagong which had a dense Muslim population. In the years that followed, the Arakanese control in Chittagong led to an intimate relationship developing between the Muslims and the inhabitant of Arakan.
  • In 1784, Burmese King Bodawpaya conquered the Arakan region and brought it under the control of the kingdom of Ava in central Burma.
  • What followed was severe oppressive measures taken by the Burmese ruler against the Arakanese population and the latter rebelling against them.
  • Thereafter, a large number of Arakanese (both Buddhists and Muslims) fled to the neighboring territory of Bengal which was by now under British rule.
  • The large numbers of which Indians, particularly the Bengalis, who were brought into Arakan were a cause of great resentment to the Burmese population, who were now also in the process of developing strong nationalist feelings.
  • After the Second World War, when the British left Burma, large sections of the Indian population followed. Those who were left behind were in any case in the bad books of the Buddhist Burmese population and soon after a large number of communal clashes started taking place between the two groups.
  • While the Arakanese Muslims, largely inspired by the formation of Pakistan along religious lines, started demanding an autonomous region for themselves on ethnic grounds, the independent government of Myanmar continued discriminating against them and later ensured that they do not receive legal citizenship status in the country.

4. India's concerns

  • The illegal immigration of Rohingyas into India and their stay here can have serious national security ramifications and poses serious security threats.
  • It impacts the interests of local populations in the areas seeing large-scale influxes of illegal immigrants.
  • It increases political instability when leaders start mobilizing the perception of the citizens against the migrants.
  • The persistent attacks against the Muslims perceived as illegal migrants have given way to radicalization.
  • Trafficking of women and human smuggling has become quite rampant across borders.
  • The rule of law and integrity of India is undermined by the illegal migrants due to their engagement in illegal and anti-national activities.

5. India's Stance on Rohingyas

  • Amid fears of a fresh exodus of Rohingya from Myanmar, the MHA in 2017 Cautioned all the states about infiltration from the Rakhine State of Myanmar into Indian Territory.
  • It cited the Burden on the limited resources of the country that aggravates the security challenges, especially in the Northeast.
  • It also said the rise in terrorism in the last few decades is a cause for concern in most nations and that illegal migrants are more vulnerable to getting recruited by terrorist organizations.

6. India's stand on refugees?

India is not a signatory to the 1951 UN Convention relating to the Status of Refugees and the 1967 Protocol.
All foreign undocumented nationals are governed as per the:
  • The Foreigner's Act, 1946
  • The Registration of Foreigners Act, 1930
  • The Passport (Entry into India) Act, of 1920
  • The Citizenship Act, 1955.
For Prelims: 1951 UN Convention relating to the Status of Refugees, United Nations (UN), Bhasan Char Island, The Foreigner's Act, 1946, The Registration of Foreigners Act, 1930, The Passport (Entry into India) Act, of 1920, and The Citizenship Act, 1955.
For Mains: 1. Analyze internal security threats and transborder crimes along Myanmar, Bangladesh, and Pakistan borders including the Line of Control (LoC). Also, discuss the role played by various security forces in this regard. (250 Words) (UPSC 2020).
 

7. Why sea journeys?

  • Since the 1990s, more than one million Rohingya individuals have fled Myanmar, but approximately six hundred thousand still reside within the country, primarily in restricted camps for internally displaced persons.
  • Additionally, an estimated nine hundred and sixty thousand Rohingya are located in refugee camps in Bangladesh, predominantly in Cox’s Bazar near the Myanmar border. These camps, which have evolved into some of the world’s largest and most densely populated, lack essential resources, resulting in harsh living conditions.
  • Shortages of food, inadequate access to water, lack of sanitation facilities, insufficient healthcare, and limited educational opportunities for children are prevalent.
  • Moreover, security conditions have deteriorated over time due to gang violence and an escalation in arson attacks within the camps. In 2023 alone, clashes within Bangladeshi camps resulted in the deaths of over sixty Rohingya individuals.
  • With the prospect of returning to Myanmar virtually non-existent and worsening conditions in the Bangladeshi relief camps, an increasing number of Rohingya have opted for perilous journeys across the Bay of Bengal and the Andaman Sea toward Muslim-majority nations such as Indonesia and Malaysia.
  • However, their desperation is exploited by human traffickers who charge exorbitant fees to transport them on precarious vessels from Bangladesh to Indonesia. These treacherous voyages, characterized by overcrowding and a lack of basic provisions, can span weeks or even months.
  • Reports of horrific abuses during these journeys, including violence against women, are common, and many do not survive the ordeal
8.Way Forward
The United Nations estimates that one out of every eight Rohingya individuals attempting the sea route either dies or goes missing, rendering the Andaman Sea and Bay of Bengal among the deadliest maritime passages globally. Last year witnessed a 21% surge in the number of people undertaking sea journeys, with the UNHCR reporting a 63% rise in fatalities or disappearances compared to 2022. Furthermore, the report underscored a significant increase in Rohingya arrivals in Indonesia via sea routes in recent years, with a staggering 1,261% rise in the number of refugees reaching Indonesia between 2021 and 2023. While 64% of refugee boats arrived in Indonesia last year, compared to 22% in 2022, only one vessel carrying 83 individuals managed to reach Malaysia, as per UNHCR data
 

Previous year Question

 
1. Consider the following pairs:(UPSC 2016)
Community is sometimes mentioned in the news                  In the affairs of
1. Kurd                                                                                       Bangladesh
2. Madhesi                                                                                  Nepal
3. Rohingya                                                                                Myanmar
Which of the pairs given above is/are correctly matched?
A. 1 and 2
B. 2 only
C. 2 and 3
D. 3 only
Answer: C
 Source: The Indian Express
 

FOREIGN DIRECT INVESTMENT (FDI)

 
 
1. Context
The Indian economy grew at 7.8 per cent in the first quarter of the ongoing financial year. Forecasts by most analysts, including those by the RBI, indicate that the country is likely to grow at around 6-6.5 per cent over the full year. Medium-term assessments, such as those by the IMF, peg growth at roughly 6 per cent between 2023 and 2028.
 
2. FDI in India
  • India's net foreign direct investment (FDI) inflows experienced a decline, decreasing by nearly 31% to $25.5 billion during the first 10 months of the 2023-24 fiscal year. The Finance Ministry attributed this decline to a broader trend of slowing investments in developing countries, while expressing optimism for a potential increase in investments in the current calendar year.
  • Although global FDI flows overall saw a 3% rise to approximately $1.4 trillion in 2023, economic uncertainty and elevated interest rates impacted global investment, resulting in a 9% decrease in FDI flows to developing nations, as outlined in the Ministry's February assessment of economic performance.
  • Reflecting the global trend of reduced FDI flows to developing countries, gross FDI inflows to India also experienced a slight decline, from $61.7 billion to $59.5 billion during the period from April 2023 to January 2024. In terms of net inflows, the corresponding figures were $25.5 billion versus $36.8 billion. The decrease in net inflows was primarily attributed to an increase in repatriation, while the decline in gross inflows was minimal.
  • While a modest uptick in global FDI flows is anticipated for the current calendar year, attributed to a decrease in inflation and borrowing costs in major markets that could stabilize financing conditions for international investment, significant risks persist, according to the Ministry. These risks include geopolitical tensions, elevated debt levels in numerous countries, and concerns regarding further fragmentation of the global economy
 
3. Foreign Direct Investment (FDI)
Foreign Direct Investment (FDI) refers to the investment made by individuals, businesses, or governments from one country (the home country) into another country (the host country) with the objective of establishing a lasting interest or significant degree of influence in the foreign business or enterprise
Key Aspects:
  • FDI involves the transfer of funds and resources from one country to another. This capital inflow can help stimulate economic growth in the host country by providing funds for investment in infrastructure, technology, and other areas.
  • FDI often leads to the creation of jobs in the host country. When foreign companies establish subsidiaries or invest in existing businesses, they typically hire local employees, which can help reduce unemployment and improve living standards
  • Foreign investors often bring advanced technologies, processes, and management practices to the host country. This technology transfer can enhance the host country's productivity, competitiveness, and industrial capabilities
  • FDI can provide access to new markets for both the host country and the investing company. Foreign investors can tap into the host country's consumer base, while the host country gains access to the investing company's global distribution networks.
  • FDI can contribute to overall economic development in the host country by promoting industrialization, improving infrastructure, and fostering innovation and entrepreneurship.
4.FDI Routes in India
India has several routes through which Foreign Direct Investment (FDI) can enter the country. These routes are regulated by the Reserve Bank of India (RBI) and the Department for Promotion of Industry and Internal Trade (DPIIT), and they define the conditions, limits, and sectors in which FDI is allowed

  1. Automatic Route: Under the automatic route, FDI is allowed without the need for prior approval from the RBI or the government. Investors only need to notify the RBI within a specified time frame after the investment is made. This route is available for most sectors, except those that are prohibited or require government approval.

  2. Government Route: In sectors or activities that are not covered under the automatic route, FDI requires government approval. Investors must apply for approval through the Foreign Investment Facilitation Portal (FIFP) or the Foreign Investment Promotion Board (FIPB), depending on the sector.

4.1. Examples
  • Under the automatic route, FDI of up to 100% is allowed for manufacturing of automobiles and components.
  • For the manufacturing of electric vehicles (EVs), 100% FDI is allowed under the automatic route.
  • In single-brand retail trading, 100% FDI is allowed, with up to 49% allowed under the automatic route. Beyond 49%, government approval is required.
  • Multi-brand retail trading (supermarkets and department stores) with FDI is permitted in some states, subject to certain conditions and restrictions. The FDI limit is typically capped at 51%.
  • FDI in the insurance sector is allowed up to 74%, with up to 49% under the automatic route. Beyond 49%, government approval is needed
  • In the telecom sector, 100% FDI is allowed, with up to 49% under the automatic route. Beyond 49%, government approval is required
  • In the defense sector, FDI up to 74% is allowed under the automatic route, with government approval required for investments beyond 49%
  • In most segments of the media and broadcasting sector, including print and digital media, 100% FDI is allowed, with up to 49% under the automatic route
4.2.Sectors where FDI Prohibited
  • FDI is prohibited in the atomic energy sector, which includes activities related to the production of atomic energy and nuclear power generation.
  • FDI is generally prohibited in the gambling and betting industry, which includes casinos and online betting platforms
  • FDI is not allowed in the lottery business, except for state-run lotteries
  • FDI is prohibited in chit funds, which are traditional Indian savings and credit schemes.
  •  Nidhi companies are non-banking finance companies (NBFCs) that facilitate mutual benefit funds. FDI is typically not permitted in these entities
  • While FDI is allowed in single-brand retail trading, it is generally prohibited in multi-brand retail trading of agricultural products. Some states have allowed it under specific conditions, but this remains a highly regulated area.
  • FDI is not allowed in the trading of transferable development rights (TDRs) pertaining to the construction of real estate
5. Foreign Portfolio Investors (FPIs)
Foreign Portfolio Investors (FPIs) refer to foreign individuals, institutions, or funds that invest in financial assets in a country, such as stocks, bonds, mutual funds, and other securities. FPIs are distinct from Foreign Direct Investors (FDIs), who typically make long-term investments in companies and assets to establish a lasting interest
Key Aspects:
  • FPIs invest in a country's financial markets, primarily by buying and selling securities traded on stock exchanges and fixed-income instruments like bonds and government securities
  • FPIs often seek to diversify their investment portfolios by spreading their investments across different asset classes, sectors, and countries. This diversification helps manage risk and enhance returns
  • FPIs have the flexibility to buy and sell securities in the secondary market, providing liquidity to the market and contributing to price discovery
  • FPIs typically have a shorter investment horizon compared to Foreign Direct Investors (FDIs). They may engage in short-term trading or hold securities for a few months to a few years.
  • FPIs are subject to regulatory frameworks and restrictions in the countries where they invest. These regulations are designed to ensure that foreign investments do not pose undue risks to the local financial markets and economy.
6.Foreign Portfolio vs. Foreign Direct Investment
FPI (Foreign Portfolio Investment) FDI (Foreign Direct Investment)
FPI involves the purchase of financial assets such as stocks, bonds, mutual funds, and other securities in a foreign country. These investments are typically made with the intention of earning returns on capital and do not result in significant control or ownership of the underlying businesses FDI entails making an investment in a foreign country with the primary objective of establishing a lasting interest and significant control or influence over a business enterprise or physical assets. FDI often involves the acquisition of a substantial ownership stake (typically at least 10%) in a company or the establishment of new business operations.
FPI is generally characterized by a shorter investment horizon. Investors in FPI may engage in trading and portfolio rebalancing activities, and their investments are often more liquid. The focus is on earning capital gains and income from investments. FDI is characterized by a longer-term commitment. Investors in FDI intend to engage in the day-to-day management or decision-making of the business, contribute to its growth and development, and generate profits over an extended period.
FPI investors typically have little to no influence or control over the companies in which they invest. They are passive investors who participate in the financial markets and rely on market dynamics to drive returns. FDI investors actively participate in the management and decision-making of the businesses they invest in. They often seek to exercise control over company operations and strategy, which may include appointing board members or key executives.
FPI investments are often made through financial instruments like stocks, bonds, and securities. Investors may use instruments like mutual funds or exchange-traded funds (ETFs) to gain exposure to foreign markets FDI investments involve a direct equity stake in a company, either through share acquisition or the establishment of a subsidiary or branch in the host country. FDI can also involve the purchase of real assets such as land, factories, or infrastructure
FPI can provide short-term capital inflows, but it may be more susceptible to market volatility and sudden capital outflows. It may not have as direct an impact on job creation and economic development as FDI. FDI often contributes to long-term economic development by creating jobs, stimulating infrastructure development, transferring technology and expertise, and enhancing the competitiveness of local industries
FPI investments are subject to regulations that vary by country and may include foreign ownership limits, reporting requirements, and tax considerations. FDI is subject to regulations that can be more stringent and may involve government approval, sector-specific conditions, and investment protection measures
 
 
 
 
For Prelims: Economic and Social Development-Sustainable Development, Poverty, Inclusion, Demographics, Social Sector Initiatives, etc
For Mains: General Studies III: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment
 
 
Previous Year Questions
 
1. Both Foreign Direct Investments (FDI) and Foreign Institutional Investor (FII) are related to investment in a country. (UPSC CSE 2011)
 
Which one of the following statements best represents an important difference between the two?
A.FII helps bring better management skills and technology, while FDI only brings in capital
B.FII helps in increasing capital availability in general, while FDI only targets specific sectors C.FDI flows only into the secondary markets, while FII targets primary market
D.FII is considered to the more stable than FDI
 
Answer (B)
 
Source: indianexpress

ALTERNATIVE INVESTMENT FUND (AIF)

 
 
1. Context

The Reserve Bank of India (RBI) has modified norms for regulated entities (REs) concerning their investments in Alternative Investment Funds (AIFs).

As per the fresh directive, REs need to only set aside provisions to the extent their investment in an AIF scheme is further invested by the AIFs in a debtor’s company, and not the entire investment in the AIF scheme

2.What are Alternative Investment Funds?

  • Alternative Investment Funds (AIFs) are a category of investment funds that pool money from investors to invest in assets beyond traditional stocks, bonds, and cash. These funds pursue a wide range of investment strategies and asset classes, including private equity, venture capital, hedge funds, real estate, commodities, distressed securities, infrastructure, and more. AIFs are typically structured as private investment vehicles and are managed by professional fund managers or investment advisors.
  • AIFs are regulated entities and may be subject to specific regulations depending on the jurisdiction they operate in.
  • They offer investors the opportunity to diversify their portfolios and potentially achieve higher returns by investing in non-traditional or less liquid assets. However, they often come with higher risks due to the complexity and illiquidity of the underlying investments.
  • AIFs are typically targeted at institutional investors, high-net-worth individuals, and sophisticated investors due to their specialized nature and higher risk profile. They may have minimum investment requirements and may impose lock-up periods during which investors cannot redeem their investments.
  • Overall, Alternative Investment Funds play a crucial role in providing investors access to a broader range of investment opportunities beyond traditional asset classes, offering potential for enhanced portfolio diversification and return
3.Categories of Alternative Investment Funds (AIF)
 

Alternative Investment Funds (AIFs) are typically categorized into three broad categories based on their investment strategies and objectives. These categories are defined by the Securities and Exchange Board of India (SEBI) in India, but similar classifications are used in other jurisdictions as well:

  • Category I AIFs:

    • These funds invest in start-up or early-stage ventures, social ventures, small and medium-sized enterprises (SMEs), infrastructure, or other sectors or areas which the government or regulators consider as economically or socially desirable.
    • Examples include venture capital funds, SME funds, social venture funds, infrastructure funds, and angel funds.
    • Category I AIFs typically involve higher risk but also potentially higher returns, especially in the case of successful start-ups or innovative projects.

  • Category II AIFs:

    • These funds invest in debt or equity securities of companies or projects, real estate, or other assets excluding those covered under Category I and Category III AIFs.
    • Examples include private equity funds, debt funds, distressed asset funds, and real estate funds.
    • Category II AIFs generally aim for stable returns and may offer diversification benefits to investors seeking exposure to alternative asset classes beyond traditional stocks and bonds.

  • Category III AIFs:

    • These funds employ diverse trading strategies to generate short-term returns, often through derivatives, leverage, and other complex financial instruments.
    • Examples include hedge funds, commodity funds, and other funds focused on trading and speculation.
    • Category III AIFs are typically geared towards sophisticated investors seeking potentially higher returns through active trading strategies, but they also carry higher levels of risk due to their speculative nature and use of leverage.

These categories help investors understand the general investment strategies and risk profiles of different types of AIFs, allowing them to make informed decisions based on their investment objectives, risk tolerance, and preferences. Additionally, regulators may impose specific requirements and restrictions on each category of AIFs to ensure investor protection and market integrity

4.Tenure and Listing of AIFs

The tenure and listing of Alternative Investment Funds (AIFs) can vary depending on the specific fund's structure, strategy, and regulatory requirements. Here's a general overview:

  • Tenure:

    • AIFs typically have a finite tenure, which is determined by the fund's offering documents or regulatory guidelines.
    • The tenure of an AIF can vary widely depending on its investment strategy, asset class, and objectives. For example, some AIFs may have a relatively short-term focus, such as distressed asset funds or opportunistic real estate funds, with tenures ranging from a few years to a decade or more.
    • Other AIFs, such as private equity funds or venture capital funds, may have longer tenures, often spanning multiple years or even decades, to allow sufficient time for investment, value creation, and exit strategies.

  • Listing:

    • AIFs are typically structured as private investment vehicles and are not listed on public stock exchanges.
    • Unlike mutual funds, which are often publicly traded and offer daily liquidity to investors, AIFs generally have limited liquidity and are not subject to the same level of regulatory oversight regarding investor redemptions.
    • However, some AIFs may offer periodic liquidity events or secondary market transactions for investors to exit their investments, especially in the case of closed-end funds with longer tenures.
    • While AIFs themselves are not listed, the underlying assets held by AIFs, such as publicly traded securities or real estate properties, may be listed or traded on public exchanges or markets
5.Characteristics of Alternative Investment Funds

Alternative Investment Funds (AIFs) possess several key characteristics that differentiate them from traditional investment vehicles like mutual funds. Here are some major characteristics of AIFs:

  • Diverse Investment Strategies: AIFs employ a wide range of investment strategies beyond traditional asset classes like stocks and bonds. These strategies may include private equity, venture capital, hedge funds, real estate, commodities, distressed securities, infrastructure, and more.

  • Limited Regulation: AIFs typically operate with less regulatory oversight compared to mutual funds. While they are subject to regulatory requirements, they often have more flexibility in their investment strategies, portfolio composition, and fee structures.

  • Limited Liquidity: AIFs generally offer limited liquidity to investors compared to mutual funds. Many AIFs have lock-up periods during which investors cannot redeem their investments, and redemption opportunities may be limited or infrequent.

  • High Minimum Investments: AIFs often have high minimum investment requirements, making them accessible primarily to institutional investors, high-net-worth individuals, and sophisticated investors.

  • Higher Risk and Return Potential: AIFs are often characterized by higher risk due to their focus on alternative asset classes and investment strategies. However, they also offer the potential for higher returns compared to traditional investments over the long term.

  • Professional Management: AIFs are typically managed by professional fund managers or investment advisors with expertise in the specific asset classes or investment strategies employed by the fund.

  • Limited Transparency: AIFs may offer limited transparency compared to mutual funds, as they are often structured as private investment vehicles. Disclosure requirements vary depending on the jurisdiction and regulatory framework governing the fund.

  • Customized Investment Approach: AIFs often provide more flexibility and customization in their investment approach compared to traditional investment vehicles. This allows fund managers to tailor investment strategies to specific market opportunities and investor preferences.

  • Regulatory Compliance: AIFs are subject to regulatory compliance requirements imposed by the regulatory authorities in the jurisdictions where they operate. These requirements may include registration, reporting, and disclosure obligations to ensure investor protection and market integrity.

  • Diversification Benefits: AIFs offer investors the opportunity to diversify their portfolios beyond traditional asset classes, potentially reducing overall portfolio risk and enhancing risk-adjusted returns

 
6. Advantages of Alternative Investment Funds (AIF)
 
Alternative Investment Funds (AIFs) offer several advantages to investors seeking diversification, higher returns, and exposure to non-traditional asset classes and investment strategies.
 
Some of the key advantages of AIFs include:
  • AIFs provide investors with access to a wide range of alternative asset classes and investment strategies beyond traditional stocks and bonds. By diversifying their portfolios across different asset classes, investors can potentially reduce overall portfolio risk and enhance risk-adjusted returns
  • AIFs often target higher returns compared to traditional investments over the long term. Alternative asset classes such as private equity, venture capital, and real estate have the potential to generate attractive returns, particularly in sectors or markets with high growth potential
  •  AIFs offer flexibility and customization in their investment approach, allowing fund managers to tailor investment strategies to specific market opportunities, investor preferences, and risk profiles. This customization enables investors to align their investment objectives with the fund's strategy more effectively
  • AIFs are typically managed by professional fund managers or investment advisors with specialized expertise in alternative asset classes and investment strategies. Investors benefit from the experience, knowledge, and resources of these managers, who employ rigorous due diligence and active management to identify and capitalize on investment opportunities
  • Many alternative asset classes held by AIFs, such as private equity, venture capital, and real estate, are less liquid compared to publicly traded securities. While this illiquidity may limit investor redemption options, it can also lead to an illiquidity premium, potentially resulting in higher returns for investors willing to accept longer investment horizons
  • Some AIFs, such as hedge funds, employ sophisticated trading strategies to hedge against market downturns or specific risks. These strategies may include derivatives, short selling, and other techniques aimed at mitigating downside risk and preserving capital during volatile market conditions
  • AIFs often employ rigorous risk management practices to mitigate investment risks and preserve capital. Fund managers conduct thorough due diligence, employ diversification strategies, and actively monitor portfolio holdings to manage risk effectively and protect investor capital
  • AIFs operate with greater regulatory flexibility compared to mutual funds, allowing fund managers to pursue innovative investment strategies and structures tailored to specific market opportunities and investor needs
7. Disadvantages of Alternative Investment Funds (AIF)
 
While Alternative Investment Funds (AIFs) offer several advantages, they also come with certain disadvantages and risks that investors should consider before investing.
 
Some of the key disadvantages of AIFs include:
 
  • AIFs often invest in alternative asset classes and employ non-traditional investment strategies that can be riskier compared to traditional investments such as stocks and bonds. Alternative asset classes like private equity, venture capital, and hedge funds may be subject to higher volatility, illiquidity, and operational risks
  • AIFs may offer limited transparency compared to traditional investment vehicles like mutual funds. They may have less frequent reporting requirements and provide investors with limited visibility into the underlying assets, portfolio holdings, and investment strategies employed by the fund
  • Many AIFs have limited liquidity compared to publicly traded securities. Investors may face restrictions on redemption options, lock-up periods, and infrequent liquidity events, making it challenging to access their investment capital when needed
  • AIFs often charge higher fees compared to traditional investment vehicles, including management fees, performance fees, and other expenses. These fees can erode investment returns over time, particularly in funds with underperforming strategies or high expense ratios
  • AIFs may employ complex investment strategies and structures that can be difficult for investors to understand and evaluate. Strategies such as leverage, derivatives, and alternative trading techniques may amplify risks and result in unexpected losses
  • AIFs are subject to regulatory constraints and compliance requirements imposed by regulatory authorities in the jurisdictions where they operate. Changes in regulatory frameworks, tax laws, or market regulations can impact fund performance and operational flexibility
  • AIFs may offer limited investor protection compared to regulated investment vehicles like mutual funds. Investors may have fewer rights, recourse options, and avenues for dispute resolution in the event of fraud, mismanagement, or conflicts of interest
  • AIFs rely heavily on the expertise and judgment of fund managers or investment advisors. The success of the fund may be heavily influenced by the manager's ability to identify and capitalize on investment opportunities, manage risk effectively, and adapt to changing market conditions
 
Source:The Hindu
INDIA EMPLOYMENT REPORT 2024
 
 
 
 
1. Context
 
Even as overall labour force participation, workforce participation and employment rates improved in India in recent years after showing long-term deterioration during 2000-2019, the employment conditions remain poor, according to the ‘India Employment Report 2024’ released by the Institute for Human Development (IHD) and International Labour Organisation (ILO).
 
 
2. Key Takeaways from the India Employment Report 2024

The India Employment Report 2024, a joint undertaking by the Institute for Human Development (IHD) and the International Labour Organization (ILO), sheds light on critical trends in India's labour market, particularly concerning youth employment. 

  • Shifting Employment Landscape: The report highlights a slowdown in the transition from farm to non-farm employment. This indicates a growing number of individuals resorting to self-employment and unpaid family work, with women constituting a significant portion of this shift.
  • Youth Employment Concerns: The report reveals a worrying trend of rising unemployment among young people, especially those with secondary education or higher. This issue is further compounded by the fact that youth employment often entails poorer quality jobs compared to adult employment. Stagnant or declining wages, alongside a higher prevalence of unpaid family work among youth, paint a concerning picture.
  • Educated Yet Unemployed: The report emphasizes the growing concentration of unemployment among educated youth, particularly women in urban areas. The share of educated unemployed youth within the total unemployed population has risen significantly, from 54.2% in 2000 to 65.7% in 2022.
  • Policy Recommendations: The report underscores the need for economic policies that prioritize boosting productive non-farm employment, particularly in the manufacturing sector. Given India's projected addition of 7-8 million youths to the workforce annually, labour-intensive manufacturing holds immense potential for absorbing the large pool of unskilled labour. The report also advocates for supporting micro, small, and medium-sized enterprises (MSMEs) through a decentralized approach that leverages digitalization, artificial intelligence, and cluster-based manufacturing strategies.
  • Quality Job Creation and Urbanization: The report emphasizes the importance of improving job quality by investing in and regulating sectors like the care economy and the digital economy, which are expected to be significant sources of employment for young people. With India anticipating a rise in urbanization and migration, the report calls for inclusive urban policies that cater to the needs of migrants, women, and young people from underprivileged backgrounds.
  • Bridging the Skills Gap: The report highlights the crucial role of skills development and active labour market policies (ALMPs) in effectively bridging the gap between job supply and demand. It emphasizes the need for a more prominent role for state governments, stronger partnerships with the private sector and other stakeholders, and a more targeted approach with a larger contribution from the private and non-state sectors.
  • Focus on Knowledge and Action: The report concludes by underlining five key policy areas demanding further action:
    1. Promoting job creation
    2. Improving employment quality
    3. Addressing labour market inequalities
    4. Strengthening skills and active labour market policies
    5. Bridging the knowledge gap on labour market patterns and youth employment

 

3. Employment Rate (ER) and Unemployment Rate (UER)

Both the Employment Rate (ER) and Unemployment Rate (UER) are crucial statistics used to gauge the health of a country's labour market. 

Employment Rate (ER)

  • The ER represents the percentage of the working-age population that is currently employed. It essentially reflects the share of people actively contributing to the economy through paid work.
  • Calculation:
    • ER = (Number of employed people) / (Total working-age population) x 100
  • Example: If a country has 100 million working-age adults and 65 million are employed, the ER would be (65 million / 100 million) x 100 = 65%.
  • A high ER indicates a robust economy with a large portion of the population actively participating in the workforce. Conversely, a low ER suggests a sluggish economy with fewer employment opportunities.

Unemployment Rate (UER)

  • The UER represents the percentage of the labour force (people actively looking for work) that is currently unemployed. It essentially reflects the portion of the workforce unable to find employment.
  • Calculation: UER = (Number of unemployed people) / (Total labour force) x 100
  • Labor Force refers to the working-age population that is either employed or actively seeking employment (unemployed).
  • Example: If a country has a total labour force of 70 million and 7 million are unemployed, the UER would be (7 million / 70 million) x 100 = 10%.
  • A low UER signifies a strong labour market with ample job opportunities for those seeking work. Conversely, a high UER indicates a weak labour market with many individuals unable to find employment.

Key Differences

  • Focus: ER focuses on the employed population, while UER focuses on the unemployed population within the labour force.
  • Data Used: ER uses the total working-age population, whereas UER uses the labour force (employed + unemployed).
  • Interpretation: A high ER is generally positive, while a high UER is negative for the economy.
 
4. The Unemployment Rate and its Calcualtion

The Unemployment Rate refers to the percentage of the labour force that is currently unemployed but actively seeking work. It's a key indicator of the health of a country's job market.

CMIE (Centre for Monitoring the Indian Economy) doesn't publicly disclose the exact formula for their unemployment rate calculation. However, we can understand the general concept behind unemployment rate calculation:

Calculating Unemployment Rate

  1. Labour Force: This represents the total number of people in the working-age population who are either employed or unemployed but actively seeking work.

  2. Unemployed: This represents the number of people in the labour force who are currently without a job but actively looking for work.

Formula: Unemployment Rate (UER) = (Unemployed People) / (Labor Force) x 100

Example: Imagine a scenario where a country has a labour force of 70 million people, out of which 7 million are unemployed. The unemployment rate would be:

UER = (7 million unemployed people) / (70 million labour force) x 100 = 10%

CMIE's Approach 

  • CMIE likely conducts regular surveys of a representative sample of the Indian population.
  • During the surveys, they collect data on various aspects of employment status, including employment, unemployment, and reasons for unemployment.
  • Based on the survey data, CMIE estimates the size of the labour force and the number of unemployed people.
  • They then use the formula mentioned above to calculate the unemployment rate.
 

5. Centre for Monitoring Indian Economy (CMIE)-Role

The Centre for Monitoring the Indian Economy (CMIE) is an independent think tank and research organization that plays a significant role in providing economic and business information, analysis, and research in India. It is not directly affiliated with any specific ministry or government organization but operates as a private entity focused on economic data and analytics. 

Role of CMIE

  • Data Collection and Analysis: CMIE collects and analyzes data related to various economic indicators, including employment, unemployment, industrial output, consumer sentiment, business activity, and economic trends.
  • Economic Research: It conducts economic research, surveys, and studies to provide insights into India's economic performance, sectoral trends, and policy implications.
  • Publication of Reports: CMIE publishes reports, indices, and economic indicators that are widely used by policymakers, businesses, researchers, and the general public to understand and assess economic conditions and trends in India.
  • Forecasting and Projections: CMIE also engages in economic forecasting and projections, offering assessments of future economic scenarios based on current data and trends.

Organizational Structure

  • CMIE operates as an independent private organization and is not under the purview of any specific ministry or government department.
  • It functions as a research and data analytics firm, providing services to various stakeholders including government agencies, businesses, financial institutions, media organizations, and academic institutions.

Data and Surveys

  • One of CMIE's notable contributions is its regular surveys and data collection efforts, especially in areas such as employment and unemployment. CMIE's data on the unemployment rate and labour market dynamics are widely referenced and used for economic analysis and policy discussions.
  • CMIE's surveys and databases often cover a wide range of economic and social parameters, providing comprehensive insights into India's economic landscape.

Role in Economic Policy and Analysis

  • CMIE's research and data play a role in informing economic policy discussions, debates, and decision-making processes in India. Its reports and analyses contribute to the understanding of economic challenges, opportunities, and potential policy interventions.
  • Policymakers, economists, researchers, and business leaders rely on CMIE's data and analysis to assess economic performance, monitor trends, and formulate strategies for economic growth and development.

 

6. Reasons for the rise in Unemployment Rate

The rise in the unemployment rate can be attributed to various economic, social, and structural factors.

  • Economic Recession or Slowdown: During economic downturns or recessions, businesses may cut back on hiring or even lay off employees due to reduced demand for goods and services. This leads to an increase in unemployment as job opportunities become scarce.
  • Technological Advancements: Automation, artificial intelligence, and technological advancements in various industries can lead to job displacement and reduce the demand for certain types of labour. This structural shift in the economy can contribute to higher unemployment rates, especially among workers whose skills are no longer in demand.
  • Structural Unemployment: This type of unemployment occurs due to a mismatch between the skills possessed by job seekers and the skills demanded by employers. For example, if there is a surplus of workers with certain qualifications but a shortage of jobs requiring those skills, structural unemployment can increase.
  • Cyclical Factors: Economic cycles, such as booms and busts, can affect the level of unemployment. During economic expansions, unemployment tends to decrease as businesses expand and hire more workers. Conversely, during economic contractions or downturns, unemployment tends to rise.
  • Globalization and Outsourcing: Increased global trade and outsourcing of jobs to lower-cost countries can impact employment opportunities domestically. Industries that face intense international competition may reduce their workforce or move operations abroad, contributing to higher unemployment rates in certain sectors.
  • Decline in Specific Industries: Shifts in consumer preferences, changes in technology, or regulatory factors can lead to the decline of certain industries. Workers in these declining industries may experience job losses, contributing to overall unemployment.
  • Policy Changes: Changes in government policies related to labour, taxation, regulations, or trade can influence employment levels. For example, policy shifts that make it more costly for businesses to hire or retain workers may lead to layoffs or reduced hiring.
  • Education and Skills Gap: A mismatch between the skills and qualifications of job seekers and the skills demanded by employers can result in higher unemployment rates, particularly among those with limited education or outdated skills in a rapidly evolving job market.
  • Labor Market Frictions: Factors such as geographic mobility barriers, lack of information about job opportunities, inefficiencies in matching workers with suitable jobs, and wage rigidity can create frictions in the labour market and contribute to unemployment.
  • Demographic Changes: Population growth, changes in the age distribution of the workforce (such as an ageing population), and shifts in labour force participation rates can impact overall unemployment rates over time.
 

7. About Labour Force and Labour Force participation rate (LFPR)

The labour force represents the economically active population of a country. It encompasses all individuals who are either employed or actively seeking employment. 

  • Employed: Individuals who have a job or are working for pay or profit, including full-time, part-time, and temporary workers.
  • Unemployed: Individuals who are currently without a job but are actively looking for work and available to work. This includes people who have recently been laid off and are actively searching for new jobs.

Labour Force Participation Rate (LFPR)

The LFPR is a key economic indicator that measures the percentage of the working-age population that is actively participating in the labour force. It essentially reflects the share of the working-age population that is either employed or unemployed but actively seeking work.

Calculation of LFPR

LFPR = (Labour Force) / (Working-Age Population) x 100

Working-Age Population: This refers to the segment of the population that is considered old enough and able to work. The specific age range may vary slightly between countries, but it typically falls between 15 and 64 years old.

Interpretation of LFPR

  • A high LFPR indicates a large portion of the working-age population is engaged in the labour market, either through employment or active job search. This can be seen as a positive sign for a country's economy as it suggests a high level of economic activity.
  • A low LFPR indicates a smaller proportion of the working-age population is participating in the labour market. This could be due to various reasons, such as a large number of retirees, students, discouraged workers who have stopped looking for work, or a lack of job opportunities.

Importance of LFPR

The LFPR is a valuable metric for policymakers and economists as it provides insights into the health of a country's labour market. It can be used to:

  • Assess the availability of labour for businesses
  • Evaluate the effectiveness of employment policies
  • Understand workforce trends and demographics
  • Identify potential labour shortages or surpluses in specific sectors

 

8. The latest findings about the Female Labour Force Participation Rate

  • A recent report by the Ministry of Statistics and Programme Implementation (October 2023) based on the Periodic Labour Force Survey (PLFS) 2022-23 shows a significant increase in FLFPR.
  • The report indicates a jump of 4.2 percentage points, pushing the FLFPR to 37.0% in 2023. This is a positive sign, suggesting more women are entering the workforce.
  • Despite the increase, the FLFPR for females remains considerably lower than the rate for males in India.
  • There might be a shift towards more women in informal work or unpaid family work, which isn't fully captured in official statistics.
  • Quality of jobs for women: Reports suggest an increase in the proportion of women in salaried work but with limited social security benefits. This might indicate a rise in precarious or low-paying jobs for women.
 

9. The Way Forward

By implementing the strategies, India can work towards creating a more inclusive, equitable, and sustainable labour market that provides meaningful employment opportunities for all segments of society.

For Prelims: Periodic Labour Force Survey, Female Labour Force Participation Rate, Centre for Monitoring the Indian Economy, Institute for Human Development, International Labour Organisation, Unemployment

For Mains
1. Explain the concept of the Female Labour Force Participation Rate (FLFPR) and its significance in assessing gender dynamics in the workforce. (250 Words)
2. Analyse the challenges posed by rising unemployment among educated youth in India, particularly women in urban areas. Suggest solutions to improve youth employability. (250 words)
3. Evaluate the role of the Centre for Monitoring Indian Economy (CMIE) in understanding India's labour market dynamics. Discuss the limitations of using unemployment rates alone to assess the health of a job market. (250 words)

 

Previous Year Questions

1. In India, which one of the following compiles information on industrial disputes, closures, retrenchments, and lay-offs in factories employing workers? (UPSC 2022)
A. Central Statistics Office
B. Department for Promotion of Industry and Internal Trade
C. Labour Bureau
D. National Technical Manpower Information System
 
2. Which of the following brings out the 'Consumer Price Index Number for Industrial Workers'? (UPSC 2015)
A. The Reserve Bank of India
B. The Department of Economic Affairs
C. The Labour Bureau
D. The Department of Personnel and Training
 
3. International Labour Organization's Conventions 138 and 182 are related to (UPSC 2018)
A. Child labour
B. Adaptation of agricultural practices to global climate change
C. Regulation of food prices and food
D. Security
 
4. Which of the following statements about the employment situation in India according to the periodic Labour Force Survey 2017-18 is/are correct? (UPSC CAPF 2020)
1. Construction sector gave employment to nearly one-tenth of the urban male workforce in India.
2. Nearly one-fourth of urban female workers in India were working in the manufacturing sector.
3. One-fourth of rural female workers in India were engaged in the agriculture sector.
Select the correct answer using the code given below:
A. 2 only
B. 1 and 2 only
C. 1 and 3 only
D. 1, 2 and 3
 
5. Disguised Unemployment generally means (upsc 2013)
A. Large number of people remain unemployed
B. Alternative Employment is not available
C. Marginal Productivity od Labour is Zero
D. Productivity of Workers is Zero
 
Answers: 1-C, 2-C, 3-A, 4-B, 5 -C
 
Source: The Indian Express

INCOME INEQUALITY 

 
 
 
 
1. Context
 
India added 94 new billionaires in 2023, the most by any country other than the US, taking the total to 271, according to the 2024 Hurun Global Rich List. An individual with $1 billion in wealth is a billionaire.
 
 
2. About Inequality
  • Inequality refers to the unequal distribution of resources, opportunities, rights, and privileges among individuals or groups within a society or between different societies.
  • It can manifest in various forms, such as economic inequality (disparities in income, wealth, and access to resources), social inequality (unequal treatment based on factors like race, gender, ethnicity, religion, or disability), and political inequality (unequal access to political power and decision-making processes).
  • Inequality can have significant social, economic, and political implications. It can lead to social unrest, hinder economic growth, limit opportunities for social mobility, and perpetuate cycles of poverty and exclusion.
  • Addressing inequality often involves policies and actions aimed at promoting equal opportunities, reducing disparities, and ensuring fairness and justice in various aspects of society.
 

3. About Income Inequality

  • Income inequality refers to the unequal distribution of income among individuals or households within a society or geographic area.
  • It is often measured using statistical tools such as the Gini coefficient, which quantifies the extent of income inequality within a population.
  • Income inequality can manifest in different ways, including variations in wages, salaries, bonuses, investment income, and other sources of earnings.
  • Key factors contributing to income inequality include differences in education, skills, employment opportunities, discrimination, technological advancements, globalization, tax policies, and social welfare programs.
  • These factors can create disparities in income levels between different socioeconomic groups, such as high-income earners, middle-income earners, and low-income earners.
  • Income inequality can have wide-ranging social and economic consequences. It can lead to disparities in living standards, access to education and healthcare, social mobility, and overall quality of life.
  • Excessive income inequality may also contribute to social tensions, political instability, and reduced economic growth potential.
  • Governments, policymakers, and organizations often implement various strategies to address income inequality, such as progressive taxation, minimum wage laws, social safety nets, education and training programs, labour market reforms, and initiatives to promote inclusive economic growth.
  • These efforts aim to create a more equitable distribution of income and improve overall societal well-being.
 

4. How to measure income inequality?

Income inequality can be measured using several statistical methods and indices. 

  • Gini Coefficient: The Gini coefficient is a widely used measure of income inequality. It ranges from 0 to 1, where 0 represents perfect equality (everyone has the same income) and 1 represents perfect inequality (one person has all the income). A higher Gini coefficient indicates greater income inequality. The Gini coefficient is calculated based on the Lorenz curve, which plots the cumulative income distribution against the cumulative population.
  • Income Quintile Ratios: This measure compares the income of households in the highest income quintile (top 20%) to the income of households in the lowest income quintile (bottom 20%). A higher ratio indicates greater income inequality between the top and bottom income groups.
  • Palma Ratio: The Palma ratio compares the income share of the top 10% of the population to the income share of the bottom 40%. It focuses on the relative income concentration at the top and bottom ends of the income distribution.
  • Theil Index: The Theil index is another measure of income inequality that considers both within-group inequality and between-group inequality. It is based on the concept of entropy from information theory and can be decomposed into two components: the inequality within groups and the inequality between groups.
  • Percentile Ratios: Percentile ratios compare the income of households at different percentiles of the income distribution. For example, the ratio of the 90th percentile income to the 10th percentile income can provide insights into the income gap between higher and lower earners.
  • Decomposition Analysis: This method breaks down income inequality into various components, such as differences in earnings, capital income, government transfers, and taxes. It helps identify the factors contributing to income inequality within a population.
 

5. India’s inequality trends

India's inequality trends are concerning, with a widening gap between rich and poor. 

Rising Inequality

  • Decades of decline in inequality post-independence reversed in the 1980s.
  • Since then, the share of income and wealth going to the top 1% has been steadily increasing, reaching record highs in recent years.
  • The World Inequality Lab reports that by 2022-23, the top 1% held a staggering 22.6% of national income, among the highest in the world. 

Extreme Concentration

  • The wealthiest 10% of the population controls a massive portion of the national wealth, estimated at around 77%.
  • This means the bottom 50% of the population struggles to scrape together just a tiny fraction (around 4%) of the wealth.

Limited Mobility

  • While some economic mobility exists, many who escape poverty remain vulnerable.
  • Intergenerational mobility, meaning the ability of children to achieve a higher economic status than their parents, is also low, suggesting limited opportunities for many.

These trends have serious implications for social justice, economic stability, and overall development.

 

6. The causes of rising inequality in India

The rising inequality in India can be attributed to a combination of economic, social, and policy factors. 

  • Economic Reforms and Globalization: The economic reforms initiated in the early 1990s, which opened up the Indian economy to globalization and liberalization, led to rapid economic growth. However, this growth was not evenly distributed across sectors and regions, resulting in widening income gaps between different segments of society.
  • Urban-Rural Divide: There exists a significant disparity between urban and rural areas in terms of income, opportunities, infrastructure, and access to basic services. Urban areas, especially metropolitan cities and industrial hubs tend to attract more investment and offer higher-paying jobs, leading to a widening urban-rural income gap.
  • Sectoral Disparities: Certain sectors of the economy, such as information technology, finance, and services, have experienced robust growth and generated wealth for a relatively small segment of the population, contributing to income concentration. Meanwhile, sectors like agriculture, which employ a large portion of the workforce, have faced challenges such as low productivity, inadequate infrastructure, and income volatility.
  • Education and Skills Gap: Disparities in education and skills development contribute to income inequality. Individuals with higher levels of education, specialized skills, and access to quality education opportunities are more likely to secure well-paying jobs and participate in sectors with higher growth prospects.
  • Gender Inequality: Gender disparities in education, employment, and wages contribute significantly to income inequality. Women often face barriers to accessing education and employment opportunities, receive lower wages for similar work compared to men, and are underrepresented in leadership positions and high-paying sectors.
  • Informal Economy: A significant portion of India's workforce is engaged in the informal economy, which includes activities such as agriculture, small-scale enterprises, and informal labour. Informal workers often lack job security, social protection, and access to formal financial services, leading to income instability and vulnerability.
  • Wealth Concentration and Corruption: The concentration of wealth among a small elite, including wealthy individuals, corporate entities, and influential groups, contributes to income inequality. Issues such as corruption, crony capitalism, and rent-seeking behaviour can exacerbate wealth disparities and hinder equitable economic opportunities for all segments of society.
  • Social and Caste Factors: India's social structure, including caste-based discrimination and inequalities, also plays a role in income disparities. Historically marginalized communities, such as Scheduled Castes (Dalits) and Scheduled Tribes (Adivasis), often face socio-economic barriers that limit their access to education, employment, and resources.

 

7. The poor and rich gap in India

The wealth gap between rich and poor in India is vast and has been growing wider in recent years.

Wealth Concentration

  • The richest 1% of the population controls a staggering share of the wealth, estimated to be around 40%.
  • In contrast, the bottom 50% of the population owns a minuscule portion, around 3% of the total wealth.

Income Distribution

  • The top 10% of earners corner a significant share of the national income, around 77%.
  • This means a large portion of the population struggles to make ends meet with a much smaller share.
  • Reports suggest the top 1% hold a concerningly high share of income, reaching over 22% in recent years.
 

8. Inclusive growth

  • Inclusive growth refers to a type of economic development that aims to ensure that the benefits of growth and prosperity are widely shared across different segments of society, particularly targeting marginalized and vulnerable groups.
  • It emphasizes creating opportunities for all individuals to participate in and benefit from economic progress, regardless of their background, social status, or location.
  • Inclusive growth goes beyond mere economic expansion and focuses on reducing disparities, promoting social inclusion, and enhancing overall well-being and quality of life for everyone.

The steps are taken to Promote inclusive growth in India

Promoting inclusive growth in India requires a comprehensive approach involving various policies, programs, and initiatives across different sectors. 

  • Social Welfare Programs: The Indian government has implemented several social welfare programs aimed at providing support and assistance to vulnerable and marginalized populations. Examples include the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) for rural employment generation, the National Food Security Act for food distribution to low-income households, and various housing schemes for the homeless and economically weaker sections.
  • Financial Inclusion: Initiatives such as the Pradhan Mantri Jan Dhan Yojana (PMJDY) have been launched to promote financial inclusion by providing access to banking services, savings accounts, insurance, and credit facilities to individuals in rural and urban areas who were previously excluded from the formal financial system.
  • Education and Skill Development: Programs like the Sarva Shiksha Abhiyan (SSA) and the Skill India initiative aim to improve access to quality education and vocational training, especially for disadvantaged groups and rural communities. These initiatives focus on enhancing employability and fostering entrepreneurship among youth and adults.
  • Healthcare Reforms: The government has prioritized healthcare reforms to improve access to affordable and quality healthcare services, especially in rural and underserved areas. Initiatives such as the Ayushman Bharat Pradhan Mantri Jan Arogya Yojana (PMJAY) provide health insurance coverage to economically vulnerable families for hospitalization expenses.
  • Rural Development: Schemes like the Pradhan Mantri Gram Sadak Yojana (PMGSY) aim to improve rural connectivity by constructing and upgrading roads, bridges, and transport infrastructure, which facilitates access to markets, education, healthcare, and employment opportunities in rural areas.
  • Affordable Housing: The government has launched schemes like the Pradhan Mantri Awas Yojana (PMAY) to promote affordable housing for economically weaker sections, lower-income groups, and rural households. These initiatives aim to address housing shortages and improve living conditions for marginalized communities.
  • Entrepreneurship and Small Business Support: Programs such as Startup India and the Stand-Up India scheme focus on promoting entrepreneurship among women, SC/ST (Scheduled Castes/Scheduled Tribes) entrepreneurs, and individuals from backward regions by providing financial assistance, mentorship, training, and market access.
  • Digital Inclusion: Initiatives like Digital India aim to bridge the digital divide by promoting digital literacy, expanding internet connectivity, and leveraging technology for delivering government services, financial transactions, education, healthcare, and e-commerce opportunities to remote and rural areas.
  • Environmental Sustainability: Efforts are being made to integrate environmental sustainability into development policies and practices, including renewable energy initiatives, sustainable agriculture practices, conservation of natural resources, and climate change mitigation and adaptation strategies.
 
9. The Way Forward
 
By prioritizing equitable distribution, enhancing capabilities, promoting sustainable livelihoods, leveraging technology, and strengthening monitoring, India can strive towards a more inclusive and just society for all. This will require collaboration between the government, private sector, civil society organizations, and the public to achieve sustainable and equitable economic development.
 
 
For Prelims: inequality, Income inequality, inclusive growth
For Mains: 
1. Critically evaluate the evidence of rising income inequality in India. What are the major factors contributing to this trend? Discuss the social and economic implications of such inequality. (250 words)
2. What are the challenges faced in promoting inclusive growth in India? Suggest a multi-pronged strategy to address these challenges and achieve equitable development. (250 words)
 
 
Previous Year Questions
 
1. Given below are two statements, one is labeled as Assertion (A) and the other as Reason (R). (UPPSC 2019)
Assertion (A): The labour force participation rate is falling sharply in recent years for females in India.
Reason (R): The decline in labour force participation rate is due to improved family income and an increase in education.
Select the correct answer from the codes given below:
Codes:
A. Both (A) and (R) are true and (R) is the correct explanation of (A)
B. Both (A) and (R) are true and (R) is not the correct explanation of (A)
C. (A) is true, but (R) is false
D. (A) is false, but (R) is true
 
 
2. Which of the following statements about the employment situation in India according to the periodic Labour Force Survey 2017-18 is/are correct? (UPSC CAPF 2020)
1. Construction sector gave employment to nearly one-tenth of the urban male workforce in India
2. Nearly one-fourth of urban female workers in India were working in the manufacturing sector
3. One-fourth of rural female workers in India were engaged in the agriculture sector
Select the correct answer using the code given below:
A. 2 only       B. 1 and 2 only            C. 1 and 3 only           D. 1, 2 and 3
 
 
3. Disguised unemployment generally means (UPSC 2013)

(a) large number of people remain unemployed
(b) alternative employment is not available
(c) marginal productivity of labour is zero
(d) productivity of workers is low

 

4.  Assertion (A): Workers - population ratio in India is low in contrast to that in developed countries.

Reason (R): Rapid growth of population, low female worker population rate and omission of unpaid family workers lead to low worker-population ratio.

Choose the correct answer: (Telangana Police SI Mains 2018)

A. (A) is true, but (R) is false.
B. (A) is false, but (R) is true.
C. Both (A) and (R) are true, but (R) is not a correct explanation of (A).
D. Both (A) and (R) are true, but (R) is the correct explanation of (A).

Answers: 1-C, 2-B, 3-C, 4-D

Mains

1. Most of the unemployment in India is structural in nature. Examine the methodology adopted to compute unemployment in the country and suggest improvements. (UPSC 2023)
 
Source: The Indian Express
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