GOODS AND SERVICE TAX (GST)
1. Context
India’s gross revenues from the Goods and Services Tax (GST) grew at a three-month high pace of 12.54% in February to cross ₹1.68 lakh crore, marking the fourth-highest monthly collections from the tax.
2. What is the Goods and Services Tax (GST)?
- The Goods and Services Tax (GST) is a value-added tax levied on the supply of goods and services at each stage of the production and distribution chain. It is a comprehensive indirect tax that aims to replace multiple indirect taxes imposed by the central and state governments in India.
- GST is designed to simplify the tax structure, eliminate the cascading effect of taxes, and create a unified national market. Under the GST system, both goods and services are taxed at multiple rates based on the nature of the product or service. The tax is collected at each stage of the supply chain, and businesses are allowed to claim a credit for the taxes paid on their inputs.
- The GST system in India came into effect on July 1, 2017, replacing a complex tax structure that included central excise duty, service tax, and state-level taxes like VAT (Value Added Tax), among others. The GST Council, consisting of representatives from the central and state governments, is responsible for making decisions on various aspects of GST, including tax rates and rules.
- GST is intended to create a more transparent and efficient tax system, reduce tax evasion, and promote economic growth by fostering a seamless flow of goods and services across the country. It has a significant impact on businesses, as they need to comply with the new tax regulations and maintain detailed records of their transactions for GST filing
3.Goods and Services Tax (GST) and 101st Amendment Act, 2016
The Goods and Services Tax (GST) in India was introduced through the 101st Amendment Act of 2016. This constitutional amendment was a crucial step in the implementation of GST, which aimed to create a unified and comprehensive indirect tax system across the country.
Here are some key points related to the 101st Amendment Act and GST:
- The 101st Amendment Act was enacted to amend the Constitution of India to pave the way for the introduction of the Goods and Services Tax.
- It added a new article, Article 246A, which confers concurrent powers to both the central and state governments to levy and collect GST
- The amendment led to the creation of the GST Council, a constitutional body consisting of representatives from the central and state governments. The council is responsible for making recommendations on GST rates, exemptions, and other related issues
- The amendment introduced a dual GST structure, where both the central government and the state governments have the power to levy and collect GST on the supply of goods and services
- For inter-state transactions, the 101st Amendment Act provides that the central government would levy and collect the Integrated Goods and Services Tax (IGST), which would be a sum total of the central and state GST
- The amendment also included a provision for compensating states for any revenue loss they might incur due to the implementation of GST for a period of five years
The 101st Amendment Act was a critical legislative step that provided the constitutional framework for the implementation of GST in India. It addressed the need for a unified tax system, simplifying the tax structure and promoting a common market across the country. The subsequent establishment of the GST Council has played a pivotal role in the ongoing management and evolution of the GST system in India
4. What are the different types of Goods and Services Tax (GST)?
In India, the Goods and Services Tax (GST) is structured into different tax rates based on the nature of the goods and services. As of my last knowledge update in January 2022, the GST rates are divided into multiple slabs. It's important to note that tax rates may be subject to changes, and new amendments could have been introduced since then. As of my last update, the GST rates are as follows:
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Nil Rate:
- Some goods and services are categorized under the nil rate, meaning they attract a 0% GST. This implies that no tax is levied on the supply of these goods or services.
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5% Rate:
- This is a lower rate, applicable to essential goods such as certain food items, medical supplies, and other basic necessities.
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12% Rate:
- Goods and services falling in this category attract a 12% GST rate. Items such as mobile phones, processed foods, and certain services fall under this slab.
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18% Rate:
- A higher rate of 18% is applicable to goods and services such as electronic items, capital goods, and various services.
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28% Rate:
- The highest GST rate of 28% is applied to luxury items, automobiles, and certain goods and services that are considered non-essential or fall into the luxury category.
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Compensation Cess:
- In addition to the above rates, some specific goods attract a compensation cess, which is levied to compensate the states for any revenue loss during the transition to GST. This is often applied to items like tobacco and luxury cars.
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Zero Rate:
- Certain categories of goods and services may be specified as "zero-rated," which means they are effectively taxed at 0%. This is different from the nil rate, as it allows businesses to claim input tax credit on inputs, capital goods, and input services.
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Exempt Supplies:
- Some goods and services may be exempt from GST altogether. This means that they are not subject to any GST, and businesses cannot claim input tax credit on related inputs
5.Central GST (CGST), State GST (SGST), Union territory GST (UTGST) and Integrated GST (IGST)
| Subject | Central GST (CGST) | State GST (SGST) | Union Territory GST (UTGST) | Integrated GST (IGST) |
|---|---|---|---|---|
| Levied by | Central Government | Respective State Governments | Union Territory Administrations | Central Government (on inter-state transactions) |
| Applicability | On intra-state supplies (within the same state) | On intra-state supplies (within the same state) | On intra-union territory supplies (within the same union territory) | On inter-state supplies (across states or union territories) |
| Rate Determination | Determined by the Central Government | Determined by the Respective State Government | Determined by the Union Territory Administration | IGST rate is a sum of CGST and SGST rates |
| Revenue Collection | Collected by the Central Government | Collected by the Respective State Government | Collected by the Union Territory Administration | Collected by the Central Government (on inter-state transactions) |
| Utilization of Revenue | Shared between Central and State Governments | Retained by the Respective State Government | Retained by the Union Territory Administration | Shared between Central and State Governments |
| Purpose | Part of the dual GST structure, meant to cover central taxes | Part of the dual GST structure, meant to cover state taxes | Applicable in union territories for intra-territory supplies | Applied to regulate and tax inter-state supplies |
| Input Tax Credit (ITC) | ITC available for CGST paid on inputs and services | ITC available for SGST paid on inputs and services | ITC available for UTGST paid on inputs and services | ITC available for both CGST and SGST paid on inputs |
| Tax Jurisdiction | Applies within a particular state | Applies within a particular state | Applies within a particular union territory | Applies to transactions across states and union territories |
| GSTN Portal for Filing Returns | Central GSTN portal | State-specific GSTN portals | UTGSTN portal | Integrated GSTN portal |
6.What are the benefits of Goods and Services Tax (GST) in India?
The Goods and Services Tax (GST) in India was implemented with the aim of bringing about significant reforms in the indirect tax structure. Several benefits have been associated with the introduction of GST.
Here are some key advantages:
- GST replaced multiple indirect taxes levied by the central and state governments, simplifying the tax structure. This streamlined system reduces the complexity of compliance for businesses
- GST eliminates the cascading effect of taxes, where taxes are levied on top of other taxes. With a seamless credit mechanism, businesses can claim input tax credit on the taxes paid on their purchases, leading to a more transparent and efficient system
- GST has facilitated the creation of a common national market by harmonizing tax rates and regulations across states. This has reduced trade barriers and promoted the free flow of goods and services throughout the country
- The GST system has incorporated technology-driven processes, including electronic filing and real-time reporting, making it harder for businesses to evade taxes. This has contributed to increased tax compliance
- The input tax credit mechanism under GST benefits manufacturers, as they can claim credits for taxes paid on raw materials and input services. This has a positive impact on the cost of production and enhances the competitiveness of Indian goods in the international market
- GST brings transparency to the taxation system. The online filing of returns and the availability of transaction-level data make it easier for tax authorities to monitor and track transactions, reducing the scope for corruption
- GST has replaced a complex system of filing multiple tax returns with a more straightforward mechanism. Businesses now need to file fewer returns, reducing the compliance burden
- The implementation of GST has contributed to an improvement in the ease of doing business in India. The unified tax system has made it simpler for businesses to operate across states and has reduced the paperwork and bureaucratic hurdles associated with tax compliance
- GST has led to the harmonization of tax rates across states and union territories, minimizing the tax rate disparities that existed earlier. This creates a more predictable tax environment for businesses
7.Goods and Services Tax (GST)-Issues and Challenge
- Despite the intention to simplify the tax structure, the multi-tiered rate system (0%, 5%, 12%, 18%, and 28%) and the inclusion of cess on certain goods have introduced complexity. The classification of goods and services under different tax slabs can be challenging, leading to disputes and confusion
- The successful implementation of GST relies heavily on technology. Issues such as technical glitches on the GSTN (Goods and Services Tax Network) portal, especially during the initial phases, have caused difficulties for businesses in filing returns and complying with regulations
- The compliance requirements for businesses under GST, including multiple returns filing, have been perceived as burdensome. Smaller businesses, in particular, may find it challenging to adapt to the new system and comply with the various provisions
- The transition from the previous tax regime to GST posed challenges, especially for businesses in terms of understanding the new tax structure, reconfiguring accounting systems, and ensuring a smooth transition of credits from the old tax system to the GST system
- The classification of certain goods and services into specific tax slabs has been a source of contention. Ambiguities in classification have led to disputes and litigations, with businesses seeking clarity on the applicable tax rates
- The implementation of GST has increased compliance costs for businesses due to the need for sophisticated IT infrastructure, the hiring of tax professionals, and efforts to ensure accurate reporting and filing
- Challenges related to availing and matching input tax credits have been reported. Timely matching of credits and resolving discrepancies can be cumbersome, leading to concerns about the seamless flow of credit across the supply chain
- The anti-profiteering provisions were introduced to ensure that businesses pass on the benefits of reduced tax rates to consumers. However, the implementation of anti-profiteering measures has been criticized for its complexity and potential for disputes
- The periodic changes in the GST return filing system have created challenges for businesses in adapting their processes. Delays and complexities in return filing can affect working capital management
8.Goods and Services Tax Council (GST Council)
The Goods and Services Tax Council (GST Council) is a constitutional body in India that makes recommendations on the Goods and Services Tax (GST). It was established under the Constitution (122nd Amendment) Act, 2016, which introduced the GST in India
The GST Council consists of the following members:
- The Union Finance Minister, who is the Chairperson of the Council.
- The Union Minister of State in charge of revenue or any other Minister of State nominated by the Union Government.
- One Minister from each state, nominated by the Governor of that state.
- The Chief Secretary of each state, ex-officio.
- If the President, on the recommendation of the Council, so directs, one representative of each Union territory which has a legislature, to be nominated by the Lieutenant Governor of that Union territory.
- Three to seven members (other than Ministers) to be nominated by the Union Government, of whom at least one member shall be from the field of economics and another from the field of chartered accountancy, legal affairs or public finance
9. Way forward
It's important to note that the composition and structure of the GST Council may evolve over time, and there might have been changes since my last update in January 2022. To obtain the latest and most accurate information about the GST Council and its members, it is recommended to refer to official government sources or recent announcements by the relevant authorities
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For Prelims: Economic and Social Development and Indian Polity and Governance
For Mains: General Studies II: Functions and responsibilities of the Union and the States, issues and challenges pertaining to the federal structure, devolution of powers and finances up to local levels and challenges therein
General Studies III: Inclusive growth and issues arising from it |
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Previous Year Questions
1.Which of the following are true of the Goods and Services Tax (GST) introduced in India in recent times? (UGC Paper II 2020)
A. It is a destination tax
B. It benefits producing states more
C. It benefits consuming states more
D. It is a progressive taxation
E. It is an umbrella tax to improve ease of doing business
Choose the most appropriate answer from the options given below:
A.B, D and E only
B.A, C and D only
C.A, D and E only
D.A, C and E only
Answer (D)
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Source: Indianexpress
PARTICULARLY VULNERABLE GROUPS (PVTG)
1. Context
PM Gati Shakti portal to estimate the total population of 75 tribes, which have been grouped under the Particularly Vulnerable Tribal Groups (PVTG) across the country. The government has three different estimates for the total PVTG population — 28 lakh to begin with in November, which increased to 36.5 lakh by mid-January and ballooning further to 44.64 lakh by January-end
2.Who are Particularly Vulnerable Tribal Groups (PVTG)?
- Particularly Vulnerable Tribal Groups (PVTGs) are specific indigenous communities in India that face an exceptionally high risk of vulnerability and marginalization due to various factors like geographic isolation, social and economic deprivation, and historical injustices.
- These groups are identified based on criteria set by the Indian government, considering their unique cultural practices, distinct languages, and social customs that set them apart from the larger population.
- PVTGs receive special attention and support from government agencies and NGOs to protect their distinct identities, preserve their cultural heritage, improve their living conditions, and ensure their socio-economic development. Various welfare schemes and initiatives are directed towards these groups to address their specific needs, including access to healthcare, education, livelihood opportunities, land rights, and basic amenities. The aim is to empower these communities while respecting their traditions and way of life
- The actual number of PVTGs is around 63, accounting for overlaps and repetitions, as per the publication ‘The Particularly Vulnerable Tribal Groups of India — Privileges and Predicaments’ by the Anthropological Survey of India
- Baseline surveys have only been conducted for about 40 PVTG groups, emphasising the need for targeted development planning.
- In India, the identification and declaration of Particularly Vulnerable Tribal Groups (PVTGs) is done by the Ministry of Tribal Affairs at the national level, in collaboration with state governments. The identification process involves specific criteria and guidelines set by the government to assess the vulnerability and distinctiveness of tribal communities
- Odisha (formerly Orissa) in India is known to have the highest number of Primitive Tribal Groups (PTGs). This state is home to a significant population of indigenous or tribal communities, some of which are categorized as Primitive Tribal Groups due to their isolated lifestyle, unique cultural practices, and historical marginalisation.
3. What are the challenges in PVTG development?
The development of Particularly Vulnerable Tribal Groups (PVTGs) faces several challenges, primarily due to their unique circumstances, cultural isolation, historical marginalization, and specific vulnerabilities.
Some of the key challenges include:
- Many PVTGs reside in remote and geographically isolated areas, which pose challenges in terms of accessibility for delivering essential services like healthcare, education, and infrastructure development
- PVTGs often face economic deprivation, lack of livelihood opportunities, and limited access to resources. Poverty and inadequate infrastructure exacerbate their challenges
- Balancing the preservation of their distinct cultural identities and traditions with the need for socio-economic development poses a challenge. Development interventions must be culturally sensitive and respect their traditional practices
- PVTGs frequently experience health disparities and inadequate access to healthcare facilities. Malnutrition and lack of awareness about modern healthcare practices are common concerns
- Limited access to quality education due to factors like language barriers, lack of schools in remote areas, and cultural differences hampers educational development among PVTGs
- Disputes over land rights and lack of secure land tenure affect their livelihoods. Encroachment on their traditional lands and displacement due to development projects further exacerbate these challenges
- PVTGs are vulnerable to exploitation due to their marginalized status. They often face social discrimination, human rights violations, and exploitation in labor and other spheres
4.Government's Approach in addressing the Issues
- Participatory approach from the grassroots level: Rather than a standardized approach, the program tailors strategies to suit the unique requirements of PVTGs, actively engaging them in decision-making related to land rights, social integration, and cultural conservation. This method, rooted in community involvement, embraces their customs, beliefs, and traditions, ensuring their active involvement in the planning, execution, and oversight of development endeavors.
- Enhancing livelihoods: Empowering through skill-building programs and providing resources such as land and credit facilitates sustainable livelihoods. Implementation of the Forest Rights Act, specifically Section 3(1)(e) for the rights of primitive tribal groups and pre-agricultural communities, secures their access to forest resources. Encouraging traditional techniques and skill enhancement via partnerships with industries contributes to preserving cultural heritage alongside sustainable progress.
- Health, nutrition, and education focus: Deploying outreach methods like Mobile Medical Health Units becomes imperative in remote regions. Tailoring these strategies to address specific health concerns like teenage pregnancies and dental health, and bridging language and cultural gaps through trained healthcare personnel or recruiting community members is vital. Collaborating with trusted traditional healers can also assist in addressing intricate health challenges.
- Incorporating their language and culture into educational curricula, offering transportation services, and training educators about PVTG cultural contexts enhance educational accessibility. Additionally, incentivizing staff working in PVTG areas and establishing specialized educational institutions catering to PVTG needs can augment opportunities for these communities.
- Infrastructure development challenges: The settlements of PVTGs often fail to meet requirements for schemes like the Pradhan Mantri Grameen Sadak Yojana, Pradhan Mantri Awas Yojana, and Jal Jeevan Mission due to factors like population thresholds or insufficient surveys
5.What schemes have been floated for PVTG?
Several schemes and initiatives have been introduced by the Indian government to address the needs and uplift the living standards of Particularly Vulnerable Tribal Groups (PVTGs). Some of these schemes include:
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Vanbandhu Kalyan Yojana: Launched by the Ministry of Tribal Affairs, this scheme aims to improve the socio-economic status of tribal communities, including PVTGs, by focusing on areas like education, healthcare, livelihood, and infrastructure development.
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Scheduled Tribes Component (STC): Under this scheme, funds are allocated to states to implement various development programs for tribal communities, including PVTGs. These funds support initiatives related to education, health, housing, and skill development.
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Special Central Assistance to Tribal Sub-Schemes (SCA to TSS): This scheme provides financial assistance to tribal development projects, including those focused on PVTGs, aimed at their socio-economic empowerment.
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Forest Rights Act (FRA): Implementation of the Forest Rights Act is crucial for securing land and resource rights for tribal communities, including PVTGs, allowing them access to forest resources and improving their livelihoods.
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Eklavya Model Residential Schools (EMRS): EMRS aims to provide quality education to tribal children, including those from PVTGs, by establishing residential schools with modern facilities and educational resources.
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Integrated Tribal Development Agencies (ITDAs): These agencies work on comprehensive development plans for tribal areas, including PVTG regions, focusing on education, healthcare, infrastructure, and livelihood promotion.
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Tribal Sub-Plan (TSP) and Tribal Development Blocks (TDBs): These plans and blocks are dedicated to tribal development, including PVTGs, ensuring targeted allocation of funds for their socio-economic upliftment
6. Way forward
A 2014 report by Dr. Hrusikesh Panda, Secretary of the Ministry of Tribal Affairs, and a 2015 report by Virginius Xaxa highlighted these concerns. The actual number of PVTGs is around 63, accounting for overlaps and repetitions, as per the publication ‘The Particularly Vulnerable Tribal Groups of India — Privileges and Predicaments’ by the Anthropological Survey of India
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For Prelims: Indian Polity and Governance-Constitution, Political System, Panchayati Raj, Public Policy, Rights Issues, etc.
For Mains: General Studies II: Government policies and interventions for development in various sectors and issues arising out of their design and implementation
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Previous Year Questions 1. Consider the following statements about Particularly Vulnerable Tribal Groups (PVTGs) in India: (UPSC 2019)
1. PVTGs reside in 18 States and one Union Territory.
2. A stagnant or declining population is one of the criteria for determining PVTG status.
3. There are 95 PVTGs officially notified in the country so far.
4. Irular and Konda Reddi tribes are included in the list of PVTGs.
Which of the statements given above are correct?
A. 1, 2 and 3 B. 2, 3 and 4 C. 1, 2 and 4 D. 1, 3 and 4
Answer: C 2. With reference to the history of India, "Ulgulan" or the Great Tumult is the description of which of the following events? (UPSC 2020) A. The Revolt of 1857
B. The Mappila Rebellion of 1921
C. The Indigo Revolt of 1859 - 60
D. Birsa Munda's Revolt of 1899 - 1900
Answer: D 3. When did the Tana’ Bhagat Movement start? (Jharkhand Civil Service 2015)
A. April 1912 B. April 1913 C. April 1914 D. April 1915
Answer: C
4. Consider the following statements about the Santhal Hool of 1855 - 56: (UPSC CAPF)
1. The Santhals were in a desperate situation as tribal lands were leased out
2. The Santhal rebels were treated very leniently by British officials
3. Santhal inhabited areas were eventually constituted separate administrative units called Santhal parganas
4. The Santhal rebellion was the only major rebellion in mid-19th century India.
Which of the statements given above is/are correct?
A. 1 only B. 2 and 3 C. 1, 3 and 4 D. 1 and 3 only
Answer: D
5. After the Santhal Uprising subsided, what was/were the measure/measures taken by the colonial government? (UPSC 2018)
1. The territories called 'Santhal Paraganas' were created.
2. It became illegal for a Santhal to transfer land to a non-Santhal.
Select the correct answer using the code given below:
A. 1 only B. 2 only C. Both 1 and 2 D. Neither 1 nor 2
Answer: C
6. The National Commission for Backward Classes (NCBC) was formed by insertion of Article ______ in the Constitution of India. (SSC CGL 2020)
A. 328B B. 338A C. 338B D. 328A
Answer: B
7. With reference to the Parliament of India, which of the following Parliamentary Committees scrutinizes and reports to the House whether the powers to make regulations, rules, sub-rules, by-laws, etc. conferred by the Constitution or delegated by the Parliament are being properly exercised by the Executive within the scope of such delegation? (UPSC 2018)
A. Committee on Government Assurances
B. Committee on Subordinate Legislation
C. Rules Committee
D. Business Advisory Committee
Answer: B
8. Justice Madan B Lokur committee was set up to take steps to (Haryana Civil Services 2021)
A. Look into violation of environment rules.
B. Prevent stubble burning
C. Draft new water policy
D. Regulate digital lending
Answer: B
9. Match the pairs - (Committees on Media) (MPSC 2019)
(A) (Name) (B) (Year)
(a) Chanda Committee (i) 1982
(b) Kuldip Nayar Committee (ii) August, 1977
(c) Verghese Committee (iii) March, 1977
(d) P.C. Joshi Committee (iv) 1964
1. (a) – (i), (b) – (ii), (c – (iii), (d) – (iv)
2. (a) – (i), (b) – (iii), (c – (ii), (d) – (iv)
3. (a) – (iv), (b) – (iii), (c – (ii), (d) – (i)
4. (a) – (iv), (b) – (ii), (c – (iii), (d) – (i)
Answer: 3
10. Consider the formation of the following States and arrange these in chronological order : (UPPSC Combined State Exam 2021)
1. Goa
2. Telangana
3. Jharkhand
4. Haryana
Select the correct answer from the codes given below.
A. 1, 2, 3, 4 B. 4, 1, 3, 2 C. 3, 2, 4, 1 D. 4, 3, 1, 2
Answer: 2
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Source: Indianexpress
PURCHASING MANAGERS INDEX (PMI)
1. Context
India’s manufacturing sector continued its recovery in February from an 18-month low in December, with production levels and sales rising at the fastest pace in five months, as per the seasonally-adjusted HSBC India Manufacturing Purchasing Managers’ Index (PMI)
2. What is the Purchasing Managers Index (PMI)?
The Purchasing Managers' Index (PMI) is an economic indicator that provides insights into the health of a country's manufacturing or services sector.
PMI is widely used by businesses, economists, and policymakers to gauge the economic performance and future trends in these sectors.
It is usually expressed as a numerical value that reflects the prevailing business conditions.
2.1. Key Aspects of PMI
- PMI is typically calculated through surveys of purchasing managers in various industries. These managers are asked about their perception of different aspects of business activity, including new orders, production levels, employment, supplier deliveries, and inventories.
- PMI is usually reported as a number between 0 and 100.
- A PMI value above 50 generally indicates expansion in the sector, while a value below 50 suggests contraction. The farther the PMI is from 50, the stronger the perceived expansion or contraction.
- PMI is considered a leading indicator because it provides insights into economic conditions before official economic data, such as GDP growth or employment figures, are released. It can be used to anticipate changes in economic activity.
- PMIs are calculated separately for manufacturing and services sectors. A Manufacturing PMI focuses on the manufacturing sector, while a Services PMI provides insights into the services sector. These sector-specific PMIs can give a more detailed view of the economy.
Components: PMI is composed of several components, including:
- New Orders: This component measures the number of new orders received by businesses. An increase in new orders often signals growing demand and economic expansion.
- Production: This component reflects changes in production levels. An increase suggests increased economic activity.
- Employment: The employment component indicates changes in the level of employment within the sector. An increase typically means job growth.
- Supplier Deliveries: This measures the speed at which suppliers can deliver materials. Slower deliveries may indicate supply chain issues or increased demand.
- Inventories: Inventory levels can be an indicator of expected demand. A decrease in inventories might suggest an expectation of rising demand.
3. Significance of PMI
- The Purchasing Managers' Index (PMI) is a significant economic indicator with several important implications and uses
- PMI serves as a barometer of the economic health of a country or region. A PMI above 50 generally indicates economic expansion, while a PMI below 50 suggests contraction.
- This provides a quick and easily understandable snapshot of the direction of economic activity, making it a valuable tool for assessing the overall economic climate.
- PMI is a leading indicator, meaning it often provides insights into economic conditions ahead of other official economic data, such as GDP growth or employment figures. As such, it is used by businesses, investors, and policymakers to anticipate changes in economic activity and make informed decisions
4. Way forward
Purchasing Managers' Index (PMI) is a valuable economic indicator that helps gauge the economic health and trends in the manufacturing and services sectors. It provides timely insights into business activity and is widely used by businesses and policymakers for decision-making and economic forecasting
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Previous Year Questions
1.What does S & P 500 relate to? (UPSC CSE 2008) (a) Supercomputer Answer: (d) |
Source: The Hindu
GDP AND GVA
1. Context
India’s Gross Domestic Product (GDP) growth surged to a six-quarter high of 8.4% in October-December, pushing up the growth rate for 2023-24 to 7.6% as against the earlier estimate of 7.3%, data for third quarter GDP and second advance estimates for 2023-24 released by the National Statistical Office (NSO) on Thursday showed.
2. GDP and GVA
- GDP and GVA are two main ways to ascertain the country's economic performance. Both are measures of national income.
- The GDP measures the monetary measure of all "final" goods and services that are bought by the final user produced in a country in a given period.
- The GDP does this by adding up the total expenditures in the economy; in other words, it looks at who spent how much. That is why GDP captures the total "demand" in the economy.
Broadly speaking there are four key "engines of GDP growth". These are
- All the money Indians spent on their private consumption (that is, Private Final Consumption Expenditure or PFCE).
- All the money the government spent on its current consumption, such as salaries (Government, Final Consumption Expenditure or GFCE).
- All the money is spent towards investments to boost the economy's productive capacity. This includes business firms investing in factories or the governments building roads and bridges (Gross Fixed Capital Expenditure).
- The net effect of exports (What foreigners spent on our goods) and imports (what Indians spent on foreign goods) (Net Exports or NE).
- The GVA calculates the same national income from the supply side.
- It does so by adding up all the value added across different sectors.
| According to the RBI, the GVA of a sector is defined as the value of output minus the value of its intermediary inputs. This "value added" is shared among the primary factors of production, labour and capital. |
- By looking at GVA growth one can understand which sector of the economy is robust and which is struggling.
3. How are the two related?
- When looking at quarterly it is best to look at GVA data because this is the observed data.
- The GDP is derived by looking at the GVA data.
| The GDP and GVA are related by the following equation; GDP= (GVA)+ (Taxes earned by the Government)- (Subsidies provided by the government). |
- As such, if the taxes earned by the government are more than the subsidies it provides, the GDP will be higher than GVA.
- Typically, that is how it is. For the second quarter too, the GDP (at 38, 16, 578 crores) is much higher than the GVA (Which is at Rs 35, 05, 5999 crores).
- The GDP data is more useful when looking at annual economic growth and when one wants to compare a country's economic growth with its past or with another country.
4. GVA data
4.1 Manufacturing sector
- It is a contraction in the manufacturing sector. In Q2, manufacturing GVA declined by 4.3 per cent.
- This is significant because manufacturing carries a huge potential for job creation and can soak up excess labour from the agriculture sector.
- The contraction has meant that manufacturing GVA has grown by just 6.3 per cent over the three years since the Covid pandemic; look at the change between FY23 and FY20 in the Chart.
- However, it would be a mistake to believe that only Covid and its after-effects are responsible for the lacklustre manufacturing performance.
- The fact is, as borne by the data, manufacturing GVA grew by just 10.6 per cent between FY 17 and FY20.
- For perspective, it is important to remember that between FY14 and FY17, manufacturing GVA grew by 31.3 per cent.
- In other words, Indian manufacturing has been struggling to add value for the past six years.
- This would explain why data from the Centre for Monitoring Indian Economy (CMIE) shows that jobs in the manufacturing sector halved between 2016 and 2020.
4.2 Trade and hotels
- Almost 15 per cent growth in services such as trade and hotels etc.
- This is also a huge sector for job creation. But again, if one looks at the Q2FY23 level and compares it to the pre-Covid level (Q2 of FY20), the growth is barely over 2 per cent.
- That this sector grew by over 26 per cent in the three years between FY17 and FY20 when India was experiencing a serious economic declaration shows how badly it has been affected by the Covid disruption.
4.3 Mining and quarrying
- Another sector crucial for job creation, even though it is smaller in terms of overall contribution to India's GVA, is mining and quarrying it, too, has contracted by almost 3 per cent.
- Looking back over the past six years, it has contracted by 3.5 per cent between FY17 and FY20 and grown by just 2.5 per cent since then.
4.4 Agriculture
- One positive story emerging from the GVA pertains to agriculture (along with forestry and fishing), which has done better than expected by growing at 4.6 per cent.
- Typically, this is a good growth rate for this sector and has happened despite some worries that the sowing of crops did not happen in time.
- Overall, while the GVA has grown by 5.6 per cent year-on-year, the growth is just 7.6 per cent when compared to the pre-Covid level set in FY20.
5. GDP data
5.1 Private Consumption Expenditure
- GDP is the biggest engine of growth in private consumption expenditure.
- It typically contributes over 55 per cent of India's total GDP.
- This component is also crucial because if this is depressed, it robs the business of any incentive to make fresh investments; and expenditures towards investments are the second biggest contributors to the GDP, accounting for around 33per cent of the total.
- Data shows that private consumption has grown by a healthy 9.7 per cent over the past year.
- However, the growth is relatively modest just 11 per cent when compared over the last three years.
- That between FY 14 and FY17, this component grew by almost 28 per cent providing some perspective.
5.2 Investment expenditure
- The investment expenditures have grown by 10.4 per cent over FY21 and by almost 21 per cent between FY20 and FY23.
- This is the best growth over any three years going back to FY14.
- This suggests brighter prospects for the economy over the medium term.
5.3 Government final consumption expenditures
- The biggest surprise though from the GDP is the contraction in government final consumption expenditures.
- While these types of expenditures account for just about 10-11 per cent of the GDP, they can prop up an economy during tough times when people and businesses hold back spending.
- Oddly enough, data shows that not only did government consumption expenditure contract by 4.4. per cent in Q2 (Over the Q2 of 2021), but that it is almost 20 per cent below the pre-covid level.
5.4 Net Exports data
- The last component of the GDP equation is the Net Exports data.
- Typically, since India imports far more than it exports, the NX value is negative.
- In Q2, this negative value swelled by 89 per cent.
- Over the past three years, this drag on GDP has also increased in size by almost 150 per cent.
For Prelims and Mains
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For Prelims: GDP, GVA, India's economic growth data, Net Exports data, Centre for Monitoring Indian Economy (CMIE), Government final consumption expenditures, Investment expenditure, Private Consumption Expenditure, Mining and quarrying, Agriculture, Trade and hotels, Manufacturing sector,
For Mains:
1. What is the difference between GDP and GVA and discuss their contributions to National development? (250 Words)
2. What are the engines of GDP growth? Explain the factors influencing economic growth. (250 Words)
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Previous Year Questions
1.With reference to Indian economy, consider the following statements: (UPSC GS1, 2015)
1. The rate of growth of Real Gross Domestic Product has steadily increased in the last decade. 2. The Gross Domestic Product at market prices (in rupees) has steadily increased in the last decade. 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 Answer (b)
2.A decrease in tax to GDP ratio of a country indicates which of the following? (UPSC GS1, 2015)
1. Slowing economic growth rate 2. Less equitable distribution of national income Select the correct answer using the code given below: (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2 Answer (a)
UPSC Mains Question
1.Define potential GDP and explain its determinants. What are the factors that have been inhibiting India from realizing its potential GDP? (UPSC GS3, 2020) 2.Explain the difference between computing methodology of India’s Gross Domestic Product (GDP) before the year 2015 and after the year 2015. (UPSC GS3, 2021) |
Source: The Indian Express
FOOD CORPORATION OF INDIA (FCI)
1. Context
Activist Ajay Bose received replies under the Right to Information (RTI) Act that the regional offices of the Food Corporation of India (FCI) in Rajasthan, Sikkim, Mizoram, Tripura, and Meghalaya have finalised tenders for procuring “woven laminated bags with an indicative logo of Mr. Modi” to distribute foodgrains.
2.Food Corporation of India (FCI)
The Food Corporation of India (FCI) is a government agency responsible for the procurement, storage, distribution, and maintenance of the public distribution system (PDS) of food grains in India. It was established under the Food Corporation Act of 1964 and operates under the Ministry of Consumer Affairs, Food and Public Distribution
Key functions of the Food Corporation of India include:
- FCI is involved in the purchase of various food grains, primarily rice and wheat, from farmers at the minimum support prices (MSP) declared by the government
- The FCI maintains large warehouses and storage facilities across the country to store the procured food grains. These storage facilities help in managing the food stock and ensuring its availability during periods of high demand or emergencies
- FCI plays a crucial role in the distribution of food grains to various states and union territories. The food grains are distributed through the Public Distribution System (PDS) to ensure food security and affordability for the economically weaker sections of the society
- FCI maintains a buffer stock of food grains to stabilize prices in the market and meet any sudden increase in demand. This buffer stock acts as a cushion against unforeseen events such as natural disasters or crop failures
- FCI may intervene in the market to stabilize prices by buying or selling food grains when necessary
- The corporation is involved in implementing various government schemes related to food distribution and management
3.Objectives of the FCI
The Food Corporation of India (FCI) has several key objectives, all aimed at ensuring food security, supporting farmers, and managing the distribution of food grains in India.
The primary objectives of FCI include:
- FCI is tasked with procuring food grains, primarily rice and wheat, from farmers at the minimum support prices (MSP) declared by the government. This helps in providing farmers with a fair price for their produce and ensures a stable income
- FCI operates warehouses and storage facilities to store the procured food grains. One of its key objectives is to maintain an adequate buffer stock to meet any sudden increase in demand, stabilize prices in the market, and address unforeseen events such as natural disasters or crop failures
- FCI plays a central role in distributing food grains through the Public Distribution System. This system aims to provide subsidized food to economically weaker sections of the society, ensuring that essential commodities are accessible and affordable to those in need
- FCI intervenes in the market to stabilize prices by buying or selling food grains as required. This intervention helps in preventing sharp fluctuations in food prices, which can impact both consumers and producers
- FCI is involved in implementing various government schemes related to food distribution and management. This includes initiatives to provide food grains to vulnerable populations, such as Antyodaya Anna Yojana and the National Food Security Act
- By procuring food grains directly from farmers at MSP, FCI supports agricultural practices and provides farmers with a reliable market for their produce. This helps in promoting agricultural sustainability and rural development
- FCI's overall objective is to contribute to national food security by managing the procurement, storage, and distribution of food grains efficiently. This involves ensuring a steady and reliable supply of essential commodities across the country
- FCI aims to maintain an efficient logistics system for the transportation and distribution of food grains. Timely and effective management of the supply chain is crucial to achieving the organization's objectives
4.Organizational Structure of the FCI
-
Headquarters: The FCI is headquartered in New Delhi, India.
-
Zonal Offices: FCI is divided into zones, each headed by a Zonal Manager. These zones are further subdivided into regional offices.
-
Regional Offices: Each zone comprises several regional offices, each headed by a Regional Manager. These regional offices are responsible for the implementation of FCI's activities in their respective regions.
-
District Offices: At the district level, FCI has offices responsible for coordinating procurement, storage, and distribution activities within the districts.
-
Functional Divisions/Departments: FCI has various functional divisions or departments that focus on specific aspects of its operations. These may include:
-
Procurement Division: Responsible for coordinating the procurement of food grains from farmers.
-
Storage Division: Manages the storage facilities and buffer stocks of food grains.
-
Distribution Division: Coordinates the distribution of food grains through the Public Distribution System (PDS) and other government schemes.
-
Finance Division: Handles financial matters, budgeting, and accounting.
-
Personnel and Administration Division: Manages human resources, personnel matters, and administrative functions.
-
-
Corporate Office Functions: FCI also has central functions that oversee corporate governance, policy formulation, and coordination between different zones and regions.
-
Board of Directors: The FCI is governed by a Board of Directors. The Chairman and Managing Director lead the board, and other directors may be responsible for specific functions such as finance, procurement, or distribution.
-
Field Staff: Field staff, including field officers and other operational personnel, play a crucial role in the day-to-day implementation of FCI's activities at the ground level.
5. Way Forward
FCI has procured a substantial amount of paddy (unhusked rice) during the ongoing Kharif Marketing Season (KMS) 2023-24, laying a strong foundation for the Public Distribution System (PDS)
FCI has been actively offloading wheat from its buffer stocks through e-auctions to manage rising wheat prices and ensure market stability. Open market sales of wheat from buffer stocks might be stopped in northern states from March 1, 2024
Source: The Hindu
FOOD CORPORATION OF INDIA (FCI)
1. Context
Activist Ajay Bose received replies under the Right to Information (RTI) Act that the regional offices of the Food Corporation of India (FCI) in Rajasthan, Sikkim, Mizoram, Tripura, and Meghalaya have finalised tenders for procuring “woven laminated bags with an indicative logo of Mr. Modi” to distribute foodgrains.
2.Food Corporation of India (FCI)
The Food Corporation of India (FCI) is a government agency responsible for the procurement, storage, distribution, and maintenance of the public distribution system (PDS) of food grains in India. It was established under the Food Corporation Act of 1964 and operates under the Ministry of Consumer Affairs, Food and Public Distribution
Key functions of the Food Corporation of India include:
- FCI is involved in the purchase of various food grains, primarily rice and wheat, from farmers at the minimum support prices (MSP) declared by the government
- The FCI maintains large warehouses and storage facilities across the country to store the procured food grains. These storage facilities help in managing the food stock and ensuring its availability during periods of high demand or emergencies
- FCI plays a crucial role in the distribution of food grains to various states and union territories. The food grains are distributed through the Public Distribution System (PDS) to ensure food security and affordability for the economically weaker sections of the society
- FCI maintains a buffer stock of food grains to stabilize prices in the market and meet any sudden increase in demand. This buffer stock acts as a cushion against unforeseen events such as natural disasters or crop failures
- FCI may intervene in the market to stabilize prices by buying or selling food grains when necessary
- The corporation is involved in implementing various government schemes related to food distribution and management
3.Objectives of the FCI
The Food Corporation of India (FCI) has several key objectives, all aimed at ensuring food security, supporting farmers, and managing the distribution of food grains in India.
The primary objectives of FCI include:
- FCI is tasked with procuring food grains, primarily rice and wheat, from farmers at the minimum support prices (MSP) declared by the government. This helps in providing farmers with a fair price for their produce and ensures a stable income
- FCI operates warehouses and storage facilities to store the procured food grains. One of its key objectives is to maintain an adequate buffer stock to meet any sudden increase in demand, stabilize prices in the market, and address unforeseen events such as natural disasters or crop failures
- FCI plays a central role in distributing food grains through the Public Distribution System. This system aims to provide subsidized food to economically weaker sections of the society, ensuring that essential commodities are accessible and affordable to those in need
- FCI intervenes in the market to stabilize prices by buying or selling food grains as required. This intervention helps in preventing sharp fluctuations in food prices, which can impact both consumers and producers
- FCI is involved in implementing various government schemes related to food distribution and management. This includes initiatives to provide food grains to vulnerable populations, such as Antyodaya Anna Yojana and the National Food Security Act
- By procuring food grains directly from farmers at MSP, FCI supports agricultural practices and provides farmers with a reliable market for their produce. This helps in promoting agricultural sustainability and rural development
- FCI's overall objective is to contribute to national food security by managing the procurement, storage, and distribution of food grains efficiently. This involves ensuring a steady and reliable supply of essential commodities across the country
- FCI aims to maintain an efficient logistics system for the transportation and distribution of food grains. Timely and effective management of the supply chain is crucial to achieving the organization's objectives
4.Organizational Structure of the FCI
-
Headquarters: The FCI is headquartered in New Delhi, India.
-
Zonal Offices: FCI is divided into zones, each headed by a Zonal Manager. These zones are further subdivided into regional offices.
-
Regional Offices: Each zone comprises several regional offices, each headed by a Regional Manager. These regional offices are responsible for the implementation of FCI's activities in their respective regions.
-
District Offices: At the district level, FCI has offices responsible for coordinating procurement, storage, and distribution activities within the districts.
-
Functional Divisions/Departments: FCI has various functional divisions or departments that focus on specific aspects of its operations. These may include:
-
Procurement Division: Responsible for coordinating the procurement of food grains from farmers.
-
Storage Division: Manages the storage facilities and buffer stocks of food grains.
-
Distribution Division: Coordinates the distribution of food grains through the Public Distribution System (PDS) and other government schemes.
-
Finance Division: Handles financial matters, budgeting, and accounting.
-
Personnel and Administration Division: Manages human resources, personnel matters, and administrative functions.
-
-
Corporate Office Functions: FCI also has central functions that oversee corporate governance, policy formulation, and coordination between different zones and regions.
-
Board of Directors: The FCI is governed by a Board of Directors. The Chairman and Managing Director lead the board, and other directors may be responsible for specific functions such as finance, procurement, or distribution.
-
Field Staff: Field staff, including field officers and other operational personnel, play a crucial role in the day-to-day implementation of FCI's activities at the ground level.
5. Way Forward
FCI has procured a substantial amount of paddy (unhusked rice) during the ongoing Kharif Marketing Season (KMS) 2023-24, laying a strong foundation for the Public Distribution System (PDS)
FCI has been actively offloading wheat from its buffer stocks through e-auctions to manage rising wheat prices and ensure market stability. Open market sales of wheat from buffer stocks might be stopped in northern states from March 1, 2024
Source: The Hindu
SEMICONDUCTOR FABRICATION PLANT
1. Context
Recently, The Union Cabinet approved three chip-related projects worth about Rs 1.26 lakh crore, including what could be India’s first semiconductor fabrication plant, which will be set up by the Tata Group along with a Taiwanese technology partner
2. About semiconductor
- A semiconductor is a material that has an electrical conductivity that falls between that of a conductor, such as metallic copper, and an insulator, such as glass.
- Semiconductors are the foundation of modern electronics, including transistors, diodes, and integrated circuits.
- They are used in a wide range of applications, from simple electronic devices like calculators to complex systems like computers and smartphones.
- Semiconductors can be made from a variety of materials, including silicon, germanium, and gallium arsenide, and their properties can be modified by doping, which involves adding impurities to the material to change its electrical properties.
3. The most basic component of a semiconductor chip
- The most basic component of a semiconductor chip is the transistor. A transistor is a three-terminal semiconductor device that can amplify or switch electronic signals and electrical power.
- It is composed of semiconductor material, usually silicon, with at least three terminals for connection to an external circuit.
- The terminals are labelled as the emitter, base, and collector. The transistor's ability to amplify or switch electronic signals makes it an essential building block in modern electronics, including integrated circuits and microprocessors.
4. The supply chain for semiconductors
The supply chain for semiconductors is a complex network of companies involved in the design, manufacturing, testing, packaging, and distribution of semiconductor products.
The key players in the semiconductor supply chain include
- These companies are responsible for designing semiconductor chips, including integrated circuits (ICs) and microprocessors. They work with clients to understand their requirements and develop custom designs.
- Foundries are specialized manufacturing facilities that produce semiconductor chips based on the designs provided by design houses. They use advanced fabrication processes, such as photolithography, to create the intricate patterns and structures on the chips.
- Fabless Semiconductor Companies focus on designing semiconductor chips but do not have their own manufacturing facilities. Instead, they outsource the production of their chips to foundries.
- Integrated Device Manufacturers (IDMs) are companies that design and manufacture their own semiconductor chips. They have their own manufacturing facilities and can produce a wide range of chips, from memory chips to microprocessors.
- Once the semiconductor chips are manufactured, they need to be packaged and tested before they can be used in electronic devices. Packaging companies assemble the chips into packages and test them to ensure they meet the required specifications.
- Distributors are responsible for selling semiconductor products to customers, including electronic device manufacturers and end-users. They maintain an inventory of semiconductor products and ensure they are delivered to customers on time.
- These companies use semiconductor chips to manufacture electronic devices, such as smartphones, computers, and automotive electronics. They integrate the chips into their products and sell them to end-users.
- End-users are the final consumers of electronic devices that contain semiconductor chips. They use these devices for various applications, such as communication, entertainment, and productivity.
5. About India’s first semiconductor fabrication plant
- India's first semiconductor fabrication plant (or "fab") is a significant development with the potential to transform the country's electronics manufacturing sector.
- The project is a collaboration between India's Tata Group and Taiwan's Powerchip Semiconductor Manufacturing Corporation (PSMC). The plant will be located in Dholera, Gujarat.
- The estimated cost of the project is around Rs 91,000 crore (approx. USD 11 billion).
- It will produce chips using various process nodes, including mature nodes like 28nm, 40nm, and 55nm. These nodes are highly relevant for various applications.
- This plant marks India's entry into the high-tech arena of semiconductor manufacturing, a sector dominated by a few global players.
Potential Benefits
- India heavily relies on imported chips. This fab could significantly reduce this dependence, aiding the "Make in India" initiative.
- The plant could act as a catalyst for the growth of India's electronics manufacturing ecosystem.
- It is expected to generate numerous direct and indirect job opportunities in the high-tech sector.
- The fab will contribute to India's technological self-reliance and strategic positioning in the global semiconductor landscape.
Other Semiconductor Initiatives in India
- Semicon India Program is a government scheme with an outlay of INR 76,000 crore ( USD 10 billion) for the development of a sustainable semiconductor and display manufacturing ecosystem.
- In addition to the Tata and PSMC collaboration, other semiconductor fabrication plants are being proposed, including one by Micron in Sanand, Gujarat, and a chip packaging facility in the same state.
- India Semiconductor Mission (ISM) Launched in 2021, the ISM provides financial and infrastructure support to facilitate the development of India's semiconductor industry.
6. The current challenges of the semiconductor industry in India?
The semiconductor industry in India faces several challenges that hinder its growth and competitiveness.
The key challenges include
- India lacks the necessary infrastructure for semiconductor manufacturing, such as advanced fabrication facilities (fabs), clean rooms, and testing facilities. This limits the country's ability to produce high-quality semiconductor chips and compete with other countries in the global market.
- The semiconductor industry requires significant investment in research and development, infrastructure, and skilled labour. However, India has historically invested less in the semiconductor industry compared to other countries, such as China, South Korea, and Taiwan.
- The semiconductor industry requires highly skilled engineers and technicians with expertise in areas such as chip design, fabrication, testing, and packaging. However, India faces a shortage of skilled labour in these areas, which hampers the growth of the industry.
- The Indian government has not provided sufficient support to the semiconductor industry, including tax incentives, subsidies, and funding for research and development. This has limited the growth of the industry and discouraged investment.
- India faces stiff competition from other countries, such as China, South Korea, and Taiwan, which have well-established semiconductor industries. These countries have invested heavily in semiconductor manufacturing and have a competitive advantage in terms of technology, infrastructure, and skilled labour.
- The semiconductor industry relies heavily on intellectual property rights (IPR) to protect its innovations and technologies. However, India has weak IPR laws and enforcement mechanisms, which makes it difficult for semiconductor companies to protect their intellectual property and compete in the global market.
7. The Way Forward
By implementing these comprehensive measures, India can overcome the existing challenges, foster a thriving domestic semiconductor industry, and strategically position itself in the global market, reducing reliance on imports, boosting its economy, and driving technological advancement. The journey will require sustained commitment from the government, private sector, and educational institutions to realize the full potential of this critical industry.
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For Prelims: Semiconductor, intellectual property rights, India Semiconductor Mission, Semicon India Program
For Mains:
1. Discuss the potential of India's semiconductor industry to reduce the country's dependence on imported chips and contribute to the "Make in India" initiative. (250 Words)
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Source: The Indian Express
