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DAILY CURRENT AFFAIRS, 25 JULY 2024

GROSS DOMESTIC PRODUCT (GDP)

 
 
1. Context
The FY25 budget continues the commitment to being responsible. The fiscal deficit is projected at 4.9 per cent of GDP in FY25 and seeks a large 0.9 pp correction relative to FY24 (and a 0.2 pp lower deficit even compared to the interim budget) — a decline of 1.8 pp over the last four years. This would be the largest annual reduction in deficit since 2013, excluding the post-Covid normalisation
 
2. Gross Domestic Product (GDP)
Gross domestic product (GDP) is the total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period. It is often used as a measure of a country's economic health
GDP provides insight into the overall economic health of a nation and is often used for comparing the economic output of different countries.

There are three primary ways to calculate GDP:

  1. Production Approach (GDP by Production): This approach calculates GDP by adding up the value-added at each stage of production. It involves summing up the value of all final goods and services produced in an economy.

  2. Income Approach (GDP by Income): This approach calculates GDP by summing up all the incomes earned in an economy, including wages, rents, interests, and profits. The idea is that all the income generated in an economy must ultimately be spent on purchasing goods and services.

  3. Expenditure Approach (GDP by Expenditure): This approach calculates GDP by summing up all the expenditures made on final goods and services. It includes consumption by households, investments by businesses, government spending, and net exports (exports minus imports).

3. Measuring GDP

GDP can be measured in three different ways:

  1. Nominal GDP: This is the raw GDP figure without adjusting for inflation. It reflects the total value of goods and services produced at current prices.

  2. Real GDP: Real GDP adjusts the nominal GDP for inflation, allowing for a more accurate comparison of economic performance over time. It represents the value of goods and services produced using constant prices from a specific base year.

  3. GDP per capita: This is the GDP divided by the population of a country. It provides a per-person measure of economic output and can be useful for comparing the relative economic well-being of different countries.

The GDP growth rate is the percentage change in the GDP from one year to the next. A positive GDP growth rate indicates that the economy is growing, while a negative GDP growth rate indicates that the economy is shrinking

The GDP is a useful measure of economic health, but it has some limitations. For example, it does not take into account the distribution of income in an economy. It also does not take into account the quality of goods and services produced.

Despite its limitations, the GDP is a widely used measure of economic health. It is used by economists, policymakers, and businesses to track the performance of an economy and to make decisions about economic policy

4. Gross Value Added (GVA)

 

Gross Value Added (GVA) is a closely related concept to Gross Domestic Product (GDP) and is used to measure the economic value generated by various economic activities within a country. GVA represents the value of goods and services produced in an economy minus the value of inputs (such as raw materials and intermediate goods) used in production. It's a way to measure the contribution of each individual sector or industry to the overall economy.

GVA can be calculated using the production approach, similar to one of the methods used to calculate GDP. The formula for calculating GVA is as follows:

GVA = Output Value - Intermediate Consumption

Where:

  • Output Value: The total value of goods and services produced by an industry or sector.
  • Intermediate Consumption: The value of inputs used in the production process, including raw materials, energy, and other intermediate goods.
5. GDP vs GNP

Gross Domestic Product (GDP) and Gross National Product (GNP) are both important economic indicators used to measure the size and health of an economy, but they focus on slightly different aspects of economic activity and include different factors. Here are the key differences between GDP and GNP:

  1. Definition and Scope:

    • GDP: GDP measures the total value of all goods and services produced within a country's borders, regardless of whether the production is done by domestic or foreign entities. It only considers economic activities that take place within the country.
    • GNP: GNP measures the total value of all goods and services produced by a country's residents, whether they are located within the country's borders or abroad. It takes into account the production of residents, both domestically and internationally.

  2. Foreign Income and Payments:

    • GDP: GDP does not consider the income earned by residents of a country from their economic activities abroad, nor does it account for payments made to foreigners working within the country.
    • GNP: GNP includes the income earned by a country's residents from their investments and activities abroad, minus the income earned by foreign residents from their investments within the country.

  3. Net Factor Income from Abroad:

    • GDP: GDP does not account for net factor income from abroad, which is the difference between income earned by domestic residents abroad and income earned by foreign residents domestically.
    • GNP: GNP includes net factor income from abroad as part of its calculation.

  4. Foreign Direct Investment:

    • GDP: GDP does not directly consider foreign direct investment (FDI) flowing into or out of a country.
    • GNP: GNP considers the impact of FDI on the income of a country's residents, both from investments made within the country and from investments made by residents abroad.

  5. Measurement Approach:

    • GDP: GDP can be calculated using three different approaches: production, income, and expenditure approaches.
    • GNP: GNP is primarily calculated using the income approach, as it focuses on the income earned by residents from their economic activities.
 
 
 
 
For Prelims: GDP, GVA, FDI, GNP
For Mains: 1.Discuss the recent trends and challenges in India's GDP growth
2.Examine the role of the service sector in India's GDP growth
3.Compare and contrast the growth trajectories of India's GDP and GNP
 
 
Previous Year Questions
1.With reference to Indian economy, consider the following statements: (UPSC CSE, 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 CSE, 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)
Previous year UPSC Mains Question Covering similar theme:
Define potential GDP and explain its determinants. What are the factors that have been inhibiting India from realizing its potential GDP? (UPSC CSE GS3, 2020)
Explain the difference between computing methodology of India’s Gross Domestic Product (GDP) before the year 2015 and after the year 2015. (UPSC CSE GS3, 2021)
 
Source: indianexpress
 

U-WIN

 
1. Context
 
On the government’s 100-day health agenda is the countrywide rollout of U-WIN, an online vaccine management portal for childhood vaccination — similar to CoWIN used during the Covid-19 pandemic.
 
 
2. What is U-WIN? How does it work
 
  • hildren up to the age of six and pregnant mothers are enrolled in U-WIN using government IDs like Aadhaar and their mobile phone numbers. Once registered, the system can record all 25 vaccinations for children and the two given to pregnant mothers.
  • The platform generates a checkered vaccination certificate with color-coded vaccines. Each time a vaccination is administered and logged in U-WIN, the date is added to the certificate, which also displays the due date for the next vaccines. The platform sends SMS reminders to parents before their child's next vaccination is due.
  • The digital vaccine certificate, accessible via the parents' registered mobile numbers, eliminates the need for a physical vaccination booklet and enables vaccinations to be received anywhere in the country.
  • U-WIN can also be used to locate nearby vaccination centers and book slots. For health workers, the platform automatically generates a list of children due for vaccinations in their area. As the database grows, U-WIN will help the government analyze micro-trends across regions.
  • U-WIN also records all births, the three vaccines against polio, hepatitis B, and tuberculosis administered at birth, a child’s birth weight, and any observed physical deformities.
  • This information can be used by other government programs, with the goal of eventually connecting all digital records through the ABHA (Ayushman Bharat Health Account) ID
  • U-WIN will be integrated with the government’s existing eVIN platform for inventory management. eVIN monitors all vaccine vials, from central storage facilities to each vaccination site nationwide.
  • It tracks the number of doses administered, doses wasted, and open vials returned by the sites, and is also used by sites to request additional vaccines.
  • eVIN also monitors, in real-time, the temperature and humidity conditions each vial experiences using sensors attached to each freezer.
  • Since U-WIN operates on the same principles and utilizes the same digital infrastructure as CoWIN, its adoption is expected to be straightforward.
  • An immunization expert who has previously worked with government programs noted, “We already know that the digital infrastructure required for such a large program exists in the country. Additionally, most vaccinators have experience with a similar platform, which means they are likely to find it user-friendly
 
3. How will U-WIN help with immunisation?
 
  • The government anticipates several benefits from implementing U-WIN. One major advantage is portability—children who receive their initial vaccines in one village or city can complete their vaccination schedule anywhere else in the country. This is particularly beneficial for ensuring that children of migrant workers stay on track with their vaccinations.
  • The portal may also help reduce errors. An immunization expert mentioned that the platform can serve as a decision support system.
  • If a health worker is about to administer an incorrect dose or give a shot too early, the platform will prevent them from updating the record, thereby alerting them to the mistake.
  • U-WIN will offer detailed, individualized data on childhood immunizations nationwide. Currently, vaccination data is maintained as aggregate numbers rather than individual records.
  • This aggregated data cannot differentiate between individual cases. However, with U-WIN, having data for each child will provide a clearer, more accurate picture
  • Registration at birth may also help in bringing down the number of “zero dose” children — those who have not received any vaccinations. In India, the coverage of the first dose of diphtheria, pertussis, and tetanus (DPT)-containing vaccine is taken as the proxy for zero dose children
  • Recently released data from the WHO and UNICEF show that while 93% of children received their first vaccine dose, there were still 1.6 million zero dose children in India in 2023
 
4. Way Forward
The data also showed that 1.6 million children missed their first measles-containing vaccine in 2023, up from 1.1 million the previous year. This is concerning as in 2022, five states — Bihar, Gujarat, Haryana, Jharkhand, and Maharashtra — reported a rise in the incidence of measles. A centralised database, especially in the long-term, may facilitate better policy-making and implementation.
 
 
Source: Indianexpress

CLIMATE FINANCE TAXONOMY

 
 
1. Context
Presenting the Union Budget for 2024-25 , Finance Minister Nirmala Sitharaman announced that the government would develop a ‘climate finance taxonomy’ to enhance the availability of capital for climate adaptation and mitigation. This will help India achieve its climate commitments and green transition.
 
2. What is a climate finance taxonomy?
 
A climate finance taxonomy is a framework for identifying sectors of the economy that can be promoted as sustainable investments. This system aids investors and financial institutions in channeling significant funds into meaningful projects aimed at combating climate change.
According to a report by the Canadian government, "Taxonomies are often utilized to establish standards for categorizing climate-related financial tools, such as green bonds. However, their application is expanding to other areas where the benchmarking feature is advantageous, including climate risk management, planning for a net-zero transition, and climate disclosure
 
3.Why is a taxonomy significant?
 
  • With global temperatures rising and the negative impacts of climate change intensifying, countries must move towards a net-zero economy, which balances the greenhouse gases emitted with those removed from the atmosphere.
  • Taxonomies can be crucial in this transition by determining whether economic activities follow credible, science-based transition pathways. They can also boost the allocation of climate capital and mitigate the risks of greenwashing.
  • For India, implementing a taxonomy could attract more international climate funds. Presently, green finance in India falls significantly short of the country's needs, representing only about 3% of total FDI inflows, according to the 2022 Landscape of Green Finance in India report by the Climate Policy Initiative.
  • One major reason for the low levels of green finance is the lack of clear definitions for sustainable activities. A taxonomy would address this issue
 
4. Green Investments in India
 
  • Based on analysis by the International Finance Corporation, India's potential for climate-friendly investments is substantial, estimated at $3.1 trillion over the period from 2018 to 2030. The electric vehicle industry stands out as the most promising sector, with an investment potential of $667 billion, driven by India's goal to transition all new vehicles to electric power by 2030. Additionally, the renewable energy sector remains attractive to investors, with opportunities valued at $403.7 billion during this timeframe.
  •  India aims to achieve 500 GW of renewable energy capacity by 2030. This ambitious goal opens significant investment opportunities in solar, wind, and hydroelectric power projects.
  • Enhancing energy efficiency across various sectors, including industrial, residential, and commercial, presents vast investment prospects. This includes upgrading infrastructure, implementing smart grids, and adopting energy-efficient technologies
  • Developing sustainable transportation systems, green buildings, and smart cities is crucial for India's growth. Investments in electric vehicles, public transit systems, and green construction technologies are essential components of this transformation
  • Investments in climate-resilient infrastructure, such as flood defenses, water management systems, and agricultural technologies, are critical to mitigating the impacts of climate change
  • As global attention on climate change intensifies, India has the potential to attract significant international climate finance. Implementing a robust climate finance taxonomy can enhance transparency and attract foreign investments
  • The Indian government has introduced various policies and incentives to promote green investments. Programs like the National Solar Mission, FAME (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles) scheme, and the Green Energy Corridor project provide a favorable environment for green investments
  • Indian banks and financial institutions are gradually increasing their focus on green finance, offering green bonds and sustainable investment funds. This growing support from the financial sector can facilitate the flow of capital into green projects
 
5. Do other countries have taxonomies?
  • The EU Taxonomy is one of the most comprehensive frameworks, establishing clear criteria for what can be considered environmentally sustainable economic activities. It covers various sectors and aims to direct investment towards the EU's climate goals
  • China has implemented its own Green Bond Endorsed Projects Catalogue, which outlines the criteria for green projects eligible for green bond financing. This taxonomy focuses on promoting clean energy, pollution prevention, resource conservation, and other environmentally beneficial project
  • The UK is developing a Green Taxonomy aligned with the EU framework but tailored to the specific needs and priorities of the UK economy. It aims to support the country's commitment to net-zero emissions by 2050
  • Japan has introduced its Green Bond Guidelines to encourage green bond issuance and investment in projects that contribute to environmental sustainability. These guidelines align with international standards but reflect Japan's unique environmental challenges and goals
  • Canada is working on a national climate finance taxonomy to help standardize the classification of sustainable investments. This taxonomy aims to facilitate climate risk management, transition planning, and climate disclosure
  • Singapore has developed the Singapore Green Bond Framework, which provides guidelines for green bond issuances in the country. This framework supports sustainable finance and investments in projects that address environmental challenges
 
6. Way Forward
 
India aims to achieve net-zero economy by 2070. It has also pledged to reduce the emissions intensity of its GDP by 45% by 2030, from the 2005 level. India has committed to achieve about 50% cumulative electric power installed capacity from non-fossil fuel-based energy resources by 2030 as well
 
For Prelims: COP28, Organisation for Economic Cooperation and Development, Climate Finance, Climate Change, United Nations Framework Convention on Climate Change,  Nationally Determined Contributions, COP27, Copenhagen Accord, Paris Agreement 
For Mains: 
1. Discuss the impact of climate change on developing economies. How can climate finance be effectively utilized to promote sustainable development in these economies? (250 Words)
 
 

Previous Year Questions
 
1. With reference to the Agreement at the UNFCCC Meeting in Paris in 2015, which of the following statements is/are correct? (UPSC 2016)
1. The Agreement was signed by all the member countries of the UN and it will go into effect in 2017.
2. The Agreement aims to limit greenhouse gas emissions so that the rise in average global temperature by the end of this century does not exceed 2°C or even 1.5°C above pre-industrial levels.
3. Developed countries acknowledged their historical responsibility for global warming and committed to donate $1000 billion a year from 2020 to help developing countries cope with climate change.
 
Select the correct answer using the code given below
A. 1 and 3 only
B.  2 only
C.  2 and 3 only
D.  1, 2 and 3
Answer: B
 
2. The term ‘Intended Nationally Determined Contributions’ is sometimes seen in the news in the context of ( UPSC 2016)
A. pledges made by the European countries to rehabilitate refugees from the war-affected Middle East
B. plan of action outlined by the countries of the world to combat climate change
C. capital contributed by the member countries in the establishment of the Asian Infrastructure Investment Bank
D. plan of action outlined by the countries of the world regarding Sustainable Development Goals

Answer: B

3. The UN Framework Convention on Climate Change (UNFCCC) has announced which country to host the 28th Conference of the Parties (COP28) in 2023? (SSC CGL  2023) 

A. UAE         B. US          C. UK         D. Russia

Answer: A

 

4. Consider the following statements with reference to Organisation for Economic Co-operation and Development (OECD): (RBI Grade B 2022)
1. OECD is an official Permanent observer to the United Nations and is referred to as a think-tank or as a monitoring group.
2. India is not a member of OECD.
3. OECD is funded by its member countries.
Which of the statement given above is/ are correct? 

A. 1 only       B. 1 and 2 only      C. 2 and 3 only        D. 1, 2 and 3          E. 2 only

Answer: D

5. Which of the following statements regarding 'Green Climate Fund' is/are correct? (UPSC 2015)
1. It is intended to assist the developing countries in adaptation and mitigation practices to counter climate change.
2. It is founded under the aegis of UNEP, OECS, Asian Development Bank and World Bank.
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

6. The 27th annual UN meeting on climate, COP27 (Conference of Parties) took place from 6th to 18th November, in which of the following country?  (SSC GD Constable 2023)

A. France       B. Brazil        C. Indonesia       D. Egypt

Answer: D

7. According to the Copenhagen Accord, what percentage of India has promised to reduce carbon emissions by the year 2020 as compared to 2005? (UP Police SI 2017) 

A. 20-25 percent  B. 10-15 percent         C. 30-35 percent       D. 5-10 percent

Answers: 1-B, 2-B, 3-A, 4-D, 5-A, 6-D, 7-A

Mains

1. Describe the major outcomes of the 26th session of the Conference of the Parties (COP) to the United Nations Framework Convention on Climate Change (UNFCCC). What are the commitments made by India in this conference? (upsc 2021)
 
Source: Indianexpress

BUDGET 2024- KEY HIGHLIGHTS

 
 

 Overview

"Budget Insight 2024" is a special edition magazine tailored for UPSC aspirants, focusing exclusively on the Union Budget 2024. This comprehensive guide breaks down the complex financial document into digestible, exam-relevant content. It serves as an essential resource for candidates preparing for various stages of the UPSC examination, offering in-depth analysis, key highlights, and potential questions related to the budget.

The magazine is structured to provide a holistic understanding of the Union Budget 2024, catering specifically to UPSC exam requirements:

  • Executive Summary: A concise overview of the budget's main points, key allocations, and major policy shifts.
  • Economic Survey Analysis: Breakdown of the Economic Survey preceding the budget, highlighting crucial economic indicators and their implications.
  • Sector-wise Budget Allocation: Detailed examination of budget allocations across various sectors such as agriculture, defense, education, healthcare, and infrastructure.
  • Policy Initiatives: In-depth analysis of new schemes, programs, and policy changes introduced in the budget.
  • Fiscal Management: Explanation of fiscal deficit, revenue projections, and debt management strategies outlined in the budget.
  • Taxation Changes: Comprehensive coverage of alterations in direct and indirect taxes, and their potential impact on the economy.
  • Socio-economic Implications: Discussion on how budget provisions affect different sections of society and various economic indicators.
  • Budget and Five-Year Plans: Correlation between budget allocations and ongoing five-year plan objectives.
  • International Perspective: Comparison of India's budget with global economic trends and policies.
  • Expert Opinions: Insights from economists, policy experts, and successful UPSC candidates on the budget's implications.
  • Glossary of Budget Terms: Explanations of technical terms and concepts used in the budget document.

 

 

1.Agricultural Initiatives

 

The 2023-24 Union Budget allocated 1.52 Lakh Crore to agriculture and related sectors. Farmers will receive 109 new crop varieties that are both high-yielding and climate-resilient, covering 32 field and horticultural crops. The government aims to introduce 1 crore farmers to natural farming methods over two years and establish 10,000 bioinput research centers based on need. A Digital Public Infrastructure for agriculture will be implemented in partnership with states over three years, and Jan Samarth-based Kisan Credit cards will be made available in five states.

2. Employment and Skill Development

The budget set aside Rs 1.48 lakh crore for education, employment, and skill development. Five new schemes with a total outlay of Rs 2 lakh crores will be introduced to provide employment opportunities and benefits to 4.1 crore youth. Three employee-linked incentive programs are planned:

  • The Section A  program will offer a one-month salary as direct benefit transfer to first-time employees, potentially benefiting 210 lakh young people.
  • The Section B focuses on job creation in manufacturing, aiming to assist 30 lakh new employees and their employers.
  • The Section C is a cross-sector initiative to incentivize additional employment, expected to support 50 lakh individuals.

 

Educational Initiatives:

The government plans to support higher education by offering education loans of up to Rs10 lakh for students attending domestic institutions. Annual interest subsidies of 3% will be provided through e-vouchers to 100,000 students each year. Additionally, 1,000 industrial training institutes will undergo upgrades, and the model skill loan scheme will be revised to allow loans up to Rs. 7.5 lakh, potentially benefiting 25,000 students annually. New medical colleges and sports facilities are slated for construction in Bihar.

Women's Empowerment:

To boost women's participation in the workforce, the government has proposed several measures. These include setting up hostels for working women and providing childcare facilities. The plan also encompasses women-specific skill development programs and efforts to enhance market access for enterprises led by women's Self-Help Groups (SHGs).

A substantial allocation of over Rs 3 lakh crore has been made for schemes aimed at benefiting women and girls, underscoring the government's commitment to women-led development. Furthermore, the government is encouraging states to consider reducing stamp duty rates for property purchases made by women, as an additional measure to promote women's economic empowerment

3.Human Resource Development and Social Justice

Purvodaya

  • Comprehensive Development Plan: This initiative focuses on the holistic development of the eastern region, encompassing Bihar, Jharkhand, West Bengal, Odisha, and Andhra Pradesh. It aims to enhance human resources, infrastructure, and economic opportunities to transform the region into a driver of national development.
  • Industrial Corridor: The Amritsar-Kolkata Industrial Corridor will include the establishment of an industrial node in Gaya.
  • Road Connectivity Projects: Major projects include the Patna-Purnea Expressway, Buxar-Bhagalpur Expressway, spurs in Bodhgaya, Rajgir, Vaishali, and Darbhanga, and an additional two-lane bridge over the Ganga River at Buxar, with a total investment of ₹26,000 crore.

Andhra Pradesh Reorganization Act

  • Financial Support: The government will provide special financial assistance through multilateral development agencies, starting with ₹15,000 crore in the current financial year, with more to follow. There is a strong commitment to funding and completing the Polavaram Irrigation Project. Additionally, funds will be allocated for essential infrastructure like water, power, railways, and roads in the Kopparthy node on the Visakhapatnam-Chennai Industrial Corridor and the Orvakal node on the Hyderabad-Bengaluru Industrial Corridor.

Pradhan Mantri Janjatiya Unnat Gram Abhiyan

  • Tribal Community Development: This program aims to improve the socio-economic conditions of tribal communities, specifically targeting tribal-majority villages and aspirational districts.

North East Region

  • Banking Expansion: Over 100 new branches of the India Post Payment Bank will be established in the North East Region

4. Manufacturing and Services

For MSMEs

  • Support Package: A comprehensive package will be developed for MSMEs, including financing, regulatory reforms, and technological support to enhance their growth and global competitiveness.
  • Credit Guarantee Scheme: A credit guarantee scheme for MSMEs in the manufacturing sector will be introduced, allowing the purchase of machinery and equipment without collateral or third-party guarantees. Additionally, a self-financing guarantee fund will offer up to ₹100 crore in guarantee cover per applicant.
  • New Credit Assessment Model: Public sector banks will build internal capabilities to assess MSME creditworthiness, moving away from reliance on external assessments.
  • Credit Support During Stress Periods: MSMEs in the 'special mention account' (SMA) stage will receive credit support to maintain operations and avoid transitioning into non-performing assets (NPA).
  • Mudra Loan Enhancement: For entrepreneurs who have successfully repaid previous loans under the 'Tarun' category, the Mudra loan limit will be increased from ₹10 lakh to ₹20 lakh.
  • TReDS Platform: The turnover threshold for mandatory onboarding on the TReDS platform will be reduced from ₹500 crore to ₹250 crore.
  • SIDBI Expansion: SIDBI will open new branches to serve all major MSME clusters within three years, providing direct credit.
  • Food Irradiation and Testing Labs: Financial support will be provided for establishing 50 multi-product food irradiation units and 100 food quality and safety testing labs with NABL accreditation.
  • E-Commerce Export Hubs: Public-private partnership (PPP) mode e-commerce export hubs will be set up to help MSMEs and traditional artisans sell products internationally.

Promotion of Manufacturing & Services

  • Youth Internships: One crore youth will receive internships in 500 top companies over five years, with companies covering training costs and 10% of the internship cost from CSR funds.
  • Industrial Parks: Development of investment-ready "plug and play" industrial parks with complete infrastructure will be facilitated in or near 100 cities, in collaboration with states and the private sector, as part of the National Industrial Corridor Development Programme.
  • Worker Housing: Rental housing with dormitory-type accommodations for industrial workers will be developed.
  • Digital Public Infrastructure Applications: Proposed applications will cover credit, e-commerce, education, health, law and justice, logistics, MSME service delivery, and urban governance.
  • Critical Mineral Mission: A mission for the domestic production, recycling, and overseas acquisition of critical minerals will be established.
  • C-PACE Services: The Centre for Processing Accelerated Corporate Exit (C-PACE) services will be expanded.
  • Offshore Mining Blocks: The government will launch the auction of the first tranche of offshore blocks for mining.
  • Integrated Technology Platform: An integrated technology platform for the IBC ecosystem will be set up.
  • IBC Reforms: Reforms to the Insolvency and Bankruptcy Code (IBC) and strengthening of tribunals and appellate tribunals will be initiated to expedite insolvency resolution

5. Urban Development

PM-AWAS Yojana Urban 2.0

  • Housing for Urban Poor and Middle-Class Families: The PM Awas Yojana Urban 2.0 aims to address the housing needs of 1 crore urban poor and middle-class families with an investment of ₹10 lakh crore.
  • Central Assistance: The scheme will receive ₹2.2 lakh crore in central aid over the next five years.
  • Affordable Loan Interest Subsidies: A mechanism will be established to provide interest subsidies to encourage loans at affordable rates.
  • Rental Housing Market Reforms: Laws and regulations will be introduced to promote efficient and transparent rental housing markets, increasing the supply of rental properties.

Water Supply and Sanitation

  • Collaborative Projects: In partnership with state governments and multilateral development banks, the government will support water supply, sewage treatment, and solid waste management projects in 100 major cities through viable initiatives.
  • Use of Treated Water: These initiatives will also include the use of treated water for irrigation and filling local tanks.

Street Markets

  • Support for Street Vendors: Building on the success of the PM SVANidhi Scheme, the government plans to facilitate the establishment of 100 weekly haats or street food hubs over the next five years.

Stamp Duty

  • Encouraging Moderate Stamp Duty Rates: States will be encouraged to continue charging moderate stamp duty rates and consider further reductions for properties purchased by women, forming a key part of urban development plans

6.Energy Security

Nuclear Energy

  • Small and Modular Nuclear Reactors: The government will collaborate with the private sector to:
    1. Establish Bharat Small Reactors.
    2. Conduct research and development of Bharat Small Modular Reactors.
    3. Develop new technologies for nuclear energy.

Solar Power (PM Surya Ghar Muft Bijli Yojana)

  • Rooftop Solar Plants: In line with the interim budget announcement, the PM Surya Ghar Muft Bijli Yojana has been launched to install rooftop solar plants, providing 1 crore homes with free electricity up to 300 units per month.

Pumped Storage Policy

  • Electricity Storage Strategy: A policy will be formulated to promote pumped storage projects for electricity storage, ensuring the smooth integration of renewable energy into the overall energy mix despite its variability.

Advanced Ultra Super Critical Thermal Power Plants

  • Indigenous Technology Development: A joint venture between NTPC and BHEL has developed indigenous technology for Advanced Ultra Super Critical (AUSC) thermal power plants, leading to the creation of a full-scale 800 MW commercial plant.
  • Economic Benefits: Developing indigenous capacity for producing high-grade steel and other advanced metallurgy materials for these plants will yield significant economic advantages.

Roadmap for 'Hard to Abate' Industries

  • Emission Reduction Strategy: A strategy will be developed to transition 'hard to abate' industries from focusing solely on energy efficiency to achieving emission reduction objectives.

Support for Traditional Micro and Small Industries

  • Energy Efficiency and Clean Energy Transition: Investment-grade energy audits will be conducted for traditional micro and small enterprises, such as brass and ceramic industries. Financial assistance will be provided to help these enterprises transition to cleaner energy sources and implement energy efficiency measures.
  • Expansion to Additional Clusters: This strategy will be replicated in another 100 clusters in the next phase

 

 

According to the International Atomic Energy Agency (IAEA), Small Modular Reactors (SMRs) are advanced nuclear reactors with a power generation capacity ranging from under 30 MWe to over 300 MWe.

Characteristics of SMRs:

  • Small: They are significantly smaller in size compared to traditional nuclear power reactors.
  • Modular: Their systems and components can be assembled in a factory and transported as a complete unit to the installation site.
  • Reactors: They utilize nuclear fission to generate heat, which can be used for electricity production or other direct applications.

SMRs encompass both small and medium-sized modular reactors, tailored to a country's specific context. Their SSCs (structures, systems, and components) are designed for factory production and site transportation, which helps to shorten construction timelines. This approach aims to achieve cost efficiency through serial production, allowing for the addition of power modules as demand increases

 

 

7. Infrastructure

  • Budget Allocation: The government has earmarked ₹11,11,111 crore for capital expenditure, which accounts for 3.4% of the GDP.
  • Pradhan Mantri Gram Sadak Yojana (PMGSY): Phase IV of PMGSY will be launched to ensure all-weather connectivity for 25,000 rural habitations.
  • Irrigation and Flood Control: Through the Accelerated Irrigation Benefit Programme and other funding sources, the government will support projects worth ₹11,500 crore, including the Kosi-Mechi intra-state link and 20 other ongoing and new schemes.
  • Tourism: Development plans for the Vishnupad Temple in Gaya and the Mahabodhi Temple in Bodh Gaya, Bihar, will follow the model of the Kashi Vishwanath Temple Corridor to transform them into world-class pilgrimage and tourist destinations. Comprehensive development strategies for Rajgir and Nalanda in Bihar will be implemented, along with support for key destinations in Odisha

8. Innovation and Research & Development

  • Basic Research and Prototyping: The government will operationalize the Anusandhan National Research Fund to support basic research and prototype development.
  • Space Economy: To grow the space economy fivefold over the next decade, the government will establish a venture capital fund of ₹1,000 crore

9. Next Generation Reforms

Rural & Urban Land Reforms

  1. Unique Land Parcel Identification Number (ULPIN): All land parcels will be assigned a unique identifier, also known as Bhu-Aadhaar.
  2. Cadastral Map Digitization: Cadastral maps will be digitized.
  3. Survey of Sub-Divisions: Mapping of sub-divisions according to current ownership.
  4. Land Registry: Establishment of a comprehensive land registry.
  5. Farmers Registry Linkage: Land records will be linked to the farmers registry.
  6. Urban Land Records Digitization: Land records in urban areas will be digitized with GIS mapping.

Labour-Related Reforms

  1. e-Shram Portal Integration: A comprehensive integration of the e-Shram portal with other portals to provide a one-stop solution.
  2. Revamping Shram Suvidha and Samadhan Portals: Enhancements to these portals to improve compliance ease for industry and trade.

Climate Finance Taxonomy

  • Development of Taxonomy: A taxonomy for climate finance will be developed to increase the availability of capital for climate adaptation and mitigation.

Foreign Direct Investment and Overseas Investment

  • Simplification of Rules: The rules and regulations for FDI and overseas investments will be simplified to:
    1. Facilitate foreign direct investment.
    2. Encourage prioritization.
    3. Promote the use of the Indian Rupee for overseas investments.

NPS Vatsalya

  • Contribution Plan for Minors: A plan will be introduced allowing parents and guardians to contribute to NPS for minors, which can seamlessly convert into a standard NPS account when the child reaches adulthood.

Ease of Doing Business

  • Jan Vishwas Bill 2.0: The government is developing this bill to enhance the ease of doing business.
  • State Incentives: States will be incentivized to implement their Business Reforms Action Plans and digitize processes.

New Pension Scheme (NPS)

  • NPS Review: A committee reviewing the NPS has made significant progress, and a solution will be developed that addresses key issues while maintaining fiscal prudence to protect citizens

10. Tax-Related Proposals

Simplifying the New Tax Regime

  • Revised Tax Rates: The new tax regime will include a revised tax rate structure.

Comprehensive Review of the Income Tax Act, 1961

  • Review Announcement: Finance Minister Nirmala Sitharaman has announced a thorough review of the Income Tax Act, 1961. The aim is to make the Act more concise, clear, and user-friendly, reducing disputes and litigation while providing greater tax certainty for taxpayers. This review is expected to be completed within six months.
  • Initial Simplifications: The Finance Bill will initiate simplifications in the tax regime for charities, the TDS rate structure, reassessment and search provisions, and capital gains taxation.

Angel Tax Abolishment

  • Abolition Announcement: Union Minister Nirmala Sitharaman has declared the removal of angel tax on investors in India to support startups.
  • Background on Angel Tax: Introduced in 2012 to prevent the use of unaccounted money in share subscriptions above the fair market value, the tax was expanded to include non-resident investors from April 1, 2024, which faced strong opposition from startups.

Litigation and Appeals

  • Appeal Backlog: To address the backlog of first appeals, the government plans to deploy additional officers to handle and resolve these appeals, particularly those involving significant tax amounts.
  • Dispute Resolution: The government is proposing the Vivad Se Vishwas Scheme, 2024, to resolve certain pending income tax disputes.
  • International Taxation: To reduce litigation and ensure certainty in international taxation, the government will expand and enhance the attractiveness of safe harbour rules.

Deepening the Tax Base

  • Increased Security Transactions Tax: The Security Transactions Tax on futures and options will be increased to 0.02% and 0.1%, respectively.

Other Major Proposals

  • Equalization Levy: The 2% equalization levy will be withdrawn.
  • Tax Benefits Expansion: Tax benefits will be extended to certain funds and entities in International Financial Services Centres (IFSCs).
  • Benami Transactions: Immunity from penalty and prosecution will be provided to benamidars who fully and truthfully disclose transactions, aiming to improve convictions under the Benami Transactions (Prohibition) Act, 1988.
  • Custom Duty Adjustments: Changes to custom duties will be introduced.
  • Capital Gains Simplification: Efforts will be made to simplify and rationalize capital gains taxation

 

Basic Concepts regarding Union Budget

What is the Union Budget?

The Union Budget, formally referred to as the Annual Financial Statement under Article 112 of the Indian Constitution, provides a comprehensive overview of the government's financial status. It details the government's income from the previous year, its expenditures, any borrowing required to cover the deficit, and projections for the upcoming financial year. This includes anticipated revenue, planned spending, and expected borrowing needs. The Union Budget is divided into two main sections: Revenue and Capital.

Key Budget Documents

In addition to the Union Finance Minister’s Budget Speech, several essential documents are presented to Parliament:

  1. Constitutionally Mandated Documents:
  • Annual Financial Statement (AFS): As required by Article 112.
  • Demands for Grants (DG): As per Article 113.
  • Finance Bill: Defined under Article 110.
  1. Documents Required by the Fiscal Responsibility and Budget Management Act, 2003:
  • Macro-Economic Framework Statement
  • Medium-Term Fiscal Policy cum Fiscal Policy Strategy Statement

Important Budget Terms

  1. Revenue Budget: This includes the government's revenue receipts (both tax and non-tax) and revenue expenditures. Tax revenues are derived from taxes and duties imposed by the Union.
  2. Revenue Expenditure: This covers the regular expenses of government departments, interest payments on debt, subsidies, grants, etc. It is expenditure that does not create assets for the government.
  3. Capital Budget: This comprises capital receipts (loans raised by the government) and capital expenditures (investment in assets like land, buildings, machinery, and loans to various entities).
  4. Fiscal Deficit: This is the shortfall between the total revenue receipts (including non-debt capital receipts) and total expenditure, indicating the government's total borrowing requirements.
  5. Demands for Grants: According to Article 113, these are estimates of expenditure from the Consolidated Fund of India, which need to be approved by the Lok Sabha.
  6. Money Bill: As per Article 110, a Money Bill deals with taxes, borrowing by the government, and expenditure from the Consolidated Fund of India.
  7. Finance Bill: Presented alongside the Annual Financial Statement, this bill details proposed changes to tax laws. Unlike Money Bills, Finance Bills can incorporate recommendations from the Rajya Sabha, though the Lok Sabha is not obligated to accept them

 

Source: Indianexpress

CAPITAL GAIN TAX (CGT)

 
 
1. Context
 
Market watchers said Union Finance Minister Nirmala Sitharaman’s move to hike long term capital gains (LTCG) tax from 10 per cent to 12.5 per cent will discourage savings and investments
 
2. What is Capital Gain Tax (CGT)?
 
Capital Gain Tax is a tax on the profit realized from the sale of a capital asset, such as stocks, bonds, real estate, or other investments. When you sell an asset for more than its purchase price, the difference is considered a capital gain and may be subject to taxation

Types of Capital Gains:

  • Short-Term Capital Gains: Gains from assets held for a short period, typically less than one year. These gains are usually taxed at the individual's regular income tax rate.
  • Long-Term Capital Gains: Gains from assets held for more than one year. These gains are often taxed at a lower rate than short-term gains, as an incentive for long-term investment.
 
3. Advantages and Disadvantages of CGT
 
Advantages:
 
  • Capital gains tax provides a significant source of revenue for governments, which can be used to fund public services such as healthcare, education, infrastructure, and social programs
  • It helps in balancing budgets and reducing deficits by tapping into the wealth generated from investments
  • Capital gains tax can be structured to be progressive, meaning higher-income individuals who are more likely to benefit from substantial capital gains pay a higher rate, promoting income equality
  • Ensures that individuals who gain from the appreciation of their investments contribute a fair share to public finances, as opposed to relying solely on wage earners for tax revenue
  • By taxing short-term gains at a higher rate, it can discourage speculative trading and promote more stable, long-term investment behavior
  • Reducing excessive speculation can lead to more stable and efficient markets, with prices more accurately reflecting underlying values
  • Differential rates for short-term and long-term capital gains can incentivize investors to hold assets for longer periods, potentially leading to more sustainable and thoughtful investment decisions
  • Encourages investment in businesses, as individuals may prefer to hold onto their stocks or other investments longer to benefit from lower long-term capital gains rates
Disadvantages:
 
  • Calculating capital gains can be complex, requiring detailed record-keeping and familiarity with tax laws. This complexity can lead to increased administrative burdens for taxpayers
  • Individuals and businesses may incur additional costs for tax preparation and professional advice to ensure compliance with CGT regulations
  • Investors may be reluctant to sell assets to avoid triggering CGT, leading to inefficient allocation of capital. This "lock-in" effect can prevent the reallocation of resources to more productive investments
  • ax considerations can distort investment decisions, leading investors to prioritize tax-efficient strategies over economically optimal ones
  • CGT can disproportionately affect entrepreneurs and small business owners, who often rely on the sale of their businesses as a significant source of retirement funds.
 
4.Way Forward
 
Capital gains tax (CGT) is a crucial element of modern tax systems, offering significant benefits such as generating government revenue, promoting fairness, and encouraging long-term investment. Its advantages include providing funds for public services, incentivizing stable investment behavior, and contributing to economic stability and equity. However, CGT also presents several challenges, including complexity in compliance, potential distortions in investment decisions, and impacts on specific groups such as entrepreneurs and retirees
For Prelims: Economic and Social Development-Sustainable Development, Poverty, Inclusion, Demographics, Social Sector Initiatives, etc.
For Mains: GSIII: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment
 
Previous Year Questions
1.Enumerate the indirect taxes which have been subsumed in the Goods and Services Tax (GST) in India. Also, comment on the revenue implications of the GST introduced in India since July 2017. (UPC CSE GS III 2019)
 
Source: Indianexpress
 
 
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