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DAILY CURRENT AFFAIRS, 06 MAY 2025

GOODS AND SERVICE TAX (GST)

 
 
1. Context
 
The Supreme Court saw the government and online gaming companies spar on whether games of skills such as rummy, chess, and bridge will “metamorphosise” into games of chance, and their earnings be subject to the Goods and Services Tax (GST) regime
 
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:

  • 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.

  • 5% Rate:

    • This is a lower rate, applicable to essential goods such as certain food items, medical supplies, and other basic necessities.

  • 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.

  • 18% Rate:

    • A higher rate of 18% is applicable to goods and services such as electronic items, capital goods, and various services.

  • 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.

  • 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.

  • 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.

  • 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

 

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
 
 
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)
 
Source: Indianexpress
 

FOREST FIRES

 

1. Context

Most of the world’s biodiverse regions are in places indigenous communities have traditionally lived and governed; they have protected biodiversity and nurtured it while being nurtured in return; laws that secure their tenure and recognise their rights can thus strengthen traditional governance

2. What is a forest fire?

  • A forest fire is an uncontrolled fire occurring in vegetation more than 1.8 meters (6 feet) in height. These fires often reach the proportions of a major conflagration and are sometimes begun by combustion and heat from surface and ground fires.
  • A big forest fire may crown that is, spread rapidly through the topmost branches of the trees before involving undergrowth or the forest floor.
  • As a result, violent blowups are common in forest fires, and they may assume the characteristics of a firestorm.
  • Though forest fire is often seen as harmful, several forests are specifically fire-adapted; the species of plants and animals native to those ecosystems are enhanced by or dependent on the occurrence of fire to persist and reproduce.
  • Lightning strikes in a dry forest occur naturally, and fire can improve ecosystem health by reducing competition, fertilizing the soil with ash, and decreasing diseases and pests. some plant species even require fire for their seeds to germinate.
  • In many regions that have historically experienced forest fires, such as forested areas of the western united states, years of fire exclusion and suppression in the 19th and 20th centuries allowed fuels to accumulate, altering the vegetation communities present and leading to more extreme conflagrations when fires do occur.
  • The use of prescribed fire, in which areas are burned intentionally and under controlled conditions, can restore those ecosystems and promote the conditions that were present historically before the removal of wildfire.

3. Causes of Forest Fires

  • Natural causes like lightning can set fires on trees which may be spread by wind. Sometimes, High atmospheric temperatures and dryness (low humidity) offer favorable circumstances for a fire to start.
  • Man-made causes are usually the ones that become dangerous. Fire is caused when a source of fire like naked flame, cigarette, electric spark, or any source of ignition comes into contact with inflammable material.
  • Other human-led causes are land clearing and other agricultural activities, maintenance of grasslands for livestock management, extraction of non-wood forest products, industrial development, settlement, hunting, negligence, and arson.

4. Types of forest fires

  • Surface fire: Spread along the surface litter (leaves, twigs, dry grasses) on the forest floor.
  • Ground fire: Fires in the subsurface organic fuels, such as duff layers under forest stands, burn underneath and are often ignited by surface fires.
  • Crown fire: A Crown fire is one in which the crown of trees and shrubs burn, often sustained by surface fire.

5. Forest fires in Odisha

  • A sudden jump in the incidents of fires across Odisha resulted in a massive loss of flora and fauna in the state's forests.
  • A prolonged dry spell since October 2022 and the accumulation of inflammable material such as dry leaves are some of the reasons that started these forest fires.
  • Some of the fires may have also been caused by human-made reasons. The tribal people set fire to forests for shifting cultivation, and collection of mahua flowers and kendu leaves.
  • Forests are set on fire to cultivate turmeric in the Baliguda forest division in the Kandhamal district.
  • Regeneration of the forests will be affected due to wildfires. The seeds which are supposed to germinate in the monsoon rain get burnt due to ground fires in the forest areas, affecting the forest growth.
  • Forest fires result in the loss of timber, fruit-bearing trees, and medicinal plants. They also pose a threat to wildlife and their habitat areas.
  • The forest department did not learn from the 2021 forest fires when a record 51,968 forest fire incidents occurred in the state. Massive fires had broken out in Similipal National Park in the Mayurbhanj district, which is one of the major biospheres of Asia.
Source: The Logical Indian

6. Mitigation measures by the Government

  • The incidence of forest fires in the country is on the increase and more area is razed each year.
  • The major cause of this failure is the slow and gradual approach to the problem.
  •  Both the national focus and the technical resources required for sustaining a systematic forest fire management program are lacking in the country. 
  • Important forest fire management elements like strategic fire centers, coordination among Ministers, funding, human resource development, fire research, fire management, and extension programs are missing.
  • Taking into consideration the serious nature of the problem, it is necessary to make some major improvements in the forest fire management strategy for the country.
  • The Ministry of Environment, Forests, and Climate Change has prepared a National Master plan for Forest Fire Control. The Forest Survey of India (FSI) monitors the incidence of wildfires.

Previous year Question

1. Consider the following States: (UPSC 2019)
1. Chhattisgarh
2. Madhya Pradesh
3. Maharashtra
4. Odisha
With reference to the State mentioned above, in terms of the percentage of forest cover to the total area of the State, which one of the following is the correct ascending order?
A. 2-3-1-4
B. 2-3-4-1
C. 3-2-4-1
D. 3-2-1-4
Answer: C
 
For Prelims & Mains
 
For Prelims: Forest fires, Forest Survey of India (FSI), Surface fire, Ground fire, Crown fire, High atmospheric temperatures, and dryness, Climate Change, Ministry of Environment, Forests, and Climate Change (MoEFCC), 
For Mains: 1. What are various reasons for forest fires? Discuss the consequences of fires and suggest some solutions to prevent them.
 
Source: Down to Earth
 

PRODUCTION LINKED INCENTIVE (PLI) SCHEME

 
 
 
1. Context
 
The U.S. has questioned India’s Production Linked Incentive (PLI) scheme for specialty steel at the WTO suggesting the subsidies may not be appropriate given the global overcapacity in steel, sources said
 
 
2. About Production-Linked Incentive (PLI) Scheme

 

The Production-Linked Incentive (PLI) scheme is an initiative by the Indian government to boost domestic manufacturing in specific sectors. It incentivizes companies, both domestic and foreign, to set up or expand production facilities in India by offering financial rewards based on incremental sales achieved over a set period.

  • The government announces a PLI scheme for a particular sector with specific targets for production and sales.
  • Companies apply for the scheme and submit their production plans.
  • If selected, companies receive a percentage of their incremental sales (over a base year) as an incentive.
  • The incentive amount varies depending on the sector and the level of incremental sales achieved.
  • The scheme typically runs for several years, providing companies with long-term financial support.

 

3. Sectors with Current PLI Schemes

 

  • Mobile phone manufacturing and specified electronic components have been successful in attracting major players like Apple and Samsung to set up production in India.
  • Large-scale electronics manufacturing to boost domestic production of TVs, laptops, and other electronics products.
  • High-efficiency solar PV modules to make India a global leader in solar energy production.
  • Automobiles and auto components incentivize the production of electric vehicles, hydrogen fuel cell vehicles, and advanced auto components.
  • Man-made fibre (MMF) apparel and textiles to boost domestic production of high-quality MMF textiles.
  • White goods (air conditioners, refrigerators, etc.) to make India a global hub for white goods manufacturing.

 

4. Sectors Likely to See PLI Schemes in the Future

 

  • The pharmaceuticals and medical devices sector is crucial for national health security and has the potential for significant growth.
  • Green hydrogen and ammonia fuels are essential for achieving climate goals and could benefit from PLI support.
  • Advanced manufacturing technologies include robotics, 3D printing, and artificial intelligence, which are crucial for future industries.
  • The food processing sector has vast potential for value creation and job creation, and PLI could help address inefficiencies.

 

5. Benefits of the PLI Scheme

 

  • PLI attracts investment and encourages companies to manufacture in India, reducing dependence on imports.
  • New manufacturing units and increased production lead to job creation in various sectors.
  • PLI attracts global companies with advanced technology, leading to knowledge transfer and skill development in India.
  • Increased domestic production can lead to higher exports and strengthen the Indian economy.
 

6. Challenges in the PLI Scheme

 

  • Companies need significant upfront investment to set up new production facilities, which can be a deterrent for some.
  • The application and approval process for PLI schemes can be lengthy and complex, discouraging some companies.
  • The government needs to ensure the long-term sustainability of PLI schemes to avoid dependence on subsidies.

 

7. The Way Forward

 

The PLI scheme is a promising initiative with the potential to transform India's manufacturing landscape. By addressing the challenges and continuously improving its design, the government can further incentivize domestic production and boost India's economic growth.

 
For Prelims: Production Linked Incentive scheme,  industrial policy
For Mains: 
1. Discuss the role of the government in promoting domestic manufacturing. Should the focus be on incentives like the Production Linked Incentive scheme or on creating a conducive business environment? (250 Words)
 
 
 
Previous Year Questions
 

1. Consider, the following statements : (UPSC 2023)

Statement-I : India accounts for 3.2% of global export of goods.

Statement-II : Many local companies and some foreign companies operating in India have taken advantage of India's ‘Production-linked Incentive’ scheme.

Which one of the following is correct in respect of the above statements?

(a) Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I

(b) Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I

(c) Statement-I is correct but Statement-II is incorrect

(d) Statement-I is incorrect but Statement-II is correct

Answer: D

 

Source: The Indian Express

FINANCE COMMISSION

1. Context

 What will a rebalancing of tied and untied transfers do for the equitable and comparable delivery of public services across the country? Considering the level of inequality, will increasing untied funds lead to a convergence? The finance commission should look into these, and more, as it finalises its recommendations

2. Evolution of India's Fiscal Federalism: Pre-Reform vs. Post-Reform

2.1 Pre-Reform Period:
  • Finance Commission recommendations held less significance.
  • Centre had alternative methods to compensate states and show favoritism.
  • Plan financing and PSU investments are used as tools for compensation and favoritism.
2.2 Post-Reform Period:
  • Fresh PSU investments were reduced significantly.
  • Planning Commission was abolished in 2014, shifting greater responsibility to the Finance Commission.
  • Finance Commission is now the primary architect of India's fiscal federalism.
  • Increased responsibility and influence of the Finance Commission in shaping fiscal policies.

3. Challenges in Horizontal Distribution Formula in India's Fiscal Federalism

  • Proportion of Tax Pool: Centre currently allocates 41% of its tax pool to the states. States may demand an increase in this proportion. Limited room for a further increase due to the Centre's expenditure needs and borrowing constraints.
  • Population Figures: Contentious issue in the previous Finance Commission (2017). Terms of reference mandated the use of 2011 population figures instead of 1971 figures. Southern states, which had successfully stabilized population growth rates, protested this change as a "penalty for good performance".
  • Revenue Deficit Grants: Finance Commission awards revenue deficit grants to states in deficit after tax devolution. Intended to ensure a minimum level of service provision. Concerns raised about it becoming a perverse incentive for states to rely on compensation rather than rising revenues independently.
  • Balancing Fiscal Incapacity and Irresponsibility: Finance Commissions historically struggled to distinguish between fiscal incapacity and irresponsibility. Attempted to tweak the distribution formula to support deficit states without penalizing responsible states. Criticisms of every formula as inefficient or unfair due to the inherent challenge of giving more to one state without giving less to another.

4. Increasing Cesses and Surcharges

  • Centre's reliance on levying cesses and surcharges instead of raising taxes has grown.
  • Tamilnadu Government's white paper revealed that the proportion of cesses and surcharges in the Centre's total tax revenue nearly doubled from 10.4% in 2011-12 to 20.2% in 2019-20.
  • The Centre benefits from this practice as it can retain the entire revenue raised through surcharges, unlike sharing taxes with states.
  • Since the constitutional amendment in the year 2000, understanding has been breached, which intended limited use of cesses and surcharges.
  • States perceive this as a denial of their rightful share of national tax revenue.

5. Addressing the Issue:

  • The forthcoming Finance Commission should utilize its leverage to address this concern.
  • Establish guidelines for reducing routine usage when cesses and surcharges can be levied.
  • Propose a formula to cap the amount raised through cesses and surcharges.
  • Ensuring a fair and equitable distribution of revenue among the Centre and states.

6. Government spending on Freebies

  • Issue of Freebies: Government spending on freebies is a significant concern, with all political parties engaging in it to varying degrees. Blaming specific parties for this practice is unproductive; addressing the issue is the priority.
  • Considerations for Poor Country: In a poor country like India, it may seem harsh to argue against safety nets for the poor. However, the country's economic constraints necessitate caution regarding freebies.
  • Fiscal Responsibility and Budget Management (FRBM) Act: The FRBM Act was intended to limit populist spending but has been bypassed through creative debt-raising methods. Defining freebies is challenging, and any attempt to regulate them can be seen as infringing on the elected governments' sovereignty.
  • Guidelines for Freebie Spending: The forthcoming Finance Commission should take decisive action for long-term fiscal sustainability. Lay down guidelines to regulate spending on freebies, considering the country's financial well-being. Such measures are necessary to ensure restraint and avoid bankruptcy risks.
  • Prime Minister's Stance: After the Karnataka election, the Prime Minister expressed concerns about unsustainable guarantees offered by political parties. The Prime Minister should lead by example in state assembly elections, prioritizing good governance over the allure of freebies. This will provide confidence to the Finance Commission to establish mechanisms for restraining freebies and promote responsible governance.

7. Finance Commission

  • The Finance Commission is a constitutional body in India that is appointed by the President every five years. Its primary function is to make recommendations on the distribution of financial resources between the central government and the state governments.
  • The Commission assesses the needs and requirements of both levels of government and recommends the sharing of tax revenues, grants-in-aid, and other financial resources. The Finance Commission also addresses issues related to fiscal federalism, including the principles governing the distribution of resources, the allocation of grants to states, and measures to improve fiscal management.
  • It takes into account various factors such as population, income disparities, tax efforts, infrastructure requirements, and socio-economic indicators while formulating its recommendations.
  • The recommendations of the Finance Commission are crucial in ensuring a fair and equitable distribution of resources, promoting balanced regional development, and addressing the financial needs of the states.
  • The Commission's reports and recommendations are submitted to the President, who then lays them before both houses of Parliament for consideration and implementation.
For Prelims: Finance Commission, Fiscal Federalism, Fiscal Responsibility and Budget Management (FRBM) Act, Cesses, Surcharges, Freebies, Populus Schemes, and Revenue deficit grants.
For Mains: 1. How does the Fiscal Responsibility and Budget Management (FRBM) Act aim to address populist spending, and why has it been ineffective? (250 words)
 

Previous year Question

1. With reference to the Finance Commission of India, which of the following statements is correct? (UPSC 2011)
A. It encourages the inflow of foreign capital for infrastructure development.
B. It facilitates the proper distribution of finances among the Public Sector Undertaking.
C. It ensures transparency in financial administration.
D. None of the statements (a), (b), and (c) given above is correct in this context.
Answer: D
 
2. With reference to the Fourteenth Finance Commission, which of the following statements is/are correct? (UPSC 2015)
1. It has increased the share of States in the central divisible pool from 32 percent to 42 percent.
2. It has made recommendations concerning sector-specific grants.
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
Source: The Hindu
 
 

ETHANOL BLENDING

1. Context

 Diversion of maize for biofuel has turned India from a surplus producer and exporter to an importer of the feed grain. There is pressure now to even allow imports of genetically modified maize for ethanol production
 
2. Ethanol
  • Ethanol, also known as ethyl alcohol, is a type of alcohol commonly used as a biofuel and a key ingredient in alcoholic beverages.
  • It is a clear, colorless liquid with a characteristic odor and a slightly sweet taste.
  • Ethanol has a wide range of applications and is produced through the fermentation of sugars by yeast or other microorganisms.

3. Ethanol Blending

  • Ethanol blending refers to the practice of mixing ethanol with gasoline or other fuels to create a blended fuel.
  • Ethanol is a biofuel derived from renewable sources such as sugarcane, corn, or other plant materials.
  • It is commonly used as an additive to gasoline in various parts of the world to reduce greenhouse gas emissions and promote cleaner fuel options.
  • In the context of transportation, the most common form of ethanol blending is with gasoline, creating a blend known as ethanol-gasoline blend or gasohol.
  • The most common ethanol-gasoline blends are E10 and E15, indicating the percentage of ethanol in the mixture. For example, E10 contains 10% ethanol and 90% gasoline, while E15 contains 15% ethanol and 85% gasoline.

4. Benefits of Ethanol blending

  • Ethanol is considered a renewable fuel because it is derived from plant materials that absorb carbon dioxide during their growth. When blended with gasoline, ethanol can help reduce the carbon footprint of transportation fuels, as it emits fewer greenhouse gases compared to pure gasoline.
  • By blending ethanol with gasoline, countries can reduce their reliance on imported fossil fuels and promote energy security.
  • Ethanol has a higher octane rating than gasoline, which can improve engine performance and increase fuel efficiency.
  • Ethanol production often relies on agricultural feedstocks, providing economic benefits to farmers and rural communities.
  • Ethanol-gasoline blends can help reduce harmful pollutants such as carbon monoxide and volatile organic compounds, contributing to improved air quality.
  • Mixing 20 percent ethanol in petrol can potentially reduce the auto fuel import bill by a yearly $4 billion, or Rs 30,000 crore. 
  • Another major benefit of ethanol blending is the extra income it gives to farmers. Ethanol is derived from sugarcane and also foodgrains. Hence, farmers can earn extra income by selling their surplus produce to ethanol blend manufacturers.

5. What is E20 Fuel?

  • E20 fuel is a type of blended fuel that contains 20% ethanol and 80% gasoline.
  • It is an ethanol-gasoline blend, similar to other common blends like E10 (10% ethanol) and E15 (15% ethanol).
  • The percentage of ethanol in the blend is denoted by the "E" followed by the percentage of ethanol content.
  • E20 fuel is considered a higher ethanol blend compared to E10 and E15, which are more widely available in various countries.
  • The use of E20 is part of efforts to promote renewable fuels and reduce greenhouse gas emissions from the transportation sector.

6. Significance of E20 fuel

  • Reduced Greenhouse Gas Emissions: Ethanol is derived from renewable plant sources, and blending it with gasoline can help reduce the carbon footprint of transportation fuels, contributing to efforts to combat climate change.
  • Energy Security: By using more domestically produced ethanol, countries can reduce their dependence on imported fossil fuels and enhance energy security.
  • Improved Engine Performance: Ethanol's higher octane rating can enhance engine performance and increase fuel efficiency in certain vehicles.
  • Support for Agriculture: Ethanol production often relies on agricultural feedstocks, supporting farmers and rural economies.

7. Challenges in Ethanol Blending Programme

While ethanol blending in transportation fuels offers various benefits, there are several challenges that countries may face in implementing and sustaining a successful ethanol blending program. Some of these challenges include:

  • Infrastructure and Distribution: Establishing the necessary infrastructure for blending and distributing ethanol-gasoline blends can be a significant challenge. This includes ensuring that fuel stations have the proper storage facilities and compatible pumps to dispense blended fuels.
  • Compatibility with Vehicles: Not all vehicles are designed to run on high ethanol blends like E20 or E85. Older vehicles or vehicles from certain manufacturers may not be compatible with these blends, leading to potential engine damage or decreased performance.
  • Fuel Quality and Standards: Maintaining consistent fuel quality is essential to prevent engine damage and ensure consumer confidence. Governments and fuel suppliers must adhere to strict quality standards and monitor the blending process to avoid issues with fuel performance.
  • Feedstock Availability and Cost: The production of ethanol relies on agricultural feedstocks, such as corn, sugarcane, or other biomass. The availability and cost of these feedstocks can vary, affecting the overall cost of ethanol production and blending.
  • Land Use and Food Security Concerns: Utilizing agricultural land for ethanol production can raise concerns about competing with food production and potentially impacting food security in some regions.
  • Competing Uses for Ethanol: Ethanol has various applications beyond fuel blending, such as in the production of alcoholic beverages, pharmaceuticals, and industrial chemicals. Competing uses can influence the availability and cost of ethanol for blending.

8. National Biofuel Policy

  • India has a National Policy on Biofuels, which was first introduced in 2009 and later revised in 2018.  The policy aims to promote the use of biofuels to reduce the country's dependence on fossil fuels, enhance energy security, promote sustainable development, and mitigate greenhouse gas emissions.
  • The policy encourages the blending of biofuels with conventional fossil fuels to create biofuel blends. It focuses on the production and utilization of first-generation biofuels like ethanol and biodiesel, as well as advanced biofuels made from non-food feedstock.
  • The policy sets targets for blending biofuels with conventional fuels in the transportation sector. For instance, the policy aimed for a 20% ethanol blending in petrol and a 5% biodiesel blending in diesel by 2030.
  • The policy emphasizes the development and promotion of second-generation biofuels, which are produced from non-food feedstock, such as agricultural residues, waste, and non-edible oils. This helps avoid competition with food crops and ensures sustainability.
  • The policy supports research and development initiatives in the biofuels sector, aimed at improving production processes, enhancing feedstock availability, and developing cost-effective technologies for biofuel production.
  • The policy focuses on creating a robust supply chain for biofuels, from feedstock cultivation and collection to biofuel production, distribution, and marketing. This helps in ensuring a smooth and efficient supply of biofuels across the country.
For Prelims: Ethanol Blending, E20 fuel, Greenhouse Gas Emission, National Policy on Biofuels, Food Security, and Gasoline.
For Mains: 1. Discuss the benefits and challenges of ethanol blending in transportation fuels as a strategy to reduce greenhouse gas emissions and promote renewable energy sources. (250 Words).
 

Previous year Question

1. According to India's National Policy on Biofuels, which of the following can be used as raw materials for the production of biofuels? (UPSC 2020)
1. Cassava
2. Damaged wheat grains
3. Groundnut seeds
4. Horse gram
5. Rotten potatoes
6. Sugar beet
Select the correct answer using the code given below:
A. 1, 2, 5, and 6 only
B. 1, 3, 4, and 6 only
C. 2, 3, 4, and 5 only
D. 1, 2, 3, 4, 5 and 6
Answer: A
Source: The Indian Express
 
 

GOVERNOR VS STATES

 
 
1. Context
 
Recently, the Supreme Court, for the first time, ruled that the President should take a decision on the Bills reserved for consideration by the Governor within three months from the date on which such reference is received.
 
2. Appointment and qualification of the Governor
 
  • The Indian Constitution outlines the framework for appointing a Governor. According to Article 153, each state must have a Governor. Article 155 provides that the Governor is appointed by the President through an official warrant bearing the President's signature and seal.
  • As per Article 156, although the Governor typically serves a five-year term, they remain in office at the discretion of the President.
  • This means that the President can ask the Governor to resign before the term ends. However, since the President acts based on the counsel of the Prime Minister and the Union Cabinet, it is effectively the central government that controls both the appointment and removal of a Governor.
  • Articles 157 and 158 describe the eligibility criteria and terms for holding the office. The Governor must be an Indian citizen and at least 35 years old.
  • Additionally, the individual must not be a sitting member of either Parliament or any state legislature, and cannot hold any position that offers financial gain
 
3. Roles of Governor
 
  • The Constitution mandates that the Governor must generally act in accordance with the advice provided by the state's Council of Ministers. Article 163 clarifies this by stating that a Council of Ministers, led by the Chief Minister, shall assist and guide the Governor in carrying out his duties—except in cases where the Constitution allows the Governor to act independently at his discretion.
  • Furthermore, the Governor holds constitutional authority to summon, prorogue, or dissolve the State Legislative Assembly. However, these powers are to be exercised only after consulting the Council of Ministers.
  • In his role as the ceremonial head of the state, the Governor also holds several important responsibilities, such as appointing the Chief Minister, members of the Council of Ministers, the Advocate General, the State Election Commissioner, heads of state universities, and members and the Chairman of the State Public Service Commission, among others
 
4. Recent judgments by top courts
 
 

The Constitution grants the Governor certain legislative powers, including the authority to approve or reject a Bill passed by both Houses of the State Legislature. Article 200 outlines the choices available to the Governor:

  • Approve the Bill,

  • Withhold approval,

  • Send it back to the Legislature for reconsideration (provided it is not a Money Bill), or

  • Forward the Bill to the President for a decision.

While the proviso to Article 200 mentions that the Governor should return the Bill "as soon as possible," it does not define a specific time frame, which has occasionally led to significant delays.

To address such delays, the Supreme Court recently issued clear, time-bound directions for Governors regarding action on Bills:

  • Assent must be given within one month,

  • The Governor cannot withhold assent against the advice of the Council of Ministers,

  • If returning the Bill, it must be done within three months,

  • If the Governor chooses to reserve the Bill for the President, this must also be done within three months, and

  • Should the Legislature pass the Bill again after reconsideration, the Governor is required to grant assent within one month.

 
 
5. Committees on the Governor's role
 

The powers, responsibilities, and overall role of the Governor have frequently come under review, drawing attention from both central government-appointed committees and the Supreme Court of India.

Starting with the Administrative Reforms Commission in 1969 and extending to the Punchhi Commission in 2007, numerous expert bodies set up over the years have proposed comprehensive reforms concerning various aspects of the Governor's office, including the method of appointment, scope of authority, duration of tenure, procedure for removal, and other related issues

The Sarkaria Commission, in its 1988 report on Centre-State relations, proposed reforms concerning the Governor's role, especially in the context of Articles 200 and 201 of the Constitution.

The National Commission to Review the Working of the Constitution (2001), chaired by M.N. Venkatachaliah and initiated during Prime Minister Atal Bihari Vajpayee’s tenure, noted that Governors often function as representatives of the Central Government, leading to perceptions of bias and political controversy in their decisions.

In 2007, the Punchhi Commission re-evaluated the Centre-State dynamic and recommended that a Governor should be appointed only after consulting the Chief Minister of the respective state. It also emphasized the importance of prompt action by the Governor on legislative bills.

Over time, the impartiality of the Governor’s office has been questioned, prompting judicial intervention. The Supreme Court has, through a series of landmark judgments, clarified the scope and limitations of the Governor’s powers:

  • Shamsher Singh vs State of Punjab (1974): The court ruled that the Governor must act based on the advice of the Council of Ministers.

  • Raghukul Tilak vs State of Haryana (1979): The judgment emphasized that Governors are not subordinate to the Centre, but occupy a vital constitutional role within the state.

  • S.R. Bommai vs Union of India (1994): A milestone ruling, it held that the Governor’s recommendation for imposing President’s Rule under Article 356 must be backed by a floor test, and such decisions are open to judicial review.

  • Rameshwar Prasad vs Union of India (2006): Addressing the dissolution of the Bihar Assembly, the Supreme Court stated that the Governor’s personal opinion cannot justify invoking President’s Rule in a state.

 

 

 

 

For Prelims: Governor, Center-state relations, Article 200

For Mains: 
1. In the context of recent disputes, examine the relationship between Governors appointed by the Centre and state governments led by opposition parties. How can this relationship be strengthened to ensure smooth functioning of the federal structure? (250 Words)
2. Explain the roles of the Governor and the President in the legislative process as outlined in the Constitution of India, focusing on their powers related to assenting to Bills passed by state legislatures. (250 Words)
3. Discuss Ethical Considerations and Constitutional Provisions Regarding Governor Running for Elections.  (250 Words)
 
 
Previous Year Questions
 
1.  With reference to the Legislative Assembly of a State in India, consider the following statements: ( UPSC 2019)
1. The Governor makes a customary address to Members of the House at the commencement of the first session of the year.
2. When a State Legislature does not have a rule on a particular matter, it follows the Lok Sabha rule on that matter.

Which of the statements given above is/are correct?

A. 1 only        B. 2 only          C. Both 1 and 2          D. Neither 1 nor 2

 

2. Consider the following statements: ( UPSC 2018)

1. No criminal proceedings shall be instituted against the Governor of a State in any court during his term of office.
2. The emoluments and allowances of the Governor of a State shall not be diminished during his term of office.

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

 
3.Which of the following are the discretionary powers given to the Governor of a State? (2014)
1. Sending a report to the President of India for imposing the President’s rule
Appointing the Ministers
2. Reserving certain bills passed by the State Legislature for consideration of the President of India
3. Making the rules to conduct the business of the State Government

Select the correct answer using the code given below.

 A. 1 and 2 only          B. 1 and 3 only                   C.  2, 3 and 4 only        D. 1, 2, 3 and 4
 
 
4. Which one of the following suggested that the Governor should be an eminent person from outside the State and should be a detached figure without intense political links or should not have taken part in politics in the recent past? (UPSC CSE 2019)
A.First Administrative Reforms Commission (1966)
B.Rajamannar Committee (1969)
C.Sarkaria Commission (1983)
D.National Commission to Review the Working of the Constitution (2000)
 
Answers: 1-C, 2-C, 3-B, 4-C
Source: The Indian Express
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