FLASH FLOODS
2. What is a Flood
- Flood is an overflow of a large amount of water beyond its normal limits, especially over what is normally dry land.
- Flooding is an overflowing of water onto land that is normally dry.
- Floods can happen during heavy rains, when ocean waves come on shore, when the snow melts quickly, or when dams or levees break.
- Damaging flooding may happen with only a few inches of water, or it may cover a house to the rooftop.
- Floods can occur within minutes or over a long period, and may last days, weeks, or longer.
- Floods are the most widespread of all weather-related natural disasters.
3. Common causes of floods can be divided into the factors triggering them.
These factors include -
- Meteorological factors
- Physical factors
- Human factors
3.1 Meteorological Factors
The natural causes of floods are discussed below -
- Heavy Rainfall: The season of monsoon
- Cloud Burst: Cloud Burst occurs due to intense precipitation in a short duration which can sometimes be accompanied by hail and storms and can cause a flood.
- Climate Change: According to the International Panel for Climate Change, the rainfall intensity, duration and frequency are going to increase in the future.
- Skewed Rainfall Pattern: 80% of the precipitation takes place in the monsoon months
- Trans-National Rivers: The fact that some of the rivers (like the Brahmaputra, many tributaries of Ganga) causing damage in India to originate in neighbouring countries, adds another complex dimension to the problem
- Cyclone & Heavy rainfall
3.2. Physical Factors.
- Insufficient Drainage Management: Improper planning of the drainage system of an area can cause excess water due to heavy rainfall to get stuck and lead to a flood.
- Catchment Area: Catchment area is an area from where the rainfall water flows into a river. This can be a lake or reservoir. During monsoon, when excess water exceeds the limited holding capacity of the catchment area, it leads to floods.
3.3. Human Factor
- Siltation: Siltation refers to the flow of silt and sediments in the riverbed. As particles remain suspended in the river and accumulated in the riverbed, it disrupts the flow of the river, causing a flood.
- Improper Agricultural Practices: If farmers are not cautious of the effects of farming practices meaning if they leave the waste material in the river or cannot handle water management properly, it can lead to a flood.
- Deforestation: Deforestation is one of the major human causes of floods. Trees act like a sponge that helps to hold soil and water and prevent flooding. As trees are being cut down at a fast pace to make way for urbanisation to grow, more water runs towards a river during heavy rainfall. As a result, a flood occurs.
- Collapse of Dams: Dams are built to store water and provide water to people. As dams are human-made, these can be worn out and subsequently collapse causing floods. Also, if heavy rainfall sustains for a long time, State Governments often declare to open dam gates which can lead to a dangerous flood.- Temples of Modern India to Water Bombs
- Unplanned Development
- Neglect of Pre-Disaster Planning
4.Types of Flood
- Coastal Floods: Coastal floods occur when strong winds or storms move towards the coast during high tide.
- Flash Floods: Flash floods usually occur in hilly areas in limited space. Here the sudden heavy rainfall or snow thaws are the causes of flooding. The fast-moving torrent of Flash floods can sweep large objects such as cars, rocks and everything that comes in their path.
- River Floods: River floods occur due to the inflow of water from heavy rainfall, snowmelt or powerful storms.
- Pluvial Floods: Pluvial floods occur in areas that cannot hold rainwater and end up forming puddles and ponds. eg- rural areas.
- Urban Floods: When the drainage system of urban areas fails to absorb rainwater.
The impacts of floods affect both individuals and communities and have social-environmental consequences.
- Human Loss and Property Loss: Every year, millions of people become homeless and washed away due to floods.
- Spread of Communicable Diseases: Waterborne diseases like cholera, typhoid fever, hepatitis, and leptospirosis spread in flood-affected areas. Floods also lead to vector-borne diseases, transmitted through parasites and pathogens such as a mosquito. As a result, the health of flood victims deteriorates.
- Destruction of Crops: Every year, floods destroy a large number of crops.
- Loss of Livestock: Like humans, livestock also get displaced during floods and dies due to the loss of their habitats.
- Disruption of Communication Link and Transportation: Flood causes damage to transportation links such as bridges, rail, power plants etc., thus causing communication disruption in those areas.
- Economic and Social Disruption: The economy comes to a standstill as people are forced to move to another place, and revival of this situation takes time.
Approaches to dealing with floods may be any one or a combination of the following available options:
- Attempts to modify the flood
- Attempts to modify the susceptibility to flooding damage
- Attempts to modify the loss burden
- Bearing the loss.
- The main thrust of the flood protection programme undertaken in India so far has been an attempt to modify the flood in the form of physical (structural) measures to prevent the floodwaters from reaching potential damage centres and modify susceptibility to flooding damage through early warning systems.
6.1 Structural measures
The following structural measures are generally adopted for flood protection:
- Embankments, flood walls, sea walls
- Dams and reservoirs
- Natural detention basins
- Channel improvement
- Drainage improvement
- Diversion of flood waters.
6.2 Non-structural measures
Non-structural measures include:
- Flood forecasting and warning
- Floodplain zoning
- Flood fighting
- Floodproofing
- Flood insurance.
7.What are Flash Floods
- Flash floods are the most dangerous kind of floods because they combine the destructive power of a flood with incredible speed.
- Flash floods occur when heavy rainfall exceeds the ability of the ground to absorb it. They also occur when water fills normally dry creeks or streams or enough water accumulates for streams to overtop their banks, causing rapid rises of water in a short amount of time.
- They can happen within minutes of the causative rainfall, limiting the time available to warn and protect the public.
8. Status of Floods in India
8.1 NDRF Report
- 40 million hectares (10% of the land mass) in India are prone to floods.
- On average every year, 5 million hectares of land are affected, 1600 lives are lost and more than Rs. 1,800 crores is incurred.
8.2 Statistics
- Between 1970 and 2004, 3 floods occurred per year on average. However, between 2005 and 2019, the yearly average rose to 11. 19 districts were affected annually on an average until 2005. After 2005, the number jumped to 55.
- 2017 analysis suggests that 4.48 million Indians are exposed to riverine floods, the highest in the world.
9. What areas are at risk from flash floods?
- Densely populated areas are at high risk for flash floods. The construction of buildings, highways, driveways, and parking lots increases runoff by reducing the amount of rain absorbed by the ground. This runoff increases the flash flood potential.
- Areas near rivers are at risk from floods. Embankments, known as levees, are often built along rivers and are used to prevent high water from flooding bordering land.
- Dam failures can send a sudden destructive surge of water downstream.
- Mountains and steep hills produce rapid runoff, which causes streams to rise quickly.
- Saturated soils can also lead to rapid flash flooding.
- Sometimes the thunderstorms that produce heavy rainfall may happen well upstream from the impacted area, making it harder to recognize a dangerous situation.
- Very intense rainfall can produce flooding even on dry soil.
- Additional high-risk locations include recent burn areas in mountains and urban areas from pavement and roofs which enhance runoff.
- Ice jams and snowmelt can help cause flash floods. A deep snowpack increases runoff produced by melting snow. Heavy spring rains falling on melting snowpacks can produce flash flooding.
10. The impact of floods in India
11. Impact of flood on wildlife
12. Government actions regarding flood management
12.1.The National Flood Management Commission
- Launched in 1954
- Different structural and non-structural methods have been applied by various states under it.
- To evolve a scientific, integrated and coordinated approach to flood control
- It recommended Flood plain zoning and management to regulate human activities.
- It was set up to review the impact of the recommendations of Rashtriya Barh Aayog.
- It recommended large flood moderation projects, following up the enactment of flood plain zoning.
12.4.National Water Policy, 2002
- It recommended
- Basin-wise plan for flood control and management.
- Flood control to be given overriding consideration in reservoir regulation policy.
- More emphasis on non-structural measures.
- Strict regulation of settlements and economic activities in flood plains.
12.5. K. Mittal Committee, 2003
Its main recommendations were
- Afforestation and treatment of catchment area, right land-use practices and others.
- In the river itself a construction of suitable hydraulic structures that may trap silt.
- Embankment along the aggrading river should be constructed, only after proper studies are made on its behaviour especially due to sedimentation load and resultant morphological changes.
NON BANKING FINANCIAL COMPANIES (NBFC)
- Non-Banking Financial Companies (NBFCs) are financial institutions that provide banking services but do not hold a banking license.
- They are crucial to the financial system as they cater to the financial needs of sectors where traditional banks may not reach or provide services.
- NBFCs offer various financial services such as loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority, leasing, hire-purchase, insurance business, chit business, etc.
- They differ from traditional banks because they cannot accept demand deposits and do not form part of the payment and settlement system like banks do.
- However, they play a significant role in providing credit to individuals, small businesses, and the unorganised sector, thereby contributing to financial inclusion and economic growth. Examples of NBFCs include companies engaged in equipment leasing, hire-purchase finance, vehicle finance, and microfinance
3. Classification of NBFCs
NBFCs can be classified into various categories based on their activities, ownership structure, and regulatory requirements.
Here are some common classifications:
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Asset Financing NBFCs: These NBFCs primarily provide financing for the purchase of assets such as vehicles, machinery, equipment, etc.
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Investment and Credit NBFCs: These NBFCs primarily make investments in securities or extend credit facilities.
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Infrastructure Finance Companies (IFCs): These NBFCs focus on financing infrastructure projects such as roads, ports, power, telecommunications, etc.
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Housing Finance Companies (HFCs): These NBFCs specialize in providing finance for housing and related activities.
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Microfinance Institutions (MFIs): These NBFCs provide financial services, including small loans, savings, and insurance, to low-income individuals and microenterprises.
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Non-Deposit Taking NBFCs: These NBFCs do not accept deposits from the public. They rely on other sources of funding such as borrowings from banks, financial institutions, and capital markets.
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Deposit Taking NBFCs: These NBFCs accept deposits from the public and are regulated more closely, similar to banks, to ensure the safety of depositor funds.
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Systemically Important NBFCs (SI-NBFCs): These are NBFCs whose failure could potentially disrupt the financial system. They are subject to additional regulatory requirements to mitigate systemic risks.
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Core Investment Companies (CICs): These NBFCs are primarily engaged in the business of acquisition of shares and securities and hold not less than 90% of its Total Assets in the form of investment in equity shares, preference shares, bonds, debentures, debt, or loans in group companies.
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Infrastructure Debt Funds (IDFs): These NBFCs are set up to facilitate the flow of long-term debt into infrastructure projects.
- The 50-50 criteria of principal business refers to a regulatory guideline set by the Reserve Bank of India (RBI) for determining whether a company's principal business is that of a Non-Banking Financial Company (NBFC).
- According to this criterion, if more than 50% of a company's total assets or gross income comes from financial assets or income derived from financial assets, it is considered to be primarily engaged in the business of an NBFC. In other words, if at least 50% of the company's assets or income is from financial activities, it falls under the purview of NBFC regulations.
- This guideline helps to differentiate between companies engaged primarily in non-financial activities with some incidental financial activities and those whose main business revolves around financial services, thereby ensuring appropriate regulation and supervision of NBFCs by the RBI. It is an important criterion used by regulators to determine the regulatory classification of companies operating in the financial sector
5.RBI rules on Non Banking Financial Companies
- NBFCs need to obtain a Certificate of Registration (CoR) from the RBI to commence or carry on the business of non-banking financial institution.
- RBI imposes prudential regulations on NBFCs to ensure the safety and soundness of their operations. These norms cover aspects such as capital adequacy, income recognition, asset classification, provisioning, liquidity management, and exposure limits.
- NBFCs are required to adhere to a Fair Practices Code (FPC) prescribed by the RBI, which outlines the principles of transparency, fairness, and responsible lending practices.
- NBFCs are mandated to follow KYC norms while onboarding customers, including verification of identity, address, and other relevant information, to prevent money laundering and terrorist financing activities
- NBFCs are required to implement effective AML/CFT measures, including customer due diligence, transaction monitoring, and reporting of suspicious transactions, to mitigate the risks of money laundering and terrorist financing.
- RBI mandates NBFCs to adhere to good corporate governance practices, including the composition of the board of directors, risk management framework, internal controls, and disclosure requirements
- NBFCs are required to have robust risk management systems in place to identify, assess, monitor, and mitigate various risks such as credit risk, market risk, liquidity risk, and operational risk.
- NBFCs need to submit various regulatory returns and reports to the RBI periodically, providing details of their financial performance, capital adequacy, asset quality, and compliance with regulatory requirements.
- RBI conducts regular inspections and supervisory reviews of NBFCs to assess their financial health, compliance with regulations, and adherence to best practices.
- RBI has the authority to issue directions, impose restrictions, and take corrective actions against NBFCs that fail to comply with regulatory requirements or pose risks to the financial system.
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For Prelims: Economy
For Mains: GS-III: Indian Economy and issues relating to planning, mobilisation, of resources, growth, development, and employment.
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Previous Year Questions 1.The RBI acts as a bankers’ bank. This would imply which of the following? (UPSC CSE 2012) 1. Other banks retain their deposits with the RBI. 2. The RBI lends funds to the commercial banks in times of need. 3. The RBI advises the commercial banks on monetary matters. Select the correct answer using the codes given below : (a) 2 and 3 only (b) 1 and 2 only (c) 1 and 3 only (d) 1, 2 and 3 Answer (d)
The central bank, also known as the apex bank, has overarching control over a nation's banking system. It holds the exclusive authority for issuing currency and regulates the money supply within the economy. As outlined in the Reserve Bank of India Act, 1934, the central bank fulfills several key functions:
2.With reference to the Non-banking Financial Companies (NBFCs) in India, consider the following statements: (UPSC CSE 2010)
Which of the statements given above is/are correct? (a) 1 only Answer: (b)
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GOODS AND SERVICE 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
In India, the Goods and Services Tax (GST) is structured into different tax rates based on the nature of the goods and services. As of my last knowledge update in January 2022, the GST rates are divided into multiple slabs. It's important to note that tax rates may be subject to changes, and new amendments could have been introduced since then. As of my last update, the GST rates are as follows:
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Nil Rate:
- Some goods and services are categorized under the nil rate, meaning they attract a 0% GST. This implies that no tax is levied on the supply of these goods or services.
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5% Rate:
- This is a lower rate, applicable to essential goods such as certain food items, medical supplies, and other basic necessities.
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12% Rate:
- Goods and services falling in this category attract a 12% GST rate. Items such as mobile phones, processed foods, and certain services fall under this slab.
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18% Rate:
- A higher rate of 18% is applicable to goods and services such as electronic items, capital goods, and various services.
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28% Rate:
- The highest GST rate of 28% is applied to luxury items, automobiles, and certain goods and services that are considered non-essential or fall into the luxury category.
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Compensation Cess:
- In addition to the above rates, some specific goods attract a compensation cess, which is levied to compensate the states for any revenue loss during the transition to GST. This is often applied to items like tobacco and luxury cars.
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Zero Rate:
- Certain categories of goods and services may be specified as "zero-rated," which means they are effectively taxed at 0%. This is different from the nil rate, as it allows businesses to claim input tax credit on inputs, capital goods, and input services.
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Exempt Supplies:
- Some goods and services may be exempt from GST altogether. This means that they are not subject to any GST, and businesses cannot claim input tax credit on related inputs
| 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 |
- 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
- 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
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
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For Prelims: Economic and Social Development and Indian Polity and Governance
For Mains: General Studies II: Functions and responsibilities of the Union and the States, issues and challenges pertaining to the federal structure, devolution of powers and finances up to local levels and challenges therein
General Studies III: Inclusive growth and issues arising from it |
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Previous Year Questions
1.Which of the following are true of the Goods and Services Tax (GST) introduced in India in recent times? (UGC Paper II 2020)
A. It is a destination tax
B. It benefits producing states more
C. It benefits consuming states more
D. It is a progressive taxation
E. It is an umbrella tax to improve ease of doing business
Choose the most appropriate answer from the options given below:
A.B, D and E only
B.A, C and D only
C.A, D and E only
D.A, C and E only
Answer (D)
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GROSS DOMESTIC PRODUCT (GDP)
There are three primary ways to calculate GDP:
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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.
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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.
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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:
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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.
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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.
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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 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.
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:
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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.
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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.
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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.
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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.
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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.
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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
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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) |
TARIFFS
2. What is a Tariff?
- Most countries are limited by their natural resources and ability to produce certain goods and services.
- They trade with other countries to get what their population needs and demands. However, trade isn't always conducted in an amenable manner between trading partners.
- Policies, geopolitics, competition, and many other factors can make trading partners unhappy. One of the ways governments deal with trading partners they disagree with is through tariffs.
- A tariff is a tax imposed by one country on the goods and services imported from another country to influence it, raise revenues, or protect competitive advantages.
3. Key Take Aways
- Governments impose tariffs to raise revenue, protect domestic industries, or exert political leverage over another country.
- Tariffs often result in unwanted side effects, such as higher consumer prices.
- Tariffs have a long and contentious history, and the debate over whether they represent good or bad policy still rages.
4. History of Tariffs
4.1 Pre Modern Europe
- In pre-modern Europe, a nation's wealth was believed to consist of fixed, tangible assets, such as gold, silver, land, and other physical resources.
- Trade was seen as a Zero-sum game that resulted in either a clear net loss or a clear net gain of wealth.
- If a country imported more than it exported, a resource, mainly gold, would flow abroad, thereby draining its wealth. Cross-border trade was viewed with suspicion, and countries preferred to acquire colonies with which they could establish exclusive trading relationships rather than trading with each other.
- This system, known as mercantilism, relied heavily on tariffs and even outright bans on trade. The colonizing country, which saw itself as competing with other colonizers, would import raw materials from its colonies, which were generally barred from selling their raw materials elsewhere.
- The colonizing country would convert the materials into manufactured wares, which it would sell back to the colonies. High tariffs and other barriers were implemented to ensure that colonies only purchased manufactured goods from their home countries.
4.2 Late 19th and early 20th Centuries
- Relatively free trade enjoyed a heyday in the late 19th and early 20th centuries when the idea took hold that international commerce had made large-scale wars between nations so expensive and counterproductive that they were obsolete.
- World War I proved that idea wrong, and nationalist approaches to trade, including high tariffs, dominated until the end of World War II.
- From that point on, free trade enjoyed a 50-year resurgence, culminating in the creation in 1995 of the World Trade Organisation (WTO), which acts as an international forum for settling disputes and laying down ground rules.
- Free trade agreements, such as the North American Free Trade Agreement (NAFTA) now known as the United States-Mexico-Canada Agreement (USMCA) and the European Union (EU), also proliferated.
4.3 In the 21st Century
- Skepticism of this model sometimes labeled neoliberalism by critics who tie it to 19th-century liberal arguments in favor of free trade grew, however, and Britain in 2016 voted to leave the European Union.
- That same year Donald Trump won the U.S. presidential election on a platform that included a call for tariffs on Chinese and Mexican imports, which he implemented when he took office.
- Critics of tariff-free multilateral trade deals, who come from both ends of the political spectrum, argue that they erode national sovereignty and encourage a race to the bottom regarding wages, worker protections, and product quality and standards.
- Meanwhile, the defenders of such deals counter that tariffs lead to trade wars, hurt consumers, and hamper innovation.
5. Understanding Tariffs
- Tariffs are used to restrict imports. Simply put, they increase the price of goods and services purchased from another country, making them less attractive to domestic consumers.
- A key point to understand is that a tariff affects the exporting country because consumers in the country that imposed the tariff might shy away from imports due to the price increase. However, if the consumer still chooses the imported product, then the tariff has essentially raised the cost to the consumer in another country.
There are two types of tariffs:
- A specific tariff is levied as a fixed fee based on the type of item, such as a $500 tariff on a car.
- An ad-valorem tariff is levied based on the item's value, such as 5% of an import's value.
6. Why Government Imposes Tariffs?
Tariffs can be used to raise revenues for governments. This kind of tariff is called a revenue tariff and is not designed to restrict imports. For instance, in 2018 and 2019, President Donald Trump and his administration imposed tariffs on many items to rebalance the trade deficit. In the fiscal year 2019, customs duties received were $18 billion. In FY 2020, duties received were $21 billion.
6.2 Protect Domestic Industries
Governments can use tariffs to benefit particular industries, often doing so to protect companies and jobs. For example, in May 2022, President Joe Biden proposed a 25% ad valorem tariff on steel articles from all countries except Canada, Mexico, and the United Kingdom (the U.K. has a quota of an aggregate of 500,000 metric tons it can trade with the U.S.). This proclamation reopens the trade of specific items with the U.K. while taking measures to protect domestic U.S. steel manufacturing and production jobs.
6.3 Protect Domestic Consumers
By making foreign-produced goods more expensive, tariffs can make domestically-produced alternatives seem more attractive. Some products made in countries with fewer regulations can harm consumers, such as a product coated in lead-based paint. Tariffs can make these products so expensive that consumers won't buy them.
6.4 Protect National Interests
Tariffs can also be used as an extension of foreign policy as their imposition on a trading partner's main exports may be used to exert economic leverage. For example, when Russia invaded Ukraine, much of the world protested by boycotting Russian goods or imposing sanctions. In April 2022, President Joe Biden suspended normal trade with Russia. In June, he raised the tariff on Russian imports not prohibited by the April suspension to 35%.
7. Advantages of Tariffs
- Produce revenues: As discussed, tariffs provide a government a chance to bring in more money. This can relieve some of the tax burdens felt by a county's citizens and help the government to reduce deficits.
- Open negotiations: Tariffs can be used by countries to open negotiations for trade or other issues. Each side can use tariffs to help them create economic policies and talk with trade partners.
- Support a nation's goals: One of the most popular uses for tariffs is to use them to ensure domestic products receive preference within a country to support businesses and the economy.
- Make a market predictable: Tariffs can help stabilize a market and make prices predictable.
8. Disadvantages of Tariffs
- Create issues between governments: Many nations use tariffs to punish or discourage actions they disapprove of. Unfortunately, doing this can create tensions between two countries and lead to more problems.
- Initiate trade wars: A typical response for a country with tariffs imposed on it is to respond similarly, creating a trade war in which neither country benefits from the other.
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For Prelims: Tariffs, Zero-sum game, Cross-border trade, World Trade Organisation (WTO), North American Free Trade Agreement (NAFTA), United States-Mexico-Canada Agreement (USMCA), and the European Union (EU). For Mains: 1. What is a Tariff and explain why government imposes tariffs. Discuss the advantages and disadvantages associated with Tariffs. (250 Words). |
RARE EARTH ELEMENTS
| The 17 rare earths are cerium (Ce), dysprosium (Dy), erbium (Er), europium (Eu), gadolinium (Gd), holmium (Ho), lanthanum (La), lutetium (Lu), neodymium (Nd), praseodymium (Pr), promethium (Pm), samarium (Sm), scandium (Sc), terbium (Tb), thulium (Tm), ytterbium (Yb), and yttrium (Y) |
- These elements are important in technologies of consumer electronics, computers and networks, communications, clean energy, advanced transportation, healthcare, environmental mitigation, and national defence, among others
- Scandium is used in televisions and fluorescent lamps, and yttrium is used in drugs to treat rheumatoid arthritis and cancer
- Rare earth elements are used in space shuttle components, jet engine turbines, and drones
- Cerium, the most abundant rare earth element, is essential to NASA’s Space Shuttle Programme
- In recent years, rare earths have become even more important because there has been an increase in demand for green energy
- Elements like neodymium and dysprosium, which are used in wind turbine motors, are sought-after more than ever as wind mills across the world continue to grow
- Moreover, the push for switching from internal combustion cars to electric vehicles has also led to a rise in demand for rare earth magnets made from neodymium, boron, and iron and batteries
- China has imposed restrictions on the export of seven rare earth elements (REEs) — dysprosium, gadolinium, lutetium, samarium, scandium, terbium, and yttrium — which are part of the 17 REEs.
- The country dominates the global refining of heavy REEs, giving it substantial control over critical supply chains, ranging from consumer electronics to defense. Although these measures do not constitute a complete export ban, they may cause temporary supply disruptions, as exporters navigate the permit process.
- India may not face an immediate disruption due to these restrictions. Despite government efforts to enhance domestic manufacturing of semiconductors and defense systems, the more sophisticated phases of production largely take place abroad, particularly in China and Japan. Japan, in anticipation of such issues, has already built stockpiles to buffer against REE-related supply shocks.
- Recognizing the strategic importance of REEs, India is aware that it holds around 6% of global deposits. However, the country’s capacity for mining and refining is minimal, largely due to the environmental challenges associated with such operations.
- India does extract some light REEs through its state-run firm, Indian Rare Earths Ltd, including monazite from coastal sands in Kerala. Nonetheless, imports still play a role.
- According to a recent statement by the Ministry of Mines in the Lok Sabha, India imported approximately 2,270 tonnes of REEs in 2023–24. Consequently, the national approach involves a mix of increasing domestic output and maintaining import channels
To support the strategic use of essential resources such as rare earth elements, India has launched the National Critical Mineral Mission (NCMM). This initiative aims to strengthen the country’s supply chain for critical minerals by boosting domestic production and establishing alternative international supply partnerships. According to a presentation by the Ministry of Mines in January, global events like China’s export restrictions, the Russia–Ukraine conflict, and other geopolitical factors have exposed vulnerabilities in the global critical mineral supply, underscoring the urgency of diversifying sources.
As part of the NCMM, the Indian government plans to oversee or support around 1,200 mineral exploration projects. It also intends to offer exploration licenses to encourage private sector participation and conduct auctions for additional critical mineral blocks
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For Prelims: Applications of rare earths, rare earth elements
For Mains:
1.Europe’s largest known deposit of rare earth elements found in Sweden: Could the discovery change geopolitics?
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Previous Year Questions
1.Recently, there has been a concern over the short supply of a group of elements called ‘rare earth metals’. Why? (2012)
Which of the statements given above is/are correct? (a) 1 only Answer (c)
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