UPSC Key: Capital Intensity of Production, Farm Mechanization and Adjusted Gross Revenue

Fresh US tariff threat looms over purchase of Russian oil

Syllabus:

Preliminary Examination: Current events of national and international importance.

Main Examination: General Studies II: Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests.

What’s the ongoing story: India could attract additional 25 per cent to 50 per cent US tariffs over the purchase of Russian oil, with US President Donald Trump indicating Sunday he was upset at the progress of peace talks with Russian President Vladimir Putin and warning of imposition of secondary tariffs on buyers of Russian oil if he felt Moscow was blocking his efforts to end the war in Ukraine.

Key Points to Ponder:

• ‘India could attract additional 25 per cent to 50 per cent US tariffs over the purchase of Russian oil’—Why?

• How US secondary sanctions can impact on India’s crude oil import strategy?

• How should India navigate these present oil-related geopolitical tensions while ensuring energy security?

• What India should do to reduce its dependence on crude oil imports?

• How India can ensure long-term energy security and economic stability?

• India oil trade with Russia—know in detail

• Know the significance of the India-Russia bilateral relations in the context of shifting global trade dynamics.

Key Takeaways:

• India may also not receive a concession on the sweeping US reciprocal tariffs set to be imposed on April 2, as Trump told reporters aboard Air Force One that “all countries” would face the new tariffs. This comes even as the US and India concluded their four-day talks on Saturday to determine the contours of a trade agreement.

• Russia has been India’s top oil import source during April-December 2024, according to data released by the Ministry of Commerce and Industry.

• Sources in India’s refining sector indicated that more clarity was needed on what exactly the US would do and whether there would be any scope for exemptions if Trump were to follow through on his threat of additional tariffs.

• India’s Russian oil imports have averaged 1.85 million barrels per day (bpd) in the first 21 days of March, sharply higher than February’s 1.47 million bpd and January’s 1.64 million bpd, according to provisional data from commodity market analytics firm Kpler.

• So far, the Indian government and refiners have been clear they will not buy any oil that is under sanctions or involves sanctioned third parties. India has not purchased crude from Iran for years due to US sanctions. Even Venezuelan crude that was coming to India was through sanction exemptions granted by the US to certain oil companies.

Do You Know:

• Industry watchers and analysts, at least for the time being, are not bracing for the full impact of Trump’s tariff threats. The US President has been mercurial in his tariff threats since taking office in January, but despite his threats to Russia — the world’s second-largest oil exporter — global oil prices have not seen a sharp rise. IF RUSSIAN OIL were to be priced out from the market, it could lead to higher global oil prices. While securing sufficient oil supplies over the medium term should not be an issue for India, higher oil prices and the loss of discounted Russian barrels, would be a setback for the country.

• Oil tops the list of India’s merchandise imports by value, and oil prices impact various aspects of the country’s economy. “It is extremely unlikely that Indian refiners will persist with Russian crude imports if the US imposes tariffs. A quick shift to suppliers like Saudi Arabia and Iraq is likely to replace the lost Russian oil volumes,” said an oil sector analyst.

Other Important Articles Covering the same topic:

📍Trump ‘very angry’ and ‘pissed off’ with Putin, threatens tariffs on Russian oil if Moscow blocks Ukraine deal

Previous year UPSC Prelims Question Covering similar theme:
1. Recently, India signed a deal known as ‘Action Plan for Prioritization and Implementation of Cooperation Areas in the Nuclear Field’ with which of the following countries? (2019)
(a) Japan
(b) Russia
(c) The United Kingdom
(d) The United States of America

Yunus pitch to China: India’s N-E landlocked, Bangladesh is your gateway

Syllabus:

Preliminary Examination: Current events of national and international importance.

Main Examination: General Studies II: India and its neighbourhood- relations.

What’s the ongoing story: Pitching for “extension of the Chinese economy”, Bangladesh interim government’s chief advisor Professor Muhammad Yunus has said that with Northeast India “landlocked”, Dhaka is the “only guardian of the ocean for all this region”.

Key Points to Ponder:

• Map Work-Northeast India

• “India’s northeast is a prisoner of geography”—Discuss

• What exactly Bangladesh interim government’s chief advisor Professor Muhammad Yunus has said about Northeast India?

• ‘Bangladesh has historically shared strong ties with India, but recent developments indicate a shift towards China and Pakistan’—Comment

• How does China’s growing economic and security engagement with Bangladesh have implications for India’s regional security?

• Where does Bangladesh fit into India’s ‘Neighbourhood First’ and ‘Act East’ policies?

• How successful is BIMSTEC and SAARC in fostering India-Bangladesh cooperation?

Key Takeaways:

• Bangladesh interim government’s chief advisor Professor Muhammad Yunus was on a four-day visit to China, took part in the country’s Boao Forum for Asia Annual Conference in Hainan.

• “We are the only guardian of the ocean for all this region. So this opens up a huge possibility. So this could be an extension of the Chinese economy. Build things, produce things, market things, bring things to China, bring it out to the whole rest of the world,” he said.

• “We are the only guardian of the ocean for all this region. So this opens up a huge possibility. So this could be an extension of the Chinese economy. Build things, produce things, market things, bring things to China, bring it out to the whole rest of the world,” he said.

• Yunus said it was “important” for his country to see Beijing as a good friend and he expected ties between the two countries to enter a new phase. “Our relationship has been very strong over the years. Our business is very strong and we benefit from our collaboration with China,” he said.

• He met Chinese President Xi Jinping and sought more investments to revive Bangladesh’s flagging economy, hit by political and economic crisis. “It’s very important that we see China as our good friend,” Yunus said, projecting Beijing as a balancing factor against New Delhi.

• Yunus is scheduled to go to Thailand for the BIMSTEC summit later this week. He has sought a meeting with Prime Minister Narendra Modi, but India is yet to confirm it. While Modi will be in Thailand on April 3-4, India’s Northeast has been part of Delhi’s strategic calculus as it engages with the grouping as well.

Do You Know:

• For India, access to and from the Northeast states — through the ‘Chicken’s Neck’ corridor in north Bengal — has been a challenge, economically and strategically. Over the last decade-and-a-half, this formed an important element of Delhi’s engagement with Dhaka as it worked with the previous government led by former Prime Minister Sheikh Hasina on ways to transit through Bangladesh.

• With Yunus’s comments, Dhaka is seen as projecting its leverage on access to Northeast India, which is a concern for Delhi. His bid to project Beijing as the new partner adds a layer of complexity to the already-fraught India-Bangladesh ties.

• For nearly two decades, India’s Bangladesh policy was viewed through the prism of Prime Minister Sheikh Hasina being in charge. Hasina ensured stability in India’s northeastern states, cracked down on the cross-border insurgency and granted India transit rights.

• Hasina’s elections in 2014, 2018, and 2024 were controversial, with allegations of vote rigging and manipulation. The suppression of the opposition and human rights violations fuelled rising anti-India sentiment in Bangladesh. This was due to Delhi being seen as a “friend” of Hasina’s even when her popularity reached its nadir. Hence, when the student-led uprising ousted Hasina on August 5 last year, India had few alternative relationships in Dhaka and was in need of a fresh policy vis-a-vis the new regime.

Other Important Articles Covering the same topic:

📍Bangladesh is drawing closer to Pakistan and China. What should India do?

Previous year UPSC Mains Question Covering similar theme:
📍Analyze internal security threats and transborder crimes along Myanmar, Bangladesh and Pakistan borders including Line of Control (LoC). Also discuss the role played by various security forces in this regard. (2018)

IMD: Above-normal temperatures, more heatwave days this summer

Syllabus:

Preliminary Examination: General issues on Environmental ecology, Bio-diversity and Climate Change – that do not require subject specialization.

Mains Examination: General Studies III: Conservation, environmental pollution and degradation, environmental impact assessment.

What’s the ongoing story: THE INDIA Meteorological Department (IMD) has forecast above-normal temperatures in most parts of the country this summer (April-June), including extended heatwave episodes that may last 10-11 days in central and eastern India, affecting Odisha, Jharkhand and east Uttar Pradesh in particular.

Key Points to Ponder:

• What is a heat wave?

• Indian Meteorological Department (IMD) criteria for Heat Waves?

• What is the present situation of Heat Waves in India?

• Why is India facing a prolonged heat wave?

• What is the Impact of these Heat Waves?

• What are the major causes behind Heatwave phenomenon?

• How effective is India’s Heat Action Plans (HAPs) in mitigating the impact of extreme heat events?

Key Takeaways:

• “During April-June, above normal temperatures are likely over most parts of the country, except west peninsular India, some parts of east-central and east India,” the IMD said in its all-India summer forecast released on Monday.

• IMD Director General Mryutyunjay Mohapatra said above-normal heatwave days are likely in Rajasthan, Gujarat, Haryana, Punjab, Madhya Pradesh, Maharashtra, Uttar Pradesh, Bihar, Jharkhand, West Bengal, Odisha, Chhattisgarh, Telangana, Andhra Pradesh and northern parts of Karnataka.

• From April 10 till the end of the month, the Northeast states are likely to see heavy rainfall, which can lead to floods and landslides. In addition, Kerala and south interior Karnataka, too, will receive above-normal rainfall and thunderstorms accompanied by lightning, the IMD said. “The local administration needs to remain alert and prepared,” Mohapatra said.

• Climatologically, heatwaves in April are common over eastern India regions covering Jharkhand, Bihar and Gangetic West Bengal as well as Vidarbha in Maharashtra and Gujarat, and last for one to three days. But this April, chances of extended heatwave episodes are forecast.

• The all-India temperatures this March remained within normal or below-normal range, except over parts of central India and southern peninsular India, the IMD said. Above-normal heatwave days (three to five days) prevailed over parts of Gujarat and Odisha along with some pockets of Vidarbha in Maharashtra.

• Keeping the temperatures in check were the intermittent rainfall or snowfall events that affected Kerala, Tamil Nadu, Odisha, Uttarakhand, Himachal Pradesh, Jammu and Kashmir, Ladakh and many parts of Northeast India.

Do You Know:

• A heatwave is basically a period of unusually high temperatures over a place. Thus, the threshold to declare a heatwave depends on the temperatures normally seen in that area in that time of the year.

• According to the IMD, a heatwave is declared when the “maximum temperature of a station reaches at least 40 degree C or more for plains and at least 30 degree C or more for hilly regions.”

• Based on departure from the normal temperature, a heatwave is when the departure is 4.5 degree C to 6.4 degree C, and a severe heatwave is declared when the departure is more than 6.4 degree C.

• Based on actual maximum temperature, the IMD says, a heatwave exists when the maximum temperature is greater than 45 degree C, and a severe heatwave when the temperature is over 47 degree C.

• IMD has a big network of surface observatories covering the entire country to measure various metrological parameters like Temperature, Relative humidity, pressure, wind speed & direction etc. Based on daily maximum temperature station data, climatology of maximum temperature is prepared for the period 1991-2020 to find out normal maximum temperature of the day for a particular station. Thereafter, IMD declares heat waves over the region as per its definition,” the weather body says.

Other Important Articles Covering the same topic:

📍Explained: What are urban heat islands, and why are they worsening during summers?

Previous year UPSC Prelims Question Covering similar theme:
2. What are the possible limitations of India in mitigating global warming at present and in the immediate future? (2010)
1. Appropriate alternate technologies are not sufficiently available.
2. India cannot invest huge funds in research and development.
3. Many developed countries have already set up their polluting industries in India.
Which of the statements given above is/are correct?
(a) 1 and 2 only
(b) 2 only
(c) 1 and 3 only
(d) 1, 2 and 3

THE EDITORIAL PAGE

Labour at the centre

Syllabus:

Preliminary Examination: Economic and Social Development

Main Examination: General Studies III: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

What’s the ongoing story: Farzana Afridi Writes: Since 2017-18, the working-age population of India has increased by about 9 crore, while formal sector jobs rose by 6 crore — a deficit of 50 lakh jobs annually.

Key Points to Ponder:

• What is the capital intensity of production?

• Why is the capital intensity of production rising in a labour-abundant economy?

• What is the Production Linked Incentive (PLI)?

• What is the employment-linked incentive (ELI)?

• What are the challenges faced by labour market particularly in the informal sector?

• ‘Labour-intensive industries are critical for India’s economic growth and employment generation’—Elaborate?

• What are the impact of recent labour reforms on job creation and economic development?

• Examine the need for a balanced approach between capital and labour in economic policies?

• How can labour-intensive growth be promoted without discouraging investment?

• ‘India’s demographic dividend is considered a major economic advantage especially in terms of labour productivity and skill development’—Discuss

Key Takeaways:
Farzana Afridi Writes:

• Most of the recent increase in employment has come either from self-employment in rural areas or from informal services. Hence, both the quality and the quantity of work opportunities are under strain with a rising working-age population.

• The challenge of expanding work opportunities in the formal sector becomes even more daunting in the face of rapid technological progress. Data shows a persistent and steady decline in the labour intensity of production technology across sectors. This deepening of the capital intensity of the production process, including in labour-intensive manufacturing and services industries, is likely to hasten with the advent of AI.

• There can be two factors at play — one, demand-side factors, which make the adoption of capital-intensive techniques imperative for increasing productivity and value added at low cost, and two, supply-side factors, which impinge on the availability of complementary quality or skilled labour.

• If the relative cost of capital or machinery falls, it incentivises producers to invest in more capital-intensive technology, even without any gains in productivity.

• The current structure of the PLI scheme is primarily focused on expanding production of high-value products with backward linkages, which require high-skilled, specialised labour, and is relatively less focused on low- and middle-skilled labour-intensive sectors. Specifically, over 50 per cent of the PLI budget is allocated for large-scale electronics, IT hardware and drone manufacturing.

• The ELI scheme, on the other hand, intends to create jobs in the formal sector, effectively through government cash transfers via the EPFO, and in relatively labour-intensive sectors, by bearing some of the risk of hiring untrained labour by private firms.

Do You Know:

• According to Investopedia, the term “capital intensive” refers to business processes or industries that require large amounts of investment to produce a good or service. As a result, these businesses have a high percentage of fixed assets, such as property, plant, and equipment (PP&E). Companies in capital-intensive industries are often marked by high levels of depreciation.

• In order to boost domestic manufacturing and cut down on import bills, the central government introduced PLI scheme that aims to give companies incentives on incremental sales from products manufactured in domestic units. Apart from inviting foreign companies to set shop in India, the scheme also aims to encourage local companies to set up or expand existing manufacturing units.

• Finance Minister Nirmala Sitharaman announced three employment-linked incentive (ELI) schemes for two years and an internship programme in partnership with India Inc for five years in the Union Budget for 2024-25.

• The ELI scheme came as a response to political criticism of the Production Linked Incentive (PLI) scheme which sought to extend benefits to companies for higher sales turnover, even if these did not result in any employment creation.

• According to the Budget documents, the three ELI schemes will include the following features:
I. Scheme A— For first-timers: The scheme, which will be for two years, will provide a month’s wage to all employees entering the workforce in all formal sectors. There will be direct benefit transfer of one month’s salary — up to a limit of Rs 15,000 — in three instalments to first-time employees as registered with the EPFO. The salary eligibility limit for this scheme will be Rs 1 lakh per month. The scheme is likely to benefit 2.10 crore youths, Sitharaman said. Employees will have to undergo compulsory online financial literacy course before claiming the second instalment and the subsidy will be refunded by the employer if the employment to the first-time employee ends within 12 months of recruitment.
II. Scheme B—Job creation in manufacturing: This scheme will be launched with a view to incentivise additional employment in the manufacturing sector linked to the employment of first-time employees. All employers, corporate and non-corporate entities, with a three-year record of EPFO contribution, will be eligible. Incentives ranging between 8-24 per cent will be paid for four years to both employees and employers. The government expects the scheme to benefit 30 lakh youths and their employers.
III. Scheme C—Support to employers for additional jobs: This employer-focussed scheme will cover additional employment in all sectors. All additional employment within a salary limit of Rs 1 lakh per month will be counted under the scheme. The government will reimburse to employers up to Rs 3,000 per month for two years towards the EPFO contribution for each additional employee. The scheme is expected to incentivise additional employment of 50 lakh persons.

Other Important Articles Covering the same topic:

📍Explained: What is PLI scheme, and which sectors will be under it?

📍For employment boost: FM Sitharaman announces 3 employment-linked incentive schemes, industry internship programme

Previous year UPSC Prelims Question Covering similar theme:
3. Consider, the following statements : (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

EXPLAINED

Why Naini Lake is seeing record-low water levels this year

Syllabus:

Preliminary Examination: General issues on Environmental ecology, Bio-diversity and Climate Change – that do not require subject specialization.

Main Examination: General Studies III: Conservation, environmental pollution and degradation, environmental impact assessment.

What’s the ongoing story: The Naini Lake, one of Nainital’s key attractions, has recorded a water level of 4.7 feet — marking a five-year low.

Key Points to Ponder:

• Map Work—Naini Lake and major lakes in India

• What are reasons behind the declining water levels of Naini Lake?

• How do climate change and human activities contribute to Naini Lake water crisis?

• Know the ecological and socio-economic impacts of shrinking urban lakes in India.

• What is the role of catchment area conservation, rainwater harvesting, and urban planning in protecting natural water bodies?

• How can community participation, local governance, and technology-driven solutions help in restoring the health of Naini Lake?

• ‘The depletion of urban lakes is a symptom of poor water management policies in Indian cities’—How far you agree with the same?

Key Takeaways:

• This has sparked concerns over drinking water scarcity ahead of the summer season, with some experts saying that the lake could go below the “zero level”. This does not mean that the lake will dry up but that its water level will go below the normal “gauge level”, which is set for each lake based on historical data.

• With its deepest point at 89 feet, the Naini Lake has a gauge level of 12 feet. The Uttarakhand Jal Sansthan extracts 10 million litres everyday from the lake to supply drinking water to the city.

• For many years now, alarm bells have been sounded about the lake’s depleting water levels. This time, a decrease in snowfall and rainfall in the winter months has played a role, compounded by long-term issues surrounding the lake’s upkeep.

• Vishal Singh, an environmental scientist at the Centre for Ecology Development and Research in Nainital, told The Indian Express that 76% of the city’s water demand was met by the Naini Lake in 2024. However, pressure from an increasing population, the increase in tourist activity, and commercialisation of nearby areas have impacted its health.

• According to researchers Nidhi Singh, Vishal Singh, and Anvita Pandey, Nainital’s aging water distribution network has struggled to keep up with the demand. (‘Impact of institutional overlapping on water governance of Himalayan City, Nainital, India’, 2024).

Do You Know:

• The Naini Lake is a natural kidney-shaped lake in the heart of Nainital, surrounded by seven hills. It is said that English businessman P Barron chanced upon it around the mid-19th Century, spurring the town’s development as a hill station for the British.

• A 2017 report from the Uttarakhand State Council for Science and Technology found that compared to other Kumaon lakes, Naini Lake “is subjected to the greatest man-made manipulations”. It cited unplanned construction, encroachment, and degradation of recharge zones as key factors. The construction of concrete structures nearby further causes low rainwater infiltration, worsened by the low rainfall in some years.

• “Enhancing siltation, dumping debris in Sukhatal Lake, which is a major aquifer recharge area for Naini Lake, [is] causing the lake to shrink from its two-hectare area,” the report added. Encroachments and illegal construction have reduced the catchment area, with houses and hotels coming up near the lake.

• Climate change has a bearing on prevailing weather patterns. Delhi-based organisation Climate Trends found that annual mean temperatures in Uttarakhand have increased by nearly 1.5 degrees Celsius between 1970 and 2022. Experts say the warming is affecting rainfall and snowfall.

Other Important Articles Covering the same topic:

📍How patchy rains, rising temperatures are upsetting Uttarakhand’s fruit cart

Previous year UPSC Mains Question Covering similar theme:
📍Suggest measures to improve water storage and irrigation system to make its judicious use under the depleting scenario. (2020)

Mechanisation beyond tractors

Syllabus:

Preliminary Examination: Economic and Social Development-Sustainable Development, Poverty, Inclusion, Demographics, Social Sector Initiatives, etc.

Main Examination: General Studies II: Issues related to direct and indirect farm subsidies and minimum support prices; Public Distribution System- objectives, functioning, limitations, revamping; issues of buffer stocks and food security; Technology missions; economics of animal-rearing.

What’s the ongoing story: Globally, the market for farm machinery is bigger than that for tractors. That is starting to happen in India too, with rising agricultural labour shortages driving demand for farm machinery from harvesters to rotavators.

Key Points to Ponder:

• What is farm mechanization?

• What are the examples of farm mechanisation?

• How is the present state of mechanization in India?

• What are the issues and challenges with the farm machinery industry in India?

• What are the government initiatives which aim to promote agricultural mechanization in India?

• How does farm mechanization contribute to agricultural efficiency and climate resilience?

• Discuss the role of technology-driven solutions such as drones, AI, and precision farming in revolutionizing Indian agriculture.

Key Takeaways:

• The tractor basically replaced the bullock to pull farm implements – be it the plough (for opening and loosening the soil to bury weeds and previous crop residues), harrow and cultivator (for breaking the clods formed from ploughing and smoothening the soil surface to create a fine seedbed) or drill (for uniform seed sowing) – and carts for transportation.

• With tractors, the farmer had a power output source to drag or lift much heavier field implements and loads. A pair of bullocks can generate an average 1 horsepower (hp) for farm operations, whereas it is 41-50 hp for a majority of tractors sold in India.

• India’s tractor market is about 9 lakh units per year, with sales rising from 2020-21 (see chart). In value terms – a 45 hp tractor costs roughly Rs 7 lakh for the farmer – that comes to over Rs 60,000 crore.

• Bullock-drawn ploughs can largely do primary tillage and work to depths of 4-6 inches. A tractor-powered rotavator can replace the plough, harrow and cultivator, performing primary and secondary tillage operations in a single pass. Also, it can dig up to 8-12 inches for breaking up the hard compacted layers below the top soil, to allow better aeration, water infiltration and deeper root penetration.

Do You Know:

• Farm machinery includes tractor-mounted implements (tillage tools, crop protection chemical sprayers, balers, loaders, trolleys and laser land levellers) as well as self-propelled harvester combines, rice transplanters and cane harvesters.

• Globally, the market for farm machinery, at approximately $100 billion, is above the $60 billion of tractors. In India, it’s the other way: Tractors at Rs 60,000 crore and farm machinery at Rs 10,000 crore

• While rotavators and subsoilers enable deep tilling to exploit the fertility and nutrient potential of the lower soil layers – making more effective use of the farmer’s tractor – harvesters and transplanters address the increasing agricultural labour shortages.

• Harvesting an acre of wheat takes 5-7 labourers working a whole day. The harvested crop has to further be tied into bundles and taken for threshing (separating the grain from straw), requiring extra labour and an additional day. The total cost: Rs 5,000 or more.

• A combine can harvest, thresh, clean and deliver an acre of grain to the farmer’s tractor trolley in 25-30 minutes. The operator charges Rs 2,000-3,000 per acre. Not surprising that a host of crops across states are increasingly being mechanically rather than manually harvested.

• The tractor is a versatile machine. Its motive power can be deployed for most agricultural operations as well for haulage and other non-field purposes.

Other Important Articles Covering the same topic:

📍Why tractors may be the key to rural economy boost

Previous year UPSC mains Question Covering similar theme:
📍What are the challenges and opportunities of the food processing sector in the country? How can the income of the farmers be substantially increased by encouraging food processing? (2020)

ECONOMY

Foreign investors pump $6 bn into fully accessible route bonds since January

Syllabus:

Preliminary Examination: Economic and Social Development-Sustainable Development, Poverty, Inclusion, Demographics, Social Sector Initiatives, etc.

Main Examination: General Studies III: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

What’s the ongoing story: Despite their heavy selling in the Indian stock market, foreign portfolio investors (FPIs) have made a significant investment in Indian bonds, injecting over Rs 51,730 crore (approximately $6 billion) through the Fully Accessible Route (FAR) since January this year.

Key Points to Ponder:

• What is foreign portfolio investors (FPIs)?

• What is Fully Accessible Route bonds?

• Why Fully Accessible Route (FAR) for foreign investments in India’s bond market is important?

• How does the inclusion of the government bonds in global indices impact foreign investments through the Fully Accessible Route?

• What are the implications of rising foreign participation in India’s debt market?

• What important steps should be taken by the government to further attract foreign investment in sovereign bonds while ensuring financial stability?

• Do You think that foreign capital inflows into India’s debt market through the Fully Accessible Route (FAR) can influence monetary policy, exchange rates, and fiscal management?

Key Takeaways:

• Of this, as much as Rs 29,044 crore came from FPIs in the month of March, according to data from the National Securities Depository Ltd (NSDL). The bond investment was also one of the reasons for strengthening of the rupee in the last a few days.

• FPIs’ bond investment has happened at a time when their selling in stock declined in March: after pulling out Rs 1.12 lakh crore in January and February, FPI outflows from stocks declined to just Rs 3,973 crore in March.

• In June 2024, JP Morgan added 29 Indian government securities under the FAR programme to its widely followed Emerging Market Bond Index (EMBI). This development was expected to enhance foreign investor participation and attract substantial inflows into the Indian bond market.

• Global Index provider FTSE Russell announced that include FAR-eligible Indian government bonds in its FTSE Emerging Markets Government Bond Index (EMGBI) from September 2025.

Do You Know:

• According to the Investopedia, Foreign portfolio investment (FPI) consists of securities and other financial assets held by investors in another country. It does not provide the investor with direct ownership of a company’s assets and is relatively liquid depending on the volatility of the market. Along with foreign direct investment (FDI), FPI is one of the common ways to invest in an overseas economy. FDI and FPI are both important sources of funding for most economies.

• FAR bonds are government securities designated under the fully accessible route, which allows foreign investors unrestricted access to invest in these bonds without any investment caps. The RBI introduced this route in March 2020 to increase foreign participation in India’s bond market.

• FAR was created to allow non-residents unrestricted access to specific G-secs, which were earlier subject to FPI limits. While FPI bond investment was expected to rise sharply as global firms added Indian bonds to their indices, the government and the Reserve Bank of India (RBI) turned cautious and excluded long-term government bonds with 14-year and 30-year tenors from FAR. The decision was apparently taken amid speculation about more unrestricted inflows by FPIs, which can trigger uncertainties and risks in the future.

Other Important Articles Covering the same topic:

📍The reclassification of excess FPI stake as FDI: What does this mean for foreign investors?

Previous year UPSC Prelims Question Covering similar theme:
4. Which one of the following groups of items is included in India’s foreign-exchange reserves? (2013)
(a) Foreign-currency assets, Special Drawing Rights (SDRs) and loans from foreign countries
(b) Foreign-currency assets, gold holdings of the RBI and SDRs
(c) Foreign-currency assets, loans from the World Bank and SDRs
(d) Foreign-currency assets, gold holdings of the RBI and loans from the World Bank.

5. With reference to Foreign Direct Investment in India, which one of the following is considered its major characteristic? (2020)
(a) It is the investment through capital instruments essentially in a listed company.
(b) It is a largely non-debt creating capital flow.
(c) It is an investment which involves debt-servicing.
(d) It is the investment made by foreign institutional investors in the Government securities.

Will govt owning nearly 49% of Vodafone Idea help the beleaguered telco?

Syllabus:

Preliminary Examination: Current events of national and international importance.

Mains Examination: General Studies II: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

What’s the ongoing story: The Indian government will own close to 49 per cent of beleaguered telecom company Vodafone Idea (Vi), after it received another lifeline from the Centre, which has decided to convert an additional Rs 36,950 crore worth of the company’s dues into equity. Before this infusion, the government held nearly 23 per cent in the company.

Key Points to Ponder:

• What is adjusted gross revenue (AGR)?

• Discuss the rationale behind the government’s decision to acquire a stake in Vodafone Idea.

• Telecom sector in India—Know in detail

• The telecom sector in India has witnessed financial distress due to regulatory burdens and intense competition—Elaborate

• How did the financial condition of the telcos deteriorate?

Key Takeaways:

• The company has been directed to issue 3,695 crore share with a face value of Rs 10 per share within the next month. It is worth noting that the government will acquire these additional shares at a premium of more than 47 per cent, as the company’s shares were valued at Rs 6.8 apiece at market close on Friday. The government is now the single-largest shareholder in the telecom firm.

• The amount includes outstanding spectrum auction dues, including deferred dues otherwise payable by the company after the expiry of the moratorium period, the telecom operator said in an exchange filing.

• This is the second lifeline that the government has offered to the struggling telco. As part of its 2021 relief package for the company, the government in February 2023 had approved the conversion of Rs 6,133 crore of Vi’s interest dues into equity. As per the company’s share price of Rs 6.8 at the end of Friday’s session, the government’s Rs 16,133 crore investment is currently valued at ₹10,970 crore, a loss of 32%.

• As on December 2024, Vodafone Idea’s total debt was around Rs 2.3 lakh crore. Of this, Rs 77,000 crore was AGR (adjusted gross revenue) liability and Rs 1.4 lakh crore is the spectrum liability.

Do You Know:

• Telecom operators are required to pay licence fee and spectrum charges in the form of ‘revenue share’ to the Centre. The revenue amount used to calculate this revenue share is termed as the adjusted gross revenue (AGR).

• The financial condition of the telcos deterioration started in 1999, when the government decided to shift from a fixed to a revenue-sharing model for the telecom sector. Telecom players would pay a certain percentage of their AGR, earned from telecom and non-telecom revenues, as licence and spectrum fee.
The easing of this regulatory environment led to a number of players entering the fray. At its highest, India had more than 14 national and regional telecom service providers.

• In 2003, the Department of Telecom (DoT) raised the demand for AGR payments. It said all revenue earned by telcos as dividend from subsidiaries, interest on short-term investments, money deducted as trader discounts, discount for calls and others, which was over and above the revenue from telecom services, would be included for calculation of AGR.
The telcos approached the Telecom Disputes Settlement Appellate Tribunal (TDSAT), which in July 2006 ruled the matter must be sent back to the regulator TRAI for fresh consultation. TDSAT rejected the government’s contention, and the Centre moved the Supreme Court. While the case was still ongoing, in 2012, the Supreme Court cancelled 122 telecom licences in the 2G scam case. This prompted a revamp, with spectrum now allocated through auctions.

• In 2019, the Supreme Court gave the first verdict in the case, holding that DoT’s definition of AGR was the correct one, and that the telcos must pay the AGR, interest and penalty on non-payment.

Other Important Articles Covering the same topic:

📍Explained: What is AGR? How will it impact Airtel, Vodafone Idea?

Previous year UPSC Prelims Question Covering similar theme:
6. Which of the following is/are the aims/aims of the “Digital India” Plan of the Government of India? (2018)
1. Formation of India’s own Internet companies like China did.
2. Establish a policy framework to encourage overseas multinational corporations that collect Big Data to build their large data centers within our national geographical boundaries.
3. Connect many of our villages to the Internet and bring Wi-Fi to many of our schools, public places and major tourist centers.
Select the correct answer using the code given below:
(a) 1 and 2 only
(b) 3 only
(c) 2 and 3 only
(d) 1, 2 and 3

 

PRELIMS ANSWER KEY

1. (b) 2.(a) 3.(d) 4.(b) 5.(b) 6.(b)

  

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