Why is it in the News?

According to a recent report, the Pradhan Mantri Janjati Adivasi Nyaya Maha Abhiyan (PM JANMAN) is facing challenges in implementation.

Context:

• India is home to numerous tribal groups, including 75 identified as Particularly Vulnerable Tribal Groups (PVTGs) across various states.
• To address their socio-economic backwardness, the Government of India launched the Pradhan Mantri PVTG Development Mission in 2023-24.
• Despite this initiative, both PVTGs and frontline officials encounter significant challenges when using a mobile application to register for the housing scheme.

What is the Pradhan Mantri Janjati Adivasi Nyaya MahaAbhiyan (PM JANMAN)?

• The Pradhan Mantri Janjati Adivasi Nyaya MahaAbhiyan (PM JANMAN) is an initiative launched by the Government of India to uplift and empower the Particularly Vulnerable Tribal Groups (PVTGs).

Its key objectives and implementation aspects:

• The PM JANMAN initiative aims to ensure that PVTGs have access to essential services and improved living standards by addressing their critical needs through a comprehensive set of interventions.
  • One of the flagship programs under this initiative is the Housing scheme, a Direct Benefit Transfer (DBT) scheme designed to provide secure and habitable housing to PVTG households.
• The Housing scheme targets to reach 4.90 lakh PVTG households by the year 2026, with each household entitled to receive ?2.39 lakh in three instalments.
  • This financial assistance is intended to enable these vulnerable communities to construct safe and durable houses, protecting them from environmental challenges and providing a sense of security and dignity.
• By addressing the critical need for safe housing, along with other interventions focused on clean drinking water, sanitation, and other essential services, the PM JANMAN initiative aims to uplift the living conditions of PVTGs and empower them to overcome the challenges they face.
  • This comprehensive approach seeks to create a supportive environment for the overall development and well-being of these marginalized communities. CopyRetry

What are the Challenges Associated with PM JANMAN Housing Scheme Implementation?

Data Mismatch and Ineligibility Issues:

• A significant challenge in the registration process is the widespread deletion of job cards, essential for registering for the PM JANMAN Housing scheme.
• Over the past two years, more than eight crore MGNREGA workers' job cards, including those of PVTG members, have been deleted. This massive data purge has prevented many eligible households from registering for the scheme, thereby excluding them from receiving benefits.
• Additionally, incorrect registrations have been reported, where individuals register using others' job cards.
• This not only deprives rightful owners of their entitlements but also creates administrative burdens in correcting these errors.

Discrepancies in Data Collection Systems:

• The 'Awaas+' registration app, used by block/panchayat-level officials, is critical for data collection but has significant discrepancies with other official records.
  • For instance, in Vanjari Panchayat, Alluri Sitharama Raju district, Andhra Pradesh, the app lists only 22 villages, while the MGNREGA Management Information System (MIS) lists 31 villages.
• These discrepancies confuse beneficiaries and officials and may lead to the exclusion of eligible households.

App Usability and Confusion:

• The 'Awaas+' app's user interface and functionality present several challenges. The app collects beneficiaries' data in three main areas: geographical location, household profiles, and bank account details.
• However, its design and operational issues make the process cumbersome.
• The app includes pre-populated village lists that often do not match official records, leading to incorrect registrations or an inability to register certain households.

Geo-tagging and Network Issues:

• The app’s geo-tagging feature, meant to accurately record household locations and planned construction sites, faces issues due to network problems in remote areas.
• These network issues hinder the geo-tagging process, resulting in incomplete or incorrect data entries, which affects registration and service delivery planning.

Financial Inclusion Barriers:

• The app's bank selection functionality is another significant hurdle. Beneficiaries must choose from three categories of banks (Cooperative Bank, Commercial Bank, or Regional Rural Bank), each presenting numerous options.
  • For instance, selecting 'Commercial Bank' can display over 300 options, and choosing 'State Bank of India' can show over 500 branch options.
• This complexity is overwhelming for beneficiaries and officials, especially those with limited digital literacy.
• Despite the Government of India’s push for India Post Payments Bank (IPPB) to enhance financial inclusion in remote areas, the app does not list IPPB, limiting access to convenient banking services for many PVTG households.

Inclusivity and Accessibility Issues:

• The app also fails to capture specific information about PVTGs, defaulting to a general 'ST' (Scheduled Tribe) category.
• This oversight results in non-PVTG registrations, complicating the process further. Local officials sometimes require PVTG members to obtain certification from village leaders, problematic in areas where PVTGs and non-PVTGs coexist.
• Additionally, network issues exacerbate the geo-tagging feature's challenges, adding to the difficulties faced by officials and beneficiaries alike.

Recommendations for Policymakers to Improve the PM JANMAN Scheme:

User-Friendly Application Interface:

• Redesign the ‘Awaas+’ mobile app to simplify navigation with intuitive menus and clear instructions.
• This will assist both beneficiaries and frontline officials who may not be tech-savvy. Include detailed guidelines on entering names and other details, especially when Aadhaar information is unavailable or differs from official records.

Accurate and Comprehensive Data Lists:

• Ensure the app’s pre-populated lists of villages and other data fields are regularly updated and synchronized with other government databases, such as the MGNREGA Management Information System (MIS), to eliminate discrepancies.
• Additionally, include explicit fields for PVTGs within the app to prevent incorrect registration of non-PVTG households.

Include IPPB in Banking Options:

• Add the India Post Payments Bank (IPPB) to the list of available banks in the registration app.
• Given IPPB’s extensive reach in rural and remote areas, this inclusion would significantly enhance financial access for PVTG households.
• Simplify the bank selection process by implementing a search function or categorizing banks more effectively to facilitate easier selection by users.

Improve Technical Infrastructure:

• Invest in improving network connectivity in remote areas to support geo-tagging and other app functionalities.
• Partner with telecom companies to extend coverage to underserved regions and develop offline capabilities for the registration app, allowing data collection without immediate internet access and subsequent synchronization when connectivity is available.

Provide Comprehensive Training and Support:

• Implement comprehensive training programs for frontline officials and community volunteers on using the app and managing the registration process efficiently.
• Establish dedicated technical helplines or support centres to assist with real-time troubleshooting and provide guidance for users facing difficulties.

Conclusion

While various initiatives have targeted the vulnerabilities of PVTGs, accessing government benefits remains a substantial challenge for these marginalized communities. The PM JANMAN initiative stands as a potential avenue to enhance the well-being of PVTGs. However, it is imperative to address the existing obstacles in the registration process and prioritize inclusivity and accessibility. The PM JANMAN scheme presents an opportunity to shift the paradigm for PVTGs, but its success hinges on effectively tackling implementation challenges and fulfilling the commitments made.

Why is it in the News?

Financial inclusion awareness programmes must give special attention to women in households not headed by women.

Context:

• Financial inclusion is a key driver for realizing a more sustainable and inclusive future, as it directly influences the achievement of eight out of the 17 United Nations' Sustainable Development Goals (SDGs).
• Despite its importance, inequalities continue to exist, with India's subpar performance in the Global Gender Gap Report 2023 underscoring significant gaps in the economic realm.
• To address these disparities, particularly for women in India, it is vital to conduct a comprehensive evaluation of the complex aspects of financial inclusion.
• Insights can be drawn from multiple sources such as the World Bank's Global Findex Database and the National Family Health Survey (NFHS), ultimately paving the way for targeted interventions and improved financial access for all.

What is Financial Inclusion?

• Financial inclusion is a method of offering banking and financial services to individuals.
• It aims to include everybody in society by giving them basic financial services regardless of their income or savings.
• It focuses on providing financial solutions to the economically underprivileged.
• The term is broadly used to describe the provision of savings and loan services to the poor in an inexpensive and easy-to-use form.
• It aims to ensure that the poor and marginalized make the best use of their money and attain financial education.
• With advances in financial technology and digital transactions, more and more startups are now making financial inclusion simpler to achieve.

The Role of Financial Inclusion in Advancing Women's Empowerment:

• Financial inclusion not only facilitates women's access to bank accounts but also drives broader economic participation and empowerment.
• By offering women avenues for savings, credit, and investment, financial inclusion empowers them to manage risks, build assets, and seize socio-economic opportunities.
• In doing so, it bolsters women's resilience to economic uncertainties, fosters greater household welfare, and promotes economic stability, thereby illustrating its pivotal role in driving gender equity and sustainable development.

Insights from NFHS Data on Women's Financial Inclusion Progress:

• The NFHS data offers a comprehensive understanding of the multi-faceted dimensions of financial inclusion among women in India.
• Over the past two decades, several indicators point towards a significant improvement in women's economic empowerment and access to financial services including:

Financial Autonomy and Decision-making:

• A notable aspect highlighted by the NFHS surveys is the increasing financial autonomy among women.
• There has been a marked shift towards greater control over financial resources, with more women possessing self-operated bank accounts and playing an active role in financial decision-making within their households.
• This trend signifies a positive step towards women's economic independence, contributing to their overall empowerment and well-being.

Awareness and Utilization of Micro-Credit Programs:

• Micro-credit schemes have emerged as a key facilitator of financial assistance for women entrepreneurs and small business owners in rural India.
• The NFHS data indicates a growing awareness of these programs among women, with an increasing number utilizing micro-credit facilities to support their economic activities.
• This underscores the importance of targeted interventions and support mechanisms in promoting women's access to formal credit sources, fostering entrepreneurship, and generating income at the grassroots level.

Access and Utilization of Formal Banking Services:

• An analysis of factors such as education, occupation, and household characteristics reveals key determinants of women's financial inclusion.
• The NFHS data emphasizes the pivotal role of education in enabling women's awareness and utilization of financial services.
• Similarly, occupation and access to electronic media also significantly influence women's access to formal banking channels and digital financial tools.
• These insights underscore the need for targeted interventions and policy measures to address disparities and barriers, ensuring inclusive financial access, particularly among marginalized and vulnerable groups of women.

Advances in Global Financial Inclusion and India:

• Financial inclusion has become a key enabler of economic growth and development worldwide, with India demonstrating substantial progress in this arena.
• According to the World Bank's Global Findex Database, there has been a significant increase in adult ownership of bank accounts globally between 2011 and 2020.
• India's commendable growth of 42 percentage points during this period exemplifies the success of targeted interventions promoting financial access, particularly for marginalized communities such as women.
• This upward trend emphasizes the importance of continued efforts in fostering inclusive financial systems to ensure sustainable development and shared prosperity.

The Influence of Government Initiatives on Financial Inclusion:

• India's commitment to advancing financial inclusion has resulted in substantial progress, particularly in reducing the gender gap in account ownership.
  • The introduction of the Pradhan Mantri Jan Dhan Yojana (PMJDY) in 2014 played a pivotal role in this achievement, offering universal access to banking services, including savings accounts, remittances, and overdrafts to underserved communities such as women in rural and urban areas.
  • By January 2024, PMJDY had facilitated the opening over 28 crore accounts for women, significantly contributing to bridging the gender gap in financial access.
• Furthermore, government initiatives like the Deendayal Antyodaya Yojana and the National Rural Livelihood Mission (DAY-NRLM) have been instrumental in fostering women's economic empowerment and participation in the formal financial sector.
  • These schemes provide opportunities for skill development, entrepreneurship training, and access to credit, enabling women to establish and sustain livelihoods.
• In addition, social protection programs such as the Pradhan Mantri Awas Yojana and Pradhan Mantri Matru Vandana Yojana offer financial assistance and support during critical life stages such as pregnancy and homeownership.
  • Collectively, these initiatives have played a vital role in promoting women's economic independence and overall well-being, underscoring the importance of continued efforts towards inclusive financial systems.

Challenges and Way Forward:

• While significant progress has been made in advancing financial inclusion, several challenges remain, requiring concerted efforts and multi-stakeholder collaboration to address. Key areas of focus include:
• Enhancing Financial Literacy: Despite the expansion of banking services, a significant proportion of the population, particularly in rural and marginalized communities, lack adequate knowledge and understanding of financial products and services.
  • By promoting targeted education and awareness campaigns, we can empower individuals to make informed financial decisions and fully utilize available resources.
• Bridging the Digital Divide: The potential of digital financial services to enhance access and convenience is immense.
  • However, disparities in internet connectivity, smartphone ownership, and digital literacy create barriers to their effectiveness.
  • Expanding digital infrastructure and promoting digital literacy initiatives are critical to ensuring equitable access to digital financial services for all segments of society.
• Promoting Inclusivity of Marginalized Communities: Systemic barriers continue to hinder the meaningful participation of marginalized communities, including women, minorities, and persons with disabilities in the financial ecosystem.
  • These barriers are multifaceted, encompassing social, cultural, and economic factors.
  • To overcome these challenges, tailored interventions and affirmative action programs are necessary, fostering an enabling environment that promotes their inclusion and empowerment.
• Advancing through Collaboration: A collaborative approach involving multiple stakeholders, including government agencies, financial institutions, civil society organizations, and grassroots initiatives, is indispensable in advancing financial inclusion.
  • By coordinating efforts, leveraging resources, and implementing holistic solutions, we can collectively navigate the path ahead, overcoming challenges, and ensuring inclusive and sustainable financial systems for all.

Conclusion

Advancing financial inclusion for women in India is essential for fostering inclusive growth and sustainable development. While initiatives like PMJDY and DAY-NRLM have made significant strides, concerted action is necessary to tackle remaining disparities and fully leverage women's economic potential. By emphasizing education, digital literacy, and tailored awareness initiatives, India can unlock fresh opportunities for women's economic empowerment, thereby advancing the agenda of inclusive growth and prosperity.

Why is it in the News?

The recent agitations by the governments of Kerala and Karnataka, and the support extended by several State governments, have highlighted many disquieting issues in the practice of fiscal federalism in India.

Context:

• The recent protests by the governments of Kerala and Karnataka, supported by several other state governments, have brought to light several concerning issues regarding fiscal federalism in India.
• These protests underscore the pressing need for the newly constituted 16th Finance Commission (FC) to approach the matter with seriousness and innovation to address grievances related to growing vertical and horizontal inequalities in resource allocation.

What is Fiscal Federalism?

• Fiscal federalism refers to the distribution of financial authority and obligations among various tiers of government within a nation.
• It encompasses considerations like determining the roles and responsibilities of the central and state governments in delivering services, devising mechanisms for revenue generation and allocation among these entities, and establishing fair and efficient systems for transfers or grants distribution to promote equity and effectiveness.

Fiscal Federalism in India:

• The framers of the Constitution stipulated that the Central government would share its tax revenues with the states and provide grants from the Consolidated Fund based on a formula determined by the Finance Commission every five years.
• India operates under a three-tier federal tax system, delineating the powers of the Central government, state governments, and local bodies to levy taxes.
• The Central government possesses the authority to impose taxes on individual and corporate incomes, along with indirect taxes like central goods and services tax (CGST), integrated goods and services tax (IGST), and customs duties. Additionally, it collects surcharges and cesses on various taxes.
• State governments are responsible for levying state goods and services tax (SGST), stamp duties, land revenue, state excise duties, and professional taxes.
• Local bodies exercise jurisdiction over taxes such as property or house taxes, tolls, and utility taxes on services like electricity and water.

What are the Constitutional Provisions?

• The Constitution of India outlines the taxation authority of both the Union and States, categorizing them into the Union List and the State List respectively (as outlined in the Seventh Schedule under Article 246).
  • Initially, there was no taxation provision in the Concurrent List.
• However, with the introduction of GST, the need for a concurrent taxation framework arose, leading to the insertion of Article 246A (as the 101st Amendment in August 2016).
• This amendment empowered the Union to legislate for CGST (Central GST) and IGST (Integrated GST), while the States were granted the authority to enact SGST laws.
• Article 270 of the Constitution outlines the mechanism for distributing net tax proceeds collected by the Union government among the Centre and the States.

What are the Concerns with the States?

• Growing Vertical and Horizontal Inequalities: States have raised concerns about increasing disparities both vertically, pertaining to the sharing of resources between the Union and States, and horizontally.
  • The Union government's inclination to retain a larger share of its proceeds outside the divisible pool has exacerbated these inequalities.
• Retention of Proceeds: The Union government's practice of withholding a greater portion of its proceeds from the divisible pool has diminished the share allocated to States, contravening mandates from successive Finance Commissions.
• Proliferation of Cesses and Surcharges: Various cesses and surcharges, such as the Agriculture Infrastructure and Development Cess, have been introduced by the Union government, leading to an expansion of these revenue streams.
  • This expansion has resulted in a larger portion of the gross tax revenue being excluded from net proceeds, thereby depriving States of their rightful share.
• Financial Exclusion of States: Over the period from 2009-10 to 2023-24, the Union government collected a substantial cumulative amount of ?36.6 lakh crore through cesses and surcharges, all of which remained unshared with the States.
  • The imposition of cesses and surcharges has faced criticism from the Comptroller and Auditor General (CAG), further highlighting concerns about their impact on state finances.

Way Forward

• Rectifying disparities in resource sharing and addressing the proliferation of cesses and surcharges are critical imperatives for the 16th Finance Commission (FC).
• The FC should proactively address historical imbalances in vertical devolution by compensating States appropriately and ensuring accurate estimates of "net proceeds" in budgetary documents.
• Moreover, it should consider providing lump sum untied grants to States to offset shortfalls in devolution over the past decade.
• Simultaneously, legislative measures must be enacted by the Union government to impose strict limits on the collection of cesses and surcharges, ensuring their automatic expiration after a defined period and preventing their rebranding under different names.
• Furthermore, States must adhere to the principles of fiscal federalism by allocating sufficient resources to local bodies and promoting dynamic and transparent development initiatives at the grassroots level.

What is the Finance Commission?

• The Finance Commission is constituted by the President under Article 280 of the Constitution, mainly to give its recommendations on the distribution of tax revenues between the Union and the States and amongst the States themselves.
• Two distinctive features of the Commission’s work involve redressing the vertical imbalances between the taxation powers and expenditure responsibilities of the center and the States respectively and equalization of all public services across the States.

Functions of the Finance Commission:

• It is the duty of the Commission to make recommendations to the President as to the distribution between the Union and the States of the net proceeds of taxes which are to be:
  • Divided between them and the allocation between the States of the respective shares of such proceeds;
  • The principles which should govern the grants-in-aid of the revenues of the States out of the Consolidated Fund of India;
  • The measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats in the State based on the recommendations made by the Finance Commission of the State;
  • The measures needed to augment the Consolidated Fund of a State to supplement the resources of the Municipalities in the State based on the recommendations made by the Finance Commission of the State;
  • Any other matter referred to the Commission by the President in the interests of sound finance.
• The Commission determines its procedure and has such powers in the performance of its functions as Parliament may by law confer on them.

Appointment of the Finance Commission and Qualifications for Members:

• The Finance Commission is appointed by the President under Article 280 of the Constitution.
• As per the provisions contained in the Finance Commission Act, 1951 and The Finance Commission (Salaries & Allowances) Rules, 1951, the Chairman of the Commission is selected from among persons who have had experience in public affairs, and the four other members are selected from among persons who:
  • (a) are, or have been, or are qualified to be appointed as Judges of a High Court; or
  • (b) have special knowledge of the finances and accounts of the Government; or
  • (c) have had wide experience in financial matters and administration; or
  • (d) have special knowledge of economics

How are the recommendations of the Finance Commission implemented?

• The recommendations of the Finance Commission are implemented  as under:
  • Those to be implemented by an order of the President:
  • The recommendations relating to the distribution of Union Taxes and Duties and Grants-in-aid fall in this category.
  • Those to be implemented by executive orders:
  • Other recommendations to be made by the Finance Commission, as per its Terms of Reference

When was the first Commission Constituted and how many Commissions have been Constituted so far?

• The First Finance Commission was constituted under the chairmanship of Shri K.C. Neogy on 6th April 1952.
• 15th Finance Commissions have been Constituted so far at intervals of every five years.
• The 16th Finance Commission was constituted on 31 Dec 2023 with Shri Arvind Panagariya, former Vice-Chairman, NITI Aayog as its Chairman.
  • The 16th Finance Commission is required to submit its recommendations by October 31st, 2025.
• However, the recommendations of the 15th FC cover the six years up to 31st March 2026.

Why is it in the News

The Union government’s moves, which reduce the aggregate financial transfers to States, are weakening cooperative federalism.

Background:

• The fiscal dynamics between the Union government and the states in India have experienced notable shifts since the tenure of the 14th Finance Commission (FC) award period (2015-16).
• Official data indicates a trend of diminishing financial transfers from the Union government to the states.
• Thus, it becomes imperative to analyze the nuances of these financial transfers, delving into the deviations from the recommendations of FCs, their repercussions on states, and the potential ramifications for federal fiscal policies.

An Evaluation of Deviation from Finance Commission Recommendations:

• Recommendation of Substantial Shift in Devolution by 14th FC: Recognising the imperative of empowering the States, the 14th FC recommended a significant increase in the devolution of Union tax revenues.
  • Specifically, the recommendation was to devolve 42% of Union tax revenues to the States, marking a substantial 10 percentage points increase from the preceding 13th FC's suggestion.
  • This ambitious shift was intended to enhance the financial autonomy of the States, aligning with the principles of cooperative federalism.
• Deviation from FC Recommendations by the Union Government: Instead of adhering to the recommended increase, there has been a consistent reduction in financial transfers to the States.
  • This deviation is particularly perplexing given that the 15th FC retained the recommendation of 41%.
  • It excluded the devolution to Jammu and Kashmir (J&K) and Ladakh, which were reorganized as Union Territories.
  • If the shares of J&K and Ladakh are included, the recommended devolution should stand at 42%.
• The Dynamics of Financial Transfers of Tax Revenue: The analysis of tax revenue provides a critical understanding of dynamics of financial transfers between the Union government and the States.
  • The Finance Commissions recommend the States' share based on the net tax revenue of the Union government.
  • It is derived after accounting for various factors such as collection costs, revenue assigned to Union territories, and the impact of cess and surcharge.

Analysis of Tax Revenue Disparities:

• Contrasting Trends in States' Share: A Departure from FC Guidelines: The Fourteenth and Fifteenth Finance Commissions recommended states' shares of 42% and 41%, respectively, of the net tax revenue.
  • However, the actual share of gross tax revenue stood at only 35% in 2015-16, dwindling further to 30% in the 2023-24 Budget Estimate.
  • This discrepancy assumes significance, particularly against the backdrop of a significant surge in the Union government's gross tax revenue, soaring from ?14.6 lakh crore in 2015-16 to ?33.6 lakh crore in 2023-24.
• Disparities in Revenue Growth: The more than two-fold increase in the Union government's gross tax revenue over this period starkly contrasts with the doubling of states' share in Union tax revenue.
  • This discrepancy raises concerns regarding equitable resource distribution.
  • Essentially, the widening gap between the Union government's revenue generation and states' share indicates a disproportionate augmentation in the former's fiscal capacity.
• Declining Grants-in-Aid: The disparity becomes more evident when analyzing grants-in-aid to states, another statutory grant recommended by the Finance Commission.
  • The absolute amount of grants-in-aid declined from ?1.95 lakh crore in 2015-16 to ?1.65 lakh crore in 2023-24.
  • Consequently, the collective share of statutory financial transfers in the Union government's gross tax revenue witnessed a notable decline, plummeting from 48.2% to 35.32%.

Potential Factors Contributing to Decreasing States’ Share:

• Calculation Methodology: One of the primary factors behind the dwindling share of states in gross revenue lies in the calculation method.
  • The net tax revenue, used to determine states' share, excludes revenue collections under cess and surcharge, revenue from Union Territories, and tax administration expenditure.
• Role of Cess and Surcharge: In 2015-16, revenue collection through cess and surcharge accounted for 5.9% (?85,638 crore) of gross tax revenue, increasing to 10.8% (?3.63 lakh crore) by 2023-24.
  • This notable surge underscores the Union government's strategic utilization of cess and surcharge to channel funds for specific sectoral schemes, enhancing its financial autonomy.
• Exclusion of States from Cess and Surcharge Revenues: The revenues generated through these additional levies are not shared with states, highlighting a more centralized control over financial resources by the Union government.
  • This selective exclusion limits resources available for devolution to states, potentially impacting their financial autonomy.

Centralization of Public Expenditure and Its Implications:

• Union Government’s Routes of Financial Transfer: Apart from traditional financial transfers like tax devolution and grants-in-aid, the Union government employs Centrally Sponsored Schemes (CSS) and Central Sector Schemes (CSec Schemes) for direct financial transfers to states.
• Influencing State Priorities Through CSS: Under CSS, the Union government proposes schemes and provides partial funding, compelling states to align their priorities with those proposed by the Union government.
  • The allocation for CSS has substantially increased from ?2.04 lakh crore to ?4.76 lakh crore between 2015-16 and 2023-24, although actual financial transfers to states under CSS remain lower than allocated funds.
• CSec Schemes and Exclusive Control: Fully funded by the Union government, CSec Schemes operate in sectors where the Union government holds exclusive legislative or institutional controls.
  • The significant increase in allocation for CSec Schemes from ?5.21 lakh crore to ?14.68 lakh crore between 2015-16 and 2023-24 underscores the Union government's preference for such schemes.
• Potential Bias in Resource Allocation: The decentralized implementation of CSec Schemes grants the Union government considerable latitude in allocating financial resources, raising concerns about potential bias in resource distribution.
• Challenges for Cooperative Federalism: The downward revision of states' share in Union tax revenue from 42% to 41%, despite recommendations by the 15th Finance Commission, poses challenges to cooperative federalism.
  • Future discussions before the 16th Finance Commission might continue to address such challenges, potentially impacting collaborative federalism.

Conclusion

The evolving financial landscape between the Union government and states in India underscores the imperative for a comprehensive review of the fiscal architecture. Deviations from Finance Commission recommendations, increasing reliance on non-statutory transfers, and potential biases in resource allocation challenge the principles of cooperative federalism. Addressing these issues is essential to ensure equitable distribution of resources and foster collaborative governance between the Union and states, thus reinforcing the foundation of cooperative federalism for inclusive and sustainable development across the nation.

Why is it in the News?

There is a serious underestimation of the risks involved in the internationalisation of bond markets and currencies of emerging economies.

Context:

• In recent times, there have been noticeable changes in the global financial landscape, specifically regarding the inclusion of government bonds from emerging economies in global indices.
• It is crucial to evaluate the actions taken by J.P. Morgan, Bloomberg, and FTSE Russell in incorporating Indian local currency government bonds (LCGBs) into global indices amidst these developments.
• Exploring the reasons behind these moves and understanding the potential advantages and risks associated with such initiatives is essential.

J.P. Morgan's Influence on India's Financial Landscape:

• The inclusion of Indian local currency government bonds (LCGBs) in J.P. Morgan's Government Bond Index-Emerging Markets (GBI-EM) Global index suite in September 2023 marked a significant milestone.
• This step not only underscored India's financial stature but also raised expectations within the Indian financial sector.
• It spurred interest from other major index providers such as Bloomberg-Barclays and FTSE Russell.
• Subsequently, Bloomberg Index Services announced in January 2024 that India's fully accessible route (FAR) bonds would be incorporated into the Bloomberg Emerging Market Local Currency Index, further bolstering this trend.
• All eyes are now on FTSE Russell, highlighting the increasing influence and anticipation of reforms in India's government bond market.

What is the Process of Opening Local Bond Markets?

• Opening local bond markets to foreign investors is a strategic move by emerging economies to bolster their global financial integration.
• In India, this journey began in 2019 and gained momentum by 2020 with the introduction of the fully accessible route (FAR).
• Despite facing challenges like delays due to government policies on capital gains taxes and local settlement, the core policy remained unchanged, showcasing a dedication to promoting global financial inclusivity.

Advantages of Internationalising Bond Markets:

• Reduced Reliance on Domestic Institutions: By integrating local currency government bonds into global indices, emerging economies like India aim to lessen their dependence on domestic financial institutions.
  • This diversified funding base can contribute to financial stability.
• Stability in Funds Tracking Indices: Inclusion in global indices can result in a more stable inflow of funds, as funds tracking indices typically have a longer investment horizon compared to short-term speculative flows.
  • This stability can help mitigate volatility in local financial markets, providing a secure environment for both domestic and foreign investors.
• Lower Cost of Public Borrowing: Increased demand for local currency government bonds from global investors may lead to a decrease in domestic interest rates.
  • As a result, the cost of public borrowing for the government can decline.
• Relief for Local Financial Institutions: Higher participation by foreign investors in local bond markets can alleviate the balance sheets of local financial institutions holding these bonds.
  • This increased liquidity may encourage more lending and private investment.
• Mitigation of "Original Sin": Bond market internationalization helps mitigate the "original sin" problem faced by emerging economies, where they are unable to borrow internationally in their currencies.
  • By issuing bonds in their currencies, these countries shift the exchange rate risk onto international lenders, potentially avoiding widespread private insolvencies during sharp currency declines.

Risks Involved with Internationalising Bond Markets:

• Loss of Control and Heightened Interest Rate Risks: Internationalizing bond markets poses the risk of losing control over long-term interest rates, leaving emerging economies more vulnerable to global interest rate fluctuations.
  • This can negatively impact domestic bond markets and overall economic stability.
• Exchange Rate Volatility and Spillover Effects: Increased participation by foreign investors exposes local currency bond markets to exchange rate volatility.
  • During periods of global risk aversion or liquidity challenges, adverse spillover effects can occur, as seen in events like the Lehman collapse in 2008 and recent shifts in U.S. monetary policy.
• Volatility in Inflows of Local Currency Bonds: Instances such as the rapid exit of investors from local currency assets in Malaysia during 2014-15 and the total withdrawal of foreigners from the bond market in Türkiye since Spring 2018 underscore the unpredictability of capital flows.
  • These sudden stops and exits can lead to large reserve losses and currency declines, highlighting the potential for rapid market fluctuations.

Efforts by the Inter-Departmental Group (IDG) and RBI to Integrate Government Bonds into Global Indices:

• Indian LCGBs Integration into Global Indices: The RBI's journey towards internationalization commenced in October 2022 with an Inter-Departmental Group (IDG) report outlining efforts to integrate Indian local currency government bonds (LCGBs) into global indices.
• Diversification of Funding Channels: The inclusion of Indian LCGBs in global indices aims not only to attract foreign capital but also to diversify funding sources, reducing reliance on domestic institutions and tapping into large international resources.
• Stability Enhancement and Investment Allocation: The IDG report highlights the potential benefits of LCGB inclusion in global indices, such as enhancing the stability of funds tracking these indices.
  • This stability can foster a more predictable investment environment, attracting long-term investors and improving investment allocation within the Indian financial market.
• Rupee Internationalization Beyond Bonds: Integrating LCGBs into global indices is just one aspect of a broader effort to internationalize the Indian rupee, as outlined in the IDG report.
  • Another crucial component involves allowing banking services in the rupee (INR) outside the country.

Moving Forward:

• Striking a Delicate Balance: While the opening of local bond markets presents abundant opportunities, it necessitates careful balancing.
  • Countries must balance the attraction of foreign capital with the management of potential risks.
• Drawing from Past Experiences: The experiences of Malaysia and Türkiye offer valuable lessons, emphasizing proactive management of offshore markets to prevent excessive speculation and maintain currency stability.
  • These lessons underscore the importance of regulatory vigilance, timely interventions, and a balanced approach to fostering internationalization while preserving macroeconomic stability.

Conclusion

The process of opening local bond markets marks a crucial stride for emerging economies aiming for deeper integration into the global financial realm.

Recent developments involving J.P. Morgan, Bloomberg, and FTSE Russell underscore the growing recognition of India's financial market potential.

As India embarks on this journey, it must adeptly navigate complexities, carefully weigh risks and benefits, and adapt to the evolving global financial landscape for enduring success and stability.

Why is it in the News?

As the union government constituted the 16th Finance Commission (FC), experts recommend including variables related to climate change, beyond forest cover.

Background:

• In the contemporary era, India has gained prominence as a key participant in global initiatives aimed at addressing climate change and promoting increased forest coverage.
• This engagement has not only positively impacted environmental sustainability but has also strengthened the adaptability of communities and ecosystems.
• In addressing the hurdles presented by climate change, the concept of fiscal federalism, with a specific focus on the role of the Finance Commission (FC), has emerged as a crucial factor in encouraging states to prioritize conservation endeavours.

Role of the Finance Commission in Fiscal Federalism and Forest Conservation:

• Promoting Conservation Initiatives: The Finance Commission's role has been pivotal in actively promoting and incentivizing state-led efforts towards forest conservation.
• Through dedicated fund allocations, the Commission acknowledges the inherent connection between vibrant forests, sustainable ecosystems, and the overall national well-being.
• Financial backing serves as a catalyst, motivating states to prioritize conservation endeavours while safeguarding their economic interests.
• Balancing Revenue Capacities and Expenditure Needs: Beyond their biodiversity significance, forest resources represent valuable economic assets for states.
• The Finance Commission recognizes that preserving existing forests and augmenting forest cover density directly impact the revenue capacities and expenditure requirements of states.
• Finding an equilibrium between economically exploiting forest resources and ensuring their conservation becomes essential for achieving both environmental sustainability and economic prosperity.

Previous Instances of Finance Commission Initiatives in Forest Conservation:

• The Finance Commission’s formulae for tax sharing have evolved since the first one, constituted in 1951, for the period 1952-1957.
  • Since then, FCs have been constituted at intervals every five years with the 16th one currently being implemented.
• Initially, the formula for distributing tax among states respectively, known as horizontal devolution, gave significant weightage, around 80% to 90%, to the population of the states, meaning states with higher populations were given a higher share of the tax.
  • Then, the 7th FC drastically reduced the weightage assigned to the population to 25% and increased the weightage given to equity, in which income, land area, and sometimes infrastructure and fiscal discipline too, played a significant role in determining how much each state would receive from the central government.
• Similarly, there have been changes in determining the funds allocation for environmental initiatives.
  • The 12th FC (2005-10) dedicated Rs 1,000 crore for forest conservation across states.
  • The 13th FC (2010-15) enhanced this allocation to Rs 5,000 crore.
    • However, it is important to note that these grants comprised less than 0.05% of the total funds transferred from the central government to the states.
• Ecological Fiscal Transfers (EFT) – where public revenue is shared based on ecological indicators – were introduced in 2015 with the 14th FC which incorporated forest cover as a criterion for tax devolution, allocating it a weightage of 7.5% in the distribution formula for the tax-transfer during the period 2015-16 to 2019-2020.
  • The 14th FC (2015 to 2020) considered several recommendations and replaced the grants with a more prominent placement for the forestry sector — it dedicated 7.5 per cent of the divisible central tax pool to ecology and forests.
    • The allocation was based on the forest cover in each state.
• The 15th FC (2021–22 to 2025–26) extended this share to 10 per cent.
• Having mobilised and distributed over Rs 4.5 lakh crore to states against not only their forest cover but also forest density, the 15th FC effectively became the largest payment for ecosystem services (PES) systems in the world.
  • The Commission also gave grants to combat air pollution.
• The fiscal transfers that are earmarked for a specific department or programme have traditionally been much smaller than fiscal transfers to the general state budget.
  • For example, the specific-purpose grants for forestry under the 12th and 13th FC were a fraction of the general-purpose transfers (those not assigned to specific purposes) that followed under the 14th and 15th FC.
• The formula-based finance commission transfers are unconditional and are not tied to the Department of Forest or Ecology.
• Whether there is a need for conditions to ensure the funds are invested in the environment, at least in principle, the enticement of receiving larger general-purpose transfers should motivate states to invest in forest protection.
• Since 2005, the central government has been sharing annual forest grants with states.
  • These grants serve as both compensation and incentive mechanisms.
  • However, it remains unclear to what extent these grants have contributed to the increased forest cover in the states.

Addressing Complexities in the Intersection of Fiscal Federalism and Environmental Conservation:

• Harmonizing Conservation Costs and Economic Imperatives: Balancing conservation expenses with economic necessities becomes challenging, particularly for states grappling with financial constraints.
  • The substantial opportunity costs linked with forest preservation may strain state budgets, presenting a hurdle in garnering widespread commitment.
• Innovating Financing Models for Conservation: Traditional financing models for conservation may prove inadequate or unsustainable in the long term.
  • Overreliance on grants can create dependencies, hindering the development of self-sustaining mechanisms for conservation.
• Addressing Climate-Induced Economic Vulnerabilities: The repercussions of climate change pose considerable threats to economic stability, especially for states heavily dependent on climate-sensitive sectors.
  • Unpredictable weather patterns, floods, and forest fires can intensify existing vulnerabilities.
• Strategically Allocating Resources: The Finance Commission encounters the intricate task of strategically allocating resources to maximize both environmental and economic advantages.
  • Ensuring targeted funding for critical conservation initiatives while aligning with state development objectives demands a nuanced approach.
• Integrating Environmental Goals with Fiscal Capacity: States may grapple with aligning their environmental objectives with fiscal capabilities, potentially creating a gap between aspirations and implementation.
• Ensuring Equitable Participation: A potential risk exists where states with greater fiscal capacities may disproportionately benefit from conservation incentives, potentially exacerbating existing economic disparities.

The Potential Role of 16th Finance Commission's:

• Integrating Climate Considerations into Tax Devolution Framework: The 16th Finance Commission has the potential to bring about a transformative shift by integrating climate vulnerability and emission intensity as pivotal factors in the tax devolution formula.
  • This alignment directly supports India's Nationally Determined Contributions (NDCs) under the Paris Agreement, providing states with robust fiscal incentives to actively contribute to national climate goals.
• Implementing Performance-Based Grants for Key Sectors: Recognizing the instrumental role of specific sectors in achieving NDCs and Sustainable Development Goals (SDGs), the 16th Finance Commission could contemplate introducing performance-based grants.
  • These grants, which are specifically designed to help areas like renewable energy, sustainable land and forest management, and air pollution efforts, provide states with focused financial assistance and motivate them to take proactive steps toward change.
• Addressing Emission Reduction Challenges: Prioritizing emission reduction, the commission can focus on decarbonizing critical sectors like energy and transport.
  • This entails incentivizing states to embrace clean energy practices and fostering innovation to tackle persistent issues like crop burning.
  • Through strategic fund allocation, the 16th Finance Commission can drive tangible progress in mitigating emission sources.
• Funding Innovations for Ecological Challenges: Allocating funds to innovative solutions for ecological challenges induced by climate change becomes a crucial role for the 16th Finance Commission.
  • Whether supporting mangrove restoration to counter weather vagaries or addressing the escalating incidents of forest fires, the commission can catalyze research, development, and implementation of sustainable strategies.
• Utilizing Scientific Data for Informed Decision-Making: Leveraging advanced technology, the 16th Finance Commission can utilize scientific data, pollution inventories, and remote sensing to assess state vulnerabilities and mitigation efforts.
  • This data-driven approach ensures that fiscal decisions are rooted in empirical evidence, enabling the commission to design an effective and equitable performance-based system for fund allocation.
• Transforming into a Leader in Climate Readiness: Going beyond its traditional fiscal role, the 16th Finance Commission has the potential to evolve into a leader in India's climate readiness.
  • This transformation involves active participation in designing and implementing a fiscal blueprint that balances economic growth with environmental imperatives, guiding policies that meet present needs without compromising the ability of future generations to meet their own.

Conclusion

In the current juncture where India grapples with the intertwined paths of economic advancement and environmental safeguarding, the Finance Commission's significance in fiscal federalism cannot be overstated.

The 16th Finance Commission, poised to influence tax distribution principles and stimulate climate-conscious endeavours, emerges as a pivotal player in fostering a harmonious equilibrium between economic progress and ecological conservation.

By adopting strategic measures and pioneering innovative strategies, the Finance Commission has the potential to evolve into a formidable catalyst in India's pursuit of climate resilience.

Why is it in the News?

The government appointed former NITI Aayog Vice-Chairman Arvind Panagariya Chairman of the 16th Finance Commission, which will recommend the tax revenue sharing formula between the Centre and States for the five-year period beginning April 2026.

Constitution of the 16th Finance Commission:

• The Government of India, with the approval of the President of India, has constituted the 16th Finance Commission, in pursuance to Article 280(1) of the Constitution.
• Dr Arvind Panagariya, former Vice-Chairman, of NITI Aayog, and Professor, at Columbia University will be the Chairman.
• Members of the 16th Finance Commission would be notified separately.
• Shri Ritvik Ranjanam Pandey has been appointed as Secretary to the Commission.
• The 16th Finance Commission shall make recommendations as to the following matters, namely:
• The distribution between the Union and the States of the net proceeds of taxes which are to be, or maybe, divided between them under Chapter I, Part XII of the Constitution and the allocation between the States of the respective shares of such proceeds;
• The principles which should govern the grants-in-aid of the revenues of the States out of the Consolidated Fund of India and the sums to be paid to the States by way of grants-in-aid of their revenues under Article 275 of the Constitution for the purposes other than those specified in the provisos to clause (1) of that article; and
• The measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats and Municipalities in the State on the basis of the recommendations made by the Finance Commission of the State.
• The 16th Finance Commission may review the present arrangements on financing Disaster Management initiatives, with reference to the funds constituted under the Disaster Management Act, 2005 (53 of 2005), and make appropriate recommendations thereon.
• The 16th Finance Commission has been requested to make its report available by the 31st day of October 2025 covering a period of five years commencing on the 1st day of April 2026.

15h Finance Commission Recommendations (Effective from 2021 to 2026):

• Tax Proceeds Allocation: The Commission advocates for an equitable distribution of tax proceeds between the central government and states, fostering a well-balanced fiscal sharing mechanism.
• Assessment of GST Impact: The FC underscores the importance of analyzing the impact of the Goods and Services Tax (GST) on the economy.
• This evaluation aims to comprehend the implications of GST implementation across various sectors.
• Performance-Linked Incentives: Proposed incentives are tied to states' efforts in addressing key issues like population control, ease of doing business, and other pertinent factors.
• Financial Assistance to States: The FC suggests the provision of revenue deficit grants, grants to local bodies, and disaster management grants to states.
• These grants are intended to bolster the financial requirements of the states and promote effective governance.

Proposed Recommendations for the 16th Finance Commission:

• Review of the 2018 Amendment to the Centre’s FRBM: This proposal aligns with the suggestion made by the 15th Finance Commission.
• In the fiscal year 2020-21, the combined debt-GDP ratio of the central and state governments reached 89.8%.
• While these figures have started declining, they remain significantly higher than the corresponding Fiscal Responsibility and Budget Management (FRBM) norms of 40% and 20% established in the 2018 amendment.
• With the Centre’s fiscal deficit at 9.2% of GDP and that of states at 4.1% in 2020-21, it becomes imperative to re-examine the 2018 amendment to the Centre’s FRBM, especially considering the deviations from established norms.
• Limiting Freebies: Some state governments exhibit relatively higher debt and fiscal deficit figures compared to their Gross State Domestic Products (GSDPs).
• Two primary concerns arise in this context: the widespread distribution of subsidies and the reintroduction of the previous pension scheme in states without a clear identification of funding sources and the resultant fiscal burdens.
• Often, these subsidies are financed by increasing the fiscal deficit. While advocating for safety nets for the poor is essential in a country facing economic challenges, a prudent approach is crucial.
• The next Finance Commission should provide explicit guidelines to ensure long-term fiscal sustainability and responsible spending on gratuities.

Freebies Must Be Restricted Through Reform:

• An innovative approach to address this issue is the establishment of a loan council, as suggested by the 12th Finance Commission.
• This independent body would monitor the scale and profiles of loans taken by both the central and state governments.
• The 16th Finance Commission should thoroughly scrutinize non-merit subsidies.
• It is crucial for the Finance Commission to enforce strict adherence to fiscal deficit limits by states.
• Incentives should be provided for states maintaining fiscal discipline, potentially integrating fiscal performance as a criterion in horizontal distribution.
• Conversely, measures should be imposed on states exceeding fiscal deficit limits, with appropriate actions taken on their borrowing capacities.

Conclusion

During the pre-reform era, Finance Commission recommendations held less significance, given alternative methods the Centre employed to compensate states. However, with the abolition of the Planning Commission, the Finance Commission has emerged as the primary architect of India's fiscal federalism, shouldering substantial responsibility and wielding significant influence. The recommendations provided by the 16th Finance Commission will be critical as India progresses towards becoming the world's third-largest economy.

Finance Commission:

• The Finance Commission is a constitutional body responsible for providing recommendations on the distribution of tax revenues among the Union and the States, as well as among the States themselves.
• Composition: Constituted by the President under Article 280 of the Constitution, the Finance Commission is formed at the end of every fifth year or earlier, as deemed necessary.
• Parliament has the authority to establish the requisite qualifications for commission members and determine the selection process, as enacted by The Finance Commission (Miscellaneous Provisions) Act, 1951.
• Mandate: The Commission is tasked with making recommendations to the President on various aspects, including the distribution of net tax proceeds between the Union and the States, principles governing grants-in-aid to State revenues, measures to augment a State's Consolidated Fund, and other matters referred to it by the President in the interest of sound finance.
• Composition: The Finance Commission comprises a Chairman and four other members appointed by the President.
• The Chairman is selected from individuals with experience in public affairs, while the other members may have qualifications related to judiciary, financial expertise, administration, or economics.
• Tenure: Each member serves a term specified by the President and is eligible for reappointment.
• Independence: The recommendations of the Finance Commission, although significant, are not binding on the government.

Why in the News?

With India gearing up to host the G20 summit on September 9 and 10, the focal points of extensive discussions are expected to revolve around climate change and its financial aspects. The current pledges from developed nations, particularly concerning climate financing mechanisms, fall short in effectively addressing the challenges posed by climate change.

What is Climate Finance?

• Climate finance encompasses funding at the local, national, or transnational levels.
• The UNFCCC, the Kyoto Protocol, and the Paris Agreement emphasize the need for financial support from wealthier Parties to aid those with fewer resources and greater vulnerability.
• This acknowledgment is rooted in the understanding that countries' contributions to and capabilities for addressing climate change differ widely.
• Mitigation efforts demand substantial investments for significant emission reductions.
• Equally, adaptation efforts rely on substantial financial resources to counter the adverse effects and mitigate the impacts of a shifting climate.

Challenges with the Current Framework of Climate Financing:

Inadequacy of the $100 Billion Target

• During COP15 in 2009 (Copenhagen, Denmark), developed nations collectively committed to mobilize $100 billion annually by 2020 to support climate initiatives in developing countries.
• However, the basis for this figure, established over a decade ago, lacks rationale and logic.
• Even at its inception, the estimated amount was insufficient to meet the actual requirements, leading to ongoing debates about its adequacy.
• Moreover, the developing world has consistently raised concerns that the promised $100 billion annually is not being delivered by developed nations.
• Today, to meet the objectives of the Paris Agreement, the demand for climate finance stands at approximately $4.35 trillion.
• Actual expenditure remains just a fraction of this, around one-seventh of the needed sum.

Inclusion of Commercial Loans as Grants

• Developed nations (OECD) claim to have provided nearly $80 billion to developing nations as climate finance in 2020.
• However, the actual financial transfers amount to only $19-22 billion.
• This discrepancy arises from the developed world including regular commercial debt related to climate activities in their calculations.
• This approach reveals an evasion of responsibility, as the committed $100 billion is intended to be in the form of concessional finance or grants, not loans.

Challenges in Financing Adaptation vs. Mitigation

• Climate finance is comprised of two main categories: mitigation and adaptation.
• A significant majority (93 percent) of funds directed toward climate finance are channeled into mitigation projects, with an understandable rationale.
• Mitigation initiatives often generate revenue streams and are perceived as financially viable, making them conducive to loans under standard market conditions.
• In contrast, adaptation projects entail substantial initial expenses, prolonged timeframes, and a lack of predictable income sources.
• This makes them appear risky to financial institutions, resulting in limited funding availability.

Limited Progress in Grant Provision

• Despite the recurrent commitment to deliver $100 billion annually, little tangible progress has been achieved.
• Even during recent Conferences of Parties (CoP), this promise is reiterated, yet real-world advancements remain limited.
• In the most recent CoP (CoP27 in Sharm El-Sheikh, Egypt), an agreement was reached to establish a loss and damage fund.
• However, the fund's specifics and quantum will be finalized later.
• This fund is intended to address immediate challenges like rising sea levels and desertification.
• Considering historical trends in concessional finance, substantial outcomes from this proposed fund are unlikely in the near future.
• Furthermore, there is ambiguity regarding whether countries like India will be eligible to receive assistance or provide it.

Strides Toward Fulfilling Climate Finance Objectives:

• Global Financing Pact 2023
• In June 2023, the French President orchestrated a summit aimed at funding climate change mitigation (as well as poverty reduction) in the Global South.
• During this Summit, it was declared that an additional lending capacity of USD 200 billion would be made accessible to emerging economies.
• Moreover, the Summit signaled the imminent achievement of the long-anticipated USD 100 billion climate finance target within the current year.
• Integration of Disaster Clauses:
• To address the impacts of extreme weather occurrences, the World Bank introduced disaster clauses.
• These clauses allow for the suspension of debt payments during such events, providing relief to affected nations.
• Investment in Special Drawing Rights (SDRs):
• The IMF unveiled a commitment to allocate USD 100 billion in Special Drawing Rights (SDRs) to support vulnerable nations.
• However, certain SDR allocations are pending approval from the US Congress.

Way Forward for India and Other Developing Nations Amidst Limited Support from Developed Countries:

• Resource Mobilization for Climate Finance:
• In the face of the inadequacies in support from developed nations, countries like India must now turn inwards and strategically mobilize resources for climate finance.
• This endeavor calls for collaborative efforts among various institutions that can complement each other's strengths.
• Financial organizations will need to invest in mature technologies, such as wind and solar, which are commercially viable.
• Investing in Advanced Technologies:
• For technologies not yet ready for widespread commercial viability, governments must play a pivotal role.
• For instance, direct financial backing is essential for the adoption of electrolysers in nascent areas like green hydrogen.
• Currently, the cost of electrolysers poses a barrier, and scaling up through substantial orders can trigger cost reductions through economies of scale.
• Private Sector Engagement in Adaptation Projects:
• Regarding adaptation initiatives, involving the private sector is crucial, necessitating government intervention to facilitate collaboration.
• Globally, most adaptation funding originates from multilateral development banks in the form of loans.
• However, private sector participation in adaptation projects remains below 2 percent.
• This imbalance arises from the private sector's perception of adaptation projects as high-risk ventures, given the limited incentives available for such engagements.
• If governments co-finance adaptation projects with the private sector, it could mitigate risks and attract private sector participation.

Securing Additional Resources

• To enable government involvement in these endeavors, additional resources will be indispensable. Possible avenues include imposing carbon taxes, issuing green bonds, and exploring catastrophe (CAT) bonds, among other innovative mechanisms.

When it comes to climate finance, countries must primarily look within, given the apparent lack of full commitment from the developed world to provide necessary assistance.

This holds special importance for nations like India, particularly as they might not qualify for concessional financing. As a result, these countries need to prioritize self-reliance and innovative strategies to address the challenges of climate change.

Mains Question:

• How can developing countries like India address climate finance challenges in the face of limited commitment from developed nations? Discuss strategies for effective funding and the role of self-reliance. (15M)

Why in the News?

The Commerce and Industry Ministry is in the final stages of formulating the proposed national e-commerce policy, and at this point, no additional draft policy will be released to solicit input from stakeholders.

Context:

• Electronic commerce (e-commerce) is emerging as a pivotal driver of India's economic growth and development.
• Estimates indicate that, with grocery and fashion/apparel leading the way, the Indian e-commerce sector is poised to reach a valuation of $99 billion by 2024, with projections soaring to $300 billion by 2030.
• Recognizing this immense potential, the government is diligently monitoring the evolving landscape of electronic business, calling for a regulatory framework to safeguard the interests of buyers, sellers, marketers, and distributors.
• In 2019, a draft National E-Commerce policy was drafted and made available to the public for scrutiny.
• In response to this draft policy, numerous foreign governments, including the United States, have submitted comments, highlighting concerns affecting U.S. businesses.
• In August 2023, the Department for Promotion of Industry and Internal Trade (DPIIT) conducted extensive discussions with representatives from e-commerce companies and domestic trade associations concerning the proposed policy.
• A government official noted that a consensus has been reached among the involved stakeholders regarding the proposed policy.

Key Highlights of the National E-Commerce Policy:

• On February 23, 2019, the Ministry of Commerce and Industry unveiled the draft National E-Commerce Policy (DPIIT 2019).
• Aim:
• The national e-commerce policy seeks to establish a regulatory framework that simplifies business operations within the sector.
• Boosting Exports:
• This policy recognizes the substantial export potential within India's e-commerce sector.
• Projections indicate that by 2030, India's e-commerce exports could range from 200 billion USD to 300 billion USD annually.
• Given the anticipated growth in global cross-border e-commerce exports, expected to reach 2 trillion USD by 2025, India aims to harness this opportunity.
• Regulatory Body and FDI:
• The possibility of creating a regulatory authority for the e-commerce sector is under consideration, though its implementation may require time.
• Local trade associations have been advocating for an empowered regulatory body to enforce e-commerce regulations and address violations.
• While 100% foreign direct investment (FDI) is
• permissible in the marketplace model, the inventory-based model does not allow FDI.
• Addressing Trader Concerns:
• Traders have voiced concerns regarding e-commerce rule violations, such as steep discounts and preferential treatment for specific sellers.
• The policy aims to clarify these concerns and enhance transparency in FDI regulations for e-commerce.
• Furthermore, the Consumer Protection (e-commerce) Rules 2020 and proposed amendments will align with the e-commerce policy to maintain consistency.
• Comprehensive Framework:
• The e-commerce policy will function as a comprehensive framework for the sector, ensuring harmony among various governing statutes.
• The sector is presently regulated by the FDI policy, the Consumer Protection Act of 2019, the Information Technology Act of 2000, and the Competition Act of 2002.
• The policy intends to streamline these regulations, creating an environment conducive to the e-commerce industry's growth.

Advantages Highlighted in the Draft E-Commerce Policy:

• Enhanced Information Provision: One notable strength of the draft e-commerce policy lies in its emphasis on comprehensive information provision.
• It mandates that firms furnish clear details about product specifications, images, return and exchange policies, payment methods, and grievance redressal procedures.
• This ensures consumers have access to transparent information, fostering a healthy e-commerce market.
• Clear Grievance Redressal Mechanisms: The policy advocates for the establishment of transparent grievance redressal mechanisms, including the appointment of nodal officers, specified timeframes, and defined processes.
• These measures benefit consumers by facilitating seamless pre- and post-purchase processes.
• Seller Transparency: The policy requires platforms to disclose seller information, including names, locations, and contact details.
• This transparency empowers buyers to engage with sellers beyond the confines of a platform if they choose to do so.
• Fair Data Use: Platforms are prohibited from exploiting the vast data at their disposal to gain an unfair advantage over sellers or exhibit preferential treatment among sellers
• This regulation plays a crucial role in safeguarding the welfare of sellers.

Criticism of the Draft E-Commerce Policy:

• Infringement on Other Ministries' Mandates: The proposed rules appear to encroach upon the mandates of other ministries.
• For instance, the 'fallback-liability' provision holds platforms responsible for any mis-spelling by third-party sellers, contradicting the Finance Ministry's FDI rules that limit platform inventory management.
• Additionally, it removes the immunity granted specifically to marketplaces under the IT Act.
• Redundancy in Regulatory Oversight: The Ministry of Corporate Affairs argues that rules addressing the abuse of competitive positions are unnecessary since the Competition Commission of India already oversees such matters.
• Restrictive Measures on Related Parties: The policy restricts related parties from engaging in commercial activities on platforms, with related parties defined as entities with common shareholders owning more than 5% or over 10% ownership.
• While well-intentioned, this clause may not align with regulatory objectives.

Mains Question:

• Examine the objectives of India's National E-commerce Policy about consumer protection and seller support. Analyze the criticisms and challenges posed by its potential impact on other ministries and restrictions on related parties. (15M)