Economic Development - 3 | Current Affairs & Hindu Analysis: Daily, Weekly & Monthly - UPSC PDF Download

Gross domestic product (GDP) estimation in India

Context

Precise measurement of GDP is vital for India's economic objectives. Presently, India relies on an outdated GDP base year of 2011-12, potentially leading to an incomplete representation of recent economic activities and investments.

What is GDP? 

• Gross Domestic Product (GDP) is the comprehensive monetary or market worth of all completed goods and services generated within the geographical boundaries of a country during a defined timeframe.
• The calculation of India's GDP falls under the purview of the Central Statistics Office (CSO), a division within the Ministry of Statistics and Program Implementation (MoSPI).

How is it Calculated?

India’s GDP is calculated with two different methods, one based on economic activity (at factor cost), and the second on expenditure (at market prices). The factor cost method assesses the performance of eight different industries. The expenditure-based method indicates how different areas of the economy are performing, such as trade, investments, and personal consumption.

Accurate GDP measurement matters because it:

• Reflects True Growth: It represents India’s economic growth accurately.
• Captures New Activities: Ensures inclusion of new economic activities and private initiatives.
• Informs Policy: Essential for effective policymaking and achieving the goal of a $5 trillion economy.
• Attracts Investments: Enhances India’s global image and can attract foreign investments.
• Encourages Citizen Participation: Informs citizens, fostering cooperation toward economic goals.

To improve GDP measurement:

• Enhance Base Year: Revise the base year to encompass contemporary economic activities.
• Employ New Data Sets: Incorporate GST and digital payment data to enhance precision.
• Implement Supply Use Tables: Utilize supply use tables to reconcile statistical information.
• Commence Revision Process: Initiate the revision of the base year promptly.
• Establish Advisory Committees: Form expert committees to provide guidance throughout the process.
• Disseminate Survey Results: Publish findings from relevant surveys, such as consumer expenditure studies.

However, there are still limitations to the GDP method of calculating growth:

• Not a Welfare Measure:
  • Issue: GDP does not serve as an indicator of overall well-being or happiness.
  • Additional Information: Simon Kuznets, the creator of the GDP concept, cautioned against using it as a measure of a country's economic development.
• Weak Relationship Between Growth and Employment:
  • Issue: The State of Working India (SWI) 2023 report highlights a weak correlation between GDP growth and employment in India. GDP growth does not guarantee proportionate job creation.
  • Additional Information: The SWI report notes disparities in employment benefits among genders, castes, or religions.
• No Adjustment for Leisure Time:
  • Issue: GDP does not consider variations in work hours and leisure time.
• Misses Home Production:
  • Issue: It does not account for informal or home-based economic activities.
• Income Distribution:
  • Issue: GDP fails to reflect income distribution within a country.
• Ignores Pollution Costs:
  • Issue: It does not incorporate environmental or social costs associated with pollution.
• Fails to Measure Human Well-Being:
  • Issue: GDP does not encompass aspects such as happiness or community well-being.
• Unequal Progress:
  • Issue: GDP does not address wealth inequality and social disparities.
• Ignores Non-Monetized Activity:
  • Issue: It does not assign value to activities like volunteering or housework.
• Neglects Sustainability:
  • Issue: GDP does not account for the environmental impact of economic growth.

Suggestions for alternatives to GDP:

• Explore the use of Green GDP to account for environmental factors.
• Explore alternatives to GDP such as OECD’s “GDP alternatives” that adjust for leisure and other factors.
• Consider the “Index of Sustainable Economic Welfare” that accounts for pollution costs and income distribution.
• Explore the “Genuine Progress Indicator” that adjusts for income distribution, household work, and more.
• Explore well-being measures like the Happy Planet Index, Gross National Happiness, and National Well-Being Accounts.

Ways to link GDP growth with better Job Creation in India:

• Focus on Labor-Intensive Manufacturing:
  • Description: Prioritize the promotion of labor-intensive manufacturing, both for domestic consumption and export, as a means to stimulate job creation.
• Diversify Growth Strategies:
  • Description: Develop diversified growth strategies that go beyond mere GDP expansion, with a focus on creating high-quality jobs and addressing the employment elasticity of the economy.
• National Employment Policy:
  • Description: Implement a comprehensive National Employment Policy that addresses both the supply and demand aspects of the labor market, aiming to enhance both the quantity and quality of employment opportunities.
• Explore Green Manufacturing:
  • Description: Explore opportunities in green manufacturing to reshape India's industrial development in a sustainable and environmentally conscious manner.
• Address Structural Issues:
  • Description: Tackle structural issues within the economy, particularly those related to caste, gender, and religion, to ensure the equitable distribution of the benefits of economic growth.

Cross Border Payments

Context

• The Universal Postal Union (UPU) has disclosed intentions to assess the incorporation of the Unified Payment Interface (UPI) in cross-border remittances through the worldwide postal network.
• The evaluation is directed towards investigating the capabilities of UPI in enhancing the security and efficiency of international money transfers.

What are the Benefits of Integrating UPI with UPU?

• UPI offers a secure, convenient, and real-time payment experience, making it a promising platform for cross-border remittances.
• Leveraging the global postal network, which has extensive reach and infrastructure, can further expand the reach of UPI-enabled remittances.
• The integration of UPI with postal channels can provide a reliable and accessible remittance solution for individuals, particularly in remote areas where traditional banking services may be limited.
• This initiative aligns with UPU's goal of promoting efficient and inclusive postal services globally.

What is Universal Postal Union (UPU)?

• Overview:
  • The Universal Postal Union (UPU) is a specialized agency of the United Nations, serving as the primary platform for international cooperation within the postal sector.
  • As the second oldest international organization, the UPU has played a pivotal role in global postal affairs.
• Establishment and Structure:
  • Founded in 1874 through the Treaty of Bern, the UPU's headquarters are situated in Bern, Switzerland.
  • The organization comprises four main bodies: Congress, the Council of Administration (CA), the Postal Operations Council (POC), and the International Bureau (IB).
  • Additionally, it oversees the Telematics and Express Mail Service (EMS) cooperatives.
• Membership:
  • Membership is open to any United Nations member country, and non-member nations can join if approved by at least two-thirds of existing member countries.
  • Presently, the UPU boasts 192 member countries, with India having joined in 1876.
• Role and Functions:
  • The UPU functions as a coordinator of postal policies among member nations and the global postal system.
  • It establishes regulations for international mail exchanges and provides recommendations to stimulate growth in mail, parcel, and financial services volumes.
  • The union is committed to enhancing service quality for customers and promoting operational efficiency in international postal operations.

Corporate Governance

Context

• Chanda Kochhar, the former CEO of ICICI Bank, stands as a cautionary example illustrating the perils of corporate greed.
• The Central Bureau of Investigation (CBI) has put forth allegations asserting that ICICI Bank approved a credit of Rs 3,250 crore to companies affiliated with the Videocon Group, promoted by Venugopal Dhoot. These actions are purported to have violated the Banking Regulation Act, RBI guidelines, and the credit policy of the bank.

What is Corporate Governance?

• About:
  • Corporate governance, which refers to the system of rules, practices, and processes by which a company is directed and controlled, plays a crucial role in ensuring that businesses are run ethically and in the best interests of their stakeholders.
  • One of the key responsibilities of corporate governance is to prevent corporate greed and ensure that businesses are operated in a responsible and transparent manner.
  • By enforcing strong ethical standards and holding individuals accountable for their actions, corporate governance can help to curb greed and protect the interests of shareholders, customers, and the broader community.
• Principles of Corporate Governance
• Fairness: The board of directors must treat shareholders, employees, vendors, and communities fairly and with equal consideration.
• Transparency: The board should provide timely, accurate, and clear information about such things as financial performance, conflicts of interest, and risks to shareholders and other stakeholders.
• Risk Management: The board and management must determine risks of all kinds and how best to control them. They must act on those recommendations to manage them. They must inform all relevant parties about the existence and status of risks.
• Responsibility:
  • The board is responsible for the oversight of corporate matters and management activities.
  • It must be aware of and support the successful, ongoing performance of the company. Part of its responsibility is to recruit and hire a CEO. It must act in the best interests of a company and its investors.
• Accountability: The board must explain the purpose of a company's activities and the results of its conduct. It and company leadership are accountable for the assessment of a company's capacity, potential, and performance. It must communicate issues of importance to shareholders.

What are the Ethical Issues with Corporate Governance in India?

• Conflict of Interest: The issue of managers potentially benefiting themselves at the expense of shareholders is exemplified by recent cases, such as the one involving former ICICI Bank head Chanda Kochhar, who allegedly approved a loan to Videocon in a quid pro quo arrangement for her husband.
• Weak Board: A significant weakness lies in boards lacking diversity of experience and background, raising concerns about their ability to act in the broader interests of shareholders.
• Separation of Ownership and Management: Family-run companies, including some of India's leading ones, grapple with the challenge of effectively separating ownership and management, posing a significant obstacle.
• Independent Directors: Independent directors, often perceived as partial, face limitations in their ability to curtail unethical practices of company promoters.

How Corporate Governance in India can be Improved?

• Diversity in Boards Leads to Enhanced Performance: In this context, 'diverse' extends to encompass various dimensions, including gender, ethnicity, skills, and experience, indicating that boards benefit from a broad range of perspectives.
• Robust Risk Management Policies: The adoption of effective and robust risk management policies is crucial for informed decision-making. Such policies enable a deeper understanding of the risk-reward trade-offs that corporations inevitably encounter.
• Effective Governance Infrastructure: As the board holds ultimate responsibility for an organization's actions and decisions, the establishment of specific policies to guide organizational behavior becomes essential. Clear delineation of the line of responsibility between the board and management is particularly important, necessitating the development of policies related to delegations.
• Evaluation of the Board’s Performance: Continuous improvement in governance processes is achievable through addressing weaknesses identified in board evaluations. Regular assessments contribute to the overall effectiveness of the board.
• Communication: Facilitating communication between shareholders and the board is paramount. Establishing a designated contact person with whom shareholders can discuss any issues is necessary to foster transparency and engagement.

Regulation of crypto assets

Context

Upon the request of the Indian G20 Presidency, the International Monetary Fund (IMF) and the Financial Stability Board (FSB) jointly published a policy paper advocating against a complete prohibition of crypto-assets.

What is Cryptocurrency?

• Nature of Cryptocurrency: Cryptocurrency is a digital currency that operates independently of traditional banks.
• Decentralized Technology - Blockchain:
  • It utilizes a decentralized technology called blockchain.
  • Blockchain is a distributed ledger that records and verifies transactions in a secure and transparent manner.
• Transaction Recording: Transactions are recorded and verified on the blockchain without the need for third-party intermediaries.
• Absence of Central Authority:
  • Cryptocurrencies function without central authority or government oversight.
  • The decentralized nature eliminates the need for a central entity to monitor or control the transactions.
• Examples of Cryptocurrencies:
  • Common examples include Bitcoin, Ethereum, Ripple, and Litecoin.
  • Each cryptocurrency operates on its own underlying technology and principles.

Implications of crypto-assets on the Financial Ecosystem

• Monetary Policy:
  • Challenge: Widespread adoption of crypto-assets may undermine the effectiveness of monetary policy, as central banks lack the ability to adjust interest rates on a foreign currency.
• Fiscal Policy:
  • Risk: The proliferation of crypto-assets can increase fiscal risks due to financial sector exposure, unclear tax regimes, and the cross-border nature of crypto-assets.
• Regulatory Issues:
  • Challenge: Crypto-assets pose challenges to legal, regulatory, and enforcement frameworks.
  • Examples: In some jurisdictions, crypto-asset activities may violate domestic regulations, leading to enforcement challenges. In other cases, crypto-assets may fall outside existing regulatory frameworks, creating regulatory gaps.
• Legal Risks:
  • Concern: Granting crypto-assets official currency or legal tender status could raise significant macro-critical legal issues, as these assets are not universally recognized.
• Recognition as Legal Tender:
  • Examples: Countries like Central African Republic (CAR) and El Salvador recognize cryptos as legal tender, while Algeria and Bolivia do not.
• Financial Integrity:
  • Risk: Due to their pseudonymous nature and global reach, crypto-assets can attract criminals, posing financial integrity risks.
  • Example: U.S. authorities have identified instances where terrorist groups used virtual assets for fundraising, such as the Islamic State receiving donations for refugee camps.
• Facilitating Illicit Activity:
  • Concern: Cryptocurrencies are used for various illicit activities, including drug trade, ransomware payments, kidnapping, and cybercrime.
• Market Integrity:
  • Risk: Non-compliance or lack of regulation for crypto-asset activities can impair market integrity and harm the interests of market participants.
• Environmental Risks:
  • Challenge: The design elements of distributed ledger networks supporting crypto-assets have implications for energy consumption.
  • Example: Bitcoin mining annually produces nearly 38 kilotons of electronic waste, and Ethereum's energy consumption is substantial.

Way Forward

• Safeguarding monetary sovereignty and stability: Developing effective frameworks and policies is the best way to limit substitution into crypto-assets. Robust macroeconomic policies and credible institutional frameworks are fundamental to protecting monetary sovereignty. 
• Guard against excessive capital flow volatility: Policymakers should take steps to counter the potential erosion of counter financing of terrorism(CFMs) caused by the adoption of crypto-assets.
• Address fiscal risks and adopt unambiguous tax treatment:  Fiscal risks arising from the widespread adoption of crypto-assets including those resulting from granting legal-tender or official currency status should be identified, analysed, and disclosed.
• Financial integrity regulation: Jurisdictions should implement the FATF Standards in the virtual-asset sector to protect their financial systems and the global economy from threats of money laundering, and the financing of terrorism and of proliferation of weapons of mass destruction.
• Market integrity regulation: Jurisdictions should implement and apply the IOSCO Principles and Standards to economically equivalent crypto-assets and activities.

Digital inclusion in emerging technologies

Context

India's strategy regarding Digital Public Infrastructure (DPI) is a noteworthy narrative of technological innovation and inclusive development.

Digital Public Infrastructure (DPI)

About Digital Public Infrastructure (DPI): Digital Public Infrastructure (DPI) has gained prominence as governments and organizations globally recognize the pivotal role of digitalization in delivering public services. It serves as the foundational framework for deploying essential digital services to citizens, aiming to bridge the gap between technology and the public.

Features of DPI:

• Accessibility:
  • Inclusive Design: DPI is designed with inclusivity, catering to diverse user needs, including those in remote areas, individuals with disabilities, and users with limited digital literacy.
  • User-Friendly Interfaces: Platforms feature user-friendly interfaces, accommodating users with varying levels of technological expertise.
  • Localization: DPI offers services in multiple languages and dialects to serve diverse linguistic communities.
• Security:
  • Encryption: Advanced encryption techniques protect user data during transmission and storage, ensuring confidentiality.
  • Authentication: Multi-factor authentication and robust identity verification mechanisms enhance the security of digital interactions.
  • Regular Audits: DPI undergoes regular security audits and vulnerability assessments to identify and mitigate potential weaknesses.
  • Compliance: Adherence to strict data protection and privacy regulations ensures legal compliance for safeguarding user information.
• Interoperability:
  • Standardized Protocols: DPI relies on standardized communication protocols and data formats for compatibility with various digital platforms and services.
  • APIs (Application Programming Interfaces): APIs facilitate integration with third-party services, enabling seamless data flow between systems.
  • Data Exchange: Interoperability allows data exchange between different government agencies, streamlining administrative processes and improving data sharing.
• Scalability:
  • Elastic Infrastructure: DPI infrastructure is designed to be elastic, expanding or contracting based on changing demands.
  • Cloud-Based Solutions: Components leverage cloud computing for dynamic resource allocation, ensuring scalability.
• Reliability:
  • Redundancy: DPI incorporates redundancy in critical components, minimizing the risk of system failures.
  • Disaster Recovery: Robust disaster recovery plans mitigate the impact of unforeseen events, maintaining service reliability.
  • Service-Level Agreements (SLAs): DPI providers establish SLAs outlining service uptime guarantees, instilling user confidence in infrastructure reliability.

Significance of DPI

• Inclusive Growth:
  • Digital Divide Reduction: DPI plays a crucial role in reducing the digital divide, ensuring accessibility of digital services to all citizens, irrespective of their location or socioeconomic background.
  • Equal Access to Opportunities: By providing access to essential services, DPI empowers individuals in remote areas and underserved populations, offering opportunities previously out of reach.
  • Enhanced Social Inclusion: DPI connects individuals with disabilities to assistive technologies, fostering a more inclusive society.
• Efficient Governance:
  • Streamlined Administrative Processes: DPI optimizes government operations by digitizing administrative processes, reducing paperwork, and minimizing bureaucratic hurdles.
  • Improved Service Delivery: DPI enables government agencies to deliver services more rapidly, accurately, and transparently, enhancing citizen satisfaction and trust.
  • Cost Savings: Automation and reduced physical infrastructure needs lead to significant cost savings for governments, allowing more effective resource allocation.
• Economic Development:
  • Digital Entrepreneurship: DPI supports digital entrepreneurship, providing startups and small businesses access to digital platforms, a broader customer base, and competitiveness in the digital marketplace.
  • Job Creation: Growth in digital businesses supported by DPI can lead to job creation and economic diversification, contributing to a resilient digital ecosystem.
  • Digital Skills Development: DPI initiatives often include programs for digital skills development, equipping individuals for participation in the digital economy.
• Data-driven Decision Making:
  • Evidence-based Policymaking: DPI generates extensive data for evidence-based policymaking, allowing governments to monitor policy impact and make informed decisions.
  • Efficiency Optimization: Data analytics within DPI identifies areas for efficient and cost-effective government operations, improving resource allocation and governance.
  • Predictive Insights: DPI enables governments to anticipate trends and proactively respond to emerging challenges in public health, infrastructure, or social services.

Steps taken by India

• Aadhaar:
  • Unique Digital Identity: Assigns a 12-digit unique identification number linked to biometric and demographic data, providing a secure and standardized identity verification method.
  • Access to Services: Integrated into government services, welfare programs, subsidies, and financial services to facilitate efficient and secure access for residents.
  • Biometric Authentication: Utilizes biometric authentication, including fingerprint and iris scans, ensuring enhanced security and uniqueness of identities.
• Unified Payments Interface (UPI):
  • Digital Payments Revolution: Transforms financial transactions by enabling instant, secure, and cashless payments through mobile phones or computers.
  • Financial Inclusion: Promotes financial inclusion by offering a user-friendly platform for banking services, even in remote areas, fostering competition and innovation.
  • Third-party Apps: Facilitates third-party app development, encouraging innovative payment solutions and contributing to the evolution of the fintech sector.
• Digital Locker (DigiLocker):
  • Secure Document Storage: Provides a secure cloud-based platform for citizens to store and share digital copies of documents, reducing paperwork and bureaucracy.
  • Reduced Paperwork: Eliminates the need for physical documents in various government and private sector interactions, streamlining processes.
  • Interoperability: Designed to be interoperable with other government systems, simplifying document sharing with government agencies and educational institutions.
• e-Governance Initiatives:
  • Digital India: Aims to transform India into a digitally empowered society and knowledge economy, including initiatives such as digitization of records and digital literacy programs.
  • e-Gov Services: Provides various government services online, reducing the need for physical visits to government offices and simplifying service delivery.
  • Online Portals: Government websites offer citizens access to information, services, and resources, enhancing transparency and public engagement.

Challenges:

• Digital Divide:
  • Unequal Access: Disparities in reliable internet connectivity and digital device access contribute to socio-economic inequalities.
  • Rural and Remote Areas: Challenges in internet infrastructure and affordability hinder residents in rural and remote areas.
  • Digital Literacy: Disparities in digital literacy levels, especially among elderly citizens, limit effective DPI utilization.

Data Privacy:

• User Data Protection: Securing and protecting personal and sensitive data collected by DPI systems is crucial.
• Data Breaches: High-profile data breaches can erode public trust, necessitating a balance between service delivery and data protection.
• Regulatory Compliance: Adhering to evolving data protection regulations poses an ongoing challenge for DPI implementations.

Cybersecurity:

• Cyber Threats: DPI systems are vulnerable to cyber threats like malware, ransomware, and DDoS attacks, requiring continuous monitoring and response.
• Security Awareness: Maintaining security awareness among administrators and users through education programs is essential.
• Continuous Monitoring: Ongoing monitoring and rapid response mechanisms are necessary to address security vulnerabilities promptly.

Infrastructure Development:

• Cost and Funding: Expanding digital infrastructure demands significant financial investment, posing challenges for funding.
• Logistical Challenges: Building and maintaining physical infrastructure, especially in remote areas, involves complex logistics.
• Sustainability: Ensuring the long-term sustainability of digital infrastructure requires ongoing maintenance, upgrades, and adaptation to changing technology trends.

Way forward

Infrastructure Expansion

• Last-Mile Connectivity: Focus on extending internet connectivity to remote and underserved areas through a combination of traditional broadband and innovative solutions such as satellite internet and community networks.
• Affordable Access: Make internet access more affordable for citizens in lower-income brackets through subsidy programs or reduced-cost data plans.
• Digital Inclusion: Ensure that infrastructure expansion initiatives are designed to reach marginalized communities, such as tribal areas and economically disadvantaged regions.

Cybersecurity Measures

• Advanced Threat Detection: Implement advanced threat detection systems that use artificial intelligence and machine learning to identify and respond to emerging cyber threats in real time.
• User Education: Launch cybersecurity awareness campaigns to educate citizens about online risks, safe practices, and the importance of securing their digital identities.
• Collaboration: Foster collaboration between government agencies, private sector organizations, and cybersecurity experts to share threat intelligence and best practices.

Digital Literacy

• School Curriculum: Integrate digital literacy and computer education into school curricula to ensure that future generations are equipped with essential digital skills.
• Adult Training Programs: Offer digital literacy training programs for adults, including senior citizens, to bridge the digital divide and empower individuals to use DPI services effectively.
• Local Language Content: Develop digital literacy content in regional languages to make it accessible to a wider audience.

Collaboration

• Public-Private Partnerships (PPP): Foster PPPs to accelerate the development, maintenance, and expansion of DPI infrastructure. Private sector involvement can bring expertise, innovation, and funding to the table.
• Standardization: Work with industry stakeholders to establish standards for interoperability, data exchange, and cybersecurity, ensuring that DPI components can seamlessly integrate with private sector services.
• Innovation Ecosystem: Encourage innovation by supporting startups and entrepreneurs in developing digital solutions that complement DPI offerings.

Regular Updates

• Technology Adoption: Embrace emerging technologies such as 5G, blockchain, and artificial intelligence to enhance the capabilities of DPI systems and stay ahead of evolving user needs.
• Security Patching: Regularly update and patch DPI components to address vulnerabilities and enhance overall system security.
• User Feedback: Actively seek feedback from citizens and users to identify areas for improvement and adapt DPI services accordingly.

Conclusion

Digital Public Infrastructure is a critical component of modern governance, and India has made significant progress in this regard. However, addressing challenges and staying ahead of technological advancements are key to its continued success in providing accessible and efficient digital services to its citizens.