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1. Farm Loan Waiver

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  • Farm Loan Waiver: It is a consistent demand by the farmers because of the persistent distressed farm situations across the country.

  • Since 2014, eight states have written off loans to farmers and four more states — Rajasthan, Assam, Chhattisgarh and Madhya Pradesh — had announced the waiver. The debt relief is paid through state budgets.


Issues with the Farm Loan Waiver 23  

  • Macro-economic impacts of Farm Loan Waiver: At its most basic, farm loan waivers simply transfer liabilities from private sector to public sector balance sheets. The waivers will have four effects on aggregate demand:

  • Private consumption impact: Loan waivers will increase the net wealth of farm households pushing consumption up. However, World Bank study on the “ADWDRS” of 2008-09 found no rise in consumption after the loan waivers.

  • Public sector impact: Loan waivers involve spending that does not add to demand (because these are liability transfers to the states’ balance sheets) but the actions taken to meet Fiscal Responsibility Legislation (FRL) targets (higher taxes and/or lower expenditure) will reduce demand.

  • Crowding out impact: Loan waivers will result in higher borrowing by the states with fiscal space. This could squeeze out private spending by firms.

  • Crowding in impact: Bank balance sheets will improve to the extent that non-performing farm loans are taken off their books. So they might be able to provide additional financial resources to the private sector, leading to greater spending.


Way Forward

  • The primary reason for persistent farm distress is the inability of farmers to get remunerative prices, due to the prevailing disconnect with the value chain resulting from market asymmetry, and lackadaisical institutional and infrastructure support.

  • A loan waiver is only an element of immediate relief. Greater focus is required on enhancing their loan repayment capacity via smooth supply and value chains, and better price realisations along with farm credit reforms . This could be achieved by following measures:

  • Institutional Strength: The most important constraint of Indian farmers is their small and uneconomical size of holdings. This can be overcome by

  • Encouraging the formation and working via farmer producer organisations (FPOs) that act as aggregators and help farmers overcome their unorganised nature.

  • Government spending in the creation of suitable storage capacities - either independently or in public-private partnership (PPP) model- will not only help farmers to store their produce, but also connect them to institutional finance through a much more secure mechanism of warehouse receipt finance through FPOs.

  • Ensure reach of minimum support price & crop insurance across the geography and crops.

  • Better Decision-Making: Agriculture and markets remain highly disconnected, with poor information flow across unusually long supply chains in most agricultural commodities.

  • An independent national set-up could be created with a PPP at the block/district level to provide necessary information that would empower farmers to make the right decisions- from choice of crop and cropping practices, to harvesting and sales.

  • This would augment input purchase support to small and marginal farmers, in line with direct cash transfer, as well as strengthen the efficacy of free market mechanism for ensuring remunerative prices.


Agriculture Credit Reforms

  • Extend period of crop loan to four years, to account for the erratic pattern and spatial distribution of rainfall. Like industrial loans, extend provision of restructuring and one-time settlement for industry to farm loans.

  • A specific, region and crop-based scheme of loan concessions and one-time settlement would ensure that credit discipline is not eroded.

  • Institutionalise a mechanism, with a regulatory authority supervising the scheme of de-stressing farm loans, based on a scientific basis for calculating stressed assets and restructuring them. NABARD should be utilised for this purpose.



  • While there is a case for loan waiver in exceptional circumstances, this could not be the only solution, especially given the associated moral hazard, which actually incentivizes defaults on loans. It can, for a host of reasons being faced by the Indian economy in general, and agriculture in particular (e.g. rising pressure of population, uncertain policies and regulations and other production risks such as diseases, shortage of inputs like seeds and irrigation, coupled with drought, flooding and unseasonal rains), be part of the bucket of various solutions. DBT scheme similar to Rythu Bandhu Scheme of Telangana could be well emulated as a way forward.



  • With an aim to double farmers’ income by 2022, and to double agricultural exports by 2022, Government of India has recently come up with the Agriculture Export Policy, 2018.

  • The Cabinet has also approved the proposal for establishment of Monitoring Framework at Centre with Ministry of Commerce as the nodal Department with representation from various Ministries/Departments and Agencies and representatives of concerned State Governments, to oversee the implementation of


Objectives of the Agriculture Export Policy

  • To double agricultural exports from present $ 30+ Billion to $ 60+ Billion by 2022 and reach $ 100 Billion in the next few years thereafter, with a stable trade policy regime.

  • To diversify our export basket, destinations and boost high value and value added agricultural exports including focus on perishables.

  • To promote novel, indigenous, organic, ethnic, traditional and non-traditional Agriculture products exports.

  • To provide an institutional mechanism for pursuing market access, tackling barriers and deal with sanitary and phyto-sanitary issues.

  • To strive to double India’s share in world agriculture exports by integrating with global value chain at the earliest.

  • Enable farmers to get benefit of export opportunities in overseas market.

Current Agriculture Trade Scenario

  • World agricultural trade has been relatively stagnant in the last five years (2013-2017) due mainly to fall in global prices.

  • Due to effect of fall in global prices and back to back droughts during 2014-15 and 2015-16 India’s agricultural export dropped by 5% compound annual growth rate (CAGR).

  • Indian agricultural exports grew at 9% compared to China (8%), Brazil (5.4%) and USA (5.1%) between 2007 and 2016. However, India’s agriculture exports are lower than countries like Thailand and Indonesia with much smaller agricultural land thus depicting a higher potential.

  • While India occupies a leading position in global trade of agricultural products like rice, its total agricultural export basket accounts for little over 2% of world agriculture trade.

  • Also, India has remained at the lower end of the global agricultural export value chain given that majority of its exports are low value, raw or semi-processed and marketed in bulk.

  • The share of India’s high value and value added agricultural produce in its agriculture export basket is less than 15% compared to 25% in US and 49% in China. India is unable to export its vast horticultural produce due to lack of uniformity in quality, standardization and its inability to curtail losses across the value chain.


Elements of the Agriculture Export Policy Framework

Vision of the Agriculture Export Policy:

  • “Harness export potential of Indian agriculture, through suitable policy instruments, to make India global power in agriculture and raise farmers' income.”

  • The policy recommendations are organized in two broad categories: strategic and operational


1. Strategic Recommendations

Policy Measures

  • Stable Trade Policy Regime

  • Providing assurance that the processed agricultural products and all kinds of organic products will not be brought under the ambit of any kind of export restriction.

  • Identification of a few commodities which are essential for food security in consultation with the relevant stakeholders and Ministries.


Reforms in APMC Act and streamlining of mandi fee

  • Using the Directorate General of Foreign Trade (DGFT) field offices, Export Promotion Councils, Commodity Boards and Industry Associations to act as advocacy forum for reform by all the states including removal of perishables from their APMC Act.

  • State Governments would also be urged to standardize/ rationalize mandi taxes for largely exported agricultural products.


Infrastructure and Logistics Support

  • Pre-harvest and post-harvest handling facilities, storage & distribution, processing facilities, roads and world class exit point infrastructure at ports facilitating swift trade.

  • Mega Food Parks, state-of-the-art testing laboratories and Integrated Cold Chains.

  • Identifying strategically important clusters, creating inland transportation links alongside dedicated agricultural infrastructure at ports with 24x7 customs clearance for perishables.


Holistic approach to boost exports

  • Involve important organizations related to agricultural production to make special efforts towards promotion of export. Krishi Vigyan Kendras will be involved to take export oriented technology to farmers and create awareness among farmers about export prospects.

  • Work towards similar agencies like the United States Food and Drug Administration (USFDA) / United States Department of Agriculture (USDA) and European Food Safety Authority (EFSA) which cover all aspects of agricultural-food production and trade in a effective and calibrated manner.

  • A holistic response to Sanitary and PhytoSanitary (SPS) and Technical Barriers to Trade (TBT) barriers faced by Indian products


Greater involvement of State Governments in Agriculture Exports

  • Identification of a nodal State Department / Agency for promotion of agriculture export

  • Inclusion of agricultural exports in the State Export Policy

  • Infrastructure and logistics to facilitate agricultural exports

  • Institutional Mechanism at Union level, State level and cluster level to support exports

  • Encourage the industry bodies/associations to play a more pro-active role and greater involvement of industry in R&D


2. Operational Recommendations

Focus on Clusters

  • Put in place institutional mechanism for effective involvement and engagement of small and medium farmers for entire value chain as group enterprise(s) within cluster of villages at the block level for select produce(s). This will help to realize actual benefit and empowerment of farming community to double their income through entire value chain.

  • Subject to successful implementation of these clusters, a transition to Agri Export Zones (AEZs) could facilitate value addition, common facility creation and higher exports from such zones. 


Promoting value added exports

  • Product development for indigenous commodities and value addition

  • Promote value added organic exports

  • Marketing and branding of organic products

  • Develop uniform quality and packaging standards for organic and ethnic products

  • Organic products in North East- development of ‘AMUL’ – style cooperatives

  • Promotion of R&D activities for new product development for the upcoming markets

  • Skill development


Marketing and promotion of “Brand India”

  • Constituting separate funds dedicated to marketing of organic, value added, ethnic, GI, Region specific and branded products.

  • Attract private investments in export oriented activities and infrastructure

  • Benefits of private investment include better quality compliance; smooth logistic handling; expansion to distant markets.

  • The Infrastructure proposed to support agriculture exports from the Focus States includes: Packhouse, Processing infrastructure, Exit Point Infrastructure, Air cargo and Infrastructure abroad.

  • Ease of Doing Business (EODB)& Digitization: Farm level – digitization of farmer land records, Market Intelligence cell at Department of Commerce and Portal for Information dissemination, Trade procedures and facilitation and Grievance cell.

  • Developing Sea Protocol: Developing sea protocols for perishables must be taken on priority for long distance markets. Export of perishables requires special storage, transportation and handling at desired temperatures where Time is a major constraint.


Establishment of Strong Quality Regimen

  • Establish and maintain single supply chain and standards for domestic and export market

  • SPS and TBT Response Mechanism: it is suggested to create an institutional mechanism under the aegis of Department of Commerce with representation of relevant Ministries, Agencies to address India’s market access request, calibrate it with trading partner’s market access request for accessing the Indian market and quickly respond to SPS/TBT barriers.

  • Conformity Assessment: Many importing countries do not recognize India’s export inspection and control processes. The lack of recognition of Indian testing procedures and conformity standards proves costly to exporters and therefore farmers.


Research and Development

  • Agricultural research and development (R&D) led by private industry along with higher infrastructure spend by the government will be the key to boosting agricultural exports. Along with this, innovations in packaging, improving shelf life of products and greater R & D in developing products to suit the palates of importing countries would be a priority.



  • Creation of Agri-start-up fund: Entrepreneurs are to be supported to start a new venture in Agri products exports.


Challenges in Policy Implementation

  • Related News

  • UAE and Saudi Arabia had decided to use India as a base to address their food security concerns. In accordance with the Agriculture Export Policy, the farm-to-port project will be similar to a special economic zone but in the style of a corporatised farm, where crops would be grown keeping a specific market in mind.

  • Achieving an agriculture export target of $60 billion by 2022 looks ambitious, given the current global market conditions. More so, because India’s export basket largely comprises meat, marine products, and basmati rice whose demand in the world market is inelastic.

  • India has a track record to open up imports whenever prices of crucial food items (potato, onion, pulses, etc.) start climbing. This hurts local producers. The Indian government is always "pro-consumer", backing cheap imports to keep inflation in food prices low.

  • There are several instances of sudden increase in export duties and lowering of import duties to keep food prices in check. The Centre cut the import duty on wheat by a fifth when prices increased in 2016-17, leading to imports from Australia and Ukraine flooding the market. Similarly, a zero import duty on palm oil hurts domestic oilseeds farmers.

  • The current minimum support price (MSP) of wheat and rice make India foodgrain quite dear in the domestic market. In such cases, India cannot export it into the international market.

  • A dispute at the World Trade Organization (WTO) can also not be ruled out. Already, the United States accuses India of subsidising farmers heavily to keep prices low.


3. Gm Crops

About GM Crops

  • Definition: According to WHO, Genetically modified organisms (GMOs) are organisms in which the genetic material (DNA) has been altered in a way that does not occur naturally by mating and/or natural recombination. Foods produced from or using GM organisms are referred to as GM foods.


Indian Scenario

  • Till now, Bt cotton, a non-food crop, has been the only GM crop cultivated in India.

  • Attempts to commercially release Bt Brinjal were stalled by a moratorium in 2010 by the Environment Ministry.

  • With respect to DMH -11, atransgenic mustard developed at Delhi University, GEAC has demanded more tests before its commercial cultivation.


Issues and Challenges with GM Crops

  • Ever Green Revolution

  • M S Swaminathan coined the term ‘’Evergreen Revolution” to highlight the pathway of increasing production and productivity in a manner such that short and long term goals of food production are not mutually antagonistic.

  • It targets increased production from less land, less pesticide, less water, etc. and Integrating ecology and technology is the way forward towards an evergreen revolution.

  • Monopoly: Critics claim that patent laws give developers of the GM crops a lot of control over the food supply. This can lead to domination of world food production by a few companies.

  • There’s also controversy over the “terminator seeds”, which allows farmers to use the seeds just once; hence every growing season fresh seeds have to be bought.

  • Outcrossing: The migration of genes from GM plants into conventional crops or wild species may have an indirect effect on food safety and food security.

  • Decline in yield: There has been witnessed a decline/stagnation in yield after few years with respect to many GM crops which in turn leads to diminishing returns.

  • Concerns for human health: Gene transfer from GM foods to humans can be problematic if the transferred genetic material adversely affects human health. This would be particularly relevant if antibiotic resistance genes were to be transferred.

  • Allergenicity: While no allergic effects have been found relative to GM foods currently on the market, this remains a concern.

  • Resistance developed by Pathogens: There is always a concern of pathogens becoming resistant to the toxins produced by GM crops. For example the pink bollworm has grown resistant to the toxins produced by BT cotton seed of Monsanto.

  • Concerns for the environment: The susceptibility of non-target organisms (e.g. bees and butterflies) and the loss of biodiversity of crop/plant species remains a concern.

  • Toxins produced in GM crops are present in every part of the plant, so when the parts that have not been harvested decompose, a considerable amount of the toxin may reach the soil/water table.


Regulatory Challenges

  • Possibility of data manipulation: The GEAC does not conduct the closed field trials on their own but are solely dependent on the data provided to them by the technology developer making it susceptible to manipulations and fudging the data.

  • Concerns regarding GEAC: Issues such as adhocism in its constitution, criteria adopted for selection of its members, dominance of bureaucrats, no representation from civil society or states where Bt Cotton has been introduced, head not being from field of Biotechnology etc. remain.

  • Functioning of DLCs: The presence of District Level Committee (DLC) which regulates GM crop at the ground l evel is hardly felt in any of the States.

  • Negative public perception: Public attention has focused on the risk side of the risk-benefit equation owing to lack of transparency and ignorance about the scientific facts related to GM crops. Moreover, India has imported edible GM soybean and canola so the resistance to growing the same is contradictory.


Way Forward

  • Improved legal regime:

  • An independent authority, the Biotechnology Regulatory Authority of India (BRAI), to regulate organisms and products of modern biotechnology should be setup.

  • The Cartagena Protocol on Biosafety and the Biological Diversity act, 2002 must be effectively implemented.

  • Proactive Patent regime: It must be ensured that proper legislative and judicial safeguards exist to prevent monopolisation of the GM seed market. For example the recent Supreme Court held that US company Monsanto cannot claim patents on its GM cotton seeds.

  • Transparency: The GEAC reports must be made public and effective discussion should be held with scientific community and civil society to allay their fears.

  • Cooperation: The state governments must be consulted before taking a decision related to GM crops issue as agriculture is a state subject.

  • Providing Choice to Consumers: Mandatory labelling of GMOs should be enforced to provide an option to consumers.

  • Analyse Cost-Benefit of New Technology: It can be argued that while technological changes inevitably have led to some negative externalities, a broader picture should be kept in mind when deciding to include them in our day to day life.


Start-up definition by government

  • Start-up means an entity, incorporated or registered in India not prior to seven years, with annual turnover not exceeding INR 25 crores in any preceding financial year, working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.

  • The Department of Industrial Policy and Promotion (DIPP) announced results of the first ever States’ Start-up Ranking 2018.

  • Gujarat ranked the best performer and Karnataka, Kerala, Odisha, And Rajasthan are the top performers.


About State Start-up Ranking 2018

  • Government had launched this initiative in 2016 with the objective of encouraging States and Union Territories to take proactive steps towards strengthening the Start-up ecosystems in their states. The methodology has been aimed at creating a healthy competition among States to further learn, share and adopt good practices.

  • States have been identified as leaders across various categories such as Start-up policy leaders, incubation hubs, seeding innovation, scaling innovation, regulatory change champions, procurement leaders,


Start-Ups in India

  • India is the third largest start up hub in the world with 20% of the start-ups emerging from tier 2 and tier 3 cities.

  • The major start-ups in India comprise of tech based (close to 45%) and about 72% being young founder below the age of 35 years.

  • The growth drivers of the flourishing start-up ecosystem are – government focused on policy start-ups, demographic dividend, rapid urbanisation, large number of internet users and India being an emerging market.

  • communication champions, North-Eastern leader, and hill state leader.

  • The tools for ranking are –

  • State and Union Territory Start-up Ranking Framework.

  • Compendium of Good Practices for Promoting Start-ups in India.

  • Start-up India Kit – It is a one- stop guide on all the benefits available to start-ups from the Startup India initiative.


4. Retail, Sme Loans To Be Linked To External Benchmarks

  • Need for Change

  • This move comes because Banks were slow to pass on the reduction in their MCLRs in January 2017 to their actual lending rates.

  • For example – Of the 12 banks whose spreads widened, six banks took up to six months to pass on the benefit of lower MCLRs to their lending rates; remaining six banks passed on the benefit of their lower MCLRs, but only partially even after six months. Even though changes in MCLRs are expected to be passed on to at least fresh borrowers immediately.

  • These changes are the culmination of the recommendations made by an internal study group on working of MCLR of the RBI headed by Dr. Janak Raj.


New RBI Guidelines

  • Interest Rate policy over the years

  • October 1994: Banks were required to declare Prime Lending Rate (PLR) which was the rate it would charge to its most credit worthy customer.

  • April 2003: Benchmark Prime Lending Rate to overcome rigidity and inflexibility of PLR.

  • July 2010: Base Rate - Under this system, Banks were required to announce their base rates which would be the minimum rate under all circumstances

  • April 2016: Marginal Cost of Funds Based Lending Rate (MCLR) - RBI decided to shift to MCLR because the rates based on marginal cost of funds are more sensitive to changes in the policy rates

  • December 2018: External Benchmark Based Rate (proposed, final guidelines to be out soon).


How MCLR was calculated

  • As per RBI guidelines, the MCLR comprise of:

  • Marginal Cost of funds: The marginal cost of funds shall comprise of Marginal cost of borrowings and return on net worth.

  • Negative Carry on CRR: Negative carry on the mandatory CRR which arises due to return on CRR balances being nil.

  • Operating Costs: All operating costs associated with providing the loan product including cost of raising funds shall be included under this head. It shall be ensured that the costs of providing those services which are separately recovered by way of service charges do not form part of this component.

  • Tenor premium: These costs arise from loan commitments with longer tenor. The change in tenor premium should not be borrower specific or loan class specific. In other words, the tenor premium will be uniform for all types of loans for a given residual tenor.

  • The RBI said the lending rate on such loans should be linked to one of the four benchmarks

  • Reserve Bank of India’s policy repo rate.

  • Government of India 91-day treasury bill yield.

  • Government of India 182-day treasury bill yield.

  • Any other benchmark market interest rate produced by the Financial Benchmark India Private Ltd.

  • Banks have to implement the new scheme from April 1, 2019.

  • The Move is expected to end the practice of lowering interest rates to only new customers to attract more business while the existing customers continue to pay higher rate.

  • he spread (margin) over the benchmark rate — to be decided wholly at banks’ discretion at the inception of the loan — should remain unchanged through the life of the loan, unless the borrower’s credit assessment undergoes a substantial change and as agreed upon in the loan contract.


Advantages of new system

  • Financial Benchmarks India Pvt Ltd

  • It is an independent benchmark administrator to develop and administer benchmarks relating to money market, government securities and foreign exchange in India.

  • It was created on the recommendation of Shri Vijaya Bhaskar Committee on benchmark administration of India.

  • The FBIL, jointly owned by FIMMDA, FEDAI and IBA, was formed in December 2014 as a private limited company under the Companies Act 2013.

  • FIMMDA: Fixed Income Money Market & Derivatives Association of India

  • FEDIA: Foreign Exchange Dealers’ Association of India

  • IBA: Indian Banks Association

  • The Linking of floating rates to external benchmarks will lead to reduction in credit costs in the long run for retail and MSME Sector.

  • All banks will have to benchmark their loan against a common benchmark, which will make it easier for borrowers to track it.

  • This is one of the series of steps taken by RBI to increase Credit flow to MSME Sector as it is crucial for economic growth and employment.

  • Banks around the world have already moved to external bench marking system so this step brings Indian system in line with International Banking practices.


5. Gdp Back Series Data

Gross Domestic Product (GDP) vs Gross Value Added (GVA)

  • Gross Domestic Product (GDP) is the monetary value all final economic goods and services produced in a country during a specific period of time.

  • GVA is measure of value of goods and services produced in economy.

  • GVA + taxes on products - subsidies on products = GDP

  • GVA is sector specific while GDP is calculated by summation of GVA of all sectors of economy with taxes added and subsidies are deducted.

  • In 2015, the government adopted a new method for the calculation of the gross domestic product of the country. o adopted the Gross Value Added measure to better estimate economic activity.

  • change also involved a bringing forward of the base year used for calculations to 2011-12 from the previous 2004-05.

  • However, this led to the problem of not being able to compare recent data with the years preceding 2011-12. The back series data released provides the earlier years’ data using the new calculations.


Highlights of the New Data

  • The new data shows that, contrary to the earlier perception, the Indian economy never graduated to a ‘high growth’ phase of more than 9% in the last decade or so.

  • It was also pointed out that the newer data, especially for the mining and manufacturing sectors, shows that India did not recover from the global financial crisis as quickly as initially thought.


Why there is a difference in old and new data?

  • There is a revision of base year to a more recent year.

  • While doing the exercise, the government adopted the recommendations of the United Nations System of National Accounts, which included measuring the GVA, Net Value Added (NVA), and the use of new data sources wherever available. One of these data sources is the Ministry of Corporate Affairs MCA-21 database,


MCA-21 Database

  • It is an e-governance initiative that was launched in 2006 to allow firms to electronically file their financial results and advance filing of corporate accounts, to calculate national accounts.

  • It allows for a more granular approach, looking at the balance sheet data of each company and aggregating the performance of the sector from that, after adjusting for inflation.

  • It also include addition to the volume index of Index of Industrial Production (IIP) and establishment-based dataset of Annual Survey of Industries (ASI).

  • which became available since 2011-12 only.

  • The key difference between the two was that the old method measured volumes — actual physical output in the manufacturing sector, crop production, and employment for the services sector. MCA-21’s approach has been discussed in the box.

  • The new method is also statistically more robust as it tries to relate the estimates to more indicators such as consumption, employment, and the performance of enterprises, and also incorporates factors that are more responsive to current changes, unlike the old series that usually took 2-3 years to register an underlying change.


Issues in New Data

  • Difference with earlier findings: The new back series data diverges from the estimates made in a draft report released by the National Statistical Commission in August 2018. The clear example of this is agriculture, where no new database has been used and all the data on prices, production and inputs is based on same data set.

  • Not enough explanation on Datasets and proxies: There is not enough explanation for the choice of datasets and proxies, especially those datasets that didn’t exist before 2011-12. Though the CSO release mentioned usage of several proxies, there were no details about why those were selected over other datasets.

  • Credibility debatable: The role of the NITI Aayog in the release of the statistical exercise of CSO, which comes under Ministry of Statistics and Programme Implementation (MoSPI), has been questioned.


5. National Pension System (Nps)

  • NPS offers two accounts

  • Tier I Account: This is a non-withdrawable account meant for savings for retirement.

  • Tier II Account: This is simply a voluntary savings facility. The subscriber is free to withdraw savings from this account whenever subscriber wishes. No tax benefit is available on this account.

  • EEE v/s EET status

  • EEE-Exempt Exempt Exempt:

  • The first exempt means that your investment qualifies for a deduction, i.e., the part of your salary invested in NPS is not taxable.

  • The second exempt implies that the interest earned during the accumulation phase is also exempted from taxation.

  • The third exempt means that the income you generate from this investment would not be taxable at the time of withdrawal.

  • EET – Exempt Exempt Taxable:

  • The first two exempt means the same, i.e., no taxation for amount invested and interest on accumulated amount.

  • However, the lump sum amount you withdraw is taxable.

  • The Union Cabinet recently approved the proposal for streamlining the National Pension System (NPS).


About National Pension System

  • It is an initiative by the Government of India which is a defined contribution scheme wherein the final corpus depends upon the contribution made by subscribers and the investment returns.

  • The new entrants to the central government service (except the armed forces) on or after 01.01.2004 are covered under the National Pension System (NPS).

  • It was launched in January 2004 for government employees and was opened to all sections in 2009.

  • A subscriber contribute regularly in a pension account during his/her working life, withdraw a part of the corpus in a lumpsum and use the remaining corpus to buy an annuity to secure a regular income after retirement. Employees and employers both contribute to the scheme.

  • It is being implemented and regulated by Pension Fund Regulatory and Development Authority (PFRDA) in the country.

  • Recently cabinet has approved the coveted EEE tax status (tax exempt at entry, investment, and maturity) for the NPS (earlier it was EET).

  • All Citizens (resident or non-resident) who are age between 18 & before 60 years of age are eligible.


Impact of new proposal

  • Increase in the eventual accumulated corpus of all central government employees covered under NPS.

  • Greater pension payouts after retirement without any additional burden on the employee.

  • Benefit to approximately 18 lakh central government employees covered under NPS.

  • Augmenting old-age security in a time of rising life expectancy.

  • By making NPS more attractive, government will be facilitated in attracting and retaining the best talent.

  • The hike in the government’s contribution will make NPS better than the defined pension under the old system where the pensioner got 50% of his last drawn salary.


Concerns in NPS

  • Fiscally expensive reform: The impact on the exchequer on this account is estimated to be to the tune of around Rs. 2840 crores for the financial year 2019-20, and will be in the nature of a recurring expenditure.

  • Unfair: For one generation, the government is paying contributions to new workers (with a 10 per cent wage hike) and pensions to those hired earlier. The fiscal gains only arise from the deaths of employees hired prior to January 1, 2004. These gains would be spread over the 75 years starting from 2004.

  • Off balance sheet Liabilities: These problems fall in the context of the larger question of off-balance-sheet liabilities of the Indian state. NPS is conceived as a low-cost, no-frills market-linked product.


New Proposals

  • Increased contribution by Government: Enhancement of the mandatory contribution by the Central Government for its employees covered under NPS Tier-I from the existing 10% to 14%.

  • Freedom of choice: Central Government employees are provided freedom of choice for selection of Pension Funds and decide pattern of investment.

  • Payment of compensation for non-deposit or delayed deposit of NPS contributions during 2004-2012.

  • Tax exemption: Tax exemption limit for lump sum withdrawal on exit has been enhanced to 60%. With this, the entire withdrawal will now be exempt from income tax. (At present, 40% of the total accumulated corpus utilized for purchase of annuity is already tax exempted. Out of 60% of the accumulated corpus withdrawn by the NPS subscriber at the time of retirement, 40% is tax exempt and balance 20% is taxable.)

  • Tier II Account: Contribution by the Government employees under Tier-II of NPS will now be covered under Section 80 C for deduction up to Rs. 1.50 lakh for the purpose of income tax benefits provided that there is a lock-in period of 3 years.

  • Withdrawal for skill development activity: Apart from partially withdrawing money for exigencies like health, marriage, house and education, subscriber can also withdraw 25 percent of the contributions after three years of joining for skill development activity like startups, new ventures

December Indian Economy

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