{"id":117699,"date":"2024-07-03T19:59:44","date_gmt":"2024-07-03T14:29:44","guid":{"rendered":"https:\/\/pwonlyias.com\/stage\/?post_type=current-affairs&#038;p=117699"},"modified":"2024-07-04T17:21:13","modified_gmt":"2024-07-04T11:51:13","slug":"modinomics","status":"publish","type":"current-affairs","link":"https:\/\/pwonlyias.com\/stage\/current-affairs\/modinomics","title":{"rendered":"Modinomics"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">Modinomics are the <\/span><b>set of economic policies announced and led by the Prime Minister Narendra Modi since 2014 till now.<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>The main principle:<\/b><span style=\"font-weight: 400;\"> Modinomics aims to <\/span><b>encourage investment to \u201cMake in India\u201d.<\/b><span style=\"font-weight: 400;\"> To transform India into a <\/span><b>global hub of manufacturing, innovation and creating a market based economy<\/b><span style=\"font-weight: 400;\"> for development.<\/span><\/li>\n<\/ul>\n<h2><span style=\"font-size: 18pt;\"><b>The Status of Private Investment in India<\/b><\/span><\/h2>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-117788 alignright\" src=\"https:\/\/pwonlyias.com\/stage\/wp-content\/uploads\/2024\/07\/unnamed-39-2-668687d52d723.webp\" alt=\"Modinomics\" width=\"450\" height=\"362\" srcset=\"https:\/\/pwonlyias.com\/stage\/wp-content\/uploads\/2024\/07\/unnamed-39-2-668687d52d723.webp 2000w, https:\/\/pwonlyias.com\/stage\/wp-content\/uploads\/2024\/07\/unnamed-39-2-668687d52d723-300x241.webp 300w, https:\/\/pwonlyias.com\/stage\/wp-content\/uploads\/2024\/07\/unnamed-39-2-668687d52d723-1024x823.webp 1024w, https:\/\/pwonlyias.com\/stage\/wp-content\/uploads\/2024\/07\/unnamed-39-2-668687d52d723-768x617.webp 768w, https:\/\/pwonlyias.com\/stage\/wp-content\/uploads\/2024\/07\/unnamed-39-2-668687d52d723-1536x1235.webp 1536w, https:\/\/pwonlyias.com\/stage\/wp-content\/uploads\/2024\/07\/unnamed-39-2-668687d52d723-1568x1261.webp 1568w\" sizes=\"(max-width: 450px) 100vw, 450px\" \/><\/p>\n<p><span style=\"font-weight: 400;\">As per the<\/span><b> latest data from investment tracking firm Projects Today,<\/b><\/p>\n<ul>\n<li><b>Fresh Private sector investment plans<\/b><span style=\"font-weight: 400;\">: It\u00a0 <\/span><b>fell by 15.3%<\/b><span style=\"font-weight: 400;\"> in 2023-24<\/span>\n<ul>\n<li><b>Manufacturing sector: <\/b><span style=\"font-weight: 400;\">The proposed outlays<\/span><b> dropped an alarming 40%<\/b><span style=\"font-weight: 400;\"> from \u20b919.85 lakh crore in 2022-23 to under \u20b911.9 lakh crore in 2023-24<\/span><\/li>\n<\/ul>\n<\/li>\n<li><b>Foreign investment: <\/b><span style=\"font-weight: 400;\">The proposed<\/span><b> outlays fell 31.7% or \u20b91.5 lakh crore<\/b><span style=\"font-weight: 400;\"> to a little more than \u20b93.23 lakh crore in 2023-24.<\/span><\/li>\n<li><b>Economic Survey 2022-2023:<\/b><span style=\"font-weight: 400;\"> Private sector investment in India has been falling <\/span><b>as a proportion of Gross Domestic Product (GDP) since 2012<\/b>\n<ul>\n<li><b>FY 2020-21: Private sector investment as a percentage of GDP had fallen to 19.6 per cent.<\/b><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p style=\"text-align: center;\"><span class=\"vc_button\"><a href=\"https:\/\/www.pw.live\/batches\/upsc\/pw-only-ias?utm_source=seo+upsc+batch&#038;utm_medium=seo+upsc&#038;utm_campaign=seo&#038;utm_id=upsc\" target=\"_blank\" rel=\"noopener\">Enroll now for UPSC Online Classes<\/a><\/span><\/p>\n<h2><span style=\"font-size: 18pt;\"><b>The Private sector Investment<\/b><\/span><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">It is the <\/span><b>Investment made in the economy by all for-profit businesses not owned or operated by the government.<\/b><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Determinants: <\/b><span style=\"font-weight: 400;\">There are 5 determinants of\u00a0 of private sector investment ie.<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Consumer Demand:<\/b> <b>Private Final Consumption Expenditure (PFCE)<\/b><span style=\"font-weight: 400;\">, which is the amount households spend on consumption, <\/span><b>as a percentage of GDP fell 61 per cent by 2019 from 89 per cent in 1950-51.<\/b><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Access\u00a0 to credit: <\/b><span style=\"font-weight: 400;\">Since 2016, while bank credit to the private sector has increased, albeit at a marginal rate, private sector investment has dipped.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Corporate profitability: Listed corporate profits (measured by profit after taxes, PAT) have been stable at 4.0-4.5 per cent of GDP<\/b><span style=\"font-weight: 400;\"> during the past nine quarters and almost doubled from the pre-Covid period (FY18-FY20) average of 2.1 per cent of GDP.<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"3\"><span style=\"font-weight: 400;\">But it is only an anemic view of the economy as the <\/span><b>profitability of about 45 per cent of the economy ie.\u00a0 informal sector <\/b><span style=\"font-weight: 400;\">businesses\u00a0 is not being measured.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Capacity\u00a0 utilisation: <\/b><span style=\"font-weight: 400;\">It is basically a <\/span><b>measure of the extent to which the installed capacity in a company or economy is being utilised to produce the output.<\/b><span style=\"font-weight: 400;\"> The higher the capacity utilisation, the more likely are fresh investments being made<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"3\"><span style=\"font-weight: 400;\">It is an indication of not just current demand, but also a company\u2019s confidence in future demand.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Overall\u00a0 business confidence:<\/b><span style=\"font-weight: 400;\"> Reforms, certainty and stability in the tax and labour laws of the country driving investor confidence.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2><span style=\"font-size: 18pt;\"><b>Government Measures to encourage private investment<\/b><\/span><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Ensuring Macroeconomics stability: <\/b><span style=\"font-weight: 400;\">To restore macroeconomic stability by <\/span><b>introducing an inflation targeting regime and fiscal deficit targeting regime.<\/b><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>The IBC framework: <\/b><span style=\"font-weight: 400;\">The government tried to reduce risks for banks by providing them with legal recourse via the IBC in case the loans went wrong.Also providing investors with <\/span><b>easy exit option.<\/b><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Increased investment in Capital Expenditure: <\/b><span style=\"font-weight: 400;\">\u00a0and boosting infrastructure linkages in the form of investment in transportation; electricity; irrigation; food processing etc<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Reduction of the corporate tax rate:<\/b><span style=\"font-weight: 400;\"> In September 2019, the government announced a <\/span><b>cut in base corporate tax for then existing companies to 22 per cent from 30 per cent;<\/b><span style=\"font-weight: 400;\"> and for new manufacturing firms, to 15 per cent from 25 per cent.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Production subsidies and Incentives schemes: <\/b><span style=\"font-weight: 400;\">Generous production subsidies have been made available through schemes like <\/span><b>Production linked Incentive scheme or the RoDTEP scheme etc.<\/b><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Atmanirbhar Bharat: Tariffs have been imposed to provide protection <\/b><span style=\"font-weight: 400;\">to domestic producers, with schemes such as<\/span><b> Make in India; stand up India; encouraging domestic production.<\/b><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Ease of Doing Business<\/b><span style=\"font-weight: 400;\">:\u00a0 India ranks <\/span><b>63rd in the World Bank&#8217;s Doing Business Report (DBR), 2020<\/b><\/li>\n<\/ul>\n<h2><span style=\"font-size: 18pt;\"><b>Reason for stagnant private investment<\/b><\/span><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Overlooking The Risk component of Investment: <\/b><span style=\"font-weight: 400;\">Most of the measures are catering to a common goal ie. <\/span><b>\u00a0Increasing the returns to investment <\/b><span style=\"font-weight: 400;\">by reducing\u00a0 costs, increase revenues, and others to enhance after-tax profits<\/span><b> while ignoring the risk mitigation component.<\/b><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>\u00a0Reversibility and Scalability of Investments: <\/b><span style=\"font-weight: 400;\">Investments in Manufacturing sectors are <\/span><b>large, indivisible, and difficult to reverse ie<\/b><span style=\"font-weight: 400;\">. involving a greater risk factor with it which calls for a careful consideration of the risks of any investment before approving any significant project.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Uncertain and unstable laws<\/b><span style=\"font-weight: 400;\">: Frequent changes in laws and rules related to tax (example: GST) and labour laws leads to uncertainty bringing down investment risk appetite.<\/span><\/li>\n<\/ul>\n<p style=\"text-align: center;\"><span class=\"vc_button\"><a href=\"https:\/\/store.pw.live\/govt-entrance-exams\/upsc-books\/upsc-textbooks?utm_source=SEO&#038;utm_medium=PW+Live&#038;utm_campaign=UPSC+Textbooks\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">Check Out UPSC NCERT Textbooks From PW Store<\/span><\/a><\/span><\/p>\n<h2><span style=\"font-size: 18pt;\"><b>Investment Risk<\/b><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Risks emanate from three types of state action that favor competitors, are directly coercive, or jeopardize the supply chain from an investor\u2019s perspective,\u00a0<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>National champions risk: <\/b><span style=\"font-weight: 400;\">The abrupt<\/span><b> changes in the policy framework to favor certain national champions in a case of stigmatized capitalism <\/b><span style=\"font-weight: 400;\">has deterred other domestic firms from investing out of fear that their irreversible investment has to account for the risk of discretionary policy changes.<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Example:<\/b><span style=\"font-weight: 400;\"> It has materialized in online and physical retail, airports, cement, ports, telecoms, and media.\u00a0<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Direct and coercive state action:<\/b><span style=\"font-weight: 400;\"> Risk perception of investors deteriorates sharply when there is <\/span><b>a climate of Tax Terrorism <\/b><span style=\"font-weight: 400;\">with selective raids by ED or tax authorities, arbitrary verdicts by regulatory agencies, or pure extortionary actions (electoral bonds saga) resulting in destroying lakhs of crores of investment.\u00a0<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Example: <\/b><span style=\"font-weight: 400;\">Invoking bilateral investment treaties to challenge the government\u2019s retrospective imposition of taxes by Cairn\/Vedanta and Vodafone.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Supply chain risk: Discretionary and abrupt changes in the tariff structure of raw materials and components or worse product bans imposed<\/b><span style=\"font-weight: 400;\"> by the government decreases the risk perception among investors about access to low-cost supplies.\u00a0<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">For Make in India to succeed, manufacturing firms need to be assured about the access to raw materials and inputs from anywhere in the world.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Example: <\/b><span style=\"font-weight: 400;\">\u00a0Vietnam has sought to mitigate supply chain risks by signing FTAs with all the major trading powers, thereby assuring investors that they can count on having access to supplies, both now and in the future.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<table 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now.<\/p>\n","protected":false},"author":11,"featured_media":0,"menu_order":0,"comment_status":"open","ping_status":"open","template":"","format":"standard","meta":{"rank_math_lock_modified_date":false,"footnotes":""},"tags":[],"paper-wise":[],"subject":[],"acf":[],"_links":{"self":[{"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/current-affairs\/117699"}],"collection":[{"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/current-affairs"}],"about":[{"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/types\/current-affairs"}],"author":[{"embeddable":true,"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/users\/11"}],"replies":[{"embeddable":true,"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/comments?post=117699"}],"version-history":[{"count":4,"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/current-affairs\/117699\/revisions"}],"predecessor-version":[{"id":117798,"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/current-affairs\/117699\/revisions\/117798"}],"wp:attachment":[{"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/media?parent=117699"}],"wp:term":[{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/tags?post=117699"},{"taxonomy":"paper-wise","embeddable":true,"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/paper-wise?post=117699"},{"taxonomy":"subject","embeddable":true,"href":"https:\/\/pwonlyias.com\/stage\/wp-json\/wp\/v2\/subject?post=117699"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}