Close Menu
    Trending
    Subscribe
    Friday, July 4
    Extra Covers

    Current Affair 26 March 2025, Today’s Latest Current Affairs

    Naveen SinghBy Updated:8 Mins Read

    Gross Fixed Capital Formation (GFCF) and Its Importance in Economic Growth

    Why in News?

    The share of private capital investment in India’s Gross Fixed Capital Formation (GFCF) has dropped to 33% in FY24, the lowest in a decade. This decline raises concerns about economic growth and future investments.

    What is Gross Fixed Capital Formation (GFCF)?

    Gross Fixed Capital Formation (GFCF) refers to the total investment in long-term physical assets such as infrastructure, machinery, and equipment. It helps in economic expansion by increasing the country’s productive capacity.

    Key Aspects of GFCF:

    • Represents new investments after deducting asset disposals.
    • A significant part of Gross Capital Formation (GCF), which includes:
      • Stock changes (inventory adjustments).
      • Valuable acquisitions (such as gold and precious gems).
    • Contributes about 30% to India’s GDP, making it one of the largest economic components after private consumption.

    Why is GFCF Important?

    • Drives Economic Growth: More investments lead to a higher GDP and improved productivity.
    • Enhances Living Standards: Development in infrastructure and industries benefits the population.
    • Encourages Self-Sufficiency: Strengthens domestic production and innovation.
    • Reflects Business Confidence: A rise in GFCF indicates optimism about future economic growth.

    GFCF Trends Over the Years

    • Between FY15 and FY24, GFCF recorded an average annual growth of 10%.
    • However, growth has slowed recently:
      • 20% in FY23
      • 9% in FY24

    Why is GFCF Declining?

    1. Reduction in Private Investments

    • The private sector’s share in GFCF has dropped to 33%, mainly due to reduced capital spending by unlisted companies.

    2. Weak Global Demand

    • A slowdown in global trade has reduced demand for Indian exports, discouraging investments in manufacturing capacity.
    • The rise in low-cost imports, particularly from China, has impacted local industries like textiles, reducing expansion efforts.

    3. Shift in Corporate Strategy

    • Many firms are prioritizing debt repayment over new investments.
    • The ratio of cash flow from operations to capital expenditure increased to 1.6x in FY24, up from 1.3x in FY14–20, reflecting a focus on financial stability rather than expansion.

    Impact of Declining GFCF

    A decline in GFCF can have serious economic consequences:

    • Slower Economic Growth: Fewer investments lead to lower GDP growth and fewer job opportunities.
    • Delays in Infrastructure Development: Important projects like roads, railways, and power plants may face funding shortages.
    • Reduced Private Sector Participation: Lower investment levels may signal lack of business confidence in the economy.
    • Increased Reliance on Government Spending: Dependence on public investment is unsustainable and limits innovation.

    How Can India Boost Private Investments and GFCF?

    1. Increase Domestic Demand

    • Implement the 8th Pay Commission and raise MNREGA wages to increase rural spending.
    • Greater consumer demand will encourage businesses to expand and invest in new production facilities.

    2. Strengthen Exports and Domestic Industries

    • Complete Free Trade Agreements (FTAs) with the UK and EU to provide Indian businesses with greater market access.
    • Support traditional industries such as textiles and handicrafts by promoting e-commerce platforms.
    • Impose anti-dumping duties on cheap steel imports to protect domestic manufacturers.

    3. Encourage Research and Innovation

    • Utilize the ₹1 lakh crore innovation fund (Budget 2024-25) to promote private research and technological advancements.
    • Encourage startup culture and boost technology-driven industries.

    4. Improve Industrial Infrastructure

    • Provide infrastructure status to sectors like hospitality to attract more private investments.

    5. Promote Green Investments

    • Expand green finance through sovereign green bonds to support eco-friendly projects.
    • Introduce carbon trading incentives to encourage sustainable business practices.

    Conclusion

    Gross Fixed Capital Formation is a key driver of economic growth, but its decline in recent years poses a challenge for India’s development. Encouraging private investment, innovation, and sustainable financing can help reverse this trend and strengthen economic growth in the long run.

    MP Salary Hike vs. Worker Wage Stagnation

    Why in News?

    The Central Government has increased the salaries and pensions of Members of Parliament (MPs) by 24%. This change will take effect on April 1, 2023.

    However, the India Employment Report (IER) 2024 highlights stagnation and decline in real wages for India’s working population, raising concerns over growing income inequality.

    MP Salary Hike Details:

    • New salary: ₹1.24 lakh/month
    • Daily allowance: ₹2,500
    • Pension: ₹31,000/month

    How are MPs’ Salaries Revised?

    • Since 2018, MP salaries and pensions are revised every five years based on the Cost Inflation Index (CII), as per the Finance Act, 2018.
    • The CII is notified annually under Section 48 of the Income Tax Act, 1961 to adjust asset prices based on inflation.

    CII for FY 2024-25: 363 (Prices have risen 3.63 times since 2001).

    Findings of the India Employment Report (IER) 2024

    • Wage Trends:
      • Regular workers’ wages fell from ₹10,925 (2022) to ₹10,790 (2023).
      • Casual wages slightly dropped from ₹4,712 to ₹4,671.
      • Self-employed individuals saw minor gains, from ₹6,843 to ₹7,060.
      • Women’s earnings declined, while men in self-employment saw marginal growth.
    • Weak employment generation despite economic growth indicates a lack of quality job opportunities.

    Concerns Over Wage Disparity

    1. Rising Political Pay vs. Worker Wages

    • India’s per capita income (2022-23): ₹1.72 lakh/year (₹14,333/month).
    • A retired MP’s pension is twice the national average income, while a sitting MP earns nine times more.
    • This wage gap weakens public trust, as leaders benefit while workers struggle.

    2. Governance Priorities

    • MP salaries rose 24% in 2025, but the National Floor Level Minimum Wage (NFLMW) remains at ₹176/day, unchanged since 2017.
    • This reflects imbalanced policy priorities that favor political pay over worker welfare.

    3. Economic Struggles and Rising Inflation

    • Food inflation (2024): 9.04%.
    • Household savings (FY24): 5.3% of GDP (lowest in years).
    • Without wage increases, people rely more on government subsidies, encouraging populist policies over real economic reforms.

    4. Impact on Inclusive Growth

    • Wage disparity threatens shared prosperity (SDG 10: Reducing Inequalities).
    • India’s minimum wage laws remain outdated, unlike the EU’s fair wage policies that cover housing, education, and healthcare.

    How Can India Bridge the Wage Gap?

    1. Independent Pay Commission

    • Establish an independent emoluments commission to depoliticize MP salary hikes.
    • Align political salaries with economic performance and public wage growth.

    2. Inflation-Linked Minimum Wage

    • Implement a National Wage Indexation Mechanism to adjust minimum wages to inflation periodically.

    3. Shift from Minimum Wage to Fair Wage

    • Expand “decent standard of living” to include health, education, and housing as per Article 43 of the Indian Constitution.
    • Align with the ILO’s Decent Work Agenda to ensure fair employment policies.

    4. Digital Wage Monitoring

    • Use e-Shram, EPFO databases, and real-time tracking to enforce wage compliance, especially in the informal sector.

    5. 8th Pay Commission for Wage Parity

    • The 8th Pay Commission should balance public and private sector wages, ensuring fair income distribution.

    Conclusion

    While MPs continue to receive regular salary hikes, workers in various sectors face stagnant wages and economic hardship. Bridging this gap through fair policies, wage reforms, and inflation adjustments is essential for a balanced and inclusive economy.

    Impact of Cloud Band on Monsoon

    Why in News?

    A study by the Indian Institute of Science (IISc) highlights that the strength of monsoon cloud bands plays a crucial role in determining rainfall intensity and movement over the Indian subcontinent.

    Key Findings of the Study

    1. Strength of Cloud Bands

    • Only strong equatorial cloud bands move northward and trigger wet spells in India.
    • Weak cloud bands fail to propagate, contradicting earlier models that assumed consistent movement regardless of strength.
    • Boreal Summer Intraseasonal Oscillation (BSISO) influences monsoon wet and dry spells by moving cloud bands from the equator to India.

    2. Air-Sea Interaction

    • The Indian Ocean’s air-sea interactions play a crucial role in moisture buildup and wind strength.
    • Stronger air-sea coupling leads to higher atmospheric moisture, intensifying the monsoon.

    3. Climate Change Impact

    • A warmer atmosphere holds more moisture, increasing wet spell intensity.
    • Rainfall during wet spells is projected to increase by 42% to 63% over India and nearby seas in the future.

    4. Improving Climate Models

    • These findings will help enhance the accuracy of seasonal and sub-seasonal monsoon forecasts.

    What is Boreal Summer Intraseasonal Oscillation (BSISO)?

    • BSISO is a monsoon pattern that moves cloud activity and heat from the Indian Ocean to the western Pacific between June and September.
    • It regulates the monsoon’s ‘active’ (rainy) and ‘break’ (dry) phases, affecting rainfall, wind, and ocean waves.
    • BSISO Strength & ENSO:
      • La Niña enhances northward cloud movement, strengthening monsoons.
      • El Niño weakens BSISO, reducing rainfall.

    Key Facts About India’s Monsoon

    1. Meaning of Monsoon

    • Derived from the Arabic word “mausim”, meaning season.

    2. Types of Monsoon in India

    A. Southwest Monsoon (June-September)

    • Also known as the “advancing monsoon”.
    • Brings moisture-laden winds from the Indian Ocean.
    • Causes heavy rainfall due to:
      • Low pressure over Tibet.
      • High pressure over the Indian Ocean.

    B. Northeast Monsoon (October-December)

    • Also called “retreating monsoon”.
    • Brings rainfall to Tamil Nadu and coastal Andhra Pradesh.
    • Results from the southward shift of monsoon troughs.

    Factors Affecting the Indian Monsoon

    1. Inter-Tropical Convergence Zone (ITCZ)

    • ITCZ shifts northward in summer, creating low pressure over India.
    • Pulls in moisture-laden winds, triggering the Southwest Monsoon.

    2. Tibetan Plateau Heating

    • Generates the Tropical Easterly Jet, influencing monsoon intensity.

    3. Oceanic & Atmospheric Influences

    • Subtropical Westerly Jet: Influences the Northeast Monsoon.
    • Somali Jet: Strengthens Southwest Monsoon winds.
    • Indian Ocean Dipole (IOD):
      • Positive IOD (warmer west Indian Ocean) → Stronger monsoon.
      • Negative IOD (warmer east Indian Ocean) → Weaker monsoon.
    • El Niño: Often linked with weak monsoons and droughts.
    • La Niña: Typically brings stronger monsoons and above-average rainfall.

    Conclusion

    The strength of monsoon cloud bands significantly impacts rainfall and weather patterns in India. Understanding BSISO, air-sea interactions, and climate change effects can help improve monsoon forecasting and disaster preparedness.

    Share.

    Related Posts