Why in the News?

NITI Aayog and KPMG have published a report on the impact assessment of the Pradhan Mantri Mudra Yojana (PMMY), highlighting its achievements and challenges.

About PM Mudra Yojana (PMMY)

• Launch: Announced in the 2015 Union Budget for FY-2016, PMMY is a flagship scheme of the Government of India.
• Objective: To provide affordable credit to micro and small enterprises (MSMEs) and integrate them into the formal financial system.

Key Features of the Scheme

• Type: Central Sector Scheme.
• Loans Through Member Lending Institutions (MLIs): Includes Public Sector Banks, Private Sector Banks, Cooperative Banks, Regional Rural Banks, Micro Finance Institutions (MFIs), Non-Banking Finance Companies (NBFCs), and Small Finance Banks (SFBs).
• MUDRA (Micro Units Development & Refinance Agency Ltd.) is responsible for refinancing these institutions, not lending directly to entrepreneurs.
• Eligible Borrowers: Non-Corporate Small Business Segment (NCSB), including individuals, proprietary concerns, partnerships, and companies.
• Credit Guarantee: Provided through the Credit Guarantee Fund for Micro Units (CGFMU), established in 2015 to guarantee loans sanctioned under PMMY.
• Other Benefits:
• No processing charges or collateral requirements.
• Improved access to affordable credit with flexible repayment options.
• MUDRA Card: A debit card issued for the working capital portion of the loan.

Key Achievements Highlighted in the Report

• Credit Support to MSMEs: Since 2015, the scheme has provided credit support of approximately ₹18.39 lakh crore, reaching around 35 crore accounts.
• Financial Inclusion: Women entrepreneurs hold about 71.4% of total PMMY accounts (FY 2022). The sanctioned amount for new entrepreneurs increased from ₹61,650 crore to ₹72,685 crore.
• Encouragement for Small Businesses: About 80% of loan accounts are in the Shishu category, which mainly benefits SC, ST, and OBC individuals.
• Performance of Aspirational Districts: Notable increases in loan accounts and amounts sanctioned, with a year-on-year change of 12% and 14.7%, respectively.

Issues & Challenges Highlighted by the Report

• Regional Variation: The Northeast region has the lowest account numbers and amounts sanctioned, accounting for only about 4% since 2015.
• Rising NPAs: Non-Performing Assets (NPAs) have been increasing at a CAGR of 22.51% in accounts and 36.61% in amounts from FY 2017 to FY 2022, with public sector banks reporting the highest NPAs.
• Issues in Scheme Design:
• A 15% ceiling on payouts under CGFMU limits the benefits for banks.
• Complex claim settlement processes and high guarantee fees.
• Issues in Institutional Mechanism:
• Lack of a centralized database and poor credit penetration in weaker sections.
• Absence of a digitized platform for quick resolution of queries.

Way Forward (Recommendations)

• Advertising: Utilize both traditional and online advertising to promote the scheme and its benefits.
• Digitization: Streamline the lending process to enhance transparency and efficiency.
• Digital Portal: Develop a portal for real-time data upload and management.
• Feedback Mechanism: Implement chatbots and redressal systems for efficient communication with MLIs and borrowers.
• Recognition Mechanism: Incentivize well-performing MLIs to encourage better performance.

Success Stories and Best Practices

• Integration with Other Schemes: The MUDRA scheme is integrated with initiatives like "Loans in 59 Minutes" for quick credit access.
• MUDRA Day: UCO Bank organizes monthly campaigns to enhance accessibility.
• Group Lending Systems: Institutions like Bandhan and IndusInd Bank have successfully reduced NPAs through group-based lending.

The PMMY continues to play a crucial role in empowering small enterprises and promoting financial inclusion across India, but addressing the highlighted challenges is vital for its sustained success.

Overview

The UN’s Ad Hoc Committee has approved a framework to establish a UN Global Tax Treaty, aiming to create a legitimate, fair, stable, inclusive, and effective international tax system. This initiative has garnered significant support from developing countries, including India, while facing opposition from industrialized nations such as Australia, Israel, Japan, the UK, and the USA.

Objectives of the UN Global Tax Convention

• Strengthening International Tax Cooperation: The treaty aims to enhance collaboration among nations to address tax challenges arising from globalization and digitalization, especially concerning large Multinational Corporations (MNCs).
• Mobilizing Domestic Resources: It seeks to utilize tax policy as a tool for sustainable development, enabling countries to effectively harness their domestic resources.
• Implementing Global Frameworks: The convention aims to accelerate the implementation of the Addis Ababa Action Agenda on Financing for Development and the 2030 Agenda for Sustainable Development Goals (SDGs).

Commitments of the UN Global Tax Convention

• Fair Allocation of Taxing Rights: Ensures equitable taxation of MNCs to prevent tax base erosion and profit shifting.
• Addressing Illicit Financial Flows: Focuses on combatting tax evasion and avoidance by high-net-worth individuals, and tackling tax-related illicit financial flows.
• Taxation of Cross-Border Services: Provides a framework for taxing income generated from cross-border services.
• Administrative Assistance: Promotes effective mutual administrative support in tax matters and resolves tax disputes between nations.

Relation to Other Global Initiatives

• The UN treaty complements the OECD Global Minimum Tax initiative, which mandates that MNCs pay a minimum tax rate of 15% in each jurisdiction where they operate. This measure is designed to reduce the incentives for profit shifting by ensuring that corporations contribute a baseline level of taxes.

Conclusion

The UN Global Tax Treaty represents a significant effort to reform international tax systems to be more equitable and sustainable, especially for developing countries. Its success will depend on global cooperation and commitment to addressing long-standing tax challenges in an increasingly interconnected economy.

The Delhi government’s overhaul of the State Action Plan on Climate Change (SAPCC) highlights the urgency of addressing climate-related challenges, especially given the recent extreme weather events.

Overview of SAPCC

• Purpose: SAPCCs are designed to tackle state-specific climate change issues through targeted adaptation and mitigation measures.
• Context: Each SAPCC considers unique ecological, social, and economic conditions of the state, aligning with the National Action Plan on Climate Change (NAPCC).

NAPCC Framework

• Release: Introduced in 2008 to provide a national strategy for climate change adaptation.
• Core Components: The NAPCC consists of eight National Missions addressing various climate aspects.

Current Challenges

• Intensifying Climate Events: Recent heat waves and record rainfall underscore the need for timely revisions.
• Barriers to Implementation:
• Leadership Gaps: A top-down approach and existing plans hinder political will and effective execution.
• Ambiguous Actions: Current plans lack specific, actionable steps, complicating implementation.
• Resource Limitations: Reliance on central government funding has led to under-resourcing at the state level.

Suggested Way Forward

• International Climate Finance: Leverage global funding opportunities to support adaptation costs.
• Nodal Officers: Designate climate change focal points within key departments to streamline efforts and address institutional bottlenecks.
• Project Development: Create detailed project reports to guide implementation and ensure regular updates to the SAPCC.

Conclusion

The revision of Delhi's SAPCC is critical in enhancing the state’s resilience to climate change. By addressing leadership gaps, clarifying actions, and securing necessary resources, Delhi can better navigate the challenges posed by climate change and safeguard its future.

The recent Supreme Court ruling clarified the role of the Lieutenant Governor (L-G) of Delhi regarding the nomination of aldermen to the Municipal Corporation of Delhi (MCD).

Background on Aldermen

• Definition: Aldermen are officials who serve on local governing bodies, often with specialized knowledge in areas such as urban planning and public health.
• Nominations: In India, aldermen are not directly elected by the public but are nominated by elected members of the municipal corporation or the state government. The title of Honorary Alderman can also be conferred as a ceremonial recognition for long service.

Recent Developments

• Controversy: In 2023, the L-G nominated 10 aldermen to the MCD. The Delhi government objected, claiming that these nominees lacked the required expertise and were politically aligned with the BJP, thus challenging their eligibility and the validity of their voting rights in mayoral elections.
• Legal Action: The Aam Aadmi Party (AAP) filed a petition in the Supreme Court, questioning whether the L-G’s actions were a statutory duty or if he was bound by the advice of the Council of Ministers (CoM).

Supreme Court Verdict

• Statutory Duty: The Supreme Court ruled that the L-G has the statutory authority to nominate aldermen under the Delhi Municipal Corporation (DMC) Act, 1957, independently of the CoM.
• Parliamentary Law Compliance: The court stated that the executive powers of the Delhi government must align with laws related to subjects in the State and Concurrent Lists of the Constitution. The authority of the L-G is rooted in amendments made to the DMC Act in 1993, which clarified the constitutional framework for municipal governance in Delhi.
• Independence of the L-G: The ruling emphasized that the L-G is not required to act on the advice of the Delhi government regarding nominations, as this power is conferred by a law enacted by Parliament.

Implications

This ruling underscores the complex dynamics of governance in Delhi, particularly the interplay between the elected government and the appointed L-G. The decision has significant implications for the functioning of local governance and the relationship between the Delhi government and the central authority

Governance in Delhi: Evolution and Framework

Historical Background

• Union Territory Status: At the commencement of the Indian Constitution in 1950, Delhi was classified as a Part C State. It was designated as a Union Territory (UT) in 1956 during the reorganization of states.
• Municipal Corporation of Delhi (MCD): Established in 1958, the MCD facilitated local governance in the capital. A more structured form of local government was introduced in 1966.
• Legislative Assembly: The 69th Constitutional Amendment Act (1991) led to the establishment of a Legislative Assembly for Delhi, introducing Article 239AA in the Constitution, which provided a unique governance framework for the National Capital Territory (NCT) of Delhi.

Article 239AA: Governance Framework

• Legislative Assembly:
• Comprised of elected representatives with powers to legislate on matters in the State and Concurrent Lists.
• Council of Ministers:
• Headed by a Chief Minister, this body advises the Lieutenant Governor (L-G) on various issues.
• Role of the Lieutenant Governor:
• The L-G generally acts on the advice of the Council of Ministers, except where specific laws require independent action.
• In cases of disagreement with the ministers, the L-G has the authority to refer matters to the President of India and can take urgent action if necessary.
• Under Article 239AB, the President can suspend provisions of Article 239AA if governance in the NCT is compromised.
• Powers and Limitations:
• Certain areas, including land, police, and public order, remain under the central government's control, reflecting the unique governance structure of Delhi as a Union Territory.

Implications of Frequent Conflicts Between the Lieutenant Governor (LG) and Elected Government in Delhi

Governance Challenges

• Stalled Public Service Delivery: Ongoing conflicts can lead to delays in decision-making, resulting in administrative paralysis. This negatively impacts public services, infrastructure projects, and policy implementation. For example, disputes over bureaucratic control and official appointments can create inefficiencies.

Political Tensions

• Polarization of Public Opinion: Conflicts can escalate into protests, legal disputes, and a heightened political atmosphere, straining relations between the central and Delhi governments. The Aam Aadmi Party (AAP) has accused the LG of obstructing welfare initiatives, such as Mohalla Clinics and educational reforms.

Complex Federalism

• Questions of Power Balance: Tensions illustrate the challenges of federalism, as the elected government pushes for greater autonomy while the LG, appointed by the central government, is perceived as undermining popular mandates. Supreme Court rulings, including the 2018 judgment, have emphasized that while the LG has special powers, he cannot act independently of the elected government on most matters.

Legal Issues

• Judicial Intervention: Ongoing disputes often lead to Supreme Court involvement, establishing legal precedents that clarify the constitutional framework governing Delhi and influencing interpretations of state versus central powers in other Union Territories.

Bureaucratic Inefficiency

• Confusion Within the Bureaucracy: Disputes create uncertainty among bureaucrats regarding whose directives to follow, hampering decision-making. For instance, the LG's involvement in officer appointments has caused confusion, hindering departmental functioning.

Way Forward

• Amend Existing Laws: Modifying Article 239AA to clearly define the powers of the LG and the Delhi government can help mitigate jurisdictional conflicts.
• Increase Autonomy for Delhi Government: Granting the Delhi government more control over services and appointments could alleviate tensions.
• Establish Mediation Mechanisms: Creating a formal committee to address disputes between the LG and the Delhi government would facilitate conflict resolution.
• Regular Judicial Reviews: Implementing regular reviews of decisions made by both parties can ensure adherence to legal frameworks and set clear precedents.
• Encourage Dialogue: Fostering open communication between the LG, Chief Minister, and other stakeholders could enhance collaboration and governance quality.
• Public Involvement: Engaging citizens in the decision-making process can create pressure for cooperation, ensuring that both the LG and the elected government work towards the common good