What to Read in Indian Express Editorial( Topic and Syllabus wise)

Editorial 1 : Security at its Core

Context: Time for India to build guardrails for data privacy.

 

Introduction: UPI is one of India’s defining contributions to the 21st century. It is ubiquitous, costless to the user, reliable and used by millions. As payments architecture, it has allowed India to bypass the dominance of card networks and moved digital payments ahead by decades.

 

Policy Discourse: The current policy discourse focuses on the duopoly-like structure of third-party app providers (TPAPs) like GooglePay and PhonePe, and the proposed market-share cap of 30%.

 

Market Concentration and Network Externalities

• Market Dynamics: Markets with positive network externalities tend to become concentrated.
• Counterproductive Measures: Imposing arbitrary market-share caps to mimic competition is counterproductive.
• Focus Shift: The discourse should shift from market-share caps to addressing other critical issues like personal data protection.

 

Data Collection and Privacy Concerns

• Data Sharing: UPI shares more consumer spending data compared to traditional transaction methods like credit cards.
• Lack of Standards: UPI lacks data storage standards, unlike traditional payment systems with strict standards like PCI DSS.
• Data Leaks: The involvement of multiple parties in UPI transactions increases the risk of data leaks.
• Privacy Implications: The UPI ecosystem sustains without fees by relying on data collection and sharing, raising privacy concerns.

 

Data Leveraging and Market Impact

• Data Rich TPAPs: The extracted data entrenches the market position of data-rich TPAPs.
• Adjacent Markets: Data leveraging by TPAPs into adjacent markets (e.g., insurance, micro loans) may limit contestability.
• Business Models: Data extraction-based business models are concerning, but artificial market-share caps are not the solution.

 

Digital Personal Data Protection (DPDP) Rules 2025

• Significant Data Fiduciaries: TPAPs could fall under the ambit of significant data fiduciaries as defined in the draft DPDP Rules.
• Data Minimisation: The principle of data minimisation specifies collecting only necessary data for which consent has been obtained.
• Pro-Competitive Principles: Data minimisation and purpose limitation can mitigate harms of data accumulation by large firms.
• State Exemptions: Rule 5(1) permits the state to process personal data for subsidies, benefits, etc., but exemptions should be limited to NPCI-operated core infrastructure.

 

G20 Troika and Data Governance

• Joint Communiqué: The G20 Troika (India, Brazil, South Africa) emphasizes reducing digital economy asymmetries and establishing equitable data governance principles.
• Financial DPI: India should lead in financial Digital Public Infrastructure (DPI) by implementing robust data governance principles to ensure privacy and security.

 

Conclusion: Enacting and applying DPDP Rules 2025 thoughtfully can enhance transparency and personal data protection in the UPI ecosystem. India has the opportunity to consolidate its position at the forefront of financial inclusion innovation by adopting and implementing advanced data governance principles.

Editorial 2 : Tax Cut will have Multiplier Effects

 

Context: Budget 2025’s tax cuts for middle class will boost consumption many times over.

 

Introduction: Budget 2025 has effectively put an extra Rs one lakh crore into the hands of India’s urban middle class by cutting personal income tax (PIT).

 

Multiplier Effect

• Economists use the concept of the consumption multiplier to estimate how extra disposable income can spark multiple rounds of spending and growth.
• When people have more money, they spend more.
• The shops and businesses that receive this money then pay their employees and suppliers, who in turn spend more.
• This chain reaction can multiply the effect of the original amount many times over.
• The multiplier hinges on two ideas
  1. Marginal Propensity to Save (MPS): The fraction of each additional rupee that people save.
  2. Marginal Propensity to Consume (MPC): The fraction people spend.
  3. MPS + MPC = 1
• The consumption multiplier equals 1/(1-MPC) and so 1/MPS.

 

Estimating MPS and MPC

• To estimate MPS, we note that the debt taken by households, which is included in the net savings rate but not in the gross savings rate, may be used primarily for asset creation.
• So, to know the proportion of Rs 1 lakh crore that will be consumed, one minus the gross savings rate for the urban middle class represents the best proxy.
• The gross national savings rate, which is averaged across all Indian households, approximates to 30% for the last decade. This implies a MPC of 0.7 across all households.
• India’s middle class has a higher MPC than wealthy households.
  1. The affluent may invest extra income in stocks and real estate.
  2. But middle-income earners channel much of any windfall into day-to-day consumption — upgrading phones, buying household items, and spending on education or healthcare.
• Using the reasonable estimate of 20% as the MPS for urban middle-class households, we obtain a consumption multiplier of five.
  1. Using the consumption multiplier of five, the PIT cut could generate up to Rs 5 lakh crore in additional consumption this year.

 

Reasons for Multiplier to be Lower than the Theory

• People might save more if they suspect higher taxes later.
• If government borrowing rises, interest rates could climb, dampening private investment.
• If consumers buy a lot of foreign goods, the domestic impact drops.
• Uncertainty about jobs or the economy can push households to save for precautionary purposes
• If firms cannot expand production, higher demand might mainly raise prices, not output to match the rising demand.

 

Targeting the Urban Middle Class

• Current Scenario: Urban middle-class spending lags behind rural demand.
• Impact of PIT Cut
  1. Stimulates consumption of locally produced goods (electronics, durables, entertainment).
  2. Reduces leakage of money abroad.
• Consumer Confidence: With fiscal deficit under control (4.4% of GDP), households are likely to spend rather than save.

 

Crowding-In Private Investment

• Mechanism: Increased urban middle-class demand encourages firms to invest in new projects.
• Employment and Income: More hiring leads to higher incomes, further boosting consumption.
• Contrast with Crowding-Out: Unlike typical tax cuts that may crowd out private investment, this well-targeted cut is likely to crowd in investment.

 

Long-Term vs. Short-Term Impact

• Tax Cuts: Provide near-term stimulus but do not yield long-term gains.
• Capital Outlays (Capex): Investments in infrastructure (roads, railways, power) enhance productivity and long-term growth.
• Policy Balance: The PIT cut complements the government’s focus on growth through investment-led virtuous cycles.

 

Role of Monetary Policy

• Recommendation: RBI should adopt an easy monetary policy to support private investment and output growth.
• Fiscal Prudence: Central government’s fiscal deficit remains under control, creating room for monetary easing.

 

Conclusion: The PIT cut provides a timely stimulus to urban middle-class consumption, driving short-term economic growth. But it does not replace the need for sustained public investment in infrastructure for long-term productivity gains. Fiscal prudence, targeted tax cuts, and supportive monetary policy will foster private investment and economic growth.