GS2 Full
Q1. What sets apart Central Bank Digital Currency (CBDC) from cryptocurrency. Address potential challenges in CBDC’s widespread adoption in India and propose solutions. (10M)
Introduction
To counter the cryptocurrency craze, central banks around the world are taking a closer, keener look at introducing central bank digital currencies (CBDC). 114 countries including India are exploring digital currency, and as is known, India has also launched its own retail CBDC on pilot.
Body:
Distinct characteristics of CBDC that sets it apart from cryptocurrency:
- Issuance and Authority: CBDC is issued and regulated by a central bank, making it a digital representation of a country’s official currency (like the digital version of the Indian Rupee).
- Cryptocurrencies, on the other hand, are typically decentralized and not issued or controlled by any single entity.
- Value Stability: CBDC value is tied to the underlying fiat currency, ensuring relatively minimal fluctuations.
- Cryptocurrencies, such as Bitcoin, are known for their high volatility, with significant price fluctuations in short periods.
- Technology: CBDC operates on centralized infrastructure, relying on the existing financial system and technologies.
- Cryptocurrencies use blockchain technology and are often decentralized, allowing for peer-to-peer transactions without intermediaries.
- Purpose: CBDC serves as a digital version of the national currency, facilitating efficient and secure transactions while maintaining government control over the monetary system.
- Cryptocurrencies were originally designed to provide an alternative to traditional financial systems, aiming for decentralization and financial empowerment.
- Legal Framework: CBDC operates within the legal framework of a country’s financial system. It is subject to regulations and oversight by the central bank.
- Cryptocurrencies, in most cases, exist outside the traditional financial system and may have varying degrees of legal recognition depending on the jurisdiction.
- Interoperability: CBDC is integrated into the national financial system and aims for seamless interoperability with existing payment systems.
- Cryptocurrencies, due to their decentralized nature, may require additional infrastructure or technological adaptations to be fully integrated into traditional financial systems.
Potential challenges in CBDC’s widespread adoption in India:
- Cyber security threats: India is already facing many cyber security threats. With the advent of digital currency, cyberattacks might increase and threaten digital theft like Mt Gox bankruptcy case.
- Heightened risk to the privacy of users: given that the central bank could potentially end up handling an enormous amount of data regarding user transactions.
- Digital Divide: India’s digital divide poses a challenge in ensuring equitable access to CBDC, as a significant portion of the population lacks reliable internet connectivity and digital devices.
- Introduction of digital currency also creates various associated challenges in regulation, tracking investment and purchase, taxing individuals, etc.
- AML/CFT Compliance: CBDC adoption requires strict Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) compliance.
Solution
- Education: Proper education and awareness campaigns are needed to familiarize users with CBDC and its benefits, especially among those with limited digital literacy.
- Gradual Adoption: A phased approach to CBDC adoption is necessary to allow users, businesses, and financial institutions to adapt, minimizing disruptions.
- Public acceptance: This will require a public education campaign to explain the benefits of CBDCs and to address any concerns that people may have.
- Data privacy: There is a need for stronger and bespoke data privacy frameworks based on the following principles:
- Prioritise the best interests of citizens, especially vulnerable populations, when collecting data.
- Limit the collection of personally identifiable information to what is necessary.
Conclusion
The rollout of CBDC or e-Rupee is a giant leap in India’s digital transformation efforts. In view of the recent phasing out of the INR 2,000 denomination banknote, CBDC may just be the apt currency for financial transactions that the country needs to usher in more trust, resilience and efficiency in currency management.
Q2. Mention the key aspects of Pradhan Mantri Kisan Urja Suraksha evam Utthaan Mahabhiyan (KUSUM) scheme and its components? How does this scheme promote the use of solar energy in agriculture and rural areas? (15M)
Introduction
The PM-KUSUM scheme, initiated by the Ministry of New and Renewable Energy (MNRE), promotes solar energy adoption among farmers. It aims to install off-grid solar pumps in rural areas and reduce grid dependence in grid-connected regions.
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Key aspects of Pradhan Mantri Kisan Urja Suraksha evam Utthaan Mahabhiyan (KUSUM) scheme and its components:
- Adding solar capacity: The scheme aims to add solar capacity of 30,800 MW by 2022 with total central financial support of 34,422 Crore including service charges to the implementing agencies.
- Setting up of grid-connected renewable power plants each of 500 KW to 2 MW in the rural area,
- Installation of standalone off-grid solar water pumps to fulfil irrigation needs of farmers not connected to grid, and
- Solarization of existing grid-connected agriculture pumps to make farmers independent of grid supply and also sell surplus solar power generated to DISCOM and get extra income.
- Financial support: it subsidise farmers to install solar irrigation pumps for cultivation. Each farmer will receive a 60% subsidy to set up tube wells and pump sets.
- They will also get 30% of the total cost as a loan from the Government.
- Nodal agencies: State Nodal Agencies (SNAs) of MNRE will coordinate with States/UTs, Discoms and farmers for implementation of the scheme.
Components: KUSUM Scheme comprises 3 components which have different features:
- Component A: Install a total of 10GV grid-connected stilt-mounted decentralised solar plants and other renewable energy-based power plants. Each plant is sized up to 500KW to
- Component B: Install stand-alone solar pumps of up to 5HP individual capacity and worth 17.50 lakh.
- Component C: Provide financial support to Solar is 10 lakh grid-connected agricultural pumps of 5HP of capacity each.
PM KUSUM scheme promoting the use of solar energy in agriculture and rural areas:
- Low cost burden: The Government will subsidise 60% and provide a loan of 30% of the total cost. This leads farmers to bear only 10% of the total cost to install solar plants and solar pumps.
- Income Generation: Farmers are encouraged to set up grid-connected solar power plants on barren or uncultivable land.
- Excess power generated can be sold back to the grid, allowing farmers to earn additional income.
- Stable source of income: A landholder in a rural area can get a stable source of income by utilising barren and uncultivated land for solar plant implementation for 25 years.
- Agricultural Productivity: Reliable and sustainable energy supply through solar pumps enhances agricultural productivity by enabling efficient irrigation.
- In case cultivated fields are chosen for setting up solar power projects, the farmers could continue to grow crops as the solar panels are to be set up above a minimum height.
- Energy Cost Savings: The solar pumps will save the expenditure incurred on diesel for running diesel pumps and provide the farmers a reliable source of irrigation through solar pumps apart from preventing harmful pollution from running diesel pumps.
Conclusion
The PM KUSUM goals aligns with the country’s commitment to enhance the proportion of non-fossil-fuel-based electric power capacity to 40% by 2030, in accordance with the Intended Nationally Determined Contributions (INDCs).
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