India’s Move Towards Cashless Economy : Modi’s “Masterstroke”



What is cashless economy or virtual economy?

It can defined a situation in which flow of cash within economy is non-existent and transactions are done through electronic channels like debit card, credit card, electronic clearing, payments such as Immediate Payment Service (IMPS), National Electronic Funds Transfer and Real Time Gross Settlement in India.

Cashless economy can well be reality in India, but their are some barriers which can be reduced with help of Government initiatives.

  1. Government must create awareness about benefits of cashless transaction and increase participation of rural population in banking by effective implementation of Jan dhan Yojna.
  2. By putting in place robust payments mechanism to settle digital transactions which will help for safe transaction.
  3. Giving incentives such as a service tax waiver when credit cards or other forms of digital settlements are used will promote the use of cashless transaction.
  4. The Reserve Bank of India too will have to come to terms with a few issues, from figuring out what digital payments across borders means for its capital controls to how the new modes of payment affect key monetary variables such as the velocity of money.
  5. RBI will also have to shed some of its conservatism, part of which is because it has often seen itself as the protector of banking interests rather than overall financial development.

An investigative team of retired judges appointed by the government handed in the fifth of its reports recently.

Important recommendation made:

Cash transactions of over Rs.3 lakh be banned and Nobody should be permitted to hold more than Rs.15 lakh in cash.

Tax evasion has always been an issue in political arena. In a bid to evade tax many Indians deposit their money in offshore account. Cashless economy will have crack down on this black money. That’s why the government should focus more on enabling this transition than on draconian and hard-to-implement laws that threaten tax evaders with years of hard labour. The best way to eliminate black money is to get rid of the money.

The government has identified 19 short-term measures to be implemented in the current financial year in keeping with its plan to move to a cashless economy. The government is committed to digital transactions infrastructure and putting in place the ecosystem where facility for transactions can be availed at doorstep by common man.

Finance minister Arun Jaitley said that the government’s decision to withdraw Rs 500 and Rs 1,000 notes will move the country towards a cashless economy or virtual Economy. It will take India towards a cashless economy, it doesn’t merely push the country in that direction, but significantly pushes it. The government’s move on 08-11-2016 to demonetise Rs 500 and Rs 1,000 notes to check black money, counterfeit currency and terror financing will also encourage digital transactions.

Is India prepared for a cashless world?

If India hopes to be a cashless economy, it is not enough that everyone has a bank account (crores of people still do not have them); it is important that facilities exist to transform every transaction into a cashless transaction.

What number of shops have credit/debit card machines? What number of individuals have credit/debit cards? What number of individuals have knowledge about net-banking?

At this point when India is not prepared for a cashless world, the untimely presentation of measures for a cashless economy will only adversely affect the poor and working classes of society. We require progressive and better management of steps if we aspire to go cashless.

This is a measure to cover up the utter failure of the Modi government on the economic front, on joblessness, high prices and no pick-up in domestic demand, crippling all sections of our population, especially the working classes, and ruining the peasantry.

Digital money would need everyone to be digitally connected, and connectivity to be available in every nook and corner of the country 24x7x365, even in the face of natural disasters. That time will come, technology will make it possible, but there is still a long way to go.

How can cashless transactions help an economy?

Cash is a costly item as the paper is imported and movement of cash involves expenditure for security and insurance. If people do banking through cheques and net banking all these expenditures can be minimized. Cash transactions should therefore be minimized. However in India 100% financial inclusion has not been made. So people depend on cash transactions.

If all activities are routed through Banks, the problem of black money can also be eradicated to a great extent if not eliminated as govt will have access to all available banking information.

Of course there are cyber crimes but compared to black money such crimes are much less in dimension. Insurance companies have introduced cash less medi-claim facilities, which has eradicated a lot of bogus claims and simplified payment mechanism. Thus cash less transactions helps the economy to a great extent.

This surgical strike on 500 & 1000 note is one way to curb the hidden black money. This may not cleanse the entire black money exists in our country, but will definitely reduce to a significant level. Central Government took this bold decision (may be months back) and suddenly implemented it leading to chaotic situation among unaccounted money holders. While the regular people i see are happy about it and will be more than happy when we have a seamless cashless transactions at every POS in India.

Advantages & Disadvantages of a cashless society?


The main advantage of a cashless economy is that a record of all economic transactions through electronic means makes it almost impossible to sustain black market. Because it is also much more risky to conduct criminal transactions or avoid the proper payment of due taxes in a cashless society, such violations are likely to be greatly reduced. Reducing use of cash would also strangulate the grey economy, prevent money laundering and even increase tax compliance, which will ultimately benefit the customers at large.


Electronic payments will help businesspeople grow their customer base and resource pool, far beyond the limitations of their immediate geographic area.

  1. Using a payment card gives convenience and security than making cash withdrawal and moving to where to make purchase.
  2. It will drive the development and modernisation of the payment system, promote transparency and accountability, reduce transaction costs and decrease the size of the gray or informal economy.
  3. It will reduce pickpocketing and highway robbery which is very rampant in some countries.
  4. It will help users control reckless spending and improve personal accountability.


NO CASH/CURRENCY at hand. If you lose it may take a long while to procure another. Moreover, cash is not under your control, Impractical if you move to another country, Cards get expired and then you have to buy new one which takes long time, Without cash there would be no instant payments for goods and services, Disadvantages of a cashless society consist of privacy issues and computer hackers, Banks will be more powerful and there will be high interest rates.

The whole system relies on trust. If you don’t trust the government to accurately record your money then it can quickly vanish. When a crisis hits there is a surge of people wanting physical cash over deposits. People don’t like being told you can not take your money out.

Is India prepared for a cashless world?

If India hopes to be a cashless economy, it is not enough that everyone has a bank account (crores of people still do not have them); it is important that facilities exist to transform every transaction into a cashless transaction.

What number of shops have credit/debit card machines? What number of individuals have credit/debit cards? What number of individuals have knowledge about net-banking?

At this point when India is not prepared for a cashless world, the untimely presentation of measures for a cashless economy will only adversely affect the poor and working classes of society. We require progressive and better management of steps if we aspire to go cashless.

 Related Post

New RBI Governor faces five priority areas

With Reserve Bank of India (RBI) Governor Raghuram Rajan deciding not to seek a second term, the government is in the process of finalising Mr Rajan’s successor, and an announcement is expected shortly.While the names of several economists and bureaucrats are doing roundsone thing certain is that the new governor will face number of challenges ranging from reining in inflation to managing currency volatility. Here is a list of the top challenges.

FCNR (B) Redemption

One of the immediate challenge is the redemption pressure of the Foreign Currency Non-Resident (bank) deposits, or the FCNR(B) deposits, as outflows will start from September. These deposits were raised in 2013 when the rupee was depreciating sharply and went on to hit its lowest against the dollar in August 2013. While Mr. Rajan said the outflows, estimated at about $20 billion, was a non-event, there are concerns of foreign inflows slowing down.

“The redemption of the FCNR(B) deposits can pose a challenge if foreign exchange flows dry up due to Brexit as banks will struggle to deliver more than $10 billion of forwards to the RBI after maintaining nostro balances of $10 billion to $15 billion,” said Indranil Sengupta, Economist and co-head of India Research, Bank of America Merrill Lynch.

Monetary Policy Committee

The new governor will be also the first one to make his policy stance under the new framework of the Monetary Policy Committee. The Centre has already laid down the rules for the selection of its nominees to the panel.

MPC is a departure from the present practice where the entire onus rests on the governor for any rate decision. While the governor will have the casting vote if there is a tie, the responsibility will be shared by the committee. The governor has to ensure that he does not opt for the casting vote frequently. .

Radhika Rao, economist with DBS Bank said the new governor might be tasked with the transition to the new policy framework, in case the panel formulation does not happen before the policy review scheduled for August. After August, the next policy review is on 4 October — after Mr. Rajan’s term expires in early September.

“The approach (of the MPC) will be supportive to the governor. Whatever the decision is, more discussion and better discipline will be ensured with this committee approach which will improve credibility of decision-making,” said Rupa Rege Nitsure, group chief economist, L&T Finance Holdings who was a member of the Urjit Patel committee which mooted the idea of MPC.

Managing expectation

The new governor will take charge amid expectation of sharp cuts in interest rates – something which Mr. Rajan resisted. RBI had reduced the policy rate by 150 bps to 6.5 per cent between January 2015 and now. However, the expectation was that of deeper cuts. The burden of expectation now will fall on the new governor at a time when retail inflation accelerated to a near two-year high of 5.76 per cent in May, driven by surging prices of food products such as pulses and sugar. This is higher than the 5 per cent March inflation target set by the RBI.

Recently released meeting minutes of the technical advisory committee of monetary policy showed that members had expressed concern on the inflation outlook since food inflation rose by 100 basis points, headline inflation moved up by 60 basis points, and after excluding food, fuel, petrol and diesel, inflation edged up marginally and remained sticky in April.

The outgoing governor has cautioned against dropping the guard against inflation. The new governor may find it challenging to manage rate cut expectation of the government and the industry at a time when inflation is on the rise, said a former central banker.

Bank clean up

The new governor also has to complete the task of cleaning up of Indian banks that was started by Mr. Rajan, who had set a deadline of March 2017 to complete the exercise. This will mean banks have to make higher provisions for all the loans that the Asset Quality Review of the central bank found to be either stressed or weak.

There are requests from banks to extend regulatory forbearance that Mr. Rajan has resisted. These requests will resurface again with the new governor taking charge. Also, saddled with bad loans, banks, particularly public sector ones, have squeezed lending. It will be a challenge to kick-start lending in the economy for growth to revive, said a chief executive of a large public sector bank.

RBI autonomy

Former RBI governor Dubburi Subbarao once famously said that the public perception of autonomy of the central bank is more important than the actual autonomy. Mr. Subbarao, who was the first governor to be appointed straight from the government ranks (where he was the finance secretary), had raised eyebrows among commentators who were sceptical about central bank independence after he took charge.

The same could happen with the new governor irrespective of whether the person comes from government or academia given the public discourse at this point in time with regard to Mr. Rajan’s sudden announcement, two and a half months ahead of the end of his term. Central bank watchers said perhaps the biggest challenge of the new governor will be the constant comparison with the profile of Mr. Rajan who is regarded as a credible policymaker, not only within India but also in international circles.

GS Paper-III (Main Examination 2016-17)- Indian Economy

Economic Development 56 Model Question’s and Answer’s for Main’s 2016-17

Q.1 What are the major objectives of PRADHAN MANTRI KRISHI SINCHAYEE YOJNA (PMKSY). Discuss the need of promoting organic farming with reference to PMKSY.

Ans:- The major objective of the PMKSY is to achieve convergence of investments in irrigation at the field level, expand cultivable area under assured irrigation (Har Khet ko pani), improve on-farm water use efficiency to reduce wastage of water, enhance the adoption of precision-irrigation and other water saving technologies (More crop per drop), enhance recharge of aquifers and introduce sustainable water conservation practices by exploring the feasibility of reusing treated municipal based water for peri-urban agriculture and attract greater private investment in precision irrigation system. The scheme also aims at bringing concerned Ministries/Departments/Agencies/Research and Financial Institutions engaged in creation/use/recycling/potential recycling of water, brought under a common platform, so that a comprehensive and holistic view of the entire “water cycle” is taken into account and proper water budgeting is done for all sectors namely, household, agriculture and industries. The programmed architecture of PMKSY aims at a ‘decentralized State level planning and execution’ structure, in order to allow States to draw up a District Irrigation Plan (DIP) and a State Irrigation Plan (SIP), which will have holistic developmental perspective outlining medium to long term developmental plans integrating three components namely, water sources, distribution network and water use application. The Government of India has taken several farmer friendly initiatives. These, amongst other things, include the following:

• A new scheme has been introduced to issue a Soil Health Card to every farmer.

• A new scheme for promoting organic farming “Pramparagat Krishi Vikas Yojana” has been launched to promote organic farming.

• A dedicated Kisan Channel has been started by Doordarshan to address various issues concerning farmers.

• Government is also encouraging formation of Farmer Producer organizations. Organic farming is a holistic production management system which promotes and enhances health of agro-ecosystem related to bio-diversity, nutrient bio-cycle and soil biological and microbial activities.

It is normally defined as a system of farming without use of chemical inputs (fertilizers/insecticides etc.) and is primarily based on principal of use of natural on farm organic inputs (like farm yard manure, green manure, oil cakes, press mud etc.) and also natural biological pest control and plant protection measures to promote agro-economic system and soil biological activity. It will increase domestic production and certification of organic produce by involving farmers. Therefore it is significant for the farmers as well as economy and environment.

Taking it further, Government is promoting organic farming through various schemes/ programmes under National Mission for Sustainable Agriculture (NMSA)/ Paramapragat Krishi Vikas Yojana (PKVY), Rashtriya Krishi Vikas Yojana (RKVY), Mission for Integrated Development of Horticulture (MIDH), National Mission on Oilseeds & Oil Palm (NMOOP), and Network Project on Organic Farming of ICAR.

Q.2 Combination of integrity with MUDRA-capital will be the key to success for small entrepreneurs. Elucidate.

Ans:- While there are a number of facilities provided for the large industries in India, there is a need to focus on Micro units, Hence, Micro Units Development Refinance Agency Ltd (MUDRA)., which is wholly owned subsidiary of Small Industries Development Bank of India (SIDBI), has been launched on April 8, 2015 as a Non-Banking Financial Institution (NBFI). The MUDRA is intended to provide refinance support to Last Mile Financiers (LMFs) such as Non-Banking Finance Companies (NBFCs) engaged in financing micro business etc; which are in the business of lending to micro business entities engaged in manufacturing, trading and service activities. MUDRA shall be refinancing the LMFs spread across the country, which cover both urban and rural areas and extend financial assistance to self employment, micro units as per the requirements. There is a perception that large industries create more employment, but reality is that the small enterprises have created more employment in India. And the biggest asset of the poor is his / her integrity, by combining their integrity with capital (MUDRA), it would become the key to their success – iw¡th liQyrk dk daqth gSA For example women’s self help groups in particular; the kind of honesty and integrity showed by these loan takers is seldom seen in any other sector. MUDRA scheme is aimed at “funding the unfunded”. The small entrepreneurs of India are used to exploitation at the hands of money lenders so far, but MUDRA will instill a new confidence in them that the country is ready to support them in their efforts that are contributing so heavily to the task of nation building. The established financial systems will move to the MUDRA-model of functioning, i.e. to support entrepreneurs that give employment to a large number of people using least amount of funds. The roles envisaged for MUDRA would include:

• Laying down policy guidelines for micro enterprise financing business

• Registration of MFI entities.

• Accreditation /rating of MFI entities.

• Laying down responsible financing practices to ward off over indebtedness and ensure proper client protection principles and methods of recovery.

• Development of standardized set of covenants governing last mile lending to micro enterprises • Promoting right technology solutions for the last mile.

• Formulating and running a Credit Guarantee Scheme for providing guarantees to the loans/portfolios which are being extended to micro enterprises.

• Support development and promotional activities in the sector.

• Creating a good architecture of Last Mile Credit Delivery to micro businesses under the scheme of Pradhan Mantri MUDRA Yojana.

The above measures to be taken up by MUDRA are targeted towards mainstreaming young, educated or skilled workers and entrepreneurs. The present initiative of the Government in promoting MUDRA will help in providing self-employment and financial assistance to micro units in the country. Thus, the integrity with MUDRA will be a key to success for small entrepreneurs.

Q.3 ‘Financial inclusion is an important priority of government’. In this context explain the Significance of Jan Dhan Yojna. How it will serve the purpose of unlocking the potential growth of the country.

Ans:-Financial Inclusion is an important priority of the government. The objective of Financial Inclusion is to extend financial services to the large hitherto un-served population of the country to unlock its growth potential. To extend the outreach of banking to those outside the formal banking system, Government and Reserve Bank of India (RBI) are taking various initiatives from time to time. To boost the financial inclusion across the country, Pradhan Mantri Jan-Dhan Yojana (PMJDY) was launched on 28.08.2014 which envisages universal access to banking facilities with at least one basic banking account in each household, financial literacy, access to credit insurance and pension. The beneficiaries would get a RuPay Debit Card having inbuilt accidents cover of Rs. 1.00 lakh. In addition, there is a life insurance cover of Rs. 30000/- to those people who opened their bank accounts for the first time between 15.08.2014 to 26.01.2015 and meet other eligibility conditions of the Program.

Under PMJDY as on 29.04.2015, 15.30 cr. accounts have been opened out of which 9.17 cr. accounts are in rural areas and 6.13 cr. in urban areas. 13.71 cr. RuPay Debit cards have been issued. Jan Dhan Yojana will ensure financial inclusion in the country as its achievements can be seen that in 100 days only millions of accounts have been opened. It would help India rationalize its subsidies by direct benefit transfers to the accounts of beneficiaries removing mediators. It will increase the financial literacy in public specially the rural public. It would provide social security to the public in the form of insurance and pension so that that can work further leaving the worry of their health expenses, accidental losses etc. Therefore, in this way the un-served and potentially unlocked population of the country can be included in the growth process which will overall unlock the potential growth of the country.

Q.4 Do you think Asian Infrastructure Investment bank is a rival to the IMF, World Bank, and Asian Development Bank. Discuss the significance of AIIB for India despite having the older ones.

Ans:-The launch of the $100 billion Asian Infrastructure Bank, within two years of its conception, signals the arrival of a new multilateral institution on the world stage. The AIIB took shape with 50 members, including Australia, India, Russia and the United Kingdom and so many. China will be the largest shareholder (at 30.34 per cent), followed by India (8.52 per cent) and Russia (6.66 per cent). The purpose of this Bank is funding the Asian emerging economies for their infrastructural development. For this purpose of funding the world has remained depended upon the Bretten wood system i.e World  Bank led by U.S.A and IMF led by Europe till now.

Further for Asia’s Development Asian Development Bank was established. Further, as per the Asian Development Bank’s (ADB) assessment, Asia needs on an average $800 billion of investment in infrastructure annually between now and 2020. Against this, the ADB, dominated by Japan which is also a founding member, lends no more than $10 billion a year for infrastructure. With the American-dominated World Bank and the Europe-led IMF also remaining hamstrung, the need for a multilateral body to finance the growth region of the world was real. Although the perception about AIIB is that it has meant to counter the purported bias among existing multilateral institutions, that are perceived to be driven largely by the diktats of the U.S. and Europe. Indeed, the AIIB is a culmination of China’s incessant articulation of the concerns of the emerging economies, which felt they were not being given an adequate say in institutions such as the International Monetary Fund and the World Bank. Again, the AIIB is the consequence of the inability of these institutions to undergo change to suit changing times. The AIIB, along with the other new China- based institution, the BRICS Bank, represents the first major challenge to the U.S.-led global economic order and the 70-year uncontested reign of the Bretton Woods twins. In a way, the IMF and the World Bank have only themselves to blame if they find their dominance under threat, because the seeds of the new bank sprouted from either their inability or unwillingness, or both, to meet the growing funding needs of Asia.

It is also essential to see the AIIB and China’s ambitious plans for the ‘belt and road’ project as being complementary. The AIIB as envisaged by China is clearly meant to use its financial resources and surplus to invest in projects in the Asian neighbourhood, which is suffering from a massive infrastructure funding gap. The participation of many countries from Europe and elsewhere in the AIIB attests to their understanding of the potential of the projects for which the investments could be used, especially the Belt and Road schemes. India’s participation in the AIIB, too, indicates that New Delhi is keen on a balancing act to suit its interests – to engage with the West and the dominant international finance order, at the same time exploring options with new financial institutions this is a prudent strategy.

While there is without doubt a geo-political angle to the founding of the bank — which is natural, given that the economic balance of power is shifting to Asia — care should be taken to ensure that it does not become the driving factor in the bank’s functioning. The bank should do what it has been founded for — fund Asia’s infrastructure. Therefore India should not take this new Bank as a rival or alternative to the Older institutions but it should rather take it as supplementary to that and should strategically utilize all the institutions for the better development of country.

Q.5 Do you agree that Land acquisition and rehabilitation and resettlement act 2013 is a hindrance to faster growth of economy. Discuss the recent amendments proposed to this act and its effects on the economy.

Ans. The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation & Resettlement Act, 2013 came into effect from 01.01.2014 This Act came into force on 01.01.2014 by repealing the Land Acquisition Act, 1894. However, it has been reported that many difficulties are being faced in the implementation of the Act. In addition, procedural difficulties in the acquisition of lands required for important national projects were felt and which were considered as hindrance to faster growth in infrastructure building for national relevance. In order to remove them, certain amendments were made in the Act while further strengthening the provisions to protect the interests of the ‘affected families’. In view of the urgency, these were brought about by an Ordinance on 31.12.2014. Subsequently, the ordinance was re-pulgated two more times on 10.03.2015 the Lok Sabha passed the Amendment Bill to replace the Ordinance. The Amendment Bill passed by the Lok Sabha includes some further changes to the Ordinance. The important changes brought about by the amendment are as follows:

• In order to expedite the process of land acquisition for strategic and development activities such as national security or defense of India including preparation for defense and defense production; rural infrastructure including electrification; affordable housing and housing for poor; industrial corridors set up by the appropriate government and its undertakings (in which case the land shall be acquired upto 1 km on both sides of the designated railway line or roads for such industrial corridors); infrastructure projects including projects under public private partnership where the ownership of the land continues to vest with the Government, appropriate governments are empowered to take steps for exemption from “Social Impact Assessment” and “Special Provisions for Safeguarding Food Security”.

• In addition, land acquisitions for such projects are exempted from the “Consent” provisions of the Act as well.

• Prior to the amendment, the provisions of the Act were extended to a ‘private company’, in place of the term ‘private company’; the term ‘private entity’ has been substituted thereby including all nongovernmental entities.

• The period provided in Section 101 for return of unutilized land has been modified to five years or the period specified for the completion of the project.

Therefore, if we compare the above acts and ordinance, The Land Acquisition Act, 1894 was considered as draconian law for the owners of the land which was enforced during British Empire and was then repealed and replaced by The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation & Resettlement Act, 2013 which was more farmer/land owner friendly act. The ‘Social Impact Assessment’ and ‘Consent’ provisions of this act were considered as soul of the act as it ensures the land owners that their will be kept in mind while acquiring land, but it was proposed to be amended in the bill presented this year and it created a lauded lot of voice in the country from opposition, farmers and experts, that the law is again going to be draconian as 1894 act. Further inclusion of Private Entities may also turn in exploitation of poor farmers and thus these amendments were not farmer friendly. Finally the amendment bill has been taken back by the government under the pressure of public and rejection by opposition and Rajya Sabha. It can be said that there might be some difficulties in acquiring land but it keeps a control over misuse of land and restricts unwanted and acquisition. Therefore at least these two provisions of ‘Social Impact Assessment’ and ‘Consent’ must remain in the act.

Q.6 ‘While there is a more frequent practice worldwide of creating regulatory authorities, Including by carving out new bodies from the existing entities, the merger of FMC with SEBI is the first major case of two regulators being merged’. Discuss its aim and significance for the growth of economy.

Ans. Big institutional changes in India often follow big crises. The balance of payment crisis of 1990 paved the way for radical changes in the financial system, including near autonomy to the central bank. Electronic stock exchanges, depositories and an independent regulator for the stock market, the Securities and Exchange Board of India(Sebi) were all born in the aftermath of what became infamous as the 1992 Harshad Mehta scam.

The Rs 5,600-crore payment default that grounded the National Spot Exchange (NSEL) has now triggered the merger of the Forward Markets Commission with SEBI, moving one step closer to a single regulator for all securities and derivatives. The merger of the Forwards Markets Commission with SEBI aims to strengthen regulation of commodity forward markets and reduce wild speculation. The government had constituted the Financial Sector Legislative Reforms Commission (FSLRC) chaired by Justice BN Srikrishna to suggest ways to reform the unwieldy institutional framework governing the financial sector built over a century.

The committee was asked to suggest ways to streamline the tangled web of legislation as well as consolidate the fragmented regulatory architecture. The committee submitted its report in March 2013. One of its key recommendations was unifying SEBI, FMC, IRDA and PFRDA into one single regulatory entity. “Each financial regulator tends to focus on regulating and supervising some components of the financial system. With sectored regulation, financial regulators sometimes share the worldview of their regulated entities. What is of essence in the field of systemic risk is avoiding the worldview of any one sector, and understanding the overall financial system,” the committee reasoned. Over the next few months the risks were revealed in dramatic fashion when an Rs 5,600-crore payment crisis at the NSEL became public.

Unable to handle the crisis, the consumer affairs ministry, handed over the sector regulator FMC to the finance ministry. Once the regulators came under the same ministry, it was only a matter of time that FMC would fold into SEBI. Therefore the merger of the regulatory will reduce the risk of worldviews of any sector and it would fill the gap between two connected sectors which was being misused by the speculators.

Q.7 ‘Vanbandhu kalyan yojna aims at overall development of tribal people’. What are its focus areas?

Ans. The Scheme “Vanbandhu Kalyan Yojana (VKY)” has been included as a Central Sector Scheme in the Plan of Ministry of Tribal Affairs. The Scheme has been formally launched for implementation on 28.10.2014 by the Ministry. The VKY is broadly a process, aiming at overall development of tribal people with an outcome-base approach, which would ensure that all the intended benefits goods and services to the tribal people through various programmes/schemes of Central and State Governments covered under the respective Tribal Sub-Plans actually reach them by way of appropriate convergence. Through VKY, it is envisaged to develop the backward blocks in the Schedule V States as model Blocks with visible infrastructural facilities to further the mission development while ensuring the following:

• Qualitative and sustainable employment.

• Emphasis on quality education & higher education.

• Accelerated economic development of tribal areas.

• Health for all.

• Housing for all.

• Safe drinking water for all at doorsteps.

• Irrigation facilities suited to the terrain.

• All weather roads with connectivity to the nearby town/cities.

• Universal availability of electricity.

• Urban development.

• Robust institutional mechanism to roll the vehicle of development with sustainability.

• Promotion and conservation of Tribal Cultural Heritage.

• Promotion of Sports in Tribal Areas.

In this way the scheme is going to achieve overall development of tribal people. The scheme is to be implemented through State Governments and it has been decided to release Rs.10.00 crore to each of the selected states as a gap filling measure.

Q.8. Maintaining fiscal deficit to the level targeted under FRBM act remains a challenging task for government. What are the reasons for high Fiscal deficit and suggest remedial steps to curb fiscal deficit.

Ans. Fiscal deficit is the difference between the government’s total expenditures and its revenues. The large fiscal deficit of the government remains one of India’s biggest macroeconomic challenges. Received wisdom today is that it was the fiscal profligacy of the 1980s that spilled over into the external sector and fuelled the balance of payments crisis of 1991. In 2011/12, the combined fiscal deficit of the centre and state governments was 8.1 per cent, quite close to the figure of 9.1 per cent in the BoP crisis year of 1990/91. Quite understandably, there are concerns about the adverse macroeconomic consequences of this deficit problem – a large and persistent fiscal deficit. In the pre-crisis period, India’s fiscal consolidation was largely on track, consistent with the targets adopted under the Fiscal Responsibility and Budget Management (FRBM) Act, 2003, which targeted the Fiscal deficit at 3 %. However, this consolidation got interrupted by the crisis induced fiscal stimulus. Fiscal deficit is bad for a number of reasons. Large and persistent fiscal deficit threatens the government’s debt sustainability. The growing interest burden eats into the resources available for discretionary expenditure.

Importantly, it crowds out the private sector from the debt market, inhibits private investment and affects future production capacity. Fiscal deficit can also spill over and trigger balance of payments pressures as indeed happened in India in 1991. There are various challenges in maintaining the fiscal deficit under the target set by FRBM act 2003 like- Payment of Interest, one of the main causes of fiscal deficit is the interest paid by the government on both the domestic and foreign loans, Increase in subsidies as Subsidies directly increase the fiscal deficit, and Defense Budget, the defense budget has also seen an upward trajectory in recent years due to the security concerns for Indian borders and the government has a very limited possibility to reduce it. Hence, defense expenditure also increases the fiscal deficit. These are the major reasons behind high fiscal deficit. To curb fiscal deficit even with a smaller decline in total public expenditure as a proportion to GDP, fiscal consolidation can improve medium-term growth prospects, if government increases capital spending, offsetting the moderating impact of growth in the short-term.

These results reflect the higher long-run fiscal multipliers for capital expenditure and very low long-run multipliers for current expenditure. The economics of fiscal consolidation are quite straight forward. The complexity arises from the political economy. Tax increases and expenditure compression – the two strands of fiscal consolidation – are never politically popular, especially in democracies where political executives, virtually everywhere in the world, are characterized by high discount rates. They are much more tempted by short-term political pay offs rather than long-term sustainability.

Fiscal consolidation, by definition, is a long-term game. In the short- term political costs may exceed benefits; in the long-term, the economic and political benefits far outweigh any costs. It is this congruence of economic and political virtue that must inform fiscal consolidation.

Q.9 Recent MDG report-2015 clearly shows that India is still lagging far behind. Critically examine the status of achievements of India under millennium development goals.

Ans:-The Statistical Year Book, brought out by the Ministry of Statistics and Programme Implementation (MoSPI) clearly shows that India is not on track to meet the Millennium Development Goals, the deadline for which expires this year, it shows that only six of the 18 targets adopted as part of the eight goals in 2000 have been fully met. Another report brought out by the U.N. Economic and Social Commission for Asia and the Pacific shows that India has met only four of the eight MDGs.

The 8 key targets for the MDGs were –

Goal 1: Eradicate Extreme Poverty and Hunger.

Goal 2: Achieve Universal Primary Education.

Goal 3: Promote Gender Equality and Empower Women.

Goal 4: Reduce Child Mortality.

Goal 5: Improve Maternal Health.

Goal 6: Combat HIV/AIDS, Malaria and TB.

Goal 7: Ensure Environmental Sustainability.

Goal 8: Develop Global Partnership for Development.

As per the recent MDG report 2015 official figures, India has achieved 11 out of 22 parameters in the report. India has halved its incidence of extreme poverty, from 49.4 per cent in 1994 to 24.7 per cent in 2011, ahead of the 2015 deadline set by the U.N but the reduction in poverty is still less than that achieved by several of India’s poorer neighbors. Pakistan, Nepal and Bangladesh have each outstripped India in poverty reduction.

It hasn’t even done badly on the education MDGs. The gross enrolment rate in almost every State we can think of is more than one. We can point towards the quality of education and the high drop-out rates, but at least one is getting them to school,” It has ensured gender parity in primary school enrolment but it is still far behind in bringing gender parity.

Although the infant mortality rate fell drastically from 88.2 deaths per 1,000 live births in 1990 to 43.8 in 2012, the annual progress on this had been slow. India continues to lag behind in checking maternal mortality and child mortality to expected levels. India has reversed incidence of HIV/AIDS, and reduced malaria and TB deaths. But here although India claims to be close to meeting its targets, such as reversing the incidence of malaria and TB, the disease burden continues to be high in terms of absolute numbers.

On the environment front, India is one of the few countries that have reduced its carbon dioxide emissions in relation to its GDP. As for the other target of global partnerships for development with other countries, official reports say India is on track. Therefore with the above information we can say that India has achieved its some of the targets but still a lot has to be done and the thrust areas needed to be focused now are further poverty eradication, quality of education, drastically reducing the IMR and MMR, Bringing gender parity remains a difficult task for which India has to make more efforts, and also it has to focus sustainable development. As of now these reports doesn’t appears to be satisfactory, but it is not that bad we can achieve a lot further if we continue our efforts.

Q.10 ‘Deen Dayal Upadhyaya Grameen Kaushalya Yojana (DDU-GKY) – is a Skill Development project for Inclusive Growth’ Elaborate in the light of its features.

Ans:- According to Census 2011, India has 55 million potential workers between the ages of 15 and 35 years in rural areas. At the same time, the world is expected to face a shortage of 57 million workers by 2020. This presents a historic opportunity for India to transform its demographic surplus into a demographic dividend. The Ministry of Rural Development implements DDU-GKY to drive this national agenda for inclusive growth, by developing skills and productive capacity of the rural youth from poor families. There are several challenges preventing India’s rural poor from competing in the modern market, such as the lack of formal education and marketable skills. DDU-GKY bridges this gap by funding training projects benchmarked to global standards, with an emphasis on placement, retention, career progression and foreign placement.

Features of Deen Dayal Upadhyaya Grameen Kaushalya Yojana

• Enable Poor and Marginalized to Access Benefits Demand led skill training at no cost to the rural poor.

• Inclusive Program Design.

• Mandatory coverage of socially disadvantaged groups (SC/ST 50%; Minority 15%; Women 33%).

• Shifting Emphasis from Training to Career Progression.

• Pioneers in providing incentives for job retention, career progression and foreign placements.

• Greater Support for Placed Candidates, Post-placement support, migration support and alumni network.

• Proactive Approach to Build Placement Partnerships, Guaranteed Placement for at least 75% trained candidates.

• Enhancing the Capacity of Implementation Partners, Nurturing new training service providers and developing their skills.

• Regional Focus, Greater emphasis on projects for poor rural youth in Jammu and Kashmir (HIMAYAT), the North-East region and 27 Left-Wing Extremist (LWE) districts (ROSHINI).

• Standards-led Delivery.

• All program activities are subject to Standard Operating Procedures that are not open to interpretation by local inspectors.

All inspections are supported by geo-tagged, time stamped videos/photographs. sTherefore, the features of this Scheme clearly indicates that it is focused on inclusive growth by providing all facilities to the relatively backward youth, from skilling, vocationalizing, training to placement and post placement care and assessment of the scheme etc.

Q.11 ‘Make in India’ aims at transforming India into a global manufacturing hub. Elucidate.

Ans:-The MAKE in India program was launched in September 2 0 1 4 as part of a wider set of nation building initiatives. Designed to transform India into a global manufacturing hub it was a timely response to a critical situation of India in 2013, the much-hyped emerging markets bubble had burst,and India’s growth rate had fallen to its lowest level in a decade. The promise of the BRICS nations had faded, and India was tagged as one of the so-called ‘Fragile Five’. Global investors debated whether the world’s largest democracy was a risk or an opportunity. India’s 1.2 billion citizens questioned whether India was too big to succeed or too big to fail. India was on the brink of severe economic failure. Thus, Make in India was a response to this crisis. It represents a complete change of the Government’s mindset – a shift from issuing authority to business partner, in keeping with government’s tenet of ‘Minimum Government, Maximum Governance’.

It had adopted unique strategies to make ‘Make in India’ a success-

(a)It has inspired confidence in India’s capabilities amongst potential partners abroad, the Indian business community and citizens at large;

(b) Provided a framework for a vast amount of technical information on 25 industry sectors; and

(c) Reach out to a vast local and global audience via social media and constantly keep them updated about opportunities, reforms, etc.

The Make in India program has been built on layers of collaborative effort. DIPP initiated this process by inviting participation from Union Ministers, Secretaries to the Government of India, state governments, industry leaders, and various knowledge partners.This single largest manufacturing initiative undertaken by a nation in recent history is based on the transformational power of public-private partnership, and this has become a hallmark of the Make in India program. This collaborative model has also been successfully extended to include India’s global partners, as evidenced by the recent in-depth interactions between India and the United States of America.

Further, the steps taken for the success of ‘Make in India’ are as follows- The most striking indicator of progress is the unprecedented opening up of key sectors – including Railways, Defense, Insurance and Medical Devices – to dramatically higher levels of Foreign Direct Investment, Revival of growth and investment in domestic manufacturing for job creation, Simplified Tax System for Ease of Doing Business, Expert committee to examine possibility and propose draft legislation to replace multiple prior permissions with easier mechanism, E-Biz portal has been launched for single window clearance of projects online, Basic custom duty on 22 inputs/raw materials reduced to minimize impact of duty inversion and reduce manufacturing cost in various sectors, permanent Establishment norms to be modified to encourage fund managers to relocate to India, General Anti Avoidance Rule (GAAR) to be deferred by two years, Rate of Income Tax on royalty and fees from technical services reduced from 25 per cent to 10 per cent to facilitate technology inflow, Rental income of REITs from their own assets to have pass through facility and Tax pass through to be allowed to both category I and Category II Alternate Investment Funds. Therefore all these steps are taken to make India a global manufacturing hub and Today, India’s credibility is stronger than ever.

There is visible momentum, energy and optimism. Make in India is opening investment doors. Multiple enterprises are adopting its mantra. The world’s largest democracy is well on its way to becoming the world’s most powerful economy.

Q.12 ‘For the growth of the manufacturing sector in India, the need of the hour is attracting foreign investment’. What are the steps taken by the government in this regard and other various steps by the government to reap the potential of demographic dividend of India for the growth of manufacturing sector?

Continue reading “GS Paper-III (Main Examination 2016-17)- Indian Economy”

India’s retail sector:- Some facts are here

1) The retail sector in the nation of 1.2 billion people is estimated to have annual sales of $450 billion, with nearly 90% of the market controlled by tiny family-run shops.

2) Organised retail, or large chains, makes up about 10% of the market, but is expanding at 20% a year. This is driven by the emergence of shopping centres and malls, and a middle class of close to 300 million people that is growing at nearly 2% a year.

3) India has recently allowed 100% FDI in single-brand retail subject to certain sourcing restrictions, paving way for global chains to have full ownership of their India operations. So far US-based coffee giant Starbucks has signed a memorandum of understanding (MoU) with Tata Coffee.

4) Earlier, the government had passed the measure to allow 51% FDI in multi-brand retail. However, it was forced to be put in on the backburner after vociferous opposition from other political parties who alleged that they had not been consulted on the matter. FDI in multi-brand retail is being seen as a key to get much-needed foreign funds into the country

5) India also allows 100% FDI in cash-and-carry, or wholesale, ventures. Restrictions on foreign investment in front-end retail exist because of opposition from millions of small shopkeepers who are valuable vote banks during elections etc..