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?
Ans:- 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.
This has become a major initiative in attracting foreign investment 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.
Apart from attracting foreign investment there is also a need to utilize domestic resources as in economy all factors are interrelated a single policy cannot solve all the issues, therefore a lot has been initiated domestically also like- Skill India Mission has been initiated to prepare the unskilled labor for skilled labor industries, SETU and START UP India programs has been started to motivate entrepreneurship, Handloom sector is being focused, food processing industry is being focused, MUDRA bank initiative has been started to fund the unfunded Micro and small units, e-commerce is being promoted, e-governance initiatives has been taken, corporate tax has been reduced, and GST is being pushed to be implemented, etc. Therefore all these initiatives are being implemented to make India a global manufacturing hub, for employment generation and a for the growth of the country with large contribution of manufacturing sector in it.
Q.13 Discuss the important features of Gold monetization scheme. How it is helpful in curbing the high import bill and balancing the unfavorable current account.
Ans. The new scheme will allow the depositors of gold to earn interest in their metal accounts and the jewelers to obtain loans in their metal account. Banks/other dealers would also be able to monetize this gold.
The new scheme consists of the revamped GDS and a revamped GML Scheme. Revamped Gold Deposit Scheme has following features:-
• Collection, Purity Verification and Deposit of Gold under the revamped GDS.
• Gold Savings Accounts. •Transfer of Gold to Refiners
• Tenure, short-term period of 1-3 years; a medium-term period of 5-7 years and a long-term period, of 12-15 years.
• Attractive Interest rate.
• Redemption: either in cash or in gold both options are available
• Utilization: The deposited gold will be utilized in the following ways:
• Under medium and long-term deposit
• Replenishment of RBIs Gold Reserves
• Lending to jewelers
• Under short-term deposit
• Coins • Lending to jewelers
• Tax Exemption: Tax exemptions, same as those available under GDS would be made available to customers, in the revamped GDS, as applicable.
• Gold Reserve Fund: The difference between the current borrowing cost for the Government and the interest rate paid by the Government under the medium/ long term deposit will be credited to the Gold Reserve Fund.
Revamped Gold Metal Loan Scheme has following features:
• Gold Metal Loan Account: A Gold Metal Loan Account, denominated in grams of gold, will be opened by the bank for jewelers. The gold mobilized through the revamped GDS, under the short-term option, will be provided to jewelers on loan, on the basis of the terms and conditions set-out by banks, under the guidance of RBI.
• Delivery of gold to jewelers: When a gold loan is sanctioned, the jewelers will receive physical delivery of gold from refiners.
The banks will, in turn, make the requisite entry in the jewelers’ Gold Loan Account. Interest received by banks: The interest rate charged on the GML will be decided by banks, with guidance from the RBI. The objective of introducing the schemes is to make the existing schemes more effective and to broaden the ambit of the existing schemes from merely mobilizing gold held by households and institutions in the country to putting this gold into productive use.
The long-term objective which is sought through this arrangement is to reduce the country’s reliance on the import of gold to meet domestic demand and also curb the high import bill, which is prominently contributed by gold import. GMS would benefit the Indian gems and jewellery sector which is a major contributor to India’s exports. The mobilized gold will also supplement RBI’s gold reserves and will help in reducing the government’s borrowing cost.
The scheme will help in mobilizing the large amount of gold lying as an idle asset with households, trusts and various institutions in India and will provide a fillip to the gems and jewellery sector. Over the course of time this is also expected to reduce the country’s dependence on the import of gold. In this way it would be helpful in curbing the high import bill and balancing the unfavorable current account.
Q.14 ‘Growing population and rapid urbanization has forced a large scale rural to urban migration and has increased the stress on urban areas’. Do you think ‘Smart City” initiative is the solution thereof?
Ans:- India containing only 2.4 % of the world’s total land surface, contains about 17 % of the the world’s population. It stands at second position in terms of most populated countries after china being at first position. And more than approx 70% of the population lives in rural area where they are lacking basic facilities like infrastructure, education, health, employment etc. and there is large scale rural to urban migration in search of jobs, employment, urban amenities, better education, and better health facilities which is increasing stress on urban areas in terms of population, administration, cleanliness, slums, etc hampering India’s growth. For realizing the India growth story, the urban areas of the country need to be improved in terms of infrastructure, urban governance to enhance business and economic activity and quality of life.
For this purpose the government has started a new project ‘Smart City’ Project.
• Launched with outlays of Rs.48, 000 cr. Initially it will select 100 cities acroos the country.
• Under the Smart Cities Mission, each selected city would get central assistance of Rs.100 cr. per year for five years.
• Smart City aspirants will be selected through a ‘City Challenge Competition’ intended to link financing with the ability of the cities to perform to achieve the mission objectives.
• Each state will shortlist a certain number of smart city aspirants as per the norms to be indicated and they will prepare smart city proposals for further evaluation for extending Central support.
• This Mission of building 100 smart cities intends to promote adoption of smart solutions for efficient use of available assets, resources and infrastructure with the objective of enhancing the quality of urban life and providing a clean and sustainable environment.
• Special emphasis will be given to participation of citizens in prioritizing and planning urban interventions. It will be implemented through ‘area based’ approach consisting of retrofitting, redevelopment, pan-city initiatives and development of new cities.
• Under smart cities initiative, focus will be on core infrastructure services like: Adequate and clean Water supply, Sanitation and Solid Waste Management, Efficient Urban Mobility and Public Transportation, Affordable housing for the poor, power supply, robust IT connectivity, Governance, especially e-governance and citizen participation, safety and security of citizens, health and education and sustainable urban environment.
• Smart City Action Plans will be implemented by Special Purpose Vehicles(SPV) to be created for each city and state governments will ensure steady stream of resources for SPVs.
Therefore if implemented properly it may solve the major problems of urban areas and may create alternatives. The need of the hour is proper implementation of project with transparency, accountability and good governance. It must prove it in all its six dimensions of smart governance, smart mobility, smart environment, smart ecology, smart people and smart living.
Q.15 Discuss the impact of Greece crisis on Indian economy.
Ans:- It has been observed that there remains a benefit to Indian economy during global crisis as such crisis does not directly impacts Indian economy as it was also seen during the global slowdown of 2002-2003, but currently in the globally linked economies India will probably have to bear its consequences . The Greece debt crisis is also not likely to have any direct impact on the Indian economy in terms of trade ties but mat affect inderctly.
There could be some indirect effects on trade flows depending on how European economies perform in the future in relation to Greece crisis. Any slowdown or negative impact of Greece crisis on European Union may affect India’s exports as European Union is an important trade partner of India. India’s knitwear exports and software and engineering exports may get a hit. Hence, India may not escape its indirect impacts as Europe is the largest trade partner and also India’s exports in current scenario is not so good and crisis in Europe may worsen it further.
Although till now Indian financial markets have been not much affected and are stable and movements in equity markets have been orderly and in line with the economic fundamentals but the crisis might lead to crash of Indian stock markets and adversely affect businesses. If the crisis spreads to other European countries, there are possibilities that European investors will withdraw funds from Indian stock markets; this has already foreseen by Indian government and had got in touch with RBI to deal with situation.In view of the fresh bailout agreement reached between Greece and its creditors, the prospects of stock market volatility looks unlikely in the near future.
Further the problem in world economy may create problem for India in borrowing from the world economies for its domestic growth which could lead to depreciation of rupee and cause inflation in India. Even though there might be eventualities but yet the Macroeconomic outcome in India remains strong and provides the required resilience to cope with the external shocks. Adequate foreign exchange reserves are there to manage the volatility that may arise in the exchange rate from such external stocks.
Q.16 Recently Government has passed the bill for Insurance reforms, which raised the FDI in insurance sector from 26% to 49%. Explain how it is going to benefit India at Micro economic level and also at the Macroeconomic level?
Ans:-Insurance industry in India is a large industry, almost equivalent to four-fifth of the country’s foreign exchange reserves. But its growth has been hampered because of the unusual delay in the passage of Insurance amendment bill, which 10 years after it was conceived was passed by Parliament recently. Life insurance has potential to grow at 12 per cent annually and general insurance by 22 per cent in the next ten years as insurance penetration is one of the lowest in the world. But what was standing in the way was infusion of fresh capital, particularly foreign, which was possible only if the foreign direct investment cap is raised.
The Insurance amendment bill has precisely done that by raising the FDI cap to 49 per cent from the present 26 per cent. This move was driven by a combination of macro-economic factors and structural challenges inherent in the insurance industry.
The Insurance amendment bill also brings in regulatory reforms. With Government’s reformative drive and resolve, the industry can jointly achieve the vision of building a customer centric and value-creating industry over the next decade. The inclusive growth will enable India to become a global top 10 insurance market. India had very poor penetration of life insurance cover accounting for less than one per cent of population.
With FDI cap being raised up to 49 per cent now, the life insurance cover will nearly double to 6 per cent of population in the next five years and to more than 10 per cent by 2025. The opening up has helped LIC as new technologies and methods have come into the sector now and competition had made the state owned organization more aggressive. The Insurance Amendment Bill, passed by parliament also safeguards Indian ownership and control and provided Insurance regulator, Insurance Regulatory and Development Authority of India (IRDA) flexibility to discharge its functions more effectively and efficiently.
India has opened up its insurance sector, as domestic companies do not have the wherewithal or resourced to meet insurance requirement of the entire population. Also reinsurance is critical for sharing the risk cover involving a large amount in the event of natural calamities and large accidents. Apart from deepening penetration, the opening up of insurance and pension sector helps Indian government and companies to access long-term funding for infrastructure projects, which require a large investment.
Only pension and insurance funds can provide long-term capital of 10-30 years duration as only they have access to such long term deposits. Unfortunately in India commercial banks fund infrastructure projects because access to long-term capital is now limited. Banks by nature get deposits short- to-medium term and hence lend short-to-medium term. Access to pension and insurance funds will make it easier for long term funding of infra projects.
Foreign insurance players operating in India will now provide access to pension and insurance funds of their parent companies. The US and Canadian pension and insurance funds are waiting to invest their huge capital in countries like India this insurance reform will pave the way.
Q.17 Do you think that, replacing JNNURM project with AMRUT and SMART CITY project is a step towards comprehensive approach for urban development? Discuss the purpose of the replacement how it is going to serve in a better way.
Ans:- Analyzing the implementation of Jawaharlal Nehru Urban Renewal Mission (JNNURM), it has been conculded that though JNNURM had laudable objectives, it failed to develop a single ‘model city’. Under JNNURM, central government ended up merely supporting asset creation. There was no city specific long term statutory development plans for assured outcomes. There was also no provision beyond infrastructure like to ensure efficient delivery of public services to the urban people.
Further, corruption and misuse of money allotted for this scheme has destroyed the very purpose of the scheme. Even after so many years no satisfactory outcome is seen from this scheme. Therefore there was a need for much comprehensive solution for urban problems. The AMRUT and SMART CITY are aimed at renewal of 500 urban habitations and developing 100 cities as smart cities respectively.
Here the central government will play the role of a ‘catalyst’ in the new scheme of things. Here the stress is on city specific long term statutory development plans for assured outcomes. These schemes are designed to go beyond provision of infrastructure to ensure efficient delivery of public services to the urban people. The spirit of 74th Amendment to the Constitution empowering urban local bodies will be realized in full measure for urban development initiatives to be meaningful. Under AMRUT, 500 habitations are to be provided with safe drinking water, sewerage management and use of recycled water, solid waste management and digital connectivity.
Whereas under, SMART CITY, 100 ‘Smart Cities’ would be one with technology based governance that enables efficient public services and has 24 x 7 water and power supply, 100% sewerage, drainage and solid waste management facilities besides top class infrastructure. Therefore learning from the experience of implementation of Jawaharlal Nehru Urban Renewal Mission (JNNURM), the new urban development initiatives of AMRUT and SMART CITY are aimed at improving the quality of urban life in the country by addressing the chronic urban problems and by going beyond provision of just infrastructure.
The focus of this project is to enhance quality of urban life through an integrated approach to urban planning and execution besides ensuring ‘inclusiveness’. It has focus on six dimensions of smart governance, smart mobility, smart environment, smart ecology, smart people and smart living. Thus, although they are initiated with a comprehensive approach the JNNURM, but its effective implementation and outcome will determine its success. It may prove to be a better approach but if only it is effectively implemented.
Q.18 With the increase in population also increases the problem of unemployment. Explain how SETU and START UP STAND UP can help overcome this problem.
Ans. India is the second largest populated country in the world after China with around 17.5 % of world population. And it has also reached its third transitional phase of demography, where India is having a benefit of demographic dividend, means it has large population in working age. This could be the stage for rapid development of India. The problem with India is that it has large unskilled population, which could also be turn into demographic burden if not taken care, as large working population also needs large number of jobs and employment.
But creating jobs for this much unskilled population is a matter of concern for India. In this scenario government has initiated various schemes to reap the potential benefit of our demographic dividend such as Skill India mission to provide skill training to unskilled population, Make in India in order to create jobs, SETU (Self Employment and Talent Utilization) and Start Up Stand Up. SETU is a Techno-Financial, Incubation and Facilitation Programme to support all aspects of start up businesses, and other self-employment activities, particularly in technology- driven areas.
An amount of Rs.1000 Cr. is being set up initially in NITI Aayog for SETU. Here we are now seeing a growing interest in start-ups (Starting new business). The aim of the scheme is experimenting in cutting edge technologies, creating value out of ideas and initiatives and converting them into scalable enterprises and businesses and also the core of this strategy is engaging our youth and for inclusive and sustainable growth of the country.
Although concerns such as a more liberal system of raising global capital, incubation facilities in our Centres of Excellence, funding for seed capital and growth, and ease of Doing Business etc need to be addressed to create lakhs of jobs and hundreds of billion dollars in value. With this objective in mind, SETU is being set up, which would generate employment in a large number. The vision for “Start-Up India, Stand-Up India.” Is that along with the public sector and private sector, it is laying emphasis to individual start-ups and entrepreneurs – who can be also referred to as the “personal sector.” Start-ups and innovation had been at the heart of the IT revolution.
The IIT alumni are spread all over the world and they have also diversified into different fields of activity, profession and entrepreneurship. But the challenge at this stage is to streamline the process of diversification so that even after having received the best of the technical training and expertise, the young talent should not remain under-utilized by taking up jobs which are not equal to their expertise but lure them simply for monetary considerations.
Moreover, generating suitable employability for themselves and others rather than simply getting a job placement should be the priority for all those who pass out from institutions like IIT. The responsibility of those who pass out from an IIT is confined not only to their alumna matter but in fact to the entire nation as participants in the “Make in India” dream. In this way these two schemes are envisaged at the employment generation for reaping the benefit of demographic dividend of India.
Q.19 Discuss important features of new foreign trade policy 2015-2020.
Ans:-The new five year foreign trade policy, 2015-2020 provides a framework for increasing exports of goods and services as well as generation of employment and increasing value addition in the country, in keeping with the ‘Make in India’ vision of prime minister. The focus of the new policy is to support both the manufacturing sector and service sector, with a special emphasis on improving the ‘Ease of doing business’. It seeks to enable India to respond to the challenges of the external environment, keeping in step with a rapidly evolving international trading architecture and make trade a major contributor to the country’s economic growth and development.
FTP2015-20 introduces two new schemes, namely “Merchandise Exports from India Scheme (MEIS)” for export of specified goods to specified markets and “Services Exports from India Scheme (SEIS)” for increasing exports of notified services, in place of a plethora of schemes earlier, with different conditions for eligibility and usage. Increase India’s share in world exports from 2 percent to 3.5 percent. Higher level of rewards under MEIS for export items with high domestic content and value addition. Incentives extended to units under SEZ.
Trade facilitation and enhancing the ease of doing business are the other major focus areas in this new FTP. One of the major objectives of new FTP is to move towards paperless working in 24×7 environments. Manufacturers, who are also status holders, will now be enabled to self certify their manufactured goods in phases, as originating from India with a view to qualifying for preferential treatment under various forms of bilateral and regional trade agreements. A number of steps have been taken for encouraging manufacturing and exports under 100% EOU/EHTP/STPI/BTP Schemes. The steps include a fast track clearance facility for these units, permitting them to share infrastructure facilities, permitting inter unit transfer of goods and services, permitting them to set up warehouses near the port of export and to use duty free equipment for training purposes.
Considering the strategic significance of small and medium scale enterprise in the manufacturing sector and in employment generation, ‘MSME clusters’ 108 have been identified for focused interventions to boost exports. Accordingly, ‘Niryat Bandhu Scheme’ has been galvanized and repositioned to achieve the objectives of ‘Skill India’. Therefore these are the important features of the Foreign Trade Policy 2015-2020.
Q.20 Explain how GST is going to benefit the country. What are the concerns of the states regarding its implementation?
Ans:- GST (Goods and services tax) is proposed to replace the existing tax system of VAT (Value added tax), which is synonym of sales tax levied and appropriated by the states. GST is divided into two levels CGST (Central GST) and SGST (State GST). Another mechanism will also be adopted IGST (Interstate GST) to check interstate trade and ensure that SGST is levied on consumer state only as GST is destination based tax.
The major benefits of GST would be-
• It will remove the cascading effect of interstate trade, that is tax imposed on tax or double taxation. • A uniform rate of tax will be imposed around country.
• Services and many other taxes will come under a single umbrella.
• It will ensure ease of doing business as tax regime would be simplified.
• Will increase production and foreign capital inflow and ultimately it would lead to increase in GDP. Although it has many benefits for the country but still some states are opposing to this and therefore the GST bill is still pending in parliament.
The current government is trying hard to implement it but the states have shown some concerns regarding its implementation, which are-
• It would snatch the right of states to decide the rate of tax to be imposed, as it will be done by a separate council. This has worried states a lot as they are having autonomy now to fix the rate of tax to be levied, which enables them control manufacturing by increasing the tax on products which they want to demotivate and by decreasing the tax on products which they want to motivate.
• The growth of states in this globalization era depends upon private investment in states, which they are trying to attract presently by tax concessions to the producers which after implementation of GST will not be possible. Therefore the states are taking it as a hindrance in the growth.
• Producer state like Maharashtra, Gujarat, and Tamil Nadu are feeling that they would have less revenue.
• Therefore whatever the concerns states are having, they are being compensated by the centre as recently our finance minister has announced.
GST is going to bring equality and uniformity in states ultimately benefiting the consumers, business, and government so states must keep their concerns and requirements in front of centre, they should try reach a consensus so that the country should be benefited at Macro level.
Q.21 What are the key areas of Digital India program. What are the pillars on which it stands?
Ans:- Digital India programme is envisaged at three key areas- • Infrastructure as a utility to every citizen, includes high speed internet access to be made available to all gram panchayats with a view to digitally empower all citizens, the provision of vital digital identity to citizens, enabling citizen participation in the digital and financial space by means of mobile phones and bank accounts for their socio-economic empowerment, multi-functional endpoint for service delivery to citizens, the provision of shareable private space accessible on a public cloud, and the establishment of a safe and secure cyberspace in the country.
• Digital empowerment of citizens entails, imparting digital literacy amongst Indian citizens, making digital resources widely available, easy and ubiquitous access, all government documents/certificates will be made available on the cloud, providing digital resources in regional languages, and provision of collaborative digital platforms.
• Governance and service on demand, encompasses a seamless integration across departments or jurisdictions for providing an easy and single window access of various government services to various stakeholders; and such government services would be made available in real time by utilizing online and mobile platforms, ease of doing business would be ensured and facilitated by creating digitally transformed government services, which should enable and facilitate cashless financial transactions. Finally, utilization of integrated electronic government systems for decision support and development.
Q.22 ‘The main premise for forming NITI AYOG appeared to be a desire to strengthen the role of states in the process of economic development’. Substantiate.
Ans:- The Government has replaced Planning Commission with a new institution named NITI Aayog (National Institution for Transforming India). This institution has to provide governments at the central and state levels with relevant strategic and technical advice across the spectrum of key elements of policy. This includes matters of national and international import on the economic front, dissemination of best practices from within the country as well as from other nations, the infusion of new policy ideas and specific issue-based support.
The institution has to be able to respond to the changing and more integrated world that India is part of. An important evolutionary change from the past is replacing a centre-to-state one- way flow of policy by a genuine and continuing partnership with the states. The institution must have the necessary resources, knowledge, skills and, ability to act with speed to provide the strategic policy vision for the government as well as deal with contingent issues. Perhaps most importantly, the institution must adhere to the tenet that while incorporating positive influences from the world, no single model can be transplanted from outside into the Indian scenario.
We need to find our own strategy for growth. The new institution has to zero in on what will work in and for India. It will be a Bharatiya approach to development.
The NITI Aayog will work towards the following Major objectives:
• To evolve a shared vision of national development priorities, sectors and strategies with the active involvement of States in the light of national objectives.
• To foster cooperative federalism through structured support initiatives and mechanisms with the States on a continuous basis, recognizing that strong States make a strong nation.
• To develop mechanisms to formulate credible plans at the village level and aggregate these progressively at higher levels of government, which can also be referred as decentralization of planning.
• To pay special attention to the sections of our society that may be at risk of not benefiting adequately from economic progress, which could also be referred as Social inclusion.
• To design strategic and long term policy and programme frameworks and initiatives, and monitor their progress and their efficacy.
• To maintain a state-of-the-art Resource Centre, be a repository of research on good governance and best practices in sustainable and equitable development as well as help their dissemination to stake-holders.
Apart from the above there are other objectives also which were there for planning commission. Further, apart from prime minister as a chairman, the composition of NITI Aayog also includes Governing Council comprising the Chief Ministers of all the States and Lt. Governors of Union Territories and Experts, specialists and practitioners with relevant domain knowledge as special invitees nominated by the Prime Minister, which was not in the planning commission. Therefore it is very clear with the above objectives and composition of NITI Aayog that the main premise for forming NITI AYOG appeared to be a desire to strengthen the role of states in the process of economic development.
• Further, Digital India Programme stands majority on 9 pillars-
• Information for all, provide online hosting of government information and documents also using social media, online messaging, for ex. Mygov.in has been launched.
• Electronic Kranti or e-kranti, electronic delivery of services like e-education, e-health, technology for farmers for online ordering of inputs, technology for security, financial inclusion through mobile banking, ATM, e-court, e-prison, e-police, and e-prosecution.
• Electronic governance, through technology coupled with business process re-engineering, like form simplification, online application and tracking, use of online repositories, integration of services and platforms, automation of work flow and use of an automated public grievance redressal system for resolving citizen’s issue.
• Early harvest programme, e-greetings, IT platform for messages and biometric attendance in the government offices.
• Electronics manufacturing, manufacture all electronics in the country to achieve a net zero import.
• Broadband highways, broadband for all rural and urban areas.
• Universal access of mobile, creating infrastructure for the ubiquitous mobile connectivity.
• Public internet access, establishment of an adequate number of locally situated CSCs, and post offices to become multi-service centres.
• IT for jobs, one of most important pillar it is focused on training rural people for IT sector jobs, with special attention to northeastern states by setting up ITES (IT enabled services) in the states.
Q.23 It is said that the overburden of subsidies on Indian economy has negative effect on its growth, therefore the need of the hour is rationalizing subsidies. Do you think that JAM Trinity can serve the purpose if yes how?
Ans:- Both the Central and State Government subsidize the price of wide range of products with the expressed intention of making them affordable for the poor. Rice, wheat, pulses, sugar kerosene, LPG, Naptha, water, electricity, diesel, fertilizer, iron ore, railways- these are just a few of the commodities and services that the Government subsidises. But the problem here is that how much of these benefits actually reach the poor.
There are three basic problems with the subsidies provided by the government-
• Price subsidies are often regressive: It means that a rich household benefits more from the subsidy than a poor household.
• Price subsidies can distort markets in ways that ultimately hurt the poor.
• Leakages seriously undermine the effectiveness of product subsidies.
Therefore the overall impact of this is slow growth of any economy as the targeted poor are getting benefited; they remain poor and poverty remains at the same level. As at present there is no appropriate tool to identify the actual needy, the subsidies are being enjoyed by a large population, which has put overburden on exchequer, which has resultant into slow infrastructural growth as much of the public money goes to the social sector in form subsidies and various social programs.
There are large numbers of rich people in the country who reap benefit of such social sector expenditure for which they are not targeted, leaving the poor class in vulnerability. Further, leakages in the system has shown that a very less amount of these subsidies reach to the poor while most of their share is consumed in the channel through which they get these profits. Therefore the need of the hour is to rationalize subsidy so that the poor should get benefited in real terms and also there is a need to remove the leakages from the system.
In such a scenario recent experimental evidence, documents that unconditional cash transfers- if targeted well- can boost household consumption and asset ownership, reduce food security problems for the ultra-poor and opportunities for leakage. And for that the government has come up with the JAM Trinity as a solution, JAN DHAN YOJANA, ADHAAR, and MOBILE. JAN DHAN YOJNA aims financial inclusion by opening bank accounts of all. ADHAAR is a unique biometric identity which will be necessary for any subsidy transfer, and will also be useful to restrict duplicity, and MOBILE offers an alternative to bank for transferring money.
Now this JAM Trinity together can provide solution to direct benefit transfer to poor in their bank accounts. Linking the Aadhaar Number to an active bank account is a key to implement income transfers. With the introduction of Jan Dhan Yojana, the number of bank accounts is expected to increase further and offering greater opportunities to target and transfer financial resources to the poor. Mobile money offers a complementary mechanism of delivering direct benefits to a large proportion of the population. Aadhaar registrations include the mobile numbers of a customer, the operational bottlenecks required to connect mobile numbers with unique identification codes is also small.
Similar to the mobile money framework, the Post Office can seamlessly fit into the Aadhaar linked benefits-transfer architecture by applying for an IFSC code which will allow post offices to start seeding Aadhaar linked accounts as they have the largest rural network in the country. Converting all subsidies into direct benefit transfers is therefore a laudable goal of government policy and it seems that it can provide the solution to the problem of subsidies, but there are also some factors which are hampering its implementation. It is farsighted policy if implemented properly can be game changer for social and financial inclusion in the country.
Q.24 Explain how skill India mission is going to reap the benefits of demographic dividend of India. What are the demographic challenges of skill India mission?
Ans:- India is now a country with a large population in working age which is considered to be its wealth or is being referred as demographic dividend but a large population is also Unskilled. Therefore, Skill India seeks to give all Indians, the opportunity to aspire and achieve a better future for themselves and their families. A combination of demographic, economic and social factors makes skill development an urgent policy priority for India.
The policy orientation for skill development is based on the following premises viz: coordination, private sector participation, entrepreneurship linkages, equity etc. The first premise includes the creation of a National Policy for Skill Development and Entrepreneurship 2015, which articulates a framework for skilling at scale and speed while ensuring high quality outcomes; the establishment of National Skill Development Mission which seeks to converge, coordinate, implement and monitor skilling activities on a pan-India basis, and the creation of Common Norms for all skill development programmes across Central Ministries/Departments. Having set out the policy framework, it has also been working on developing a coherent programme of action:
Pradhan Manthri Kaushal Vikas Yojana (PMKVY), Revamping ITIs, Strategic Partnerships, NSDC (National Skill Development Corporation) and NSDA (National Skill Development Agency).
The second pertains to catalyzing private sector participation in the skill development sector through Public Private Partnerships and scaling up industry linkages with vocational training institutes. The third emphasizes that Skilling and entrepreneurship go hand in hand. Skill training initiatives need to create a pool of job seekers and job creators, to propel economic growth. The fourth focuses importantly that, economically and socially disadvantaged sections of society must be prime beneficiaries of skill training initiatives.
Therefore, in this way it is going to reap the benefits of demographic dividend of India but the challenge is immense. 54% of India’s population is below 25 years of age and over 62% of the population is the working-age group. Yet, only 4.69% of the Indian population has undergone formal skills training. By 2025, almost 1 in 5 of the world’s working age population (18.3%) will be Indian. Recent skill gap reports suggest that over 109 million incremental human resources will be required in India alone, across 24 key sectors by the year 2022. 93% of India’s workers work in the unorganized sector and acquire skills through informal channels and lack formal certification.
Q.25 ‘On the one hand we are going to achieve universal enrollment in primary education whereas on the other hand we are still lagging behind in attaining quality education’. Substantiate and Suggest measures to fill this gap in education system of India.
Ans:- In April 2000, the governments of 164 countries adopted the Dakar Framework to deliver Education For All commitments by 2015. United Nations Educational, Scientific and Cultural Organisation (UNESCO) published the Education For All Global Monitoring Report to evaluate the progress of countries on these goals. India is likely to reach the EFA’s first goal of 80 per cent enrolment in pre-primary education by 2015, has already reached the second goal of universal primary enrolment, and will fall just short of universal youth literacy by 2015, the report said. The one measurable goal India will not reach is to reduce its adult illiteracy rate by half (it has reduced it by 26 per cent).
The country’s major success has been in reaching gender parity for primary and lower secondary enrolment. It has also made progress towards improving the quality of education, but major gaps remain. The efficiency of public spending in India comes in for criticism, as does the expansion of contract teaching jobs in public schools. Most crucially, the “Annual Status of Education Report (ASER) said that while India’s education system succeeded in enrolling many more children, there were wide disparities in students’ achievement of basic skills across the States, a finding validated in the official National Achievement Survey of grade 3 students.
The apparent rationale behind the ASER assessment it is based on actual student performance based on a lower set of metrics. The report points out that just a small proportion of third-graders are able to read even a text from a lower grade, let alone their own. Any improvement in later years is at best marginal, says the report.
The fact is that reading skills are not imparted as part of classroom activity. ASER also shows that pupils from the higher classes are unable to perform even simple tasks of division or subtraction. This may have to do with the inadequate reinforcement of concepts over the years owing to the structure of the syllabus.
It is hence clear that on the one hand we are going to achieve universal enrollment in primary education whereas on the other hand we are still lagging behind in attaining quality education. Thus, some measures are needed to achieve the quality education in India along with universal enrollment and reducing drop outs. A healthy pupil-teacher ratio could also help overcome many of these shortcomings. The Right of Children to Free and Compulsory Education Act stipulates a 30:1 ratio.
ASER notes that the country has come consistently close to universal enrolment in the 6-14 age groups for six consecutive years, but high drop outs are seen which could be reduced. Sanitation facility in schools can also increase the girl attendance and retention in school. Teachers should be given former and effective trainings from time to time. E-classes can also be adopted. Approach towards the definition of literacy needs to be shifted. We need to work for generating employable and skilled manpower. Vocationalization of education system is also needed.
Q.26 ‘The small size of labor intensive firms prevents them from reaping economies of scale, thereby lowering India’s comparative advantage in labor intensive manufacturing’. In the context of this statement discuss the need of labor reforms in India.
Ans. IN LABOUR-abundant India, labor-intensive manufacturing is concentrated mainly in small, “unorganized” or “unregistered” manufacturing firms which are rarely at the technological frontier, while most of the production activities within the “formal” manufacturing sector are capital-intensive. Thus, despite its labor abundance and the large size of its population and economy, India has a small share of the world market in labor-intensive products. While some commentators have put the blame for this poor performance on India’s rigid labor markets arising out of its restrictive labor regulations, others have argued that Indian businesses have found ways to get around these laws. Rigidities in the Indian labor market mainly result from outdated labor regulations hat are very restrictive in nature.
For example, the most restrictive, though not the only restrictive, labor law is the Industrial Disputes Act (IDA). This Act requires firms employing more than 100 workers to seek permission from their respective state governments to retrench or lay off workers. This permission is seldom granted. Another law The Trade Union Act leads to the formation of multiple unions by allowing any seven workers within a firm to form a union.
As one can imagine, the multiplicity of unions becomes a potentially difficult situation for employers to manage. There are a number of other labor regulations, such as the Employees’ State Insurance Act, the Factories Act, the Employees’ Provident Fund and Miscellaneous Provisions Act, Minimum Wages Act, Maternity benefit Act etc that become applicable at various threshold employment levels and apply to a wide variety of establishments These regulations specify minimum work conditions and benefits.
Since the area of industrial relations belongs to the concurrent list of subjects of the constitution of India, state governments have been able to make their own amendments to the IDA, even though it is a central (federal) act. Moreover, the implementation of labor laws falls within the jurisdiction of the states. Thus, there is considerable variation in labor market rigidity across states. This creates some variation in labor market rigidity across states.
A study has find that states with relatively restrictive labor regulations have experienced slower growth of labor-intensive industries and their overall employment than have other states. This comparison is highly suggestive of the negative role played by India’s rigid labor regulations. Thus, entrepreneurs to save them from restrictive labor laws moves towards small size of labor intensive industries as most of the restrictive provisions of the laws are based on size of the industry. Therefore, Apart from directly raising labor costs, rigid labor regulations constrain the size of firms; the small size of labor-intensive firms prevents them from reaping economies of scale, thereby lowering India’s comparative advantage in labor-intensive manufacturing.
Therefore the need of the hour is labor reforms in India. Reforms could be such-
• While raising the IDA threshold employment from 100 to 300, as has been done in Rajasthan, might be useful, it should be further raised in steps to much higher levels, with the threshold ultimately completely done away with.
• Excluding, from the definition of retrenchment, the downsizing of employment in response to a shrinking demand or a change in technology and the non- confirmation of a worker on probation.
• Furthermore, the Industrial Employment Act should be modified to allow greater flexibility in moving a worker across tasks for which he/she is qualified.
• I would recommend that multiple unions within a firm be disallowed as they can lead to messy situations resulting in huge productivity losses.
• As mentioned above, the newly initiated self-reporting of compliance with regulations on web portals is expected to end the Inspector Raj.
The number of regulations covered under this scheme needs to be expanded. Thus, with the gradual reforms of labor regulations, not only will the political opposition to these reforms erode, the political support for such reforms will grow as workers will realize that they are the biggest beneficiaries of such reforms.
Q.27 What are the objectives of National Gokul Mission. How it is going to help achieving the goals of National livestock Mission?
Ans:-The potential to enhance the productivity of the indigenous breeds of India through professional farm management and superior nutrition is immense, for this it is essential to promote conservation and development of indigenous breeds. The “Rashtriya Gokul Mission” aims to conserve and develop indigenous breeds in a focused and scientific manner; Rashtriya Gokul Mission is a focused project under National Programme for Bovine Breeding and Dairy Development.
The “Rashtriya Gokul Mission” will be implemented with the objectives to:
a) Development and conservation of indigenous breeds.
b) Undertake breed improvement programme for indigenous cattle breeds so as to mprove the genetic makeup and increase the stock.
c) Enhance milk production and productivity.
d) Upgrade nondescript cattle using elite indigenous breeds like Gir, Sahiwal, Rathi, Deoni, Tharparkar, Red Sindhi and
e) Distribute disease free high genetic merit bulls for natural service.
On the other hand ‘The National Livestock Mission’ (NLM) launched in FY 2014-15 will ensure quantitative and qualitative improvement in livestock production systems and capacity building of all stakeholders. The biggest impediment to growth of dairy and livestock productivity is the large-scale prevalence of animal diseases like FMD, PPR, Brucellosis, Avian Influenza etc, which adversely affect the productivity. Taking into account the fact that effective control of a number of animal diseases requires national strategy; the existing scheme of livestock health has been strengthened.
Foot and Mouth Disease Control Programme (FMD-CP) which was under implementation in some districts, it has been decided that FMD-CP will be extended to whole of India during 12th Plan subject to availability of funds and vaccine. Increase in milk production has to be achieved by increasing productivity of the milch animals rather than increase in the number of animals. In order to encourage farmers to produce more milk, effective system of milk collection has to be ensured so that the farmer is assured of selling his produce at a profitable price which can be ensured by putting in place an effective procurement system, connecting milk producers. Steps are needed to reduce wastage of milk by expanding the cold chain infrastructure in the rural areas to collect and preserve milk till such time it is collected for sale or taken for processing.
Systematic planning has to be done for location of bulk milk coolers so that farmers from neighboring villages can easily access them. Including The Rashtriya Gokul Mission as one of the important aspect of National livestock mission it has been initiated with the aims to conserve and develop Indigenous Breeds in a focused and scientific manner.
Government is also proposing to establish “Rashtriya Kamdhenu Breeding Centre” for development, conservation and preservation of Indigenous Breeds as a Centre of Excellence to develop and conserve Indigenous Breeds (37 Cattle and 13 Buffaloes) in a holistic and scientific manner with the aim of enhancing their productivity and upgrading genetic merit.
Q.28 PMSBY, PMJJBY and APY are path breaking initiatives for social security aimed at the economic empowerment of the poor. Elaborate.
Ans. These three schemes are designed to provide utmost convenience with auto debit facility from the bank account of the subscriber. Pradhan Mantri Suraksha Bima Yojana and PM Jivan Jyoti Bima Yojana would provide insurance to individuals in any unfortunate event causing death or disability. The Atal Pension Yojana would address the problem of income security during old age. There are millions of senior citizens who do not have any secure source of income during the ripe years of their life.
We are aware how our elders are finding it helpless to live without any source of income. These schemes have been designed in such a way as to provide a very convenient delivery mechanism These schemes will also address issues like very low coverage of life or accident insurance as well as old age income security products in this vast country.
Pradhan Mantri Suraksha Bima Yojana will provide insurance coverage of Rs.2 lakhs for individuals on payment of just Rs.12/- per annum. This scheme can benefit all the savings bank account holders in the age group of 18-70 years. Pradhan Mantri Jivan Jyothi Bima Yojana is another well thought out scheme which offers Life Insurance coverage of Rs.2 lakhs for any savings bank holders in the age group of 18-50 years on payment of just Rs.330/- per year.
Coming to Atal Pension Yojana, it focuses on the unorganized sector where nearly 400 million employees representing more than 80 per cent of all employees are engaged. Atal Pension Yojana would provide a fixed minimum pension Rs.1000 to Rs.5000 per month starting from the age of 60. The amount of pension will depend on the monthly contribution by the employee and the age at which the employee subscribes the insurance. In any case the individual will have to subscribe under Atal Pension Yojana for a minimum of 20 years.
The most significant part of this yojana is co-contribution by government of Rs.1000/- per annum or 50% of the total contribution whichever is lower, for the first 5 years if one joins the scheme before the end of this year, that is 31st December, 2015. India is a great country with enormous social capital. Due to the change in family and social structure the social security inherent in our society is slowly getting weak.
As a result, a large number of people are exposed to un-foreseen eventualities which leave them helpless and insecure. The three yojanas being launched will go a long way in addressing the growing insecurity among the poor and needy. Thus, these unique schemes would be path breaking initiatives towards providing social security at a very nominal cost to the millions of countrymen with committment to the economic empowerment of the poor.
Q.29 What do you understand by Minimum Alternative Tax. What could be possible impact on Indian economy by waiving MAT from capital gains made by Foreign Institutional Investors?
Ans. Minimum Alternate Tax (“MAT”) was effectively introduced in India by the Finance Act of 1987, vide Section 115J of the Income Tax Act, 1961 (“IT Act”), to facilitate the taxation of ‘zero tax companies’. It had been observed that many companies, despite showing high profits in their books of accounts and paying substantial dividends, were paying marginal or no tax, by taking advantage of various tax concessions and other incentives, in a manner so as to avoid paying tax. MAT was thus envisaged as levying a minimum tax on such companies by deeming a certain percentage of their book profits, computed under the Companies Act, as taxable income. MAT was, however, made inoperative from Assessment Year 1991-92. The MAT provisions were subsequently reintroduced in 1996 by the Finance Act of 1996, through and then by the Finance Act of 2000, which was recently amended by the Finance Act of 2015.
A controversy, however, has recently arisen with respect to the applicability of MAT on Foreign Institutional Investors (“FIIs”). It was made applicable by AAR(Authority for advance rulings) to foreign companies, even if they have no Permanent Establishment (“PE”) or place of business in India. The effect and implication of this ruling was that FIIs could be liable to pay MAT.
The matter reached to the Supreme Court, when a FII filed a special leave petition, and with that many of the FIIs raised the voice against. Rationalizing the law recently an amendment was passed by excluding the income of foreign companies earned in relation to capital gains arising on transactions in securities, interest, royalty or fees for technical services etc. from the chargeability of MAT. It would impact India financially as our stock market has a large share of FIIs, waiving MAT from their capital gains would incur loss to the exchequer.
Although there would be a tax loss but it is rational to not levy MAT on FIIs as suggested the A.P Shah Mehta committee. And also it would enhance the interest and trust of FIIs in India. Removal of the tax could attract FIIs to invest more in the country, which is a good source of foreign currency for meeting our current account deficit. Therefore, the tax loss could also be seen as ease of doing business in the country and a step towards attracting more foreign portfolio investment.
Q.30 What do you mean by tourism entrepreneurship? Discuss how tourism can be helpful in providing inclusive growth and promoting employment.
Ans:- Economists and policy makers in their search of solutions to economic development have narrowed down on the inner drives and entrepreneurial spirit of the people. Entrepreneurs are known for their vision drive and talent who are adept in identifying opportunities and exploiting them for the good of society. It can be noted that Tourism has taken off and is growing at an impressive rate all over the world.
The cope of the entrepreneurship is relatively more in the tourism sector, given the wide range of services to be provided to the tourists. Tourism entrepreneurship therefore involves all the commercial activities spread across the whole spectrum of tourism and allied sector, these includes transportation, hotels and catering, travel agencies, tour operators, entertainment, production and marketing of works of arts and crafts, conferences, events and exhibitions, management of parks and other recreation places. Innovative tourism products hold the key to success of Indian economy, but despite widely acclaimed benefits of tourism the initiatives of the government and development agencies to take Indian tourism to the next level are far from satisfactory.
A lot can be done in this regard such as-
• India can identify and promote its Unique/and mystery spots like, a water pond in Mahanadi in Kurnool district of Andhra Pradesh where the water level is constant throughout the year, yet another place is Shani Signapur in Maharashatra where the houses in the entire village are without doors leave alone locks.
• Promotion of less known destinations can be done by putting them across national tourist map. Like Pulicate Lake and Bird sanctuary in Nellore district of Andhra Pradesh.
• Accessible tourism should be developed, as tourism sector is yet to realize and appreciate the specific needs of the person with disability. It would be a better step towards inclusive growth in the sector.
• Pro-poor tourism is required to be developed, because a vast section of the Indian society from the rural and semi-urban places is still outside the tourism experience. Thus here also it needs to adopt a inclusive fashion in tourism and for that nothing could be better than capturing the potential of rural and unexplored markets for tourism.
• Excursion/ tour packages for students can be developed as now a day’s almost all education institutions organize study tours or trips, but yet no student specific any such facility is available.
• There is ample space and scope for the promotion of world class beach tourism in India.
• Theme and amusement parks are man made tourism attractions which caters to the of all ages and orientation.
Therefore, tourism opportunity not only yields financial resources for the country but also provides employment and is an excellent tool to propagate the goodwill of our nation, this should be taken as an sun rising industry which can provide huge employment to the unskilled labor of the country, it must be focused with the aim of inclusive growth of the country.
Q.31 What is sustainable development goals. What is the agenda of it and what are the various Goals adopted for this?
Ans:- As the Millennium developments goals are ending in 2015, the new goals are being set for the future 15 years called as sustainable development goals (SDGs) 2015 with a theme ‘Time for global action for People and planet’. With SDG, Countries will have the opportunity to adopt a set of global goals to end poverty, protect the planet, and ensure prosperity for all as part of a new sustainable development agenda. There are total 17 goals set, each goal has specific targets to be achieved over the next 15 years. For the goals to be reached, everyone needs to do their part: governments, the private sector, civil society and people like us.
The 17 Goals are-
• End poverty in all its forms everywhere.
• End hunger, achieve food security.
• Ensure healthy lives and promote well being for all at all ages.
• Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all.
• Achieve gender equality and empower all women and girls.
• Ensure availability and sustainable management of water and sanitation for all.
• Ensure access to affordable, reliable and modern energy for all.
• Promote sustained, inclusive and sustainable economic growth, full productive employment and decent work for all.
• Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation.
• Reduce inequality within and among countries.
• Make cities and human settlements inclusive, safe, resilient and sustainable.
• Ensure sustainable consumption and production patterns.
• Take urgent action to combat climate change and its impacts.
• Conserve and sustainably use the oceans, seas, and marine resources for sustainable development.
• Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss.
• Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels.
• Strengthen the means of implementation and revitalize the global partnership for sustainable development.
Q.32 ‘There is a need for focused incentive schemes towards handloom research and innovation in process which save human efforts, time and energy’. In this context, discuss current status of handloom sector in India and the measures to improve it.
Ans:- Handloom fabrics and handloom weavers form an integral part of the rich culture, heritage and tradition of India. Apart from providing one of the basic needs of human beings, along with a sizable contribution to GDP and export, this Industry provides direct and indirect employment to lakhs of people in the rural and urban areas. Handloom is one of the largest employment providers after agriculture in India. This sector provides employment to 43.31 lakh persons engaged on about 23.77 lakh handlooms, of which 10% are from scheduled castes, 18% belong to the scheduled tribes, and 45% belong to other backward classes.
This sector contributes nearby 15% of the cloth production in the country and also contributes to the export earning of the country. Ninety five percent of the world’s hand woven fabric comes from India. It has been sustained by transferring skills from one generation to another. The strength of the sector lies in its uniqueness, flexibility of production, openness to innovations, adaptability to the suppliers’ requirement and the wealth of its tradition.
However, handloom industry needs to reorient itself for meeting the challenges being posed by rapid economic, social and technological changes. Efforts are required to produce defect free high quality handloom fabrics according to contemporary consumer preferences, and also to ensure reasonable wages so that younger generation opts for this occupation.
With a view to promote this industry on a sustainable basis, it is deemed necessary to produce quality fabrics with new design for winning the trust and confidence of the consumers. Therefore, the need of the hour in the handloom sector of the country is to provide production of high quality, defect free, hand-woven, authentic “niche product”, Zero defect, Authentic traditional design, Zero impact on environment, Social compliance.
Which could be better achieve if we provide some incentive schemes to the young generation for research in handloom sector and should thrive towards innovation in processes adopted so that we can save time, energy and efforts of the weavers, this has become necessary to keep pace with the international competition and increasing demand of handlooms.
Q.33 ‘Vocationalization of the current education system of India is the need of the hour for faster, sustainable and inclusive growth’. Elaborate.
Ans:-Today India is one of the world’s largest growing economies. India is also blessed with the demographic dividend. For India to become a developed nation we need skilled manpower and pore importantly, we need to skill our youth, as in India only about 10% are formally trained in some useful skill or the other.
During a research following some of the important issues in this regard came into attention which are-
• The vocational courses are terminal in nature- there is a lack of clear vertical mobility from certificate to diploma to degree courses in vocational education.
• Social acceptability- vocational and skill development courses are looked down upon and such students do not have acceptability in society as compared to other courses.
• Lack of good infrastructure and poor quality of courses.
• Poor quality of trainers. • Lack of initiative from the industry.
• Lack of standardization.
• Further more there is no single comprehensive model addressing all the concerns of this sector.
Therefore following steps can be taken in this regard-
• Creating a vertical mobility from certificate to diploma to degree courses in the vocational educational sector. Providing options right from school level up to PG level. Establishing a skill development university to offer specialized degree programs.
• Providing lateral mobility by giving equivalence to vocational students especially at +2 levels.
• Increasing role of industry in all aspects of vocational training.
• Creating standard curricula.
• Formal training programs for vocational faculty and trainers.
The NSDC has already taken various steps in this regard, and continues to address these issues. Therefore, in my opinion, the need of the hour is to vocationalize the currents education system. The current professional programs can be vocationalized by developing curricula in line with industrial needs, to reap the benefit of the demographic dividend of India for its Faster, Sustainable and Inclusive growth.
Q.34 ‘Medical Tourism in India is poised to be the next big success story after software’. Elaborate. How it can be considered as a sun rising industry?
Ans. ‘Medical Tourism’ a term coined by travel agencies and mass media to address the rapid growth of the health and tourism industry, it is phenomenon, where people from all around the world travel to a different country, here we consider India, to obtain medical, dental and surgical care while at the same time touring and vacationing, enjoying the several attractions that the country has to offer. Medical tourism especially in India has various fields of modern, traditional and alternative medicines. They are-
• Modern allopathic medicine: in addition to oral medication it includes surgeries like joint replacements, organ transplants, diagnostic tests, sodmetic surgeries and multi-specialty care etc.
• Ayurveda: Ayurveda has been unique health care system indigenous to the country since 600 BC. It is a branch of medicine completely based on ‘Naturalistic Systems’.
• Yoga: it is psychological and spiritual discipline, comprising of a secular and scientific methodology to experience the integration of the mind-body-spirit.
• Other alternative medicines include Homeopathy, Naturopathy, meditation and music therapy, aroma therapy, pranic healing and Reiki.
Given the number of opportunities and options available in India, medical tourism is one of the quickest and largest growing industries in the country. Medical tourism in India offers cost effective medical treatment with no waiting lists accessibility of skilled and renowned medical experts, allowing medical tourists from all over the world an easy access. In addition to medical tourism, India is considered among the best in international tourist destinations.
Medical tourism is a big source to generate foreign currency, as besides treatment the consumer oh health services has to spend on stay outside hospital for many disease conditions thus helping hotel and food industry. While going back home, the patients and their attendants also like to shop thus they contribute greatly towards economy.
According to SWOT analysis India with advanced medical services, paired with exotic natural bounties has become a heaven for medical tourists. Therefore, the medical tourism industry in India is poised to be the next big success story after software. Now it is high time declare medical tourism as industry in India with well defined guidelines and goals. As this opportunity not only yields financial resources but also provides employment and is an excellent tool to propagate the goodwill of our nation.
Q.35 ‘The approach of ‘Make in India’ for economic growth is not towards just solving a question that manufacturing should be the growth engine or the service sector rather it is a holistic approach selecting manufacturing with alternative sectors in terms of their potential for structural transformation’. Substantiate.
Ans:- Early development thinking, exemplified most famously (though not exclusively) in the two-sector model of Lewis (1954) was fixated on the idea of sectoral transformation: moving resources from the agricultural/traditional sector to the manufacturing/non- traditional sector. There was never any doubt about the hierarchy and hence no doubt about the desirability of the structural transformation. Although development thinking over the last two decades has moved away from discussions about sectoral transformation and towards a more explicit growth perspective, the importance of structural transformation is starting to be rehabilitated.
India has realized the importance of structural transformation in its case, due to the poor performance of manufacturing in India and the relatively strong performance of services – Historically, the world economies have transformed from agriculture, primary sector to Industry, a secondary sector to, Services, a tertiary sector. But in Indian scenario it has not become true India has skipped the secondary sector and has directly jumped to service sector. Put differently, India seems to have defied its “natural” comparative advantage, which probably lay in the secondary sector growth because of its abundant unskilled and low-skilled labor.
Instead, it found or created—thanks to historical policy choices and technological accidents—such advantage in relatively skilled activities such as information technologies and business process outsourcing. The Indian experience, still a work-in-progress, raises the question of whether structural transformation necessarily requires manufacturing to be the engine of growth. But through ‘Make in India’ initiative, India has given the answer to this question that Manufacturing sector alone would not be its growth engine but manufacturing with alternative sectors in terms of their potential for structural transformation, should together be the growth engine of the country.
Thus, ‘Make in India’ offer an alternative way of thinking about transformational sectors beyond the traditional distinction based on manufacturing versus services. So, in some ways, the choice for India is not manufacturing versus services but comparative advantage deifying (unskilled-intensive) sectors versus comparative advantage defying (skill-intensive) sector development.
Therefore the focus and approach of ‘Make in India’ is different in following than the traditional approaches –
• It not only focuses on Manufacturing Vs Services but, it focuses more on both which have high employment generation capacity.
• It is not only talking about Skilling India which a not small task, but it is also talking about utilizing the unskilled labour by promoting the sectors which have high employability for unskilled labor, such as Construction, Tourism, and textile etc.
• It is also pushing entrepreneurship skilled labor in the service sector where there is underemployment like in IITs and other technical fields. Medical Tourism in service sector is also poised to be a sun rising industry in India.
• It has not only pushed large labor-intensive industries but is also pushing the small and medium enterprises to be export oriented.
• It is not talking about indigenously producing goods and services but it is just talking about production whether indigenous or with foreigners coming in the country and producing.
Q.36 Do you think that hike in FDI in defense sector and defense technology imports are the key solution to India’s defense sector requirements? Give arguments in favor and against it and also suggest that what could be the appropriate solutions.
Ans. The success of the indigenously developed Mars Orbiter Mission of ISRO has provided enough proof of the technical competence of our engineers and scientists. If one concedes this fact, it is evident that we also have the capability to design and produce our own state of the art military equipment and aircraft. However, the difference between space projects and defense equipment is that the latter are strategic and crucial.
Any problem in the smallest part – either lack of supply or problem in performance becomes critical. While a problem in a space program only causes a disappointing delay, the same in the defense sector could become a critical factor in the security of the country.
Further, we have fewer resources in the country to be spent on this non-plan expenditure. Therefore, attracting Private investment through FDI and defense technology imports is necessary for the short-term requirements of the sector. On the other hand, since we attained independence, we have depended on foreign suppliers for our defense requirements.
Irrespective of West or East, we have suffered due to supplier pressures – denial of spares for political reasons, high cost of spares, delays and lack of transparency in technology transfer, etc. By not taking proactive steps toward indigenization in the early years, by constantly ignoring the warning signs of equipment repeatedly failing over many years, we have reached an alarming situation today where the armed forces are left with obsolete and failure-prone equipment.
Therefore, a combination of factors is responsible for this situation – as also The Kelkar Committee on review of Defense Procurement Procedure has recommended an integrated approach involving Users, Ministry of Defense and the Industry. The Committee recommended that DRDO should concentrate on projects requiring sophisticated technology of strategic, complex and security-sensitive nature.
However, R&D for high technology that is not security-sensitive should be outsourced to private sector with shared cost and FDI through ‘Make in India’ can also bring technology to the country. Further, a minimum import order and quantity is also recommended, to sustain viability of the defense sector in India and to face any emergency war like situation.
Q.37 Draw a relation between crony capitalism and corruption. How it affects the public and new business entrants in the market, Explain?
Ans:-Crony capitalism is a nexus between capital or business class and the policy makers. It may be exhibited by favoritism in the distribution of legal permits, government grants, special tax concessions, and other state interventionism. Crony capitalism is believed to be arising when self serving of business class spills over political class and when this self-serving family and friendship ties between government and business class influences the economy and society to the extent that it corrupts public-serving economic and political ideals.
Thus, there is close interrelationship between the crony capitalism and corruption. We may see it both ways; corruption taking birth from crony capitalism and also crony capitalism taking birth from corruption or greed of public servant. Corrupt governments may favor one set of business owners who have close ties to the government over others.
This may also be done with racial, religious, or ethnic favoritism; this can be explained by considering personal relationships as a social netwrok. As government and business leaders try to accomplish various things, they naturally turn to other powerful people for support in their endeavors. These people form hubs in the network. In a developing country these hubs may be very few, thus concentrating economic and political power in a small interlocking group. Normally, this will be untenable to maintain in business; new entrants will affect the market.
However, if business and government together develops a complex nexes , then the government can maintain the small-hub network and restrict the new entrants to survive in the market by imposing taxes or other restrictions on them. This will further create monopoly or oligarchy which will kill the competition in the country, and the consumer will suffer with high price and low quality products. Therefore this crony capitalism is bad for any democracy and socialist country, as it is against economic and social justice.
If we particularly talk about India people have perceptions that crony capitalism has taken birth here also, but till now as they are not proved we cannot say that crony capitalism is there in India. Although it appears to be prevailing, by lookingat the coalgate and 2G scams in India. Raghuram Rajan, governor of the reserve Bank of India, has said “One of the greatest dangers to the growth of developing countries is the middle income trap, where crony capitalism creates oligarchies that slow down growth.
If the debate during the elections is any pointer, this is a very real concern of the public in India today. Tavleen singh, columnist for ‘The Indian Express’ has disagreed. According to her, India’s corporate success is not a product of crony capitalism, but because India is no longer under the influence of crony socialism.
Q.38 What do understand by money laundering? How does it effects on economy and also suggest some measures to prevent money laundering?
Ans:- A definition of money laundering says that it is, “The process of creating the appearance that large amounts of money obtained from serious crimes, such as drug trafficking or terrorist activity, originated from a legitimate source.” In simple words it is circulating the illegal black money into economy and converting them into white money through by showing that the money has been gained legitimately. The negative effects of money laundering on economy are hard to put into numbers.
However, it is clear that such activities damage not only the financial institutions (which damage is direct), but also country’s productivity in its various economic sectors, such as real sector, international trade sector and capital flows, among others (as indirect damage).
• The effect on financial sector is rather indirect. When money laundering takes place in a financial institution, this most likely means that an employee is involved, either unknowingly or knowingly, and the latter would mean that the affected financial institution is prone to corruption from within, which damages the institution itself.
• The Real sector deals with things other than those in financial sector. It is often the case when money is laundered through the real sector of the economy, and most of the time the real estate channel is utilized. When real estate is purchased with laundered funds, it creates artificial demand, which can falsely trigger supply and thus saturate the real estate market.
• The External Sector holds in itself things like trade (imports and exports) and international capital flows. These become affected when proceeds from an illegal activity are used to purchase imported luxury goods with the intention to launder funds.
• The black money is generally used for luxury items purchase in cash, which is rather public money which should be spent for social welfare or economic prospect of the country. The poor are paying the cost as they are not getting proper health, education and other facilities.
• Therefore it can be prevented through strict money laundering prevention acts, strict regulations in banks for KYC norms, increasing practice of proper billing in shops, regulating real estate sector, regulating Non-banking financial institutions, signing automatic information exchange agreements with major tax havens and other major countries, controlling participatory notes etc.
Q.39 Discuss the importance of Food Processing industry in India and also Discuss various challenges in growth of food processing sector?
Ans. Food processing is the set of methods and techniques used to transform raw ingredients into food or to transform food into other forms for consumption by humans or animals either at home or by the food processing industry. Food processing is a large sector that covers activities such as agriculture, horticulture, plantation, animal husbandry and fisheries. It also includes other industries that use agriculture inputs for manufacturing of edible products.
The food processing industry is made up of primary, secondary and tertiary food processors. With agriculture at the core of Indian economy and more than two-thirds of the population dependent on farming, a developed Food Processing sector can be a strong link between agriculture and the consumers. Government’s high priority to the sector coupled with a growing consumption-led demand is leading to a fast pace growth in the sector.
A developed Food Processing sector will help overcome the biggest challenges in front of India: • Low farmer income and high subsidies.
• High wastage along the value chain.
• Poor hygiene and safety standards. Further, the food processing sector of India is presently facing some major challenges which needs immediate actions to stimulate the growth of the sector, they are-
• Inadequate Infrastructure Facilities: in terms of both investment and exports it includes: long and fragmented supply chain, inadequate cold storage and warehousing facilities, road, and rail and port infrastructure.
• Absence of Comprehensive national level policy on food processing sector: The food processing sector is governed by statues rather than a single comprehensive policy on food processing. India urgently needs a national food processing policy which incorporates tax breaks for the sector. The policy to be effective will have to be comprehensive and adopt a number of legislative, administrative and promotional measures.
• Food Safety Laws & Inconsistency in State and Central policies: The Indian food regulations comprise various food policies that have been enacted at different points of time, and are under the ambit of various ministries of Government of India (GOI). Historically they were introduced to complement and supplement each other in achieving total food sufficiency, safety and quality. The result is that the food sector in India is governed by a number of different statutes rather than a single comprehensive enactment. This incremental approach has lead to incoherence and inconsistency in the food sector regulatory scenario.
• Lack of adequate trained manpower: Many positive developments in the food processing sector have also resulted in the apprehension about the emerging skill shortages due to mismatch between the demand for specific skills and available supply. In fact, of late, shortage of skilled, semi-skilled and unskilled workers has emerged as a critical factor impacting the competitiveness of Indian food industry.
Although government has already taken few steps in this regard such as, National agricultural market has been established, Mega food parks scheme has been introduced, Recently FMC has been merged with SEBI etc. but still a lot has to be done. Therefore, The growth of food processing companies has been sub-optimal because of high cost, low level of productivity, high wastage and lack of competitiveness of Indian food products in the global market. Therefore, to fully leverage the growth potential of the sector, current challenges that are being faced by the industry need to be properly addressed and steps need to be taken to remove the bottlenecks hampering the sectoral growth.
Q.40 Do you think that India is now ready for capital account convertibility after current account? If yes why ?
Ans:- As we are aware, the question of capital account convertibility has been in a debate recently and also its a recurrent theme in the discourse on public policy both in the Indian and the global arena for close to two decades with periodic debate followed by a lull or even regression on the credo. We, stand at a juncture when the debate has gathered some momentum again and the issue has been brought to the front burner with some apparent imminence in attaining the goal. International trade has been an important aspect of any economy as in today’s scenario no country can claim that it is fully a closed economy; all are open economies only the degree varies. So, in international market, promoting free trade has been a stated global policy priority during the post second world war period. As per IMF agreement “no member shall, without the approval of the Fund, impose restrictions on the making of payments and transfers for current international transaction.”
Similarly, the objectives of WTO include, “to provide a forum for negotiating and monitoring further trade liberalisation.” India accepted these provisions after the economic reforms of 1991, as early as in 1994 and has been an active member of the WTO. So the public policy view on free trade in goods and services or current account convertibility was then only settled.
Capital account of the balance of payments, as we know, comprises a summary of cross border transactions in assets. Assets in the context of international transactions mean investment assets: equity, debt, immovable property or any combination or hybrid of these. Thus capital account convertibility would mean that there is no restriction on conversion of the domestic currency into a foreign currency to enable a resident to acquire any foreign asset or on conversion of a foreign currency to the domestic currency to enable a non-resident to acquire a domestic asset. Assets are diverse. There was concern with this convertibility that full capital account convertibility will open the door to both inflow of capital in the country and outflow of it without any discrimination, therefore India decided to go for this in 1990’s as at that time India was not in a condition so that it could attract Inflow of capital.
But now the situation is different, we are a largest growing democracy in the world; therefore we now need to reap the potential benefits of it as such-
• The most obvious argument is that all developed countries are capital account convertible; hence this is an inevitable destiny of the developing countries in their path to development..
• Free global capital flows bring about better and more efficient allocation of the global pool of savings to the more productive uses. From the developing country’s viewpoint, free access to global capital markets increases available investible resources which augments domestic savings, reduces marginal cost of capital, and accelerates investment and growth.
• An open capital accounts support the multilateral trading systems by broadening the channels through which countries can finance trade and investment.
• Open capital accounts facilitate portfolio diversification by investors in developed as well as developing countries.
• Because the feasibility of capital account convertibility rests on sound macroeconomic policy, it creates a sort of commitment for the country concerned to ensure better macroeconomic management, lest it is punished by the investors.
As “The capital market fulfils an important supervisory function over economic policy” As the capital account convertibility have its negative effects also, to conclude, there is no denying the fact that sound capital controls have hitherto worked well in the Indian case and helped in protecting the economy from the vagaries of international capital flows and in insulating the economy from the contagion effect of various currency crises but the time has probably come to revisit the issue of greater capital account liberalization, As greater opening of capital account is inescapable as the Indian economy grows further and becomes global in dimension.
A truly globalised economy, which the Indian economy is likely to become in the not too distant a future, cannot afford to remain isolated for a very long period of time. Sooner than the later, it will need to get closely integrated with the rest of the world. There are of course risks, but we need to accept these risks and move forward boldly while controlling the risks as far as practicable.
If the experience of developed countries is any pointer, sound policies, robust regulatory framework promoting a strong and efficient financial sector, and effective systems and procedures for controlling capital flows greatly enhance the chances of ensuring that such flows foster sustainable growth and do not lead to disruption and crisis. India has all these in place and we need to keep on strengthening them.
Q.41 What are the recommendations of 14th finance commission? Do you think the implementation of recommendations of 14th finance commission would be a step towards Cooperative federalism?
Ans:- The 14th finance commission under the chairmanship of former RBI governor Y.V.Reddy has made following recommendations-
• The 14th Finance Commission is of the view that tax devolution should be the primary route for transfer of resources to the States.
• In understanding the States’ needs, it has ignored the Plan and non-Plan distinctions.
• According to the Commission, the increased devolution of the divisible pool of taxes is a “compositional shift in transfers’’ – from grants to tax devolution. It has recommended increasing the share of states from 32% to 42% from the central divisive pool.
• It has recommended distribution of grants to States for local bodies using 2011 population data with weight of 90 per cent and area with weight of 10 per cent.Grants to States are divided into two: One, grant to duly constituted gram panchayats and the other is grant to duly constituted municipal bodies. And, it has divided grants into two parts; one, a basic grant, and a performance one for gram panchayats and municipal bodies and the other, the ration of basic to performance grant is 90:10 for panchayats; and 80:20 for municipalities.
• The Commission has significantly departed from previous commission vis-à-vis recommendation of the principles governing grants-in-aid to the States by the Centre.
• The Commission is of the view that sharing pattern in respect to various Centrally- sponsored schemes need to change. It wants the States to share a greater fiscal responsibility for the implementation of such schemes.
Further, analyzing the recommendations of 14th finance commission it appears that the core objective behind the recommendations is fiscal federalism and cooperative federalism as the recommendation because it is providing vertical distribution with a large financial autonomy to states by increasing their share, also providing horizontal distribution by reserving the 50% of total amount to be distributed for the backwards, with this it is trying to achieve regional inclusion by reducing regional equality.
Also recommending higher stay of states in centrally sponsored scheme so that involvement of states in central decision might be ensured. Giving grants to local bodies on their performance basis increasing competition among them. Overall it is trying to develop fiscal and cooperative federalism in the country.
Q.42 What do understand by E-commerce? How it can benefit the small and medium enterprises?
Ans:- E-commerce is electronic commerce that is trade through electronic medium; Science & Technology has always influenced modes, practices and procedures of business and trade. The fast changing information technology and convergence of various communication technologies has virtually taken the business practices by storm. +E-commerce is becoming the key to success.
The use of internet has made the world small and through it business transactions are conducted globally at a faster pace. The age of connectivity has reduced distances and brought people closer. This can be directly attributed to the development of electronics and communication technology. It is considered that this new emerged economy can be very appropriately called as the “transparent economy” because the Internet makes it more open and exposed.
The implication of e-commerce encompasses various important issues like economic, legislative, technological and social. It will revolutionize retail and direct marketing systems and facilitate international business transactions because it reduces the economic distance between producers and consumers. India has a large and well- diversified base of small and medium Enterprises. The global electronic-commerce provides our SMEs an opportunity to approach potential customers worldwide through a low cost alternative.
This modern technology offers an opportunity to Indian enterprises to upgrade themselves and enter the global market at the right time and at a low cost. This would work like a wonder drug for our entrepreneurs, especially small and medium enterprise that are not able to afford much expenses in marketing and advertisement sector. In India, E-commerce is just a beginning but its advantages are going to be realized soon as it has potential to encourage the small and medium enterprises and also new entrants in the markets for entrepreneurship.
As e-commerce offers new opportunities, Indian entrepreneurs should try to reap maximum advantage. By knowing global markets, they can reach and create a niche in those markets. Thus, it is high time that India should act fast and decisively in order to use the growing electronic trade to our advantage. Therefore, as transactions through e-commerce take less time and are economically viable too. This would help increase the growth of our small and medium enterprise and for this a strong and a stable legal system is required.
It is a fact that, in liberal and open markets, e-commerce would dominate as it would be easy for the new comers to come forward. The other important essential features of electronic commerce are privacy and security. There should be suitable guidelines to establish them to ensure confidence among the players who transact through e-commerce.
Q.43 What are the various benefits of free trade agreements across countries? What are those barriers which hampers such agreements?
Ans:- Recently a free trade agreement has been signed by 12 Pacific Rim countries to create the world’s largest free trade area. The deal will lower the trade tariffs. It is a landmark agreement, a largest regional trade liberalization accord, which aims to set the rules for 21st century trade and investment.
Free trade agreements in several ways benefits the global economy as well as individual national economies in the following ways-
• The system helps promote peace
• Disputes are handled constructively
• Rules make life easier for all
• Freer trade cuts the costs of living
• It provides more choice of products and qualities
• Trade raises incomes • Trade stimulates economic growth
• The basic principles make life more efficient
• Governments are shielded from lobbying
• The system encourages good government Besides its benefits it also posses some challenges such as-
• It is underutilized yet; a lack of information on FTAs is the main reason for their underutilization. Low margins of preference, administrative costs and delays in export documentation and non-tariff measures in partner economies are also some of the reasons for its non-use.
• A second challenge is tackling complications presented by multiple rules of origin.
• Third, liberalising agricultural trade presents a difficult challenge. The coverage of agricultural trade differs from that of the other trades; therefore including agricultural trade remains a challenge due to pressure from powerful farm lobbies or social concerns regarding poverty in rural areas.
• A fourth challenge is to reduce restrictions to services trade.
Q.44 What do you mean by ‘Payment Banks’? How are they different from other banks? Do you think that it can push financial inclusion in the country?
Ans:- Payment Banks are new stripped-down type of banks, which are expected to reach customers mainly through their mobile phones rather than traditional bank branches. This is for the first time in the history of India’s banking sector that RBI is giving out differentiated licenses for specific activities. The move is seen as a major step in pushing financial inclusion in the country as it’s a step to redefine banking in India.
The Reserve Bank expects payment banks to target India’s migrant laborers, low-income households and small businesses, offering savings accounts and remittance services with a low transaction cost. It hopes payments banks will enable poorer citizens who transact only in cash to take their first step into formal banking.
They are different from the other banks in a following way-
• They can’t offer loans like other banks but can raise deposits of upto Rs. 1 lakh, and pay interest on these balances just like a savings bank account does.
• They can enable transfers and remittances through a mobile phone.
• They can offer services such as automatic payments of bills, and purchases in cashless, chequeless transactions through a phone.
• They can issue debit cards and ATM cards usable on ATM networks of all banks.
• They can transfer money directly to bank accounts at nearly no cost being a part of the gateway that connects banks.
• They can provide forex cards to travellers, usable again as a debit or ATM card all over India. • They can offer forex services at charges lower than banks.
• They can also offer card acceptance mechanisms to third parties such as the ‘Apple Pay.’
Further, as it could be uneconomical for traditional banks to open branches in every village but the mobile phones coverage is a promising low-cost platform for quickly taking basic banking services to every rural citizen. The innovation is also expected to accelerate India’s journey into a cashless economy.
Payment banks can also play a crucial role in implementing the government’s direct benefit transfer scheme, where subsidies on healthcare, education and gas are paid directly to beneficiaries’ accounts. In this way it has potential to push the financial inclusion in the country as has already been successful in many countries for example, Kenya.
Q.45 What do mean by ‘Currency war’? Do you think Devaluation of Yuan by china may lead currency war in the world? What are the potential impacts of this devaluation of currency in India?
Ans:- A currency war refers to a situation where a number of nations seek to deliberately depreciate the value of their domestic currencies in order to stimulate their economies. Although currency depreciation or devaluation is a common occurrence in the foreign exchange market, the hallmark of a currency war is the significant number of nations that may be simultaneously engaged in attempts to devalue their currency at the same time. China recently devalued the yuan for a second straight day, leading to over 4 per cent drop in its currency in two days.
The devaluation of the yuan strengthened the US dollar, most other currencies started the race to cover it. The Indian rupee also sank to a two-year low rate at 64.95 per dollar recently. Domestic stock markets also come under selling pressure. Industry body Assocham said yuan’s devaluation could lead to a full-fledged “currency war”.
For India, the devaluation in the yuan will prove to be a “triple whammy” as rupee volatility will increase; exports will come under pressure and there will be dumping of Chinese goods in India. Lets see in details its impact on Indian economy-
1) Rupee volatility: The sharp fall in the rupee has already rattled stock markets, which fell for a fourth straight session today. If the rupee continues to fall sharply, imports will become costlier, stoking inflation. This will force the Reserve Bank to hold on to high interest rates, which will hamper the ongoing economic recovery. Since India runs a trade deficit (imports are more than exports), chances are the current account deficit will also rise, which will further pressure the rupee. Falling rupee is bad for those companies that have dollar-denominated loans and also for foreign flows because stock market returns become unattractive.
2) Pressure on exports: In normal course, falling rupee would have aided domestic exports, which have contracted for seven straight months until June 2015. However, analysts are betting against a rise in domestic exports because of a global slowdown. The fact that China and India compete for several export items such as textiles, gems and jewellery, etc. will also go against domestic exporters, analysts say. “The large overlap between Indian and China in markets and also products highlights the threat Indian exporters face from China,” said DK Pant, chief economist of India Ratings and Research. The economic slowdown in China – which is among the top five countries for Indian exports – is another negative for Indian exporters, analysts say.
3) Dumping of Chinese goods: There’s fear that the sharp devaluation in yuan will help China dump goods into the Indian market, which will impact domestic manufacturers. The fear is already playing out on the Dalal Street with tyre stocks and steel makers falling sharply.
Q.46 What do you mean by Monetary Policy? How a Tight Monetary policy helps curbing Inflation in India?
Ans:-Monetary policy is the actions of a central bank, currency board or other regulatory committee that determine the size and rate of growth of the money supply, which in turn affects interest rates. Monetary policy is maintained through actions such as modifying the interest rate, buying or selling government bonds, and changing the amount of money banks are required to keep in the vault (bank reserves), In India The Reserve Bank of India performs the function of deciding Monetary policy through Repo Rate, Reverse Repo rate, SLR, CRR etc.
Tight Monetary Policy is a course of action undertaken by the Central Bank (RBI in case of India) to constrict spending in an economy that is seen to be growing too quickly, or to curb inflation when it is rising too fast. The RBI will “make money tight”, by raising short-term interest rates (also known as the Repo rate, SLR, CRR, etc in India).
It controls Inflation in the country by tightening the monetary policy, which increases the cost of borrowing and effectively reduces its attractiveness. It curbs the Money supply in the economy. A ‘tightening of monetary policy’ involves the central bank introducing a period of higher interest rates to reduce consumer and investment spending. Higher interest rates may cause the exchange rate to appreciate in value bringing about a fall in the cost of imported goods and services and also a fall in demand for exports.
Q.47 ‘Introducing composite caps is a step towards simplification of foreign investment’. Elucidate
Ans:- Recently Finance Minister announced that the Union Cabinet has cleared the policy for composite foreign investment limits by including foreign direct investment (FDI), foreign institutional investors (FII) and other routes like NRI investments. Under the new policy, FDI, foreign portfolio investment and investments by non-resident Indians would be clubbed together under a composite cap. Composite caps have been suggested for agriculture, manufacturing, airports, real estate, telecom and other sectors.
With the introduction of composit caps for foreign investment, now the distinction between different types of foreign investments will no longer remain. It would be easier for the investors that across all sectors, wherever there is no sectoral cap today, we are now breaking the barrier between FDI and FII. This could have done in any case by passing a board resolution which some of the companies did.
But, in effect, what we are now saying is that in sectors where 100 percent FDI is permitted, we could actually have a 100 percent FII holding which is absolutely a very welcome step. Our finance minister has implemented what he had promised in his Budget presentation this year.
“I think it will certainly provide much greater flexibility, simplify things, make it far clearer, and bring in certainty into ease of doing business.”
The move will now provide Indian firms an investing option in various categories whether FPI, RFPI, MRI or foreign venture capital investors. Thus, “One of the most important decisions in relation to the investment is the introduction of composite caps’ is aimed at simplification of foreign direct investments.
Q.48 What do you understand by shifting from Carbon subsidy to carbon tax for India? How this is going to benefit the country?
Ans:- The recent steep decline in international oil prices is seen by many as an opportunity to rationalize the energy prices by getting rid of the distorting subsidies whilst shifting taxes towards carbon use. This will not only be a fiscally prudent measure but also an opportune time to introduce measures such as carbon taxes, which are still the most potent instruments in dealing with the threats of climate change. While there are a very few countries globally that have reacted or made any efforts in this direction, the recent measures by the Government of India to decontrol diesel prices while at the same time increasing excise duty on petrol and diesel periodically to match the declining global prices reflects a proactive stance in this direction.
Under recoveries, a measure of the subsidy arising from lower domestic prices compared to international prices, have been eliminated. And in a series of actions since October 2014, excise duties have been imposed on diesel and petrol. Previously, the coal cess was doubled from Rs 50 per ton to Rs 100 per ton, also adding to the set of green actions taken by the government. This has shifted India from Carbon subsidy to carbon Tax.
It has many benefits for the economy as-
• A three-fold increase in the current cess.
• An increase in cess that will equalize price of domestic coal with imported coal.
• An increase in cess necessary to internalize only domestic externalities mainly the health costs associated with carbon pollution.
• The maximum possible increase in cess at which the coal-based power producers could still break-even.
• India has cut subsidies and increased taxes on fossil fuels (petrol and diesel) turning a carbon subsidy regime into one of carbon taxation. This has significantly increased petrol and diesel price while reducing annual CO2 emissions.
• On the whole, the move to substantial carbon taxation combined with India’s ambitious solar power program suggests that India can make substantial contributions to the forthcoming Paris negotiations on climate change.
There is still a long way to go with potential large gains still to be reaped from reform of coal pricing and further reform of petroleum pricing policies. Although there is a long way to go but Calculating the CO2 emission reduction from the measures taken for petrol and diesel suggests that there will be net reduction of 11 million tons of CO2 emissions in less than a year, or 0.6 percent India’s annual emissions, this is a significant step towards sustainable growth.
Q.49 ‘The NCRB (National crime record bureau) has collected data on the high numbers of suicides that point to a deep-seated problem in the agricultural economy of the country’. Substantiate and explain the causes of such suicides.
Ans:- The recent NCRB report on farm suicides, which is first of its kind, came after a large hue and cry in the country after a farmer of Rajasthan committed suicide in the Rally of AAP in Delhi against the Land acquisition and rehabilitation and resettlement act amendment bill 2015. As per the report released by NCRB, nearly half the suicide cases among farmers across India is from Maharashtra, followed by Telangana, and Madhya Pradesh.
The report itself suggested that relatively rich states are having more number of farm suicides than other states. Like Maharashtra alone have nearly half of all suicide cases. In Maharashtra, 1,335 ‘small farmers’ (who farm on land between 1-2 hectares) and 627 ‘marginal farmers’ (who farm on land below one hectare) have taken the extreme step last year.
Failure of crops due to natural calamity such as unseasoned rain and hailstorms have claimed more number of lives in the state of Telangana and Madhya pradesh, listed as another reason in the report, again the maximum across the country Now, let us see the causes for such suicides in relatively richer states-
• In richer states farmers opts for producing commercial crops like cotton, sugarcane, and Tobacco etc. which requires a high input cost, and in case of failure of crops, they are left with nothing, instead they fall into debt trap.
• In relatively richer states taking credit by farmers through financial sector is more difficult as Banks prefer to provide credit to the industries, due to which the farmer compels to take loan from the informal sector at a very high interest rate, which in case of crop failure turns more stressful.
• The condition of the farmers in these states is pathetic also because of the income disparity in rural and urban areas.
• In the situation of crop failure, the livelihood of the poor farmer is on the high risk, as that crop is the livelihood for them.
Thus obviously, this data on the high numbers of suicides of farmer, specially small and marginal farmers, is a matter concern as such pathetic situation of farmers is not new in India, it has point to a deep-seated problem in the agricultural economy of the country which is prevailing since a long time.
Q.50 Discuss how ‘National Agricultural Market’ can be a Harbinger of change? How it s going to benefit the agriculture sector of country?
Ans. The Government realizes the importance of agricultural sector for the growth and development of the nation’s economy. With nearly 58 per cent of its people continuing to depend upon agriculture for their livelihood, the critical role of the sector cannot be gain said. Agriculture sector is also highly vulnerable to the vicissitudes of nature that impact the crop enterprise at its production stage.
Further, the sector is also exposed to the current weaknesses of the agricultural marketing system. The annual income of a farmer depends upon both yield and the price that his produce fetches. While the Government has rolled out large number of Programmes to improve yield levels on a sustainable basis, it recognizes the need for creating a competitive market structure in the country that will generate marketing efficiency.
Only when the market is integrated over space and time, can market efficiency be realized. Government is keen to increase the net returns of the farmer. Hence, its emphasis is on creating a unified market that is well integrated across the nation.
Thus, governmant has formulated the Central Sector scheme for Promotion of National Agriculture Market through Agri-Tech Infrastructure Fund (ATIF) through provision of the common e-platform. Integration of agro-markets across the country through the e-platform is seen as an important measure for overcoming the challenges posed by the present agro-marketing system namely –
fragmentation of State into multiple market areas, each administered by separate APMC, multiple levy of mandi fees, requirement for multiple license for trading in different APMCs, licensing barriers leading to conditions of monopoly, poor quality of infrastructure and low use of technology, information asymmetry, opaque process for price discovery, high level of market charges, movement controls, etc.
The need to unify the markets both at State and National level is, therefore, clearly the requirement of time, in order to provide better price to farmers, improve supply chain, reduce wastages and create a unified national market.
The Central Government also realizes that active participation of the State Governments is a pre-requisite for successful implementation of the scheme. For Example, E-auction platform of Karnataka, which has taken a lead in this regard, The e-marketing platform will promote reform of the agricultural marketing sector and apart from promoting free flow of agro commodities across the country, will result in greater farmer satisfaction as the prospects for marketing of his produce would be significantly enhanced.
He will have improved access to market related information and better price discovery through a more efficient, transparent and competitive marketing platform which gives him access to a greater number of buyers within the State and from outside, through transparent auction processes.
It would also increase his access to markets through warehouse based sales and thus obviate the need to transport his produce to the mandi. In this way the ‘National Agricultural Market’ can be a harbinger of change and can benefit the farmers by improving their standard of life in all aspects.
Q.51 What are the aims of National E-governance plan in Agriculture and mention what are the services provided under this scheme to benefit farmers.
Ans:- There have been several initiatives by State and Central Governments to meet the various challenges facing the agriculture sector in the country. The Agriculture MMP (Mission Mode project) has been included in NeGP in an effort to consolidate the various learning from the past, integrate all the diverse and disparate efforts currently underway, and upscale them to cover the entire country.
The Mission Mode Project in Agriculture under National e-Governance Plan (NeGP-A) aims to achieve rapid development of agriculture in India through the use of ICT by ensuring timely access to agriculture related information for the farmers of the country. Twelve clusters of services including Information on inputs; Soil Health; Good Agricultural Practices; Weather; Livestock, Fisheries: Marketing: Scheme Information; Training etc.
have been identified and development of Web based applications on various components of these services is being undertaken before their roll out in the States with required local customization.
The MMP is to be operationalized by Department of Agriculture and Cooperation (DAC), and aims to provide services, such as- Information to farmers on seeds, fertilizers, pesticides
• Information to farmers on Govt. Schemes.
• Information to farmers on Soil recommendations.
• Information on crop management.
• Information on weather and marketing of agriculture produce.
Q.52 What is ‘Soil Health Card’ scheme? What are its aims and objectives for the growth of agriculture sector in India.
Ans:- ‘Soil Health Card’ Scheme has been introduced in current year to assist State Governments to issue soil health cards to all farmers in the country. It is likely to develop application software for the States for online generation of soil health cards and fertilizer recommendations. Dissemination of soil testing results through SMSs will be enabled.
The aims and objectives of the Scheme for the improvement fertility and productivity of soil in the agricultural sector are:
• To issue soil health cards every 3 years, to all farmers of the country, so as to provide a basis to address nutrient deficiencies in fertilization practices.
• To strengthen functioning of Soil Testing Laboratories (STLs) through capacity building, involvement of agriculture students and effective linkage with Indian Council of Agricultural Research (ICAR) / State Agricultural Universities (SAUs).
• To diagnose soil fertility related constraints with standardized procedures for sampling uniformly across states and analysis and design taluqa / block level fertilizer recommendations in various districts.
• To develop and promote soil test based nutrient management in the districts for enhancing nutrient use efficiency.
• To build capacities of district and state level staff and of progressive farmers for promotion of nutrient management practices.
Q.53 ‘Within NeGP, ‘Mission Mode’ implies that projects have clearly defined objectives, scopes, and implementation timelines and milestones, as well as measurable outcomes and service levels’. what is the aim of NeGP and what are the various mission mode projects under NeGP?
Ans:- An MMP (Mission mode project) is an individual project within the NeGP that focuses on one aspect of electronic governance, such as banking, land records or commercial taxes etc. Within NeGP, ‘Mission Mode’ implies that projects have clearly defined objectives, scopes, and implementation timelines and milestones, as well as measurable outcomes and service levels. The National e-Governance Plan (NeGP) was launched with a vision to “Make all Government services accessible to the common man in his locality, through common service delivery outlets and ensure efficiency, transparency & reliability of such services at affordable costs to realize the basic needs of the common man.”
The 31 MMPs comprising the NeGP are further classified as State, Central or Integrated projects- Central MMPs under NeGP
• Central Excise & Customs
• Income Tax (IT)
• Immigration, Visa and Foreigners Registration& Tracking
• UID State MMPs under NeGP
• Commercial Taxes
• employment Exchange
• Land Records (NLRMP)
• Police (CCTNS)
• Road Transport
• Treasuries Computerization
• Health Integrated MMPs under NeGP
• EDI for e-Trade
• National e-governance Service Delivery Gateway
• India Portal etc.
Q.54 What do you mean APMC reforms? Do you think it is a must needed reform today for the growth of agriculture and farmers welfare?
Ans:- The APMC (Agriculture produce market committee) Act, which was designed to protect farmers from the vagaries of the market, has been turned on its head to enrich traders & politicians and harm farmers. Thus this act need reforms. In India in the early 1940s, distribution channels for food and other basic needs were captured by local political powers.
In the early 1950s, the government made efforts to address the situation by enacting the Essential Commodities Act. Then, in the 1970s, came the Agriculture Produce Marketing (Regulation) Act, through which agriculture produce marketing committees (APMCs) were formed to ensure remunerative prices for farmers. As of now, the situation has got distorted if one goes into the real reasons behind sudden spikes in food and other agricultural commodity prices. Neither do our farmers receive fair price for their produce, nor do consumers benefit from low prices.
The issue is not just about converting our farmers from price-takers to price-makers, but to balance the need of different interest groups by addressing the root causes of anti-competitive practices, which are rampant all over the country. Quite naturally, traders indulge in speculation and hoarding, as we witnessed in the current onion crisis. A recent study, done for the Competition Commission of India shows, how the economic cancer of the onion cartel is operating.
The APMC Act was designed with the lofty goal of protecting farmers from the vagaries of the market, but its purpose has been turned on its head to enrich traders (and politicians) and harm farmers and, in turn, consumers’ interests adversely. The union government did produce a model law to correct the distortions, but the debate was skewed in the din of private entry, contract farming, etc.
States are ineffectively carrying out APMC reforms. Amendments have been made, but rules are yet to be notified, while some states like Bihar have scrapped the law, for what was its rightful fate. There are clear indications of collusion between the APMC officials and a powerful group of stakeholders that they deal with—that is auction, and other agents in the distribution channel. The system has been captured by the people it was created to regulate.
• A combined unified market is needed.
• E-platforms for farmers produce selling is needed.
• Solution for the overlapping laws under different regulatory is needed.
• Development of mandis.
• Mediators are to be removed, and farmers should be free to sell their produce wherever they want.
• Direct sale or cooperative markets are needed.
• Az single food regulator should be there.
Government has already taken some steps in this regard like A National Agricultural market which is an e-platform for the farmers to sell their produce in a transparent manner. E-mandis are being initiated. FMC has been merged with SEBI, etc. but a lot has to be done yet.
Q.55 “Engagement and participation of youth is essential to achieve sustainable human development. Yet often the opportunities for youth to engage politically, economically and socially are low or non-existent.” In the light of the statement explain how HDI and other UNDP indices can attract the youth to be involved in sustainable human development?
Ans:- Youth can be involved in sustainable human development with the help of HDI and other UNDP indices, as the development of a number of recent National Human development reports (NHDRs) have provided young people with such an opportunity. Indeed, in recent years perhaps no other part of society has better reported on than young people.
There has been so much human development reporting interest in youth because of at least three reasons –
• First, human development is – by definition – forward looking. And young people have furthest to look forward.
• Moreover, youth is a time for transition: from childhood to adulthood, from school to work. But transition points are, particularly vulnerable moments: setbacks here can be especially difficult to overcome, and scar a young person’s chances for a better life. ”policies aimed at preventing problems facing young people need to engage with context” and “multiple vulnerabilities, stemming from poverty, inequality, social exclusion and hazardous environments, reinforce and overlap with one another, constraining the development and well-being of young people”.
• Human development analysis can help youths to rethink this.
The 2014 HDR asked why, for instance, is government spending on different age groups so often out of line with people’s physical development? The graph shows that brain growth is extremely rapid during the earliest years and then tends to flatten, while public expenditure is lowest in these early years and rises thereafter.
Spending on health, education and welfare does not, nurture and support development during the crucial early years. Therefore by comparing various indices of UNDP like, HDI (Human Development Index), IHDI (Inequality adjusted Human Development Index), GDI (Gender Development Index), GII (Gender Inequality Index), and MPI (Multi-Dimensional Poverty Index) , youth can understand the global scenario of development and can understand the vulnerabilities of their countries and could definitely attract them to be involved in Sustainable human development.
Q.56 What is Model APMC Act? What are adequacies in it? How Karnataka model of agriculture is playing leading role for other states?
Ans:- As agriculture sector is a state list subject, it is controlled by the APMC (Agriculture Market produce committee) act of the respective states. And as these State Acts created fragment markets for agricultural commodities and curtailed the freedom of farmers to sell their produce other than through the commission agents and other functionaries licensed by the APMCs, the Ministry of Agriculture developed a model APMC Act, 2003 and has been pursuing the state governments for over a decade now to modify their respective Acts along the lines of the Model APMC Act, 2003.
The Model APMC Act:-
(a) Provides for direct sale of farm produce to contract farming sponsors;
(b) Provides for setting up “Special markets” for “specified agricultural commodities” – mostly perishables;
(c) Permits private persons, farmers and consumers to establish new markets for agricultural produce in any area;
(d) Requires a single levy of market fee on the sale of notified agricultural commodities in any market area;
(e) Replaces licensing with registrations of market functionaries which would allow them to operate in one or more different market areas;
(f) Provides for the establishment of consumers’ and farmers’ markets to facilitate direct sale of agricultural produce to consumers; and
(g) Provides for the creation of marketing infrastructure from the revenue earned by the APMC.
The model APMC Act provides some freedom to the farmers to sell their produce directly to the contract-sponsors or in the market set up by private individuals, consumers or producers. The model APMC Act also increases the competitiveness of the market of agricultural produce by allowing common registration of market intermediaries.
Many of the States have partially adopted the provisions of model APMC Acts and amended their APMC Acts. Some of the states have not framed rules to implement the amended provisions, which indicate hesitancy on the part of state governments to liberalize the statutory compulsion on farmers to sell their produce through APMCs.
Some states such as Karnataka, have however adopted changes to create greater competition within state. There are even some inadequacies in the Model APMC act itself like-
• The provisions of the Model APMC Act do not go far enough to create a national – or even state-level common market for agricultural commodities.The reason is that the model APMC Act retains the mandatory requirement of the buyers having to pay APMC charges even when the produce is sold directly outside the APMC area, say, to the contract sponsors or in a market set up by private individuals even though no facility provided by the APMC is used.
• “Power to levy market fee “(single point levy): Every market shall levy market fee (i) on the sale or purchase of notified agricultural produce, whether brought from within the State or from outside the State into the market area.
• “ Though the model APMC Act bars the APMCs and commission agents from deducting the market fee/commission from the seller, the incidence of these fees/commission falls on the farmers since buyers would discount their bids to the extent of the fees/commission charged by the APMC and the Commission agents.
• Though the model APMC Act provides for setting up of markets by private sector, this provision is not adequate to create competition for APMCs even within the State, since the owner of the private market will have to collect the APMC fees/ taxes, for and on behalf of the APMC, from the buyers/sellers in addition to the fee that he wants to charge for providing trading platform and other services, such as loading, unloading, grading, weighing etc.
In Karnataka, 51 of the 155 main market yards and 354 sub-yards have been integrated into a single licensing system. Rashtriya e-market Services Ltd. (ReMS), a joint venture created by the State government and NCDEX Spot Exchange, offers automated auction and post auction facilities (weighting, invoicing, market fee collection, accounting), assaying facilities in the markets, facilitate warehouse-based sale of produce, facilitate commodity funding, price dissemination by leveraging technology.
The wider geographical scope afforded by breaking up fragmented markets has enabled private sector investment in marketing infrastructure. Therefore in this way Karnataka act of agriculture is playing a leading role in agriculture sector for other states.
Much more Coming Soon
[Newspaper Updates 2014-2015 for PT and Main’s]
Moving beyond GDP:-
This article caters to the Economic Development portion of General Studies-Paper III and for Essay Paper in UPSC Main Examination.Are there alternate ways to measure economic progress?
“Equity, dignity, happiness, sustainability – these are all fundamental to our lives but absent in the GDP.”- Helen Clark, Ex-Prime Minister of New Zealand.
Gross Domestic Product (GDP) measures the total final market value of all goods and services produced within a country during a given period. GDP is the most frequently used indicator of economic activity and is most often measured on an annual or quarterly basis to gauge the growth of a country’s economy between one period and another. GDP is also a measure of total consumer, investment and government spending plus the value of exports minus imports.
How GDP came into prominence? The use of GDP globally as a measure of economic progress was strengthened as a result of the Bretton Woods Conference. A key factor in the outbreak of WW-II was economic instability in a number of countries caused by unstable currency exchange rates and discriminatory trade practices that discouraged international trade. In 1944, in order to avoid a recurrence of such instability, leaders of the allied nations gathered in Bretton Woods to create a process for international cooperation on trade and currency exchange. The key outcomes of the meeting were the establishment of the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD—now part of the World Bank).
In practice, because of its political and economic strength following WW-II, the US dominated both institutions. As a result, the US dollar, economy, and economic policies became the defacto standards against which other countries were compared. In addition, the work done by the US and UK Treasuries in developing GDP methodologies for analyzing economic activity informed much of the discussion at the Bretton Woods meeting. Thus GDP came to be used by the IMF and the World Bank as the primary measure of economic progress in the coming years.
Gradually, it became valuable economic indicator which serves an important purpose in economic policy making. Due to the implicit link between economic growth and aspects of well-being such as employment and consumption, GDP is often regarded as a proxy indicator of human development and well-being.
Criticism against GDP: GDP is not a measure of economic well-being. There are several reasons why this is the case, and addressing some of them will help us to move from the standard GDP measure to measures that are closer to being indicators of how well off people are.
Critics have long argued that GDP is a flawed metric of global development as,
Another concern that has been raised about GDP as a measure of progress is the ‘threshold effect.’ As GDP increases, overall quality of life often increases up to a point. Beyond this point, increases in GDP are offset by the costs associated with increasing income inequality, loss of leisure time, and natural capital depletion. Beyond a certain threshold, further increases in material well-being have the negative side effects of lowering community cohesion, healthy relationships, knowledge, wisdom, a sense of purpose, connection with nature, and other dimensions of human happiness.
Of particular concern is that GDP measurement encourages the depletion of natural resources faster than they can renew themselves. The current economic activity is degrading ecosystems, thereby reducing the services that, until now, have been provided to humans virtually for free.
The environmental conditions are important not only for sustainability, but also because of their immediate impact on the quality of people’s lives. First of all, they affect human health both directly (through air and water pollution, hazardous substances and noise) and indirectly (through climate change, transformations in the carbon and water cycles, biodiversity loss and natural disasters that affect the health of ecosystems). Secondly, people benefit from environmental services, such as access to clean water and recreation areas. Thirdly, people value environmental amenities or disamenities, and these valuations affect their actual choices (e.g. of where to live). Lastly, environmental conditions may lead to climatic variations and natural disasters, such as drought and flooding, which damage both the properties and the lives of the affected populations.
But, measuring the effects of environmental conditions on people’s lives is, however, complex. Much progress has been achieved in the last two decades in terms of measuring environmental conditions, understanding their impacts and establishing a right of access to environmental information. However, existing indicators remain limited in important respects.
Alternatives to GDP
“Progress needs to be defined and measured in a way which accounts for the broader picture of human development and its context.”
To overcome the limitations in the traditional GDP, a number of possible ways of measuring national-level progress have been proposed, developed and used to address this growing realization that GDP is a measure of economic quantity, not economic quality or welfare, let alone social or environmental well-being. The alternative measures that have emerged are:
A concept of the early 1990s that took account of the economic costs of depleted natural resources and incurred pollution affecting human welfare has gained momentum in both public policy and academia. One of the most noteworthy attempts was the implementation of the concept by the People’s Republic of China. The Chinese Government first released its environmentally adjusted GDP in 2006- Green GDP which was jointly prepared by the State Environmental Protection Agency and National Bureau of Statistics. The calculation included the assessments of air, water and solid –waste pollution as well as the costs of depleting natural resources.
Gross National Happiness (GNH)
A term coined by the Fourth King of Bhutan in the 1970s, GNH is based on the four pillars of sustainable development, preservation and promotion of cultural values, conservation of natural environment and establishment of good governance.
Index of Sustainable Economic Welfare (ISEW)
Developed in the late 1980s, it accounts for both conventional economic transactions and nonmarket natural and social benefits. The focus of ISEW is to create a balance between positive transactions that benefit human well-being and negative economic activities that diminishes the determined value.
Genuine Progress Indicator (GPI)
Innovation of Redefining Progress, an NGO focused on Public Policy, this indicator developed in 1994 is essentially similar to ISEW. Both ISEW and GPI are being widely used by international Organizations, governmental agencies and academicians.
Genuine Savings (GS)
A common development metric proposed by the World Bank in 1999, it considers both natural and human capital. It estimates the domestic savings less the value of resource depletion and environmental degradation.
Happy Planet Index (HPI)
A relatively new metric introduced by the New Economic Foundation (NEF) in 2006, HPI bypasses the traditional monetary approaches and focuses primarily on the efficiency with which countries translate natural resources into human and societal well-being. It is the ratio of happy life years (the product of life satisfaction and life expectancy) to environmental impact (measured by ecological footprint).
Other Global Initiatives
The world is sincerely thinking and working in this arena as the need was felt for adequate indicators to address global challenges of the 21st century such as climate change, poverty, resource depletion, health and quality of life. In this regard, “Beyond GDP Initiative” has been launched for developing indicators that are as clear and appealing as GDP, but more inclusive of environmental and social aspects of progress.
The Beyond GDP Initiative meeting in this aspect was held in 2007 in Rome. Spurred on by the success of the 2007 conference, the Beyond GDP partners continue to work on improving measures of progress, wealth and well-being. In August 2009, the European Commission released its road map, the Communication “GDP and beyond: Measuring progress in a changing world”. The said Communication outlined an EU roadmap with five key actions to improve indicators of progress in ways that meet citizens’ concerns and make the most of new technical and political developments.
The European Commission proposed the following actions:
Further, in this context, the World Bank suggests the usage of Human Development Index (HDI) and the Gross National Happiness Index (NHI).
The HDI is a composite index of (i) life expectancy at birth, as an index of population health and longevity;
(ii) knowledge and education as measured by the adult literacy rate and functions of school enrolment rate; and
(iii) standard of living measured as a logarithmic function of GDP, adjusted to purchasing power parity.
The NHI focuses on the spiritual and material development of human beings by focussing on the four pillars of sustainable development, preservation of cultural values, conservation of natural resources and establishment of good governance. The Bank also suggests Adjusted Net Savings as an alternative to GDP.
From above discussion, it clear that the world is consistently moving ahead on the course in which it considers that the measurement of economic progress based on conventional GDP is incomplete and a unjust act. It is becoming increasingly evident that mere GDP cannot be the sole indicator of wellbeing. One of the reasons that most people may perceive themselves as being worse off even though average GDP is increasing is because they are indeed worse off. Thus, time has come to switch over to the most comprehensive measure of economic development, which will take sustainability of natural resources and all the excluded parameters of conventional GDP into consideration.
RBI raises forex limit The central bank doubled the amount of foreign
exchange that an individual can remit in a year under a scheme that allows asset purchase outside India.
• An individual can now remit up to $250,000 a year under the Liberalised Remittance Scheme, which was started in 2004 with a view to simplify foreign exchange avenues available to Indians.
• This is the second time the limit has been raised since a drastic 62.5 per cent cut in the limit to $75,000 in August 2013, when the RBI was fighting hard to stem the free fall in rupee against the dollar.
• The conditions are far different this time. The rupee has strengthened against the dollar in 2015. RBI Governor Raghuram Rajan noted other positives, including on managing inflation, the growth pick-up as well as a low current account deficit.
Importance: GS Paper-III (Main Examination)- Economic Development
RBI cuts SLR by 50 basis points to provide liquidity
In an attempt to provide more liquidity to the banking system, the Reserve Bank of India (RBI) reduced the Statutory Liquidity Ratio (SLR) by 50 basis points to 21.50 per cent from 22 per cent with effect from February 7.
• The apex bank move will release around Rs.45,000 crore into the banking system.
• However, the RBI kept the short-term policy rate (repo rate) unchanged at 7.75 per cent, which the central bank had reduced by 25 basis points from 8 per cent on January 15. It also maintained status quo in the Cash Reserve Ratio (CRR) at 4 per cent.
Videocon-BPCL team discovers oil off Brazil coast
A consortium of Videocon Industries, Bharat Petroleum Corporation Ltd (BPCL) and Brazilian state-owned company Petroleo Brasileiro SA (Petrobras) has announced ‘significant’ discovery of oil, off the coast of Brazil.
• The well 3-SES-186 was drilled 103 km from the city of Aracaju, Brazil, and 10 km from the discovery well in 2,467 meter of water. The well will be drilled to 6,060 meters. This accumulation is part of the exploratory project in the deepwater Sergipe-Alagoas basin.
• Petrobras operates the consortium with 60 per cent interest in partnership with IBV-Brazil (an equal joint venture of Videocon Industries and BPCL), which holds the remaining 40 per cent.
Importance:GS Paper-III (Main Examination)- Economic Development
Core sector growth slows to 2.4% in Dec
The growth rate of eight core sector industries slowed to three—month low of 2.4 per cent in December last year as production of crude oil, natural gas, fertiliser and steel declined.
• The eight core sector industries —— coal, crude oil, natural gas, refinery products, fertiliser, steel, cement and electricity —— had expanded by 4 per cent in December 2013.
• The core sector contributes 38 per cent to the overall industrial production, a parameter that RBI takes into account while framing its monetary policy.
• During April—December, the eight sectors grew by 4.4 per cent as against 4.1 per cent in the same period last year.
Importance:GS Paper-III (Main Examination)- Economic Development
India reclaims leading position in gold consumption:
India reclaimed its position as the leading consumer of gold in 2014 with an estimated 880 tonnes against the erstwhile leader China’s 866 tonnes.
• Indian jewellery fabrication demand rose by 14 per cent to a record 690 tonnes in 2014 with most of the growth occurring during the third and fourth quarters of 2014 “as retailers restocked when local premia eased and gold prices fell.’’
• The growth in demand was in contrast to the situation in the first half when retailers deferred large-scale buying due to high premia and less availability of gold within official channels. The easing of restrictions after May, 2014, boosted demand.
Importance:GS Paper-III (Main Examination)- Economic Development
FDI inflows beat global trends, surge 26%
Foreign direct investment (FDI) inflows to India increased by about 26 per cent to $35 billion in 2014, despite macroeconomic uncertainties and financial risks…
• China, however, received inflows worth $128 billion and with a modest increase of 3 per cent, went on to become the world’s largest recipient of FDI. Brazil, an emerging market like India, received $62 billion of FDI inflows.
• The U.S. fell to the third position, with inflows plummeting to almost a third of the 2013 level. Global FDI flows declined 8 per cent to an estimated $1.26 trillion, down from a revised $1.36 trillion in 2013.
• Global FDI inflows fell due to the fragility of the global economy, policy uncertainty and geopolitical risks.
Importance:GS Paper-III (Main Examination)- Economic Development
Base year change pushes GDP growth to 6.9% in 2013-14
The economic growth rate was revised upwards to 6.9 per cent for 2013-14, as against 4.7 per cent estimated earlier, after the government updated the base year for measuring national accounts.
• The Gross Domestic Product (GDP) growth rate for 2013-14 has gone up following adoption of the new series with base year 2011-12. The rate of expansion was estimated at 4.7 per cent under the old series that had 2004-05 as base year.
• The higher growth rate, however, may not provide any cushion on the fiscal deficit front as size of economy has shrunk to Rs 113.45 lakh crore following the revision.
What is Fiscal Deficit? When a government’s total expenditures exceed the revenue that it generates (excluding money from borrowings).
Importance:GS Paper-III (Main Examination)- Economic Development
Fiscal deficit overshoots budget target
India’s fiscal deficit overshot the budget estimate of Rs.5.31 lakh crore by December-end, and may prompt the government to take tough steps in the remaining part of 2014-15 to restrict it to 4.1 per cent of GDP.
What is Fiscal Deficit? When a government’s total expenditures exceed the revenue that it generates (excluding money from borrowings).
What is GDP? The gross domestic product (GDP) is one the primary indicators used to gauge the health of a country’s economy. It represents the total value of all goods and services produced over a specific time period – you can think of it as the size of the economy.
• The government had put in place a fiscal consolidation roadmap as per which the fiscal deficit has to be brought down to 3 per cent of the GDP by 2016-17. To reduce the fiscal deficit to the seven-year low level, the government has announced a slew of austerity measures aimed at cutting non-Plan spending by 10 per cent.
Importance:GS Paper-III (Main Examination)- Economic Development
Be transparent in appointing mines’ auctioneer: mjunction
ONGC clears hurdle for Cairn India in Rajasthan oil block
Oil and Natural Gas Corporation (ONGC) has without any condition agreed to its partner Cairn India retaining the prolific Rajasthan oil block beyond the contractual deadline of 2020.
• Cairn’s contractual term for exploring and producing oil and gas from the Rajasthan Block RJ-ON-90/2 expires in 2020 and the area is to return to the block licensee, ONGC.
• ONGC, which currently holds 30 per cent stake in the block, had previously told the oil ministry that the production sharing contract (PSC) can be extended beyond 2020 if all parties to the contract agree on mutually agreeable terms.
• ONGC as a licensee of the block, which produces about 181,000 barrels a day of oil, pays royalty to the government on not just its 30 per cent stake but also on Cairn’s 70 per cent interest.
• For agreeing to Cairn’s proposal, there was a thinking with ONGC that a condition be put that royalty be shared by the partners in proportion to their shareholding. Also, it must seek a higher stake of 50 per cent.
Importance:GS Paper-II (Main Examination) – Economic Development
ECB makes last-ditch attempt to revive Euro economy
The European Central Bank took the ultimate policy leap by launching a government bond-buying programme, which will pump hundreds of billions of new money into a sagging eurozone economy
What is Eurozone? The Eurozone (About this sound pronunciation, officially called the euro area, is a monetary union of 19 European Union (EU) member states that have adopted the euro (€) as their common currency and sole legal tender. The Eurozone consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain. Other EU states (except for Denmark and the United Kingdom) are obliged to join once they meet the criteria to do so.
What is ECB? The European Central Bank (ECB) is the central bank for the euro and administers monetary policy of the Eurozone, which consists of 19 EU member states and is one of the largest currency areas in the world. It is one of the world’s most important central banks and is one of the seven institutions of the European Union (EU) listed in the Treaty on European Union (TEU). The capital stock of the bank is owned by the central banks of all 28 EU member states. The Treaty of Amsterdam established the bank in 1998, and it is headquartered in Frankfurt, Germany. As of 2011 the President of the ECB is Mario Draghi, former governor of the Bank of Italy. The bank occupied the Eurotower while new headquarters were being built. The owners and shareholders of the European Central Bank are the central banks of the 28 member states of the EU.
• The ECB said it would buy government bonds from this March until the end of September, 2016, despite opposition from Germany’s Bundesbank and concerns in Berlin that it could allow spendthrift countries to slacken economic reforms.
• Together with existing schemes to buy private debt and funnel hundreds of billions of euros in cheap loans to banks, the new quantitative easing programme will pump 60 billion euro ($69 billion) a month into the economy, ECB President Mario Draghi said.
• The prospect of dramatic ECB action had already prompted the Swiss central bank to abandon its cap on the franc while Denmark, whose currency is pegged to the euro, was forced to cut interest rates in anticipation of the flood of money.
Importance:GS Paper-III (Main Examination) – Economic Development
Over a billion live on less than $1.25 a day: Oxfam
RBI asks banks to review minimum lending rate every quarter
The Reserve Bank today asked banks to notify the base rate, or the minimum lending rate, at least once in every three months based on cost of funds, a move seen as a nudge to lenders to pass on changes in policy rate to borrowers.
Minimum lending rate is the official interest rate charged by a bank and below which it will refrain from lending money.
• Banks have in the past shown reluctance to pass on benefits of rate cut but have been proactive in raising benchmark lending rate soon after repo rate (the rate at which RBI lends to banks) is hiked.
• New guidelines will come into effect from February 19. “While computing Base Rate, banks will have the freedom to calculate cost of funds either on the basis of average cost of funds or on marginal cost of funds or any other methodology in vogue, which is reasonable and transparent provided it is consistent and made available for supervisory review/scrutiny as and when required,” it said.
Importance:GS Paper-III (Main Examination) –Economic Development
India’s excess grain stocks worth Rs. 50,000 crore: expert
India is holding excess foodgrain stocks worth nearly Rs. 50,000 crore, over and above the stipulated buffer limits, according to experts. At close to 49 million tonnes, the stocks are more than twice the norm.
• The Cabinet Committee on Economic Affairs (CCEA) headed by Prime Minister reduced the norm for January 1 to 21.41 million tonnes from 25 million tonnes with the aim of better management of food reserves in the country. Cutting excess stocks is crucial for reducing both inflation in foodgrain prices and the Centre’s fiscal deficit.
What is CCEA?: CCEA has a mandate to review economic trends on a continuous basis, as also the problems and prospects, with a view to evolving a consistent and integrated economic policy framework for the country. It also directs and coordinates all policies and activities in the economic field including foreign investment that require policy decisions at the highest level. Matters regarding fixation of prices of agricultural products as well as reviewing progress of activities related to rural development including those concerning small and marginal farmers are in CCEA’s competence.
• Besides revising the buffer norms, the CCEA also decided to offload excess stocks through open market sales or exports.
Importance:GS Paper-III (Main Examination) –Economic Development
Changing face of tech spending and Indian IT:
India’s big three IT firms — TCS, Infosys and Wipro — exuded optimism on the demand environment and IT spending even as research firm Gartner cut its global tech spending forecast for calendar year 2015.
• The firm expects a subdued demand for software support services through 2018 in the backdrop of lower growth rate for enterprise software.
• A slowdown in enterprise software means that the over $100 billion Indian IT services industry, which has thrived from traditional bread-and-butter business like application development and maintenance and infrastructure management, will now have to look at newer avenues for growth as clients move towards digital technologies to cut cost.
• Indian firms need to make quick inroads in ‘buzzword’ areas such as social media, mobility, analytics and cloud (SMAC) segments.
• To be sure, Indian firms have been thinking on these lines and set up separate digital units.
• The investments in SMAC will take time to bear fruit, however the outcome for Indian IT vendors will depend on how well they position themselves in the shift in spending towards the digital technologies.
Importance:GS Paper-III (Main Examination) –Economic Development
Reserve Bank’s surprise move endorses the growth story:
On balance, interpretation of the latest economic data points to a recovery, albeit a muted one. The Reserve Bank of India’ s unexpected rate cut— just two weeks before a scheduled policy review — is the most ringing endorsement of the recovery till date.
• With the budget barely a month away, the state of the economy obviously is a key factor.
• Official forecasts place economic growth at around 5.5 per cent during the current year — by no means a spectacular figure but significant because it suggests a break-out from the sub-5 per cent growth rate of the past two years. There is no doubt at all that the sentiment is improving. But do the available economic numbers justify the optimism?
• It is now over to the Finance Minister and the Union budget for more growth enhancing strategies.
Importance:GS Paper-III (Main Examination) –Economic Development
Trade facilitation pact will cut costs: WTO chief
The World Trade Organisation’s (WTO) Director General, Roberto Azevedo said that the Bali Package would enhance the abilities of the developing countries’ to integrate into the world economy.
What is WTO? The World Trade Organization (WTO) is an organization that intends to supervise and liberalize international trade. The organization officially commenced on 1 January 1995 under the Marrakech Agreement, signed by 123 nations on 15 April 1994, replacing the General Agreement on Tariffs and Trade (GATT), which commenced in 1948. The organization deals with regulation of trade between participating countries by providing a framework for negotiating and formalizing trade agreements and a dispute resolution process aimed at enforcing participants’ adherence to WTO agreements, which are signed by representatives of member governments and ratified by their parliaments.
What is Bali Package? The Bali Package is a trade agreement resulting from the Ninth Ministerial Conference of the World Trade Organization in Bali, Indonesia on 3–7 December 2013. It is aimed at lowering global trade barriers and is the first agreement reached through the WTO that is approved by all its members. The accord includes provisions for lowering import tariffs and agricultural subsidies, with the intention of making it easier for developing countries to trade with the developed world in global markets. Developed countries would abolish hard import quotas on agricultural products from the developing world and instead would only be allowed to charge tariffs on amount of agricultural imports exceeding specific limits. Another important target is reforming customs bureaucracies and formalities to facilitate trade.
• According to WTO chief, the first decision, and clearly the most important for India, was a clarification on the Bali decision on Public Stockholding for Food Security Purposes.
Agreement on Agriculture: Covers food security in developing countries (i) General Services, (ii) Public Stockholding for Food Security Purposes, (iii) Understanding on Tariff Rate Quota Administration Provisions of Agricultural Products, (iv) Export Competition
• The second decision was to formally add the Trade Facilitation Agreement Facility to the WTO rulebook, clearing the path for the Trade Facilitation Agreement agreed upon in Bali and its implementation.
Trade Facilitation: Agreement on Trade Facilitation – reaffirms that the non-discrimination principle. Agreement will reduce red-tape and streamline customs. It will be legally binding, require some expense and a certain level of technology. Least developed countries (LDCs) will be supported in building capacities to implement the changes.
Importance:GS Paper-III (Main Examination) –Economy
India will catch up with China’s growth in 2016-17:
World Bank Buoyed by the economic reform measures taken by the Indian government, the World Bank has said that India would catch up with China’s growth in the year 2016-17.
India’s trade deficit with China rises to $37.8 b
India’s trade deficit with China rose to a whopping $37.8 billion last year even as bilateral trade picked up, totalling $70.59 billion, a year-on-year increase of 7.9 per cent.
What is trade deficit? It is economic measure of a negative balance of trade in which a country’s imports exceeds its exports. A trade deficit represents an outflow of domestic currency to foreign markets.
• While the trade has increased between the two countries becoming a binding factor in improving relations, the ever-widening deficit has become a major stumbling block, especially for India, whose exports were hit by depreciating rupee and also by declining exports of iron ore which previously was the main stay of Indian exports.
• Keeping the gap in mind, India has been pressuring China to open up more in IT, pharmaceuticals and agri-products besides stepping up Chinese investments in India to compensate for the trade deficit.
Importance:GS Paper-III (Main Examination) –Economy
Industrial production bounces back in November
Industrial production bounced back in November, growing 3.8 per cent. The recovery was led by the capital goods sector, which grew 6.5 per cent against 0.1 per cent in the same month last year.
• Manufacturing output, too, rebounded in November, growing 3 per cent, against minus 2.6 per cent in November, 2013. In terms of industries, 16 out of the 22 industry groups in the manufacturing sector showed positive growth in November, 2014, as compared to the corresponding month of the previous year.
• While it is heartening to see the growth in manufacturing in November, however it does come over the negative base…. The country is hoping that Government will continue to push reforms so as to revive manufacturing sector’s growth on a sustainable basis.
• The data, however, show consumption spending remains low in the economy and did not pick up even in the festive season.
• Consumer durables showed de-growth of minus 14.5 per cent in November 2014. Consumer non-durables, however, grew 6 per cent. Total consumer goods production continued to shrink, contracting minus 2.2 per cent against minus 8.9 per cent in November, 2013.
Importance:GS Paper-II (Main Examination) –Economy
Indian economy sees growth momentum firming up:
Deficit monsoon hits rabi sowing
A delayed and deficient southwest monsoon has shrunk rabi sowing from last year’s level. Rabi sowing begins in October and harvested in March.
What are Rabi crops? Rabi crops or Rabi harvest refers to agricultural crops sown in winter and harvested in the spring. The term is derived from the Arabic word for “spring”, which is used in the Indian subcontinent. It is the spring harvest (also known as the “winter crop”) in Indian subcontinent.
Major Rabi crop is wheat in India followed by barley, mustard, sesame and peas.
• The southwest monsoon was 12 per cent lower than the long period average in the country and 21 per cent in northwest India, hitting kharif crop production by 2-3 per cent. The rain deficit is affecting rabi sowing now.
What are Kharif crops? Kharif crops or monsoon crops are domesticated plants cultivated and harvested during the rainy (monsoon) season in the South Asia, which lasts between April and October depending on the area. Main kharif crops are millet and rice.
• Of particular concern is the lower acreage of pulses. The area under gram is lower this year by 14.8 lakh hectares from last year’s because of the lower minimum support price. Farmers have turned away from sowing gram as the price is low.
• The area under coarse cereals is lower by 4.57 lakh hectares mainly because of reduced sowing of maize and jowar in Maharashtra, Karnataka, Andhra Pradesh and Gujarat.
• Likewise, the area under oilseeds is lower by 6.96 lakh hectares with rapeseed and mustard recording the largest shortfall of 4.59 per cent. Lower acreage is reported from Maharashtra, Madhya Pradesh, Telangana, Karnataka and Gujarat where the monsoon was deficient.
Importance:GS Paper-II (Main Examination) –Economy
Decoding the oil price fall
Are falling oil prices good or bad for the global economy? And how do they work for India?
• Cheaper oil is obviously good for the global economy; for an energy-intensive economy such as India’s, which also depends on imported oil for meeting four-fifths of its needs, a fall in oil price is like manna from heaven.
• Yet, the biggest fall in the stock market in five-and-a-half years last week was triggered by crude oil piercing the $50 a barrel mark on its unrelenting downward journey.
• But the positive impact of falling oil prices outweighs these worries, at least at this point in time.
• A recent IMF study says that every $10 fall in oil price adds 0.2 percentage points to global GDP growth. And that should mean a boost of a over 1.2 percentage points to global GDP growth given that oil has dropped from around $115 a barrel six months ago to less than $50 a barrel now. So where is the basis for fear of a global slowdown or a recession?
Importance:GS Paper-II (Main Examination) –Economy
Collapse of oil economies may affect India
The continued slide in Brent crude prices augurs well for the Indian economy despite the temporary setback for stock markets and oil related stocks. However, analysts believe that the collapse of some oil economies could be a matter of concern for India.
What is Brent Crude? It is a major trading classification of sweet light crude oil that serves as a major benchmark price for purchases of oil worldwide. This grade is described as light because of its relatively low density, and sweet because of its low sulphur content. Brent Crude is extracted from the North Sea. The Brent Crude oil marker is also known as Brent Blend, London Brent and Brent petroleum.
• The fall in crude oil price is good for all users, including major importers like India, as it lowers their trade deficit and hence strengthens their currencies. However, for the oil exporters, this is bad news as it lowers their export earnings, and given that most countries are dependent on oil exports, their growth would suffer.
What is trade deficit? It is an economic measure of negative balance of trade in which a country’s imports exceeds its exports. A trade deficit represents an outflow of domestic currency to foreign markets.
• The collapse of any economy will be a concern for India as it changes economic dynamics. Today the global economy is just about in a recovery mode and the collapse of any economy, be it Greece or any oil producing country would change the policy actions of central banks which will influence the flow of funds thus impacting our external balances. Hence while we may not be affected on the trade front, it will definitely impact our balance of payments.
What is balance of payments (BOP)? BOP of a country is the record of all economic transactions between the residents of a country and the rest of the world in a particular period (over a quarter of a year or more commonly over a year). These transactions are made by individuals, firms and government bodies. Thus the balance of payments includes all external visible and non-visible transactions of a country during a given period, usually a year. It represents a summation of country’s current demand and supply of the claims on foreign currencies and of foreign claims on its currency. Balance of payments accounts are an accounting record of all monetary transactions between a country and the rest of the world. These transactions include payments for the country’s exports and imports of goods, services, financial capital, and financial transfers.
Importance:GS Paper-III (Main Examination) –Economic Development
Stocks crash on oil price rout
Stocks tumbled with benchmark indices falling like a pack of cards over worries of a possible exit of Greece from the eurozone and a global recession indicated by the ongoing meltdown in oil prices.
• Markets have fallen for a variety of reasons concerning local and international factors. While falling crude oil prices had a welcome relief for India, it is affecting those countries whose economy is surviving on crude oil. Some of these countries, with large investible surplus, have been traditional investors globally. With crude prices at record low, funds from these countries would not flow to global markets.
• Further, the financial crisis in Europe concerning Greece seems to be escalating leading to global sell off. The underlying fear is that Euro, as a currency union, may break up.
What is Eurozone? The Euro zone , officially called the euro area, is an economic and monetary union (EMU) of 19 European Union (EU) member states that have adopted the euro (€) as their common currency and sole legal tender. The Eurozone consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain. Other EU states (except for Denmark and the United Kingdom) are obliged to join once they meet the criteria to do so.
Monetary policy of the zone is the responsibility of the European Central Bank (ECB) which is governed by a president and a board of the heads of national central banks. The principal task of the ECB is to keep inflation under control. Though there is no common representation, governance or fiscal policy for the currency union, some co-operation does take place through the Eurogroup, which makes political decisions regarding the Eurozone and the euro. The Eurogroup is composed of the finance ministers of Eurozone states, but in emergencies, national leaders also form the Eurogroup.
Importance:GS Paper-III (Main Examination) – Economic Development
Cabinet clears 2G auction:-
The Union Cabinet approved the largest ever telecom spectrum auction that is targeted to fetch at least Rs.64,840 crore from the sale next month.
What is 2G? 2G (or 2-G) is short for second-generation wireless telephone technology. Second generation 2G cellular telecom networks were commercially launched on the GSM standard Three primary benefits of 2G networks over their predecessors were that phone conversations were digitally encrypted; 2G systems were significantly more efficient on the spectrum allowing for far greater mobile phone penetration levels; and 2G introduced data services for mobile, starting with SMS text messages. 2G technologies enabled the various mobile phone networks to provide the services such as text messages, picture messages and MMS (multi media messages). All text messages sent over 2G are digitally encrypted, allowing for the transfer of data in such a way that only the intended receiver can receive and read it.
• Proceeds from this year’s auction will help government reach its fiscal deficit target of 4.1 per cent of GDP.
What is Fiscal Deficit? A government budget is a government document presenting the government’s proposed revenues and spending for a financial year. The government budget balance, also alternatively referred to as general government balance, public budget balance, or public fiscal balance, is the overall difference between government revenues and spending. A positive balance is called a government budget surplus, and a negative balance is a government budget deficit. A budget is prepared for each level of government (from national to local) and takes into account public social security obligations.
Simply fiscal deficit happens when a government’s total expenditures exceed the revenue that it generates.
What is GDP? The gross domestic product (GDP) is one the primary indicators used to gauge the health of a country’s economy. It represents the total dollar value of all goods and services produced over a specific time period – you can think of it as the size of the economy. Usually, GDP is expressed as a comparison to the previous quarter or year. For example, if the year-to-year GDP is up 3%, this is thought to mean that the economy has grown by 3% over the last year.
• The government will sell 380.75 megahertz of second generation (2G) spectrum in three bands — the premium 800 MHz, 900 MHz and 1800 MHz.
Importance:GS Paper-II (Main Examination) – Economic Development
Furthering financial inclusion
Niche banks — Small Finance Banks and Payments Banks — are finally coming with the Reserve Bank of India (RBI) releasing detailed but separate rules for setting up these banks.
What is RBI? The Reserve Bank of India is India’s Central Banking Institution, which controls the Monetary Policy of the Indian Rupee. It commenced its operations on 1 April 1935 during the British Rule in accordance with the provisions of the Reserve Bank of India Act, 1934. Following India’s independence on 15 – August – 1947, the RBI was nationalised in the year of 1 January 1949. The RBI plays an important part in the Development Strategy of the Government of India.
• The common objective of these niche or differentiated banks is furtherance of financial inclusion, which has become a key objective of public policy.
What is ‘Financial Inclusion’? “Financial inclusion is delivery of banking services at an affordable cost to the vast sections of disadvantaged and low income group. Unrestrained access to public goods and services is the sine qua non of an open and efficient society. As banking services are in the nature of public good, it is essential that availability of banking and payment services to the entire population without discrimination is the prime objective of the public policy.”
• Payments Banks will offer a limited range of products and services such as acceptance of demand deposits and remittances of funds, but will have a wide network of access points, especially in rural areas. They will supplement their own network with business correspondents and may even depend on the network provided by others.
• In the final analysis, it is the motivation of profits that will drive these new banks, which one should not fail to note that these will be entirely in the private sector. The success of the differentiated bank idea will herald a major change in the ownership pattern of banks with public sector’s dominant share getting whittled down.
Importance:GS Paper-II (Main Examination) – Inclusive growth
RBI relaxes ECB norms
The Reserve Bank of India (RBI) introduced changes in external commercial borrowings (ECB) norms under which authorised money changing banks have been allowed to create a charge on securities.
What is RBI? The Reserve Bank of India is India’s Central Banking Institution, which controls the Monetary Policy of the Indian Rupee. It commenced its operations on 1 April 1935 during the British Rule in accordance with the provisions of the Reserve Bank of India Act, 1934. The RBI plays an important part in the Development Strategy of the Government of India.
What is ECB? An external commercial borrowing (ECB) is an instrument used in India to facilitate the access to foreign money by Indian corporations and PSUs (public sector undertakings). ECBs include commercial bank loans, buyers’ credit, suppliers’ credit, and securitised instruments.
The DEA (Department of Economic Affairs), Ministry of Finance, Government of India along with Reserve Bank of India, monitors and regulates ECB guidelines and policies.
• The decision was taken “with a view to liberalising, expanding the options of securities and consolidating various provisions related to creation of charge over securities for ECB at one place.
What is a Security? A financial instrument that represents: an ownership position in a publicly-traded corporation (stock), a creditor relationship with governmental body or a corporation (bond), or rights to ownership as represented by an option. A security is a negotiable financial instrument that represents some type of financial value. The company or entity that issues the security is known as the issuer.
Importance:GS Paper-III (Main Examination) – Economic Development
SEBI moots new norms for issue of municipal bonds
To help in the Government’s ‘smart cities’ programme, the Securities and Exchange Board of India (SEBI), proposed a new set of norms for listing and trading of municipal bonds on stock exchanges, while channelising household investments for urban infrastructure development.
What is SEBI? The Securities and Exchange Board of India (SEBI) is the regulator for the securities market in India. The Preamble of the Securities and Exchange Board of India describes the basic functions of the Securities and Exchange Board of India as “…to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto”.
What are smart cities? There’s no simple definition for smart cities. The term encompasses a vision of an urban space that is ecologically friendly, technologically integrated and meticulously planned, with a particular reliance on the use of information technology to improve efficiency.
The Smart Cities Council, an industry-backed outfit that advocates the concept in India, describes them as cities that leverage data gathered from smart sensors through a smart grid to create a city that is livable, workable and sustainable.
• According to SEBI, conservative Indian investor mainly invests in fixed deposits, small saving schemes or gold. Bonds issued by municipalities (also known as ‘muni bonds’) having good financial track record would be an good alternative investment opportunity for such conservative investors, as it provides reasonable return with less risk, which in turn may accelerate the capital markets.
What is a bond? A debt investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate. Bonds are used by companies, municipalities, states and governments to finance a variety of projects and activities.
Bonds are commonly referred to as fixed-income securities and are one of the three main asset classes, along with stocks and cash equivalents.
What are Municipal Bonds? Municipal bonds (or “munis” for short) are debt securities issued by states, cities, counties and other governmental entities to fund day-to-day obligations and to finance capital projects such as building schools, highways or sewer systems. By purchasing municipal bonds, you are in effect lending money to the bond issuer in exchange for a promise of regular interest payments, usually semi-annually, and the return of the original investment, or “principal.” A municipal bond’s maturity date (the date when the issuer of the bond repays the principal) may be years in the future. Short-term bonds mature in one to three years, while long-term bonds won’t mature for more than a decade.
• ‘Muni bonds’ are very popular among investors in many developed nations, especially in the U.S., where these have attracted investments totalling over $500 billion and are among preferred avenues for household savings.
• SEBI further said that municipal bonds would add to instruments where provident funds, pension funds and insurance companies can put in their money.
• The Bangalore Municipal Corporation was the first municipal corporation to issue a municipal bond of Rs.125 crore with a State guarantee in 1997.
• Among others, Hyderabad, Nashik, Visakhapatnam, Chennai and Nagpur municipal authorities have issued such bonds, however, there is no provision as yet for listing and subsequent trading of muni bonds on stock exchanges in India.
Importance:GS Paper-III (Main Examination) – Economic Development
SEBI norms for reclassification of promoters as public shareholders The Securities and Exchange Board of India proposed new rules to allow reclassification of promoters at listed firms looking to become public shareholders.
Who is a promoter? A corporate promoter (also “projector”) is a person who solicits people to invest money into a corporation, usually when it is being formed. Promoters generally owe a duty of utmost good faith, so as to not mislead any potential investors, and disclose all material facts about the company’s business.
In a nutshell promoter is a person who does the preliminary work incidental to the formation of company.
What is a listed company? Company whose shares are traded on an official stock exchange. It must adhere to the listing requirements of that exchange, which may include how many shares are listed and a minimum earnings level.
Who is a shareholder? A shareholder or stockholder is an individual or institution (including a corporation) that legally owns a share of stock in a public or private corporation. Shareholders are the owners of a limited company. They buy shares which represent part ownership of a company.
• The new norms can have a significant impact on the way some merger and acquisition deals are structured, as also in cases involving corporate restructuring that take place due to disputes among members of business families or after settlements between rival corporates.
What are Mergers and acquisitions (M&A)? M&A are both aspects of strategic management, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or new location, without creating a subsidiary, other child entity or using a joint venture.
M&A can be defined as a type of restructuring in that they result in some entity reorganization with the aim to provide growth or positive value.
• Some of the scenarios where such reclassification has already been sought by promoters include cases of split in a promoter family, a main promoter selling majority stake to another investor, marriage between members of rival business families and a promoter group wanting to exit from day-to-day operations of a listed company.
Importance:GS Paper-III (Main Examination) – Economic Development
Banks vulnerable for financial contagion:
A mid-year assessment that does not surprise
The mid-year economic analysis was tabled in Parliament recently. The Analysis is significant because it covers a reasonable period of the new government at centre. How far have the promises been kept?
• On the positive side, there can be no doubt that the economy is recovering. A combination of external and domestic factors has helped; the unexpected drop in petroleum prices is certainly a booster.
• But, the fiscal situation at the midpoint is far from happy. There is an expected shortfall in the revenue to the extent of Rs. one lakh crore compared to the last budget. Aggregate revenue has been growing at about 10 per cent below budget estimates despite a recovery of sorts in the growth of the GDP.
What is GDP? Gross Domestic Product (GDP) The monetary value of all the finished goods and services produced within a country’s borders in a specific time period, though GDP is usually calculated on an annual basis.
Indian n-facilities under IAEA safety umbrella:-
Process is mandatory process under Indo-U.S. nuclear cooperation deal.
• Paving the way for import of fuel for its nuclear reactors, India will complete the process of placing its civilian reactors under International Atomic Energy Agency (IAEA) safeguards in the next two days.
What is IAEA? The International Atomic Energy Agency (IAEA) is an international organization that seeks to promote the peaceful use of nuclear energy, and to inhibit its use for any military purpose, including nuclear weapons. The IAEA was established as an autonomous organization on 29 July 1957. Though established independently of the United Nations through its own international treaty, the IAEA Statute, the IAEA reports to both the United Nations General Assembly and Security Council.
• So far 20 facilities have been placed under IAEA safeguards. These reactors are now eligible to use imported uranium. This includes unit 1 and 2 of the Tarapur Atomic Power Station (TAPS), units 1 to 6 of Rajasthan Atomic Power Station, units 1 and 2 of Kudankulam Nuclear Power Plant, and units 1 and 2 of Kakrapar Atomic Power Station.
• The last two reactors — units 1 and 2 of the Narora Atomic Power Station in Bulandshahar in Uttar Pradesh — will come under the safeguards of the international atomic energy body in the next two days.
Importance:GS Paper-III (Main Examination)- Energy & Economic Development
China challenges India’s polished diamond throne
India’s long-held position as the world’s top diamond polisher is being challenged by soaring output from China, compelling India to seek help from ally and top rough diamond supplier Russia to defend its market share.
• India has traditionally relied on the middlemen in trading hubs of Antwerp, Tel Aviv and Dubai for its supply of rough diamonds, which mainly come from Russia or Africa. Most of the world’s diamond output is sent to India for cutting and polishing before being retailed around the world.
• But China has managed to break the established trade route by getting diamonds directly from African mines in which Chinese companies have a stake. This has boosted the value of China’s net exports of polished diamonds by 72 per cent in the past five years to $8.9 billion.
• Recently, Russia’s state-run diamond monopoly Alrosa signed a dozen deals to increase direct rough diamond deliveries to India that would help reduce the cut taken by middlemen in the secretive precious gems trade.
• But India needs to reform its archaic tax rules to make the Indian diamond polishing industry more attractive for foreign miners.
Importance:GS Paper-III (Main Examination)- Economic Development
Curbs on gold imports drive smuggling: Centre
From April to September this year, 2,289 kg of smuggled gold was seized, up from 522 kg during the same period last year.
• The Union government has said restrictions imposed on gold imports to stem the pressure on the Current Account Deficit (CAD) are likely to have led to a substantial increase in smuggling.
What is Current Account and Current Account Deficit (CAD)? In economics, a country’s current account is one of the two components of its balance of payments, the other being the capital account. The current account consists of the balance of trade, net primary income or factor income (earnings on foreign investments minus payments made to foreign investors) and net cash transfers.
The current account balance is one of two major measures of a country’s foreign trade (the other being the net capital outflow). A current account surplus increases a country’s net foreign assets by the corresponding amount, and a current account deficit does the reverse. Both government and private payments are included in the calculation. It is called the current account because goods and services are generally consumed in the current period.
• To stem the pressure on the CAD, the government and the Reserve Bank of India had taken measures to moderate the demand for the precious metal. These included an increase in customs duty on imports and prohibition of gold in the form of coins and medallions.
Importance:GS Paper-III (Main Examination)- Economic Development
Tea industry fears hurdles to PPC implementation The Plant Protection Code (PPC) is a comprehensive document, developed by the Tea Board, which lays down the manner in which chemicals are to be used safely in tea cultivation:
• Sensing several challenges in the way of implementation of the Plant Protection Code (PPC) from January 1, 2015, the Consultative Committee of Plantation Association (CCPA), the apex body of planters, said that the Tea Board and the Commerce Ministry need to be sensitised about the hurdles faced by them.
• This comes at a time major buyers such as Tata Global Beverages and Hindustan Unilever have sought confirmation on the immediate implementation, voicing concern that they were the ones who remained vulnerable to regulatory action by the State government for the teas that they were sold in packaged form.
Four PSUs sign joint venture (JV) pacts to revive Talcher fertilizer facility For setting up a coal gasification-cum-fertilizer complex
• Coal India Ltd. (CIL), the world’s largest producer, and state gas utility GAIL India Ltd. signed agreements to invest Rs.9,000 crore in a plant to convert coal into gas and use this fuel to manufacture fertilizer.
• CIL, GAIL along with rashtriya Chemicals and Fertilizers (RCF) and Fertilizer Corp of India Ltd (FCIL) will set up an integrated coal gasification-cum-fertilizer and ammonium nitrate complex at Talcher in Odisha by 2019, Fertiliser Minister Ananth Kumar said after the four firms signed joint venture agreements.
• The plant will be built by the two joint ventures — the upstream consortia for converting coal into synthetic gas or syngas, and the downstream plant to manufacture urea and other fertilizers.
• India is deficit in urea production. At present, it produces about 22 million tonnes of urea, and there is a gap of 10 million tonnes. So, the focus is on reviving closed fertilizer plants using coal gasification or other cost effective technologies to increase the domestic production of urea.
What is Coal gasification? It is the process of producing syngas–a mixture consisting primarily of methane (CH4) carbon monoxide (CO), hydrogen (H2), carbon dioxide (CO2) and water vapor (H2O)–from coal and water, air and/or oxygen. Historically, coal was gasified using early technology to produce coal gas (also known as “town gas”), which is a combustible gas traditionally used for municipal lighting and heating before the advent of industrial-scale production of natural gas. In current practice, large-scale instances of coal gasification are primarily for electricity generation, such as in integrated gasification combined cycle power plants, for production of chemical feedstocks, or for production of synthetic natural gas. The hydrogen obtained from coal gasification can be used for various purposes such as making ammonia, powering a hydrogen economy, or upgrading fossil fuels.
Importance:GS Paper-III (Main Examination)- Economic Development, Environment.
Deadline to exchange pre-2005 notes extended till June 30 The deadline for exchanging pre-2005 currency notes of various denominations, including Rs 500 and Rs 1,000, has been extended by another six months till June, 30, 2015.
• Currency notes issued before 2005 do not have the year of printing on the reverse side. In notes issued post 2005, the year of printing is visible at the bottom on the reverse. Post-2005 notes have added security features and help in curbing the menace of fake currency.
• Seeking cooperation for withdrawing pre-2005 currency notes from circulation, the Reserve Bank of India (RBI) has asked the public to deposit the old design notes in their bank accounts or exchange them at a bank branch convenient to them.
• The central bank clarified that all such notes will continue to remain a legal tender. These notes can be exchanged for their full value.
Importance:GS Paper-III (Main Examination)- Economy and Governance
Reserve Bank modifies definition for non-cooperative borrower
A defaulter who deliberately stonewalls legitimate efforts is a non-cooperative borrower.
• The Reserve Bank of India (RBI) modified the definition of a non-cooperative borrower and also fixed the cut off limit for classifying borrowers as non-cooperative would be those borrowers having aggregate fund-based and non-fund based facilities of Rs.5 crore from the concerned bank/financial institution (FI).
• RBI asked banks/FIs to report information on these borrowers to the Central Repository of Information on Large Credits (CRILC). Further removal of names from the list of non-cooperative borrowers should be separately reported to CRILC with adequate reasoning/rationale.
What is CRILC? Communication gaps between different banks financing the same borrower have always existed. A common approach by all institutions in a multi-creditor situation is certainly desirable when the exposure is stressed. But the first step towards any such ideal is that all participants should have the same information at their disposal. Hence there is RBI’s Central Repository of Information on Large Credits. All banks are required to report basic information in respect of all exposures in excess of Rs 5 crores to a central database. Knowledge of experience of other lenders is sure to improve the quality of all lending.
Importance:GS Paper-III (Main Examination)- Economic Development.
Growing without bubbles India needs an alternative model for economic growth.
A model which is more inclusive, less dependent on credit and clearly not driven by wealth creation from manipulated asset prices alone.
Swiss National Bank imposes negative interest rates To discourage safe-haven buying by investors
• The Swiss central bank plans to charge depositors a ‘negative’ interest rate of -0.25 per cent to discourage anxious investors from using it to shelter their cash.
• Money has flooded into Switzerland as market turbulence caused by the Russian rouble collapse and oil price slide has prompted a desperate search for safe havens in recent days.
What are negative interest rates? Normally borrowers pay lenders a rate, typically as an annual percentage, on the amount borrowed. So, for example, when people deposit money in a bank, they normally expect to get back some form of interest on the account.
However, when interest rates are negative, this relationship is reversed, and lenders have to pay to lend money or to invest. The general idea of imposing negative rates is to discourage people or organisations from certain investments.
Importance:GS Paper-III (Main Examination)- Economic Development
India on track to 5.5% GDP growth, says ADB
The country is on track to achieve the projected economic growth rate of 5.5 per cent in the 2014-15 financial year as declining oil prices present a golden opportunity for many beneficial reforms, says Asian Development Bank (ADB)
• Falling global oil prices present a golden opportunity for importers like India to reform their costly fuel subsidy programmes.
• ADB further stated that the government has demonstrated willingness to tackle contentious reforms by eliminating diesel subsidies, but it must extend its efforts to reach the forecast of 6.3 per cent GDP growth in FY16.
What is Asian Development Bank (ADB)? The Asian Development Bank (ADB) is a regional development bank established on 22 August 1966 which is headquartered in Metro Manila, Philippines to facilitate economic development of countries in Asia. From 31 members at its establishment, ADB now has 67 members – of which 48 are from within Asia and the Pacific and 19 outside. ADB was modelled closely on the World Bank, and has a similar weighted voting system where votes are distributed in proportion with member’s capital subscriptions.
Importance:GS Paper-III (Main Examination)- Economic Development.
Brent oil sinks under $59 on mounting global tensions
RBI eases refinancing norms for infrastructure loans
Black money conundrum:-
Hope for growth as inflation plummets
Inflation and exports data for November raised hopes of a revival in investments and growth.
• The inflation data reflects the falling cost of production in the economy, largely on the back of the sharp contraction in global prices of crude and commodities.
• It also reflects moderating food prices.
Importance:GS Paper-III (Main Examination)- Indian Economy.