GS Paper-III (Main Examination 2016-17)- Indian Economy
Economic Development 56 Model Question’s and Answer’s for Main’s 2016-17
Q.1 What are the major objectives of PRADHAN MANTRI KRISHI SINCHAYEE YOJNA (PMKSY). Discuss the need of promoting organic farming with reference to PMKSY.
Ans:- The major objective of the PMKSYis 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.