insightsias ipm test series - 2020 test 11: gs 3:economy

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INSIGHTSIAS IPM TEST SERIES - 2020

Test 11: GS – 3:Economy - Synopsis

1. Discuss the status of fiscal deficit in India and suggest some measures to keep it under check

What to look for?

Introduction -What is meant by Fiscal deficit?

Body -The Present status of fiscal deficit in India -Some measures to keep it under check

Conclusion -A relevant closing statement

Introduction

o A fiscal deficit is a shortfall in a government's income compared with its spending, which is usually calculated as a percentage of GDP. The government that has a fiscal deficit is spending beyond its means

Body o India's fiscal deficit stood at 5.54 lakh crore at end of second quarter in

2019, which is 78.7% of the budgeted estimate for the current fiscal year o The Union budget has estimated the fiscal deficit for 2019-20 to be Rs 7.03

lakh crore, or 3.3% of the Gross domestic product (GDP) o With economic growth falling to a six-year low of 5% in the April-June

quarter, the sources said the government could toward the end of 2019 be forced to raise the fiscal deficit target

o Some measures to keep 'Fiscal Deficit' under check are: The first and the foremost way is through aggressive disinvestment of

Air India and other state owned enterprises Prominent among these include cleaning up of balance sheets of

regular commercial banks Reduction in Corporate Tax, so as to offset the revenues of Corporate

companies The government may also use simple ways such as tweaking the

definition of expenditures such as recapitalization of the banks to keep it outside the ambit of definition of fiscal deficit

Unspent funds for defence and other ministries, special dividends from state-owned companies, deferment of some non-essential expenditure may also help bridge the gap

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Some other steps such as measures to arrest GST evasion, tax on earnings from the stock market and merger of oil companies may also help

Reduction in subsidies by the government will also help reduce the deficit

A broadened tax base may also help in reducing the government deficit

Government should try and avoid unplanned expenditures, unless it’s necessary to reduce the burden of Fiscal deficit

o Also, measures taken by the Government to keep Fiscal deficit under check are: The Fiscal Responsibility and Budget Management Act, 2003 (FRBMA)

has been enacted to institutionalize financial discipline, reduce India's fiscal deficit, improve macroeconomic management and the overall management of the public funds by moving towards a balanced budget and strengthen fiscal prudence; A target of around 3-4% has been pegged

There is increased emphasis on tax-based revenue(seen in case of GST) and measures have been taken to reduce tax evasion

The government has set a Disinvestment target of Rs 90,000 crore, in 2019 budget, to boost its revenue

Government has taken to rationalisation of subsidies The government in 2016, removed the distinction between planned

and non-planned expenditure from the Union Budget, and switched to capital and revenue spending classifications to create a clear and effective link between the government’s earnings, spending and outcome

Conclusion o India's growth rate above 6 per cent is still notable and extremely

important in a country that has such a large population. Hence, it becomes important for India to reap benefits of this growth, by reducing the Burden of Fiscal deficit

2. India’s tax-GDP ratio is very low. What are the under lying reasons behind it? Discuss some the recent measures taken by government to increase the tax collection

What to look for?

Introduction -What is meant by tax-GDP ratio?





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Body -Why India’s tax-GDP ratio is very low? -The reasons for low tax-to-GDP ratio in India -Some the recent measures taken by government to increase the tax collection


Introduction

o The tax-to-GDP ratio is a ratio of a nation's tax revenue relative to its gross domestic product (GDP), or the market value of goods and services a country produces

Body o Taxes and GDP are generally related:

The higher the GDP, the more tax a nation collects. Conversely, countries with lower taxes produce a lower GDP.

Analysts, economists, and government leaders can use this ratio to see the rate at which taxes fuel a nation's economy

o The tax-to-GDP ratio has not been impressive for India

Ideally with increase in GDP, the tax collection should also increase. If the economy is growing and business is doing well, naturally, profits will be better and therefore taxes should also be higher

In India’s case while the overall tax-to-GDP (Centre and State) increased from 17.45 per cent in FY08 to 17.82 per cent in FY17, the GDP and per capita income have doubled during this period

The gross tax to GDP ratio declined to 10.9 per cent in 2018-19 as indirect tax revenues fell short of budget estimates by about 16 per cent, due to shortfall in Goods and Services Tax (GST) mop up, the Economic Survey said

Interestingly, India’s rate of growth of tax revenues was not in sync with its GDP growth in the post-reforms period

o The reasons for low tax-to-GDP ratio in India are:

India has had a comparatively low tax-to-GDP ratio largely due to low direct tax base and an unorganised sector Direct tax which is easier to consolidate upon in the entire tax

collection given that it primarily involves personal income tax and corporation tax, is more sensitive to GDP growth rate

Only 3% of the country’s population pay income tax Weaknesses in tax administration is another factor. The Kelkar Committee report mentions the ‘missing middle’, which

includes professionals (like CAs, lawyers, and doctors), which manages a leeway to report actual income





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Agricultural tax exemptions haven't been plugged in smartly, to widen the tax base

o Some the recent measures taken by government to increase the tax collection: Government is taking to a simplified tax structure with Optimum tax

rates, low concessions and deductions to make low scope for tax avoidance and tax evasion The effective Corporate tax has been slashed from 30% to

25.17%, inclusive of all cess and surcharges for domestic companies recently

The Interim Budget of 2019, provided for a Rebate of all tax payable, if one's income tax is up to 5 lakh per annum

The main hurdle was the prevalence of black economy. The demonetization programme and the follow up steps have added strength to increase tax collection in India

The Cooperative Federalism as depicted by the GST Council is right move by Government Revenue buoyancy offered by GST has been the key to improve

the tax resource position of both central and State governments The Government has now resorted to increased use of Technology, to

decrease manual intervention and leverage on data analytics to improve the tax administration. The important administrative measures taken are: Aadhaar – PAN linkage Use of digital technology to improve tax administration – project

insight, e- way bills, Project Insight, Project Saksham etc Widening of TDS carried over the years, anti-tax evasion measures and

increase in effective tax payers base have contributed to direct tax buoyancy

Government is also bringing in Tighter transfer pricing regulations and oversight to increase Tax collection

Conclusion o India must aim to double its tax-to-GDP ratio to achieve the OECD average

of about 34 per cent, so as to allow the Government to provide for better control over its resources





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3. India will be world’s youngest country by 2020 with an average age of 29 years. If India fails to impart the education and skill to its youth, its demographic dividend turns out to be demographic disaster. Discuss.

What to look for?

Introduction -A relevant fact/data on Indian Youth

Body -More data on how India is going to be the youngest country by 2020 -Why should India capitalise on its Demographic dividend? -Why India hasn't been able to reap benefits of Demographic dividend? -So, what is the Government doing, and what more needs to be done to reap the Demographic dividend?

Conclusion -A relevant way forward

Introduction

o India will become the world's youngest country by 2020 with an average age of 29, means that around 64% of India's population will be in the working age group by 2020

Body o Currently, every third person in India is a youth. By 2020, the median age

in India will be 29 years o With western Europe, the US, South Korea, Japan and even China aging,

this demographic potential offers India an unprecedented edge which could further contribute to the GDP growth rate This can transform India, as one of its biggest economic problem i.e.

population burden will be it’s advantage now India can become a nation with biggest young, available and skilled

workforce

o Why should India capitalise on its Demographic dividend? Gone are the days when Malthusian theory used to dominate

discussion on population growth and its negative impact. The pessimism prorated by Malthus has hardly any buyers now

Demographic dividend is the new buzzword. It is believed that increasing population can be capitalised for growth

There are dual benefits of increasing population, one that it provides human resource for production process and





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two, the same resource is also the consumer, which creates effective demand that in turn, acts as a determinant of consumption and growth

o But the same population, which has the potential to generate

demographic dividend, can also become disaster if not utilized properly A surging population that has the potential to make India an economic

superpower is now becoming a cause of concern, especially after phased high economic growth achieved very little on employment front

So what are the concerns, that can turn India's Demographic Dividend into Demographic disaster? The cause of worry is the nature of employment opportunity

available in the country, as majority of people in country remain self-employed

The quality of employment generation is not very good Majority of Indian youth are not employable because of the

quality of education imparted in schools and colleges India's majority population is concentrated in the Agriculture

sector, even though it contributes marginally to the GDP The dearth of skills and resources, has limited the share of

manufacturing sector in India to 16% of GDP

o So, what is the Government doing, and what more needs to be done to reap the Demographic dividend? The programme under NSDC, has been started with a target of skilling

500 million by 2022 with an aim to promote skill development by catalysing creation of large, quality and for-profit vocational institutions

Greater importance to vocational training are being given to make India's youth a global-ready workforce with stress on making the country a hub for education and information technology on an international scale

As a result of technological advancements, around 69% jobs are susceptible to automation. It is vital to identify future job prospects and segment it

according to the need and feasibility of training candidates before initiating the skill development programs and make these training programs more effective.

Sector Skill Councils (SSC) plans to bring industry best practices in learning and development into such training module

In addition, if private vocational training institutes join hands with the government, they can play a vital role in imparting skill education.





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They can incorporate technology in the education structure to automate skill training and certification

The governance system also has to coordinate with top companies into industrial sectors across India, whose turnover is more than a set-limit to avail them with tax-benefits to join hands with skill institutes to get their local people trained

Public Private Partnership are also a tool to encourage the evolution of skill training and vocational training sectors through funding and implementation of projects monitored and controlled by public organizations

The much needed revamping of the education sector was a welcoming change for India as it focuses on creating more robust and versatile students with an emphasis on vocational skill training and holistic development as proposed in the 2019 budget

Conclusion o Thus, With India on its way into becoming a global superpower, language

courses and skills which benefit the Information Technology sector has been stressed upon to make students and the youth to make them more global-oriented

4. What is inclusive growth and what is the need for inclusive growth and challenges in achieving the inclusive growth in India

What to look for?

Introduction -What is meant by Inclusive Growth?

Body -What is the need for inclusive growth? -The challenges in achieving the inclusive growth in India


Introduction

o Inclusive growth, according to OECD, is economic growth that is distributed fairly across society and creates opportunities for all

Body o Inclusive growth means economic growth that creates employment

opportunities and helps in reducing poverty. It means having access to essential services in health and education

by the poor. It includes providing equality of opportunity, empowering people through education and skill development.





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It also encompasses a growth process that is environment friendly growth, aims for good governance and a helps in creation of a gender sensitive society

o Why do we need inclusive growth?

It is the key to achieve the Government's commitment towards the UN Sustainable Development Goals (SDGs)

This type of growth ensures an affirmative action from the government, towards the focus on marginalised sections, vis-à-vis all policies

It addressed the common issues of Poverty, lowering hunger and malnutrition levels at a more focused level

It makes provision for productive employment, especially rural non-farm employment, and access to productive assets, for instance, land Both of these are critical, not only to lift the poor out of the

poverty trap, but these can also provide a stimulus to growth, as stable incomes can enlarge the purchasing power of the poor and enlarge the size of the domestic market

It provides room for increased equity, by raising the allocative efficiency of investment and resource use across different sectors of economy

o The challenges in achieving the inclusive growth in India: Improving the delivery of core public services:

The incomes rise, citizens are demanding better delivery of core public services such as water and power supply, education, policing, sanitation, roads and public health.

As physical access to services improves, issues of quality have become more central.

There are four avenues for reform: internal reform of public sector agencies; producing regular and reliable information for citizens; strengthening local Governments and decentralizing responsibilities; and expanding the role of non-state providers.

Maintaining rapid growth while making growth more inclusive: The growing disparities between urban and rural areas,

prosperous and lagging states, skilled and low skilled workers, the primary medium term policy challenge for India is not to raise growth from 8 to 10 percent but to sustain rapid growth while spreading its benefits more widely

Conclusion o To sum up, in order to reap the benefits of economic growth, we need to

make it inclusive. In addition to being valuable for its own sake, inclusive





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growth could actually result in a virtuous cycle of fuelling further economic growth

5. What is outcome based budget? What are the procedures involved in outcome based budgeting & how does it improving the efficiency of governance?

What to look for?

Introduction -What is outcome based budget?

Body -What are the procedures involved in outcome based budgeting -How does it improving the efficiency of governance?


Introduction

o Outcome based budgeting is a practice of suggesting and listing of estimated outcomes of each programmes or schemes designed

Body o An interesting feature of outcome based budgeting is that the outcomes of

programmes are measured not just in terms of Rupees but also in terms of physical units like Kilowatt of energy produced or tonnes of steel produced. Also outcomes are expressed in terms of qualitative targets and

achievements to make the technique more comprehensive

o Procedure of outcome based budgeting Under outcome budgeting, each Ministry presents a preliminary

Outcome Budget to the Finance Ministry, which is responsible for compiling them.

The Outcome Budget becomes a progress card on what various Ministries and Departments have done with the outlays in the previous annual budget.

It measures the development outcomes of all government programmes and whether the money has been spent for the purpose it was sanctioned including the outcome of the fund usage





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o How does it improving the efficiency of governance? Outcome based budgeting improves the efficiency of Governance by

helping in the following ways, by providing for: Better service delivery Decision-making Evaluating programme performance and results Communicating programme goals Improving programme effectiveness Make budgets cost effective Fixing accountability Aiding in better scheme management

Outcome budgeting makes government programmes more result oriented, instead of outlay oriented. Under outcome budgeting, the document shows physical

dimensions of the financial budget indicating the actual physical performance in the previous year, current year and targeted performance during the projected (next) year

Conclusion o Thus, it is imperative to deal with Financial burdens of Government from a

different angle. Shifting the focus from input activities, to delivering an outcome and priorities led approach is paramount

6. What is liberalization? What are the objectives of liberalization policy and how did it help in overcoming the crisis of 1991 in India?

What to look for?

Introduction -What is meant by Liberalisation?

Body -The objectives of liberalization policy -How did it help in overcoming the crisis of 1991 in India?


Introduction

o Liberalization (or liberalisation) is any process whereby a state lifts restrictions on some private individual activities. Liberalization occurs when something which used to be banned is no longer banned, or when government regulations are relaxed. Economic liberalization is the reduction of state involvement in the economy





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Body o Liberalization means elimination of state control over economic activities.

It implies greater autonomy to the business enterprises in decision-making and removal of government interference

o The objectives of liberalization policy are: Abolition of licensing: New Industrial Policy 1991, abolished licensing

for most industries except 6 industries of strategic significance. This would encourage setting up of new industries and shift focus to productive activities

To Liberalize Foreign Investment : While earlier prior approval was required by foreign companies, now automatic approvals were given for Foreign Direct Investment (FDI) to flow into the country. A list of high-priority and investment-intensive industries were delicensed and could invite up to 100% FDI including sectors such as hotel and tourism, infrastructure, software development .etc.

To Relax the Locational Restrictions : There was no requirement anymore for obtaining approval from the Central Government for setting up industries anywhere in the country except those specified under compulsory licensing or in cities with population exceeding 1 million

To Liberalize Foreign Technology imports : In projects where imported capital goods are required, automatic license would be given for foreign technology imports up to 2 million US dollars. No permissions would be required for hiring foreign technicians and foreign testing of indigenously developed technologies

Phased Manufacturing Programmes :Under PMP any enterprise had to progressively substitute imported inputs, components with domestically produced inputs under local content policy. However NIP’1991 abolished PMP for all industrial enterprises. Foreign Investment Promotion Board (FIPB) was set up to speed up approval for foreign investment proposals

Public Sector Reforms : Greater autonomy was given to the PSUs (Public Sector Units) through the MOUs ( Memorandum of Understanding) restricting interference of the government officials and allowing their managements greater freedom in decision-making

MRTP Act : The Industrial Policy 1991 restructured the Monopolies and Restrictive Trade Practises Act. Regulations relating to concentration of economic power, pre-entry restrictions for setting up new enterprises, expansion of existing businesses, mergers and acquisitions. etc. Were abolished





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o How did it help in overcoming the crisis of 1991 in India? In line with Liberalisation policies, based on an application from the

Government of India, World Bank sanctioned a structural adjustment loan / credit that consisted of two components - an IBRD loan of $250 million to be paid over 20 years, and an IDA credit of SDR 183.8 million (equivalent to $250 million) with 35 years maturity, through India's ministry of finance, with the President of India as the borrower The loan was meant primarily to support the government's

program of stabilization and economic reform. This specified deregulation, increased foreign direct investment,

liberalization of the trade regime, reforming domestic interest rates, strengthening capital markets (stock exchanges), and initiating public enterprise reform

The foreign investment in the country (including foreign direct investment, portfolio investment, and investment raised on international capital markets) increased from a minuscule US$132 million in 1991–92 to $5.3 billion in 1995–96

India's annual growth per capita accelerated from just around 1% in three decades after Independence, to 7.5% - a rate of growth that would double average income incoming decades

Conclusion o The fruits of liberalisation reached their peak in 2006, when India recorded

its highest GDP growth rate of 9.6%, making India the second fastest growing major Economy in the World, next only to China

7. Critically analyse the success of five year plans towards Poverty reduction and curbing the economic inequality in independent India

What to look for?

Introduction -A brief on concept of FYP

Body -What provisions did FYP have in them to reduce poverty and economic inequality? -Have the FYP been successful in reducing Poverty and Economic Inequality?

-As the directive is to 'Critically Analyse', arguments on both sides should be included in answer






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Introduction o The concept of Economic planning in India is derived from the Russia (then

USSR). India has launched 12 five year plans so far. First five year plan was launched in 1951.

Body o The Five Year Plans laid stress on the following needs of people, to reduce

Poverty and curb Economic Inequality: The Indian Constitution and five year plans state social justice as

the primary objective of the developmental strategies of the government

To quote the First Five Year Plan (1951-56), “the urge to bring economic and social change under present conditions comes from the fact of poverty and inequalities in income, wealth and opportunity”.

The Second Five Year Plan (1956-61) also pointed out that “the benefits of economic development must accrue more and more to the relatively less privileged classes of society”

The Fifth Five-Year Plan laid stress on employment, poverty alleviation (Garibi Hatao), and justice The Minimum Needs Programme (MNP) was introduced in the

first year of the Fifth Five-Year Plan (1974–78). The objective of the programme is to provide certain basic minimum needs and thereby improve the living standards of the people

The thrust areas of the Seventh Five-Year Plan were: social justice, removal of oppression of the weak, using modern technology, agricultural development, anti-poverty programmes, full supply of food, clothing, and shelter, increasing productivity of small- and large-scale farmers, and making India an independent economy.

The major objectives of Eighth Five Year plan included, controlling population growth, poverty reduction, employment generation, strengthening the infrastructure, institutional building, tourism management, human resource development

Ninth Plan tried primarily to use the latent and unexplored economic potential of the country to promote economic and social growth. It offered strong support to the social spheres of the country in an effort to achieve the complete elimination of poverty

The Tenth plan aimed at reduction of Poverty rate by 5% by 2007 The Eleventh Plan aimed at Rapid and inclusive growth

o Most poverty alleviation programmes implemented are based on the

perspective of the Five Year Plans. Expanding self-employment programmes and wage employment

programmes are being considered as the major ways of addressing poverty





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o Have the FYP been successful in reducing Poverty and Economic

Inequality? Efforts at poverty alleviation have borne fruit in that for the first time

since independence, the percentage of absolute poor in some states is now well below the national average.

Despite various strategies to alleviate poverty, hunger, malnourishment, illiteracy and lack of basic amenities continue to be a common feature in many parts of India

Though the policy towards poverty alleviation has evolved in a progressive manner, over the last five and a half decades, it has not undergone any radical transformation

In successive FYP, there has been only change in Nomenclature, integration or Mutations of Programmes However, none resulted in any radical change in the ownership

of assets, process of production and improvement of basic amenities to the needy

The following concerns still remain: Due to unequal distribution of land and other assets, the

benefits from direct poverty alleviation programmes have been appropriated by the non-poor.

Compared to the magnitude of poverty, the amount of resources allocated for these programmes is not sufficient.

Moreover, these programmes depend mainly on government and bank officials for their implementation.

Since such officials are ill motivated, inadequately trained, corruption prone and vulnerable to pressure from a variety of local elites, the resources are inefficiently used and wasted.

There is also non-participation of local level institutions in programme implementation

Conclusion o Thus, Poverty can effectively be eradicated only when the poor start

contributing to growth by their active involvement in the growth process, i.e. Through process of Social Mobilisation





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8. What do you understand by the term ‘mobilization of resource’? What are different types of resources of nation and the role of public sector in mobilization of domestic resources?

What to look for?

Introduction -What is meant by the term ‘mobilization of resource’?

Body -The different types of Resources of a Nation -The role of public sector in mobilization of domestic resources


Introduction

o Resource mobilization is the process of getting resources from resource provider, using different mechanisms, to implement the pre-determined goals

Body o The different types of Resources of a Nation are:

Natural Resources Biotic & Abiotic

Any life form that lives within nature is a Biotic Resource, like humans, animals, plants, etc. In contrast, an abiotic resource is that which is available in nature but has no life; like metals, rocks, and stones

Renewable & Non-renewable Renewable resources are almost all elements of nature which

can renew themselves. For e.g. sunlight, wind, water, forests and likewise

While, non-renewable resources, are limited in their quantity. Like fossil fuels and minerals.

Potential, Developed, and Stock Resources Natural elements which are already easily available but humans

are yet to discover their real power are Potential resources. For example, solar and wind energy are two natural resources, which have a high potential for human life

In contrast, a developed resource is that which humans have discovered and developed over a long time. Most of the water, fossil fuel, minerals, plants and animals that we use for our need today, are developed resources

There are some resources present in nature, which have enough potential, but we do not have adequate knowledge or





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technology to develop it. As a result, these remain in nature as stock resources. For example, Hydrogen and Oxygen gases

Man-Made Resources When humans use natural things to make something new that

provides utility and value to our lives, it is called human-made resources. For instance, when we use metals, wood, cement, sand, and solar energy to make buildings, machinery, vehicles, bridges, roads, etc. they become man-made resources

Human resource refers to the stock of productive skills and technical knowledge embodies in labour

Healthy, Motivated and Educated people are by themselves a resource to the Nation

o The role of public sector in mobilization of domestic resources:

Domestic resource Mobilisation, is crucial to meet the sheer scale of investment to promise transformative change and to the agenda for the Sustainable Development Goals (SDGs)

The role of Public sector is important to generate substantial benefits for state-citizen relations, economic stability and growth, and redistribution

The public sector provides for the necessary financing needed for the development of resources

Improving Domestic Resource Mobilization and reducing Illicit Financial Flows are central to enabling countries, communities, and individuals to benefit from economic activity

Public sector plays role by increasing tax revenues, through development of resources which is critical to ending extreme poverty and boosting shared prosperity

Ultimately, if countries can create jobs, formalize the economy and drive economic growth, they will maximize Domestic Resource Mobilization. This is particularly relevant in developing countries, which suffer from high rates of unemployment and informality

Mobilisation of Human resources is very essential for growth of India, as India is now eyeing more on its Demographic dividend; So empowering human resources, bringing weaker sections to the mainstream, providing Employment opportunities should be done by the Public sector

Conclusion o Thus, a collective effort to support the public sector with participation

from private sector and other key stake holders to mobilise resources in inclusive and sustainable manner





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9. Discuss the role of GST in increasing the indirect tax collection and suggest measures to plug the drawbacks of present form of GST.

What to look for?

Introduction -What is GST?

Body -The role of GST in increasing the indirect tax collection -The measures to plug the drawbacks of present form of GST


Introduction

o Goods and Services Tax (GST) is an indirect tax (or consumption tax) imposed in India on the supply of goods and services

Body o It is a comprehensive multistage, destination based tax: comprehensive

because it has subsumed almost all the indirect taxes except few

o The role of GST in increasing the indirect tax collection: The Goods and Services Tax (GST) implementation has increased

indirect taxpayer base by more than 50 per cent, according to the Economic Survey

Preliminary analysis of data shows GST registrants rose mainly on account of large increase in voluntary registrations, especially by small enterprises that buy from large enterprises and want to avail themselves of input tax credits. Hence, GST structure itself is drawing in large number of taxpayers

One can confidently argue, without fear of contradiction that GST proved to be both consumer and assessee friendly. The high taxation of pre GST era pinched the consumers’ pocket and acted as a disincentive against tax compliance

The assessee base after Introduction of GST has increased by 84%. At present, there are currently 1.20 crores assessees

There is now a single registration system under GST, which works online and the procedures for the trade and business are reviewed and simplified regularly, which ensures better tax collections

o The measures to plug the drawbacks of present form of GST: Compliance has miles to go: The biggest dampener was the compliance

process, as information technology glitches took more than the





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anticipated time to be resolved. Hence, there is a need for better user friendly technology

Cumbersome registration system: Multiple registration requirements have complicated things for industry, which was expecting simplicity. There is a need for easy process

Refunds problem for exports: The refund mechanism for exporters, including data matching law, besides procedures governing them, have irked the sector, particularly smaller entities that saw their working capital requirements rise. Larger Intervention in this perspective is needed

There are many goods that are still outside the GST net, which comes in the way of seamless flow of input tax credit. Key items outside its ambit are electricity, alcohol, petroleum goods and real estate. Bringing them under GST net would increase revenues for the Government

Tax slab rationalisation needed: There are as many as six slabs. There is a need for merger of slabs to reduce complexity and classification disputes

There is a need for better Data Analytics practices to set the plugs for data leakage

The role played by Government to make GST more compatible are: Government has introduced the GST Composition scheme, to

enable small taxpayers to get rid of tedious GST formalities and enabling them to pay GST at a fixed rate of turnover

Conclusion o The goods and services tax has been one of the key enablers to improve

the ease of doing business in India and has consolidated a plethora of taxes levied by the Centre and states into a common, fungible tax. Despite some initial hiccups caused by post-implementation changes in rates and compliance requirements accompanied by an inadequately prepared portal, the tax is entering the growth phase as is evidenced by the stabilisation of GST collections

10. What are the reasons behind the Jobless growth and What Should be done to reverse the Phenomenon of Jobless growth

What to look for?

Introduction -What is Jobless growth?

Body -The reasons behind the Jobless growth





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-What Should be done to reverse the Phenomenon of Jobless growth?


Introduction

o A jobless growth is an economic phenomenon in which a macroeconomy experiences growth while maintaining or decreasing its level of employment

Body o A report in Business Standard, says India’s joblessness was 6.1% of the

labour force between the summers of 2017 and 2018 o The reasons behind the Jobless growth are:

Economies experience cyclical as well as structural changes as they recover from a recession. In a cyclical economy, employment growth and decline follows

the expansion and contraction of the economy. A structural change, however, displaces many unemployed

workers, as their companies are unable to recover fully Economies experiencing high unemployment even as their gross

domestic product (GDP) expands are encountering structural changes in their economy rather than a cyclical recovery Many of the existing companies are unable to recover fully in a

recession caused by structural changes. These companies are no longer able to compete in the marketplace as demand for their products or services falls.

Since these companies are unable to recover, they do not rehire their former workers

Thus, A jobless growth economy indicates the existence of changes to the fundamental basis of work for everyone

In India, The jobless growth has been largely because of new members entering the workforce, who are higher than the jobs available

o What should be done to reverse the Phenomenon of Jobless growth?

Formalise labour arrangements: India experienced decline in jobs due to a reduction in contract workers. Contractualisation is a universal phenomenon and the solution is to simply end the informal nature of employment

Improve business sentiment: The focus should be on kick-starting the investment cycle, incentivise job creation by giving infrastructure a push, finding a way to lower interest rates and improving ‘ease of doing business’





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Improve labour-absorption: The economy is generating fewer jobs per unit of GDP—more work is being done with fewer employees due to major improvements in automation, robotics and productivity. So, more focus on labour-intensive sectors will generate employment

Policy push to speed up the five labour market transitions: Transitioning from farm to non-farm, rural to urban, subsistence self-employment to wage employment, informal to formal, and school to work will enhance productivity norms

Schemes to promote MSME growth: Arresting the lacklustre global demand and weak exports, and diversifying the exports basket are the dire needs of the MSME sector. Enhancing the employment potential of MSMEs is critical as the sector contributes 40% to India’s manufacturing output, employing 14 crore workers

Skilling for an industry-ready workforce: Given India’s demographic dividend, it acquires special significance. With 54% of our population below 25 years of age, we are sitting on a massive workforce. Hence, the need to capitalise on this to provide market driven skills and industry focus on tie-ups with educational/training institutes, and refurbishing curriculum, content, teaching/training methodologies

Conclusion o UNDP’s Asia-Pacific Human Development Report 2016 warned India could

face a critical shortage of jobs in the coming 35 years. There are two ways to look at it—as a huge wave of unemployment and demographic disaster that will leave India floundering, or as an unprecedented resource for wealth creation that will outpace much of the world if equipped with right skills. Hence, the need of measures in right direction

11. Discuss the relevance of NITI Aayog, compared to planning commission, in addressing the present needs of the Indian economy

What to look for?

Introduction -What is NITI Aayog in brief?

Body -The relevance of NITI Aayog, compared to planning commission -What more concerns need to be addressed to make NITI more relevant






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Introduction o The NITI Aayog is a policy think tank of the Government of India,

established with the aim to achieve sustainable development goals with cooperative federalism by fostering the involvement of State Governments of India in the economic policy-making process using a bottom-up approach

Body o The NITI Aayog, like that of the Planning Commission, was also created by

an executive resolution of the Government of India o NITI Aayog is the premier policy ‘Think Tank’ of the Government of

India, providing both directional and policy inputs. While designing strategic and long-term policies and programmes for the Government of India, NITI Aayog also provides relevant technical advice to the Centre and States

o The relevance of NITI Aayog, compared to planning commission:

The NITI Aayog was formed to bring fresh ideas to the government. Its first mandate is to act as a think tank. It can be visualised as a funnel through which new and innovative ideas come from all possible sources — industry, academia, civil society or foreign specialists — and flow into the government system for implementation

NITI Aayog is more like an action tank, rather than just a think tank. By collecting fresh ideas and sharing them with the Central and

State governments, it pushes frontiers and ensures that there is no inertia, which is quite natural in any organisation or institution.

If it succeeds, NITI Aayog could emerge as an agent of change over time and contribute to the Prime Minister’s agenda of improving governance and implementing innovative measures for better delivery of public services.

It is relevant to cut across the silos within the Government, which was present in earlier Planning commission For example, India still has the largest number of malnourished

children in the world. We want to reduce this number vastly, but this requires a huge degree of convergence across a number of Ministries, and between Central and State governments.

NITI Aayog is best placed to achieve this convergence and push the agenda forward

NITI Aayog is also bringing about a greater level of accountability in the system. Earlier, we had 12 Five-Year Plans, but they were mostly

evaluated long after the plan period had ended. Hence, there was no real accountability





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NITI Aayog has established a Development Monitoring and Evaluation Office which collects data on the performance of various Ministries on a real-time basis. The data are then used at the highest policymaking levels to establish accountability and improve performance

It is making concerted efforts to Improve Innovation This is seen in the commendable work in improving the

innovation ecosystem in India. It has established more than 1,500 Atal Tinkering Labs in schools across the country and this number is expected to go up to 5,000 by March 2019. It has also set up 20 Atal Incubation Centres for encouraging young innovators and start-ups.

NITI has been instrumental in moving away from the 'one size fits all approach' as under earlier Planning commissions, to provide for a better match between schemes and needs of states

o However, the following concerns need to be addressed to make NITI more

relevant: NITI Aayog cannot transform a deeply unequal society into a modern

economy that ensures the welfare of all its citizens, irrespective of their social identity.

It has no role in influencing public or private investment. It does not seem to have influence in policymaking with long-term

consequences. For instance, demonetisation and the Goods and Services Tax.

If it is a think-tank, it has to maintain a respectable intellectual distance from the Govt. of the day. Instead, we see uncritical praise of the Govt-sponsored schemes

/ programmes. It is not able to answer specific questions like, why 90% are working in

unorganised sector? and more over as on date, more and more informalisation is taking place in the organised sector

Conclusion o With its current mandate that is spread across a range of sectors and

activities, and with its unique and vibrant work culture, NITI Aayog remains an integral and relevant component of the government’s plans to put in place an efficient, transparent, innovative and accountable governance system in the country.





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12. Enumerate the important aspects of national manufacturing policy. How is it effective in overcoming the weaknesses and failures of industrial policy?

What to look for?

Introduction -What is NMP?

Body -Key aspects of NMP -Reasons for failure/weakness in Industrial policy -How the 'National Manufacturing Policy' overcomes the failures of 'Industrial Policy'?


Introduction

o The Department of Industrial Policy and Promotion (DIPP) under The Ministry of Commerce and Industry has notified the National Manufacturing Policy (NMP). The main objective of this policy is to enhance the share of manufacturing sector in GDP to 25% and creating 100 million jobs over a decade

Body o The National Manufacturing Policy (NMP) is by far the most

comprehensive and significant policy initiative taken by the government o The aim is to push manufacturing’s contribution to GDP from the present

16% to 25% by 2022 o In doing so, the policy intends to create an additional 100 million jobs and

support required skills development programmes o Other key objectives of the policy include:

• Creation of National Investment and Manufacturing Zones (NIMZs) • Development of Small and Medium Enterprises (SMEs) • Implementation of industrial training and other skill upgradation measures • Promotion of Green Manufacturing • Rationalisation and simplification of business regulations

o Besides, the policy also dwells upon improvement of core infrastructure, creation of financial and institutional mechanisms for technology development, boosting domestic capacity to enhancing exports, besides many other provisions, with the intent to enhance global competitiveness of Indian manufacturing

o The policy has been formulated keeping in mind existing initiatives such as foreign direct investment (FDI), Goods and Services Tax (GST), Land Acquisition Bill, etc.





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This co-ordinated implementation of the NMP with other policy and procedural initiatives is the key to its success and will be vital in establishing India as a viable alternative to China.

o The Industrial Policy in India has failed or has weaknesses, because of the

following reasons: The Policy itself is vaguely defined, with no emphasis on clear cut

definitions to put things in place It has failed to provide a spurt to manufacturing sector whose

contributions, has been stagnated until recently The substantial Investments, even after Liberalisation process, have

been slow paced, and the important strategic industries such as Engineering, power, machine tools etc hasn't received much funding

Focussing attention on internal liberalisation without adequate emphasis on trade policy reforms resulted in ‘consumption-led growth’ rather than ‘investment’ or ‘export-led growth’

o How the 'National Manufacturing Policy' overcomes the failures of

'Industrial Policy'? NMP provides a strong visions to manufacturing sector, than the vague

definitions in Industrial policy, thereby warranting a superior level of operational freedom and integrated programs between Industries and Government

NMP assists innovation to encourage manufacturers to remain internationally competitive

While liberalisation and economic reforms have brought about significant qualitative and structural changes within the industrial economy, it has not yet made the country a booming manufacturing hub for the world, which the NMP intends to do now

The NMP talks about creating industrial hubs with full infrastructural facilities. This is welcome, particularly in the interest of developing ancillaries and technological interdependence, besides competitiveness.

Conclusion o However, for the vision of NMP to be realised, state have to act as change

agents, along with Entrepreneurs motivated to invest in manufacturing





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13. Discuss the challenges of infrastructure sector in India and how National Infrastructure Pipeline will aid in overcoming these challenges?

What to look for?

Introduction -A brief about National Infrastructure Pipeline

Body -The challenges of infrastructure sector in India -How National Infrastructure Pipeline will aid in overcoming the above challenges?


Introduction

o A task force to draw up a National Infrastructure Pipeline for each of the financial years from 2019-20 to 2024-25 has been constituted, chaired by the Secretary, Department of Economic Affairs, Ministry of Finance

Body o The challenges of infrastructure sector in India are:

The lack of proper infrastructure pulls down India's GDP growth by 1-2 per cent every year

Key issues faced by the sector in the past few years relate to funding, the financial situation of their developers, and inflation pressures

The Private Sector developers are still in a bad financial situation and have limited equity to invest in projects

Commercial banks are reaching sectoral exposure limits and have introduced more stringent lending norms, making it difficult for developers to raise funds

There is a significant shortfall in planned Investments, with several of the announced projects yet to be completed

Delays in implementation and execution of projects is a common occurrence in India, leading to time and cost overruns

Absence of a proper dispute resolution mechanism between private players and government agencies

Lack of co-ordination between various Government agencies Land acquisition delays and Environmental clearances are adding to

the woes of Infrastructure sector

o How National Infrastructure Pipeline will aid in overcoming the above challenges? National Infrastructure Pipeline will ensure that infrastructure projects

are adequately prepared and launched Each Ministry/ Department would be responsible for the monitoring of

projects so as to ensure their timely and within-cost implementation





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It will help in stepping-up annual infrastructure investment to achieve the Gross Domestic Product (GDP) of $5 trillion by 2024-25

It will also enable robust marketing of the pipeline of projects requiring private investment through the India Investment Grid (IIG), National Investment & Infrastructure Fund (NIIF)

The following terms of Reference of the task force constituted would make build better Infrastructure as: It would identify technically feasible and financially/

economically viable infrastructure projects that can be initiated in FY 2019-20

It would guide the Ministries in Identifying appropriate sources of financing

It would suggest measures to monitor the projects, so that cost and time overrun is minimised

Other qualifications for inclusion in the pipeline for the current year will include availability of a DPR, feasibility of implementation, inclusion in the financing plan and readiness/ availability of administrative sanction; which will add better value in the sector

Conclusion o Thus, National Infrastructure Pipeline is a move in right direction, which

will submit its report by end of October, and has raised the promises in Infrastructure sector in India

14. Transport and connectivity are central to India’s economy and society. What are major challenges of transport sector and the potential of this sector in improving the productivity of economy?

What to look for?

Introduction -A fact/data on Infrastructure sector in India

Body -Why transport infrastructure is most important for India's Economy? -What are major challenges of transport sector? -The potential of transportation sector in improving the productivity of economy?






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Introduction o India’s transport sector is large and diverse, as it caters to the needs of 1.1

billion people. The share of Transport sector in India's GDP is around 6.5%, with road transportation contributing the lion’s share

Body o Why transport infrastructure is most important for India's Economy?

One cannot overemphasize the importance of transportation than call it the 'lifeline' of a nation

It has been proven by so many instances how transport infrastructure has added speed and efficiency to a country's progress.

Good physical connectivity in the urban and rural areas is essential for economic growth, for a country like India, which is the seventh largest nation with over a billion population

o What are major challenges of transport sector? The country's high-density rail corridors face severe capacity

constraints. There is a definite need for capacity enhancement, upgradation,

creation of new passenger and freight corridors. Other issues plaguing the rail transport are the differential

speeds of trains, inadequate connectivity to ports and mines, inability to carry longer and heavier trains and lower throughput and longer turn-around period.

Most roads in India are narrow and congested with poor surface Lane capacity is low – majority of national highways are two

lanes or less. A quarter of all India's highways are congested. Many roads are of poor quality and road maintenance remains under-funded

33 percent of India’s villages do not have access to all-weather roads The problem is more acute in India's northern and north-eastern

states which are poorly linked to the country’s major economic centres.

Urban centres are severely congested. In Mumbai, Delhi and other metropolitan centres, roads are often severely congested during the rush hours. The dramatic growth in vehicle ownership during the past decade - has reduced rush hour speeds especially in the central areas of major cities

Ports are congested and inefficient. The average annual growth of cargo volume in the ports in the last decade was close to 10%, However, capacity utilization in some of the major ports remain as low as 58-60%

The dramatic increase in air traffic for both passengers and cargo in recent years has placed a heavy strain on the country's major airports





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o The potential of transportation sector in improving the productivity of

economy? Rail experts believe that the rail transport systems are six times more

energy efficient than road and four times more economical. The social costs in terms of environment damage or degradation

are significantly lower in rail. Rail construction costs are approximately six times lower than

road for comparable levels of traffic Hence, the need to develop better Railway networks to build

economical cargo and passenger Infrastructure The future potential for port sector, particularly container ports is huge

considering that the container traffic is projected to grow to 40 million TEU by 2025. Inland water transportation also remains largely under

developed, despite India's 14,000 kilometres of navigable rivers and canals

Passenger Air traffic is projected to grow more than 15% annually over 2011-13 and it is estimated that the aviation industry, currently 9th largest in the World, will require 30 billion USD investment in the next 15 years to keep pace with the growing demand

Both bulk and containerized traffic is expected to grow at a much faster pace in future and by some estimate the container traffic is projected to grow to about 4.5 times of the current volume by 2025

Conclusion o Realising the Potential of this sector, the Government has taken to a slew

of measures mainly evident in form of Sagarmala, Bharatmala projects to develop better Transportation Infrastructure in India

15. What is the need & different sources of investment in India? Discuss the need for sector specific investment model

What to look for?

Introduction -A brief on why Infrastructure Investment is needed in India

Body -What is the need of investment in India? -What are the different sources of investment in India?





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-The need for sector specific investment model in India


Introduction

o India is the fastest-growing trillion-dollar economy in the world, and to sustain such a momentum, a significant increase in investment levels is needed

Body o The initiatives of the Government along with revived Investor sentiment is

picking up in India. But the real investment flow is yet to pick up especially from private sector This situation has been identified as the ''Balance sheet syndrome

with Indian characteristics'' Under such a situation, boosting Public investment is important,

which will work as an engine of growth in short term and lead to investment flows coming from the private sector

Hence, the need got investment in India

o At present, Things are looking bleak for the Indian economy: GDP growth in the latest quarter was a subdued 5.8 per cent Unemployment levels are at record highs The fiscal deficit numbers projected in the Budget are suspect and

presumed to be larger Export growth hit a 41-month low in June this year, and Growth in Eight Core sectors of the Economy remained sluggish at 0.2%

o Hence, all of the above demands better Investment in India

o The different sources of investment in India are: Domestic Investments Direct equity Mutual funds National Pension System (NPS) Public Provident Fund (PPF) Bank fixed deposit (FD) RBI Taxable Bonds Real Estate

Foreign Investments Foreign Direct Investment(FDI) in India is a major monetary source for

Economic development in India India received highest ever FDI worth USD 64.37 billion in FY19





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Along with FDI, Foreign Portfolio Investment(FPI) and Foreign Institutional Investment(FII) are also part of foreign investments into India

o Sector-specific Investments are those that invest in particular type of sector

o The need for sector specific investment model in India:

The finance ministry’s Economic Survey 2019, which captures key economic developments and also projects medium term objectives, said that private sector participation in the infrastructure space is crucial as funding cannot depend on public investment alone Hence, sector specific investment models could attract greater

private players The following recommendations that have been made in perspective of

Sector specific Investments: Energy sector

Sustained growth in power generation is fundamental to enabling economic growth

Current and projected capacity addition plans of CPSUs, SEBs and private sector will still leave an expected shortfall in the coming years

Hence, recommendations to establish 25-30 sites for mega projects with land acquired and with all approvals in place, and diversifying to renewable sources has been made

There is a need to expedite the implementation of large Hydel projects, considering the Environment norms

Roads Greater efforts need to be made to attract large

international investors and contractors – by better outreach, offering tender blocks that are larger and with specifications that ensure long term quality of the assets created

Bharatmala Pariyojana (Project) is a centrally-sponsored and funded Road and Highways project of the Government of India, is a move in right direction

Ports With significant success in attracting domestic and foreign

private investment, this sector should be subject to minimal regulation/ restrictions with the focus on creating opportunities for greater investment and competition

The Sagarmala Programme is an initiative by the government of India to enhance the performance of the





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country's logistics sector, will go a long way in enhancing the 'ease of doing business' in India

Airports Rapid growth in passenger and cargo traffic can be

sustained only if there is significant improvement in aviation infrastructure.

Apart from Greenfield Projects, the sector also needs investments to up-grade and modernise major Airports, that account for over 95% of country's aviation traffic

The UDAN scheme is a regional airport development and "Regional Connectivity Scheme" (RCS) of Government of India, with the objective of "letting the common citizen of the country fly", aimed at making air travel affordable and widespread, to boost inclusive national economic development, job growth and air transport infrastructure development of all regions and states of India

This scheme will go a long way in driving FDI investments and private investments to build Airport Infrastructure

Telecom The telecom sector is the back-bone for sustaining India’s

growth momentum in services including IT and ITeS The call for Digital India and to build National Optical Fibre

Network to provide broadband connectivity to all 250,000 gram panchayats in the country, will draw in better investments in this sector in the coming days

Conclusion o Achieving the investment goal (with a large FDI component anticipated) is

contingent on a fair and transparent long term policy regime. Hence, measures in this direction to make 'Investment in Infrastructure' attractive in India should be taken

16. Inland waterways can be potential game changer in improving the logistics efficiency in India. What are the problems of inland waterways and suggest the action points in improving the connectivity and efficiency of inland waterways in India?

What to look for?

Introduction -A brief on criticality of Logistics sector in India





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Body -Inland waterways can be potential game changer in improving the logistics efficiency in India. Elaborate this statement -What are the problems of inland waterways? -Suggest the action points in improving the connectivity and efficiency of inland waterways in India?


Introduction

o The critical role played by India's logistics sector in the country's economic growth story could not be understated. India can add 8% to its exports if it puts its last mile connect in the fast lane

Body o A sound and efficient logistics infrastructure is the key to boosting

economic growth and in turn, to alleviating poverty and promoting sustainable development in India

o Inland water transport system ensures both, by way of providing access, mobility and connectivity and generating employment at the grassroots with lesser environmental footprint and cost

o In our civilization, rivers have played a crucial role as a mode of transport in carrying people and goods. Even in the present era, many countries depend heavily on inland water transport, especially for large and bulky cargo.

o ‘Quality of trade and transport related Infrastructure(related to ports, rail ,road) is one of the dimensions on which, The World Bank’s publishes ‘The Logistic Performance Index’

o India has approximately 14,500 km of navigable waterways. This offers a huge potential for developing a cheaper and greener mode of transport. But only a very small percentage of trade is currently being carried out through these waterways and coastlines. Inland water transport account for about a mere 0.4% of trade, in

India o Nearly 60 % of goods today travel by congested roads 25 % by rail

networks. This slows down the movement of cargo, adds to uncertainties, increases the costs of trade, and leaves deep environmental footprints. It has been found that logistics costs in India account for about 18

percent of the country’s GDP, which is much higher than China, USA, UK and many other countries.

This makes Indian goods costlier and hence less competitive. As per World Bank analysis, the cost of transport of one tonne of

freight over a km by road is Rs 2.28, by rail Rs 1.41 and Rs 1.19 for





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waterways. So logistics costs in the country can be brought down considerably by transporting more and more goods by waterways

o The problems of inland waterways in India:

Water is a scarce resource in India. It has to first meet the basic requirements of drinking and irrigation before it can be used for navigation. River linkages and water sharing arrangements will have to be

worked out between states to estimate the quantum of water required on a time basis throughout the year to maintain the minimum depth of water in the canals for navigability, besides ensuring that drinking, irrigation and other demands of water do not get impacted

The cost savings from water transportation would never be realized unless vessels are able to load to their full tonnage. This is possible only if the rivers are deepened between 2.5 and

4.5 meters and if return cargo is made available for the vessel to avoid wasteful return trips.

Also. as most of the Indian rivers are locational and cover small geography and undergo huge seasonal fluctuations

Some of the rivers generally remain dry rendering them unsuitable for navigation

Higher water salinity, especially in the coastal regions and estuaries, and constant inflow of silt in the rivers can be problematic.

Along with the minimal water flow, continuous dredging is desired as the rivers bring a large amount of silt

The financing requirement for inland water transportation is huge and open-ended. The heavy investment will be needed for construction of locking

barrages to hold water for vessel movement, concretization and building of embankments to create port terminals and procure equipment, including dredgers, shipping vessels, and barges of different sizes and require river ports with their support infrastructure- road and rail connectivity, warehouses and other services.

Inland Waterways Transport (IWT) is a slower mode as compared by Rail and Road by its very nature. So Improper navigational aids further hurt its competitiveness with other modes

There are road and rail bridges with low vertical clearances which impede the passage of bigger IWT vessel on the waterways.





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o The action points in improving the connectivity and efficiency of inland waterways in India are: The National Waterways Act, 2016, was an important watershed in the

direction of developing the untapped potential of our inland waterways. Under the Act, 111 inland waterways across twenty four states have been declared as National Waterways (NWs). IWAI will be taking up projects for developing these waterways as environment friendly and sustainable modes of transport The first of such projects is the World Bank aided Jal Vikas Marg

project on River Ganga, or the National Waterways 1 A joint venture is afoot with Thompson Design Group, Boston

(USA) and Infrastructure Architecture Lab of Massachusetts Institute of Technology, to identify the best locations for construction of 18 ferry terminals in six cities, namely, Allahabad, Varanasi, Patna, Munger, Kolkata and Haldia on NW1

IWAI is in the process of developing thirty seven more NWs in the next three years.

The Government with a view to promoting Inland Waterways Transport (IWT), has launched several schemes, some of which are: Vessel Building Subsidy of 30% Equity participation by Govt. in BOT(Build operate transfer)

Projects up to 40% Viability Gap Funding Tax exemption similar to National Highways Enhancement in depreciation rate for inland vessels Joint Venture by IWAI Customs Duty concessions

Developing a water conservation system to first cater to the basic

requirements and then to maintain minimum flow in rivers , through construction of reservoirs could be way out

To provide the needed Infrastructure, the private sector can participate in many potential areas like Terminal and warehousing facilities, mechanization of the cargo handling system, installation of the new navigational aids, deploying low draft barges and vessels and maintenance of the existing fairways

A long term vision for the development of dams, bridges and other in-way Infrastructures should be put in place

The government should target specific cargo like Coal, Cement, Fertilizers, Food grains and all the users of these cargoes close to National Waterways need to be met, their requirements to be understood and specific solutions to be developed for them on the long-term basis





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Conclusion o Once fully operational, the integrated system of water-road and rail

network will herald a new era of inclusive growth and green economy in India.

17. India has significant experience in private sector participation in infrastructure development, which traces its roots back to the liberalization era in the early 1990s.Trace the different phases of Public private participation (PPP) post 1990s and discuss the role it has played in improving the GDP growth

What to look for?

Introduction -A brief on PPPs

Body -India's experience in private sector participation in infrastructure development -The different phases of Public private participation (PPP) post 1990s -The role PPPs have played in improving the GDP growth


Introduction

o The concept of Public Private Partnerships (PPPs) has emerged as a viable option for infrastructure development especially in the context of developing countries. PPPs are emerging as an innovative policy tool for remedying the lack of enthusiasm in traditional public service delivery

Body o Public Private Partnerships (PPPs) broadly refer to long-term, contractual

partnerships between the public and private sector agencies, specifically targeted towards financing, designing, implementing, and operating infrastructure facilities and services that were traditionally provided by the public sector

o According to the Department of Economic Affairs, Ministry of Finance, Government of India, 2007, PPP is defined as, 'A partnership between a public sector entity (sponsoring authority) and a private sector entity (a legal entity in which 51% or more of equity is with the private partner/s) for the creation and/or management of infrastructure for public purpose for a specified period of time (concession period) on commercial terms and in





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which the private partner has been procured through a transparent and open procurement system'

o What situation made the Privatisation to emerge during 1990s?

The 'License-Permit-Quota Raj' was started in India after Independence for the government to control, which company produced what With the nationalization of banks in 1969 and the Monopolies

and Restrictive Trade Practices (MRTP) Act of 1970, the License Raj was further strengthened

Life under license raj was characterized by scarcity of resources. The choices people had available to them in their day-to-day life were very limited

The License Raj created a ‘scarcity economy’, and this scarcity also applied to foreign reserves since we practiced ‘swadeshi’

As a result of all these, along with range of other factors, The Balance of Payment crisis arose in the 1970s and worsened towards the end of 1980s. The balance of payments situation came to the verge of collapse in 1991

It was then, when the Indian Government started the path of 'Liberalisation, Privatisation and Globalisation in India' Privatisation here refers to the participation of private entities in

businesses and services and transfer of ownership from the public sector (or government) to the private sector as well

Major highlights of the Policy included, De-reservation of the Industries, De licencing of the Industries, Abolition of MRTP Limit, promotion of foreign investment

Since, then the private sector participation has taken various shapes in India

o The different phases of Public private participation (PPP) post 1990s are:

The different phases can be evaluated from the various PPP models that emerged since 1991: Build Operate and Transfer (BOT): This is the simple and

conventional PPP model where the private partner is responsible to design, build, operate (during the contracted period) and transfer back the facility to the public sector. The common Political risk, technical risk and Financing risk gave way to other model. The national highway projects contracted out by NHAI under PPP mode is a major example for the BOT model

Build-Own-Operate (BOO): This is a variant of the BOT and the difference is that the ownership of the newly built facility will rest with the private party here





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EPC Model : In this model, the project cost was fully covered by the government together with majority of the risks-land acquisition, cost over runs, delays; But this model did not attract much private players

Hybrid Annuity Model(HAM) : It is a mix of EPC and BOT. In this model, the project cost is shared equally between the government and private sector; This model covered the major risks of government

Also, Government has announced several measures including PPP policies to promote PPPs in the country both at the central and state levels, some of which are listed in the following: The PPP cells have been set up both at central and state levels

are expected to streamline the various infrastructure projects.

Government has also instituted a separate corporation, i.e. India Infrastructure Finance Corporation limited (IIFCL) for innovative and cost effective provision of financial support.

Government has also announced a Viability gap funding (VGF) scheme for economically unviable but socially desirable projects.

High powered committees like Cabinet Committee on Infrastructure (CCI) and Public Private Partnership Appraisal Committee (PPPAC) have been constituted for quick decision making and project approvals and further fortify the growth of PPPs in the country.

Making available model concession agreements for hassle free transparent long term contracts, publishing of various sector wise standard documents of the planning commission, etc. form part of this government initiative

o India's experience in private sector participation in infrastructure

development: The Government of India (GOI) is committed to raising investments in

infrastructure from its existing level of below 5% of GDP to almost 9%. However, there is a huge gap between the amount of investments required and the GOI’s ability to raise funds

GOI’s borrowing power is restricted under the Fiscal Responsibility and Budgetary Management Act. This restriction limits the ability of the Government to finance as much as infrastructural development is required. Given the large resource requirements and the budgetary and

borrowing constraints, GOI has responded to the challenge by promoting the idea of private sector investments and participation in all infrastructure sectors





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Also, there were issues such as time and cost overruns of the projects, poor maintenance, capital inadequacy, archaic labour laws and technological constraints which acted as major obstacles to this conventional method of provision of infrastructure services

The launching of economic reforms in the decade of nineties has created a conducive environment for private sector participation and to attract private capital towards infrastructure provision

o The role PPPs have played in improving the GDP growth:

The rapid growth in the private sector investment from a mere 20 percent of the total infrastructure investment in the 10th plan (2002-07) to 306 percent in the eleventh plan (2007-12) provides evidence for the positive response of the private sector The estimates in the Eleventh Five Year Plan’s (2007-2012) were

for even higher growth at 9 percent The actual investment in Infrastructure, by 1999 was only 3.7% of GDP,

with private investment contributing just 0.9% of GDP With the coming of PPPs, India’s infrastructure spending for

2006-07 was estimated at about 5 percent of GDP At present, India is spending around USD 100 billion annually on

Infrastructure, which is around 3-4% of GDP In case of India, Partnerships between private companies and

government has provided advantages to both parties Private-sector technology and innovation, for example, has

helped provide better public services through improved operational efficiency.

The public sector, for its part, has provided incentives for the private sector to deliver projects on time and within budget

In addition, creating economic diversification through PPPs, has made the country more competitive in facilitating its infrastructure base and boosting associated construction, equipment, support services, and other businesses

Conclusion

o By contrast, the investment made in Infrastructure in India is lower than other fast growing economies such as China, which has an infrastructure spending of 9 percent of GDP. Within the context of India’s own growth path the current rate of investment is thought to be too slow and a serious brake on economic expansion and rising income levels across the country





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18. In a country like India, where majority of population live in rural areas Decentralized planning is very much important. Examine the potential of decentralized planning in India and what are the major hurdles in the effective decentralization of planning

What to look for?

Introduction -What is Decentralised Planning?

Body -Why is Decentralised planning Important for India? -The major hurdles in the effective decentralization of planning -The potential of decentralized planning in India


Introduction

o Decentralised planning refers to the process of planning where some of planning functions and responsibilities of decision-making are delegated from the centre to the lower levels of administration

Body o As a first step, planning process get decentralised from national level to

state level planning, then state to regional level, from regional to district level, district level to sub-divisional level or block level and ultimately to village level

o Why is Decentralised planning Important for India? After the enactment of the 73rd and 74th Amendment Acts

decentralized district planning has made a permanent imprint on the national scene. Both the planners and politicians have realised the stem reality

that decentralized planning has no substitute for a vast and a heterogeneous country like India having multiple units of administration ranging from the national to the village level

The story of India’s planning experiments since the inception of the five-year plans is not at all encouraging. The planning as introduced was technocratic in character based

on a ‘satellite imagery view’ of the society having no popular involvement

At the beginning, the planners adopted the view of understanding the problems of the people from the top.

They did not come to the ground and had only a photographic view of the society that helped in creating a data-based image, not the picture of the society





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Under these circumstances, decentralised planning organised from below, ensured all comprehensive developments of human as well as material resources by taking into consideration the felt needs and requirements of the people at the grassroots

Also, Decentralized planning or planning from below helps the planners to decide on objectives and priorities in the light of specific requirements of a locality vis-à-vis the availability of resources

A well organised planning body at the grass roots level is imperative in a diverse country like India, to accommodate the demands of people and to specifically identify the bottlenecks standing in the way of growth and development

Decentralization in planning is necessary in order to integrate and coordinate the activities and programmes undertaken by different departments of the government

Thus it appears that the large size of the country with heterogeneous characteristics and agro-climatic variations increases the possibilities of decentralized planning to neutralize the forces promoting uneven development amongst the regions and to harness the local resources to meet the felt needs and priorities of the people

o The major hurdles in the effective decentralization of planning:

Lack of adequate devolution: Many States have not taken adequate steps to devolve 3Fs (i.e., functions, funds and functionaries) to the third tier of Government to enable them to discharge their constitutionally stipulated function. Further, it is imperative that they have resources to match the

responsibilities entrusted to them. Excessive control by bureaucracy: In some States, the Gram

Panchayats have been placed in a position of subordination. Hence, the Gram Panchayat Sarpanches have to spend extraordinary amount of time visiting Block Offices for funds and/or technical approval. These interactions with the Block staff office distort the role of Sarpanches as elected representatives.

Tied nature of funds: This has two implications. The activities stated under a certain scheme are not always appropriate for all parts of the district. This results in unsuitable activities being promoted or an underspend of the funds.

Overwhelming dependency on government funding: A review of money received and own source funds shows the overwhelming dependence of Panchayats on government funding. When Panchayats do not raise resources and instead receive

funds from outside, people are less likely to request a social audit.





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Reluctance to use fiscal powers: An important power devolved to GP (Gram Panchayat) is the right to levy tax on property, business, markets, fairs and also for services provided, like street lighting or public toilets, etc. Very few Panchayats use their fiscal power to levy and collect

taxes. Creation of Parallel Bodies: Often, Parallel Bodies (PBs) are created

for supposedly speedy implementation and greater accountability. However, there is little evidence to show that such PBs have

avoided the evils including that of partisan politics, sharing of spoils, corruption and elite capture. resource endowments.

Poor Infrastructure: A large number of decentralised government structures in the country do not have even full time Secretary. Around 25 percent of the Gram Panchayats do not have basic office buildings. The database for planning, monitoring etc., are lacking in most of the cases

o The potential of decentralized planning in India: For the planning to be more effective, there is a need of more

sustained commitment on part of the government There is a need for better capable manpower and logistics support to

increase the efficiency of third tier functioning Similarly, to be effective, it has to have a clear mandate to formulate

the development plan of the area and its role and responsibilities clearly delineated vis-à-vis other government agencies.

To really pursue developmental goals at the grass root levels, there is a need of a better conceived capacitation programme to assume greater significance

To incline a right approach to planning at such levels of government, the training deficiencies of working personnel need to be overcome to realise the true potential

To further strengthen the planning process, it is necessary that a proper system of planning should be developed, analytical skills of the planning personnel be sharpened and trained to assimilate and integrate different viewpoints of people

Conclusion o Thus, it is important to bring in the necessary changes and decentralise the

Institutions to the fullest potential in order to realise the ideal of Gandhi's Gram Swaraj





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19. India Skill report 2019 states that the employability in the country is at an all-time high. What does the term employability mean and what are the reason for declining employability and suggest the measures for improve the same.

What to look for?

Introduction -A brief on India Skill report 2019

Body -What does the term employability mean? -What are the reason for declining employability? -The measures to improve the Employability


Introduction o India Skills Report 2019 consists of an in-depth study of employability

amongst the fresh candidates joining the workforce and shared that of all students passing out this year, more than 48% are employable

Body o More about the report

According to the nationwide study, the top three states in terms of employability is Andhra Pradesh followed by West Bengal and Delhi.

While engineers continue to be most employable, Electronics and Communication Engineering (ECE) & Information Technology (IT) have the highest employability rate

o Employability refers to the attributes of a person that make that person

able to gain and maintain employment o Employability is related to work and the ability to be employed, such as:

The ability to gain initial employment; hence the interest in ensuring that 'key competencies', careers advice and an understanding about the world of work are embedded in the education system

The ability to maintain employment and make 'transitions' between jobs and roles within the same organization to meet new job requirements[2]

The ability to obtain new employment if required, i.e. to be independent in the labour market by being willing and able to manage their own employment transitions between and within organisations





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o What are the reason for declining employability? More supply than demand

India has the largest number of young people in the world, adding nearly 10 million new workers to the workforce annually. That’s equivalent to roughly the entire population of the Czech Republic or Portugal

India is staring at an employability crisis. Of the 10 lakh engineers a year, more than 90% are unemployable. This even as new technologies like AI-VR, machine learning and data science pose fresh challenges.

Jobless growth The economy shows no signs of distress, growing rather well at

around 7% plus. But it could well be the wrong proxy for job creation.

Research by CRISIL shows that for the last three years, three sectors have outpaced GDP growth: financial services, real estate and professional services; public administration, defence and community services; and trade, hotels and restaurants. Except for the third, others have low-labour intensity

No sunrise sectors Unlike in the past, when one sector matured and faded in its

hiring buoyancy, new sunrise sectors took its place, absorbing and retraining workers. For example, after IT services came telecom and organised retail. Now, at least so far, there is a virtual absence of sunrise sectors that hold out hope for job seekers

o The measures to improve the Employability are:

There are no short cuts to bridging the Employability gap. However, we feel that immediate identification and quantification of the gap, short term vocational band-aid and long term structural interventions in education can serve considerably in bridging it.

India's education system and skilling programmes work in isolation, leaving a gap between the two and this results in unemployment among youngsters. We need to create a bridge that will connect the two parallel

streams using available technologies Hence, the primary focus of the educational institutions should

be to encourage students to expand their skill set. In addition, they should take up continuous and comprehensive employability tests that would assess their capabilities





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Institutions should encourage change by introducing a modular approach of teaching. Teachers should be trained so that they can enhance the student's employability capacity.

Soft skill programmes should be embedded in formal education. As soft skills can not be developed overnight, institutions must make an effort to introduce a curriculum that will enhance the student's soft skills

The Government Introducing Skilling programmes, along with Apprenticeship system to create a talent pool is a step in right direction

The most important thing we need to do is to improve our labour market information system. This way, emerging demand for skills are spotted quickly and the necessary training and certifications for the same are created quickly

The key to employment growth is not the big company or factory that employs thousands of workers, but medium-scale units i.e. MSMEs

Conclusion o A formal structure or platform that can work as a means to come together

and discuss and debate possible methods to address industry challenges and gap areas could go a long way in ultimately creating a level playing field for all the entities involved to ultimately increase employability is the way forward

20. Annual planning and monitoring revolves largely around the allocation of the government’s budget to its departments. What are the changes and measures taken in recent years to streamline the flow of funds and what are its implications?

What to look for?

Introduction -A brief on the given statement in question

Body -The changes and measures taken to streamline the flow of funds, and their Implications


Introduction

o Annual planning and monitoring revolves largely around the allocation of the government’s budget to its departments and programmes and periodically checking if the money is being spent and activities completed





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Body o Such an approach, however, completely misses the difference between

doing the job, and doing it well. o An outcomes-based approach shifts the perspective to the short and long-

term outcomes of governance o Take an example of a scheme which gives our funds to build toilets

In the present way of budgeting, the influence of government majorly remains until the funds are disbursed and physical structures of toilet come up

So what if toilets were built, are they clean and functional and did open defecation reduce? ; This dimension is what the 'Outcome based Budgeting' seeks to address

o An outcome budget seeks to enshrine this approach within governments by linking budgetary outlays to specific outputs (tangible services or infrastructure provided) and outcomes (short or long-term benefits to the people). It arms citizens with data to hold governments accountable, and in

turn empowers the governments to better orient the bureaucracy towards results

Delhi’s Government's Outcome Budget for 2017-18 was “an historic innovation for ushering in transparency and accountability in public spending”

o The changes and measures taken to streamline the flow of funds, and their Implications are: Elected Governments are composed of different interest groups and

lobbies. Hence, it has been evident in most of the times to use its economic policies in a highly populist way for greater Political Mileage

Thus, it was in 1994 that India took the first step in this direction when the Central Government had a formal agreement with the RBI to limit its borrowing through adhoc treasury bills to a predetermined amount

The importance was finally given to streamline flow of funds in the enactment of the FRBMA 2003- a historic achievement in the area of fiscal prudence in the country This act puts constitutional obligation on the government to

commit so many things like fixing annual targets to cut revenue and fiscal deficits; govt bringing greater transparency in fiscal operations

Even though the targets set by the act have been breached many times, the act has acted as a deterrent on Government Budgets by pegging the Fiscal deficit at 3-4% of GDP





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Several initiatives towards cutting Revenue deficits are: Cutting down expenditure

Cutting down subsidies Cutting down Interest burdens by going for lesser

borrowings Making Budgetary allocation to the loss making PSUs to be

an exception than a rule General services to be motivated towards profit with

subsidised services to the needy only like in railways, power etc

Increasing revenue receipts Tax reforms initiated like GST Disinvestment of PSUs and even privatised State Governments allowed to go for market borrowing for

their plan expenditure In 2009, Performance monitoring and Evaluation system(PMES) for

government ministries/department were introduced, in order for them to create a Results-Framework document(RFD) It was introduced to ensure success in achieving agreed

objectives and implementing agreed policies The Direct Benefit transfer plan was introduced in 2013, to directly

credit benefits from scholarships, pensions and MGNREGA scheme This was done to improve targeting, reduce corruption,

eliminate waste and Control expenditure In 2013, the Government constituted the Expenditure Management

Commission(EMC) to look into various aspects of expenditure reforms to be undertaken by Government and other issues concerning Public Expenditure Management

Conclusion o The politics of sound finance in a globalised financial environment is well

understood. Hence, there are need of efficient methods to ensure Macro-Economic Stability to the Indian Economy





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IPM Test 11 : GS 3 : Economy




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Dwarfism in organized Manufacturing




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Thanks to all of you




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insightsias ipm test series - 2020 test 11: gs 3:economy

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