Economic Survey 2017-18 - IAS Score · An Overview of India’s Economic Performance in 2017-18 2....
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Transcript of Economic Survey 2017-18 - IAS Score · An Overview of India’s Economic Performance in 2017-18 2....
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Economic Survey 2017-18 &
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Index
An Overview of India’s Economic Performance in 2017-181. Fiscal, Monetary and External Sector2.
Monetary, Fiscal and External sector !
Is there a “Late Converger Stall” in Economic Development? !
Can India Escape it?Investment and Saving Slowdowns and Recoveries Cross- !
Country Insights for IndiaReconciling Fiscal Federalism and Accountability: Is there a !
Low Equilibrium TrapEconomic Sectors3.
Agriculture !
Industry !
Infrastructure !
Service !
Sustainable development 4. Sustainable Development, Energy and Climate Chang !
Climate, Climate Change, and Agriculture !
Social Development5. Social Infrastructure, Employment and Human Development !
Gender and Son Meta-Preference: Is Development Itself an !
Antidote?Reforms Needed6.
Ease of Doing Business’ Next Frontier: Timely Justice !
Transforming Science and Technology in India !
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Overview
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An Overview of India’s Economic Performance in
2017-18
GDP Growth
GDP growth � is expected to be between 6.5 and 6.75 per cent in 2017-18.
Real GDP � growth is expected at 6.5 per cent in 2017-18
GVA growth at basic prices � is expected to be 6.1 per cent in 2017-18. This is on account of lower growth in ‘Agriculture & allied’, and ‘Industry’ sector, which are expected to grow at 2.1 per cent and 4.4 per cent respectively.
2018-19: � Real GDP growth of 7-7.5%.
The growth in � nominal GDP in 2016-17 is estimated to be 11 per cent and it is expected at 9.5 per cent in 2017-18 on account of both lower real growth as well as lower value of deflator in 2017-18.
Nominal and Real GDP
The main difference between nominal and real values is that real values are adjusted for inflation, while nominal values are not. As a result, nominal GDP will often appear higher than real GDP.
Per Capita Income
The � real per capita income (measured in terms of per capita net national income at constant (2011-12) prices) is one of the important indicators representing the welfare of people of a country.
It is expected to increase from � Rs. 77,803 in 2015-16 to Rs. 86,660 in 2017-18, growing at an annual average rate of 5.5 per cent.
In nominal terms, it increased by an average �
of 9.0 per cent per annum from Rs. 94,130 in 2015-16 to Rs.111, 782 in 2017-18.
Decline in Saving and Investment
The investment rate (Gross Capital �
Formation (GCF) as a share of GDP) in the economy declined by nearly 5.6 percentage points between 2011-12 and 2015-16. The major reduction occurred in the year 2013-14, when investment rate declined by nearly 5 percentage points. This was on account of number of factors , �
viz. difficulties in acquiring land, delayed and cumbersome environmental clearances, problems on infrastructure front, etc. Although many of these problems have been addressed, resulting in improved power situation, lessening of infrastructure bottlenecks, etc., the investment rate (mainly fixed investment) has not picked up. The faster decline in investment rate vis-à- �
vis the savings rate has led to lower level of current account deficit (Savings Investment Gap) from 2013-14 to 2015-16.
Fiscal Deficit
Central Government is confident of �
achieving fiscal deficit of 3.2 per cent of GDP for 2017-18.The fiscal deficit during April-November �
2017 has reached 112 per cent of budgeted expenditure as compared to 85.8 per cent during the corresponding period last year.
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Revenue and fiscal deficits of states as a �
percentage of corresponding budget estimates is lower in the current year as compared to the previous year.
External Sector
The current account deficit has declined to �
reach about 1.8 per cent of GDP in the first half of FY2018.During April-December 2017, � trade deficit increased by 46.4 per cent over corresponding period of previous year.During April-December 2017, � exports grew 12.1 per cent to US$ 223.5 billion, while imports increased by 21.8 per cent to US$ 338.4 billion.Private transfer receipts, most of which is �
composed of remittances from Indians working abroad, increased by 10 per cent to US$ 33.5 billion in first half of 2017-18.
Performance of Key Sectors
Agriculture & Food Management: �
The growth rate in Gross Value Added !
(GVA) by the agriculture and allied sectors is estimated to be 4.9 per cent for 2016-17, as per provisional estimates.The ! production of Kharif food-grains during 2017-18 is estimated at 134.7 million tonnes compared to 138.5 million tonnes in 2016-17.The ! area sown under Rabi Crops during 2017-18 has reached 61.78 million hectares as of January 19, 2018.Around ! 840,000 hectares of land was brought under micro-irrigation during 2016-17.Coverage of ! non-loanee farmers under the Pradhan Mantri Fasal Bima Yojana (PMFBY) increased 123.5 per cent in 2016-17 and the scheme is being implemented in 25 states/UTs in 2017. The scheme covers farmers from pre-sowing to post harvest against natural non-preventable risks.
Industries, Corporate and Infrastructure �
Sector:Growth rate in the Gross Value Added !
(GVA) by the industrial sector was 5.6 per cent in 2016-17 and 5.8 per cent in the second quarter of 2017-18. During April-November 2017, the !
Index of Industrial Production (IIP) grew 3.2 per cent, while registering a growth rate of 8.4 per cent in November 2017, the highest in 25 months.The ! eight core infrastructure supportive industries, viz. coal, crude oil, natural gas, refinery products, fertilizers, steel, cement and electricity that have a total weight of nearly 40 per cent in the IIP, registered a cumulative growth of 3.9 per cent during April-November 2017.The performance of corporate sector !
highlighted that the growth in sales of more than 1,700 non-government non-financial (NGNF) listed manufacturing companies was 9.5 per cent in Q2 of 2017-18 compared to 3.7 per cent in Q2 of 2016-17.As of September 2017, India had !
115,530 km of national highways, 176,166 km of state highways and 53,26,166 km of other roads. Under the new umbrella program ‘Bharatmala Pariyojana’ the government is aiming holistic development of highways in the country.
Services sector: �
The ! services sector is projected to grow at 8.3 per cent in 2017-18, as against 7.7 per cent in 2016-17.As per World Trade Organisation !
(WTO) data, India’s share in the exports of commercial services in the world increased to 3.4 per cent in 2016 from 3.3 per cent in 2015. In terms of growth in tourism sector, between January-December 2017, Foreign Tourist Arrivals (FTAs) were 10.2 million with a growth of 15.6 per cent and foreign exchange earnings (FEE) were at US$ 27.7 billion with a growth of 20.8 per cent.
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Public Finance
The growth in � non-debt receipts at 4.58 per cent during April-November 2017 as against the growth rate of 25.8 per cent in the previous year.The realisation of the gross tax revenue �
during April-November 2017 as ratio of the budget estimates for 2017-18 was 56.9 per cent compared to 57.2 per cent in the corresponding period of the previous year.
Prices & Inflation
Inflation in the country continued to �
moderate during 2017-18. Headline inflation as per Consumer Price Index – Combined (CPI-C) declined to 3.3 per cent in 2017-18 (Apr-Dec) from 4.8 per cent in the corresponding period of 2016-17.CPI inflation, which was below � 3.0 per cent in the first quarter of 2017-18 mainly due to lower food inflation, especially pulses and vegetables, rose marginally and stood at 3.0 per cent in the Q2 of 2017-18. CPI-based core (non-food, non-fuel) � inflation also declined to 4.5 per cent in 2017-18 (Apr-Dec) from 4.8 per cent in 2016-17. Average inflation based on the � Wholesale Price Index (WPI) stood at 2.9 per cent in 2017-18 as compared to 0.7 per cent in 2016-17. WPI inflation which remained subdued for �
several months, surged during February and March 2017 due to sudden spurt in global crude oils prices. Thereafter, with the moderation in the global crude prices, inflation also moderated in the next four months till July, reaching a low of 0.9 per cent in June 2017. As oil prices bounced back and moved upwards in the successive months, coupled with rising food prices, inflation too rose and reached the level of 3.6 per cent in December 2017.WPI based core (non-food manufactured �
products) inflation stood at 2.6 per cent in 2017-18 (Apr- Dec) as compared to -0.8 per cent in 2016-17 (Apr-Dec). The inflation
of manufactured group, which has the weight of 64.2 per cent in the WPI basket, has however, remained range bound hovering around 2.6 per cent.
Headline Inflation:
It is a measure of the total inflation within an economy, including commodities such as food and energy prices (e.g., oil and gas), which tend to be much more volatile and prone to inflationary spikes.
Core Inflation:
Core inflation represents the long run trend in the price level. In measuring long run inflation, transitory price changes should be excluded. One way of accomplishing this is by excluding items frequently subject to volatile prices, like food and energy.
Outcome of the Study of GST
Data from the GST can help in unveiling some long-elusive and basic facts about the Indian economy. Some exciting new findings include:
There has been a large increase in the �
number of indirect taxpayers; many have voluntarily chosen to be part of the GST, especially small enterprises that buy from large enterprises and want to avail themselves of input tax credits.The distribution of the GST base among �
the states is closely linked to their Gross State Domestic Product (GSDP), allaying fears of major producing that the shift to the new system would undermine their tax collections. New data on the international exports of states suggests a strong correlation between export performance and states’ standard of living. India’s exports are unusual in that the �
largest firms account for a much smaller share than in other comparable countries. Internal trade is about 60 percent of GDP, �
even greater than estimated in last year’s Survey and comparing very favorably with other large countries.
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India’s formal sector non-farm payroll is �
substantially greater than currently believed. Formality defined in terms of social security provision yields an estimate of formal sector payroll of about 31 per cent of the non-agricultural work force; formality defined in terms of being part of the GST net suggests a formal sector payroll of 53 per cent. Similarly, the size of the formal sector �
(defined here as being either in the social security or GST net) is 13 per cent of total firms in the private non-agriculture sector but 93 per cent of their total turnover.
The five largest exporting states are !
Maharashtra, Gujarat, Haryana, Tamil Nadu and Karnataka. The five largest importing states are !
Maharashtra, Tamil Nadu, Uttar Pradesh, Karnataka and Gujarat. The states with the largest internal !
trade surpluses are Gujarat, Haryana, Maharashtra, Odisha and Tamil Nadu.
Prospects of Growth for 2018-19CSO has estimated the � GDP growth in 2017-18 to be 6.5 per cent. The growth during 2018-19 could be higher, depending on a number of factors. As per � IMF’s World Economic Outlook released in October 2017, the global growth is expected to accelerate to 3.7 per cent in 2018 from 3.6 per cent in 2017. This can be expected to provide further boost to India’s exports, which have already shown acceleration in the current financial year.
Remittances have shown signs of revival in �
the first half of current year and can be expected to pick up, particularly if oil prices maintain their rising trend witnessed in the current year.
The policy rates can be expected to remain �
fairly stable if the inflation rate does not deviate much from its current levels. This, along with the still favourable interest rate regime prevailing in the global markets could provide greater certainty to the investment climate.
The reform measures undertaken in 2017- �
18 can be expected to strengthen further in 2018-19 and reinforce growth momentum. On the other hand, downside risk to higher growth emanate from higher crude oil prices, which (going by current indications) can be expected to increase by about 10-15 per cent over and above the likely average price of around US$ 56-57 per barrel (for Indian basket) for 2017-18.
Protectionist tendencies in some of the �
countries could have an impact on exports growth, while the possibility of tightening of monetary conditions in the developed countries could lead to lower capital inflows. This monetary tightening could also lead to the possibility of financial stress and therefore can be a downside risk. On balance, there is a strong possibility of growth in 2018-19. Growth of GDP in 2018-19 could be in the range of 7.0 to 7.5 per cent.
The survey points out that India can be rated as among the best performing economies in the world as the average growth during last three years is around 4 percentage points higher than global growth and nearly 3 percentage points higher than that of Emerging Market and Developing Economies.
1. What are the new facts related to Indian Economy that has been highlighted in the Economic Survey?
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The facts highlighted are:There has been a large increase in registered indirect and direct taxpayers 1.
A ! 50 percent increase in unique indirect taxpayers under the GST compared with the pre-GST system.Similarly, there has been an ! addition (over and above trend growth) of about 1.8 million in individual income tax filers since November 2016.
Formal non-agricultural payroll is much greater than believed2. More than ! 30 percent when formality is defined in terms of social security (EPFO/ESIC) provision.More than ! 50 percent when defined in terms of being in the GST net.
States’ prosperity is correlated with their international and inter-state trade3. States that export more internationally, and trade more with other states, tend to be richer. !
But the correlation is stronger between prosperity and international trade.Indian firms export structure is substantially more egalitarian than in other large countries4.
Top 1 percent of Indian firms account for 38 percent of exports; in other large countries, !
they account for a substantially greater share (72, 68, 67, and 55 per cent of exports in Brazil, Germany, Mexico, and USA respectively). And this is true for the top 5 percent, 10 percent, and so on.
The clothing incentive package boosted exports of readymade garments 5. The relief from embedded state taxes (ROSL) announced in 2016 boosted exports of ready- !
made garments (but not others) by about 16 per cent.Indian society exhibits strong son “Meta” Preference 6.
Parents continue to have children until they get the desired number of sons. This kind of !
fertility-stopping rule leads to skewed sex ratios but in different directions: skewed in favor of males if it is the last child, but in favor of females if it is not the last. Where there are no such fertility-stopping rules, ratios remain balanced regardless of whether the child is the last or not.
There is substantial avoidable litigation in the tax arena which government action could 7. reduce
The tax department’s petition rate is high, even though its success rate in litigation is low !
and declining (well below 30 percent).Only 0.2 percent of cases accounted for 56 percent of the value at stake. !
About 66 percent of pending cases (each less than Rs. 10 lakhs) accounted for only 1.8 !
percent of the value at stake.To re-ignite growth, raising investment is more important than raising saving 8.
Cross-country experience shows that growth slowdowns are preceded by investment !
slowdowns but not necessarily by savings slowdowns.Direct tax collections by Indian states and local governments are significantly lower 9. than those of their counterparts in other federal countries
This share is low relative to the direct taxation powers they actually have. !
The footprint of climate change is evident and extreme weather adversely impacts 10. agricultural yields
The impact of weather is felt only with extreme temperature increase and rainfall !
deficiencies.This impact is twice as large in un-irrigated areas as in irrigated ones. !
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The Survey takes into account that Gender equality is an inherently multi-dimensional issue. �
Accordingly, assessments have been made based on three specific dimensions of gender: Agency(a) (relates to women’s ability to make decisions on reproduction, spending on themselves, spending on their households and their own mobility and health); Attitudes(b) (relate to attitudes about violence against women/wives, and the ideal number of daughters preferred relative to the ideal number of sons); and Outcomes(c) (relate to ‘son preference’ measured by sex ratio of last child, female employment, choice of contraception, education level, age at marriage, age at first birth and physical or sexual violence experienced by women) which aim to reflect the status, role and empowerment of women in the society.
The key findings of the assessment made in the Survey include: Over the last � 10-15 years, India’s performance improved on 14 out of 17 indicators of women’s agency, attitudes, and outcomes. On seven of them, the improvement has been such that India’s situation is comparable to that of a cohort of countries after accounting for levels of development.The Survey, encouragingly notes that gender outcomes exhibit a convergence pattern, �
improving with wealth to a greater extent in India than in similar countries so that even where it is lagging, it can expect to catch up over time. The Survey, however, cautions that on several other indicators, notably employment, use of �
reversible contraception, and son preference, India has some distance to traverse because development has not proved to be an antidote.
2. Why Pink-Color Economic Survey 2017-18 was presented in Parliament?
Formality can be defined in at least two senses. First, when firms are providing !
some kind of social security to employees. In India, government provides this for its employees, and the Employees’ Provident Fund Organization (EPFO) provides it to private sector employees in respect of pensions and provident funds; and the Employees’ State Insurance Corporation (ESIC) in respect of medical benefits.
The EPFO contribution is mandatory for ! industries employing greater than 20 workers, and whose monthly wage/salary is below Rs. 15,000. Above that level, contributions are voluntary.
A second definition of formality is when firms are part of the tax net. Since !
new data on the GST is available, one can define tax formality as firms having registered under the GST.
Formality in Indian Economy
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Economic Survey 2017-18 states that within India, there is significant heterogeneity, with the �
North-Eastern states (a model for the rest of the country) consistently out-performing others and not because they are richer; hinterland states are lagging behind but the surprise is that some southern states do less well than their development levels would suggest.The Economic Survey 2017-18 notes the challenge of gender is long-standing, probably going �
back millennia, so all stakeholders are collectively responsible for its resolution.The Survey, thus recommends that India must confront the societal preference, even meta- �
preference for a son, which appears inoculated to development. The skewed sex ratio in favor of males led to the identification of “missing” women. But there may be a meta-preference manifesting itself in fertility stopping rules contingent on the sex of the last child, which notionally creates “unwanted” girls, estimated at about 21 million, adds the Survey. Consigning these odious categories to history soon should be society’s objective, opines the Survey.The Survey, acknowledges that government’s Beti Bachao, Beti Padhao and Sukanya Samridhi �
Yojana schemes, and mandatory maternity leave rules are all steps in the right direction. The Survey states that just as India has committed to moving up the ranks in Ease of Doing Business indicators, a similar commitment should be endeavored on the gender front.
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2. Fiscal and Monetary
Sector
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Monetary, Fiscal & External sector
Fiscal indicators - revenue buoyancy, expenditure quality, devolution and deficits improved discernibly in the last three years. The Receipts and Expenditure of the central government has been discussed below:
Receipts:A.
There are three distinct patterns on the revenue front till November 2017, the confluence !
of which is reflected in the trends in non-debt receipts of the Centre.
The gross tax collections are reasonably on track.
The non-tax revenues have visibly under-performed.
Non-debt capital receipts, mainly proceeds from disinvestment, are doing well.
As against last year’s achievement of Rs. 46,247 crore realized from 16 transactions of !
disinvestment, the budget estimate for 2017-18 was set at Rs. 72,500 crore, split into Rs. 46,500 crore from disinvestment of Central Public Sector Enterprises (CPSEs), Rs. 15,000 crore from strategic disinvestment and Rs. 11,000 crore from listing of insurance companies.
The share of States in taxes grew by ! 25.2 per cent in 2017, much higher than the growth in net tax revenue (to centre), which is what the Centre has at its disposal to spend from its own taxes. Disinvestment proceeds and non-tax revenues have shown contrasting growth patterns, the former reinforcing the revenue position and the latter dampening it.
Central Government’s Receipts during April-November
2015-16 2016-17 2017-18 2015-16 2016-17 2017-18(Rs. in lakh crore) Per Cent of BE (for full year)
Gross Tax Revenue 7.68 9.33 10.87 53.0 57.2 56.9Net tax revenue (to centre) 4.65 6.21 6.99 50.5 58.9 57.0
Non-tax revenue 1.73 1.75 1.05 78.1 54.2 36.5Revenue receipts 6.38 7.96 8.05 55.9 57.8 53.1Non-debt capital receipts
0.21 0.33 0.62 25.8 48.5 73.3
Non dept receipts 6.59 8.29 8.67 53.9 57.4 54.2
Expenditure and DeficitsB.
Central Government expenditure progressed at a robust pace during April-November !
2017. One of the major fiscal reforms in the current year was the advancing of the budget cycle and processes by almost a month.
Data on Fiscal Developments
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This gave considerable leeway to the spending agencies to plan in advance and start !
implementation early in the financial year. The expenditure trends in the current year at any midpoint both as percentage of budget !
estimates and in terms of their growth rates become not comparable with those of previous years. This has also partly contributed to greater deficits in the current year so far, compared to corresponding periods in the previous years.The trends in fiscal and revenue deficits are the combined effect of the patterns in non- !
debt receipts and expenditure. Apart from the early progression of expenditure, the fiscal deficit overshooting the !
budgetary target during April-November, 2017, has also been due to the front-loading of some expenditure, undertaken as part of prudent expenditure management. Movements in revenue expenditure can be majorly explained by changes in interest !
payment liabilities and subsidy payments. Interest payment liabilities have firmed up moderately during April-November 2017, possibly due to outgo on account of servicing the market stabilization bonds issued to reduce excess liquidity, post demonetization. With the loss of price advantage in petroleum products in the international market, the !
petroleum subsidy has firmed up. On the whole subsidies seem to be within control and target. The outgo on pensions grew strongly during the first eight months reflecting enhanced payments under the Seventh Pay Commission.
Central Government’s Expenditure during April-November
2015-16 2016-17 2017-18 2015-16 2016-17 2017-18(Rs. in Lakh crore) Per cent of BE
Total Expenditure 11.42 12.87 14.79 64.3 65.0 68.9Revenue Expenditure 9.83 11.44 12.95 64.0 66.1 70.5Capital Expenditure 1.59 1.42 1.84 65.8 57.7 59.5
Some Major Components of Revenue Expenditure
2015-16 2016-17 2017-18 2015-16 2016-17 2017-18April-November (per cent of BE)
April-November (percentage growth)
Interest Payment 55.4 54.1 59.2 8.6 5.6 16.2Food subsidy 81.4 91.3 93.1 11.1 21.6 9.9Fertilizer subsidy 85.4 79.7 70.5 7.6 -10.5 -11.5Petroleum subsidy 82.6 65.2 85.7 -46.6 -23.8 13.3Major subsides 82.9 85.3 85.7 -3.6 5.0 4.2Salaries and pensions 52.9 52.5 61.6 3.2 28.5 22.5
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Macro-Economic Analysis
1. Discuss the salient measures taken by the government under indirect taxes during 2017-18.
Customs duty changes to incentivize ‘Make in India’:A. Basic Customs Duty: !
It was reduced on inputs and raw materials like liquefied natural gas, o-Xylene, vegetable
tanning extracts, nickel, medium quality terephthalic acid and qualified terephthalic acid, etc.It was increased on specified goods manufactured indigenously in significant quantity,
including: ad-valorem Component on 298 items of fabrics on manmade fibres, etc.It was increased on crude and refined palm oil of edible grade etc. to protect the interest
of farmers and local producers of agricultural product.Export Duty of 15% was imposed on other aluminium ores, including laterite. !
Rollout of GST:B. In a historic tax reform, the ! Goods and Services Tax was rolled out on 1st July, 2017, subsuming almost all major indirect taxes like Central Excise Duty, Service Tax, VAT, CST, entertainment tax, Octroi, luxury tax, a large number of cesses/surcharges and various other state and central levies on goods and services.Addressing concerns under GST: !
A Committee on exports was constituted to address the concerns of exporters. The GST Council also recommended significant rationalization in rates. Extensive exercises were undertaken for streamlining tax administration, ensuring that
taxpayer has single interface (with either Central or State tax authority). Committees of officers examined issues relating to law and processes, and sectoral issues like handicrafts.A number of procedural changes have been made to simplify processes. Extensive
efforts were made for taxpayer education and facilitation by way of knowledge sharing, dissemination of information and replies to frequently asked questions.
Facilitation measures taken in GST: !
Ease of doing business for small traders: GST has significantly raised turnover thresholds of Rs. 20 lakh for an entity to be taxable in GST. Threshold for composition was increased in general to Rs. 1 crore (Rs 75 lakh for special category states except Jammu & Kashmir and Uttarakhand).
Other measures for MSME sector include:C. Service providers whose annual aggregate turnover is less than ! Rs. 20 lacs (Rs. 10 lacs in special category states except J & K) were exempted from obtaining registration even if they are making inter-State taxable supplies of services. This measure will significantly reduce the compliance cost of small service providers. !
Small and medium businesses with annual aggregate turnover up to Rs. 1.5 crores would !
be required to file quarterly return (monthly for other taxpayers).
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The reverse charge mechanism under the CGST Act, 2017 and under the IGST Act, 2017 has !
been suspended till 31.03.2018.The requirement to pay GST on advances received was proving to be burdensome for !
small dealers and manufacturers. In order to mitigate their inconvenience on this account, it has been decided that taxpayers having annual aggregate turnover up to Rs. 1.5 crores shall not be required to pay GST at the time of receipt of advances on account of supply of goods.
Rationalization of GST rate structure for goods and services.D.
25th Meeting of the GST Council
The meeting was held on 18th January, 2018, recommended many relief measures !
regarding GST rates on goods and services and certain clarifications on issues relating to GST rates and taxability of certain goods and services.
Some of the important changes in the rate of goods recommended by the Council !
include:
From 28% to 18% on buses exclusively run on bio fuels.
From 18% to 12% on, drip irrigation system including laterals, sprinklers, mechanical sprayer, 12 specified bio-pesticides, bamboo wood building joinery (HS Code 4418), fertilizer grade phosphoric acid, bio-diesel, drinking water packed in 20 litters bottles.
From 3% to 0.25% on diamonds and precious stones. Rough diamonds and precious stones are already at 0.25%.
From 28% GST plus applicable cess to 12% on used motor vehicles [other than medium and large cars and SUVs] on the margin of the supplier of such vehicles, subject to condition that no input tax credit of central excise duty/ Value Added Tax or GST paid on them has been availed.
From 28% GST plus applicable cess to 18% on used medium and large cars and SUVs on the margin of the supplier of such vehicles, subject to condition that no input tax credit of central excise duty/ Value Added Tax or GST paid on them has been availed.
From 12% to 5% with no refund of unutilised input tax credit on velvet fabrics.
Some of the important changes recommended on the rate of services include:
Reduce GST rate on construction of metro and monorail projects (construction,
erection, commissioning or installation of original works) from 18 per cent to 12 per cent.
Reduce GST rate on transportation of petroleum crude and petroleum products
(MS, HSD, ATF) from 18 per cent to 5 per cent without ITC and 12 per cent with ITC.
Reduce GST to 12 per cent in respect of mining or exploration services of petroleum crude and natural gas and for drilling services in respect of the said goods.
Extend the concessional rate of GST on houses constructed/acquired under the
Credit Linked Subsidy Scheme for Economically Weaker Section/ Lower Income Group/ Middle Income Group-1/ Middle Income Group-2 under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana (Urban) and low-cost houses up to a carpet area of 60 square metres per house in a housing project which has been given infrastructure status under the same concessional rate.
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Macro-Economic Analysis
2. Discuss the salient measures taken by the government under Direct Taxes during 2017-18.
Lowering of tax rate on domestic companies with turnover or gross receipts less than or equal �
to Rs. 50 Crore in FY 2015-16 to 25 per cent from 30 per cent.Lowering of tax rate on individuals between income of � Rs. 2.5 lakhs and Rs. 5 lakhs to 5 per cent from 10 per cent.Levying of surcharge at � 10 per cent on individuals with income between Rs. 50 lakhs and Rs. 1 crore.In moving towards a less cash economy and to incentivise small traders/businesses to proactively �
accept payments by digital means, the existing rate of deemed profit of 8% under section 44AD of the Act was reduced to 6% for amount of total turnover or gross receipts received through banking channel/digital means for the financial year 2016-17 and subsequent years.Clarification that provisions for taxation of indirect transfers not to apply in case of certain �
foreign institutional investor, and those registered as category-I or category II foreign portfolio investor under the SEBI Regulations, 2014 made under SEBI Act, 1992.Clarification that the condition of maintaining the monthly average of the corpus of the fund �
at minimum Rs. 100 crore provided in section 9A of the Income-tax Act, 1961 not to apply to the previous year in which the fund is being wound up.Exemption provided to Prime Minister’s Relief Fund under the Act also extended to Chief �
Minister’s Relief Fund or Lieutenant Governor’s Relief Fund.Clarification that corpus donations to exempt charitable institutions not to be treated as �
application of income.Exemption from levy of tax extended to income accruing or arising to a foreign company on �
account of sale of leftover stock of crude oil, if any, from a facility in India after the expiry of an agreement or an arrangement, subject to conditions to be notified.Section 12A � of the Act amended to make it mandatory for a trust or institution, which has been granted exemption under the Act, to seek fresh registration on adopting or undertaking modifications of the objects such that the modified objects do not conform to the conditions of registration.In respect of exempt trusts or institutions, additional condition of furnishing return within due �
date by the person in receipt of the income chargeable to income-tax provided.A new safe harbour regime � has been notified for three years with effect from 1st April, 2017 to reduce transfer pricing disputes, provide certainty to taxpayers, align safe harbour margins with industry standards and enlarge the scope of safe harbour transactions.Rules for maintaining and furnishing of transfer pricing documentation by multinational �
enterprises in the Master File and Country-by-Country report were notified.Fair market value of the asset to be the cost of acquisition for capital gains purpose if the asset �
taken into account for computation of accreted income and taxes paid thereon.Benefit of lower rate of � 5 per cent withholding tax, in respect of interest payable to a non-resident by a specified company on borrowings made by it in foreign currency from sources
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outside India under a loan agreement or by way of issue of any long-term bond including long-term infrastructure bond, extended till 30.06.2020.Appreciation of rupee to be ignored for capital gains calculation at the time of redemption of �
rupee denominated bond of an Indian company in respect of secondary holders as well.Transfer of capital asset, being rupee denominated bond of Indian company issued outside �
India, by a non-resident to another non-resident not to be regarded as transfer.Benefit of lower rate of 5 per cent withholding in respect of interest payable to FIIs and QFIs on �
their investments in Government securities and rupee denominated corporate bonds, at the rate of interest not exceeding the notified rate, extended to 30.06.2020.Period of holding for computation of long term capital gains in the case of immovable property �
reduced from 36 months to 24 months to give fillip to the housing sector.100 per cent � deduction of profit has been made available to an assessee developing and building affordable housing projects if the housing project is approved by the competent authority before the 31st March, 2019 subject to certain conditions.Capital gains exemption provided to an individual or Hindu Undivided Family under the land �
pooling scheme notified under the provisions of Andhra Pradesh Capital Region Development Authority Act, 2014.Categories of bond investments under Section 54EC of the Act, for the purpose of availing �
capital gain exemption, have been expanded.To remove complexities in chargeability of tax in the case of Joint Development Agreements, it �
has been provided that the capital gain shall be chargeable to income tax as income of the previous year in the year of the completion of project.Base year for fair market value and cost inflation index has been shifted from � 1981 to 2001.Period of Tax credit available in respect of Minimum Alternate Tax (MAT) and Alternate Minimum �
Tax (AMT) has been increased from the existing 10 years to 15 years.Tax neutrality has been provided on the conversion of preference shares of a company into �
equity shares of that company.The cost of acquisition of share of an Indian company, received in a tax neutral demerger, shall �
be taken as the cost of acquisition in the hands of resulting foreign company.Period of claim of profit-linked deduction by eligible start-ups has been increased from � 3 out of 5 years to 3 out of 7 years and conditions for carry forward of loss of such start-up in case of change in shareholding relaxed.Limit of cash donations under � Section 80G of the Act reduced to Rs. 2000 from Rs. 10,000. Self-employed individual shall be eligible for deduction up to 20 per cent of his gross total income in respect of contribution made to National Pension System Trust. Exemption from taxation has been provided to partial withdrawal made by subscriber of New Pension Scheme. The provisions relating to computation of book profit for the purpose of levy of minimum �
alternate tax (MAT) have been amended so as to align them with the Indian Accounting Standards (Ind-AS).The amendment made by the Finance Act, 2016 providing for concessional rate of tax for �
transfer of share of a private limited company shall be applicable retrospectively from assessment year 2013-14.Section 10AA of the Act � has been amended to provide that the amount of deduction referred therein shall be allowed from the total income computed in accordance with provisions of the Act before giving effect to provisions of the said section and that the deduction shall not exceed the total income.
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Macro-Economic Analysis
Further, to bring transparency in the source of funding to political parties, � the provisions of Section 13A of the Act have been amended to provide for the following additional conditions for availing the benefit of the exemption from income-tax: No donations of Rs. 2000/- or more are received otherwise than by an account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account or through electoral bonds.
In order to strengthen the PAN mechanism a new � Section 206CC was inserted in Act to provide for collection of tax at source (TCS) at higher rate of 20 per cent in case of non-quoting of Permanent Account Number (PAN).
To widen the scope of tax deduction at source, a new � Section 194-IB was inserted in the Act to provide that individuals or a Hindu Undivided Family (other than those covered under Section 44AB of the Act) responsible for paying to a resident any income by way of rent exceeding Rs. 50,000 for a month or part of month during the previous year, shall deduct an amount equal to 5 per cent of such income as tax thereon.
To address the concern of recovery of revenue in doubtful cases, a new � Section 241A has been inserted, which inter alia provides that refund shall be withheld only in some cases in the manner provided in said section and with the prior approval of the higher authorities. This shall be applicable to returns furnished for assessment year commencing on or after 1st April, 2017.
Necessary amendments have been made to Chapter XIX-B of the Act to enable merger of the �
Authority for Advance Ruling (AAR) for income-tax, central excise, customs duty and service tax.
A new � Section 269ST was inserted in the Act to prohibit cash receipt equal to or exceeding Rs. 2 lakh.
In order to eliminate bogus/multiple PANs, a new Section 139AA was inserted in the Act, which �
inter alia mandates linking of Aadhaar with PAN database.
Rule 114 and rule 114A � of the Income-tax Rules, 1962 have been amended to enable allotment of PAN and TAN through a common application Form published in Official Gazette.
Income-tax return (ITR) Forms have been rationalised to make it more objective and taxpayer �
friendly. Viz. at one page ITR-1 (Sahaj) Form has been notified for the assessment year 2017-18 for taxpayers having income upto Rs. 50 lakh from salary and one house property.
What are Insolvency and Bankruptcy?Insolvency is the situation where the debtor is not in a position to pay back the creditor. � For a corporate firm, the signs of this could be a slow-down in sales, missing of payment deadlines etc.Bankruptcy � is the legal declaration of Insolvency. So, the former is a financial condition and latter is a legal position. All insolvencies need not lead to bankruptcy. The new code has a sequential procedure of Insolvency resolution, failing which, it leads to Bankruptcy.
3. New Insolvency and Bankruptcy Code passed by Parliament, promises to address the structural problems hampering the efficient recycling of capital and rebalance the rights of creditors. Do you agree?
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The IBC was enacted in 2016 to find a time-bound resolution for ailing and sick firms, either through closure or revival, while protecting interests of creditors. Successful completion of resolution process is expected to aid in reducing rising bad loans (NPA - Non Performing Assets) in the banking system.
What is the need for an insolvency and bankruptcy code 2016?Indian banks are sitting on a huge pile of bad debts. The total Non Performing Assets (NPAs) is around 4 Lakh Crore and a huge amount of restructured loans also. Thus, the total stressed assets (Bad Debts) amount to 11% of the total lending.
As a percentage of total loans, the bad loans grew from 3.49% (2013) to 8.3%(2015).1. Corporate bad loans constitute 56% of the total bad loans of state-run banks.2. At present, there are around 70,000 pending liquidation.3. It takes almost 4 years to wind up an ailing company in India.4. There are around 12 laws (some are more than 100 years old) to tackle Insolvency.5. Ease of doing Business – India is presently ranked 130 (Out of 189 countries) in 2016.6. Resolving Insolvency – India is presently ranked 136 (Out of 189 countries) in 2016.7.
Effective implementation of Insolvency and Bankruptcy Code can potentially release about !
Rs 25,000 Crore capital over next 4-5 years currently locked in bad loans.If implemented successfully, the Code will help India’s banking sector catch up with or !
even exceed the recovery rates of 32 per cent and average time taken of 2.8 years in other emerging markets. The capital released can be deployed for other productive lending which could help in !
credit expansion.
Important provisions of the Code:
The Code seeks to provide for designating National Company Law Tribunal (NCLT) and Debt �
Recovery Tribunal (DRT) as the adjudicating authorities for corporate persons and firms and individuals, respectively, for resolution of insolvency, liquidation and bankruptcy.It provides for priority with regard to distribution of proceeds following liquidation of the �
company.In the order of priority, the first charge will be insolvency resolution process cost and liquidation �
costs to be paid in full. Liquidation proceeds will then be used to clear debts owed to people in the following order:
Secured creditors.1. Workmen’s dues for 12 months.2. Unpaid dues to employees other than workmen.3. Financial dues owed to unsecured creditors.4. Government taxes for two years, other debts, preference shareholders and equity 5. shareholders will receive last priority for payment.
It also provides for monetary penalty and jail term of up to five years for concealment of �
property, defrauding creditors and furnishing false information.The Code also provides for fast track corporate insolvency resolution process to be completed �
in 90 days.Bankruptcy applications will now have to be filed within three months rather than the earlier six �
months.
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Anyone declared bankrupt will be barred from holding public office, thereby ensuring that politicians and government officials cannot hold any public office if declared bankrupt.
Key Features of the Amendment:Resolution applicant: � The Bill redefines resolution applicant mentioned in code as a person who submits a resolution plan after receiving an invite by the insolvency professional to do so.
Eligibility for resolution applicants: � It amends provision related to eligibility in IBC to state that insolvency professional will only invite those resolution applicants to submit a plan, who fulfill certain criteria laid down by him with approval of committee of creditors and other conditions which may be specified by Insolvency and Bankruptcy Board.
Ineligibility to be a resolution applicant: � It prohibits certain persons from submitting resolution plan in case of defaults. These include: (i) willful defaulters, (ii) promoters or management of the company if it has outstanding non-performing debt for over year, and (iii) disqualified directors, among others.
Liquidation: � The Bill bars the sale of property of a defaulter to such persons who is ineligible to be a resolution applicant during liquidation.
Penalties: � The Bill inserts provision to specify that person contravening any provisions of IBC, for which no penalty has been specified, will be punishable with penalty ranging between Rs. 1 lakh to Rs. 2 crore.
Stressed Assets:
The stressed assets are getting increased attention as the trend of deteriorating !
asset quality has emerged as a big economic risk for the Indian banking sector. The ratio of stressed assets to gross advances of the Indian banking system is increasing from 2013 onwards. On the banking side, stressed assets now stand at over 12% of the total loans in the banking system.
Stressed assets comprise of restructured loans and written off assets besides !
NPAs. So
Stressed assets = NPAs + Restructured loans + Written off assets.
NPA: !
A loan whose interest and/or installment of principal have remained ‘overdue‘(not
paid) for a period of 90 days is considered as NPA.Where the installment of principal or interest thereon remains overdue for two crop
seasons for short duration crops.Where the installment of principal or interest thereon remains overdue for one crop
season for long duration crops.Restructured loans: !
The assets which got an extended repayment period, reduced interest rate, converting
a part of the loan into equity, or providing additional financing, so that the loan could be recovered.
Written off assets: !
Written off assets are those the bank or lender doesn’t count the money borrower
owes to it. The financial statement of the bank will indicate that the written off loans are taken off the financial statement.
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In the last 4 years economy witnessed a gradual transition from a period of high and variable !
inflation to more stable prices.Headline inflation measured by the Consumer Price Index (CPI) has remained under control for !
the fourth successive year.Financial year (FY) 2017-18 began with an annual inflation rate of 3.0%. !
Food inflation measured by the Consumer Food Price Index (CFPI) declined to a low of 1.2 per cent !
during the FY 2017-18.WPI based inflation for FY 2017-18 stood at 2.9%. !
General inflation based on different price indices (per cent)
2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 (Apr-Dec)*WPI 6.9 5.2 1.2 -3.7 1.7 2.9 (P)CPI (combined) 10.2 9.5 5.9 4.9 4.5 3.3 (P)CPI (IW) 10.4 9.7 6.3 5.6 4.1 2.3#
CPI (AL) 10.0 11.6 6.6 404 4.2 2.0#
CPI (RL) 10.2 11.5 6.9 4.6 4.2 2.1#
Achievements
4. Discuss the current trends in inflation and steps taken by the government for tackling inflation.
A major factor behind the effectiveness of the new Code has been the adjudication by the Judiciary. The Code prescribes strict time limits for various procedures under it. In spite of the large inflow of cases to NCLT benches across India, these benches have been able to admit or reject applications for CIRP admissions with few delays. In addition, appellate courts, including the NCLAT, High Courts and the Supreme Court have also disposed appeals quickly and decisively. In this process, a rich case-law has evolved, reducing future legal uncertainty.
Further the amendment in the bill, is to prevent a range of undesirable persons from bidding for the debtor. The Bill may prevent promoters from bidding for their own firms. A resolution plan would typically involve significant haircuts on the parts of the financial and operational creditors. Thus, allowing a promoter to bid without restriction would mean countenancing a situation where an owner, having driven a firm into insolvency, is now able to purchase it back at a discount. This can lead to a situation of moral hazard, where incompetent or fraudulent promoters are effectively rewarded with the control of their company, leaving the creditors to write off their debts. The Bill, thus, seeks to achieve a balanced approach, enabling the CoC to avoid imprudent transactions, while preserving its freedom to choose the best resolution plan from amongst all the applicants.
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Macro-Economic Analysis
CURRENT TRENDS IN INFLATION:
The average CPI-combined (CPI-C) inflation declined to 3.3% in FY 2017-18 as compared to 4.5% !
in last year.Food Inflation: ! Good agricultural production coupled with regular price monitoring by the Government helped to contain inflation, especially food inflation.Though decline in food inflation is broad-based, major drivers are meat & fish, oil & fats, spices !
and pulses & products.The rise in food inflation in recent months is mainly due to factors driving prices of vegetables !
and fruits.Food inflation based on WPI has also declined. !
Core Inflation: ! CPI based core inflation has remained above 4% during the last four financial years. And significant moderation has been witnessed in the headline and food inflation.
DRIVERS OF INFLATION:
At the all India level, CPI-C inflation was driven mainly by food during last year. The miscellaneous !
group has contributed the most to it during the current FY 2017-18.Miscellaneous group: Includes household goods & services, health, transport & communication, !
recreation and amusement, education and personal care and effects.Contribution to CPI (Combined) inflation 2016-17 (Apr-Dec) and 2017-18 (Apr-Dec)
Food & beverages
Pan, Tobacco & Intoxicants
Cloting & Footwear
Housing
Fuel & light
Miscellaneous
2016-17 (Apr-Dec)
2017-18 (Apr-Dec)
Rural: Food was the main driver of CPI (Rural) inflation in last year but miscellaneous category !
contributed the most to inflation in rural areas of the current financial year.The contribution of fuel and light, clothing and footwear and pan, tobacco and intoxicants !
categories in CPI (Rural) inflation has risen.Urban: Housing sector has contributed the most to CPI (Urban) inflation in the current financial !
year, followed by other miscellaneous category.
EFFORTS TO CONTAIN INFLATION:
Central Government monitors the price situation on a regular basis as controlling inflation is a !
priority area. It has taken a number of measures to control inflation especially food inflation which, inter alia, includes:
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Advisories are being issued, as and when required, to State Govts to take strict action against a. hoarding & black marketing and effectively enforce the Essential Commodities Act, 1955 & the Prevention of Black-marketing and Maintenance of Supplies of Essential Commodities Act, 1980 for commodities in short supply.Regular review meeting on price and availability situation is being held at the highest level. Ex. b. Committee of Secretaries, Inter Ministerial Committee, Price Stabilization Fund Management Committee.Higher MSP has been announced so as to incentivize production and thereby enhance c. availability of food items which may help moderate prices.Price Stabilization Fund (PSF) scheme is being implemented to control price volatility of d. agricultural commodities like pulses, onions, etc.Government approved enhancement in buffer stock of pulses from 1.5 lakh MT to 20 Lakh MT e. to enable effective market intervention for moderation of retail prices. A dynamic buffer stock of pulses of up-to 20 lakh tonnes has been built under the Price f. Stabilization Fund (PSF) Scheme through both domestic procurement as well as imports.Pulses from the buffer are being provided to States/UTs for PDS distribution, Mid-day Meal g. scheme, etc. Also are being utilized to meet the requirement of pulses by Army and Central Para-military Forces. Export of edible oils was allowed only in branded consumer packs of up to 5 kg with a h. minimum export price. With a view to incentivizing domestic production this restriction has been removed on oil except for palm oil, mustard oil and sunflower oil.Government has imposed stock holding limits on stockiest/dealers of sugar till April, 2018, i. and also imposed 20% duty on export of sugar for promoting availability and moderating price rise.Permitted import of 5 lakh tonnes of raw sugar at zero duty; subsequently, import of additional j. 3 lakh tonnes was allowed at 25% duty.States/UTs have been advised to impose stock limit on onions. States were requested to k. indicate their requirement of onions so that import of requisite quantity may be undertaken to improve availability and help moderate the prevailing high prices.
Terms mentioned in the Economic Survey
Producer Price Index (PPI):
Recommendations working Group under the Chairmanship of B. N. Goldar on PPI are as follows:
IPPI in India may be compiled based on Supply Use Table 2011-12 using Total Final a. Use values for higher level weights.
Two separate sets of input PPIs may be compiled - one including services and the b. other excluding services.
Additional set of output PPI based on Final Demand and Intermediate Demand c. framework may also be compiled for the benefit of the users.
The PPIs may be initially compiled on an experimental basis and switching over from d. WPI to PPI should be undertaken after the PPI series stabilizes and due consultation with the stakeholders is done.
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e. For compilation of experimental PPI, price quotations collected for current series of WPI may be used.
f. The experimental PPI will be released on monthly basis. Initially, the base year of the experimental PPI would be 2011-12.
g. It also recommended inclusion of 15 services in the PPI basket to begin with. The coverage of service sector may be extended to all key sectors on an urgent basis during the experimental phases of PPI.
Producer Price Index (PPI) measures the average change in the prices of goods and services, either as they leave the place of production called Output PPI or as they enter the production process called Input PPI.
PPI contrasts with other measures such as the Consumer Price Index (CPI) which measures changes in prices from buyers or consumers perspective.
PPIs significantly reduce the distortion arising from multiple counting by deriving weights from Supply Use Table compiled by the CSO. Further, the scope of PPI extends to services which are not presently covered under WPI.
Benefits of migrating from WPI to PPI are to cover bulk transactions of all goods and services, do away with the bias of double counting inherent in WPI and to compile indices that are conceptually consistent with the National Accounts Statistics (NAS) for use as deflators.
Housing Price Index:The Housing Price Indices (HPIs) are a broad measure of movement of residential �
property prices observed within a geographic boundary.
The first official housing price index for the country named ‘NHB RESIDEX’ was �
launched in 2007 by the National Housing Bank (NHB).
Currently, NHB is publishing NHB RESIDEX for 50 cities on quarterly basis with FY �
2012-13 as base year. Among 50 cities covered are 18 State/UT capitals and 37 Smart Cities.
NHB is not computing the composite all India housing price index as of now. Using �
population proportion as weights, an all India index as weighted average of city indices has been computed in-house
The RBI also began compiling a house price index (HPI) in 2007 with a quarterly HPI �
for Mumbai city.
5. Discuss the Mid Term Review and subsequent trade related policies of the government.
In the mid-term review of FTP released on 5th December, 2017, some additional measures have !
been taken to help India’s trade sector. Besides, on 15th December, 2017, a special package for employment generation in leather and footwear sector was approved by the Government which is also likely to help exports from this sector.
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The salient reviews are: !
MEIS (Merchandise Exports from India Scheme) incentives for two sub-sectors of Textiles, i.e., !
Ready Made Garments and Made Ups increased from 2% to 4% involving additional annual incentives of Rs. 2743 crore. Across the board ! increase of 2% in existing MEIS incentive for exports by MSMEs / labour intensive industries amounting to Rs. 4576 crore. To provide an impetus to the services trade, the SEIS (Service Export from India Scheme) incentives !
have been increased by 2% for notified services such as Business, Legal, Accounting, Architectural, Engineering, Educational, Hospital, Hotels and Restaurants amounting to Rs. 1140 crore. The validity period of the Duty Credit Scrips has been increased from ! 18 months to 24 months to enhance their utility in the GST framework. GST rate for transfer/sale of scrips has been reduced to zero from the earlier rate of 12%.New trust based Self Ratification Scheme introduced to allow duty free inputs for export !
production under duty exemption scheme with a self-declaration. Under this scheme, instead of getting a ratification of the Norms Committee for inputs to be used in the manufacture of export products, exporters will self-certify the requirement of duty free raw materials/ inputs and take an authorization from DGFT. The scheme would initially be available to the Authorized Economic Operators (AEOs). Contact@DGFT service for Complaint Resolution has been activated on the DGFT website (www. !
dgft.gov.in) as a single window contact point for exporters and importers for resolving all foreign trade related issues. To focus on improving Ease of Trading across Borders for exporters and importers, a professional !
team envisaged to handhold, assist and support exporters with their export related problems, accessing export markets and meeting regulatory requirements. New Logistics Division created in the Commerce Department to develop and coordinate !
implementation of an Action Plan for the integrated development of the logistics sector, by way of policy changes, improvement in existing procedures, identification of bottlenecks and gaps and introduction of technology in this sector. For clarity, a negative list of capital goods which are not permitted under the EPCG (Export !
Promotion on Capital Goods) scheme has been notified. The concept of Domestic Tariff Area (DTA) sale from Export Oriented Units (EoUs) on concessional !
and full duty has been removed and hence, the limit on entitlement of DTA sale has also been removed. Consequently, restriction on DTA sale of motor cars, alcoholic liquors, books and tea has been removed. Second Hand Goods imported for the purpose of repair/refurbishing/re-conditioning or re- !
engineering have been made free, thereby facilitating generation of employment in the repair services sector. Issue of working capital blockage of the exporters due to upfront payment of GST on inputs !
has been addressed. Under advance authorization Export Promotion for Capital Goods (EPCG) Scheme, 100% EoU’s, exporters have been extended the benefit of sourcing inputs/capital goods from abroad as well as domestic suppliers for exports without upfront payment of GST. Further an e-wallet will be launched from 1st April, 2018, to make these schemes operational from 1st April, 2018. The Union Cabinet Committee on 15th December, 2017, approved the special package for !
employment generation in leather and footwear sector. The package involves implementation of Central Sector Scheme “Indian Footwear, Leather & Accessories Development Programme” with an approved expenditure of Rs. 2,600 crore over the three years from 2017-18 to 2019-20. The
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scheme would lead to development of infrastructure for the leather sector, address environment concerns specific to the leather sector, facilitate additional investments, employment generation and increase in production. The Special Package has the potential to generate 3.24 lakhs new jobs in 3 years and assist in formalization of 2 lakh jobs as cumulative impact in Footwear, Leather & Accessories Sector.
The Indian logistics industry is estimated to be worth around ! US$ 160 billion in 2016-17 and has grown at a compound annual growth rate (CAGR) of 7.8 per cent over the past five years. Considering the impact of implementation of the Goods and Services Tax (GST), the Indian logistics market is expected to reach about US$ 215 billion in 2019-20, growing at a CAGR of 10.5%. Improved logistics have huge implications on increasing exports, as a 10% decrease in indirect logistics cost can contribute to around 5-8% of extra exports. India has improved its ranking in the “Logistics Performance Index” (LPI) from 54 in 2014 to 35 in 2016. However, compared to countries like Singapore (rank 5), South Africa (20), Taiwan (25) and China (27), India has some way to go.
Some key Challenges !
High cost of logistics – impacting competitiveness in domestic & global market. �
Unfavorable modal mix (Roadways 60%, Railways 30%) and inefficient fleet mix. �
Under-developed material handling infrastructure and fragmented warehousing. �
Multiple regulatory/policy making bodies with procedural complexities including cumbersome �
and duplicate processes. High dwell time and lack of seamless movement of goods across modes. �
Suggested Action Plan !
Formulation of National Integrated Logistics Policy to bring in greater transparency and �
enhance efficiency in logistics operations. Develop integrated IT Platform as a single window for all logistics related matters. This portal �
will have linkages with the IT systems of Railways, Road transport & Highways, Shipping, Civil Aviation, CBEC, State Transport departments, etc. and act as a Logistics marketplace. Usher in ease of documentation, faster clearance, digitization. �
Bring down logistics cost to less than � 10% of GDP by 2022.Faster clearances for setting up of logistics infrastructure like Multi-modal logistic parks (MMLPs), �
Container Freight Station (CFS), Air Freight Station (AFS) & Inland Container Depot (ICD). Introduce professional standards and certification for service providers. �
Promote introduction of high-end technologies, like high-tech scanning equipment, RFID, GPS, �
EDI, online Track & Trace systems in the entire logistics network. Improve Logistics skilling in the country and increase jobs in Logistics sector to � 40 million by 2022.
6. India has improved its ranking in the “Logistics Performance Index” (LPI) from 54 in 2014 to 35 in 2016. However, compared to countries like Singapore and China, India has some way to go. Discuss the challenges and steps needed for improving the logistic sector.
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7. Union Cabinet has approved Rs. 6,000 crore package for the apparel sector. Analyse whether the Export Incentives Work or not?
The apparel sector has immense potential to drive economic growth, increase employment, and !
empower women in India. This is especially true as China’s share of global apparel exports has come down in recent years. However, India has not, or not yet, capitalized on this opening. Instead, countries like Vietnam and Bangladesh are quickly filling the space left by China. Thus, in June 2016, the Cabinet announced a ! Rs. 6,000 crore package for the apparel sector. The largest component of this package were Rebates on State Levies (ROSL) to offset indirect taxes levied by the states (the VAT) that were embedded in exports. This ROSL was over and above the duty drawbacks and other incentives (e.g., Merchandise Exports from India Scheme (MEIS)) that were given to offset indirect taxes embedded in exports. Prior to the package, duty-drawbacks were between 7.5 percent-9.8 percent for apparels. After the package, the ROSL increased export incentives by between 2.8 percent-3.9 percent. A key question is: did the package succeed? ! To answer this, we use a well-recognized Difference-in-Difference (DD) approach, which allows us to isolate, albeit imperfectly, the impact of the package. Essentially, the approach asks whether the gap between clothing and comparator group export growth increased after the package was introduced. By analysing the methodology in greater detail, three main findings emerge:
The package increased exports of readymade garments (RMG) made of man-made fibres �
(MMFs) The package did not have a statistically positive impact on RMG made of other fibres (silk, �
cotton, etc.); andThe impact on MMF-RMGs increased gradually over time; by September 2017, the cumulative �
impact was about 16 percent over other comparator groups.
Figure 1: Exports of Ready Made Garments (RMG’s) and Selected Other Groups(Index; June 2015 = 100)
Source: Ministry of Commerce and Industry, Survey calculations.
Announcement of package130
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110
100
90
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Notification
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ay-1
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Jun-
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Aug-
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ay-1
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Aug-
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Sep-
17
Disbursement
Other Ready-Made GarmentsReady-made Garments: Manmade FibersOther Manufactured GoodsOther Labour Intensive
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The figure below shows the growth in clothing exports compared to other labor-intensive and !
manufacturing goods, which did not receive ROSL. The positive impact on RMGs made of MMF after the package emerges starkly. A policy implication is that the GST Council should conduct a comprehensive review of embedded !
taxes arising from products left outside the GST (petroleum and electricity) and those that arise from the GST itself (for example, input tax credits that get blocked because of “tax inversion,” whereby taxes further back in the chain are greater than those up the chain). This review should lead to an expeditious elimination of these embedded export taxes, which could provide an important boost to India’s manufacturing exports.
Over the past two fiscal years, the Indian stock market has soared, outperforming many other !
major markets. As Figure 1 shows, since end-December 2015, the S&P index has surged 45 percent, while the Sensex has surged 46 percent in rupee terms and 52 percent in dollar terms. This has led to a convergence in the price-earnings ratios of the Indian stock market to that of the US at a lofty level of about 26 (Figure 2). Yet over this period the Indian and US economies have been following different paths. So what explains the sudden convergence in stock markets?
Figure 1: US and India Stock Market Performance,Dec. 2015-Jan. 2018
200
260
240
220
200
180
160160
140
120
100
2625242322212020191817
BSE SensexS&P 500BSE Sensex in 5 terms
BSE Sensex S&P 500
Dec
-15
Jan-
16Fe
b-16
Mar
-16
Apr
-16
May
-16
Jun-
16Ju
n-16
Jul-1
6A
ug-1
6Se
p-16
Sep-
16O
ct-1
6N
ov-1
6D
ec-1
6D
ec-1
6Ja
n-17
Feb-
17M
ar-1
7A
pr-1
7M
ay-1
7Ju
n-17
Jul-1
7Ju
l-17
Aug
-17
Sep-
17Se
p-17
Oct
-17
Nov
-17
Dec
-17
Jan-
18Ja
n-18
Source: BSF, Yahoo finance, Survey Calculations.
Figure 2: US and India Price-Earnings Ratios,Dec. 2015-Jan. 2018
Dec-1
5Jan
-16Fe
b-16
Mar-1
6Ap
r-16
May-1
6Jun
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The paths of the Indian and US economies have differed in three striking ways:
The stock market surge in India has coincided with a decelaration in economic growth, whereas !
US growth has accelerated (Figure 3).
India’s current corporate earnings/GDP ratio has been sliding since the Global Financial Crisis, !
falling to just 3½ percent, while profits in the US have remained a healthy 9 percent of GDP (Figure 4). Moreover, the recently legislated tax cuts in the US are likely to increase post-tax earnings.
8. Understanding the Stock Market Boom: Is India Different?
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9.68.88.07.26.45.64.84.84.03.22.41.60.8
11%
10%
9%
8%
7%
6%
5%5%
4%
3%FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16 FY 17
IndiaUSA
IndiaUSA
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Mar
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Jun-
16
Sep-
16
Dec
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Mar
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Sep-
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Figure 3: US and India, Real GDP Growthend-Dec. 2015-end-Dec. 2017
Figure 4. US and India Corporate Profits (% of GDP
Critically, real interest rates have diverged substantially. Rates in the US have persisted at negative !
levels, while those in India have risen to historically high levels. Over the period of the boom, US real rates have averaged -1.0 percent, compared to India’s 2.2 percent, a difference of 3.2 percentage points (Figure 5).
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Figure 5: Real Interest Rate: India & US
Source: Survey Calculations.
India USA
What, then, explains the stock market convergence? Two factors seem to be at work. First, !
expectations of earnings growth are much higher in India. Indeed, it was such expectations that lie at the origin of the stock market boom. In early 2016-17, signs emerged that the long slide in the corporate profits/GDP ratio might finally be coming to an end. Investors reacted to this news with alacrity, bidding up share prices in anticipation of a recovery they hoped lay just ahead. Accordingly, the ratio of prices to current earnings rose sharply.By ! 2017-18 signs began to accumulate that the profit recovery was not obviously around the corner. But at that point a second factor gave the market further impetus. That factor was demonetisation.The price of an asset is not solely determined by the expected return on that asset. It is also !
determined by the returns available on other assets. As pointed out in last year’s Economic Survey, the government’s campaign against illicit wealth over the past few years—exemplified by demonetisation—has in effect imposed a tax on certain activities, specifically the holding of cash, property, or gold. Cash transactions have been regulated; reporting requirements for the acquisition of gold and property have been stiffened. In addition, rupee returns to holding gold have plunged since mid-2016, turning negative since mid-2017 (Figure 6). In addition, previously, stock prices had suffered because reporting requirements were higher on shares than purchases of other asset.
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But the attack on illicit wealth has helped to level the playing field.All of this has caused investors to !
re-evaluate the attractiveness of stocks. Investors have accordingly reallocated their portfolios toward shares, with inflows through stock mutual funds, in particular, amounting in 2016-17 to five times their previous year’s level (Figure 7). Accordingly the equity risk premium (ERP, the extra return required on shares compared with other assets) has fallen.Does this imply that Indian P/E !
ratios have reached a higher “new normal”? Perhaps. It’s possible that the portfolio shift set in train by the campaign against illicit wealth will result in a sustained reduction in the ERP. But it is worth recalling that a similar assessment was made in the US after its ERP fell sharply in the late 1990s-early 2000s. A few years later, the technology bubble collapsed, then the Global Financial Crisis occurred. The ERP surged to new heights and still hasn’t reverted to its previous trough. Beyond ERPs, !
sustaining current stock valuations in India also requires future earnings performance to rise to meet still high expectations. And this outlook, in turn, depends on whether a significant economic rebound is this time well and truly around the corner. In sum, the Indian stock market surge is different from that in advanced economies in three ways: !
growth momentum, level and share of profits, and critically the level of real interest rates. Low levels of the latter have been invoked to justify the high valuations in advanced economies. By that token, India’s valuations should be much lower. So, what appears to be driving India’s valuations are a fall in the ERP reflected in a massive portfolio re-allocation by savers towards equity in the wake of policy-induced reductions in the return on other assets. But sustaining these valuations will require future growth in the economy and earnings in line with !
current expectations, and require the portfolio re-allocation to be semi-permanent. Otherwise,
9. How policy decisions affect various groups differently? List the affects.
Policy decisions affect various groups differently. As a guide to readers, the table below lists !
below the preferences of different groups in relation to interest and exchange rates, as well as the underlying reasons. For example, strong exchange rates may be preferred by companies that sell
20%
21%
16%
11%
6%
1%
-4%-4%
-9%
1.2%
1.0%
0.8%
0.6%
0.4%
0.2%
0.0%0.0%2011-12 2012-13 2013-14 2014-15 2015-16 2016-17*
Figure 6: Returns from Gold (in present) Figure 7: Flows into Mutual Funds(percent of GDP)
Figure 8: US and India, Euity Risk Premiums
ERP USERP India
10%
9%
8%
7%
6%
5%
4%4%
3%
2%
1%
0%
2001
2002
2003
2004
2005
2006
2007
2007
2008
2009
2010
2011
2012
2013
2014
2014
2015
2016
2017
Source: RBI.
Source: Survey Calculations.
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Jan-
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b-16
Mar
-16
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-16
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17M
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7A
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ay-1
7Ju
n-17
Jul-1
7Ju
l-17
Aug
-17
Sep-
17Se
p-17
Oct
-17
Nov
-17
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non-tradeables and rely on imports for their inputs: the classic case here is power companies that sell electricity to domestic distribution companies and import their capital equipment. Conversely, services exporters such as IT companies will be keen on competitive exchange rates because they sell mainly abroad, while importing very little. A strong exchange rate is preferred by those who equate currency strength with broader national strength.
Group Preference ReasonsManufacturers, services exporters, and farmers
Low interest rates, weak currency
Profits increase, even if some inputs are imported, since market share grows. This applies both to exporters (clothing) and firms producing for domestic market but competing with imports (steel, aluminium). Software exporters with high domestic value added will favor weak rupee.
Exception: Import-intensive manufacturers
No strong preference
Weaker rupee increases export revenues but increases import costs
Infrastructure companies (especially power and renewables)
Strong currency, low interest rates
Strong currency reduces costs without affecting revenues, which are earned in rupees. Costs fall because firms typically import capital equipment, financed with dollar loans. Low interest rates reduce debt service burden on domestic loans.
Households High interest rates Returns on savings increase. Household saving far outweighs household borrowing.
Equity investors – Domestic Low interest rate Corporate profits increase, so returns rise.Equity investors – Foreign Low interest rates,
strong currencyCombination boosts dollar returns. Tension: low rates typically lead to weaker currency.
Bond investors – Domestic Falling interest rates Generates capital gains. Banks prefer low rates; other investors (such as LIC) prefer high rates.
Bond investors – Foreign High but falling interest rates, strong currency
Combination maximizes dollar returns. Tension: falling rates weaken currency.
Government Low interest rates Low rates reduce debt service. Extra growth or inflation increases revenues.
Non-economic actors Strong currency Strong currency equated with national economic strength.
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2Chapter
The first order fact about the developing world today is that this is an era of unprecedented prosperity and that is true about India too.A major driver of these good times is “economic convergence.” Poorer countries have grown faster than richer countries and closed the gap in standards of living. The convergence process has been broadening and accelerating for the last 20-30 years. However, while fears of a middle-income trap are overblown, could there be a slowdown in this process for lower-middle-income countries such as India.The possibility of such a “Late Converger Stall” arises because of four possible headwinds in the post-Global Financial Crisis era. These headwinds include:
The backlash against globalization which reduces exporting opportunities, �
The difficulties of transferring resources from low productivity to higher productivity sectors �
(structural transformation), The challenge of upgrading human capital to the demands of a technology-intensive workplace, �
and Coping with climate change-induced agricultural stress. �
India has so far defied these headwinds but can continue to do so only if the challenges are decisively addressed.
Is there a “Late Converger Stall” in Economic Development? Can India
Escape it?
Introduction
1. What do you understand by terms middle income trap and convergence with a vengeance in Economic Development? What are the factors for late convergence stall? Describe that in Indian context.
Before going in to actual answer let us have a look on some facts.The global “bads” – war, violence, deprivation and poverty – are at unprecedentedly low �
levels.The global “goods” – standards of living, access to essential services, and material well-being; �
have improved at a historically unprecedented pace to reach levels never witnessed in humanity’s history.
Economic convergence is the process of poorer countries “catching-up” with richer countries and closing gaps in standards of living.
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Since the mid-1980s, the process of catch-up has broadened, as the number of poor countries growing faster than advanced economies has substantially increased. Furthermore, the rate of catch-up has also accelerated. In other words, there has been “convergence with a vengeance”.(After this brief introduction process is being described in details as below.)
Middle income trap and convergence with a vengeance !
India’s move up in the development is instructive to track. In 1960, India was a low- income �
country with a per capita income of $1,033. This was equivalent to about 6 percent of U.S. per capita income at that time. India attained lower middle-income status in 2008 and today has a per capita income of $6,538, �
which is 12 percent of the U.S. If per capita income in India grows at 6.5 percent per year, India would reach upper-middle income status by the mid-to-late 2020s.But, recently doubts about the convergence process have been articulated around the notion �
of a “middle income trap.” There was a genuine low-income “trap.” For a long time, many poor countries were not catching up at all; they were growing more slowly than richer countries, (termed as “Divergence Big Time.”)Middle income trap should, have connoted that middle income countries would grow more �
slowly than what would be expected.The reasons for the trap. �
On the one hand, as countries attained middle income status, they would be squeezed out !
of manufacturing and other dynamic sectors by poorer, lower-cost competitors. On the other hand, they would lack the institutional, human, and technological capital to !
carve out niches.Thus, pushed from below and unable to grasp the top, they would find themselves doomed !
to, well, middle- income status.The poorest have been growing faster than lower middle income countries, which have been �
growing faster than upper middle income countries that in turn have been growing faster than the richest.The developing world continues to catch up, so rapidly that one could call the process “convergence with a vengeance”.
Factors for late convergence stall !
Hyperglobalisation repudiation1. Developing countries that came late to convergence now face a very different global trading !
environment from their predecessors. Japan, South Korea and China were all able to post average export growth rates of over 15 percent for the thirty years of their convergence periods.But this globalization has led to a backlash in advanced countries reflected in the decline !
in world trade-GDP ratios since 2011.To the early convergers, specifically the ability to export at double digit rates of growth for !
three to four decades consistently may no longer be available.Basic gravity theory implies that smaller countries tend to trade more than larger ones. !
World is becoming more equal in the distribution of the underlying output. That is the !
consequence of convergence. Therefore, if there is convergence, there will also be increased trade.
Thwarted structural transformation: good growth and sustainable growth2. Successful development requires two kinds of structural transformations: !
A shift of resources from low productivity to high productivity sectors. and
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A larger share of resources devoted to sectors that have the potential for rapid
productivity growth. Manufacturing as a critically important sector for ensuring successful transformations. This !
sector exhibits unconditional convergence toward the world frontier, so that it can become an escalator for rapid growth.Richer countries attained higher levels of peak manufacturing and earlier in the development !
process.Human capital regression3.
In early convergence, based on manufacture was the alignment of human capital !
endowment (educated but relatively unskilled labour) with the sector associated with structural transformation, namely manufacturing, that allowed for the percolation and spread of dynamism to the rest of the economy.Shifts in labor, the so-called Lewisian transformation from farm to factory, were possible !
because of this co-incidence: growth and structural transformation based on comparative advantageThe late convergers convergence of automation and the globalization are doubly !
challenged. Not only have they failed to provide even the basic education necessary for some structural transformation, that failure will prove increasingly costly because the human capital frontier for the new structural transformation has probably shifted further away. Technology will increasingly favor skilled human capital, where the requisite skills will !
include adaptability and the ability to learn continually. One might argue that growth itself will be based less on comparative advantage and more on some absolute human capital attainment.
Climate change-induced agricultural stress4. There has been divergence big time on agricultural productivity. !
Growth rates for richer countries have been consistently greater than for developing !
countries.For the poorest, these growth rates have even declined post-GFC. !
That Indian agriculture is vulnerable to temperature increase and still heavily dependent !
on precipitation. The analysis shows that if climate change raises temperatures and the variability of rainfall, farmer revenues could decline by up to 20 percent to 25 percent in non- irrigated areas.Agriculture could yet come back to haunt the structural transformation fortunes of the late !
convergers.
Conclusion
Since 1980, India has been rapidly catching up, posting an average per capita GDP growth rate of 4.5 percent, which is in the top quartile of countries over that period, and amongst the highest for continuous democracies. But this fast growth has occurred with limited transfer of labour resources from low productivity to high productivity and dynamic sectors, and despite relatively modest agricultural growth. The risk for India–as for the other late convergers–is that resources (especially labour) will move from low productivity, informal sectors to other sectors that are marginally less formal and only marginally more productive. That is the “late Converger stall” that India must avoid.
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The Learning Poverty Count (LPC) and Learning Poverty Gap (LPG) in Rural Primary Education
Great strides have been made in India’s primary school enrollment, which is now nearly universal for both boys and girls at elementary level. Yet, both cross-country evidence and evidence from India suggests that educational outcomes are incommensurate with years of schooling: learning lags attending, as it were.
The LPC simply measures the number of children, who do not meet the basic learning benchmark.
LPG additionally takes into account how far each student is from the benchmark.
In other words, the LPG measures the gap between the basic learning benchmark and the average scores of those students who did not meet the benchmark.
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3Chapter
Investment and Saving Slowdowns and Recoveries: Cross-Country
Insights for India
Introduction
India’s unprecedented climb to historic high levels of investment and saving rates in the mid- 2000s has been followed by a pronounced, albeit gradual, decline. This current episode of investment and saving slowdown is still ongoing.Some findings shows that, investment slowdowns have an impact on growth but not necessarily saving; recoveries from investment slowdowns (especially those associated with balance sheet difficulties--as in India) tend to be slow. Notably, mean reversion or some degree of automatic bounce-back is absent so that the deeper the slowdown, the slower and shallower the recovery. The policy conclusion is urgent prioritization of investment revival to arrest more lasting growth impacts, as the government has done with plans for resolution of bad debts and recapitalization of public sector banks.
Data related to Investment & SavingThe ratio of gross fixed capital formation to GDP climbed from 2 � 6.5 per cent in 2003, reached a peak of 35.6 per cent in 2007, and then slid back to 26.4 per cent in 2017.The ratio of domestic saving to GDP has registered � 29.2 per cent in 2003 to a peak of 38.3 per cent in 2007, before falling back to 29 per cent in 2016.Such sharp swings in investment and saving rates have never occurred in India’s history not �
during the balance-of-payments crises of 1991 nor during the Asian Financial Crisis of the late 1990s.The cumulative fall over 2007 and 2016 has been milder for investment than saving, but �
investment has fallen to a lower level.
1. Which are as are responsible for the saving or investment decline in India? What can be way forward, for India’s investment and country’s prospects of reverting to sustained high growth rates? Explain in light of Economic Survey 2017-18.
Following areas can be held responsible for saving or investment decline in India. !
Essentially, private investment and household/government saving are sectors which can be �
held responsible for saving or investment decline in India.Based on the break-up of investment and saving, that is available up to 2015-16, private �
investment accounts for 5 percentage points out of the 6.3 percentage point overall investment decline over 2007-08 and 2015-16.
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2. Identify the issues in Investment & Saving Slowdowns in India. What are saving versus investment related growth consequences in India? How to resolve these issues? Explain in light of issues of Investment and saving slowdowns.
The fall in saving, by about � 8 percentage points over the same period, has been driven almost equally by a fall in household and public saving.
The fall in household saving has in turn been driven by a fall in physical saving, partly offset by �
an increase in the holding of financial assets.
Within the latter, there has been a shift from currency and bank deposits towards market �
instruments, viz. shares and debentures.
Change in Investment Change in Saving2004-05 to
2007-082007-08 to
2015-162004-05 to
2007-082007-08 to
2015-16Total 9.1 -6.3 9.1 -7.7Public 1.4 -1.3 3.9 -4.0Private 7.6 -5.0 5.2 -3.8Private corporate 8.9 -4.4 5.2 1.4Household -1.3 -0.6 0.0 -5.2
Way forward, for India’s investment and country’s prospects of reverting to sustained !
high growth rates.We can take cue from saving and investment slowdown episodes witnessed over the past 40 �
years in other countries.
Hausmann, Rodrik, and Pritchett studied finds growth accelerations. Their results, among other �
things, indicate that standard determinants of economic growth (viz. greater investment, exports and a more competitive exchange rate) partly explain such accelerations.
Rodrik (2000) examined cases in which countries underwent sustained saving transitions, �
analyzing the relationship among saving, investment and growth during those periods.
The way forward is that economic growth is aided by creating incentives for investment (rather �
than saving) and production.
Understanding slowdown episode – Investment and saving slowdowns can be understood using a specific set of conditions. !
First, a � “shortfall” is defined as the difference between:
The average of investment (saving) in the slowdown year and subsequent two years; (a) and
The average of the previous five years.(b)
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Then, a � “slowdown year” is defined as one where the shortfall in that year exceeds a certain threshold. If there are two or more consecutive slowdown years, this counts as a “slowdown episode”.Second: � The average investment rate for the 5 years prior to the slowdown year is at least 15 percent of GDP.
Issues in Investment and Saving Slowdowns !
The thresholds considered are of 2, 3 and 4 percentage points. Lower the threshold, the greater �
the risk of capturing episodes of temporary volatility rather than more enduring slowdowns. But because India’s current investment (saving) slowdown has been so gradual it is best captured in the 2 per cent threshold. Moreover, in most cases, the results for the 3 and 4 per cent thresholds also hold for the 2 per cent case. (The effective span over which slowdowns are captured is 1975 to 2014, with a sample of 55 countries).Studies reveals that investment episodes are more frequent than saving episodes, while �
common episodes (where both investment and saving slow) are relatively unusual. This pattern, however, has reversed after 2008, with saving episodes catching-up with investment episodes.Investment and saving slowdowns tend to be similar in duration. However, investment �
slowdowns are greater in magnitude. Magnitudes are the shortfalls (as defined above), cumulated over the entire slowdown episode. (Duration is a simple count of the number of years that the shortfall in investment/saving exceeds the various thresholds).There are notable differences between investment and saving slowdowns. Investment is more �
prone to extreme events: there are 4 cases where the cumulative investment slowdown exceeded 50 percentage points, whereas there are hardly any cases of saving slowdowns of this magnitude. On the other hand, large saving slowdown episodes measuring between 30 and 50 percentage points tend to drag on for a year more on average than similarly-large investment slowdowns.
International Experience in Slowdowns. !
Mauritius � – along with Tunisia and Egypt – has experienced no less than 4 investment slowdowns over the past 40 years in the 2 percent threshold. Only � Bangladesh in sample countries, since the early 1980s that has not suffered from any slowdown.Most slowdowns in � Latin America and Africa occurred during the 1980s, a period that became known as the ‘lost decade’ in those continents.The investment and saving slowdown in � Mexico following the debt crisis of 1982 is captured in period is known as the East Asian crisis—though the phenomenon extended to countries as far away as Turkey and Argentina.These economies are in the era of saving slowdowns, with the percentage of such countries at �
its peak. The fraction of countries with investment slowdowns has also increased, though to a limited extent. Curiously, this relationship between the two types of slowdown turns out to be unusual from 1975 to 2007.Brazilian � economy manifests as investment and saving slowdowns from the early 1980s to the early 1990s.
How does India fit into this broader picture? !
Until recently, India had not experienced either type of slowdown. As a result, the current �
slowdown – in which both investment and saving have slumped – is the first in India’s history.
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Because the investment decline has been so gradual, the magnitude of the shortfall so far is �
relatively less severe – it remains a moderate 21 percentage points, well under the average magnitude.
India’s current investment/saving slowdown episode have been lengthy compared to other �
cases – and it may not be over yet.
Saving versus Investment: Growth consequences !
The simultaneous slump in saving and investment gives rise to a question. Should policies that �
boost investment be given greater priority over those that boost saving?
The standard solution that is often prescribed is that both problems need to be tackled �
simultaneously.
Countries that experience growth transitions eventually see sustained higher rates of saving. �
There is primacy to the role of investment over saving (profits).
In India, relationship is significantly positive for investment episodes, but insignificant for saving. �
A � one percentage point fall in investment rate is expected to dent growth by 0.4-0.7 percentage points.
Solutions to get recover from ‘INDIA-TYPE’ Investment Slowdown. !
India’s investment slowdown is unusual in that it is so far relatively moderate in magnitude, �
long in duration, and started from a relatively high peak rate of 36 percent of GDP.
It has a specific nature, in that it is a balance sheet-related slowdown. Many companies have �
had to curtail their investments because their finances are stressed, as the investments they undertook during the boom have not generated enough revenues to allow them to service the debts that they have incurred.
What tends to happen to investment rates in the aftermath of ‘balance sheet’ episodes? �
Episodes of crises and balance sheet effects in emerging economies. India is now 11 years past its investment peak, investment rates are measured as deviations from peak levels for years 11, 14, and 17 after the peak dates.
Investment declines flowing from balance sheet problems are much more difficult to reverse. �
In these cases, investment remains highly depressed, even 17 years after the peak, whereas in case of non-balance-sheet slowdowns the shortfall is smaller and tends to reverse.
India’s investment decline so far (8.5 percentage points) has been unusually large when �
compared to other balance sheet cases.
Accordingly, the experience of countries with similar investment declines is examined. �
Specifically, cases in which the rate of investment has fallen by at least 8.5 percentage points from its peak over a 9 year period are considered. The questions then asked is: what is the investment rate 11, 14 and 17 years after the peak?
The median country reverses only about � 25 percent of the decline 14 years after the peak, and about 40 percent of the decline 17 years after the peak. If India conforms to this pattern, the investment-GDP ratio would improve by 2.5 percentage points in the short run. Of course, this is the median: if India situates itself in the upper quartile, it can recover by more than 4 percentage points. But India is already 11 years past the peak, and its current performance puts it below the upper quartile
Between 2007 and 2016, rate of real per-capita GDP growth has fallen by about � 2.3 percentage points—that is lower than the above 3 percent decline in growth noticed, on average, in episodes in other countries that have registered investment declines of similar magnitudes and from roughly a similar peak (about 36 percent).
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Conclusion
It is clear that investment slowdowns are more detrimental to growth than saving slowdowns. So, policy priorities over the short-run must focus on reviving investment. Mobilizing saving, for example via attempts to unearth black money and encouraging the conversion of gold into financial saving or even courting foreign saving are, to paraphrase John Maynard Keynes, important but perhaps not as urgent as reviving investment.
India’s investment slowdown is not yet over although it has unfolded much more gradually than in other countries, keeping the cumulative magnitude of the loss – and the impact on growth – at moderate levels so far.
But this leads to the third question: how will the investment slowdown reverse, so that India can regain 8-10 per cent growth? There is both a bleak and a hopeful pointer from similar episodes in other countries. India’s investment decline seems particularly difficult to reverse, partly because it stems from balance sheet stress and partly because it has been usually large.
Taken together, the results suggest policy agenda which the government has launched; first with the since 2015-16; and now, given the constraints on public investment with policies to decisively resolve the TBS (Twin Balance Sheet) challenge.
In addition, creating a conducive environment for small and medium industries to prosper and invest will help revive private investment. The focus of investment-incentivizing policies has to be on the big and small alike.
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4Chapter
Reconciling Fiscal Federalism and Accountability: Is there a Low
Equilibrium Trap
Introduction
Long-run institutional development co-evolves with fiscal accountability involving, perhaps requiring, a low and declining dependence on devolved resources and a high and rising share of direct taxes in total taxes. India’s second and third tiers of government tend to under-perform relative to these standards. The extent of tax and functional devolution to these tiers is one possible explanation. However, one key finding is that these tiers under-collect direct taxes even relative to the powers that they have. Whether this could lead to a low equilibrium trap of weak direct tax collection leading to inadequate service delivery provision, back to weak collection and accountability, needs to be actively discussed.
1. “Taxation is not just a vehicle for raising state revenue. It can also be critically important for economic and political development”. Elucidate.
There is a social contract between citizens and the state.The state’s role is to create the conditions for prosperity for all by providing essential services and protecting the less well-off via redistribution. The citizen’s part of the contract is to hold the state accountable when it fails to honor that contract.But a citizen’s stake in exercising accountability diminishes if he does not pay in a visible and direct way for the services the state commits to provide.
If a citizen does not pay, he becomes a free rider (using the service without paying), and cannot �
complain if the state provides a poor quality service.If he exits (not using the service at all), he loses interest in holding the state accountable. Only �
if he pays and uses the service will he try to hold the state accountable.“Taxation is the economic glue that binds citizens to the state in a necessary two-way �
relationship”But does this glue rely on taxation broadly or on direct taxation in particular? �
It seems that a citizen’s stake would be greater the more it “hurts” to pay taxes, taxes feel �
more like expropriation because they reduce citizens’ disposable income, the earnings that they get to keep.
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With indirect taxes, citizens are burdened but that sense is leavened to the extent that citizens �
feel they are exercising choice.
Taxation critical for development at General Government level. !
Economic and political development has been associated with a rising share of direct taxes in �
total taxes.Advanced countries collect a substantially higher proportion of their taxes as direct taxes than �
emerging markets do.India has the lowest share of direct taxes in total taxes. �
India’s reliance on direct taxes seems to be declining, a trend that will be intensified if the �
Goods and Services Tax (GST) proves to be a buoyant source of revenue.
Direct taxation and development: Sub-federal levels !
Fiscal decentralization is often embraced as not just a desirable economic but also as a political �
and philosophical principle, as Tagore envisaged.Spending and tax decisions must reflect local preferences as far as possible. �
Finance Commission has opinion that resources are NOT ‘devolved’ resources but ‘shared‘ �
resources.GST provides a sharp contrast in that it is clearly more “shared” because decisions and tax �
administration are done by both.India’s rural local governments (RLGs) reliance on own resources is just � 6 percent compared to 40 percent for third-tier governments in Brazil and Germany. Panchayats raise about � 4 percent of their overall resource envelope in the form of direct taxes, compared with about 19 and 26 percent in Brazil and Germany respectively.India’s urban local governments (ULGs) are much closer to international norms. Their own �
revenues as a share of total revenues are actually higher than Brazil and Germany, while their direct tax share (about 18 percent of total revenues) is only marginally lower than Brazil (19 percent).ULGs have emerged more fiscally empowered than RLGs in India. �
2. Is the current system of revenue generation with respect to local governance in India is appropriate, and if not, can it be changed? What do you understand by low equilibrium trap, how to resolve it? Elaborate your answer in light of facts given in Economic Survey 2017-18.
Some facts about local governments. !
73 �rd Amendment to the Constitution (1992) recognized Panchayats as institutions of self-
government. The simultaneous 74th Amendment bestowed the same status on urban local governments.Constitution listed 29 matters which could be the focus of their governance, such as agriculture �
and land reforms, minor irrigation, small scale industries, rural communication, drinking water, poverty alleviation programme.
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RLGs or Panchayats were mandated to have three tiers (at the district, intermediate and village �
levels) in states with population of over 20 lakh.
Expenditure patterns of different tiers of government !
The central and state governments spend on an average � 15-20 times more per capita than do RLGs. ULGs spend about 3 times more. More importantly, this gap has persisted over time despite per capita spending by RLGs increasing almost four-fold since 2010-11.Per capita Expenditure at Central, State and RLG levels (In rupees)
999
2016-17
2014-15 2015-16
2011-12 2012-13 2013-14
2010-11
0
5000
5,998
5,612
5,767
10000
15,507
15000
20,840 2000
0
25000
ULGs seem to be doing much better in terms of own revenue generation. They generate about �
44 per cent of their total revenue from own sources.RLGs, rely overwhelmingly (about � 95 per cent) on devolution.Per capita own revenue collected by ULGs is about � 3 per cent of the urban per capita income while the corresponding figure is only 0.1 per cent for RLGs.In many states, RLGs and ULGs have not been devolved enough taxation powers. Successive �
Devolution Reports of the Ministryof Panchayati Raj (MoPR) show that the share of revenues assigned to local governments in many states are much less vis-à-vis expenditure assignments. (However, it is seems that several states-notably Kerala, Maharashtra, Karnataka, Gujarat and West Bengal are consistently improving on this front).
How it can be improved !
States supposed to constitute a quinquennial State Finance Commission (SFC) to determine �
the share of their financial resources going to the local tiers, analogous to the Finance Commissions at the union level.ULGs and RLGs were mandated to prepare and implement plan(s) for economic development �
and social justice. Over the past two decades, local governments have gained prominence as institutions with substantial ‘say’ in grassroots development issues, albeit with significant spatial variations, and spaces of intense political contestability. However, the tied nature of a considerable part of resource flow constrains spending autonomy in RLGs.
A Low Equilibrium Trap !
State and local governments in India rely much more on devolved resources and much less on �
their own tax resources and they collect less direct taxes. And the reason does not seem to be so much that they don’t have enough taxation power. Rather, the bigger problem is that they are not fully utilizing the taxation powers they already possess.There is little reason to collect more taxes if they cannot be spent efficiently. �
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Equilibrium desired by all actors with higher tiers (both Centre and states) using their devolution �
powers to control and influence lower levels; and the latter, unable and unwilling to tax their proximate citizens, need outside resources even if they are not always untied. But this is a low-equilibrium, perhaps even a trap.
Resolution of Low Equilibrium Trap !
For unless the underlying problems are identified and solved, local governments could remain �
stuck in a low equilibrium trap. That is, the fiscal model of the states and third tier institutions could forever be based on outside resources (like foreign aid and natural resources or other forms of redistributive resource transfers).In the context of growing decentralization of economic and political power, how to break this �
equilibrium could well be one of the more pressing issues confronting fiscal federalism going forward. Breaking self-reinforcing cycle of inadequate delivery low direct taxes, -weak accountability- �
inadequate delivery is the heart of the governance challenge in India. Govenment should work for removal of the above said issues.
Conclusion
The 73rd and 74th amendments to the Constitution in the early 1990s were watershed developments in India’s federal structure, its governance and accountability. But twenty years on, it is necessary to realistically evaluate their performance.
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Economic Sectors
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ECONOMIC SECTORS
Introduction
Agriculture and allied sector has a critical role in ensuring food security, reducing poverty and �
sustaining growth in India. To improve productivity in agriculture the focus has been on the critical inputs like irrigation, �
seeds, fertilisers and mechanization.The dynamics of agricultural growth reflect a reduction in the share of crop sector and an �
increase in the share of agricultural sub-sectors. As agriculture entails risks related to production, weather, prices and policy, capitalizing the structural changes in the agriculture sector by diversifying income generating activities can mitigate the risks and sustain growth of the economy.
Data Related to Agriculture
Growth Rate � - The growth rates of agriculture & allied sectors have been fluctuating at 1.5 per cent in 2012-13, 5.6 per cent in 2013-14, (-) 0.2 per cent in 2014-15, 0.7 per cent in 2015-16 and 4.9 per cent in 2016-17.Gross Capital Formation in Agriculture and Allied Sector � - The Gross Capital Formation in agriculture and allied sectors as a proportion to the total GCF showed a decline from 8.3 per cent in 2014-2015 to 7.8 per cent in 2015-16.This decline can be attributed to reduction in private investment.Production of Crops 2016-17 � - India achieved a record production of food grains estimated at 275.7 million tonnes.The production of rice is estimated at 110.2 milliontonnes. Production of wheat, estimated at �
98.4 million tonnes. Production of pulses which is estimated at 23.0 million tonnes. This increase in production of food grains and other crops is mainly on account of very good rainfall during monsoon 2016-17 and various policy initiatives taken up by the Government.
AGRICULTURE SECTOR
1. ‘Structural changes and changing cropping pattern that are being witnessed by the agriculture sector in India ecessitate re-orientation in policies towards this sector with gender-specific interventions’. Discuss.
In recent past India is witnessing gradual structural changes in agriculture sector. Changing cropping pattern had put focus on special need of this sector. With growing rural to urban migration by men, there is ‘feminisation’ of agriculture sector. This necessitates government to re-orient policies
1Chapter
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towards this sector with gender-specific interventions. Hence discussing the structural changes seen and steps taken for that.
The structural changes witness by Agriculture sector. !
The agricultural growth in India has been fluctuating since more than � 50 per cent of agriculture in India is rainfall dependent. Share of crops had declined from 65% to 60 %.This sector has been witnessing following a gradual structural change in recent years. �
The share of livestock in GVA in agriculture has been rising gradually. �
In 2002-03 the share of livestock in total farm incomes was just � 4 per cent which increased to 13 per cent by 2012-13.India is the largest producer of milk in world. Several measures have been initiated by the �
Government to increase the productivity of livestock, which has resulted in increasing the milk production significantly.The poultry production in India has taken a quantum leap in the last four decades, emerging �
from an unscientific farming practice to commercial production system with state-of-the-art technological interventions. The total poultry population in our country is 729.21 million (as per 19th Livestock Census) and egg production is around 82.93 billion during 2015-16.India is the second largest producer of fish and also the second largest producer of fresh water �
fish in the world.These are the structural changes India is witnessing in recent past. So that policy makers should focus on increasing share of crop in GVA along with necessary interventions for Allied sector.
Gender-specific interventions - Policy for Women Farmers. !
Women play a significant and crucial role in agricultural development and allied fields including �
in the main crop production, livestock production, horticulture, post-harvest operations, agro/social forestry, fisheries, etc.For sustainable development of the agriculture and rural economy, the contribution of women �
to agriculture and food production cannot be ignored. As per Census 2011, out of total female main workers, 55 per cent were agricultural laborers and 24 per cent were cultivators.However � , only 12.8 per cent of the operational holdings were owned by women, which reflect the gender disparity in ownership of landholdings in agriculture Moreover, there is concentration of operational holdings (25.7 per cent) by women in the marginal and small holdings categories.With growing rural to urban migration by men, there is ‘feminisation’ of agriculture sector, with �
increasing number of women in multiple roles as cultivators, entrepreneurs, and laborers.Rural women are responsible for the integrated management and use of diverse natural �
resources to meet the daily household needs.This requires that women farmers should have enhanced access to resources like land, water, �
credit, technology and training which warrants critical analysis in the context of India. In addition, the entitlements of women farmers will be the key to improve agriculture productivity. The differential access of women to resources like land, credit, water, seeds and markets needs to be addressed.
The following measures need to be or taken to ensure mainstreaming of women in agriculture sector:
Earmarking at least 30 per cent of the budget allocation for women beneficiaries in all ongoing 1. schemes/programmes and development activities.Initiating women centric activities to ensure benefits of various beneficiary-oriented programs/2. schemes reach them.
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Focusing on women self-help group (SHG) to connect them to micro-credit through capacity 3. building activities and to provide information and ensuring their representation in different decision-making bodies.Recognizing the critical role of women in agriculture, the Ministry of Agriculture and Farmers 4. Welfare has declared 15th October of every year as Women Farmer’s Day.
With women predominant at all levels- production, pre-harvest, post-harvest processing, packaging, marketing- of theagricultural value chain, to increase productivity in agriculture, it is imperative to adopt gender specific interventions. And ‘inclusive transformative agricultural policy’ should aim at gender-specific interventions to raise productivity of small farmholdings, integrate women as active agents in rural transformation, and engage men and women in extension services with gender expertise.
Cropping pattern in Indian agriculture !
India ranks first, with 179.8 MHA ( � 9.6 percent of the global net cropland area) of net cropland area according to United States Geological Survey 2017. The pattern of cropping is determined by various factors like agro-climatic conditions, farm �
size, prices, profitability and government policies. A diversified cropping pattern will help in mitigating the risks faced by farmers in terms of price �
shocks and production/ harvest losses. The Index of Crop Diversification has been computed for major States and All India to examine �
whether there have been major changes in the cropping patterns across States. The index value ranges between 0 and 1 and higher the value, greater the diversification.There is a declining inter-temporal behaviour in crop diversification for the States like �
Chhattisgarh, Haryana, Madhya Pradesh, Odisha, Punjab and Uttar Pradesh. Among these States, the decline in the index has been sharp for Odisha.Two of the States Himachal Pradesh and Jharkhand have shown increasing values in crop �
diversification.Crop diversification needs to be encouraged to improve soil health, productivity and thereby �
profitability of cultivation. There is a need to diversify into high value crops and horticulture crops for which Government has taken several measures.
Conclusion
The agriculture sector in India is experiencing structural changes which are opening up new challenges and opportunities. The central priority of the government will be to provide opportunities for farmers to diversify their income generating opportunities to reduce the various risks by facilitating the development of agricultural sub-sectors like livestock and fisheries.
2. What are the critical inputs required to enhance agriculture productivity and how can they be managed? Do you think education is one of them? Elaborate your answer by giving substantial data.
Agricultural productivity is determined by the appropriate use of critical inputs like irrigation, seeds, fertilisers, credit, machines, and technology and extension services. Managing the inputs
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in appropriate combinations for specific crops can improve the productivity in agriculture without losing soil fertility and causing environmental damages. These critical inputs and there management have been discussed below:
Irrigation 1. The all India percentage of net irrigated area to total cropped area was 34.5 per cent, which �
makes a large segment of cultivation dependent on rainfall.There is tremendous potential to increase the coverage of irrigated area for which the �
Government has launched the Prime Minister’s Krishi Sinchayee Yojana (PMKSY) in 2015.
Seeds, fertilisers 2. As reported in Input Survey, out of total operational holding only � 9.4 per cent used certified seeds while 27 per cent used seeds of notified variety and only 9.8 per cent used hybrid seeds.Small and marginal farmers use these inputs, with more than � 80 per cent of agricultural holdings in the marginal size category using organic manure which increases soil fertility.During 2016-17, total breeder seed production in field crops has been 1.2 lack quintals. In �
order to promote Seed Replacement Rate (SRR) and Varietal Replacement Rate (VRR), Seed Project entitled, “Seed Production in Agricultural Crops” is being implemented.However, the use of fertilizers and hybrid seeds can bring about better yields if there is adequate �
coverage of irrigation since agriculture in India is largely rainfed.
Agricultural Mechanization3. According to the World Bank estimates percentage of agricultural workers of total work force �
would drop to 25.7 per cent by 2050 from 58.2 per cent in 2001. Thus, there is a need to enhance the level of farm mechanization in the country.Farm mechanization and crop productivity has a direct correlation as farm mechanization saves �
time and labour, reduces drudgery, cut down production cost in the long run, reduces post-harvest losses and boosts crop output and farm income. Use of improved implements has potential to increase productivity up to 30 per cent and reduce the cost of cultivation up to 20 per cent.Small farm holdings pose difficulties in mechanization. There is predominance of small �
operational holdings in Indian agriculture. It is,therefore, needed to consolidate the land holdings to reap the benefits of agricultural mechanization.There is a need to innovate custom service or a rental model by institutionalization for high �
cost farm machinery such as combine harvester, sugarcane harvester, potato combine, paddy transplanter, laser guided land leveller, rotavator etc. to reduce the cost of operation and it canbe adopted by private players or State or Central Organizations in major production hubs.
Crop insurance4. The NSSO Report (July 2012 – June 2013) had indicated that a very small share of agricultural �
households engaged in crop production activities was insuring their crops.In respect of wheat and paddy, the two most harvested cereals in the country, less than 5 �
percent of the cultivating agricultural households insured their crops.Reasons for not insuring: Not aware about crop insurance; Not aware about availability of �
facility, Not interested/not felt the need to insure; Insurance facility not available; Lack of resources for premium payment; Complex procedures; Delay in claim payment.Pradhan Mantri Fasal Bima Yojana (PMFBY), which is a yield index based crop insurance scheme �
launched in 2016, has made substantial progress with more ground coverage compared to erstwhile schemes.
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During 2016-17, the target of 30 percent of the Gross Cropped Area (GCA) in the country for �
PMFBY has been achieved.
Agricultural credit and marketing initiatives5. Credit is a critical input in achieving high productivity and overall production in the agricultural �
sector. A sum of Rs.20,339 crore has been approved by the Government of India in 2017-18 to meet various obligations arising from interest subvention being provided to the farmers on short term crop loans, as also loans on post-harvest storages meets an important input requirement of the farmers in the country especially small and marginal farmers who are the major borrowers.This institutional credit will help in delinking the farmers from non-institutional sources of �
credit, where they are compelled to borrow at usurious rates of interest. Since the crop insurance under Pradhan Mantri Fasal Bima Yojana (PMFBY) is linked to availing of crop loans, the farmers would stand to benefit from both farmer oriented initiatives of the Government, by accessing the crop loans.The electronic National Agriculture Market (e-NAM) that was launched by Government on �
April, 2016 aims at integrating the dispersed APMCs through an electronic platform and enable price discovery in a competitive manner, to the advantage of the farmers.
Agriculture research6. Agricultural R&D is the main source of innovation, which is needed to sustain agricultural �
productivity growth in the long-term.The actual expenditure of in agriculture research has increased. The compound annual growth �
rate of expenditure has been 4.2 percent over the years and in recent years’ expenditure has been on higher side.
Education 7. Even education can be considered as critical input for development of agriculture. As educational �
level of farmers has a significant impact on the capacity of farmers to adopt and inculcate new methods of cultivation and input management.As per Input Survey 2011-12 there are only � 1.3 per cent technical diploma holders below degree level and 2.1 per cent graduates and above are operational holders.30 per cent � among marginal and small farmers were illiterate.
Conclusion
The agriculture sector in India is experiencing structural changes which are opening up new challenges and opportunities. The transformation of agriculture and allied sector is imminent by way of appropriate policy interventions related to prices, trade, adoption of Climate Smart Agriculture, increased focus on small, marginal and women farmers. Though the share of agriculture and allied sectorin GVA is on the decline, in the quest for inclusive economic development in India, agriculture sector will remain an engine of broad based growth which will reduce inequalities and provide food security.
Policy to Promote Climate Smart Agriculture (CSA)
Climate change incidence on agriculture can be in the form of increased variability in temperature and rainfall and intensity of extreme weather events like drought and food ultimately creating disturbance to agro-ecosystems,thereby impacting farmers and farming
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Industry
Promoting inclusive employment-intensive industry and building resilient infrastructure are vital factors for economic growth and development. Apart from structural reforms like Goods and Services Tax, Insolvency and Bankruptcy Code and measures to facilitate Ease of Doing Business, the Government has initiated sector specific reforms in Steel, Apparel, Leather and Power sectors to address specific challenges associated with each of these sectors. There has been considerable progress in Roads, Railways, Metro Rail, Shipping, Civil Aviation, Power and Logistics Infrastructure Sectors that is expected to step up the growth momentum in the short term.
Data Related to Industry
India has leapt 30 ranks over its previous rank of 130 in the World Bank’s latest Doing �
Business Report 2018.Index of Industrial Production (IIP): � The Index of Industrial Production (IIP) is another measure of industrial performance, released by Central Statistics Office (CSO). CSO revised the base year of IIP in May, 2017 from 2004-05 to 2011-12. The latest series with base year 2011-12 is more representative of the current structure of the industrial sector.IIP registered a � 25 month high growth of 8.4 per cent with Manufacturing growing at 10.2 per cent in November 2017.Eight Core Industries: � The Index of Eight Core Industries measures the performance of eight core industries i.e. Coal, Crude Oil, Natural Gas, Petroleum Refinery Products, Fertilizers, Steel, Cement and Electricity. In line with the base year change in IIP, Department of Industrial Policy and Promotion, revised the base year of Index of Eight Core Industries from 2004-05 to 2011-12. The industries included in the eight core industries comprise about 40 per cent weight in the IIP.Foreign Direct Investment: � FDI policy reforms announced in 2016 brought most of the sectors under automatic approval route, except a small negative list. Total FDI inflow grew by 8 per cent i.e. US$ 60.08 billion in 2016-17 in comparison to US$ 55.56 billion of the previous year.
community. This necessitates the need to address adaptation and rural development in an integrate dmanner, so as to achieve climate resilient development. It is in this context that there is emergence of the concept and significance of ‘Climate Smart Agriculture (CSA).
Climate Smart Agriculture (CSA) is an approach that helps to guide actions needed to transform and reorient agricultural systems to effectively support development and ensure food security in a changing climate.
CSA aims to tackle three main objectives: sustainably increasing agricultural productivity and incomes; adapting and building resilience to climate change and reducing and/or removing greenhouse gas emissions wherever possible.
CSA is an approach for developing agricultural strategies to secure sustainable food security under climate change. CSA provides the means to help stakeholders identify agricultural strategies suitable to their local conditions.
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3. What are the key initiatives taken by government to boost industrial performance in recent years? Specify sector wise issues and initiatives.
Key initiatives in industrial sector are:Make In India: 1.
The ‘Make in India’ programme was launched on 25th September 2014 which aims at !
making India a global hub for manufacturing, research & innovation and integral part of the global supply chain.The Government has identified ten ‘Champions sectors’ that have potential to become !
global champion, drive double digit growth in manufacturing and generate significant employment opportunities.Make in India version 2.0 focuses on including Capital goods, Auto and Auto Components, !
Defence & Aerospace, Biotechnology, Pharmaceuticals and Medical Devices, Chemicals, Electronic System Design & Manufacturing (ESDM), Leather & Footwear, Textiles & Apparels, Food Processing, Gems & Jewellery, New & Renewable Energy, Construction, Shipping and Railways.
Intellectual Property Rights (IPR) Policy2. National Intellectual Industry and Infrastructure property Rights (IPR) policy to lay future !
roadmap for intellectual property. This aims to improve Indian intellectual property ecosystem, hopes to create an innovation movement in the country and aspires towards “Creative India; Innovative India”.Subsequent to the approval of this policy and creation of Cell for Intellectual Property !
Rights Promotion and Management (CIPAM), there has been a substantial improvement in the IPR and Patent handling matters.
Start-up India3. The initiative aims to create an ecosystem that is conducive to growth of Startups. Government !
has acknowledged the need to reduce the regulatory burden on Startups and have allowed them to self-certify compliance under 3 labour laws and 6 environment laws. Startup India hub ! has been developed as a single point of contact for the entire Startup ecosystem and enables knowledge exchange along with access to funding. In order to provide support, a ! Fund of Funds for startups (FFS) with a corpus of Rs.10,000 crores has been created and is being managed by SIDBI. With an aim to foster and facilitate Bio-entrepreneurship, Bio-clusters, Bio Incubators, !
Technology Transfer Offices (TTOs) and Bio-Connect, offices are being established in research institutes and universities across India. Seed Fund and Equity Funding support is also provided to bio-tech Startups under the initiative.
SECTOR WISE ISSUES AND INITIATIVESSteel Sector �
In the backdrop of a slowing world economy and over capacity in production of steel, India !
witnessed rising imports of cheap steel from countries like China, South Korea and Ukraine into Indian markets at low prices since early 2014-15.
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This dumping of cheaper steel imports adversely affected domestic producers. In order !
to address this, apart from raising customs duty and imposition of anti-dumping duty, Minimum Import Price (MIP) on a number of items was introduced in February 2016 with a sunset clause of one year. These measures helped the domestic producers and exports recovered since February 2016 until March 2017.
MSME Sector �
The share of MSME Sector in the country’s Gross Value Added (GVA) is approximately 32 per !
cent. MSMEs in India play a crucial role in providing large scale employment opportunities at comparatively lower capital cost than large industries and also in industrialization of rural & backward areas. As per the National Sample Survey (NSS) 73rd round, for the period 2015-16, there are 633.8 lakh unincorporated non-agriculture MSMEs in the country engaged in different economic activities providing employment to 11.10 crore workers.
The MSME sector faces a major problem in terms of getting adequate credit for expansion of !
business activities. The MSME received only 17.4 per cent of the total credit outstanding.
The major schemes implemented for the development of MSME sector are as follows: Prime Minister’s Employment Generation Programme (PMEGP)(a) is aimed at generating self-employment opportunities through establishment of micro-enterprises in the non-farm sector by helping traditional artisans and unemployed youth.
Credit Guarantee Scheme(b) for Micro and Small Enterprises covers collateral free credit facility (term loan and/or working capital) extended by eligible lending institutions including Non-Banking Financial Company (NBFC) to new and existing micro and small enterprises up to Rs. 200 lakh per borrowing unit.
Credit Linked Capital Subsidy Scheme (CLCSS)(c) aims at facilitating technology upgradation of the MSME sector.
The Government has also initiated the (d) Pradhan Mantri Mudra Yojana for development and refinancing activities relating to micro industrial units. The purpose of Micro Units Development and Refinance Agency (MUDRA) is to provide funding tothe non-corporate small business sector. The Government has also set up the MUDRA Bank.
Textiles and Apparels5.
The Textiles and Apparels sector has tremendous potential for growth in exports !
and employment, particularly, women’s employment. The sector witnesses a historic opportunity with China losing market share in clothing exports due to rising labour costs. However, India has not been able to leverage this opportunity due to India’s competitors (i.e. Bangladesh, Vietnam, Ethiopia) having duty free access to markets of EU and USA; high domestic taxes on manmade fabrics vis a vis cotton fabrics; stringent labour laws; and high logistics cost.
To address some of these constraints, the Cabinet announced a Rs. 6000 crore package !
for the apparel sector.
The Government has in December 2017 approved the Scheme for Capacity Building in !
Textile Sector (SCBTS). The scheme will be applicable from 2017-2018 to 2019-2020 with an outlay of Rs. 1,300 crore.
Leather sector 6.
The global demand for footwear is moving towards non leather footwear, while Indian !
tax policies favour leather footwear production. India also faces high customs tariffs in a number of developed country markets of leather goods and non-leather footwear.
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A scheme for promotion of employment in the leather & footwear sector has been recently !
approved similar to that of the textile sector, with an outlay of Rs.2600 crore over three financial years 2017-18 to 2019-2020.
Gems and Jewellery7. India is one of the largest exporters of gems and jewellery. The industry is found to play a !
vital role in the contribution to total foreign reserves of the country. It is one of the fastest growing sectors and is export oriented and labour intensive. As per the 68th round of NSSO Survey, the sector employed 20.8 lakh persons in 2011-12.In view of the tremendous scope in gems and jewellery sector, following programs may be !
taken up for promoting employment.Public Private Partnership models could be explored for training in jewellery designing.
The jewellery training institutes may be affiliated with the Gems and Jewellery Sector Skill Council.Setting up infrastructure such as refineries, hallmarking centers etc., to promote jewellery
manufacturing in rural areas.Creation of multiple jewellery parks (accommodating manufacturers, shared services,
testing, banking, and logistic support) so as to promote production in a more organized environment.
InfrastructureDATA RELATED TO INFRASTRUCTURE
Around US$ 4.5 trillion worth of investments is required by India till 2040 for developing !
infrastructure to improve economic growth and community wellbeing.The current trend shows that India can meet around US$ 3.9 trillion infrastructure investment out !
of US$ 4.5 trillion. The cumulative figure for India’s infrastructure investment gap would be around US$ 526 billion by 2040.
4. Enlist the sector wise issues and initiatives in infrastructure sector, as mentioned in economic survey 2017-18.
SECTOR WISE ISSUES AND INITIATIVES
Road sector1.
Road transport is the dominant mode of transport in India, both in terms of traffic share and in �
terms of contribution to the national economy. Apart from facilitating the movement of goods and passengers, road transport plays a key role in promoting equitable socio-economic development across regions of the country. Easy accessibility, flexibility of operation, door-to-
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door service and reliability have earned road transport a greater significance in both passenger and freight traffic vis-à-vis other modes of transport. India has one of the largest road networks of over 56.17 lakh km comprising National Highways, Expressways, State Highways, Major District Roads, Other District Roads and Village Roads.Stalled Projects and NPAs in Road Sector: Some of the projects under different phases of �
National Highway Development Program are delayed mainly due to problems in land acquisition, utility shifting, and poor performance of contractors, environment / forest/wild life clearances, Road Over Bridge (ROB) & Road Under Bridge (RUB) issue with Railways, public agitations for additional facilities, and arbitration/contractual disputes with contractors etc.Measures taken for revival of stalled projects on NHs: The Ministry of Road Transport & �
Highways and National Highway Authority ofIndia (NHAI) have been monitoring the stalled projects. Wherever physical completion is established, one-time fund infusion by NHAI is being done to revive stalled projects. The funds are being arranged through the common fund available with NHAI for development of roads.Bharatmala Pariyojana �
Bharatmala Pariyojana is a new umbrella program for the highways sector that focuses on optimizing efficiency of freight and passenger movement across the country by bridging critical infrastructure gaps through effective interventions like development of Economic Corridors, Inter Corridors and Feeder Routes, National Corridor Efficiency Improvement, Border and International connectivity roads, Coastal and Port connectivity roads and Green-field expressways.
Railways Sector2. The share of Indian Railways in freight movement has been declining over a period of time �
primarily due to non-competitive tariff structure. While the passenger fare had remained more or less flat, the freight fare has increased sharply over the year.To make rail transportation attractive and arrest the declining trend of rail share, various �
initiatives were taken in 2016-17, which includes tariff rationalization, classification of new commodities, new policy guideline forstation to station rates, expansion of freight basket through containerization, withdrawal of dual freight policy for export of iron ore, rationalization of coal tariff, policy guidelines of Merry Go Round System, discount for loading of bagged consignment in open and fat wagons, new delivery models like Roll-on Roll-off services, re-introduction of short lead concession and reduction in minimum distance for charge, digital payment for freight business, Long Term Tariff Contract Policy (which provides tariff stability and attractive rebate in freight to customers), and Liberalised Automatic Freight Rebate scheme for traffic loaded in empty flow directions etc.
Civil Aviation3. India is the 3 �
rd largest and the fastest growing domestic aviation market in the world in terms of number of domestic tickets sold.Recent Initiatives taken for the growth of the Civil Aviation sector are as follows: �
Regional Connectivity Scheme – ‘Ude Desh ka Aam Naagrik’ (RCS-UDAN): (a) To make flying accessible and affordable for the masses in the regionally important cities, the RCS-UDAN scheme was launched in October 2016. This is a first-of-its-kind scheme globally to stimulate regional connectivity through a market based mechanism.Airport Development: (b) Provision of Rs. 4,500 crore for revival of 50 unserved and underserved airports/air strips has been taken up with budgetary support of Government to be completed by December 2018. Revival of airstrips/airports will be ‘demand driven’, depending upon firm commitment from airline operators as well as from the State Governments.
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Shipping4. Shipping is an important indicator of commodity trade of any country. Around � 95 per cent of India’s trade by volume and 68 per cent in terms of value are transported by sea.Government has taken following initiatives to improve the performance of Major Ports: �
Major Ports have been benchmarked to international standards and 116 initiatives were !
identified of which 86 initiatives have been implemented and remaining will be implemented by 2019.Major Ports Authorities Bill, 2016 (to replace Major Ports Trust Act, 1963) to modernise the !
institutional structure of Major Ports has been introduced in the Parliament.Radio Frequency Identification System (RFID) to reduce dwells time, transaction time and !
ease congestion has been operationalized in 9 Major Ports. The remaining Major Ports are in the process of operationalising RFID.
Sagarmala programme
The Sagarmala programme is the flagship programme of the Ministry of Shipping to promote port-led development in the country through harnessing India’s 7,500 km long coastline, 14,500 km of potentially navigable waterways and strategic location on key international maritime trade routes. The main vision of the Sagarmala Programme is to reduce logistics cost for international and domestic trade,with minimal infrastructure investment. Under the Sagarmala Programme, 508 projects at an estimated investment of more than Rs.8 Lakh Crore have been identified for implementation over the next 20 years.
Telecom5. Telecom sector is going through a stress period with growing losses, debt pile, price war,reduced �
revenue and irrational spectrum costs.Government is in the process of formulating the New Telecom Policy, targeted to be released �
in July, 2018, after holding wide range of consultations with various stakeholders. The major themes that new Telecom Policy shall try to address issues including Regulatory & Licensing frameworks impacting the sector, Connectivity for All, Quality of Services, Ease of Doing Business and Absorption of New Technologies including 5G and Internet of Things. Telecom Regulatory Authority of India (TRAI) has also recommended new policy on ‘Net Neutrality’ which prohibits discriminatory tariffs for data services. As per the policy, the service providers should be restricted from entering into any arrangement, agreement, or contract, with any person, natural or legal, that has the effect of discriminatory treatment based on content, sender or receiver, protocols or user equipment.
Power6. There were 18542 un-electrified census villages reported by the states as on 1 �
st April, 2015.In order to enhance power supply in rural areas, � Deen Dayal Upadhyaya Gram Jyoti Yojana was launched in December 2014 to extend financial assistance for capital expenditure by distribution companies (discoms) for strengthening and augmenting distribution infrastructure, including metering, in rural areas. The estimated outlay for the scheme is Rs. 43033 crore. In addition, the approved outlay of Rs. 39275 crore of erstwhile Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) has been carried forward to this scheme. The scheme is being implemented by the States and their discoms with support from Central Government to the tune of 60 per cent in ‘General Category’ States and 85 per cent in ‘Special Category’ States.A new scheme, Saubhagya (Pradhan Mantri Sahaj Bijli Har Ghar Yojana), was launched in �
September 2017 to ensure electrifcation of all remaining willing households in the country in
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The service sector with a share of 55.2 per cent in India’s gross value added continued to be the key driver of India’s economic growth contributing almost 72.5 per cent of gross value added growth in 2017-18. While the growth of this sector in 2017-18 is expected to be at 8.3 per cent, the growth in services exports and net services were robust at 16.2 per cent and 14.6 per cent respectively.
DATA RELATED TO SERVICE SECTORAs per the latest World Trade Organization (WTO) data for the first half of 2017, services export !
growth for the World was 4.3 per cent and robust at 9.9 per cent for India.As per the ! World Investment Report 2017, published by United Nations Conference on Trade and Development (UNCTAD), global FDI flows fell by 2 per cent in 2016, to US $1.75 trillion, amid
Service Sector
rural and urban areas with an outlay of Rs. 16320 crore. The scheme envisages electrification of around 4 crore households that do not have electricity connection by March 2019. For unelectrified households located in remote and inaccessible areas, solar photo voltaic based standalone systems with power packs of 200-300 Watt battery backup are to be provided to allow maximum of 5 LED Lights, one DC fan, one DC power plug along with repairment and maintenance for five years. The prospective beneficiary households would be identified using Socio Economic Caste Census (SECC) 2011.
Petroleum & Natural Gas7. Shortfall in production of natural gas has been attributed to decline of production from old �
and marginal fields, under-performance of wells, delay in getting multiple clearances, land acquisition, Right of Use (RoU) permission issues and resistance from local groups for development projects and unplanned shutdown of wells, processing platforms/plants and pipelines.Some of the important new initiatives taken to transform hydrocarbon sector in India are : �
Complete mapping of sedimentary basins: ! India has 26 sedimentary basins covering an area of 3.14 Million Sq. Km spread over onshore, shallow water and deep water. An area of about 1.502 Million Sq. Km i.e. 48 per cent of total sedimentary basin area does not have adequate geo-scientific data. As a base to launch future Exploration and Production (E&P) activities, appraisal of all un-appraised areas has been approved and would be instrumental in increasing investments in domestic production of oil and gas. The project is being implemented by Oil India Limited (OIL) and Oil and Natural Gas Corporation (ONGC) at an estimated cost of Rs. 2932.99 crore.National Gas Grid: ! Government has envisaged developing an additional 15,000 km long pipeline network to have an ecosystem of National Gas Grid in the country. The Government has approved partial capital grant of Rs.5,176 Crore (40 per cent of the estimated capital cost of Rs. 12,940 Crore) in September 2016 to GAIL for constructing 2650km Jagdishpur-Haldia & Bokaro-Dhamra Pipeline (JHBDPL) natural gas pipeline project, popularly known as Pradhan Mantri Urja Ganga of Eastern India. This project will connect Eastern part of the country with National Gas Grid and will ensure the availability of clean and eco-friendly fuel, Natural Gas, to the industrial, commercial, domestic and transport sectors in the States of Uttar Pradesh, Bihar, Jharkhand, Odisha and WestBengal. These pipeline Projects would support there vival of three Fertilizer Plants namely Gorakhpur (U.P.), Barauni (Bihar) and Sindri (Jharkhand) along the route of these pipeline projects.
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5. ‘The service sector with a share of 55.2 per cent in India’s gross value added continued to be the key driver of India’s economic growth”. In this context, throw some light on performance of service sector and policies with respect to it.
The growth of services sector in 2017-18 is expected to be high . The Government has taken many initiatives in the different services which include digitization, e-visas, infrastructure status to Logistics, Start-up India, schemes for the housing sector, etc. which could give a further fillip to this sector.
SECTOR WISE PERFORMANCE AND SOME RECENT POLICIESTourism1.
In India, the Tourism sector has been performing well with Foreign Tourist Arrivals (FTAs) �
growing at 9.7 per cent to 8.8 million and Foreign Exchange Earnings (FEEs) at 8.8 per cent to US$ 22.9 billion in 2016.
Various initiatives have been taken by the Government to promote tourism. Recent measures �
include the introduction of the e-Visa facility under three categories of Tourist, Medical and Business for the citizens of 163 countries; launch of Global Media Campaign for 2017-18 on various Channels; launch of ‘The Heritage Trail’ to promote the World Heritage Sites in India, launch of International Media Campaign on various international TV channels; Celebration, of ‘Paryatan Parv’ having 3 components namely ‘Dekho Apna Desh’ to encourage Indians to visit their own country, ‘Tourism for All’ with tourism events at sites across all states in the country, and ‘Tourism & Governance’ with interactive sessions & workshops with stakeholders on varied themes.
weak economic growth.The service sector accounted for two thirds of global FDI stock in 2015. The share of services in total value of announced Greenfield projects increased to 58.2 per cent in 2016 from 54.1 per cent in the previous year.FDI: The share of services 65.8 per cent of FDI equity inflows during 2017-18. !
FDI equity inflows to the services sector(top 10 sectors including construction) declined by 0.9 !
per cent to US$ 26.4 billion, though the overall FDI equity inflows grew by 8.7 per cent. However, during 2017-18 (April-October), the FDI equity inflows to these services sector grew by 15.0 per cent, as compared to 0.8 per cent growth in total FDI equity inflows, mainly due to higher FDI in two sectors i.e. Telecommunications and Computer Software and Hardware.India’s Services Trade: India remained the eighth largest exporter of commercial services in the !
world in 2016 with a share of 3.4 per cent, which is double the share of India’s merchandise exports in the world at 1.7 percent. Moreover, the ratio of services exports to merchandise exports increased from 35.8 per cent in 2000-01 to 58.2 per cent.Services exports recorded a robust growth of 16.2 per cent during April-September 2017-18, with !
a turnaround in some major sectors like travel and software services.India’s services imports exhibited growth of 17.4 per cent in April-September 2017-18 as payments !
on transport sector increased by 15.0 per cent. Among the other major services import, travel grew by 12.0 per cent and business services by 11.3 per cent.
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IT –BPM Services2. India’s Information Technology - Business Process Management (IT-BPM) industry grew by 8.1 �
per cent in 2016-17 to US$ 139.9 billion (excluding e-commerce and hardware) from US$ 129.4 billion in 2015-16, as per NASSCOM data.The share of ICT in total services exports for India declined marginally during the decade (2006- �
2016), while the ICT share in total services exports has increased in economies like China, Brazil, Russia, Philippines, Israel and Ukraine indicating increasing competition for India from these countries.To further promote this sector, many initiatives have been taken. These include the establishment �
of BPO Promotion and Common Services Centres, preparing the draft open data protection policy law; besides long-term initiatives like Digital India, Make in India, Smart Cities, e-Governance, push for digital talent through Skill India, drive towards a cashless economy and efforts to kindle innovation through Start-up India.
Real Estate and Housing3. The share of real estate sector which includes ownership of dwellings accounted for 7.7 per �
cent in India’s overall GVA in 2015-16.The growth of the construction sector which includes buildings, dams, roads, bridges, etc. has �
decelerated to 1.7 per cent in 2016-17 from 5.0 per cent in 2015-16.FDI into construction development sector declined to US$ 107 million in 2016. The reason for �
the substantial and continuous decline in FDI investments in this sector over the past five years was that the offshore investors have been deploying majority of their funds through debt or structured debt route. This protects their investments by providing certain fixed returns on the debt provided to developers and at the same time reduces the risk of investments.Real estate and construction together, is the second largest employment provider in the �
country, next only to agriculture. It employed over 40 million workforce in 2013, and as per projections is slated to employ over 52 million workforce by 2017, and 67 million workforce by 2022. This implies that it will generate over 15 million jobs over the next five years, which will translate to about three million jobs annually.Some of the recent reforms and policies related to Real Estate sector include the Pradhan �
Mantri Awas Yojana (PMAY) with the government sanctioning over 3.1 million houses for the affordable housing segment in urban regions till November 2017. Of this, about 1.6 million houses have been grounded and are at various stages of construction, and about 0.4 million houses have been built under the mission.
Research and Development4. According to the Global Competitiveness Report 2017-18, India’s capacity for innovation has �
been lower than that of many countries like the USA, the UK, South Korea, but better than China. In terms of University– Industry collaboration on R&D, India ranks better than all other BRICS countries and in terms of availability of scientists and engineers, it ranks better than other BRICS countries except China. However, in terms of patents applications per million population, India significantly lags behind other BRICS countries and in terms of company spending on R&D, India ranks marginally below China.The government has taken many initiatives to promote the R&D sector in India, which include �
among others establishing the Atal Innovation Mission (AIM) in the National Institution for Transforming India (NITI) Aayog. Some other initiatives related to R&D include the following.
The agreement between India and Israel in 2016 to enhance bilateral cooperation in (a) science and technology provides US$ 1 million from each side in the next two years to support new R&D projects in the areas of big data analytics in healthcare and cyber security.
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The Ministry of Environment, Forest and Climate Change (MoEFCC) has announced (b) an R&D initiative to develop next generation sustainable refrigerant technologies as alternatives to the currently used refrigerant gases like hydrofluorocarbons (HFCs), in order to mitigate its impact on the ozone layer and climate.
Space Services5. Indian Space Programme contributes to national development, through the application of �
space technology, comprising communication, navigation and earth observation to address issues related to societal development and strategic requirements. Satellite based mapping and launching services are the two areas in which India is making a mark and has huge potential for the future.
Conclusion
The growth of India’s services sector is expected to improve in 2017-18. The prospects look bright with good performance of sub sectors like Tourism, Aviation, and Telecom. The downward risk, however, lies in the external environment for software and business services.
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Sustainable Development
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Sustainable Development, Energy & Climate Change
Introduction
The � UN Sustainable Development Goals (SDGs) adopted by the international community in September 2015 comprehensively cover social, economic and environmental dimensions and build on the Millennium Development Goals (MDGs). The � SDG 11 states “make cities inclusive, safe, resilient and sustainable”. India is now embarking on a fast rural to urban transition. The need of the hour is the provision of public services by the cities to its residents. However, raising resources of the magnitude that is required for a sustainable urban transformation is going to be a daunting challenge.Domestically, India has launched various policies and set up institutional mechanisms to �
advance its climate actions. Government of India is implementing the National Action Plan on Climate Change (NAPCC), which includes eight national missions covering solar, energy efficiency, agriculture, water, sustainable habitat, forestry, Himalayan eco system and knowledge, apart from various other initiatives. These actions reflect its commitment to address climate change.
1. “SDGs are more comprehensive than MDGs in design and implementation.” Discuss. What are the challenges in their implementation at national level?
The United Nations General Assembly (UNGA) in its 17th session in September, 2015, has announced a set of 17 SDGs and 169 targets which will stimulate action over the next 15 years. SDGs comprehensively cover social, economic and environmental dimensions and build on the Millennium Development Goals (MDGs). SDGs cover the following broad themes:
Ending poverty and hunger. �
Improving health and education. �
Making cities more sustainable. �
Combating climate change and protecting oceans and forests. �
The agenda highlights poverty eradication, combating inequalities, promoting gender equality and the empowerment of women and girls as the ambient goals and has at its core the integration of the economic, social and environmental dimensions of sustainable development. This also calls for an invigorated global partnership for sustainable development, including multi-stakeholder partnerships, in addition to enhancing capacities of stakeholders in better quality measurement and compilation of data or information on sustainable development. One of the core elements of the
1Chapter
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Development.” Discuss. What are the key challenges in making Indian cities more sustainable?
Key StatisticsAccording to the UN World Cities Report 2016, by 2030, India is expected to be home to � seven mega-cities with population above 10 million. According to Census 2011, � 377.1 million Indians comprising 31.16 per cent of the country’s population live in urban areas. India’s urban population is projected to grow to about 600 million by 2031. �
The SDG 11 states: “make cities inclusive, safe, resilient and sustainable”. India is now embarking on a fast rural to urban transition. As cities are the centres of economic activities, how cities deliver on a number of basic services will determine the path and progress of sustainable development. Achieving the sustainability of cities entails integration of four pillars –
Social development, �
Economic development, �
Environmental management, and �
Effective urban governance. �
Many Indian cities are now struggling with multiple problems of poverty, inadequate provision of urban services, congestion, air pollution, sizeable slum population, lack of safety measures, and challenges in terms of garbage removal, sewage system, sanitation, affordable housing, and public transport. Government of India has undertaken several measures to improve sustainability of cities, which include the Smart Cities Mission, AMRUT, HRIDAY, Housing for All, National Urban Housing & Habitat Policy (2007), Swachh Bharat Mission (Urban), and management of Municipal Solid Waste (MSW) etc.According to the High Powered Expert Committee appointed by the Ministry of Housing and Urban Affairs, about Rs. 39 lakh crore (at 2009- 10 prices) was required for creation of urban infrastructure over the next 20 years. Raising resources of this magnitude is going to be a daunting challenge. Besides the average cost recovery is less than 50 per cent in most of the Urban Local Bodies (ULBs).
outcome document of the SDGs is an effective follow-up and review architecture which is crucial for supporting the implementation of the new agenda. In comparison to the MDGs, the SDGs have very comprehensive targets and finding indicators for each of the 169 targets will be a challenge. Moreover, financing and adequate monitoring mechanisms will pose other major challenges. Taking leads from its progress on the MDGs, India will have to prioritize its SDGs, as it will be difficult to target each goal.National SDG indicators are being developed by Ministry of Statistics & Programme Implementation with inputs from Central Ministries and various other stakeholders and are now at an advanced stage of finalization. Going forward, a monitoring and reporting system will be set up to regularly take stock of the implementation process and generate credible information and evidence on progress on SDG agenda. The National Institution for Transforming India (NITI) Aayog’s role will be to collect, validate, and document best practices in implementation of SDGs for wider dissemination.
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The way forward is to encourage the ULBs to raise resources through various innovative financial instruments such as municipal bonds, PPPs, credit risk guarantees, etc. Example of one such instrument that has been experimented in India worth highlighting is that of municipal bonds. However, the ULBs and the state governments have to bring operational efficiency and financial viability in urban projects.
3. “International solar alliance not only brings together solar rich countries but also provide an opportunity to Indian manufacturing”. Critically analyse the statement?
ISA is a coalition of solar resource rich countries lying fully or partially between the Tropics of Cancer and Capricorn. Vision and mission of the International Solar Alliance is to provide a dedicated platform for cooperation among solar resource rich countries where the global community, including bilateral and multilateral organizations, corporates, industry, and other stakeholders, can make a positive contribution to assist and help in achieving the common goals of increasing the use of solar energy in meeting energy needs of prospective ISA member countries in a safe, convenient, affordable, equitable and sustainable manner. The Paris Declaration establishing ISA states that the countries share the collective ambition to undertake innovative and concerted efforts for reducing the cost of finance and cost of technology for immediate deployment of solar generation assets. This will help pave the way for future solar generation, storage and good technologies for each prospective member country’s individual needs by mobilizing more than US $1 trillion dollars in investments that will be required by 2030.Government of India has made a provision of Rs. 100 crore as one-time fund for ISA Fund corpus. The Government of India has earmarked around US $2 billion Line of Credit (LoC) to the African countries for implementation of solar and related projects out of its total US $10 billion LoC under the Indian Development and Economic Assistance Scheme.ISA is a trillion-dollar opportunity in solar. Economy and industry in turn can benefit from the business opportunities available across 121 ISA member countries. India has already included Renewables sectors including Solar Photo voltaic as one of the champion sectors within Make in India Agenda. ISA countries could provide a big market to Indian industries. This is important because post Global Financial Crisis , India’s exports to western economies have gone down and ISA countries are mostly developing countries in Asia, Africa and Latin America which could provide alternate market for export diversification.
In recent years, the National Capital Delhi and adjoining areas have experienced alarmingly poor air quality starting winters. In fact, a number of reasons cause the massive spike in suspended particulate matter (PM 2.5, being the most dangerous) during winter in this part. The reasons are:
Crop residue, biomass burning - The farmers mainly from Northern India set their
Air Pollution in Northern India-Possible Solutions
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4. Critically analyze the impact of Climate change on Indian sub-continent. Discuss adaption and mitigation measures taken in this regard at national level?
The direct impact of climate change on Indian subcontinent is through two channels:Increase variability in temperature and rainfall. �
Increase in incidence of extreme weather events like drought, flood etc. �
This has serious implication for India’s agriculture based economy with 50% of its population dependent on it. The Global Climate Risk Index 2018 has put India amongst the six most vulnerable countries in the world. Given that a sizeable population under poverty live in areas prone to climatic shifts and in occupations that are highly climate-sensitive, future climate change could have significant implications for living standards. In this context, it is no surprise that India takes the challenge of climate change seriously. India has always engaged constructively at the multilateral level under the United Nations Framework Convention on Climate Change (UNFCCC) and India is now actively engaged in the efforts towards developing guidelines for effective implementation of the Paris Agreement on Climate Change.
paddy fields on fire after harvesting. The resultant smoke, however, gets carried by winds all the way to Delhi and beyond, adding to the existing suspended particulate matter (SPM) and noxious substances.
Vehicular emissions and redistributed road dust from trucks, buses, cars, three-wheelers and two-wheelers.
Massive construction, power plants, industry, and other activities.
Winter temperature inversion, humidity and (absence of) wind - Falling air temperature and inversion that locks particulates near the ground, compounded by relative absence of wind.
Possible Solutions
Short-Term Emergency Plan (when 24-hourly PM2.5 exceeds 300-400 mg/m3): Strict enforcement through heavy penalties on agricultural waste burning using satellite based tools detecting fires, and mobile based applications in NCR; and incentive payments to farmers, coordinated across states and NCR.
Medium and Long-Range Actions: Implement congestion pricing for vehicles, expand and improve public buses on large scale to reduce private vehicle use, and for connectivity to and beyond metro. Phase-out old vehicles, accelerate BS-VI (already notified and to be commenced from 2020), and expand modernized bus fleets. Use technologies to convert agricultural waste into usable concentrated fodder or bio-fuels, develop and implement business models with private sector and communities and incentivize shift to non-paddy crops. In other words, explore the business cases for finding uses for the crop residues such as manure to reduce fertilizer cost, generate power so that economic values could be assigned.
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India’s INDC: Climate Change Contributions at COP 21
To reduce the ! emissions intensity of its GDP by 33 to 35 per cent of the 2005 level by 2030.
To achieve about ! 40 per cent cumulative electric power installed capacity from non-fossil fuel based energy resources by 2030 with the help of transfer of technology and low cost international finance including from the Green Climate Fund (GCF).
To create ! an additional carbon sink of 2.5 to 3 billion tonnes of CO2 equivalent (CO2 eq.) through additional forest and tree cover by 2030.
To better adapt to climate change by enhancing investments in development !
programmes in sectors vulnerable to climate change, particularly agriculture, water resources, the Himalayan region, coastal regions, health and disaster management.
To mobilize domestic and new and additional funds from developed countries for !
implementing these mitigation and adaptation actions in view of the resources required and the resource gap.
Domestically, India has launched various policies and set up institutional mechanisms to advance its actions. Government of India is implementing the National Action Plan on Climate Change, which includes eight national missions covering solar, energy efficiency, agriculture, water, sustainable habitat, forestry, Himalayan ecosystem and knowledge, apart from various other initiatives. Key initiatives including adaption and mitigation measures are as follow :
As part of the mission on strategic knowledge on climate change, India has established � 8 Global Technology Watch Groups in the areas of Renewable Energy Technology, Advance Coal Technology, Enhanced Energy Efficiency, Green Forest, Sustainable Habitat, Water, Sustainable Agriculture and Manufacturing. 32 States and Union Territories � have put in place the State Action Plans on Climate Change attempting to mainstream climate change concerns in their planning process. Climate Change Action Programme � , launched in 2014 with an objective of building and supporting capacity at central & state levels, strengthening scientific & analytical capacityFor climate change assessment, establishing appropriate institutional framework and �
implementing climate related actions has been extended for the period 2017-18 to 2019-20 with a budget outlay of 132.4 crore. National Adaptation Fund on Climate Change � established in 2015 to support concrete adaptation activities which are not covered under on-going activities through the schemes of State and Central Government, continues till 31st March, 2020, with financial implication of Rs. 364 crore. India is one of the few countries where, despite ongoing development, forest and tree cover �
has increased transforming country’s forests into a net sink owing to national policies aimed at conservation and sustainable management of forests. Pradhan Mantri Krishi Sinchayee Yojana � has been formulated with the vision of extending the coverage of irrigation and improving water use efficiency. In the Union Budget 2017, government indicated to increase the � coverage under the Pradhan Mantri Fasal Bima Yojana (PMFBY) from 30 per cent to 40 per cent in 2017-18 and 50 per cent in 2018-19.
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Climate, Climate Change, & Agriculture
Introduction
Indian agriculture is witnessing the harsher prospects of its vulnerability to long-term climate �
change. The last few seasons have witnessed a problem of plenty: farm revenues declining for a number �
of crops despite increasing production and market prices falling below the Minimum Support Price (MSP). But in the medium to long term, the ghost of Malthus looms over Indian agriculture. Productivity will have to be increased, and price and income volatility reduced, against the backdrop of increasing resource constraints.Shortages of water and land, deterioration in soil quality, and of course climate change-induced �
temperature increases and rainfall variability, are all going to impact agriculture. Thus analysing the impact of climate change on agriculture is must.
1. Why Agriculture sector is still relevant in India and discuss the present performance scenario of it?
Agriculture matters for economic reasons because it still accounts for a substantial part of GDP (16 percent) and employment (49 percent).Poor agricultural performance can lead to inflation, farmer distress and unrest, and larger political and social disaffection—all of which can hold back the economy.The performance of agriculture sector has been dismal. Real agricultural growth since 1960 has averaged about 2.8% in India. Before Green Revolution it was less than 2% and 3% in following period until 2004. In the period after the global agricultural commodity surge, growth increased to 3.6%.China’s annual agricultural growth over the long run has exceeded that of India by a substantial 1.5 percentage points on average. The volatility of agricultural growth in India has declined substantially over time: from a standard deviation of 6.3 percent between 1960 and 2004 to 2.9 percent since 2004. In particular, production of cereals has become more robust to drought. But levels of volatility continue to be high and substantially higher than in China where the ups and downs have been virtually eliminated. An important contributing factor is that agriculture in India even today continues to be vulnerable
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to the vagaries of weather because close to 52 percent (73.2 million hectares area of 141.4 million hectares net sown area) of it is still un-irrigated and rainfed.Thus the growth of agriculture sector has to be doubled for the prosperous development of the nation because Economic development is always and everywhere about getting people out of agriculture and of agriculture becoming over time a less important part of the economy (not in absolute terms but as a share of GDP and employment). The reason why agriculture cannot be the dominant, permanent source of livelihood is its productivity level as it cannot be matched with those in manufacturing and services. That, of course, means that industrialization and urbanization must provide those higher productivity alternatives to agriculture. All good and successful economic and social development is about facilitating this transition in the context of a prosperous agriculture and of rising productivity in agriculture because that will also facilitate good urbanization and rising productivity in other sectors of the economy.
2. Discuss the impact of weather on agricultural productivity?
With significant implications in the context of looming climate changes is that the impact of !
temperature and rainfall is highly non-linear and felt almost only when temperature increases and rainfall shortfalls are extreme.These extreme shocks affects almost twice in un-irrigated areas than irrigated areas. !
Chart shows percentage decline in response to temperature increase and rainfall decrease. !
Extreme Temperature Shocks Extreme Rainfall ShocksAverage Kharif 4.0% 12.8%Kharif, Irrigated 2.7% 6.2%Kharif, Un-irrigated 7.0% 14.7%Average Rabi 4.7% 6.7%Rabi, Irrigated 3.0% 4.1%Rabi, Un-irrigated 7.6% 8.7%
Key finding is that these impacts are significantly more adverse in un-irrigated areas (and hence !
rain-fed crops such as pulses) compared to irrigated areas (and hence crops such as cereals).Temperature increases have been particularly felt in the North-East, Kerala, Tamil Nadu, Kerala, !
Rajasthan and Gujarat. Parts of India, for example, Punjab, Odisha and Uttar Pradesh have been the least affected.Increase in precipitation in Gujarat and Odisha and also Andhra Pradesh. !
CROP IMPACTS:Crops grown in rain-fed area pulses in both kharif and rabi are vulnerable to weather shocks �
while the cereals both rice and wheat are relatively more immune.1°C increase in temperature reduces wheat production by 4 to 5%. �
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In the last decade (2004-2014), the impact of rainfall shocks in yields remains unchanged, but �
the effect of temperature shock increases threefold (relative to the first decade).However, since there is no secular trend in this impact, it cannot be ascertained whether the �
findings for the last decade are a one–off, or the start of a new longrun trend with dramatically adverse consequences for Indian agriculture.
IMPACT ON FARM REVENUE:Extreme temperature shocks reduce farmer incomes by 4.3% and 4.1% whereas extreme rainfall �
shocks reduce incomes by 13.7% and 5.5% during kharif and rabi respectively.In a year where temperatures are 1°C higher farmer incomes would fall by 6.2% during the �
kharif season and 6% during rabi in un-irrigated districts.Similarly, in a year when rainfall levels were 100 mm less than average, farmer incomes would �
fall by 15% during kharif and by 7% during the rabi season.A study by the IMF, finds that for emerging market economies a 1°C increase in temperature �
would reduce agricultural growth by 1.7%, and a 100 mm reduction in rain would reduce growth by 0.35%.Inter-governmental Panel on Climate Change (IPCC), predict that temperatures in India are �
likely to rise by 3-4° C by the end of the 21st century.Models of climate change also predict an increase in the variability of rainfall in the long-run, �
with a simultaneous increase in both the number of dry-days as well as days of very high rainfall.Farmer income losses from climate change could be between 15 % and 18 % on average, rising �
to anywhere between 20 % and 25 % in un-irrigated areas.In the long-run, we may be able to change technologies or alter the crops they grow in response �
to sustained increases in temperature and changes in precipitation. Further it is possible that irrigation networks might expand, mitigating to some extent the adverse impacts of climate change.
Hence the key findings are:A key finding—and one with significant implications as climate change looms—is that the �
impact of temperature and rainfall is felt only in the extreme; that is, when temperatures are much higher, rainfall significantly lower, and the number of “dry days” greater, than normal. A second key finding is that these impacts are significantly more adverse in unirrigated areas �
(and hence rainfed crops such as pulses) compared to irrigated areas (and hence crops such as cereals). Applying IPCC-predicted temperatures and projecting India’s recent trends in precipitation, �
and assuming no policy responses, give rise to estimates for farm income losses of 15 percent to 18 percent on average, rising to 20 percent-25 percent for unirrigated areas. At current levels of farm income, that translates into more than Rs. 3,600 per year for the median farm household.Policy implications and recommendations �
India needs to spread irrigation – and do so against a backdrop of rising water scarcity and �
depleting groundwater resources. In the 1960s, less than 20 % of agriculture was irrigated; today this number is in the mid-40s.The challenge is that the spread of irrigation will have to occur against a backdrop of extreme �
groundwater depletion, especially in North India. India pumps more than twice as much groundwater as China or United States.
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The Indo-Gangetic plain, and parts of Gujarat and Madhya Pradesh are well irrigated. But parts �
of Karnataka, Maharashtra, Madhya Pradesh, Rajasthan, Chattisgarh and Jharkhand are still extremely vulnerable to climate change on account of not being well irrigated.Fully irrigating Indian agriculture, that too against the backdrop of water scarcity and limited �
efficiency in existing irrigation schemes, will be a defining challenge for the future.Technologies of drip irrigation, sprinklers, and water management captured in the “more crop �
for every drop” campaign hold the key future to Indian agriculture.Further the power subsidy needs to be replaced by direct benefit transfers so that power use �
can be fully costed and water conservation furthered.Climate change will increase farmer uncertainty, necessitating effective insurance. Building on �
the current crop insurance program (Pradhan Mantri Fasal Bima Yojana), weather-based models and technology (drones for example) need to be used to determine losses and compensate farmers within weeks (Kenya does it in a few days).According to Subramanianit is vital to make a clear distinction between two agricultures in �
India:The well-irrigated, input-addled, and price & procurement supported cereals grown in !
Northern India. Were the challenge is for policy to change the form of the very generous support from prices and subsidies to less damaging support in the form of direct benefit transfers.Another agriculture (broadly, non-cereals in central, western and southern India) where the !
problems are very different: inadequate irrigation, continued rain dependence, ineffective procurement, and insufficient investments in research and technology (non-cereals such as pulses, soyabeans, and cotton), high market barriers and weak post-harvest infrastructure (fruits and vegetables), and challenging non-economic policy (livestock).
The cooperative federalism “technology” of the GST Council that brings together the Center and !
States could be promisingly deployed to further agricultural reforms and durably raise farmers’ incomes.
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Social Development
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Social Infrastructure, Employment & Human
Development
Introduction
Investment in human capital like education and health are the key ingredients for economic development. Much of the impoverishment in India today can be addressed by enhancing human capital by investing in nutrition, health, education, and by providing appropriate skills for employment. Though India’s social policies have focussed on the welfare of the people and also human development, challenges remain in overcoming social and economic barriers to advance the capabilities of the marginalised, women, and other weaker sections of the society. The Government has been enhancing the expenditure on human capital along with adopting measures to improve the efficiency of expenditure by convergence of schemes. Several labour reform measures including legislative ones, are being implemented for creation of employment opportunities and for providing sustainable livelihoods for the population who are largely engaged in the informal economy. With India poised for higher growth anchored on a knowledge economy, there are benefits to be reaped by investing in human capital.
1. Discuss the trends in social sector expenditure of India. Is India an outlier in Social sector expenditure vis-a-vis world? Which steps have been taken in recent times to ensure higher social sector outcomes?
Public investment in social infrastructure like education and health is critical in the development of an economy. However, the expenditure on social services by the Centre and States as a proportion of GDP has remained in the range of 6 per cent during 2012-13 to 2017-18.
Trends in Social Services Expenditure by the Government (Centre and States), As percentage to GDP)
Items 2012-13 2013-14 2014-15 2015-16 2016-17 RE 2017-18 BETotal Expenditure 27.1 26.7 26.4 24.7 26.7 26.4Expenditure on Social Services 6.6 6.6 6.2 5.8 6.5 6.6i) Education 3.1 3.1 2.8 2.4 2.6 2.7ii) Health 1.3 1.2 1.2 1.1 1.5 1.4iii) Others 2.2 2.3 2.1 2.2 2.4 2.6
R.E. - Revenue Estimates, B. E. - Budget Estimates
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2. Critically assess the effectiveness and inclusiveness of the schooling system in India. Discuss some of the indicators in this regard.
However, the expenditure on social sector, Health and Education, is significantly less than world average. (Table 2.)
Expenditure as a % of GDPYear Education Health2014 India World (average) India World (average)
2.8 4.8 1.2 6.2
Source: Economic Survey, World Bank, WHONonetheless, government is making effort to steadily increase expenditure on social sectors. Following announcement have been made in the budget to enhance public expenditure on social sector.
Government’s estimated schematic � budgetary expenditure on health, education and social protection for 2018-19 is Rs. 1.38 lakh crore in BE 2017-18.The � focus would be on improving learning outcome in school education. Learning outcomes have been defined and a National Survey of more than 20 lakh children has been conducted to assess the status on the ground. This will help in devising a district-wise strategy for improving quality of education.The budget proposed to increase the digital intensity in education and move gradually from �
‘‘black board’’ to ‘‘digital board’’. Technology will also be used to upgrade the skills of teachers through the recently launched digital portal ‘‘DIKSHA’’.Every block with more than � 50% ST population and at least 20,000 tribal persons, will have an Ekalavya Model Residential School which would provide best quality education to the tribal children in their own environment. Two major initiatives as part of ‘‘Ayushman Bharat’’ � programme shall be launched which aimed at making path breaking interventions to address health holistically, in primary, secondary and tertiary care system covering both prevention and health promotion. 1.5 lakhs Health and Wellness Centres would be set up as the foundation of India’s health system. Government also announced a flagship National Health Protection Scheme to cover over 10 crore poor and vulnerable families (approximately 50 crore beneficiaries) providing coverage upto 5 lakh rupees per family per year for secondary and tertiary care hospitalization. This will be the world’s largest government funded health care programme.
A higher public investment in the social sector, including education and health, is critical for India, but being a developing economy “there is not enough fiscal space” to increase the expenditure. Hence, there is a need to increase tax revenues to inject resources into Social sector.
Sustainable Development Goal (SDG-4) for education states that “Ensure inclusive and quality education for all and promote lifelong learning”, the goal has to be achived by the year 2030. With a view to achieve the goal of universalization of elementary education, the Right to Free & Compulsory Education (RTE) Act, 2009 had been enacted in 2010 that provides a justiciable legal
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framework entitling all children between the ages of 6-14 years free and compulsory admission, attendance and completion of elementary education.India has made significant progress in quantitative indicators such as enrolment levels, completion rates and other physical infrastructure like construction of school buildings/class rooms, drinking water facilities, toilet facilities and appointment of teachers etc. at elementary school level. However, the quality of education also needs to be monitored and assessed. Towards improving the learning outcomes at elementary school level, Central Rules under the RTE Act have been amended in February, 2017 to include the defined class-wise, subject-wise learning outcomes.The RTE Act, 2009 lays down the guidelines for maintaining the norms and standards relating inter alia to Pupil Teacher Ratios (PTRs), buildings and infrastructure, school-working days, teacher-working hours in both primary and upper primary schools. The impact of PTR on learning achievement is widely discussed with some studies claiming that school participation and grade attainment are positively influenced by Student Classroom Ratio (SCR) and PTR. In this context, following are the achievement so far:
SCR is defined as average number of pupils (students) per classroom in a school in a �
given school-year. The ideal size should be at 30 students per classroom. At all India level, percentage of schools with SCR greater than 30 students declined from 43 per cent in 2009-10 to 25.7 per cent in 2015-16. Though, SCR improved in almost all of the States, there are variations in the improvement across States.PTR is defined as Pupil Teacher Ratio. � Data from the UNESCO Institute of Statistics on PTR in primary schools shows that India has a national PTR comparable to countries with similar socio- economic indicators.Gender Parity Index (GPI) in education is a valuable indicator which reflects the �
discrimination against girls in access to educational opportunities. In higher education, gender disparities still prevail in enrolment for which continuous efforts are being made by the Government to improve net intake rate for women in higher education. With consistent efforts by the Government through programmes like Beti Padhao, Beti Bachao, the GPI has improved substantially at the primary and secondary levels of enrolment.
Significant efforts have been made to improve effectiveness and inclusiveness of school education in India. However, improving quality of learning outcomes is still a challenge. In this context, more resources need to be channelled into training and improving capacity of teachers and increasing digital intensity of learning.
3. Critically analyze the importance of labour reforms in unleashing the true potential of Indian economy. Give an account of policy initiatives in this regard?
One of the long-pending reforms to unleash the Indian economy for labour-intensive manufacturing is rationalising the plethora of labour laws applicable to the organised sector, which are perceived as biased against employers, affecting investment in the sector. In fact, some of the punitive clauses of labour laws, such as compulsory and prior government approval in the case of layoffs for firms employing 10 or more persons (Industrial Disputes Act, 1947), consent of the employees to change the nature of the job (Contract Labour-Regulation and Abolition-Act, 1970), allowing
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outsiders to become office bearers of trade unions (Trade Union Act, 1926) etc, hamper labour-intensive manufacturing, adopting new techniques of production and cordial industrial relations. The Government is in the process of rationalizing 38 Central Labour Acts by framing relevant provisions of existing laws into 4 labour codes viz Code on Wages, Code on Safety and Working Conditions, Code on Industrial Relations, and Code on Social Security and Welfare. The codification of the labour laws is expected to remove the multiplicity of definitions and authorities leading to ease of compliance without compromising wage security and social security to the workers.Further, government has undertaken numerous technology enabled transformative initiatives such as Shram Suvidha Portal, Ease of Compliance to maintain registers under various Labour Laws/Rules. The Universal Account Number have been devised in order to reduce the complexity in compliance and to bring transparency and accountability for better enforcement of the labour laws. Further, the Government initiated the National Career Service Portal (www.ncs.gov.in) by linking all employment exchanges of the country to facilitate online registration and posting of jobs for job-seekers and to provide employment related services like career counselling, vocational guidance, information on skill development courses and internships. Further, the Employee’s State Insurance (ESI), Act has been extended to all 325 complete districts as well as 93 district headquarters area. The scheme is also partially available in centers in 85 districts. Arrangements are being made for further extension of the scheme across the country by 2022.The above mentioned initiatives are steps towards realizing the dream of “Make in India” and thus making a global hub of manufacturing. Secondly, labour reforms are necessary for providing formal sector jobs to ever increasing labour force due to demographic dividend. However, pace of implementing these reforms need to be expedited.
Gender Gap in Labour Force Participation Rate and Earnings: Global Comparison
The lower participation of women in economic activities adversely affects the growth potential of the economy. The Government has been taking measures to increase the participation of women in productive economic activities by schemes to provide support services to working women and also through legislative measures to enhance maternity benefits.
Women workers are the most disadvantaged in the labour market as they constitute a very high proportion among the low skilled informal worker category, and are engaged in low-productivity and low paying work. Owing to this, women earn very low wages, mostly piece rates in highly insecure jobs. India had the largest gender gap in median earnings of full time employees in 2015, as can be seen in Figure 1, in comparison to countries like South Africa, Brazil, and Chile.
For economic empowerment of women through promoting the spirit of creating self-employment ventures, Mahila E-Haat, an initiative for meeting aspirations and needs of women entrepreneurs has been launched with the objective to provide an e-marketing platform by leveraging technology for showcasing product made/manufactured/sold by women entrepreneurs/SHGs/NGOs.
LatviaChileisraelBrazilJapan
EstoniaIndonasia
South KoreaSouth Africa
India
Figure 6: Gender Gap in Median Earnings for full time Employees 2015 (per cent)
Source: The Pursuit of Gender Enquity: An Uphill Battle, OECD 2017
0.0 20.0 40.0 60.0
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4. Increase in Out of Pocket Expenditure in case of health is a concern and a challenge. Do you agree? In this context, enumerate the policy initiatives to address the issue?
Ensuring healthy lives and promoting the well-being for all at all ages is essential to sustainable development (SDG-3). India’s commitment to achieve the targets under SDG-3 with some of them also aligned with the National Health Policy 2017, will help in strengthening health delivery systems and in achieving universal health coverage.Figure 2 shows that expenditure by the Government healthcare providers accounted for about 23 percent of the Current Health Expenditure (CHE) as per National Health Accounts, 2014-15, that reflects the prominence of private hospitals and clinics among health care providers. In a developing country like India, incurring higher levels of Out of Pocket Expenditure (OoPE) on health adversely impacts the poorer sections and widens inequalities.Limited affordability and access to quality medical services are among the major challenges contributing to delayed or inappropriate responses to disease control and patient management. The findings of Household Health Expenditure Survey in India indicate that about 10 per cent of out of pocket expenses on health were spent by households on diagnostics (including medicines and diagnostic test).There is a need to prioritize standardization of rates by devising appropriate quality assurance framework and regulatory mechanism. Though, the Government has already enacted Clinical Establishments (Registration and Regulation) Act, 2010 and notified the Clinical Establishments (Central Government) Rules, 2012 to regulate the clinical establishments across the country, presently, the Act is applicable in 10 States/UTs, which needs to be taken up by remaining States while ensuring strict compliance as well. The steps taken by the Government to regulate prices of Drugs and Diagnostics are as follow:
Under National Health Mission (NHM), � Government is supporting States through National Free Diagnostic Service Initiative to provide essential diagnostic services in public health facilities.National Free Drug Initiative � under NHM aims at expanding the availability of free drug provision in all public health facilities.Medical Council of India (MCI) � has amended the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, which stipulates that ‘every physician should prescribe drugs with generic names.
Figure 2. Expenditure on Healthcare
GovernmentPrivatePharmaciesOthers
Source: National Health Accounts, Estimates for India, M/o H& FW
28.9
16.7 23.1
31.3
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5. Give an account of changing burden of diseases in India. Discuss the role of Swachh Bharat Mission in improving health outcomes.
The report � ‘India: Health of the Nation’s States’, 2017, provides the first comprehensive set of findings for the distribution of diseases and risk factors across all States from 1990 to 2016. The concept of Disability Adjusted Life Years (DALYs) provides a framework for analyzing the disease burden and risk factors. DALYs is the sum of years of potential life lost due to premature mortality and the years of productive life lost due to disability. One DALY represents the loss of the equivalent of one year of full health. Using DALYs, the burden of diseases that cause premature death but little disability can be compared to that of diseases that do not cause death but do cause disability.Few trends which emerge from the report are as follow (Fig 3.): �
There has been significant improvement in the health status of the individual as ! Life Expectancy at Birth (LEB) has increased by approximately 10 years during the period 1990 to 2015.The ! per person disease burden measured as DALYs rate dropped by 36 per cent from 1990 to 2016 in India, after adjusting for the changes in the population age structure during this period. Of the total disease burden in India measured as DALYs, 61 per cent was due to communicable, maternal, neonatal, and nutritional diseases (CMNNDs) in 1990, which dropped to 33 per cent in 2016.In 2016, malnutrition still remains the ! most important risk factor (14.6 percent) that results in disease burden in the country though the disease burden due to it has dropped in India substantially since 1990. Neonatal disorders and nutritional deficiencies as well as diarrhoea, lower respiratory infections, and other common infections are manifestation of maternal and child malnutrition.
Malnutrition
WaSH
Air Pollution
Dietary Risks
Tobacoo Use
High Blood Pressure
Others
Malnutrition
Air Pollution
Dietary Risks
High Blood Pressure
High fasting plasama glucose
Tobacoo Use
Others
Fig 3. Change in DALYs number and rate attributable to risk factors in India (per cent)
The � contribution of air pollution to disease burden remained high in India between 1990 (11.1 per cent) and 2016 (9.8 per cent), with the levels of exposure remaining among the highest in the world.The behavioural and metabolic risk factors associated with the rising burden of Non �
Communicable Diseases (NCDs) have become quite prominent in India. In 2016, the dietary risks, which include diets low in fruit, vegetables, and whole grains, but high in salt and fat, were India’s third leading risk factor, followed closely by high blood pressure and high blood sugar.
11.5
2214.6
9.8
8.98.5
6.0
5.9
1990 2016
12.8
35.5
11.1
4.5
4.4
3.9
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Unsafe Water, Sanitation, and Handwashing (WaSH) was the second leading risk factor in 1990, but its ranking has dropped to seventh position in 2016. Around 5 per cent of health loss is still attributable to this factor which is being addressed successfully by the government through the Swachh Bharat Mission (SBM).
The efficiency in the use of resources along with measures for preventive and curative health care is necessary to translate enhanced expenditure into improved health outcomes. Moreover, the health of the population is closely related to the quality of life indicators like access to sanitation, safe drinking water and the like which can decrease the disease burden of the population. Therefore, focus of the Government on improving access to sanitation through Swachh Bharat Mission (SBM) gains special significance. So far, 296 districts and 307,349 villages, all over the India, have been declared as Open Defecation Free (ODF). The quality of hygiene and sanitation has significant impact on improving the health outcomes which is a well-established fact. The non-ODF districts have lower percentage of population with secondary education, reflect higher levels of diarrhoea, stunting, wasting and BMI owing to behavioural inertia. However, in ODF areas, with higher percentage of population with secondary education, there has been a clear cut evidence of behavioral shift of the individuals due to larger presence and proactive work undertaken by local bodies. Moreover, a higher proportion of mothers of ODF areas in the ‘normal’ BMI category (62.9 per cent) as compared to that of non-ODF areas (57.50 per cent) shows that not only children but mothers were also healthier in the ODF areas.
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Gender & Son Meta-Preference: Is Development Itself an
Antidote?
Introduction
Over the last 10-15 years, India’s performance on the indicators of women’s agency, attitudes, and outcomes has improved. The improvement has been such that India’s situation is comparable to that of a cohort of countries after accounting for levels of development. However, on several other indicators, notably employment, and use of reversible contraception, and son preference, India has some distance to traverse because development has not proved to be an antidote. Within India, there is significant heterogeneity, as the North-Eastern states (a model for the rest Generally of the country) consistently out-performing others though they are not richer. Generally Hinterland states are lagging behind but the some southern states do less well than what their development levels would suggest. The challenge of gender is long-standing, probably going back millennia, so all stakeholders are collectively responsible for its resolution. India must confront the societal preference, even meta-preference for a son, which appears inoculated to development. The skewed sex ratio in favor of males led to the identification of “missing” women. But there may be a meta-preference manifesting itself in fertility stopping rules contingent on the sex of the last child, which notionally creates “unwanted” girls, estimated at about 21 million.
1. Is India the land of the empowered woman or the helpless, oppressed woman?
As the advanced world grapples with the fallout from the endemic harassment of women, and as the evidence grows about the intrinsic and instrumental value in raising the role and status of women in society, it is time to ask: How is India faring and how much progress has been made?
The assessment has been done on the basis of:
Agency related to Women’s ability to make decisions on reproduction, spending on themselves, �
spending on their households, and their own mobility and health.
Attitudes about violence against women/wives, and the ideal number of daughters preferred �
relative to the ideal number of sons.
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Outcomes related to son preference (measured by sex ratio of last child), female employment, �
choice of contraception, education levels, age at marriage, age at first childbirth, and physical or sexual violence experienced by women.
Findings of the Economic Survey
On � 14 out of 17 indicators relating to agency, attitude, and outcomes, India’s score has improved over time. On seven of them, the improvement is such that in the most recent period India’s performance is better than or at par with that of other countries, accounting for the level of development.
The progress is most notable in the agency women have in decision-making regarding, �
household purchases and visiting family and relatives. There has been a decline in the experience of physical and sexual violence. Education levels of women have improved dramatically but incommensurate with development.
On � 10 of 17 indicators, India has some distance to traverse to catch up with its cohort of countries. For example, women’s employment has declined over chronological time, and to a much greater extent, in development time. Another such area is in the use of female contraception: nearly 47 percent of women do not use any contraception, and of those who do, less than a third use female controlled reversible contraception. These outcomes can be disempowering, especially if they are the consequence of restrictions on reproductive agency.
While there is considerable variation within the Indian states and across dimensions, the broad �
pattern is one of the North-Eastern states doing substantially better than the hinterland states even in development time; hinterland states are lagging, some associated with their level of development and some even beyond that; surprisingly, some southern states such as Andhra Pradesh and Tamil Nadu fare worse than expected given their level of development.
Perhaps the area where Indian society (and this goes beyond governments to civil society, �
communities, and households) needs to reflect on the most is what might be called “son preference” where development is not proving to be an antidote. Son preference giving rise to sex selective abortion and differential survival has led to skewed sex ratios at birth and beyond, leading to estimates of 63 million “missing” women.
But there is another phenomenon of � son meta-preference which involves parents adopting fertility “stopping rules” – having children until the desired number of sons are born. This meta-preference leads naturally to the notional category of “unwanted” girls which is estimated at over 21 million. In some sense, once born, the lives of women are improving but society still appears to want fewer of them to be born.
Collective self-reflection by Indian society on son preference and son meta-preference is �
necessary. Initiatives such as Beti Bachao Beti Padhao and Sukanya Samridhi Yojana and the mandatory maternity leave rules inaugurated by this government are important steps focused on addressing the underlying challenge.
PERFORMANCE OF THE INDIAN STATES
To shed some light on this, the scores of the Indian states across all the dimensions are average. The variables are calibrated such that the maximum score is 100 percent.
Findings:
Most North-Eastern states (with the exception of Tripura and Arunachal Pradesh) and (a) Goa are the best performer.
(b) Kerala is the next best performer.
The lagging performers are Bihar, Rajasthan, Madhya Pradesh, Uttar Pradesh, Jharkhand (c) and, surprisingly, Andhra Pradesh.
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Delhi’s performance actually worsens in a decade.(d) The (e) worst Indian score is 57.6 (Bihar) and the best is 81 (Sikkim) with most of India scoring between 55 and 65 (about 40 per cent away from the frontier). Indian states have some distance to traverse to reach the theoretical frontier.The (f) North-Eastern states have much better gender scores given their levels of income (they are well above their line of best ft). On the other hand, accounting for their levels of income, Andhra Pradesh, Haryana, Bihar and Tamil Nadu perform less well.Since not many women use methods of reversible contraception, they have little control (g) over when they start having children, but only seem to have control over when they stop having children. This could affect other milestones early on in a woman’s life; for example, women may not get the same access to employment that men do.Increased incomes of men allows Indian women to withdraw from the labor force, thereby (h) avoiding the stigma of working; higher education levels of women also allow them to pursue leisure and other non-work activities all of which reduce female labor force participation.The structural transformation of Indian agriculture due to farm mechanization results in (i) a lower demand for female agricultural laborers.
2. Do you think that the huge number of ‘unwanted girls’ (0-25 age group) in the population currently, is a direct outcome of the ‘son meta preference’? What steps are needed to control the menace?
Issues relating to son preference are a matter for Indian society as a whole to reflect upon. !
Because it is a long-standing historical challenge, all stakeholders are collectively responsible for its existence and for its resolution.The biologically determined ! natural sex ratio at birth is 1.05 males for every female. Any significant deviation from this is on account of human intervention – specifically, sex-selective abortion. In the case of China, the one-child policy interacted with the underlying son-preference to worsen the sex ratio from 1070 in 1970 to 1156 in 2014. India’s sex ratio during this period also increased substantially even without the one-child policy from 1060 to 1108 whereas if development acted as an antidote, it should have led to improvements in the sex ratio.Most striking is the performance of ! Punjab and Haryana where the sex ratio (0-6 years) is approaching 1200 males per 1000 females, even though they are amongst the richest states.The stock of missing women as of 2014 was nearly 63 million and more than 2 million women go !
missing across age groups every year (either due to sex selective abortion, disease, neglect, or inadequate nutrition).
Son “meta” preference: Sex Ratio of Last Child (SRLC) and “Unwanted” girlsWhile active sex selection via fetal abortions is widely prevalent, son preference can also manifest !
itself in a subtler form. Parents may choose to keep having children until they get the desired number of sons. This is called son “meta” preference. A son “meta” preference – even though it does not lead to sex-selective abortion – may nevertheless be detrimental to female children because it may lead to fewer resources devoted to them.
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The important thing to note is that this form of sex selection alone will not skew the sex ratio !
– either at birth or overall. Therefore, a different measure is required to detect such a “meta” preference for a son. One indicator that potentially gets at this is the sex ratio of the last child (SRLC). A preference for sons will manifest itself in the SRLC being heavily skewed in favor of boys. On the other hand, an SRLC for households that have strictly more than 1 child is 1.07. Similarly, 0.86 is the sex ratio of the second child among families that had strictly more than 2 children.For India, ! the sex ratio of the last child for first-borns is 1.82, heavily skewed in favor of boys compared with the ideal sex ratio of 1.05. This ratio drops to 1.55 for the second child for families that have exactly two children and so on.
What does data implies?Families where a son is born are more likely to stop having children as compared to families where a girl is born. This is suggestive of parents employing “stopping rules” – having children till a son is born and stopping thereafter. The only exception to this pattern is with regards to the first child. Even parents who have a first-born son are likely to continue having children, which reflects a pure family size preference – Indian parents, on average, want to have at least two children.
Inferences from the data
It shows the patriarchal attitude of our Society - where a boy is preferred over !
a girl.
It also shows that, how lack of education among the masses has created gender !
inequality.
It shows that our country is still lacking modern and liberal thinking when it !
comes to gender.
It shows our country has high gender gap. !
Reasons for Son preferenceThe reasons on for such a son preference, includes patrilocality (women having to move to husbands’ houses after marriage) patrilineality (property passing on to sons rather than daughters) dowry (which leads to extra costs of having girls), old-age support from sons rituals performed by sons.Such meta preference gives rise to “unwanted” girls (girls whose parents wanted a boy, but instead had a girl).
Amartya Sen’s concept of missing women
The term “missing women” indicates a shortfall in the number of women relative to the expected number of women in a region or country. It is most often measured through male-to-female sex ratios, and is theorized to be caused by sex-selective abortions, female infanticide, and inadequate healthcare and nutrition for female children. It is argued that technologies that enable prenatal sex selection, which have been commercially available since the 1970s, are a large impetus for missing female children.
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The phenomenon was first noted by the Indian Nobel Prize–winning economist Amartya Sen in an essay in The New York Review of Books in 1990. Sen originally estimated that more than a hundred million women were “missing.”These effects are concentrated in countries typically in Asia, the Middle East and northern Africa. However, the disparity has also been found in Chinese and Indian immigrant communities in the United States, albeit to a far lesser degree than in Asia. An estimated 2000 Chinese and Indian female unborn children were aborted between 1991 and 2004, and a shortage can be traced back as far as 1980.
Way forward
Encouragingly, gender outcomes exhibit a convergence pattern, improving with wealth to a �
greater extent in India than in similar countries so that even where it is lagging it can expect to catch up over time.As the challenge is historical and longstanding, no one stakeholder is responsible for creating �
it or solving it. On gender, society as a whole (civil society, communities, households) and not just any government must reflect on a societal preference, even meta-preference for a son, which appears inoculated to development. The state and all stakeholders have an important role to play in increasing opportunities �
available for women in education and employment. Understanding the importance of its role, the government has launched the � Beti Bachao Beti Padhao and Sukanya Samridhi Yojana schemes. It has also made 26 weeks maternity leave mandatory for women employed in the public and private sectors. Further, every establishment that has more than 50 employees is now required to offer creche facilities. These steps will offer support to women in the workforce. In this somewhat unequal contest between the irresistible forces of development and the immovable objects that are cultural norms, the former will need all the support it can get – and then some more.
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Reforms Needed
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1Chapter
‘Ease of Doing Business’ Next Frontier: Timely Justice
Introduction
The government’s efforts to make business and commerce easy have been widely acknowledged. Alongwith that next frontier to be gained on the ease of doing business is addressing pendency, delays and backlogs in the appellate and judicial arenas. These are hampering dispute resolution and contract enforcement, discouraging investment, stalling projects, hampering tax collections but also stressing tax payers, and escalating legal costs. This chapter recommends how to handle the issue of pendency of cases.
1. India jumped thirty places to break into the top 100 for the first time in the World Bank’s Ease of Doing Business Report, however, it continues to lag on the indicator on enforcing contracts. Why strong contract enforcement regime is needed. What steps have been taken by the government for improving the situation?
IntroductionIndia jumped thirty places to break into the � top 100 for the first time in the World Bank’s Ease of Doing Business Report (EODB), 2018. The rankings reflect the government’s reform measures on a wide range of indicators. India leaped 53 and 33 spots in the taxation and insolvency indices, respectively, on the back of administrative reforms in taxation and passage of the Insolvency and Bankruptcy Code (IBC), 2016. It also made strides on protecting minority investors and obtaining credit, and retained a high rank on getting electricity, after a 70 spot rise in EODB, 2017 due to the government’s electricity reforms.This striking progress notwithstanding, India continues to lag on the indicator on � enforcing contracts, marginally improving its position from 172 to 164 in the latest report, behind Pakistan, Congo and Sudan.
Importance of strong contract enforcement regimeThe importance of an effective, efficient and expeditious contract enforcement regime to �
economic growth and development cannot be overstated. Economic activity is being affected by the realities and long shadow of delays and pendency �
across the legal landscape. A clear and certain legislative and executive regime backed by an efficient judiciary that fairly �
and punctually protects property rights, preserves sanctity of contracts, and enforces the rights and liabilities of parties is a prerequisite for business and commerce.
DataDelays and pendency of economic cases are high and mounting in the Supreme Court, High �
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Courts, Economic Tribunals, and Tax Department, which is taking a severe toll on the economy in terms of stalled projects, mounting legal costs, contested tax revenues, and reduced investment more broadly.Delays and pendency stem from the increase in the overall workload of the judiciary, in turn �
due to expanding jurisdictions and the use of injunctions and stays; in the case of tax litigation, this stems from government persisting with litigation despite high rates of failure at every stage of the appellate process. Actions by the Courts and government acting together can considerably improve the situation.
Steps taken by government to improve the contract enforcement regime:The Government: Scrapped Over 1000 Redundant Legislations. �
Rationalized Tribunals. �
Amended the Arbitration And Conciliation Act, 2015. �
Passed the Commercial Courts, Commercial Division And Commercial Appellate Division Of �
High Courts Act, 2015.Reduced Intra-Government Litigation. �
Expanded The Lok Adalat Programme to reduce the burden on the judiciary. �
The government has also advanced a prospective legislative regime to ensure legal consistency, �
reducing chaos due to unpredictable changes in regulations. The judiciary has simultaneously expanded the seminal National Judicial Data Grid (NJDG) and �
is close to ensuring that every High Court of the country is digitized, an endeavor recognized in EODB, 2018.
2. Elaborate the reasons for the pendency of high economic cases at the High Courts and Tribunals. What are the associated costs for this pendency?
Delays and pendency of economic cases are high and mounting in the Supreme Court, High Courts, Economic Tribunals, and Tax Department, which is taking a severe toll on the economy in terms of stalled projects, mounting legal costs, contested tax revenues, and reduced investment more broadly.
DataThe average age of pending cases across these tribunals is � 3.8 years.The creation of tribunals at different points in time did not alter pendency at the High Courts �
of the country nor their ability to deal with other economic cases.Delays and pendency stem from the increase in the overall workload of the judiciary, in turn �
due to expanding jurisdictions and the use of injunctions and stays; in the case of tax litigation, this stems from government persisting with litigation despite high rates of failure at every
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stage of the appellate process.Actions b y the Courts and government acting together can considerably improve the �
situation.The volume of economic cases is smaller than other case categories, their average duration of �
pendency is arguably the worst of most cases, nearly 4.3 years for 5 major High Courts.The average pendency of tax cases is particularly acute at nearly 6 years per case. �
Reasons for PendencyHigh Courts: � Burden from Expansion of Discretionary Jurisdictions: One reason for the rising pendency of economic cases at the High Courts could simply be the generalized overload of cases. Further, economic and commercial cases are usually complex, require economic expertise in their handling and disposal, and hence, require more judicial time. In some instances, however, this increased overload is due to the expansion of discretionary jurisdictions by Courts, without any countervailing measures that either balance the scope of other jurisdictions or improve overall administration and efficiency. For example, Articles 226 and 227 of the Constitution of India empower High Courts with carefully circumscribed writ jurisdiction. In practice, however, High Courts have permissively and expansively interpreted this provision over a period of time, which has resulted in a substantial increase in Article 226 cases.
Average Pendency of Civil Suits in Bombay and DelhiCourt Name Pending Cases Average Pendency (in years)
Delhi High Court 19,470 5.8Delhi Lower Judiciary 15,223 3.7Bombay High Court 16,099 6.1
Maharashtra Lower Judiciary* 1,02,931 5.6
High Courts: Burden from Original Side Jurisdiction: � Some High Courts of the country retain a unique original jurisdiction, under which the High Court, and not the relevant lower court, transforms into the Court of first instance for some civil cases. These cases occupy a significant share of the Court’s docket. The Delhi and Bombay High Courts have original jurisdictions that occupy nearly 10-15% of their workload.Supreme Court: Expansion of Special Leave Petition (SLP) Jurisdiction: � The Supreme Court, like the High Courts, has less capacity to deal with mounting economic cases because of rising overall pendency. In the case of the SC, the burden derives in part from Special Leave Petitions under Article 136 of the Constitution of India, which empowers any party to approach the Supreme Court directly from any court or tribunal. Initially invoked only in “exceptional circumstances”, SLPs are now overwhelming features of practice at the Supreme Court.Recourse to Injunctions and Stays: � Rising pendency also results from the injunction of cases by Courts. Lengthy interim orders, ex parte ad interim stays, increasing rate of pendency of cases at final arguments, and few final judgments in IPR cases are common traits of IPR practice across different High Courts. Nearly 50% of these cases are pending at the stage of pleadings, which is the stage at which parties are required to complete formal requirements before hearing.
Costs of delayFor example: � The project costs (stocks) of stayed projects—at the time they were originally stayed—amounted close to 52,000 crores in six infrastructure ministries that are currently stayed by court injunctions, as well as the average duration of their stays. (as shown)
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The overall impact of rising pendency at Appellate Tribunals, High Courts and the Supreme �
Court, coupled with the rising use of injunctions and other blunt instruments has led to spiraling legal expenses of Corporate India.
Stayed Projects-Stock (6 Ministries, as on 31.10.2017)
Ministry Stayed Projects Total Value (Rs. Crores) Duration of Stay (Years)Shipping 2 2620 5.9
Power 11 23,913 3Road 30 11,216 3
Pertroleum 2 342 0.9Mines 12 106 4.5
Railways 12 13,882 3Total 52 52,081 4.3
CONCLUSION
Total spending on Administration of Justice by States and the Centre constitutes approximately 0.08- 0.09% of GDP which is low when compared to other countries, especially common law countries. The Government may consider including efforts and progress made in alleviating pendency in the lower judiciary as a performance-based incentive for States. Further, expenditure may be prioritized for fling, service and other delivery related issues that tend to cause the maximum delays. However, building additional judicial capacity may not be effective unless existing capacity is fully utilized. The higher judiciary is currently operating at 63.6% of existing capacity.Hence better utilisation of present resources are must to reduce pendency of cases.
3. Discuss the steps needed for reforming the present judicial system to combat pendency issue.
Pendency, delays and injunctions are overburdening courts and severely impacting the progress of cases, especially economic cases, through the different tiers of the appellate and judicial arenas. The Government and the Courts need to both work together for large scale reforms and incremental improvements to combat a problem that is exacting a large toll from the economy.
Some of the following steps may be considered:Expanding judicial capacity in the lower courts and reducing the existing burden on the High 1. Courts and Supreme Court;
For a smooth contract enforcement regime, it may be imperative to build capacity in the !
lower judiciary to particularly deal with economic and commercial cases, and allow the High
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Courts to focus on streamlining and clarifying questions of law. For the same, amendments to the Code of Civil Procedure, Commercial Courts Act and other related commercial legislations should be considered. These measures must be buttressed by efforts to train judges, particularly in commercial and economic cases by judicial academies.
Downsizing or removing original and commercial jurisdiction of High Courts, and enabling !
the lower judiciary to deal with such cases. Early results from the Delhi High Court suggest that reducing the size of original side jurisdiction in 2016 allowed the court more time to reduce its overall pendency.
Courts may revisit the size and scale of their discretionary jurisdictions and avoid resorting !
to them unless necessary, to reclaim the envisaged constitutional and writ stature of the higher judiciary.
Existing judicial capacity ought to be fully utilized. !
The tax department exercising greater self restraint by limiting appeals, given its low success 2. rate. This could either take the form of ex ante rules limiting appeals, for example, to no more than one in four High Court verdicts or no more than one in three arbitration cases; or, given the long shadow of the 3 Cs (CBI, CVC, and CAG) in inducing bureaucratic risk-aversion, perhaps an independent Panel could be created to decide on further appeals of tax verdicts against the Department. Further, the number of tiers of scrutiny may be limited to three forums for taxation cases.
Substantially increasing state expenditure on the judiciary, particularly on their modernization. 3. The Government may consider incentivizing expenditure on court modernization and digitization. This needs to be supported with greater provision of resources for both tribunals and courts. Moreover, legislations (and perhaps even judicial decisions that expand or introduce new jurisdictions) should be accompanied by judicial capacity and public expenditure memorandums, which adequately lay out the necessary provisions required to address increasing judicial requirements, and ensure their adequate funding. The amounts required may be negligible but the returns enormous.
Building on the success of the Supreme Court in disposing tax cases, creating more subject-4. matter and stage-specific benches that allow the Court to build internal specializations and efficiencies in combating pendency and delay.
Reducing reliance on injunctions and stays. Courts may consider prioritizing stayed cases, 5. and impose stricter timelines within which cases with temporary injunctions may be decided, especially when they involve government infrastructure projects.
Improving the Courts Case Management and Court Automation Systems. To free up judicial 6. time, initiatives like the Crown Court Management Services of the UK that are dedicated to the management and handling of administrative duties, may be considered.
Recent experience with the GST has shown that vertical cooperation between the center and states--Cooperative Federalism--has brought transformational economic policy changes. Perhaps there is a horizontal variant of that-- one might call it the Cooperative Separation of Powers--that could be applied to the relationship between the judiciary on the one hand, and the executive/legislature on the other. There are, of course, clear lines of demarcation and separation of powers between the two to preserve independence and legitimacy. Even while respecting these lines, it should be possible and desirable for these branches to come together to ensure speedier justice to help overall economic activity.
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Format of special-sized benches in Supreme Court
The Supreme Court is the highest court of the land that deals with a wide array of cases. When not dealing with substantial questions of law or constitutional issues requiring the constitution of special-sized benches, the Court sits in benches comprising of two judges to decide cases from High Courts and other forums of the country. The benches are expected to hear and decide cases from a wide range of subject matters inter alia constitutional law, criminal law, civil law, commercial law, and taxation. However, the Court’s recent experiment with constituting an exclusive bench for taxation produced impressive results, which may be replicated for other subject matters, and emulated by other High Courts that do not have special rosters for daily hearings.
Besides reducing pendency and backlog, this phase of the Supreme Court saw a large number of judgments on law, and permitted the Court to discharge its envisaged role of clarifying and settling legal questions.
There are other profound benefits of dedicated subject- matter benches. Such benches ensure that the Supreme Court speaks in one voice, and there is continuity and consistency of legal jurisprudence. Further, they create efficiencies by allowing the judge to focus on the specialized branch of law placed before her. The model may be replicated for other commercial and economic areas of law as and when necessary at the Supreme Court, and should be replicated by every High Court of the country.
Example
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Transforming Science and Technology in India
2Chapter
Introduction
Innovations in science and technology are integral to the long-term growth and dynamism of any nation. The pursuit of science also creates a spirit of enquiry and discourse which are critical to modern, open, democratic societies.However, India under-spends on research and development (R&D), even relative to its level of development. A doubling of R&D spending is necessary and much of the increase should come from the private sector and universities. To recapture the spirit of innovation that can propel it to a global science and technology leader from net consumer to net producer of knowledge, India should invest in educating its youth in science and mathematics, reform the way R&D is conducted, engage the private sector and the Indian diaspora, and take a more mission-driven approach in areas such as dark matter, genomics, energy storage, agriculture, mathematics, and cyber physical systems. Vigorous efforts to improve the “ease of doing business” need to be matched by similar ones to boost the “ease of doing science.”This chapter discusses about the status of R&D in India and steps needed to boost the “ease of doing science.”
1. ‘Science, technology, and innovation have instrumental and intrinsic value for society’. Explain.
Science, technology, and innovation have instrumental and intrinsic value for society. They are �
key drivers of economic performance and social well-being. But they are also important for deeper reasons: a scientific temper, with its spirit of enquiry, the primacy accorded to facts and evidence, the ability to challenge the status quo, the adherence to norms of discourse and the elevation of doubt and openness.The open spirit of inquiry that is fundamental to science can provide a bulwark against the �
darker forces of dogma, religious obscurantism, and nativism that are threateningly resurfacing around the world. Independent India has chalked up many accomplishments: from the nuclear energy program, �
the hybrid seeds program that underpinned the Green Revolution to the space program, including the Mangalyaan mission which highlighted India’s niche of doing cost-effective, high-technology research. Most recently, India’s important participation (involving three major Indian research institutions) in the Laser Interferometer Gravitational-wave Observatory (LIGO)
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experiment successfully detected the existence of gravitational waves. And India’s vaccines and generic-drugs have saved millions of lives the world over.However, given the dizzying pace and expansion of scientific research and knowledge on the �
one hand, and a generally higher importance given to careers in engineering, medicine, management and government jobs amongst India’s youth on the other, India needs to rekindle the excitement and purpose that would attract more young people to the scientific enterprise. Doing so would lay the knowledge foundations to address some of India’s most pressing development challenges in addition to maintaining a decent, open society.Further, as India emerges as one of the world’s largest economies, it needs to gradually move �
from being a net consumer of knowledge to becoming a net producer.
2. In India, the government is not just the primary source of R&D funding but also it’s the primary user of these funds. Discuss the status of funding in Science and Technology sector.
The status of Science and Technology sector in India can be analysed under two heads:
InputsInvestments in Indian science, measured in terms of Gross Expenditure on R&D (GERD), have �
shown a consistently increasing trend over the years. GERD has tripled in the last decade in nominal terms – from Rs. 24,117 crores in 2004-05 to Rs. 85,326 crores in 2014-15 and an estimated Rs.1,04,864 crores in 2016-17 – and double in real terms. However, as a fraction of GDP, public expenditures on research have been stagnant – between 0.6-0.7 percent of GDP – over the past two decades.About three-fifths of the public investment is spread over the key government science funding �
agencies like Atomic Energy, Space, Earth Sciences, Science and Technology, and Biotechnology.India’s spending on R&D (about � 0.6 percent of GDP) is well below that in major nations such as the US (2.8), China (2.1), Israel (4.3) and Korea (4.2). In most countries, the private sector carries out the bulk of research and development even if government must play an import funding role. However, in India, the government is not just the primary source of R&D funding but also it’s the primary user of these funds. Government expenditure on R&D is undertaken almost entirely by the central government. There is a need for greater State Government spending, especially application oriented R&D aimed at problems specific to their economies and populations.Private investments in research have severely lagged public investments in India. India has no �
firms in five of the top ten R&D sectors as opposed to China that has a presence in each of them.In India, universities play a relatively small role in the research activities of the country. �
Universities in many countries play a critical role in both creating the talent pool for research as well generating high quality research output. However, publicly funded research in India concentrates in specialized research institutes under different government departments. This leaves universities to largely play a teaching role – a decision that goes back to the 1950s. It is now widely acknowledged that whatever the merits of the decision at the time, this disconnection has severely impaired both teaching as well as the research enterprise in the country.
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East Asian countries like China, Japan, and Korea, have seen dramatic increase in R&D as a �
percentage of GDP as they have become richer. India, on the other hand, has only seen a slight increase. In fact, in 2015, there was a sizeable decline in R&D spending even as GDP per capita continued to rise. At its current rate, India would just barely reach GERD of 1 percent of GDP by the time it gets as rich as the USA.Indian Ph.D. students obtain their degrees either within India or abroad, especially in the US. �
OutputsIn 2013, India ranked � 6th in the world in scientific publications. Its ranking has been increasing as well. Between 2009-2014, annual publication growth was almost 14 percent. This increased India’s share in global publications from 3.1 percent in 2009 to 4.4 percent in 2014 as per the Scopus Database. However, there is a downside to the increase in publications.The Nature Index (which publishes tables based on counts of high-quality research outputs in �
the previous calendar year covering the natural sciences) – ranked India at 13 in 2017. But there is still a considerable lag in levels between India and the other two large countries, and the rate of improvement in China between 2001 and 2011 is dramatically better than India’s.According to the WIPO, India is the � 7th largest Patent Filing Office in the World. However, India produces fewer patents per capita. Unless there is a greater focus on R&D, rising income alone will not allow India to catch up in the near future.India’s patent applications and grants have grown rapidly in foreign jurisdictions, the same is �
not true at home. Residential applications have increased substantially since India joined the international patent regime in 2005. However, the number of patents granted fell sharply post 2008 and has remained low. While Indian residents were granted over 5000 patents in foreign offices in 2015, the number for resident filings in India was little over 800.Reasons for decrement in grants �
The decrease in grants could have been due to a stricter examination process. But evidence !
suggests that there is a severe backlog and high rate of pendency for domestic patent applications.Due to manpower shortage, there is a backlog of almost 2 lakh patents pending examination. !
In 2016-2017, there were only 132 examiners for all patent applications in India. This has meant that patent examination and granting can take 5 or more years.Given the rapid rate of technological obsolescence, the inordinate delay in processing !
patents penalizes innovation and innovators within the country.Addressing patent litigation issues will also be crucial to ensuring that the patent system !
effectively rewards innovation.
India needs to redouble its efforts to improve science and R&D in the country first and foremost by doubling national expenditures on R&D with most of the increase coming from the private sector and universities. But the metrics also need to go beyond papers and patents to a broader contribution to providing value for society.
3. What are the steps needed in enhancing R&D in India?
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Thus steps needed are:Improve math and cognitive skills at the school level: � No country can create a vibrant superstructure of R&D with weak foundations of primary and secondary education for so many of its young. Thus there is a need to improve math and cognitive skills at the school level.Encourage Investigator-led Research: � India needs to gradually move to have a greater share of an investigator-driven model for funding science research. A step in this direction occurred in 2008, with the establishment of the Science and Engineering Research Board (SERB), a statutory body of DST. This body has sanctioned about three and half thousand new R&D projects to individual scientists. It is a promising start that needs to expand with more resources and creative governance structures.Increase funding for research from private sector as well as from state governments: � The private sector should be incentivized to both undertake more R&D but to also support STEM research through CSR funds. Efforts like the 50:50 partnership with SERB for industry relevant research under the Ucchatar Avishkar Yojana (UAY) is a good example of what could help make such partnerships fruitful.State governments too need to recognize the need to invest in application oriented research aimed at problems specific to their economies and populations. This would both strengthen state universities as well as provide much needed knowledge in areas such as crops, ecology and species specific to a state.Link national labs to universities and create new knowledge eco-systems: � Universities have students but need additional faculty support, while research institutes have qualified faculty but are starved of bright young students brimming with energy and ideas. A closer relationship between the two in specific geographic and spatial settings would help nurture research in areas reflecting the fields of science in which the national research centers have strengths.Take a mission driven approach to R&D: �
National Mission on Dark Matter:a. India needs at least one mission that is directed towards the basic sciences. India is one of the leading countries in high energy physics and relevant mathematics.The payoffs from this research will have implications on space missions of the future, quantum computing, newer solutions to energy problems etc. This mission can build on the strong foundation of astronomy and astrophysics research institutes in the country. Furthermore, research in this area has some of the strongest international collaborative possibilities including those stemming from India’s ongoing participation in the LIGO, Neutrino, CMS/LHC projects.National Mission on Genomics: b. Genomic research lies at the heart of the future of the life sciences. Currently several countries have launched ambitious national genomic research projects, e.g., UK Biobank Study; Finnish Birth Cohort Study; Partners HealthCare Bioban; China Kadoori Biobank. These studies are collecting detailed phenotype information, as well as blood and tissue samples, to study the determinants and life-course of biological pathways and disease. India already has a strong foundation of life science research institutes which together can make significant contributions in this area.National Mission on Energy Storage Systems:c. Renewable energy is the future and India has made a major commitment to investment in renewable energy. India has lagged in manufacturing renewal energy generation systems. Substantial investments in energy storage systems will ensure that India can be a leader in manufacturing energy storage systems.National Mission of Mathematics:d. It will improve mathematics teaching at all levels of higher education, seek to establish five institutes of mathematical sciences within existing
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institutions, conduct annual district, state and national math Olympiad competitions with sizeable scholarships for all winners, with the overall goal of rapidly increasing India’s human capital and research profile in mathematics within a decade.National Mission on Cyber Physical Systems:e. The term Cyber Physical System (CPS) refers to machine based communication, analysis, inference, decision, action, and control in the context of a natural world (“Physical” aspect). This is hugely multidisciplinary area including deep mathematics used in Artificial Intelligence, Machine Learning, Big data Analytics, Block Chains, Expert Systems, Contextual Learning going to integration of all of these with intelligent materials and machines, control systems, sensors and actuators, robotics and smart manufacturing. Together these are the building blocks of future industry that will throw up both new challenges and opportunities.National Mission on Agriculture:f. Improving Indian agricultural productivity, which still lags other countries such as China, as well as creating resilience to the looming challenges in terms of rising temperatures, variable precipitation, water scarcity, increase in pests and crop diseases, requires a major thrust in agricultural science and technology. A national mission could help overcome the weaknesses in existing institutions of agricultural research and technology.
Leverage scientific diaspora: � There are today more than 100,000 people with PhDs, who were born in India but are now living and working outside India (more than 91,000 in the U.S. alone). However, with the strength of India’s economy and growing anti-immigrant atmosphere in some Western countries, India has an opportunity to attract back more scientists. There has been an increase in the number of Indian scientists returning to work in India during the last five years, but the numbers are still modest. There are a number of government programs such as the Ramanujan Fellowship Scheme, the Innovation in Science Pursuit for Inspired Research (INSPIRE) Faculty Scheme and the Ramalingaswami Re-entry Fellowship, that provide avenues to qualified Indian researchers residing in foreign countries, to work in Indian institutes/universities, and the Visiting Advanced Joint Research Faculty Scheme (VAJRA). These schemes could be enhanced to take advantage of opportunities to recruit in a way to build whole research groups; the inducements should be such as to allow them to do good research (laboratory resources, ability to hire post-docs, housing etc.) rather than financial, to ensure that home grown talent has a level playing field.Improve the culture of research: � Indian science and research institutes need to inculcate less hierarchical governance systems that are less beholden to science administrators and encourage risk-taking and curiosity in the pursuit of excellence. Hence, it is imperative that there be greater representation of younger scientists in decision making bodies in their areas of expertise.Greater public engagement of the science and research establishment: � If science is to garner greater support from society, it will require scientists to engage more vigorously with society. Much of science is – and should be – a public good, and hence that will always require substantial public funding. This will require much greater efforts at science communication whether through the media or through regular tours and lectures for school and college students as well the general public. Scientists need to create broad public support for their work and not treat it as an entitlement, given the many claims on the public purse.
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