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Indian economy

25 Solved Questions with Answers
  • 2019

    1. Enumerate the indirect taxes which have been subsumed in the Goods and Services Tax (GST) in India. Also, comment on the revenue implications of the GST introduced in India since July 2017.

    Goods and Services Tax (GST) is an indirect, comprehensive, multi-stage, destination-based tax that is levied on every value addition.

    The Goods and Service Tax Act was passed in the Parliament in March 2017. The Act came into effect on 1st July 2017.

    At the Central level, the following taxes have been subsumed in the GST:

    • Central Excise Duty
    • Additional Excise Duty
    • Service Tax
    • Countervailing Duty
    • Special Additional Duty of Customs

    At the State level, the following taxes have been subsumed in the GST:

    • State Value Added Tax/Sales Tax,
    • Entertainment Tax (other than the tax levied by the local bodies), Central Sales Tax (levied by the Centre and collected by the States)
    • Octroi and Entry tax
    • Purchase Tax
    • Luxury tax
    • Taxes on lottery, betting and gambling

    Revenue implications of GST since July 2017:

    • GST was introduced in July 2017. After the initial transitional issues following the roll-out of GST, revenue collection picked up from an annual average of 89.8 thousand crores in 2017-18 to 98.1 thousand crores in 2018-19.
    • However in 2018-19, indirect taxes have fallen short of budget estimates by about 16 per cent, following a shortfall in GST revenues (including CGST, IGST and compensation cess) as compared to the budget estimates. Indirect taxes have fallen by 0.4 percentage points of GDP primarily due to shortfall in GST collections.
    • According to the Economic Survey, though there has been an improvement in tax to GDP ratio over the last six years, gross tax revenues as a proportion of GDP has declined by 0.3 percentage points in 2018-19 over 2017-18.

  • 2016

    1. How globalization has led to the reduction of employment in the formal sector of the Indian economy? Is increased informalization detrimental to the development of the country? (2016)

    Globalization means gradual integration of economics through free movements of goods, services and capital. Globalization increased the efficiency of economy multi-dimensionally but one of the major challenges posed by globalization is the growing tendency towards flexible employment and informalisation. The reasons behind the reduction of employment due to globalisation in formal sector are following.

    • Increased automation in industries: Globalization exposed the technology globally which led to replacement of man power with robotics and other technology.
    • Shift from labour intensive industries to technology intensive industries: In India only 2% labour is skilled in comparison to 96% skilled labour in South Korea. Due to arrival of technology, unskilled labour was forced out from formal sector due to incapability of handling the new machines and led to informalisation.
    • Globalization encourages sub contracting of work to the informal sector because of low wage and lost cost of production in informal section. It increased the participation of contract labour in economy and reduced formal sector’s employment.
    • Globalization increased competition among the industries which shifted the employment/industrial units from non-competitive countries to market favoured economics. The shifting of textile industries to the Vietnam, Laos are recent examples of this phenomenon.

    Impact of informalisation on the development of the country

    • Less revenue generation: Due to high informalisation, tax to GDP ratio remains very low. In case of India it is only 16.6% whereas more than 30% in OECD countries.
    • Less coverage of social security schemes: Nearly all government schemes, programmes related to social security benefits are restricted to formal sector. A huge section of population remains out of the ambit of benefits. It ultimately reduces the efficiency of economy.

    This shows how informalisation of labour force has proven detrimental to the development.

  • 2017

    1. Among several factors for India’s potential growth, savings rate is the most effective one. Do you agree? What are the other factors available for growth potential? (2017)

    Capital formation is the most important factor that drives the economic development of a nation. It is mainly the transfer of savings from households to the business sector that leads to increased output and economic expansion.

    In India, savings have contributed a lot in the economic development since the Indian economy took off in 1960s and 70s. In the past few decades, it has been around 33% of GDP. However, high savings rate is a necessary condition but not a sufficient one for economic development.

    Many times high savings in isolation does not lead even to capital formation. One also needs sound banking and financial institutions to mobilize the savings of economy. At the same time, presence of entrepreneurship is also critical to convert savings into productive investment. Some other factors that are essential for growth potential are:

    • Infrastructure: Sound infrastructure is needed in terms of good supply of power, electricity, roads, railways and robust means of communication.
    • Ease of doing business: There should be hassle free environment to start and wind up the businesses in the economy. Bureaucratic hurdles in acquisition of land and licenses should also be minimized.
    • Human Resource: Skilled labour force is essential for the improved productive capacity of economy. Capability of human resource depends upon the skills, creativity, abilities and education of the labour force.
    • Technology: It increases the productivity and competitiveness of the economy. Today R&D in every domain is essential to be competitive in the international and domestic market.
    • Government policies: Policies decide the pace and direction of economy. India has introduced GST recently to unify its own economy and remove the cascading effect of taxes at multiple points. India’s performance of Ease of Doing Business Index has also improved by 30 points (100th position in 2017) due to many policy initiatives.
    • Social and political factors: Social factors involve customs, traditions, values and beliefs which contribute to the growth of economy. Political factors such as participation of people in formulation and execution of policies enhance the economic development.

    India which is on the verge of reaping the benefits of demographic dividend, must launch skill development initiatives to utilize the young labour force. It should also improve ease of doing business and create a conducive environment for investment, better export performance to improve productivity of the economy.

  • 2019

    2. Do you agree with the view that steady GDP growth and low inflation have left the Indian economy in good shape? Give reasons in support of your arguments.

    The Economic Survey 2018-19 states that the economy witnessed a gradual transition from a period of high and variable inflation to a more stable and low level of inflation in period 2014-18. However, in the current fiscal quarter, the headline inflation has fallen to the lowest value and also there is a reduction in Gross Value Added (GVA). This has raised various debates around the use of inflation targeted monetary policy and its impact on the overall economy.

    Points to agree

    • Provided policy stability: Steady growth rate and low inflation has provided better market conditions for investment and production planning.
    • More equitable: Inflation impacts the poor more as it decreases their purchasing power. Low inflation increases disposable income and therefore increases investment in the economy.
    • Maintaining the fiscal deficit to the appropriate level: Controlled price level has helped in reducing subsidies and unnecessary tax cuts.
    • Helping urban economy: Low inflation rate has kept the living cost in urban areas to a manageable level. This has provided relief to the middle class.

    Points to disagree

    • Fall in consumption demand: Decreasing Consumer Price Index (CPI) clearly shows the receding disposable income in rural areas which can be clearly seen in the Q2 GDP growth rate falling to 5%.
    • Reduction in investment: The contraction of the economy due to falling consumption has reduced the scope of further investment.
    • Double Balance Sheet Problem: Due to the slowdown, various corporates are facing the revenue shortage to pay back the interest, leading to NPA problem faced by the banks.
    • Revenue Shortfall of the Government: Due to less income generation in the economy, direct tax revenue has receded. This reduces government legroom for more public expenditure.

    Way forward

    • Increasing liquidity: The recent step to slash the corporate tax and providing loans to MSMEs is the desired initiative to infuse more liquidity in the economy and increase investment.
    • Increasing public expenditure: Schemes like MGNREGS, rural housing etc. should be implemented more effectively so as to give a boost to rural income generation and thus demand creation.
    • Promoting labour-intensive industries such as Food Processing Industries, Leather Industries, etc. in order to create demand in the economy and provide employment to youths.

    Current monetary policy easing should be continued to give a renewed push to the investment cycle of Indian economy. Inflation is a double edged sword therefore a sustainable range of the inflation rate of 4-6% should be maintained so that maximum income generation could happen in the economy.

  • 2018

    2. Comment on the important changes introduced in respect of the Long Term Capital Gains Tax (LTCGT) and Dividend Distribution Tax (DDT) in the Union Budget for 2018-2019. (2018)

    The Union Budget of 2018-19 introduced the following two important changes:

    • Long Term Capital Gains Tax (LTCGT): Reintroduction of a 10% tax on long term capital gains arising from transfer of listed equity shares.
    • Dividend Distribution Tax (DDT): Introduction of a 10% tax on distributed income by equity oriented mutual fund.

    The long-term capital gains tax existed until 2005 but was removed to encourage greater participation in the equity markets. Though it did have its intended effect but it also had the side-effect of business surpluses being invested in financial assets due to attractive return on investments. This benefitted corporates primarily and also created a bias against investing in manufacturing. It has also led to significant erosion in the tax base resulting in revenue loss.

    Keeping in mind the points mentioned above, the decision to bring back long term capital gains tax on listed equities holds merit. Moreover, LTCG in unlisted shares are currently taxed - LTCGT on listed shares ends the advantage enjoyed by the latter, bringing them on par.

    In addition, the tax on distributed income by equity oriented mutual funds will provide level playing field across growth oriented funds (where the dividend is re-invested back into stocks) and dividend distributing funds (investors receive regular income through dividends). Up until now, dividends from equity-oriented funds were tax-free and were also exempt from paying the DDT.

    However, these changes should also be followed by abolishing or reducing the securities transaction tax rates (levied on all transactions made on the stock exchanges), which could lead to double taxation if continued.

  • 2016

    2. Women empowerment in India needs gender budgeting. What are the requirements and status of gender budgeting in the Indian context? (2016)

    Gender budget is concerned with gender sensitive formulation of legislation, programmes and schemes to address gender disparities.

    The rationale for gender budgeting arises from recognition of the fact that national budgets impact men and women differently through the pattern of resource allocation. Women, constitute 48% of India’s population, but they lag behind men on many social indicators like health, education, economic opportunities, etc. Hence, they warrant special attention due to their vulnerability and lack of access to resources. The way Government budgets allocate resources, has the potential to transform these gender inequalities. In view of this, Gender Budgeting, as a tool for achieving gender mainstreaming, has been propagated.

    Therefore number of schemes, programmes specific to women education, women health and skill training should have more weightage then partial allocation of funds for gender specific issues.

    Status of Gender Budget in India

    Gender Budget Statement (GBS) was first introduced in India Budget in 2005-2006. It comprises of two parts.

    • Part A reflects women specific schemes i.e., those which have 100% allocation for women.
    • Part B reflects Pro-women schemes i.e., those where at least 30% of allocation is for women.
    • India’s Gender Budgeting efforts stand out globally because they have not only influenced expenditure but also revenue policies (like differential rates in property tax rates).
    • Gender Budgeting efforts in India have encompassed knowledge building and network; institutionalize the process, capacity building and chance capability.
    • Gender Budgeting Cells (GBC) as an institutional mechanism has been mandated to be set up in all Ministries/Departments. But there are only a few ‘big budget’ women exclusives schemes of Ministry of Women and child Development like the Nirbhaya Fund and Beti Bachao, Beti Padhao campaign.

    Even though India has made significant strides in gender budgeting, it still leaves a lot to be achieved for real empowerment of women, towards which government should work earnestly.

  • 2017

    2. Account for the failure of manufacturing sector in achieving the goal of labour-intensive exports. Suggest measures for more labour-intensive rather than capital-intensive exports. (2017)

    A key lacuna in India’s growth has been slow growth of manufacturing in labour-intensive sectors and concentration in capital intensive manufacturing sectors like auto parts, chemicals, software and pharmaceuticals. None of these sectors employ low-skilled workers in large numbers.

    The movement of workers out of agriculture into export oriented manufacturing industry has been especially slow due to requirement of a certain level of skill which is absent amongst most labourers – resulting in jobless growth. Lack of ease of doing business in India due to labour market rigidities, tax uncertainties, impediments to entrepreneurial growth have further hindered the expansion of a labour-intensive export manufacturing in India.

    Measure to Promote Labour-Intensive Exports

    • Ease Labour Law regulations such as wide-ranging and complex laws, mandatory contributions by low-paid workers, and lack of flexibility in part-time work etc. The government’s decision to rationalise around 38 Labour Acts by framing 4 labour codes is a positive step in this regard to encourage exporters to hire more labour.
    • Promoting Labour-Intensive Sectors like apparel sector, leather and footwear also have high export potential.
    • Uninterrupted and Cheap Power Supply for labour-intensive manufacturers, who operate on low profit margins and for whom high electricity costs can be a make or break issue.
    • Promoting the Role of SMEs as labour intensity of SMEs is four times higher than that of large firms by providing adequate state support. MUDRA Bank should be promoted for this.
    • Skill development to fill the gap of semi-skilled and skilled workers that manufacturers in India face frequently.

    Further, the tax rationalisation under GST as well as the push for Entrepreneurship under Start-Up India and Stand Up India can also provide a suitable and favourable environment for labour-intensive exporters.

  • 2018

    3. What do you mean by Minimum Support Price (MSP)? How will MSP rescue the farmers from the low income trap? (2018)

    MSP is a form of market intervention by the Government of India to insure agricultural producers against any sharp fall in farm prices during bumper production years. The major objectives are to support the farmers from distress sales and to procure food grains for public distribution.

    The MSPs are announced by the Union Government at the beginning of the sowing season for certain crops on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP). MSP will rescue farmers from low income trap in the following ways:

    • Fixed Remunerations: The farmers are financially secured against the vagaries of price instability in the market.
    • Social Security: The fixed prices for different crops saves farmers from distress selling. This in turn helps them to get out of the clutches of money lenders and middlemen.
    • Diversification of crops: The MSP announced by the Government of India for the first time in 1966-67 for wheat has been extended to around 24 crops at the present. This will encourage the farmers to grow these diverse crops to maximize their income.

    However, a lot is yet to be done as far as MSPs for different crops are concerned. Besides increased quantum and diversification of MSPs, the procurement of food grains must also be streamlined in order to sustain investment in agriculture and ensure food security in the country.

  • 2016

    3. Pradhan Mantri Jan Dhan Yojana (PMJDY) is necessary for bringing unbanked to the institutional finance fold. Do you agree with this for financial inclusion of the poor section of the Indian society? Give arguments to justify your opinion. (2016)

    Financial inclusion means providing financial services such as basic bank accounts , deposit and saving facility at very low cost to poor section of society or to those who are not having access to banking sector so that they can also enjoy basic banking facilities and they can be integrated with formal banking system.

    In this direction Pradhan Mantri Jan Dhan Yojna(PMJDY) was started with a wide vision to provide access to banking facilities to those people who are not having any bank accounts or still unbanked from formal banking sector. The necessity of PMJDY in financial inclusion is because of following reasons:

    • According to census report of 2011 out of total population only 58.7 percent population have access to banking services remaining 42%. PMJDY would bring in those who have been left behind by mainstreaming banking services and would reduce the role of money lenders.
    • Under this scheme people would get basic bank accounts with insurance facility and an additional facility of overdraft. Thus they would avail benefit offered by banks and facilities provided by government and will be able to develop small savings habits, and which will enhance capital formation, resulting in increased economic development of country.
    • Banks are now opening bank accounts with zero balance and providing facilities to poor and unbanked section of society so that they can also get maximum benefits from banking sector.
    • Debit card facility is also very helpful to poor people where they can withdraw money at any time and at any place.
    • Under PMJDY bank accounts can be opened with a single document (Easy KYC Norms), this will encourage uneducated customers who hesitate to go to banks just because of lengthy documentation process.

    The PMJDY is playing its role in great manner by ensuring mass participation of people and providing them low cost financial services and banking facilities, still there is need to impart financial knowledge and awareness among people about benefits of banks and basic banking facilities. But just opening accounts would not fulfil the desired goals of financial inclusion because of idle banks accounts which only increase expenses of banks. Real benefits would go to people when people will use these accounts. Demonetisation helps in a great way in this direction.

  • 2017

    3. Examine the development of Airports in India through joint ventures under Public – Private Partnership (PPP) model. What are the challenges faced by the authorities in this regard. (2017)

    Management of few of the airports through joint ventures under PPP model is transforming civil aviation sector in India. Build-Operate-Transfer (BOT) projects were awarded to private players for Greenfield airports at Bangalore and Hyderabad.

    India’s decision to invite private players such as GMR and GVK has improved the passenger’s experience. It has led to better efficiency and capacity of airline operators. This has also resulted in massive dividend to the State-owned Airports Authority of India. Modernisation of ports in India has improved the local and national economy and perception of India is changing in the global market.

    Private airports are making large profits due to increased traffic, higher aeronautical charges and other non-aero revenue opportunities. However there are concerns of higher charges on airlines and passengers. Cities like Chennai, Kolkata and Goa are not able to attract enough passenger and cargo services due to lack of commercial orientation of AAI.

    PPP model in development of airport is creating following challenges for the authorities:

    • There is absence of regulatory framework for the entire aviation sector.
    • There is lack of clarity over the degree of risk transfer to the private players in areas such as asset condition, construction cost, operation risk, non-insurable risk etc.
    • Lack of clarity is also evident in concessional agreement, revenue sharing and tariff structure framework.
    • The projects are also delayed due to land acquisition, cost overruns, long gestation periods and lack of funding and investment.

    All requisite steps are being taken to address the various challenges in this field. AAI is being suggested to improve its organizational capabilities. Alternate funding options are also being explored through combinations of equity, soft loans and grants. All these steps will help India to develop world class facilities in civil aviation by 2020.

  • 2016

    4. What are ‘Smart Cities’? Examine their relevance for urban development in India. Will it increase rural-urban differences? Give arguments for ’Smart Villages’ in the light of PURA and RURBAN Mission. (2016)

    A ‘smart city’ is an urban region that is highly advanced in terms of overall infrastructure, sustainable real estate, communications and market viability. It is a city where information technology is the principle infrastructure and the basis for providing essential services to residents.

    In recent times, the increasing burden on urban settlements raises concern related to sustainable development. To tackle these problems such as high urban poverty level, environmental degradation, inadequate basic services, relevance of Smart Cities has increased which provide smart solutions.

    E-Governance and Citizen Services: It will help in making citizen centric service delivery system, which will enhance the efficiency of public authorities.

    Smart Waste Management: Waste management is one of the major problems in urban settlement. Smart waste management like separation of solid waste at source level and use of eco-friendly waste disposal techniques, would avoid the problems like urban floods situation.

    Smart Health: Tele-medicine would reduce the pressure on medical facilities due to use of ICT in health facilities.

    Mobility system: Smart transport is also one of the main features that address the core issue in urban settlement. Many other areas such as, education, communication, electricity, renewable energy would also be addressed by the Smart Cities.

    High development in urban cities and less emphasis on development in rural areas has increased the rural-urban difference because of lack of opportunities in rural areas. In such a scenerio ‘Smart villages’ concept of Shyama Prasad Mukherjee Rurban Mission would focus on development of rural area from multi-directions. To ensure a standard of development several components have been included in Smart Village concept such as skill development training linked to economic activities, agro-processing, storage and warehousing facilities, digital literacy, sanitation, provision of piped water supply, solid and liquid waste management etc.

  • 2016

    5. Justify the need for FDI for the development of the Indian economy. Why there is gap between MoUs signed and actual FDIs? Suggest remedial steps to be taken for increasing actual FDIs in India. (2016)

    Foreign Direct Investment (FDI) refers to capital inflows from abroad that is invested in or to enhance the production capacity of the economy.

    The growth of FDI in India will boost the economic growth of the country. FDI in an economy helps in relaxing the domestic savings constraints. It helps to overcome the foreign exchange barrier thereby increases capital flow and provides risk-sharing capital financing. It furnishes the funds needed for the full utilization of the existing production capacity.

    It promotes efficiency and productivity through international competition of superior quality products. It provides access to the superior technology, superior managerial skills and bigger markets.

    A remarkable inflow of FDI in various industrial units in India will boost the economic life of our country. It can also ensure a number of employment opportunities by aiding the setting up of industrial units in various corners of India.

    According to the World Bank’s Ease of doing Business Index, Indian Economy is less attractive because of infrastructural bottlenecks such as availability of electricity, dealing with construction permits; registering property; getting credit; protecting minority investors; paying taxes; trading across borders corruption, strict labour laws etc. Other than these reasons, difficult of exit policy, red tapism, bureaucratic inertia, political deadlock play great role in maintaining gap between MoUs signed and actual FDIs in Indian economy.

    Land acquisition for industry is contentious in India, particularly when the purchaser is foreign. Concerns about the control of natural resources by foreign companies have stymied efforts to liberalize foreign investment

    The world's fourth-largest steelmaker by output POSCO signed a preliminary agreement to build the $5.3 billion facility, with capacity to produce 6 million tons a year. Posco dropped the project because of deteriorating market conditions and delays in securing mining rights.

    Insolvency and Bankruptcy Code, Ease of doing business, establishment of Special Economic Zone, Labour laws reforms can help in attracting FDIs in Indian economy.

  • 2017

    5. What are the reasons for poor acceptance of cost-effective small processing unit? How the food processing unit will be helpful to uplift the socio-economic status of poor farmers? (2017)

    India being an agricultural country offers ideal conditions for development of  emerging food processing industry. Easy availability of raw materials, changing lifestyles in urban and rural areas and favourable fiscal policies are giving a push to this sunrise sector.

    But small processing unit in India are suffering from many challenges such as-

    • Infrastructure: Small processing units cannot invest heavily in infrastructural support such as grading, packaging, cold storage, warehousing, logistics, supply chains etc. They rely on the common facilities in these activities.
    • Manpower: Skill shortage is hampering the competitiveness of this sector. There are few institutes which provide adequate training to the labour force in this sector.
    • Seasonality and perishability: Most of the agricultural products such as fruits, vegetable, fisheries etc are highly perishable and thus increase the vulnerability of the entrepreneurs to wastage of commodities. The supply of raw materials is also seasonal in nature.
    • Credit: Although the industry has been included in the priority sector lending, there are inherent risks involved in small enterprises.
    • Competition: Increasing investment in the sector has led to intense competition which has adversely impacted the operating profitability of the units.
    • Technology: Value addition is the key factor in the food processing but India still lacks the universalisation of robust technology in this sector.

    Food processing industry plays an important role in uplifting the socio-economic status of poor farmers through following ways:

    • By providing a vital link between the agriculture and manufacturing sectors, it reduces the wastage of agricultural raw materials and increases shelf life of food products. This helps farmers to sell more in the long run.
    • It links farmers to the agricultural market and provides them better income especially for horticultural products.
    • Farmers can also earn more through more exports as value addition increases the competitiveness of products in the international market.
    • It provides employment opportunities in sectors such as packaging, sampling, logistics and other non-farm activities. Thus it helps farmers to shift from farming to non-farming activities and have better lifestyles.

    India must leverage all the available resources to emerge as a leader in food processing sector. It has come out with SAMPADA scheme, Mega Food Park Schemes, Value Addition Centres, Irradiation facilities etc. to promote this sector. However more needs to be done to enable small farmers to benefit from these initiatives.

  • 2016

    6. Comment on the challenges for inclusive growth which include careless and useless manpower in the Indian context. Suggest measures to be taken for facing these challenges. (2016)

    In India employability of labour force is too low in comparison to developed countries that restricts the use of manpower. Only 2% labour force has certified skill in India in comparison to 70% in Britain and 96% in South Korea. It is one of the main reason of the presence of useless manpower in India.

    Due to high informalisation of Indian economy, a large section is left behind from the ambit of various social security and welfare schemes that is the reason for the presence of careless (caredless) manpower.

    Following measures can be taken up for facing these challenges

    Skill training programmes. Skill India programme and Pradhan Mantri Kaushal Vikas Yojna would build a strong force of skilled labour force with certified skills according to standards of National Occupational Standards (NSO).

    Gender Respective Budget (GRB): GRB would focus on neglected section of the Indian Society in providing education, health care, and skill trainings. Wider implementation of schemes specific to women such as Sukanya Samriddhi Yojana, Janani Suraksha Yojana would empower women.

    Primary education quality should be enhanced because due to lack of elementary education, Skill training programmes cannot be used to their full potential. The peculiar top heavy structure of India’s education profile, neglecting basic education and attaching priority to higher education, starkly captures the elitist bias in the implementation of India’s education policy.

    These are some measures that would increase the employability and productivity of manpower in India.

  • 2018

    9. The China-Pakistan Economic Corridor (CPEC) is viewed as a cardinal subset of China’s larger ‘One Belt One Road’ initiative. Give a brief description of CPEC and enumerate the reasons why India has distanced itself from the same. (2018)

    One Belt One Road (OBOR) is one of the major initiatives of China focusing on improving connectivity and cooperation connecting Asia to Europe and Africa.

    It has two dimensions: Silk Road Economic Belt (SREB), a land route and the 21st-century Maritime Silk Road (MSR) an ocean route.

    China Pakistan Economic Corridor (CPEC) is one of the flagship project of SREB.

    It provides rail-road connectivity between Gwadar in Baluchistan, Pakistan to Xinjiang province of China and passes through Pakistan-Occupied Kashmir.

    It is one of the largest bilateral initiatives between China and Pakistan with a budget of around $46 billion. CPEC is considered as a boon to struggling Pakistani Economy.

    India has openly expressed it displeasure over CPEC due to following reasons:

    • CPEC passes through Indian Territory, thus interferes with India’s sovereignty and territorial integrity.
    • There is a lack of transparency around the way the project is funded. It is considered as a part of Chinese policy of debt-equity swap.
    • It may disrupt and destroy Himalayan Ecology.

    It is said that India should join the CPEC as it will benefit the region at-large and can lead to an improvement in ties between India and Pakistan as economic inter-dependence between the two will increase.

    However, it should also be noted that India’s concerns regarding sovereignty and integrity have not been addressed by either China or Pakistan. It will not be good for India to join a project, which challenges India’s sovereignty. In addition, there is no clarity about the funding of the project.

  • 2019

    11. It is argued that the strategy of inclusive growth is intended to meet the objective of inclusiveness and sustainability together. Comment on this statement.

    According to the World Bank, Inclusive Growth (IG) refers to 'broad-based', 'shared', and 'pro-poor growth'. It encompasses both the pace and pattern of growth, which is considered interlinked and therefore needs to be addressed together. Inclusiveness, on the other hand, is a concept that encompasses equity, equality of opportunity, and protection in market and employment transitions and is therefore an essential ingredient of any successful growth strategy.

    • Rapid pace of growth is unquestionably necessary for substantial poverty reduction, but for this growth to be sustainable in the long run, it should be broad-based across sectors, and inclusive of the large part of the country’s labour force.
      • Thus, IG focuses on productive employment rather than income redistribution as a means of increasing incomes for excluded groups. Also, the focus is not only on incremental productive employment growth but also on productivity growth.
    • Growth can be ‘inclusive’ and “pro-poor”, if and only if the incomes of poor people grow faster than those of the population as a whole, i.e., inequality declines. By focusing on inequality, the inclusive growth could lead to optimal outcomes for both poor and non-poor households.
    • Sustained, high growth rates and poverty reduction, however, can be realized only when the sources of growth are expanding, and an increasing share of the labour force is included in the growth process in an efficient way i.e. growth associated with progressive distributional changes will have a greater impact in reducing poverty than growth which leaves distribution unchanged.
    • The inclusive growth approach takes a longer-term perspective, where it is important to recognize the time lag between reforms and outcomes. Inclusive growth analytics is about policies that should be implemented in the short run, but for sustainable, inclusive growth in the future.
      • For Example: The lag between the time when investments in education are made and the time when returns from improved labour skills are realised- this implies that the growth analysis must identify future constraints to growth that may not be binding today, but that may need to be addressed today in order to ensure sustainable and inclusive growth.
    • Sustainable development should be followed wherein we should not only be inclusive with respect to people but also bring the environment in its inclusion thus causing minimum depletion of resources and going for a circular economy.
    • In the past few years, the government is aggressively focusing on the strategy of inclusive growth in its various programs and policies.
      • For Example, Jan Dhan Yojana has focused on incorporating the unbanked masses into the financial sector and has increased financial inclusion statistics to more than 80%.

    In the last few decades, India’s growth story has been phenomenal but the outcomes of this growth were not visible on the ground as India has performed badly in several social indicators as well as Human Development Index. Therefore inclusive growth is the idea to realize the dream of sustainable and qualitative development for present and future generations.

  • 2018

    11. How are principles followed by the NITI Aayog different from those followed by erstwhile Planning Commission in India? (2018)

    National Institution for Transforming India, popularly known as NITI Aayog was established by executive resolution on 1st January, 2015. It has been established with the mandate to be Government of India’s premier policy think tank giving both directional and policy inputs.

    Principles followed by NITI Aayog are:

    • Pro-People: NITI Aayog has followed bottom up approach in policy formulation unlike Planning Commission which followed top down approach. It has followed pro-people approach where focus is to fulfill the aspirations of society as well as individuals.
    • Pro-Activity: Planning Commission in its plan provided for fixed five year plans depending on needs of nation. NITI Aayog is working on principle of pro-activity, where the problems faced by people are picked up and solutions are worked out. Activity of NITI Aayog is an ongoing process which is evident from its vision document and plans with milestone of 3 years, 7 years, and 15 years.
    • Participation: NITI Aayog while formulating policies, includes participation not only of in house members, union, and state ministers but it also includes domain experts from different fields. Planning Commission included only its in house members, and union ministers.
    • Empowering women: Policy formulation of NITI Aayog follows the principle of empowerment by inclusion of women in every aspect of decision making.
    • Inclusion of All: The vision and policy formulation of NITI Aayog is based on inclusion of all focusing on SCs, STs, Minorities, Poor, Villages, and Agriculturists, etc. Planning Commission focused primarily on overall economic development based on one size fits all principle, thus sometimes it led to exclusion of certain section of society.
    • Equality: The programmes like Atal Innovation Mission, SETU, etc., are based on principle of equality, providing opportunity to youth, and other sections of society.
    • Transparency: NITI Aayog through its basic principle of inclusion, ‘more governance less government’, equality, participation and empowerment tries to make government visible, responsive, and sensitive to the needs and aspirations of the people.

    With the coming of NITI Aayog, there has been paradigm shift in planning process as the principles followed by it have nurtured and supported Cooperative and Competitive Federalism in India.

  • 2016

    11. Give an account of the current status and the targets to be achieved pertaining to renewable energy sources in the country. Discuss in brief the importance of National Programme on Light Emitting Diodes (LEDs). (2016)

    The Ministry of New and Renewable Energy has revised its target of renewable energy capacity to 1,75,000 MW till 2022, comprising 1,00,000 MW Solar, 60,000 MW Wind, 10,000 MW Biomass and 5,000 MW Small Hydro projects.

    Currently the installed capacity of renewable energy in India is 48.85 GW of which the contribution from solar, wind and biopower is 5.8GW, 25 GW and 4.5 GW respectively. The steps taken by government to support and increase the share of renewable energy in India’s power matrix and to achieve the new target are:

    • Enactment of a national offshore wind energy policy.
    • Govt plans to set up a trading platform for clean energy to help states buy, sell and trade renewable-based power.
    • 10-year tax exemption for solar energy projects.
    • Govt has outlined new guidelines which allow states to use its unproductive and non-agricultural land for solar parks.

    In order to make Energy Efficiency a high priority National Programme on Light Emitting Diodes (LEDs) has been initiated. The importance of National Programme on Light Emitting Diodes (LEDs) is following.

    • It aims to install LED bulbs for domestic and street-lighting in 100 cities across India by March 2016.
    • LED bulbs will be distributed in a phased manner.
    • LED bulbs have a very long life, almost 50 times more than ordinary bulbs, and 8-10 times that of CFLs, and therefore provide both energy and cost savings in the medium term. It will help in saving of energy around 24 crore units every year.

  • 2017

    11. One of the intended objectives of Union-Budget 2017-18 is to ‘transform, energize and clean India’. Analyze the measures proposed in the Budget 2017-18 to achieve the objective. (2017)

    Budget in India is a socio-economic document that reflects the aims and aspirations of the government and people of India.

    The initiatives in the Budget 2017-18 can be discussed under following heads –

    1. Transforming India

    • It concerns with those policies of the government that seek to transform the governance of the country and improve the quality of life of people.
    • The budget has focused on upgrading the infrastructure of railways, roads, rivers, airports, telecommunications and energy sector. But railways in India need comprehensive reforms as it is evident from recurrent accidents in different parts of the country. 
    • Greater allocation for DeendayalAntyodaya Yojana is relevant in context of skilling India and reaping the benefits of demographic dividend in India.
    • Rationalisation of tribunals is a positive step towards securing rule of law and effective delivery of justice.
    • Tax administration is to be reformed through the strategy of RAPID (Revenue, Accountability, Probity, Information and Digitalisation). This strategy will help to plug tax avoidance at various levels and increase revenue of the government.

    2. Energizing India

    • There is focus on uplifting the conditions of various sections of society especially the youth and the vulnerable.
    • The conditions of farmers are to be improved through settling the arrears under the FasalBima Yojana, setting up Micro Irrigation Fund and widening the coverage of National Agricultural Market (e-NAM). However perishables are yet to be denotified from APMC acts by the states and model law to regulate contract farming has not come in public domain.
    • Mission Antyodaya will be strengthened to bring one crore households out of poverty by 2017. But there are no effective measures to better target the beneficiaries under this scheme.
    • Different initiatives for development of youth has been proposed such as SANKALP, next phase of STRIVE, extension of Pradhan Mantri Kaushal Kendras etc. But to energize youth of the country, robust IT infrastructure is a necessity which is hampering the learning outcomes in schools, colleges and skill development schemes.

    3. Clean India

    • It entails removing the evils of corruption, black-money and non-transparent political funding.
    • Digital economy is being strengthened through initiatives like JAM trinity, BHIM app, Financial Inclusion Fund, Amending Negotiable Instruments Act etc. But not much has been done to protect the digital payments and transactions from cyber frauds and thefts and accessibility to computers or mobiles is limited to few.
    • To bring transparency in the funding of political parties the limit of donation through cash has been fixed at Rs. 2000/- from one person and electoral bonds will also be issued in future.

    The budget envisions to ‘transform, energize and clean India’ but it will not be materialized unless there is effective implementation of policies. Therefore the institutions to execute policies must be rejuvenated and a sound mechanism for the monitoring and evaluation of policies should also be established.

  • 2019

    12. The public expenditure management is a challenge to the Government of India in the context of budgetmaking during the post-liberalization period. Clarify it.

    The public expenditure management (PEM)is an instrument of state policy and mechanism for good governance. The broad objective of PEM is the achievement of overall fiscal discipline, strategic allocation of resources, operational efficiency and macro-economic stability.

    Various challenges faced by the government with regard to PEM

    • Global Shocks: Global slowdown, Federal rates (for eg. reversal of quantitative easing), Trade wars, Oil prices etc. impact the budget estimates which in turn impacts the subsidies allocation and tax revenue collection.
    • Narrow tax net: More reliance on indirect tax makes the taxation policy more regressive. It also constrains the government to increase its social spending, which is low in India as compared to other major global economies.
    • Less capital expenditure: Budget’s capital expenditure is essential to ensure inter-generational equity and competitiveness of the economy. It has remained around 10%-12% of government expenditure.
    • Populist tendencies: This leads to unproductive spending of the scarce government resources. For eg. giving tax sops, farm loan waivers in the pre-election period.
    • Fiscal deficit: Keeping the deficit within the desired limit is essential for maintaining the fiscal prudence.
    • Managing public debt: It is essential to ensure that the burden of the current generation’s needs doesn’t fall on the next generation.
    • Trade deficit: It should be reduced in order to have healthier global trade and improve market competitiveness.
    • Containing inflation: It is one of the most important objectives of monetary policy which is also impacted by the revenue and expenditure policies of the government.
    • Estimates of revenue and expenditure: In order to have effective PEM, comprehensive and realistic estimates of revenue and expenditure are essential. Currently, there is uncertainty in providing correct budget estimates.
    • Ensuring equitable development across regions: One of the pressing challenges faced by the government with regard to public expenditure management is to ensure equitable development across the regions.
    • Inadequate capacity and efficiency of public institutions: Substantive portion of budget allocation towards various schemes remains unutilized and underutilized due to poor implementation and structural bottlenecks. It leads to poor efficiency and cost overruns. For e.g. stalled road projects.

    Government measures for effective PEM

    • FRBM (Amendment) Act: Government has targeted to reduce the fiscal deficit gradually and stabilize it by 2023 to 2.5%.
    • Removing Plan/Non-plan distinction: Removing plan/non-plan distinction and instead adopting the revenue-capital classification of public expenditure will help in allocation of more resources for creation of capital assets which in turn will help in improving the efficiency of economy.
    • Monetary policy framework: Inflation targeting by the Monetary Policy Committee has helped in price stability, which is key to effective PEM.
    • Deepening of Fiscal Federalism: More tax revenue has been devolved to states from the divisible tax pool. It would help in better allocation of scarce resources based on the needs of states.
    • Monitoring system framework: It has been developed at the central level to enable the outcome budgeting. Also, it enables the timely assessment of resource utilization. E.g. Public Financial Management System (PFMS).

    With the 1991 reforms, the Indian economy was linked with the global economy. The effective PEM becomes more essential in this globalised era to meet various objectives of state policy. Various fiscal targets should be followed prudently and monitoring of resource utilization should be made robust.

  • 2018

    12. How would the recent phenomena of protectionism and currency manipulations in world trade affect macroeconomic stability of India? (2018)

    Protectionism refers to government actions and policies that restrict or restrain international trade, often with the intent of protecting local businesses and jobs from foreign competition. E.g.: The U.S.A. has placed tariffs on billions of dollars worth of goods from around the world, recent being 25% tariffs on all steel imports, and 10% on aluminum.

    Currency manipulation refers to actions taken by governments to change the value of their currencies relative to other currencies in order to bring about some desirable objective, such as stimulate exports and retard imports. E.g.: China regularly intervenes to prevent its currency Renminbi (RMB) from appreciating relative to other currencies.

    Both protectionism as well as currency manipulations are considered as trade distortion practices and are counterproductive to global free trade. These not only have impact on global economy but also affect macroeconomic stability of individual economies.

    The effects of these phenomena on the macroeconomic stability of India are:

    • Inflation: Currency manipulation (here depreciation) results into costlier imports which limits the Consumers’ choice and they end up paying more for the limited quantity of goods and products, thus causing inflation. Similarly, protectionism also limits the choices of consumers. Overall, global competition is a key factor in keeping the price of numerous goods and products down and gives consumers the ability to spend.
    • GDP: Protectionism leads to increased import costs as manufacturers and producers have to pay more for equipment, commodities, and intermediate products from foreign markets. This will lead to decrease in real GDP.
    • Employment: Protectionism is not only about restricting the flow of goods and services, but also the skilled human resource. Any restrictions on this will not only promote unemployment but will also hamper the growth.
    • Industrial Growth: Protectionism may promote inefficiencies by the infant industry as it will have no incentive to make itself efficient through use of technology and long-term investments.
    • Current Account Deficit: In the absence of robust export base, the intermediate goods that form part of the global supply chain becomes more expensive because of protectionism, leading to widening CAD. Higher CAD further puts the rupee under pressure and raises the cost of overseas borrowing.

    Since, protectionism and currency manipulations do not seem to halt in coming future, it is necessary for India to walk through these murky waters carefully. Indian policy makers need to be innovative and flexible in responding to the current uncertainties of the global world.

  • 2017

    12. “Industrial growth rate has lagged behind in the overall growth of Gross-Domestic-Product (GDP) in the post-reform period” Give reasons. How far the recent changes in Industrial Policy are capable of increasing the industrial growth rate? (2017)

    Industrial policy 1991 set out directions for industrialisation in an economy that began its journey in liberalisation. It dealt with liberalising licensing and measures to encourage foreign investments. However, Industrial growth rate could not match the pace with the overall growth of GDP.

    Constraints to industrial growth

    • Inadequate infrastructure: Physical infrastructure in India suffers from substantial deficit in terms of capacities as well as efficiencies. Lack of quality of industrial infrastructure has resulted in high logistics cost and has in turn affected cost competitiveness of Indian goods in global markets.
    • Restrictive labour laws: The tenor of labour laws has been overly protective of labour force in the formal sector.
    • Complicated business environment: A complex multi-layered tax system, which with its high compliance costs and its cascading effects adversely affects competitiveness of manufacturing in India.
    • Slow technology adoption: Inefficient technologies led to low productivity and higher costs adding to the disadvantage of Indian products in international markets.
    • Inadequate expenditure on R&D and Innovation: Public investments have been constrained by the demands from other public service demands and private investment is not forthcoming as these involve long gestation periods and uncertain returns.

    Recently Department of Industrial Policy and Promotion (DIPP) has proposed various changes in industrial policy that will focus on increasing the industrial growth rate in following manner -

    • The new policy aims to attract $100 billion of FDI in a year, up from $60 billion in 2016-17, it will also aim at retaining investments and accessing technology.
    • The policy aims to harness existing strengths in sectors like automobiles and auto-components, electronics, new and renewable energy, banking, software and tourism.
    • The policy also aims to create globally scaled-up and commercially viable sectors such as waste management, medical devices, renewable energy, green technologies, financial services to achieve competitiveness.
    • The policy will also push for reforms to enhance labour market flexibility with an aim for higher job creation in the formal sector and performance linked tax incentives.

  • 2019

    13. What are the reformative steps taken by the Government to make the food grain distribution system more effective?

    The National Food Security Act (NFSA), 2013 provides for the Right to Food as a legal entitlement by providing subsidized food grains to nearly two-thirds of the population. However, the current food grain distribution system is fraught with various defects.

    Issues with the Food Grain Distribution System

    • Inaccurate identification of households: Presence of inclusion and exclusion errors in identification of beneficiaries.
    • Leakages in the delivery system: This takes place during the transportation of food grains to ration shops and from there to the open market.
    • Financially inefficient: The centre bears a large financial burden of the food subsidy as the cost of procuring and delivering food grains is about six times its sale price.
    • Shortfall in the storage capacity: It leads to the rotting of food grains.

    Reformative steps taken by the Government:

    • Procurement
      • Promotion of nationwide procurement: Food Corporation of India (FCI) has tried to revamp and restructure the procurement system to cover the entire country. In this regard, FCI has also made special efforts for procurement in the eastern states of India.
    • Stocking and Storage
      • Use of modern technology in storage: To prevent rotting of food grains. Irradiation Technology has also been introduced.
      • Online Monitoring System: To bring all operations of FCI Godowns online to check leakages.
    • Distribution
      • Digitization of ration cards and use of AADHAR: It has helped to eliminate duplicate and ghost (fake) beneficiaries, and make identification of beneficiaries more accurate.
      • Technology-based reforms implemented by states: End to end computerisation has curbed large-scale diversion of food grains by tracking its delivery from state depots to beneficiaries.
      • GPS tracking of delivery: The tracking of the movement of trucks carrying food grains has helped in monitoring the supply chain. It has been implemented by Chhattisgarh and Tamil Nadu.
      • SMS based monitoring by citizens: Allows monitoring by citizens as they can register their mobile numbers and send/receive SMS alerts during dispatch and arrival.
      • Use of web-based citizen’s portal: For public grievance redressal as they can register complaints or provide suggestions.
      • Implementing Direct Benefit Transfer (DBT) in Public Distribution System (PDS): Currently, pilot projects have been started in Delhi and Puducherry.

    Way forward

    • Decentralized Procurement: Decentralized procurement operations by leading states that have gained sufficient experience in this regard. This would help Food Corporation of India (FCI) to focus on lagging states.
    • Engagement of the private Sector: This can help to modernize stocking and warehousing facilities.
    • Home delivery of food grains: This can help in increasing last-mile connectivity.
    • Full implementation of Shanta Kumar committee recommendations.

    Food security is crucial for reaping the benefits of demographic dividend and this can be achieved through a robust food distribution system. Competitive federalism should be promoted among states so as to learn from the best practices of other states in managing the food economy.

  • 2017

    13. What are the salient features of ‘inclusive growth’? Has India been experiencing such a growth process? Analyse and suggest measures for inclusive growth. (2017)

    Inclusive growth is economic growth that creates opportunity for all segments of the population and distributes the dividends of increased prosperity, both in monetary and non-monetary terms, fairly across society. The salient features of inclusive growth are:

    Participation: People are able to participate fully in economic life and have greater say over their future. People are able to access and participate in markets as workers, consumers and business owners.

    Equity: More opportunities are available to enable upward mobility for more people. All segments of society, especially poor or socially disadvantaged groups, are able to take advantage of these opportunities.

    Growth: An economy is increasingly producing enough goods and services to enable broad gains in well-being and greater opportunity. Economic growth and transformation is not only captured by aggregate measures of economic output (such as GDP), but must include and be measured by other outcomes that capture overall well-being.

    Stability: Individuals, communities, businesses and governments have a sufficient degree of confidence in their future and an increased ability to predict the outcome of their economic decisions.

    Sustainability: Economic and social wealth is sustained over time, thus maintaining inter-generational well-being. Economic and social wealth comprises of a set of assets that contribute to human well-being, including human produced (manufactured, financial, human, social) and natural capital.

    India’s economy continues to grow at an impressive rate, with projected annual GDP growth of 7.5% in 2017-18. As GDP per capita has more than doubled in last ten years, extreme poverty has declined substantially.

    • Access to education has steadily improved, and life expectancy has risen.
    • Financial inclusion has got a major boost with the expansion of rural banks and schemes like Jan-DhanYojna, incorporation of Information and Communications Technology (ICT) (JAM Trinity).
    • Job, education and food entitlement schemes like MGNREGA, RTE and Right to Food are also helping in deepening the growth further.

    However India still is home to largest number of poor and malnourished children. Recent reports are suggesting huge income concentration in the hands of few. With looming agrarian distress and jobless growth, inclusive growth is still a distant dream for India.

    According to WEF report, India has been ranked 60th among 79 developing economies, below neighbouring China and Pakistan, in the inclusive development index.

    Measures for inclusive growth

    • Equity of access to quality basic education including basic financial literacy. Ex: RTE
    • Ensuring quality health and sanitation facilities by making health a fundamental right.
    • Gender parity measures through political representation, women reservation.
    • Measures focused on social security benefits and gender parity, for ex., through gender budgeting.
    • Creating employment opportunities through Make in India, Skill India etc.

    Through these measures inclusive growth can be ensured and the Gandhian dream of reaching to the last man standing in the row can be achieved.

  • 2019

    14. Elaborate the policy taken by the Government of India to meet the challenges of the food processing sector.

    The food processing industry (FPI) is considered a sunrise sector that has gained prominence in recent years. The industry is of enormous significance because of the vital linkages and synergies that it promotes between the two pillars of our economy i.e. industry and agriculture.

    The food processing industry is struggling with the following challenges:

    • Poor supply chain linkages that results in high wastage and high costs.
    • Infrastructure bottlenecks such as packaging facilities, cold storage, transportation, etc. cause a significant amount of food produced getting wasted.
    • India lacks basic standardisation and certification infrastructure, as there is a huge gap in the availability of laboratories, trained manpower, and certification agencies.
    • Lack of trained human resources at different levels in the food processing industry mostly due to lack of training infrastructure; lack of specialised training programmes etc.
    • In addition, there are challenges like inadequate demand-based innovations, access to credit, proper branding, etc.

    Given the above-mentioned challenges, the government has taken the following policy initiatives:

    • The Ministry of Food Processing Industries (MoFPI) is implementing PMKSY (Pradhan Mantri Kisan SAMPADA Yojana) as a comprehensive package for creation of modern infrastructure with efficient supply chain management from farm gate to retail outlet. It is expected to provide a big boost to the growth of food processing sector, help in providing better returns to farmers, create huge employment opportunities especially in the rural areas, reduce wastage of agricultural produce, and enhance the export of the processed food. Under PMKSY the following schemes are to be implemented.
      • Mega Food Parks
      • Integrated cold chain, value addition and preservation infrastructure
      • Creation/expansion of food processing/preservation capacities
      • Infrastructure for agro-processing clusters
      • Scheme for creation of backward and forward linkages
      • Food safety & quality assurance infrastructure
      • Human resources and institutions
    • Foreign Direct Investment (FDI) policy: FDI up to 100%, under the automatic route is allowed in food processing industries.
    • Agricultural and Processed Food Products Export Development Authority (APEDA): As an apex organisation under the Ministry of Commerce and Industry, APEDA focusses on ‘export’ of scheduled products.
    • The Food Safety and Standards Authority of India (FSSAI) is working to strengthen the food testing infrastructure in India, by upgrading the existing food testing laboratories and setting up new mobile testing labs across the country.
    • The Ministry of Food Processing Industries announced a scheme for Human Resource Development (HRD) in the food processing sector. The scheme has the following four components:
      • Creation of infrastructure facilities for degree/diploma courses in the food processing sector
      • Entrepreneurship Development Programme (EDP)
      • Food Processing Training Centres (FPTC)
      • Training at recognised institutions at State/national level

    The food processing industry is critical to India’s growth and the government should focus on providing adequate impetus to the sector. With the correct set of policy implementations and support, the industry can grow by leaps and bounds, taking India to a new position of strength and prosperity in the global economy.

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