Chapter 1.

Economic Outlook,Prospects,and Policy Changes

Indias Position Globally:
Stable and outpost of opportunity.
With good fiscal consolidation and low inflation.
Highest economic growth in the world.
Challenges Ahead:
Sustain this stability in even more difficult global
environment.
INTRODUCTION:
1. If the world economy turns into crisis or slides into further
weakness ,Indias growth will be seriously affected.
2.

3. India is now the fastest major growing economy in the world.

4. Despite of declined exports and low private investment ,it is
performing well.
5. This performance meaningfully reflected in transparent
auctions of public assets and non interference in regulatory
decisions.
6. Liberalized FDI and passage of Insurance bill.
7. Restoring stability and predictability in tax decisions
,reflected in Minimum Alternative Tax imposed on foreign
companies.
8. Implementing major public investment program for
infrastructure.
9. Instituting a major crop insurance program to relief farmers
against adversity
10.
Financial inclusion will also be furthered by licensing 11
payment banks and 10 small banks.
11.
LPG witnessed worlds largest DBT programme with 15
crore people recieving 29000 crore.

Hurdles in reforms:
1. Passage of GST
2. Disinvestment fell short of targets.
3. NPAs and stressed assets of banks.
India has still great potential growth rate of 8-10%,for that indis
should realize 3 fronts:
1. India has moved away from anti markets and uncritically pro
state to pro entrepreneurship,being a business favouring
why it can impede competition.
Key to creating a more competitive environment will be to
address to exit,though govt is undertaking many initiatives
like new banktruptcy law,rehabilitating stalled
projects,guidelines for PPPs can help to exit.
2. Major investment in people like health,education,raising
necessary resources for investments in human
capital,broadly speaking delivery of essential services by
increasing states efficiency of service delivery.
3. Focusing on Service and Manfacturing sectors india should
not neglect Agriculture,where 42% Indians still derive their
income from farming,Newly introduced insurance schemes
should reach every farmer.focus on less inputs and more
outputs due to climate change and emerging scarcity.
Global Context:
We should contend with an usually challenging and weak
external environment.
Short span of crises
a. American Debt Crisis 1982
b. Asian Financial Crisis 1990(8 years)
c. Eastern European Crisis 2008(18 years)
d. Global Financial Crisis 2008(No gap)
e. Mini Crises 2013
f. China Felldown 2015
Indian Context:
In 2012 india was the most vulnerable of emerging market
countries.
Later it has improved much as it reduced its vulnerability by
5.3 % ,china 0.7 %,0.4 % for others.
Rational Investor Ratings Index(RIRI) with 2 elements
Growth and Macro economic Vulnerability.
Higher RIRI means better condition,so india stands out
internationally for Investment.
Review of Major Developments:
Growth rate of GDP at constant market prices is 7.6% from
7.2 % in 2014-15 mainly due to Private Final Consumption
Expenditure Accelerated.

 Growth rate of GVA(Gross Value Added) is 7.3% from 7.1% in

2014-15.
(Primary)Agriculture low growth for 2nd year due to weak
monsoons.
(Secondary)Industry done well due to acceleration in
Manfacturing(9.5%).
(Tertiary)Services continue to expand rapidly.
Nominal GDP(Without adjusting inflation) increase by just
8.6% against 11.6 % expected.
CPI index just above 5%.
WPI in negative since November 2014,due to falls
international commodity prices.
CAD is low and comfortable.
Foreign Reserves above $350 billions,i.e above standard
norms for reserve adequacy.
Fiscal deficit is 4% from 4.2 % in 2014-15.
Revenue deficit declined by 0.8% of GDP.

1% decrease in world growth rate is associated with 0.42 %

of decrease in indias growth rate from 0.2% in 1991-2002.
If world continue to grow at 3% india will remain at above
7%.
Domestic consumption will increase with 7th pay
commission,return of monsoons.
Risks:
1. Turmoil in global economy could worsen exports and tighter
financial conditions.
2. If oil prices increases reduces monetary easing.
3. If oil markets are dominated by supply relate factors i.e
agreements to restrict output by the major producers.
Relief:
1. If good monsoon ,increase in rural consumption good for
monetary easing.
Facts:

 As of Jan 2016 there are 19,400 tech enabled start ups.

Active investors from 220 to 490 in 2015.
Abnormal warming of Pacific waters near Ecuador and peru
which disturbs weather patterns around the world.
2015 El Nino strongest since 1997 of Oceanic Nino Index.
It is a 22nd ELNino event since 1950.
NPAs of banks increasing since 2010.
Twin balance sheet problem-PSBanks and large Corporate
houses.
Mission Indradhanush which includes RBI initiated 5:25 and
SDR schemes.
Resolving TBS require
4Rs,Recognition,Recapitalization,Resolution,Reform.
Inflation:
Inflation remained in 4-6% range
No 7th pay commission effect on inflation by previous 6 th pay
report
7th pay wagebill go up by 52% where 6th was 70%
Such a large increase has low effect due to
It reflects the degree to which aggregate demand
exceeds aggregate supply
Pay awards determine only small part of demand
Growth slow in china put pressure on tradable goods all
around the world
Fed reserve continues to increase interest rates for reflow of
capital to US
All these suggest that RBI should reach its target 5% by
2017
Effective stance for monetary policy could be relaxed in 2
ways
By easing liquidity conditions to make them
consistent with current policy rate
Further lowering policy rate consistent with
meeting inflation target
External Outlook:
o Decline exports by 18% due to fall in commodity prices but
decline in non oil dollar exports
Medium Term Fiscal Framework:
o Most fundamental task of budget policy is to preserve fiscal
sustainability .
o Govt should be in a strong position to repay debts
o Some of those are Overall deficit,Primary deficit,revenue
deficit,Debt to GDP ratio

o Clearest sign that a govt is on a sustainable path is the

direction of its debt to GDP ratio
o 2008-09 large debt and 2013-14 exchange rate depreciation
for more debt.
o India has 67% of Debt to GDP ratio more that others.
o 2 factors complicate the fiscal task 2016-17
7th pay commission
Public investment to addess infrastructure needs
o It seems to be important for govt to Purchase insurance
against these downside risks rather than reducing fiscal
demand
o
Trade Policy:
Economic position:
Failure of Nairobi WTO negotiations
Mega Regional trade agreements
Slow growth of world
Indias Introspection is required in
Support farmers in light of WTO
Mitigate impact of erradic trade policy on farmer
incentives
Reconciling the Big but poor
Dealing stresses brought by external environment
Engage broadly with world on trade
Agriculture and WTO:
Doha development agenda:
Special safeguard mechanism
Food security
SSM assures right to impose trade barriers if low agricultural
imports
Indias tariff rates b/w 40 to 100% ,upto 150% for others.
No special tariffs necessary for india due to india could raise
high tariffs if imports surges ,so no more higher tariffs
required.
Lndia has become more competitive in agriculture and self
sustainable
WTO rules for india are away from domestic protection and
supporting border protection
Volatile Trade Policy:
Producer and consumer interests have to be balanced
But In reality When scarcity occurs exports stopped and
when reserve occurs tariffs on imports.

 MSP,Import,Export policy should be announced in advance of

growing season.
Should not alert during the course of the season.
Big But Poor dilemma:
Vast country with more production but poor country
This translates into recognize and practice reciprocity
If india agrees to WTO,tomorrow TPP will come before india.
Targeted assistance is necessary for india.
Dealing with ongoing stresses:
Slowdown of world economy and Chinese fall
Pressure on indian exports due to china
Excess capacity of Chinese steel and aluminium will lead
to imports surge in india.
1st rupee value must be fair and should not strengthen .
By allowing gradual decline if capital flows are weak.
Intervention in foreign exchange maekets if inflows are
robust.
2nd india should strengthen procedures that allow WTO
consistent
Legitimate actions against dumping(Anti dumping)
Subsidization(Countervailing duties)
Surges in Imports(Safe guard measures)
3rd india should eliminate all the policies that currently
provide ve protection for indian manufacturing and
favour foreign manfacturers.
This could be achieved by GST bill.
Pre requisites for Trade opening:
Accepting transitory costs of trade liberalization by Targeted
assistance required to be able to negotiate credibly in the
WTO
============o===============

Chapter 2:The Chakravyuha Challenge of the Indian Economy

Introduction:
Chakravyuaha challenge is basically from Mahabharata
which means Only can able to enter but not exit.

 A market economy needs unrestricted entry of new firms

,new ideas,new technologies
It also needs free exit so that resources are forced or enticed
away from inefficient and unsustainable uses
Though india has made many facilities to market entry but
not yet made considerable actions for exit
To be sure in this large country exit may not be desirable but
policy actions needed when costs outweigh the benefits
Liberalizing FDI,Launching startup india and
Enterpreneurship initiatives are noteworthy for entry
Chakravyuha challenge is more relatively a feature of
traditional sectors of economy and not restricted to public
sector
Where IT,e-commerce have showed that exit is not a first
order problem
Indeed impeded exit in private sector is becoming a major
challenge
Magnitude of the problem:
Exit problem in india is beyond dispute
In principle Productive and innovative firms should expand
and grow forcing out the unproductive ones
In US avg 40 year old plant is 8 times bigger than new ones
Mexican firms twice as large as new firms
Where as indian firms are only 1.5 times bigger than new
ones
In 1998-99 the ratio in india was 2.5 but it has worst now
It shows that not many big firms and too many firms that
unable to grow.
Bloom and Van Reenen(2010) surveyed 600+ randomly
choosen firms in india and US ,india has too many inefficient
firms that can not be survived
Costs of impeded exit:
Lack of exit creates 3 types of problems
Those are Fiscal,Economic,Political
Fiscal:
Through govt support of incumbent mostly inefficient
firms i.e explicit(bailouts) or implicit(tariffs,loans)
subsidies costs to the economy
Greater interest rates costs lower private investments
that result govt to borrow to finance foregone revenue
Economic:
Resources and factors of production not used for
productive uses.

 Another is overhang of stressed assets in banks it

reflects in appropriating costs of past mistakes b/w
equity holders,creditors,taxpayers and consumers
Consequence is reduced flow of investment and low
medium term growth
Political:
For govts attempting to reform economy
Favouring rich firms financially shows that govt helps
large corporate.
Which limits the govt undertake measures that will
benefit economy but can business
No sector except fertilizer illustrates 3 types of problems
Fiscal subsidies amount 0.8% of GDP goes to inefficient,non
agricultural etc
Well offs are also the beneficiaries of the interventions that
prevent exit
Describing the Problem of Exit:

There are many ways to measure the exit

problem

Why there is an Exit Problem?

In india exit problem rises due to Three Is
Interests,Institutions,Ideas
Intersets:
o Powerful reason for lack of exit is power of vested
interests
o Good example is interest groups blocking reform comes
from introducing JAM for MGNREGA expenditure suffers
from leakeges
o Smart card system reduced payment delays by
19%,increasing MGNREGA wages by 24%,Reducing
leakeges by 35%
1. Institutions:
o Problem arises both from strong and weak institutions
o Weak-legal procedures that increase costs,time and
financial costs f exit
o Example-Debt Recovery Tribunals
o Accumulated and unsettled cases increased to 4L crore
at end of FY15
o Weak2-Inability punish wilful defaulters
2. Ideology:
o A good example all interventions in Agriculture
o All are anti poverty programs
o Once they are set in place difficult to reverse

o MSPs are actually insurance based became price floors

o Subsidies and tax concessions are for poor but utilising
by well off too
o Sanctification of small i.e small firms and enterprices
merit help through easy availability of credit
Conclusion:Addressing the Problem:
Avoid exit through liberal entry:
Allow private companies to enter market without
touching PSUs
Direct policy Action:
New banktruptcy law that will significantly expedite
exit
Over strong institutions can be addressed by
empowering bureucrats and reducing their
vulnerability
Technology and JAM solution:
Direct benefit Transfer
Bank,Aadhar,Mobile linkage
It reduces human discretion and intermediaries
It avoids old ways of business
Transparency:
The commission for Agricultural Costs and Prices(CACP)
could publish these social costs and benefits of
production along with routine calculation of the private
costs of production
Info about real beneficiaries
Exit as an opportunity:
PSU need to be privatised but opposed by managers
and employees
But this opposition can be used as resouces earned by
privatisation could be earmarked for employee
competition and retraining
PSUs occupies large land that can be allocated for Make
in India or Smart city companies
Concern is that public assets will become casualities if
privatised

Chapter 3:Spreading JAM across Indias economy.

Introduction:
Cash transfers can directly improve economic lives of indias
poor ,raise economic efficiency by reducing leakages and
market distortions
Ingredients of JAM:
1. Identify beneficiaries
2. Transfer money to beneficiaries
3. Access by beneficiaries
Failure of 1 leads to inclusion of errors and leakages
Failure of 2,3 leads to exclusion errors i.e beneficiaries
unable to avail them
Govt to Beneficiary:challenge of identification
Govt needs database of eligible individuals
Ghost accounts,mistakes in names leads to leakages
Authenticity hampered by administrative and political
discretions


Aadhar :75% of population and 95% of adult
1/3rd of states have >90% coverage
Only Nagaland,Meghalaya,Assam have <50% coverage
Govt to Bank:challenge of payment
After identifying beneficiaries govt must transfer money to
them
Individual should have their bank accounts and govt must
have their accounts
Jan Dhan Yojana eased this significantly
Basic account rate is still low 46%
Above 75% in Madhya Pradesh and Chattisgarh
Exclusion errors must be avoided,due to DBT unbanking
people not getting money


Unbanked are more constraint than unidentified
Bank to Beneficiary:last mile challenge:
o Govt transfers money to banks
o In urban areas free availability of ATMs ,Banks but financial
literacy constraints
o In rural areas only 27% of villages have bank with in 5km
o To solve this RBI given licence to new 23 banks
o 2 universal banks,11 payment banks,10 small finance banks
o Mobile penetration across india is strong except in 2 states
o Bihar(54),Assam(56) which is lower than 60%
o Mobile networks can be used for payments ,inform about
services
o Significant savings and efficiency gains can be achieved by
transferring funds directly from state/central to worker
rather than layer to layer
o i.e Centre->state->district->block->panchayat ,leads to
leakages
o JAM used schemes MGNREGS-41%,PAHAL-37%,NSAP14%,Scholorships-7%
JAM-DBT in LPG:
PAHAL scheme directly transfers LPG subsidies into
customers accounts
Pahal launched in late 2014.
Currently over 15 crores benefit from pahal .

PAHAL reduced 27% reduction in subsidised cylinders

Annual savings by PAHAL will be 12700 crore
JAM in LPG reduced leakages rather than excluding the poor
Commercial LPG sales increased when DBT introduced and
fell down when DBT suspended

o
o Old system of MGNREGS has 4 problems
o Float:borrowed money remains idle till the implementation
of money disbursal ,but with new one it reduced 26% float
o Leakages:Administrative faults in transferring money from
higher to lower level but now leakages reduced by 14%
,fund disbursal by 38%
o Misallocation:Beneficiary allocated money not reaching as
per scheme but spending for other things
o Resource Intensity:scheme managers spend valuable time
higher officials,often demand documaentation to release
funds

o MGNREGS forms 41% of DBT expenditure

Where next to spread JAM?
DBT in LPG is a big success
1st mile:
Targetting: Targeted subsidies are harder to JAM than
universal schemes
Subsidy schemes require eligible people information
where as LPG like schemes are universal
Beneficiary database:to fund transfer govt needs a
database of eligible individuals
some distributors have digital details and if they are
continuously updated that information can be used as
baseline database for administratorsin sectors where
database is not available
Identification:some schemes are for individuals and
others are households
NFSA-household
Middle mile:
Within government coordination:LPG subsidy for
instance requires coordination b/w Union Petrolium
Ministry ,3 oil marketing companies and network of
distributors
Supply chain interest groups:agents of commodity
supply can obstruct the spread of JAM,if their interests
threatended
Te limited progress in Fair price shops in PDS to adopt
point of sale machines for biometric .
Last mile:
Benefiiciary financial inclusion: Exclusion errors can be
substantial if few beneficiaries have bank accounts.
Physical connectivity in rural areas for banks is less
Beneficiary vulnerability:exclusion error risk increases
when beneficiary population is poor.
Poorest 3 deciles of indian households consume only
3% of subsidiced LPG consumption,but 49% of
subsidiced kerocene

o
So,Where and how to JAM?
Size of leakages:JAM significantly reduced leakages in
LPG and MGNREGS with limited exclusion of poor.
Subsidies with higher leakages have high returns with
JAM
Central govt Control:Policy makers will confront
administrative challenges in coordinating central and
state govt.
Policy areas that appear most condusive to JAM are those
with central govt control and with leakages
We consider 2 JAM options DBT,BAPU
DBT-direct cash transfer to beneficiary
BAPU-Biometrically Authenticated Physical Uptake for
identity verification
JAM preparedness Index:
DBT in Urban
DBT in Rural
BAPU
DBT in URBAN:
MP,Chattisgarh show 70% coverage
MH,Orissa only 25% coverage
Issue is having account and paying beneficiaries.


DBT in RURAL:
Average 3%
Maximum 5% in Haryana
Issue is last financial inclusion is a constraint


To reduce leakages BAPU ,which identifies beneficiaries
biometrically is very helpful for physical uptake
Krishan in AP has succeded using POS machines at Fair Price
Shops
BAPU average preparedness is 12% but some states
AP(96%),Chattisgarh(42%) etc


Conclusion:
LPG:PAHAL a big success and made black marketing harder
and reduced leakages 24%
Broader spread of JAM: Considerable spread of JAM
Where central govt control is low
Improve beneficiary database(1st mile challenge)
Deal with middle men to support DBT
Improve financial inclusion(last mile)
Still there is some responsibility on govt to spread JAM and
improve it, in the meantime BAPU helps.
==============0==============
Chapter 4:Agriculture:More from Less.
Indian agriculture has become a long way since
independence with chroniv scarcity to self sufficient
Before green revolution 1/3rd of US output to in 2013-14 with
60% higher in wheat ,50% high in milk
Indian agri became cereal centric as a result,regionally
biased and input intensive ,consuming generous amounts of
land,water and fertiliser
India has much lower cultivable land per person
Lower level water per capita than brazil which is worlds
leading agricultural countries
This chapter focuses on switch towards pulses and need to
economize on the use of water.
Productivity:

 Central challenge of indian agriculture is low productivity

especially in pulses
Wheat and Rice major crops which uses all kinds of support
from govt has still lower than china
49% in rice,39% in wheat
Indias avg in 2013(wheat) was 3075 kg/ha is lower than
3257 kg/ha world avg
Punjab has higher levals of wheat and paddy compared to
other states
India has lower levels of pulses than brazil,Nigeria,Myanmar
Key pulse producing state is MP with 3/5th of chinas
production
Policy changes must be made towards pulses production
Most of the land used for pulses production is un irrigated
Large share of output from Haryana ,Punjab,UP from
irrigated land
Water scarce MH,sugarcane is irrigated
So pulses production must be made on irrigated land for
higher production.
It will not possible if policies continue to focus on cereals
and sugarcane
What does this mean for FARM Incomes:
Despite growing demands for high value products such as
fruit,vegetables etc
Average annual income of median farmer is less than 20000
it includes the produce which they dont sell(self
consumption)
Critical Input:Water:
India uses 2 to 4 times more water than china,brazil despite
water scarce
Irrigation investments must shift to adopting technologies
like sprinkler and drip irrigation and rain water harvesting
Centre and state need to increase public spending for micro
irrigation
Consolidation ongoing irrigation schemes
Accelerated Irrigation Benefit Programme(AIBP)
Integrated Watershed Management Programme(IWMP)
On Farm Water Management(OFWP)
Prime Ministers Krishi Siinchayi Yojana(PMKSY)
A key factor undermining the efficient use of water is
subsidies on power for agriculture
Accoring to NASA indias water levels are declining at a rate
of 0.3 mts per year
Indias largest surface water reservoir Upper Wainganga

 India was virtual water importer before 1980 now it is

exporting 4% of its virtual water where china 0.1%
China imports intensive soybeans,cotton,meat and cereal
grains
India imports water intensive rice,cotton,sugar,soyabean
Micro irrigation:
A promising way forward to increase productivity while
conserving water is to adopt micro irrigation
A drip irrigation system reduces consumption of fertiliser
and water lost to evaporation
Issues with drip irrigation are high initial cost of purchase
and skill required for maintenance
However reduction in costs and high yield quickly recover
their input cost
Nationl Mission on Micro Irrigation conducted survey on 64
districts of 13 states revealing benefits of drip irrigation
Policies:
Minimum Support Price and Procurement Policy:
MSP is mainly for wheat,rice,cotton
While there is no procurement for sugarcane ,a crop with
assured irrigation
In Punjab and Haryan almost all farmers of paddy,wheat
aware of MSP
But few who grow pulses aware of pulses MSP
Many farmers in some states dont even aware of MSP
Public procurement at MSP has disproportationately focused
on wheat,rice and sugarcane perhaps on expense of
oilseeds,pulses
This leads to buffer stocks above the required norms and
also caused frequent price spikes in pulses and edible oils
These imbalances leads to farmers selling their products at
above or below the MSP in market or to middle men.
Farmers could also be assured a floor price for their crops
through a Price Deficiency Payment i.e if price in APMC fell
below MSP then former would be entitled to a maximum of
50% of difference of MSP and APMC price
Agricultural Research and Education:
o Indias National Agricultural Research System(NARS)
comprising ICAR and some other universities played key
role in Green revolution
o The system has sapped by 3 weaknesses
1.
a. In states where Agri is most important ,agri
education is weak if measured by agri university
enrolled students

b. Agri universities are plagued by 1. Resource crunch

c. 2.absence of talented faculty
d. 3.limited links with international
e. Weak lab to lab connectivity
2.
i. Investment in public agriculture research in
india
ii. Centre must play a big role
iii. Investment on agri research is less than china
3.
Private sector innovation and high yielding
variety in seeds can result in productivity gains
Currently seed replacement rate for pulses are in the range
of 19% to 34% ,highlighting the need for greater private
sector participation
Market Failure For Agricultural Output:
Market segmentation:
It reduces the overall welfare because it prevents gains
through competition,efficient resource
allocation,specialization in subsectors and fewer
intermediaries
Causes of market segmentation are many differnces in
remoteness and connectivity,local market power of
intermediaries,degree of private sector competition,local
storage capacity
Market segmentation results in large differences in producer
and consumer prices
Price dispersion in india is about 100%,45% greater than in
the US
Price Wedges:
Several layers of intermediary networks exist b/w retail and
wholsale
And wholesale and retail markets
Consequently this analysis is unable to isolate the
contribution of each of these intermediaries and other
sources of price wedges
Wedges for potatoes,onions,tamotos,groundnuts but not
high for rice ,wheat,pulsesand maize
The analysis above shows the large magnitude of price
wedges both across commodities as well as across states.
Greater market integration is essential for farmers to get
higher farm gate prices
A much has to be done inorder to make farmers gain from
policies and farm.
============0============

Chapter 5: Mother and Child.

Investing in Tomorrows India Today:
Economists agree that human capital physical
health,education,skills and broader capabilities is a key
determinant of a countrys growth potential
Govts investment skills through schemes like Deen Dayal
Upadyay Grameena Kaushalya Yojana and tertiary education
and schooling all seen as investment in productivity of
tomorrows worker
2 reasons explain the extraordinary persistence of early life
conditions
Most rapid period of physical and cognitive development in a
persons life occurs in the womb.Mothers health
significantly affects biological development of foetus
A healthy mother gives birth to a healthy child.
State of Childs play in india:
Height is a good proxy for early life conditions and a
predictor of later life outcomes
There has been improvement in urban and rural children b/w
2005 to 2013
Persistent rural urban height gap has not closed over the
past decade
Indian children are on avg 2 standard deviations shorter
than the healthy avg
Taller indian children are considerably better readers than
shorter ones
Levels of absolute reading ability has not increased over
time.
State of Maternal Health:
A child first 1000 days on earth are thought to be a critical
period of physical and cognitive development with long run
consequences
The number of infants that die in the 1st 30 days of life is an
important indicator of in utero nutrition-Neonatal mortality
India has high neonatal mortality
Out of all infants who die,70% of them die in 1st month due
to low birth weight
Women who are thin and do not gain enough weight during
pregnancy are far more likely to have low birth weight and
die
42.2% indian women are underweight at pregnancy

 35% of non pregnant women of child bearing are

underweight
Indian women only gain 7% during pregnancy which is 12.5
to 18% less than WHO recommends for underweight women
Indian women gave low pre pregnancy weight compare to
other countries
Another reason for poor maternal health is that social norms
accord young women low status in joint families
40% younger women are underweight where only 25%
women are underweight
Improving maternal health in india:
The National Food security act of 2013 legislated a universal
cash entitlement for pregnant women of at least 6000 Rs
This helps in improve nutrition during pregnancy
More higher quality food to pregnant women can give birth
to healthy baby
Weight gain monitoring showed a significant increase in
treatment value to the tune of 30%
Corrective treatment during diarrhoea were around 4-5
times
Disease Externalities:Open defecation:
There are a host of disease externalities one must closely
consider including drinking water,sanitation and air pollution
Enteric infection due to open defecation
One significant and internationally unique source of early life
disease in India is open defecation,especially in rural india
India has largest rural open defecation rate in South Asia by
a very large margin
Bangladesh open defecation has almost fully eliminated

32% rural in Sub Sharan Africa

Income constraints may not be the main determinant of open
defecation
Research suggests rural households reject the types of
latrines promoted by WHO and Indian govt

 Open defecation spreads germs into environment and

therefore makes growing children risk i.e diarrhoea
As open defecation increases ,height of children falls
Addressing open defecation:
Swach bharat mission pressing on the problem of open
defecation especially in rural india
Last year it built 80L toilets
UNs sustainable development goals commit to eliminate
open defecation by 2030 world wide
This completely depends on fast eradication open defecation
in rural india
Conclusion:
What other high return investment can the govt make?
Early life interventions can be an important tool for
improving the health and human capital of indian population
One can build clinics in villages or transfer money to
pregnant mothers or build latrines, but how does one bring
out the right usage of all this physical capital is the next
task in front of the government.
Govt action has significantly raised the % of mothers who
exclusively breastfeed their children during the 1st 6 months
of life.
Janani Suraksh Yojana ,Integrated Child Development
Scheme etc
Proportion of breast feeding is now 62%
Govt took initiatives to exclude rich from benefiting and
voluntary giveups in subsidies etc.
============0============
Chapter 6:Bounties for the Well off:
Introduction:
Govt spends 4.2% of GDP subsidising various commodities
and services
At least one area govt has taken decisive action by
identifying and quantifying exemptions amounting to about
62000 crore and announcing a clear path
GST would eliminate leakages due to rationalization of
indirect tax exemptions of 3.3L crore
SMALL Savings:
Initially created to mobilise saving by encouraging small
earners to save
Offered >market deposit rates at accessible locations like
post offices
Small savings offer high and fixed deposit rates and compete
with banks

 But what is the rate offered on these instruments ,who

benefited from them
These are 3 types and only one of them qualify to call as
small
1. Actually small: Postal deposits to schemes for
elderly and women
2. Not so small:Public Provident fund(PPF)
3. Not small at All:Tax free bonds issued by PSUs like
IRCL,PFC,NHB,NTPC,NHAI etc
Interest rates on most of these are fixed ,vary in magnitude
and periodicity
Key determinant of their real return is tax treatment
Ideally these schemes should be taxed according to EET
principle
E-exemption of the contribution
E-exemption of interest income
T-taxation of the principal
Most of actually small areTTT neither the interest nor
contribution to the scheme are exempt from tax under sec
80C of Income Tax act
PPF which is not so small is EEE interest is tax
exempt,contributions are tax exempt upto 1.5L,withdrawl is
tax exempt
Schemes of not small at all are TET-contribution is
taxed,interest is tax exempt.
How well off benefit:
PPF scheme roughly 62% of total 80C deductions in 2013-14
were accounted for by taxpayers
Not all the 80C deductions are PPF deposits
Limit for 80C deductions was increased by 50,000 there was
almost one to one increase in 80C claims for those in the 20
and 30 % tax brackets
PPF deposits are very high and accrues mostly to tax
payers ,magnitude of this implicit susbsidy is 6%
points(12000 crore)
Interest subsidy on tax free bonds is small i.e 3.7%
Avg size of tax free bonds was nearly 6L in 2013-14 which
was 6times the total exemption limit under 80C
Avg income of 30% threshold was 24.7L these earners are
rougly 25L in numbers and placed in 0.5% of income
distribution
54L income earners in 20% tax bracket represented the top
1.6% of income distribution
These tax incentives are benefiting top tax payers not
middle class or upper middle class

Other Bounties:
We define poor as those whose consumption is last bottom
30% and better off as the rest except in electricity and
railways classification is different
Gold:
Rich consume most and top 20% population consume 80%
Poor consume almost negligible fraction of it
Yet gold is taxed at 1-1.6%(States+Centre) compared with
normal goods 26%
About 98% of subsidy accrues to the better off only 2% for
poor
Railway:
Different rates divided as A/C,1st class,2nd
class,sleeper,Genral
Subsidy for better off is 34%
69% for poor
LPG:
6.19% LPG consumers receive subsidy of 238 Rs per 14.2 kg
cylinder
Which is 36% of subsidy rate
91% of these subsidy shared by better off
Poor account for 9% of subsidy
LPG is heavily subsidised compared to other commodities
like petrol
Electricity:
Tariffs vary on levels of consumption
Avg billing rate depends on levels of consumption
Subsidy is 32% for better off and 49% for poor(avg of TN
and Delhi)
Better off use 84% of electricity consumption appropriate
the amount of total subsidy
ATF:
Aviation fuel is taxed at 20%(avg for all states)
Diesel and petrol taxed at 55 and 61%
ATF tax is levied mostly who travel by air
Kerosene:
Subsidy of 9.16/L under PDS which is 38% subsidy rate
Kerosene makes up 1% of consumption basket of poor
50% of subsidised kerosene is used by well off and rest by
poor
Thus subsidies can be compare by equity and effectiveness
If a good is consumed large by well off that should be taxed
well

 If good is largely consumed by poor that should be

subsidised for poor
Total subsidy approved by the well off:
To find the normative tax rate on well off ,standard rate
recommended by Subramanian panel on a revenue Neutral
Rate for GST is 9%
Avg tax on energy related commodities to be 50%
Then implicit effective subsidy rate for well off is Normative
tax-actual subsidy
Total amount of subsidy total no less than 91,350 crore
Not to forgot that this is an underestimate of the actual
subsidy to the better off
Total subsidy to the well off amounts to above 1L crore
Conclusion:
There are fair amount of govt interventions that help
relatively better off in society
That in many cases takes the form of explicit subsidisation
Addressing these may be good for fiscal and welfare
perspective
Also from political economy perspective
The 1L crore of subsidy going to well off merely on account
of 6 commodities plus the small savings schemes represent a
substantial leakage from govts kitty.
=============0===============
==
Chapter 7: Fiscal Capacity for the 21st century:
Introduction:
Indian tax system is about to witness dramatic changes
Affecting potentially 2-2.5 million excise and service
taxpayers
Corporate tax is cheduled to come down from 30% to 25%
Tax administration is improved and 95% of fillings are
electronic
Tax refunds are now being issed in 7-8 days
State capacity and taxation are crucial determinants of long
run development
Compare to other countries india under taxes and under
spends
Controlling for the level of economic development neither
under taxes nor under spends
India does tax less than politically developed countries but
given most other democracies took a long time to strengthen
tax capacity

 The ratio of taxpayers to voters is only 4% where it should

be closer to 23%
Taxation and military service are 2 core elements of modern
citizenship
India has chosen taxation as key obligation that can demand
of its citizens
Taxation is not just financing public spending
It is economic glue that binds citizens to the state in a
necessary 2 way relationship
The precocious india phenomenon is that economic
development lags political development
Independent india has averted famines but chronic
malnutrition is still a challenge
The indian state can organize mega events but safty of
women is still a challenge
India is not really an outlier,contrary to much popular
perception in terms of its overall level of taxation and
spending
Cross country taxation and Expenditure patterns:
Property tax reform need greater co operation b/w all 3
levels of govt
This is important part of the countrys tax reform agenda
Indias spending to GDP ratio in human capital(health and
education) is lowest among BRICS countries
Indias tax to GDP ratio is 16.6% lower than EME and OECD
i.e 21% and 34%
Indias spending and tax ratios are lowest even among
economies with comparable per capita GDP i.e
Vietnam,Bolivia etc
Share of income and property tax in GDP is very low