2016

UPSC Civil Services Exam

[ECONOMY]
A Brief Outline
 Nitin Sangwan

Beginners Note:

It is advisable that you read NCERTs of relevant classes first as they lucidly explain certain fundamental
concepts. Many aspirants have some difficulty in this section as it sounds very technical in nature. But
believe me, it is absolutely not because, it is not about Economics per se as a subject, but Economy and
its working (which we observe around us, read in newspapers and so on).

Like many other subjects, it may also sound different initially, but is not difficult. So, to familiarize the
subject, read the basic NCERT books and basic terms (like Balance of Payments, Revenue Deficit and so
on) frequently and google them from multiple sources to develop a conceptual understanding.

After that you may refer any one of the standard books which are available in the market. While reading
those books, just keep in mind that you dont have to learn all the facts and typical question on
economics (for example, you may not have to rot learn targeted and achieved growth rates of all five
year plans, or say funds allocated to various schemes etc). But try to remember basic facts which a
common, well-read and aware citizen should know.

Finally, since some parameters of economy are dynamic and keep changing, keep an eye on those.
Generally, some questions from economy (as compared to history or geography) are also asked in
interview (in all three interviews that I faced, they asked some questions about economy), so keep your
basics clear and remember by heart some basic data (like unemployment rate, size of economy, spending
on education and health, major heads of budget and allocations in rough figures and so on).

Always keep things manageable. It is not so important that how much you read, but how well you read.
Keep in mind that whatever you read, you have to revise that also at times of mains exam. So, limit your
study material.

Best of luck!
Nitin Sangwan
AIR 28 (2016), AIR359 (2015), AIR 320 (2014)
Drop me a comment at: www.meandupsc.blogspot.in if you need some further help in the exam,
suggestions or any major discrepancies in these notes for benefit of others.

INDIAN ECONOMY A MACRO VIEW

*Glossary

BALANCE OF PAYMENTSBalance of payments (BOP) accounts are an accounting record of all monetary
transactions between a country and the rest of the world. It is a more accurate picture of a countrys
economic transactions with the rest of the world as it also takes into account transactions in Invisibles.
There are two components of BoP Current Account Balance of Payments (Imports + Exports + Income
+ other Current Transfers like Aid, Grants etc) and Capital Account Balance of Payments (it will include
portfolio investment + FDI + other investment + reserve account). When all components of the BOP
accounts are included they must sum to zero with no overall surplus or deficit (Like a balance sheet).
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BANK RATE Repo rate or repurchase rate is the rate at which banks borrow money from the central
bank (read RBI for India) for short period (for a few hours to a few days) by selling their securities
(financial assets) to the central bank with an agreement to repurchase it at a future date at
predetermined price. It is similar to borrowing money from a money-lender by selling him something,
and later buying it back at a pre-fixed price. On the other hand, Bank rate is the rate at which banks
borrow money from the central bank without any sale of securities. As RBI is a banker to the banks, the
interest rate at which the RBI lends to commercial banks is known as bank rate. It is generally for a
longer period of time. This is similar to borrowing money from someone and paying interest on that
amount. Both these rates are determined by the central bank of the country based on the demand and
supply of money in the economy. In India, the bank rate acts as the penal rate charged on banks for
shortfalls in meetings their reserve requirements(cash reserve ratio and statutory liquidity ratio).

BASE EROSION and PROFIT SHIFTING It refers to the effect of tax avoidance strategies used by
multinational corporations on countries tax basis. The term was used for the first time by OECD. In an
increasingly interconnected world, national tax laws have not kept pace with global corporations, fluid
capital, and the digital economy, leaving gaps that can be exploited by companies who avoid taxation in
their home countries by pushing activities abroad to low or no tax jurisdictions. This undermines the
fairness and integrity of tax systems. This phenomenon is called base erosion or tax base erosion.
Multinational companies use a wide range of cross border tax planning techniques (like loopholes in
DTAs, transfer pricing and so on) that result in little or tax liability and such results are referred to as
'Base Erosion and Profit Shifting'. The G20 in 2013 had unanimously agreed to a 15-point action plan to
check BEPS. The plan recognizes the importance of addressing the borderless digital economy, and will
develop a new set of standards to prevent double non-taxation. This will require closer international co-
operation, greater transparency, data and reporting requirements. To ensure that the actions can be
implemented quickly, a multilateral instrument to amend bilateral tax treaties will be developed. The
global base erosion and profit shifting (BEPS) rules, aimed at collecting a fair share of taxes from
multinationals operating in different tax jurisdictions, are likely to be finalized by December 2015. The
BEPS initiative would ensure that tax is paid where profits are made. BEPS project will make it difficult
for multinationals to shift profits from one jurisdiction to another to save taxes. Multinationals with a
presence in many countries that prefer to show larger profits in low-tax jurisdictions or operate through
subsidiaries in such territories will now face pressure to clean up their structures. The BEPS move takes
into account concerns that many countries such as India have expressed on defining the base in the case
of a multinational home countries, intermediary country where the holding company is located or the
country where it derives its profits. The majority of MNCs that operate in India invest indirectly through
favourable tax jurisdictions such as Mauritius or Singapore to lower their tax outgo.

BHAGWATI vs SEN MODEL Professor Jagdish Bhagwati advocated model calls for economic growth
leading to overall economic improvement and hence also leading to improvement in condition of the
poor as well. Amartya Sen model argues first empowering the poor by increasing their purchasing power
and this will ultimately have pan-economic impact.

BEHIND THE BORDER BARRIERSThis refers to a variety of nontariff barriers that operate inside
countries rather than at the border, but that nonetheless can restrict trade. Examples include technical
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barriers to trade, labeling requirements, and sanitary regulations etc.

BLACK MONEY Black money is a term used in common parlance to refer to money that is not fully
legitimate in the hands of the owner and main reason is non-payment of the tax. The money may have
been generated through illegitimate activities not permissible under the law, like crime, corruption, drug
trade, terrorism, and corruption, all of which are punishable under the legal framework of the state.
Further, it may also be generated by legitimate means, but is not declared for the purpose of evasion of
tax. Half of Indias economy is black at any given time. Expert estimates agree that the Indian Black
Money stashed abroad is close to $ 3 Trillion. Reasons for its existence are corruption, illegal activities,
political-industry nexus and poll funding, real estate underpricing and investment in it, manipulation of
corporate incomes, discouraging rates of taxation etc. Black money has a deleterious impact on society
in many ways and at several levels. A part of it remains lying idle, while the other part gets invested in
productive and unproductive activities. The government looses on tax front. If it is not invested
anywhere, it leads to tightening of monetary supply or squeeze in the volume of money. Generally, black
money finds its maximum usage in ostentatious consumption which is inimical to the economic
development of a developing economy. At the same time it leads to inflation in the price of real estate.
A major chunk of black money is also put to use for criminal purposes which creates problems not only
for the economy but also for the law and order. The poor are being deprived of their right to
development. It is the common man who has to face the ultimate effect of black money. He has to pay
the tax and also face impact of price hike. Illicit financial flows across borders also greatly add to the
volatility of financial markets, at times endangering the growth and macroeconomic stability. But, how
to control black money? There are several strategies. Joining the global crusade against black money,
creating an appropriate legislative framework to fast track such case and discourage its generation,
making administration and economic activities more transparent and maximum use of electronic fund
transfers and minimize cash payments, cut the official discretion through e-governance, revise the
DTAAs to put a check on tax havens, electoral reforms, tax reforms should be implemented at the
earliest etc. There can be other innovative acts like US False Claims Act which provide handsome
reward for whistleblowers.

BROAD MONEY or M2 In economics, broad money is a measure of the money supply that includes
more than just physical money such as currency and coins (also termed narrow money). It generally
includes demand deposits (are the deposits that are with banks that can be demanded any time, unlike
the term deposits which have fixed maturity time, most Saving Accounts are demand deposit accounts)
at commercial banks, and any monies held in easily accessible accounts. Components of broad money
are still very liquid, and non-cash components can usually be converted into cash very easily. The most
commonly used measure of broad money is M2 (in India RBI uses term M3), which includes currency
and coins, and deposits in checking accounts, savings accounts and small time deposits, overnight repos
at commercial banks, and non-institutional money market accounts. Narrow Money which includes only
currency notes and coins is more liquid. Broad money is also termed as aggregate monetary resources
in the country.

CAPITAL ACCOUNT Capital Account Transactions = Portfolio Investment/FIIs + FDI + Other Investment +
Reserve Account + ECBs + NRI Deposits. Whereas the current account reflects a nation's net income, the
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capital account reflects net change in national ownership of assets.

CAPITAL ACCOUNT CONVERTIBILITY Capital Account Convertibility is a feature of a nation's financial

regime that centers on the ability to conduct transactions of local financial assets (money, stocks, bonds,
real estate, FDI, FII, account receivable, inventory etc) into foreign financial assets freely and at market
determined exchange rates. In layman's terms, full capital account convertibility allows local currency to
be exchange for foreign currency without any restriction on the amount. Capital account convertibility is
considered to be one of the major features of a developed economy.

Advantages of capital account convertibility

I. It helps attract foreign investment. It offers foreign investors a lot of comfort as they can
re-convert local currency into foreign currency any time they want to and take their
money away.
II. At the same time, capital account convertibility makes it easier for domestic companies
to tap foreign markets.
III. Greater access for resident companies to foreign capital and debt markets reduce cost
of capital
Downsides of capital account convertibility

I. While during good times, investment flow into the country, in times of financial crisis,
unchecked outflows may lead to destabilization of economy and developing countries
cannot handle such shocks. Crisis in Asian economies called Asian Tigers is one of the
burning example.
II. It also means that country might lose domestic saving as individual might want to invest
in foreign markets.
Preconditions of CAC (as per Tarapore Committee) -

I. Reduced Fiscal Deficit 3.5% (currently at 4.7%, 2014 budget)

II. Reduced Inflation 3-4% (averaged 7-8% during past few years)
III. Strengthen Financial System Deregulate interest rates, consolidate banking industry,
reduce CRR requirements
IV. RBI should have more liberty to intervene
V. Distinction between NRIs and Foreigners be narrowed down
VI. Liberate equity market, but ban PNs (PNs are transferable but their source is unknown)
VII. Discriminatory treaties should be done away with
CAPITAL BUDGET Budget has two components revenue budget and capital budget. The capital
budget is different from the revenue budget as its components are of a long-term nature. Revenue
receipts include receipts from taxes and non-tax sources. Revenue expenditures are those which dont
create any assets. The capital budget consists of capital receipts and payments. Capital receipts are
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government loans raised from the public, government borrowings from the Reserve Bank and treasury
bills, loans received from foreign bodies and governments, divestment of equity holding in public sector
enterprises, securities against small savings, state provident funds, and special deposits. Capital
payments are capital expenditure on acquisition of assets like land, buildings, machinery, and
equipment. Investments in shares, loans and advances granted by the central government to state and
union territory governments, government companies, corporations and other parties.

CAPITAL GAINS TAX A capital gains tax (CGT) is a tax on capital gains, the profit realized on the sale of
a non-inventory asset that is purchased at a cost amount lower than the amount realized on the sale.
The most common capital gains are realized from the sale of stocks, bonds, precious metals and
property. For short term gains it is 15%, for long term gains it is 20% in India. It was in news in Vodafone
Tax dispute case as government accused Vodafone deal of Hutch as evading capital gains tax.

CASH BASED ACCOUNTING SYSTEM and ACCRUAL BASED ACCOUNTING SYSTEM The Indian
Government accounts are prepared on a cash based accounting system. This system recognizes a
transaction when cash is paid or received. However it does not give a realistic account of government's
financial position because it lacks an adequate framework for accounting for assets and liabilities, and
depicting consumption of resources. Moreover capital expenditure (expenditure on the creation of new
assets) under the cash system is brought to account only in the year in which a purchase or disposal of
an asset is made. This is not an effective way to track assets created out of public money. The present
system does not reflect accrued liabilities arising from the gap between commitments and transactions
of government on the one hand and payments made. The Twelfth Finance Commission recommended
introduction of accrual accounting in Government. Government has accepted the recommendation in
principle and asked Government Accounting Standards Advisory Board (GASAB) in the office of the
Comptroller and Auditor General of India to draw a roadmap for transition from cash to accrual
accounting system and to prepare an operational framework for its implementation. So far twenty one
State Governments have agreed in principle to introduce accrual accounting.

CECA and CEPA CECA stands for Comprehensive Economic Cooperation Agreement while CEPA is an
acronym for Comprehensive Economic Partnership Agreement. Both CECA and CEPA are forms of
economic agreements between India and other countries such as Malaysia, Singapore, and Thailand (for
CECA) and Japan, Sri Lanka, and South Korea (for CEPA).From the actual name itself, the most obvious
difference is the use of the word cooperation in the former and partnership on the latter.
Cooperation denotes a loose connection between two countries while the word partnership denotes
a more personal and more intense relationship between the parties. CECA is mainly concerned with
tariff reductions and the elimination of all items that are considered to be listed tariff rate quota items.
On the other hand, CEPA has the same components of CECA with an additional focus and options in the
terms of trade investments and services. In looking at the big picture, CEPA is much broader and more
complicated compared to CECA. In a comparable economic standing, CECA is considered as the first step
or a stepping stone to accomplish CEPA. If negotiations can still be conducted between countries, and
both parties are open to discussion and have a good economic relationship with each other, CECA can
evolve into CEPA. This makes CEPA a result of on-going efforts and negotiations of two countries that
started from CECA.
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CENTRAL PLAN ASSISTANCE Financial assistance provided by Government of India to support States
Five Year/intervening annual plans is called Central Plan Assistance (CPA) or Central Assistance (CA). CPA
or CA primarily comprises of the following

I. Normal Central Assistance (NCA): The distribution of the NCA is formula based (Gadgil-
Mukherjee Formula) and is untied. Gadgil Formula of determining the Central Assistance to the
State is being adopted from the 4th five year plan and revised subsequently.
II. Additional Central Assistance (ACA): This is provided for implementation of externally aided
projects (EAPs), and for which presently there is no ceiling. Unlike NCA, this is Scheme based.
These are one time assistance and thus not recurring. These assistances are discretionary in
nature.
III. Special Central Assistance (SCA), which is provided for special projects/Programs e.g., Western
Ghats Development Program, Border Areas Development Program etc. (In exceptional
situations, Advance Central Assistance, may also be provided.) This special plan assistance is
given only to special category states to bridge the gap between their Planning needs and
resources. In other words, SPAs are ACA to special category States.
CPA is provided, as per scheme of financing applicable for specific purposes, approved by Planning
Commission. It is released in the form of grants and/or loans in varying combinations, as per terms
& conditions defined by Ministry of Finance, Department of Expenditure.

CENTRALLY SPONSORED SCHEME (CSS) In Indias developmental plan exercise we have two type of
schemes viz; central sector and centrally sponsored scheme. The nomenclature is derived from the
pattern of funding and the modality for implementation. Under Central sector schemes, it is 100%
funded by the Union government and implemented by the Central Government machinery. Under
Centrally Sponsored Scheme (CSS) a certain percentage of the funding is borne by the States in the ratio
of 50:50, 70:30, 75:25 or 90:10 and the implementation is by the State Governments. Centrally
Sponsored Schemes are formulated in subjects from the State List to encourage States to prioritize in
areas that require more attention. Funds are routed either through consolidated fund of States and or
are transferred directly to State/ District Level Autonomous Bodies (like DRDA)/Implementing Agencies.
Some of the limitations with CSS are

The Centrally Sponsored Schemes (CSS) do not fall within the subjects allocated to the Union
Government in List I of the Seventh Schedule of the Constitution. However, they are funded by
the Union Government for developmental process. So, their conception is faulty and the funds
should be directly given to the respective state governments or the panchayats.
Most of the schemes exist in silos planned without any horizontal or vertical integration,
resulting in multiple sectoral district plans, unrelated to each other, often mutually conflicting.
The schemes are often rigid and do not provide flexibility required for adaptation to local needs.
Professional support is quite weak as not much attention is paid to this aspect.
Most of the CSS remain expenditure oriented.
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No mechanism for tracking funds. Funds released from ministry are treated as expenditure even
if it may be lying in bank accounts of the implementing agency.
Most of CSS deal with matters earmarked for Panchayats and yet PRIs are not integrated well
into the schemes.
Often independent structures are created for each scheme resulting in a multiplicity of delivery
structures. No attempt is made to leverage PRIs or previous structures.
CHIT FUNDS Chit funds are essentially saving institutions. They are of various forms. Chit Funds activity
involves contributions by members in instalments by way of subscription to the Chit and by rotation
each member of the Chit receives the chit amount. The subscriptions are specifically excluded from the
definition of deposits and cannot be termed as deposits. While Chit funds may collect subscriptions as
above, they are prohibited by RBI from accepting deposits with effect from August 2009. The beneficiary
is selected usually on the basis of bids or by draw of lots or in some cases by auction or by tender. Chit
fund business is regulated under the Central Act of Chit Funds Act, 1982. However, prized chits scheme
are banned under Prize Chits and Money Circulation Schemes (Banning) Act, 1978. Functionally, Chit
funds are included in the definition of Non- Banking Financial Companies by RBI under the sub-head
miscellaneous non-banking company (MNBC). But RBI has not laid out any separate regulatory
framework for them.

CORE INFLATION (Also called UNDERLYING INFLATION or NON-FOOD INFLATION) Core inflation or
Non-Food Inflation is a measure of inflation which excludes certain items that face volatile price
movements, notably food and energy. On the other hand, Headline Inflation includes prices of volatile
items like energy and food and in India is measured by WPI taking into account all types of inflation.

COUNTERVAILING DUTIES Countervailing duties (CVDs), also known as anti-subsidy duties, are trade
import duties imposed under World Trade Organization (WTO) Rules to neutralize the negative effects of
subsidies. They are imposed after an investigation finds that a foreign country subsidizes its exports,
injuring domestic producers in the importing country.

CROWDING OUT The effect that an increase in one kind of spending can have in reducing another kind
of spending. Most frequently mentioned is the effect of an increase in government spending on
investment, which falls when an increase in the budget deficit drives up the interest rate. In economics,
crowding out is any reduction in private consumption or investment that occurs because of an increase
in government borrowing (due to increased deficit). If an increase in government spending and/or a
decrease in tax revenues leads to a deficit that is financed by increased borrowing, then the borrowing
can increase interest rates, leading to a reduction in private investment. Thus, increased fiscal deficit
crowds out Investment.

CURRENCY SWAP A currency swap is a foreign-exchange agreement between central banks of two
countries whereby they each agree to lend their currency to the other. Currency swaps have two main
uses

I. To secure cheaper debt (by borrowing at the best available rate regardless of currency and then
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swapping for debt in desired currency using a back-to-back-loan).

II. To hedge against (reduce exposure to) exchange rate fluctuations.
CURRENT ACCOUNT The difference between a nation's total exports of goods, services and transfers,
and its total imports of them. Current account balance calculations exclude transactions in financial
assets and liabilities. More Precisely, the current account is the sum of

I. The balance of trade (exports minus imports of goods and services),

II. Net factor income (such as wages, interest and dividends) and
III. Net transfer payments (such as foreign aid, grants)
CYCLICAL UNEMPLOYMENTThe portion of unemployment that is due to the business cycle and thus
rises in recessions but then disappears eventually after the recession ends.

DEPRESSION and RECESSION and SLOWDOWN and MELTDOWN When an economy slows down it is
said to be in a condition of Slowdown. Rate of GDP growth moderates, but is not negative. When GDP
of a country continues to decline and growth rate of GDP goes into negative for a few quarters then it is
said to be in Recession. The traditional definition of a recession is when the GDP rate of growth is
negative for two quarters in a row. GDP falls in absolute terms. Depression is more severe and my last
longer. It is much widespread even of global proportion while recession may hit even a single country. In
depression, real GDP contracts more than 10% and lasts longer than 3 years. A depression is loosely
defined as a severe recession. Last big depression was of 1937-38.Meltdown is related to sharp fall in
stock market.

DEVALUATION OF CURRENCY A devaluation is when a country makes a conscious decision to lower its
exchange rate in a fixed or semi fixed exchange rate. Therefore, technically a devaluation is only possible
if a country is a member of some fixed exchange rate policy. While, Depreciation of a freely floating
currency is controlled by the international currency rates based on the international stock market
indicators; and devaluation is controlled by the central banks which force exchange rates that devalue
the currency. Devaluation in India was resorted for the first time in 1966 to limit imports and push
exports and hence create a favorable balance of trade. Effects of Devaluation

I. First, devaluation makes a country's exports relatively less expensive for foreigners (so demand
for exports will go up)
II. Second, it makes foreign products relatively more expensive for domestic consumers (so
demand for imports will come down), discouraging imports.
III. As a result, this may help to reduce a country's trade deficit.
DIRECT TAX CODE - Direct tax code was brought out in 2010, which seeks to amend direct tax laws as
well as merging the 1957-wealth tax act and 1961- income tax act under a single unified schedule to
ensure simplification as well as uniformity in the tax reporting and tax compliance. Some of the other
features are

Tax on wealth at the rate of 0.25% per year for the wealth amounting more than 50 crores.
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The DTC simplifies the complex taxation system and would lead to increase in the direct tax to
GDP ratio.

It shall increase tax compliance due to widening of tax base.

DISGUISED UNEMPLOYMENT When more people are engaged in some activity than the number of
person required for that, this is called disguised unemployment .It is similar to underemployment. It is
most prevalent in agriculture sector.

DISPOSABLE INCOME Disposable income is total personal income minus personal current taxes.
Personal DI = Personal Income Tax Expenses Non tax expenditures (fees, government bills etc)

DISTRESS MIGRATION is the large scale exodus of poor agricultural or landless laborers, especially in the
productive age of 26-60 years, from villages to urban areas, in search of all the year round work, health
facilities and over all a better standard of living. Stagnation in Indian agriculture and lack of amenities in
the rural areas are leading to it.

DOUBLE TAXATION AVOIDANCE AGREEMENTAgreement under which out of two nations, a person
making a transaction or on income, pays tax only in one of them. India has comprehensive Double
Taxation Avoidance Agreements (DTAA) with 79 countries. This means that there are agreed rates of tax
and jurisdiction on specified types of income arising in a country to a tax resident of another country.

Mauritius as reason for companies destination: A large number of foreign institutional

investors who trade on the Indian stock markets operate from Mauritius. According to the tax
treaty between India and Mauritius, capital gains arising from the sale of shares are taxable in
the country of residence of the shareholder (and not in the country of residence of the company
whose shares have been sold). But there is no capital gains tax in Mauritius. Therefore, a
company resident in Mauritius selling shares of an Indian company will not pay tax in India.
Since there is no capital gains tax in Mauritius, the gain will escape tax altogether.

ECONOMIC OFFENCES and LAWS Economic offences form a separate category of crimes under
Criminal offences. These are often referred as White Collar crimes. Economic offences not only inflict
pecuniary losses on individuals but also damage the national economy and have security implications as
well. The offences of Smuggling of Narcotic substances, Counterfeiting of currency and valuable
securities, Financial Scams, Frauds, Money Laundering, Hawala Transactions etc. Various legislations to
deal with such offences are

I. Income Tax Act

II. Narcotic Drugs and Psychotropic Substances Act
III. Central Excise Act
IV. Customs Act
V. Banking regulation Act
VI. Prevention of Corruption Act
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EFFECTIVE REVENUE DEFICIT It is a new term introduced in the Union Budget 2011-12. While revenue
deficit is the difference between revenue receipts and revenue expenditure, the present accounting
system includes all grants from the Union Government to the state governments/Union territories/other
bodies as revenue expenditure, even if they are used to create assets. Effective revenue deficit
excludes those revenue expenditures (or transfers) in the form of grants for creation of capital assets.

ENGEL CURVE An Engel curve describes how household expenditure on a particular good or service
varies with household income. A goods Engel curve reflects its income elasticity and indicates whether
the good is an inferior, normal, or luxury good.

EXCLUSIV ECONOMIC ZONE EEZ Under the UN Convention on Law of the Sea, an exclusive economic
zone (EEZ) is a seazone over which a state has special rights over the exploration and use of marine
resources. It stretches from the seaward edge of the state's territorial sea out to 200 nautical miles from
its coast. India recently requested UN to expand this area to 350 Nautical miles (which is the maximum
limit as well).

EXIM BANK An Exim bank provides finances/credit to facilitates mainly exports and also imports. The
Export-Import (EXIM) Bank of India is the principal financial institution in India for coordinating the
working of institutions engaged in financing export and import trade. It is a statutory corporation wholly
owned by the Government of India. The main functions of the EXIM Bank are as follows

I. Financing of exports and imports of goods and services, not only of India but also of the third
world countries;
II. Financing of joint ventures in foreign countries;
III. Providing loans to Indian parties to enable them to contribute to the share capital of joint
ventures in foreign countries;
IV. To provide technical, administrative and financial assistance to parties in connection with export
and import.
FDI and FII FDI is relatively durable investment and is a long term investment in actual capital creation
in form of brick and mortar investment in tangible assets. FII on the other hand is investment in
secondary market like stocks and share and is through institutional channels like stock markets. RBI, FIPR
and DIPP are three core bodies which oversee and approve FDI entry into India. FII on the other hand
are regulated by SEBI and other institutions. FDI brings technology, skills and long terms capital which
creates capacity in an economy. FDI helps to relax domestic savings gap. It provides equity financing and
additional capital. FIIs also help in bringing international best practices into domestic institutional and
legal framework. They also increase depth of the market, help lower capital costs. However, FIIs are
more volatile in nature and can leave in situation of distress in market and can make financial situation
even more acute at the time of trouble and hence can lead to financial instability in economy as well as
it happened during time of global financial crisis. However, FDI in India too has certain limitations of its
own. FDI in the past has been capital intensive and not labour intensive. Foreign companies tend to use
more technology to retain their competitiveness and flexibility than go for hiring more workers. Further
target of investors is also selective.
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FINANCIAL INCLUSION Financial inclusion is the delivery of financial services to disadvantaged and low
income sections of society at the affordable prices. It is the progressive step by the govt. to include very
poor people in the process of development so that it can be made more meaningful. General credit card
facility and no frills accounts are some steps in this direction. Currently only 5.2% of the Indian villages
have a bank branch and 40% of Indians only have a bank account. Schemes like Swabhiman, Lead Bank
Scheme, Mobile Banking etc can help in spreading financial inclusion. RBI has asked banks to open Brick
and Mortar branches, employee Business Correspondents and mobile branches to increase penetration
in rural areas.

FISCAL CONSOLIDATION Fiscal consolidation is a policy aimed at reducing government deficits and
debt accumulation.

FISCAL DEFICIT When a government's total expenditures exceed the revenue that it generates
(excluding money from borrowings). Deficit differs from debt, which is an accumulation of yearly
deficits. Broadly, part of fiscal deficit that finances revenue deficit is considered regressive, while the
one that finances Capital Deficit/Expenditure is considered progressive. Fiscal Deficit is expressed as sum
of Budgetary Deficit + Borrowing. It indicates total borrowing requirements of government from all
resources. In a situation when fiscal deficit rises, the government has to borrow more in order to meet
its spending requirement. High government borrowings crowd out credit for the private sector and also
leads to more inflation as often central bank prints more money and it leads to excess money supply.
Deficit increases in a recession and falls in a boom, even with no change in fiscal policy.

Ways to reduce deficit

I. One way can be by selling its assets. This in India is largely done by making
disinvestment in PSUs
II. Secondly by cutting expenditures. In India, reduction in subsidy bill is said to be one of
the solutions to the problem. Various measures like Cash Transfers, Nutrients Based
Subsidy etc have been taken to lower the subsidy burden.
III. Finally by increasing revenues.
Consequences of government debt or fiscal deficit By borrowing, the government transfers
the burden of reduced consumption on future generations. This is because it borrows by issuing
bonds to the people living at present but may decide to pay off the bonds some twenty years
later by raising taxes. These may be levied on the young population that have just entered the
work force, whose disposable income will go down and hence consumption. Thus, national
savings, it was argued, would fall.

FISCAL EXPANSION or EXPANSIONARY FISCAL POLICY Expansionary fiscal policy involves government
spending exceeding tax revenue, and is usually undertaken during recessions. Hence, a tight fiscal policy
means revenues exceeding expenditure and is used when fiscal deficit is high or inflation is high and is
usually undertaken to pay down government debt).

FISCAL STIMULUS Government measures, normally involving increased public spending (when private
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spending goes down) and lower taxation, aimed at giving a positive jolt to economic activity.

FOOT LOOSE INDUSTRIES Footloose industry is a general term for an industry that can be placed and
located at any location without effect from factors such as resources or transport. Diamonds and
computer chips are some examples of footloose industries. These industries can be located at a wide
variety of places as these are not weight losing, bulky or raw material specific. Moreover, they produce
in relatively small quantities, employing smaller workforce and are considered to be more efficient from
an ecological point of view.

FOREX RESERVESForeign Exchange Reserves are external assets (like reserve currencies like USD, Euro
etc, gold or SDRs) that are readily available to and controlled by monetary authorities (RBI in case of
India) for direct financing of external payments imbalances, for indirectly regulating the magnitudes of
such imbalances through intervention in exchange markets to affect the currency exchange rate, and/or
for other purposes. FDI, Remittance, FIIs, Exports etc are sources of forex reserves.

Why forex reserves

I. Balance of Payment Issues To intervene at time of BoP crisis and to cover deficit
arisen out of exchange rate fluctuation in the Balance of Payments
II. Exchange Rate Manipulation.
III. Mode of Payment for Imports and other financial transactions Oil etc
Why not forex reserves

I. Forex reserves are considered as sterile as they earn very low interest rates. Even RBI
has raised this issue. On one hand we are servicing our debt at high interest rates, on
the other hand we are hoarding huge reserves which are giving abysmal returns.
Otherwise forex reserves can be used for developmental activities. There has been
example of countries like Singapore which has a dedicated investment arm to look into
investment opportunities for the forex.
II. Major argument against steps as above is that a major chunk of forex is constituted by
the hot money so any such move to deploy forex reserves is risky.
FRICTIONAL UNEMPLOYMENT Frictional unemployment is the time period between jobs when a
worker is searching for, or transitioning from one job to another or due to skill mismatch or place
mismatch etc. It is always present in an economy.

GAAR Tax Avoidance is an area of concern across the world. The rules are framed in different
countries to minimize such avoidance of tax. Such rules in simple terms are known as General Anti
Avoidance Rules or GAAR. Thus, GAAR is a set of general rules enacted so as to check the tax avoidance.
It empowers the Revenue Authorities in a country to deny the tax benefits of transactions or
arrangements which do not have any commercial substance or consideration other than achieving the
tax benefit. GAAR is likely to put a curb on use of Tax Havens and Round Tripping. These rules are likely
to come into force in India in 2016. However, it is considered to be too sweeping in nature and there
 Nitin Sangwan

was a fear (considering poor record of tax authorities in India) that Assessing Officers will apply these
provisions in a routine manner (or read misuse) and harass the general honest tax payer too. So, it was
felt that there is a need for further legislative and administrative safeguards and at least a minimum
threshold limit for invoking GAAR should be introduced so that small time tax payers are not harassed.
As a result, an Expert Committee headed by Dr Parthasarathi Shome (to give recommendations on the
reforms in tax administration) was set up to suggest recommendations. Most of these recommendations
have been accepted except the one regarding retrospective transaction by the government, albeit
some with modifications. Committee has also asked for merging CBDT and CBEC to increase the
coordination between both the authorities and recommend for a governing council headed by a
chairman which was decided on the rotation basis from both authorities. To make the transactions
more transparent and increase the clarity , committee recommended for use of PAN as a common
business identification number to be used in all the government departments. Wealth tax should be
collected along with income tax is another recommendation to make the tax system more simple.

GDP and ITS CALCULATION in INDIA - GDP is calculated in 3 different ways. Income based, consumption
based, production based. In India all three methods are used but predominantly production based
method is used. It is calculated by the amount of goods and services produced in the country. GDP data
are released in India by Central Statistical Organization. Currently the CSO sources goods data from IIP
and services data from RBI to arrive at quarterly GDP figures.

GENDER BUDGETING Gender budgeting is an exercise to translate the stated gender commitments of
the government into budgetary commitments, involving special initiatives for empowering women and
examination of the utilization of resources allocated for women and the impact of public expenditure
and policies of the government on women. It started in India in 2000.

GILT EDGED SECURITIES or G-Sec or GOVERNMENT SECURITIES Gilts are bonds issued by certain
national governments. The term is of British origin, and originally referred to the debt securities issued
by the Bank of England, which had a gilt (or gilded) edge. Hence, they are called gilt-edged securities, or
gilts for short. Government securities are risk free and offer reasonable returns. Thats the reason that
they are also part of the portfolio of mutual funds to hedge risk. Characteristics of G-Sec Market

I. Investors are largely institutions which have obligations to buy these securities
II. Other institutions like mutual funds also buy these to hedge risk
GINI COEFFICIENT It is a measure of inequality usually calculated on the basis of Lorenz curve. The Gini
coefficient can range from 0 to 1. 1 means absolute inequality. For India it is around .37.

GREEN BOX and BLUE BOX SUBSIDIES Under WTO Uruguay Round negotiation on Agriculture,
subsidies are classified as being provided for either export or for domestic use. Green Box Subsidies are
Non-trade Distorting Subsidies and are permissible under WTO regime. They are exempted from
reductions. These are mainly payments to producers for environmental programmes so long as it
doesn't affect current production (only creates future capacity), training, marketing information,
infrastructure etc. However, they also form the highest portion of subsidies given by developed
countries to their farmers. USA gives 33% of the agriculture GDP as green box subsidies, Japan gives
 Nitin Sangwan

25%. India gives a measly 2%. Blue Box Subsidies are a special category of subsidies permitted under the
WTO Agriculture Agreement, it includes payments that are linked to production but with provisions to
limit production through production quotas or requirements to set aside land from production. It is an
exemption from the subsidy reduction rule but it has an upper limit. The main aim is to sustain cheap
imports needed by trans-national agriculture businesses. There is other category of Domestic subsidy
called Amber Box subsidies, which are considered as trade distorting and are required to be reduced. It
is stated as Aggregate Measurement of Support (AMS) and includes all specific support + non specific
support. Specific support is the difference between domestic procurement prices and international
prices. Non specific support covers all input subsidies. AMS has to be reduced by 20% for developed
countries over a period of 6 years while developing countries were required to reduce total AMS by 13%
over a period of 10 years. While there is a category under Red Box that is prohibited. However, post
Uruguay round in developed countries Green Box subsidies increased substantially and no longer
remained non-trade distorting as proved by many. Apart from these, there is also a guideline of having
maximum level of subsidies De-Minimus Level of Subsidy. Policies with AMS less than 5% of value of
agricultural production for developed countries and less than 10% of value of agricultural production for
developing countries are exempted from reduction commitments. India is currently exempted, but with
its new food security law in full operation, it may not be.

GREEN GDP Green GDP is a term used generally for expressing GDP after adjusting for environmental
damage.

GROSS BUDGETARY SUPPORT The Government's support to the Central plan is called the Gross
Budgetary Support. The GBS includes the tax receipts and other sources of revenue raised by the
Government. In the recent years the GBS has been slightly more than 50% of the total Central Plan.

GROSS DOMESTIC SAVINGS and GROSS DOEMSTIC CAPITAL FORMATION Gross Domestic Saving is
equivalent to saving by private households plus savings by Private Corporate Sector and by Public
Sector. GDS = Household Savings + Private Corporate Sector Savings + Public Sector Savings. In India,
Gross Domestic savings have increased significantly over the years from less than 10% at the time of
independence to more than 33% in 2011-12. Out of these, contribution of household sector is highest
which is more than 24% of GDP. Household Sector Savings are of two types Financial Savings (NSC, FD,
Currency, Shares, Life Insurance and Provident Fund etc it was mainly facilitated by expansion of
banking services and mobilization by LIC etc) and Physical Savings (like House, Real Estate, Equipments
etc). Savings done by one sector say household sector are not necessarily utilized by the same sector
and may be utilized by another sector say private sector. It is reflected in Gross Domestic Capital
Formation or Investment in an Economy. It grows as savings grow.So, Gross Domestic Savings are an
important component of Gross Domestic Capital Formation and hence overall Growth in a country
higher the savings and capital formation rates, higher the growth. Other component is Foreign Capital
Inflows (in form of FDI etc).i.e. GDCF = GDS + FCI.

GST It will replace multiple state and central levies such as excise, service tax, value added tax and
entry tax and create a national market while lifting GDP by 1-2 percentage points. The constitutional
amendment that will allow states to tax services and the centre to collect taxes on goods from retail
 Nitin Sangwan

establishments.

HEADLINE INFLATION or WPI It is the most commonly used measure of inflation in India. It is a
measurement of price inflation that takes into account all types of inflation that an economy can
experience. Food items have a much larger weight in the CPI vis--vis the WPI. Unlike Core Inflation,
headline inflation also counts changes in the price of volatile items like food and energy. In India it is also
referred to as WPI. In India, WPI data is divided into three broad groups (weightage given in brackets)
Primary Articles (20.12) This is primary (not manufactured) food items related inflation; Fuel Group
(14.91); Manufactured Products (64.97) (If we remove Food product inflation associated with
manufactured items, we get Core Inflation or Non Food Inflation). The WPI index does not cover non-
commodity producing sectors viz. services and non-tradable commodities. (Thats why its also accused
of not representing the total spending of a consumer and hence actual impact of rise in prices on
consumer). Apart from CPI and WPI, another measure to measure inflation is GDP Deflator (It is the
most comprehensive out of the three measures). But it is released only once in 3 months.

Why WPI as a measure of inflation in India?

I. It is released more frequently (every 2 weeks) so policy analyst can use it more
conveniently as CPI is available on a gap of 1 month. However from January 2012, this
practice of weekly/bi-weekly release of data was abandoned and frequency of WPI data
too was fixed as 1 month as there was considerable statistical aberrations.
II. Further, WPI is more comprehensive in terms of its coverage.
Shortcomings of WPI as a measure of inflation

I. It excludes services which today form a major chunk of expenditure of a household

II. It also excludes the products of the unorganized sector that are estimated to constitute
about 35% of the total manufactured output of the country
III. It measures prices at wholesale level, hence doesnt reflect the final prices
Inflation reduces savings, pushes up interest rates, dampens investment and leads to
depreciation of currency thus making imports costlier. Inflation can be demand pull, cost push
or structural inflation.

Depending upon the rate of growth of prices, inflation can be of following types:

I. Creeping inflation It is a rate of general price increase of 1-5% a year. It erodes the
purchasing power of money when continued for many years but it is manageable.
Furthermore, a low creeping inflation could be good for the economy as producers and
traders make reasonable profits encouraging them to invest.

II. Trotting inflation It is 5-10% annual rate of increase in the general level of prices,that
if not controlled,might accelerate into a galloping inflation.
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III. Galloping inflation It is 10-20% a year. If it aggravates it can worsen to runaway

inflation which may change into a hyperinflation.

IV. HyperinflationA monthly inflation rate of 20-30% or more. It is a condition in which

prices increase rapidly as a currency loses its value.

V. The worst is the monetary collapse, if prices are not reined in time.

Measures to control inflation

I. Fiscal Measures Reduced import duties; Deficit reduction

II. Administrative and Policy Measures Ban on Export of certain Essential Commodities,
Suspension/Ban on future trading of certain commoditities, Boost domestic production
by increasing output, dual pricing of goods, prevention of black marketing and hoarding,
fixing maximum prices for goods
III. Monetary Measures Liquidity Adjustment Facility (LAF), Open market Operations, Call
Money Market
IV. Long term measures like improving supply of goods
CPI and WPI

CPI also includes fewer items

WPI doesnt include services
WPI is published by Commerce Ministry, but CPI is published by Statistics Ministry
A major reason for the divergence between the CPI and the WPI is the former's higher
weight on food items
RBI has recently moved toward CPI as prime inflation number as it is generally higher and
reflect more realistic impact on consumer. Global practice is also the same.
HINDU RATE OF GROWTH The Hindu rate of growth is a controversial and derogatory expression used
to refer to the low annual growth rate of the economy of India before 1991, which stagnated around
3.5% from 1950s to 1980s, while per capita income growth averaged 1.3%. The term was coined by
economist Raj Krishna.

ICOR Incremental Capital Output Ratio A metric that assesses the marginal amount of investment
capital necessary for an entity to generate the next unit of production. Overall, a higher ICOR value is
not preferred because it indicates that the entity's production is inefficient. The measure is used
predominantly in determining a country's level of production efficiency. ICOR is calculated as: Annual
Investment/Annual Increase in GDP.

IMPORT PARITY PRICE This was in news due to the price hike in petrol by Oil Marketing Companies. It
is argued that they use Import Parity Pricing principle to show under-recovery. Under recovery are a
form of losses that OMCs suffer due to the difference between the IPP and the Actual prices in India. This
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approach doesnt represent actual losses because of the losses being notional and not real at times. This
is highlighted by the fact that despite under-recoveries, OMCs make huge profits.

INTEGRATED TRANSPORT SYSTEM Integrated transport system refers to a multi-modal transport

smooth movement of freight over various modes of transport like roads, railways, ports, coastal
shipping, inland water and civil aviation.

INVERTED DUTY STRUCTURE Under this finished goods are taxed lower than raw material such as
components. Due to this, component import becomes expensive. This is also one of the reasons that
India imports more electronics than are locally made.

LAFFER CURVE It is the representation of the relationship between possible rates of taxation and
resulting levels of government revenue. It illustrates the concept of taxable income elasticity i.e. the
taxable income will change in response to changes in the rate of taxation. Its application was proven in
1991 when India liberalised its economy.

LEAD BANK The scheme was first introduced in 1960s in India. The scheme aimed at nominating some
banks in each district as lead banks and these will coordinate the credit activities of all the financial
institutes like cooperatives, commercial banks etc to promote financial inclusion. The LBS has been able
to achieve great success in the rural areas, and also it has aided in building up a cadre of Bank Officers
devoted to Rural Banking. Later Service Area Approach was adopted in 1989 similar to Lead Bank
Scheme under which a specific area was allotted to a bank. It aimed at de-duplication of efforts and
lending. It allowed organized lending instead of scattered lending. However due to issues like basis of
allocation of service area, under-utilization of staff etc led to collapse of scheme.

LENDER OF LAST RESORTAn institution, usually a country's central bank, that offers loans to banks or
other eligible institutions that are experiencing financial difficulty or are considered highly risky or near
collapse. In India RBI performs the same task.

LIMITATIONS of BENEFIT CLAUSE - LoB is an anti-abuse provision that restricts eligibility criteria for third
country (other than the contracting States) residents to obtain benefits under a Double Taxation
Avoidance Agreement (DTAA). This ensures that the benefit of lower withholding tax rate is given to
genuine tax residents of a contracting state. The introduction of LoB provisions in recent Indian treaties,
as in Indias treaty with Singapore recently, demonstrates a policy to discourage treaty shopping
where a multinational business takes advantage of favourable tax treaties in certain jurisdictions.

LIQUIDITY ADJUSTMENT FACILITY Use of Reverse Repo and Repo Rates by RBI to adjust the amount of
liquidity in the banking system is termed as the Liquidity Adjustment Facility. This is one of the major
tool of monetary control. (Others are Open Market Operations and Call market).

MARGINAL WORKERS Marginal workers were those who worked any time at all in the year preceding
the enumeration but did not work for a major part of the year, i.e., those who worked for less than 183
days. Main workers work for more than 183 days.

MARGINAL STANDING FACILITY RATE MSF is the rate at which banks can borrow overnight from RBI.
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This was introduced in the monetary policy of RBI for the year 2011-2012. The MSF is pegged 100bps or
a % above the repo rate. Banks can borrow funds through MSF when there is a considerable shortfall of
liquidity. This measure has been introduced by RBI to regulate short-term asset liability mismatches
more effectively.

MIS-SELLING broadly means unfair or fraudulent practices in soliciting or selling (insurance) policies
mostly of third party not sought by the customer. It generally means the bank has sold products to
customers which is different from what they wanted or bank promised. In past few years there is a rising
number of mis-selling by banks which could effect the consumers confidence in insurance products, not
good for tapping savings for long term investments for the economy.

MOST FAVORED NATION Most Favoured Nation (MFN) is a status or level of treatment accorded by
one state to another in international trade. This means that there are special tariffs and import-export
relaxations like replacement of Positive List of tradable items with a negative list etc. The members of
the World Trade Organization (WTO) agree to accord MFN status to each other. MFN is one of the
cornerstones of WTO trade law.

MPI The Multidimensional Poverty Index (MPI) was developed in 2010 by Oxford Poverty & Human
Development Initiative and the United Nations Development Program and uses different factors to
determine poverty beyond income-based lists. Multidimensional Poverty Index is an improvement over
the earlier used human poverty index. MPI indicates the number of people who are multidimensionally
poor. By multidimensional, we mean that there are many indicators, a total of 10 in number, with
respect to which the deprivations are considered. One is said to be multidimensionally poor if one is
suffering from deprivations in at least one third of these 10 weighted indicators Child mortality, Health
and nutrition, Education, Standard of living, Cooking fuel, Toilet, Water, Electricity, Floor, Assets etc.

MULTIPLIER EFFECT The expansion of a country's money supply that results from banks being able to
lend. The size of the multiplier effect depends on the percentage of deposits that banks are required to
hold as reserves. In other words, it is money used to create more money and is calculated by dividing
total bank deposits by the reserve requirement.

MUTUAL FUND A mutual fund is a type of professionally-managed collective investment scheme

that pools money from many investors to purchase securities (i.e. to invest in stock markets and other
securities like government securities, NSC etc).In India, they are regulated by SEBI.They are established
as Trusts and are managed by a separate Asset Management Company in India.

NAMA - Non-Agricultural Market Access (WTO Doha rounds) NAMA refers to all products not covered
by the Agreement on Agriculture. In other words, in practice, it includes manufacturing products, fuels
and mining products, fish and fish products, and forestry products. They are sometimes referred to as
industrial products or manufactured goods. Over the past years, NAMA products have accounted for
almost 90% of the world trade.

NATIONAL COMMON AGRICULTURE MARKET It was proposed by the government to do away with
inefficiencies of current APMC Act and the associated market mechanism. Its primary objective was to
curb food inflation by curbing the issues related to food shortages due to lack of interconnectedness of
 Nitin Sangwan

markets. Existing mechanisms divide the country into smaller markets it creates artificial price
differential across states.

NATIONAL INVESTMENT FUND The cabinet Committee on Economic Affairs (CCEA) on 27th January,
2005 had approved the constitution of a National Investment Fund (NIF). The Purpose of the fund was to
receive disinvestment proceeds of central public sector enterprises and to invest the same to generate
earnings without depleting the corpus. The earnings of the Fund were to be used for selected Central
social welfare Schemes. This fund was kept outside the consolidated fund of India.

NEW ECONOMIC POLICY In 1991, India met with an economic crisis relating to its external debt the
government was not able to make repayments on its borrowings from abroad; foreign exchange
reserves, which we generally maintain to import petrol and other important items, dropped to levels
that were not sufficient for even a fortnight! (The crisis was further compounded by rising prices of
essential goods).Major cause of the situation was continued deficit financing. In the late 1980s,
government expenditure began to exceed its revenue by such large margins that meeting the
expenditure through borrowings became unsustainable.Also no country or international funder was
willing to lend to India. India approached the International Bank for Reconstruction and Development
(IBRD), popularly known as World Bank and the International Monetary Fund (IMF), and received $7
billion as loan to manage the crisis. For availing the loan, these international agencies expected India to
liberalize and open up the economy by removing restrictions on the private sector, reduce the role of
the government in many areas and remove trade restrictions between India and other countries. India
agreed to the conditionalities of World Bank and IMF and announced the New Economic Policy (NEP).

NON-COMPETE CLAUSE The non-compete clause is a standard feature of mergers-acquisitions. This

clause restricts a party from competing with a business after termination of employment or completion
of a business sale for a fixed time. This duration of fixed period can be different from one agreement to
another.

NON-PLAN EXPENDITURES Non-Plan expenditure is a generic term, which is used to cover all
expenditure of Government not included in the Plan i.e. expenditure, which does not come under the
purview of the Planning Commission is called non-plan expenditure. It may either be revenue
expenditure or capital expenditure. Part of the expenditure is obligatory in nature e.g. interest
payments, pensionary charges and statutory transfers to State and Union Territory Governments. A part
of the expenditure relates to essential functions of the State, e.g. defense, internal security, external
affairs and revenue collection. Subsidies are also part of Non-Plan expenditure. Government decided to
cut non-plan expenditure in wake of slowing economy.

NON TARRIFF TRADE BARRIERS Non-tariff barriers to trade (NTBs) are trade barriers that restrict
imports but are not in the usual form of a tariff. Some common examples of NTB's are anti-dumping
measures and countervailing duties, sanitary and phytosanitary requirements, quotas, Import Licensing
requirements, Minimum import price limits, Embargoes, Standards disparities, Administrative fees
which, although they are called "non-tariff" barriers, have the effect of tariffs once they are enacted.
Their use has risen sharply after the WTO rules led to a very significant reduction in tariff use. Some non-
tariff trade barriers are expressly permitted in very limited circumstances, when they are deemed
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necessary to protect health, safety, or sanitation, or to protect depletable natural resources. In other
forms, they are criticized as a means to evade free trade rules such as those of the World Trade
Organization (WTO), the European Union (EU), or North American Free Trade Agreement (NAFTA) that
restrict the use of tariffs.

OFFSHORE FINANCIAL CENTRES An offshore financial centre (OFC), though not precisely defined, is
usually a small, low-tax jurisdiction specializing in providing corporate and commercial services to non-
resident offshore companies, and for the investment of offshore funds.

OPEN MARKET OPERATIONS The buying and selling of government securities in the open market in
order to expand or contract the amount of money in the banking system. Purchases inject money into
the banking system and stimulate growth while sales of securities do the opposite. This is one of the
major tool of monetary control. (Others being Liquidity Adjustment Facility and Call market).The usual
aim of open market operations is to control the short term interest rate and the supply of base money in
an economy, and thus indirectly the total money supply.

OVER THE COUNTER SECURITIES A security traded in some context other than on a formal exchange
such as the BSE, etc. The phrase over-the-counter can be used to refer to stocks that trade via a dealer
network as opposed to on a centralized exchange. It also refers to debt securities and other financial
instruments such as derivatives, which are traded through a dealer network.

OVERHEATING of ECONOMY Overheating of an economy occurs when its productive capacity is unable
to keep pace with growing aggregate demand. Economic situation in which growth is occurring so
quickly that economists fear a rise in inflation. This happens when producers are not able to make
enough goods and services to meet rising demand, and raise prices instead.

PARTICIPATORY NOTES or P NOTES Participatory Notes commonly known as P-Notes or PNs are
instruments issued by registered foreign institutional investors (FII) to overseas investors, who wish to
invest in the Indian stock markets without registering themselves with the market regulator, the
Securities and Exchange Board of India - SEBI. SEBI permitted foreign institutional investors to register
and participate in the Indian stock market in 1992. SEBI was not happy with P-Notes because it is not
possible to know who owns the underlying securities and hedge funds acting through PNs might
therefore cause volatility in the Indian markets. P Notes may also be used by terrorist organizations as
well.

PERFORMANCE BUDGET Unlike the traditional line item budget, a performance budget reflects the
goal/objectives of the organization and spells out performance targets. These targets are sought to be
achieved through a strategy(s). A Performance Budget gives an indication of how the funds spent are
expected to give outputs and ultimately the outcomes. However, performance budgeting has a
limitation It is not easy to arrive at standard unit costs especially in social programmes which require a
multi-pronged approach.

PERI URBAN AREAS They are the outskirts of a large urban area, more accurately areas which are
outside urban jurisdiction (and are not included in the definition of uraban areas) but are in the process
of urbanization and have certain characteristics of urban areas. Such areas are created partly by the
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influx from the deeper countryside, but also from those in the cities seeking to move out some
migrating from congested areas to larger residences or new industries and some shifting away from
expensive city living. Such areas lack clear administration, suffer from sanitation and water problems
and are transitional zones between towns and the countryside. Their issues are:

I. Land use change, from agricultural to residential or industrial.

II. Changes in the use of natural resources such as water and forestry.

III. New forms of pollution and waste management.

IV. Creation of infrastructure.

V. Managing a new cultural

ethos.

PHILLIPS CURVE (UPSC Mains 2006)

Phillips curve is a historical inverse
relationship between the rate of
unemployment and the rate of
inflation in an economy. Stated
simply, the lower the unemployment
in an economy, the higher the rate of
inflation in long run (in short run there
may be some variations).

PLAN HOLIDAY In 1960s, for 3 years,

1966-69, three annual plans were made instead of 5 year plan. This period is termed as plan holiday.
Under achievements during third plan mainly due to war with Pakistan and China forced the planners to
go for annual plans and during the Annual Plans, the economy basically absorbed the shocks given
during the Third Plan, making way for a planned growth.

PLAN and NON-PLAN EXPENDITURE DIFFERENCE and NEED to DO AWAY WITH IT - The plan
expenditure of the government is normally associated with productive expenditure, which helps
increase the productive capacity of the economy. Non-plan expenditure, on the other hand, includes
expenses on heads such as interest payment on government debt, subsidies, defence, pensions and
other establishment costs of the government. A large part of this is obligatory in nature. In wake of
changed priorities of government, such distinction is now superfluous. Further, it make a false
distinction that non-plan expenditures are not very productive and should hence be prime focus of cost-
cutting measures. In fact some non-plan expenses like salaries can be very important in sustaining the
initiatives taken through plan investments. Various committees and commissions have recommended
the government to remove this distinction as it has become dysfunctional and an obstacle in outcome-
based budgeting. It had led to excessive focus on so-called Plan expenditures, with a corresponding
neglect of items such as maintenance, which is classified as non-Plan. Once the distinction is removed,
 Nitin Sangwan

the Planning Commission, as suggested by the Rangarajan panel, might look at guiding the overall
development priorities, setting of outcome targets and review of performance of departments. The
distinction has become redundant with dissolution of planning commission.

PONZI SCHEMES or MULTILEVEL MARKETING SCHEMES These are deceptive schemes which promise
very high rates of returns to its investors and operate through a chain of investors in which higher
returns are incentivized to those investors who bring in the most new investors into the schemes. Ponzi
scheme is however a fraudulent investment operation where the operator, which promises to pay
returns to its investors from new capital paid to the operators by new investors, rather than from profit
earned by the operator. Such schemes are banned in India and globally. Recent scams including such
schemes are Sardha Chit Fund, Speak Asia, RCM etc.

PRIMARY DEFICIT Fiscal deficit interest payments and depreciation

QFI - The Qualified Foreign Investor (QFI) is sub-category of Foreign Portfolio Investor and refers to any
foreign individuals, groups or associations, or resident, however, restricted to those from a country that
is a member of Financial Action Task Force (FATF) or a country that is a member of a group which is a
member of FATF and a country that is a signatory to International Organization of Securities
Commissions (IOSCO) Multilateral Memorandum of Understanding (MMOU). QFI scheme was
introduced by Government of India in consultation with RBI and SEBI in the year 2011, through a Union
Budget announcement. The objective of enabling QFIs is to deepen and infuse more foreign funds in the
Indian capital market and to reduce market volatility as individuals are considered to be long term
investors, as compared to institutional investors.

QUANTITATIVE EASING (QE) is an unconventional monetary policy used by central banks to stimulate
the economy by supplying excess liquidity and bringing interest rates close to zero. To carry
out QE central banks create money by buying securities, such as government bonds, from banks. Such
measures were taken by American Fed Bank and European banks during the time of slowdown.

RENT SEEKING It refers to instances when a company or individual use public resources to obtain
economic gain from others without reciprocating any benefits back to society.

REVENUE DEFICIT Revenue deficit is the gap between the consumption expenditure (revenue
expenditure) of the Government (Union or the State Governments) and its current revenues (revenue
receipts). It also indicates the extent to which the government has borrowed to finance the current
expenditure. Revenue receipts consist of tax revenues and non-tax revenues. When the net amount
received (revenues less expenditures) falls short of the projected net amount to be received (i.e. what
is actually received and what was expected). This occurs when the actual amount of revenue received
and/or the actual amount of expenditures do not correspond with predicted revenue and
expenditure figures. It is different from Fiscal deficit in the sense that fiscal deficit represents that
difference between Expenditures and Revenues. For example, consider an organization with budgeted
revenue of Rs 325,000 and budgeted expenditures of Rs 200,000, which equates to a net amount of Rs
125,000. During the fiscal year, the organization's total revenue is actually Rs 300,000, while its total
expenditure is Rs 195,000. The net amount received by the organization is Rs 105,000, which is Rs
 Nitin Sangwan

20,000 less than the projected receipt of Rs 125,000. Therefore, although the organization generated a
positive net amount of proceeds, it fell short of the projected amount, creating a revenue deficit. (In
this case there is no Fiscal Deficit, but Revenue Deficit is there, there can be a case of vice-versa also).
Elimination of the revenue deficit has been a priority for Governments, both the Union and at the State-
levels, as a revenue deficit may pre-empt resources which otherwise would be available for capital
investments. Implementation of Fiscal Responsibility and Budget Management (FRBM) legislation during
the period 2005-10 has helped Governments to reduce their revenue deficits to a considerable extent.

Fiscal deficit on the other hand measures the gap between the government consumption
expenditure including loan repayments and the anticipated income from tax and non-tax
revenues. It also indicates the borrowing requirements of the government from all sources.

Effective Revenue Deficit In 2012 budget of India, FM has introduced this concept. It excludes
grants given to states for capital creation from the revenue deficit. Focusing on this will help in
reducing the consumptive component and hence create space for increased capital spending.

REVENUE EXPENDITURE Broadly the expenditure which does not result in creation of assets for
Government of India is treated as revenue expenditure. An expenditure that neither creates assets nor
reduces a liability is categorised as revenue expenditure. Revenue expenditure is for the normal running
of Government departments and various services, interest payments on debt, subsidies, etc. All grants
given to State Governments/Union Territories and other parties are also treated as revenue expenditure
even though some of the grants may be used for creation of assets. It is recurring in nature and incurred
regularly.

ROLLING PLAN Fifth FYP was launched and planned for period 1974-79 but Janata Government came
in power in 1978 and ended the plan prematurely in 1978. The Janata government launched sixth FYP
for period 1978-1983. Congress government when came in power in 1980 abandoned the sixth FYP and
launched a new sixth FYP for period 1980-1985. The plan for period, 1978-80, is called the rolling plan.

ROUND TRIPPING Round tripping involves getting the money out of one country, say India, sending it
to a place like Mauritius and then, dressed up to look like foreign capital, sending it back home to earn
tax-favored profits. The problem for the home country is that native profits escape taxation this way.
And instead of foreign capital flowing into the country, local capital just gets a free ride.

RUPAY It is a new payment mechanism (like Visa and Maestro) launched by government of India
(National Payments Corporation of India (NPCI). Its benefits include Lower cost and affordability (as it
domestically cleared, so low cost); Customized product offering; Protection of information related to
Indian consumers; Provide electronic product options to untapped/unexplored consumer segment (rural
areas); Inter-operability between payment channels and products (ATM, mobile tech and cheque)

SEZs India has a relatively lower success as compared to China from where this model has been
emulated. Chinese industrial strategy relies on production on mass scale. They focus on the size of SEZ
rather than number of SEZ. As a result China has just 6 SEZ compared to 388 of India but their size are
much larger reaping economies of scale for them. Chinese SEZ are dominantly owned by manufacturing
sector thus addressing their employment concerns. Indias SEZ are IT and ITeS dominated negating
 Nitin Sangwan

employment objective. While SEZ in China contribute majority of its export, in India the contribution is
just 30%. Strict SEZ land utilisation laws deters unorganised sector who own majority of export oriented
production in India. Though SEZ have world class infrastructure in India, the ancillary infrastructure in
messed up causing external spill over impacts which are mostly absent in China. Communist regime has
advantages of quick decision making and stability while democracy is infested with populism, creating
problems for SEZ expansion.

SHADOW BANKING are banking like activities offered by Non banking financial intermediaries. Their
existence outside the regulatory ambit poses a threat to financial system. Occurrence of global financial
crises of 2008 is a case to the point. Features of Shadow banking that makes it a threat are It is
completely unregulated or loosely regulated. Products offered are diverse and complex that may
confuse investors. It has ability to transmit risk due to its interconnectedness with financial system.

SPECIAL DRAWING RIGHTS An international type of monetary reserve currency (but not a currency
per se), created by the International Monetary Fund (IMF) in 1969, which operates as a supplement to
the existing reserves of member countries. Created in response to concerns about the limitations of gold
and dollars as the sole means of settling international accounts, SDRs are designed to augment
international liquidity by supplementing the standard reserve currencies. SDRs is like an artificial
currency used by the IMF and defined as a basket of national currencies. The IMF uses SDRs for internal
accounting purposes. SDRs are allocated by the IMF to its member countries and are backed by the full
faith and credit of the member countries' governments. SDR's value is defined by a weighted currency
basket of four major currencies: the Euro, the US dollar, the British pound, and the Japanese yen. Due to
fluctuating exchange rates, the relative value of each currency varies continuously, and so does the value
of the SDR. The IMF fixes the value of one SDR in terms of US dollars daily.

SPOT EXCHANGE Spot exchange is a platform which facilitates the spot trading. Spot trading is
immediate or near immediate delivery of commodities or currencies which are being traded. It is settled
on the spot. National Spot Exchange Limited is such platform for spot trading of commodities like
ferrochrome, gold, wheat etc. It came into news due to recent scam in NSEL. Under recent scam of
NSEL, it was allowing forward contracts which were not within its mandate. These contracts were being
made on basis of forged warehouse receipts. In actual, there was no underlying commodity for trading.

STAGFLATION In economics, stagflation is a situation in which the inflation rate is high and the
economic growth rate slows down and unemployment remains steadily high.

STRUCTURAL ADJUSTMENT PROGRAMS Structural adjustments are the policies implemented by the
International Monetary Fund (IMF) and the World Bank (the Bretton Woods Institutions) in developing
countries. These policy changes are conditions for getting new loans from the IMF or World Bank, or for
obtaining lower interest rates on existing loans. Conditionalities are implemented to ensure that the
money lent will be spent in accordance with the overall goals of the loan. The Structural Adjustment
Programs (SAPs) are created with the goal of reducing the borrowing country's fiscal imbalances. The
bank from which a borrowing country receives its loan depends upon the type of necessity. The SAPs are
supposed to allow the economies of the developing countries to become more market oriented.
 Nitin Sangwan

STRUCTURAL UNEMPLOYMENT Structural unemployment occurs when a labor market is unable to

provide jobs for everyone who wants one because there is a mismatch between the skills of the
unemployed workers and the skills needed for the available jobs or due to the location mismatch.

SUPPLY SIDE ECONOMICS Supply-side economics is a school of macroeconomics that argues

thateconomic growth can be most effectively created by lowering barriers for people to produce
(supply) goods and services as well as invest in capital. According to supply-side economics, consumers
will then benefit from a greater supply of goods and services at lower prices; furthermore, the
investment and expansion of businesses will increase the demand for employees. Typical policy
recommendations of supply-side economists are lower marginal tax rates and less regulation. It
emerged from the failure of Keynesian-style demand management policies .

TAX EXPENDITURES Tax Expenditures, as the word might indicate, does not relate to the expenditures
incurred by the Government in the collection of taxes. Rather it refers to the opportunity cost of taxing
at concessional rates, or the opportunity cost of giving exemptions, deductions, rebates, deferrals
credits etc. to the tax payers. Tax expenditures indicate how much more revenue could have been
collected by the Government if not for such measures. In other words, it shows the extent of indirect
subsidy enjoyed by the tax payers in the country.

TAX HAVEN A tax haven is a place where there are certain exemptions to the persons/organizations
parking their funds there. There are many countries like Seychelles, Brunei, Trinidad and Tobago,
Botswana and Brunei which have such policies of tax exemptions. These tax havens are often used to
park the illegal funds. It is a nation or place which is by virtue of its tax laws is used by
corporations/individuals to avoid tax. A tax haven is characterized by

I. Nil or nominal taxes;

II. Lack of effective exchange of tax information with foreign tax authorities;
III. Lack of transparency in the operation of legislative, legal or administrative provisions;
IV. No requirement for a substantive local presence; and
Tax havens are less attractive after 2009 in aftermaths of financial crisis when G20 agreed that greater
transparency in financial system should be ushered in. As a result, bank account in these tax havens
have become more transparent.

TRANSFER PRICING It is the price that is assumed to have been charged by one part of a company for
products and services it provides to another part of the same company which are registered as separate
entities and hence calculate profits and loss separately. India has the highest number of litigations over
transfer pricing, where MNCs have been charged of reducing their tax liability by transferring profits to
group companies abroad, the E&Y Global Transfer Pricing Survey revealed on February 6, 2011. The
country has over 1,500 cases pending under the transfer pricing. A number of MNCs are accused of
selling goods and services to their subsidiaries at inflated prices under transfer pricing, to reduce profits
and hence tax liabilities. The law requires that goods and services should be sold to subsidiary
companies at arms length price the price at which goods are traded between unconnected
companies.
 Nitin Sangwan

TRADITIONAL INDUSTRIES The traditional industries of India include handloom, handicrafts, coir,
cashew, beedi, tiles and bricks and other household industrial activities carried out in the rural parts of
the country. They are labour intensive and rely on skills passed on from one generation to another
generation. However, they are mostly non-viable as they have not modernized themselves to cater to
the changing demand conditions and their marketing strategies are often not well planned or executed.
As a result, many of these industries depend on subsidies for survival and lack a commercial orientation.
Scheme of Fund for Regeneration of Traditional Industries (SFURTI) for regeneration of traditional
industries clusters from khadi, village and coir sectors is run by government. The Scheme envisages
need-based assistance for replacement of production equipment, setting up of common facility centres
(CFC), product development, quality improvement, improved marketing, training and capacity building,
etc. 26 coir clusters have been approved from the coir producing States for their development under
SFURTI.

TWIN DEFICIT The twin deficits hypothesis, also called the double deficit hypothesis or twin deficits
anomaly, is a concept from macroeconomics that contends that there is a strong link between a national
economy's current account balance (Current Account Deficit) and its government budget balance (Fiscal
Deficit).

UNDEREMPLOYMENT Underemployment refers to a situation where there is a disequilibrium in the

labor market causing labor to be underutilized. This can include workers working less hours than they
would like; workers accepting jobs that dont utilize their skills.

ZERO-BASED BUDGETING The concept of zero-based budgeting was introduced in the 1970s. As the
name suggests, every budgeting cycle starts from scratch. Unlike the earlier systems where only
incremental changes were made in the allocation, under zero-based budgeting every activity is
evaluated each time a budget is made and only if it is established that the activity is necessary, are funds
allocated to it. The basic purpose of ZBB is phasing out of programmes/activities which do not have
relevance anymore. However, because of the efforts involved in preparing a zero-based budget and
institutional resistance related to personnel issues, no government ever implemented a full zero-based
budget, but in modified forms the basic principles of ZBB are often used.

Indian economy General Features

Unlike Chinese economy, India economy is largely domestic consumption led.

Major Indicators

GDP Size $2.1 trillion in 2014-15 (China - $10 trillion)

GDP Growth rate 2014-15 7.3% as per revised estimates
Agriculture growth - .2%
Indias rank on GDP is 9th in terms of nominal prices
GDP per capita Around $ 1,500 (China $ 7000, USA - $53,041)
 Nitin Sangwan

Subsidy bill of central government (2014-15) Rs 2,50,000 crore

Agriculture Industry Services
14% 27% 59%
49% 22% 31%
New GDP shift from GDP at factor cost to GDP at market prices (will include value addition)
based on GVA or gross value
addition.
Poverty 22% Tendulkar
method
Savings 30% down from
35% a few years back
FDI in 2014-15 Rs 1.76 lakh
crore, a big jump over the last year
FIIs in May have seen negative growth for the first time in 21 months.
Industrial production grows at 4.1% in April 2015
In terms of Purchasing Power Parity, Indian economy emerged as the third largest in 2014 after
USA and China.
As a proportion of GDP, direct taxes accounted for 5.6 per cent in 2013-14 and in the past 10
years, direct taxes have been more than indirect taxes which are currently 4.4% of GDP.
Service sector witnessed major growth period post 1980, before that growth rate of Industry
was higher than the Services Growth Rate.
Foreign exchange reserves increased by nearly US$ 40 billion from US$ 275 billion in early
September 2013 to US$ 314.9 billion on 20 June 2014.
Insurance penetration has grown from 2.3 per cent in 2000 to 3.96 per cent
The top three trading partners of India are China, the USA, and the UAE. India had bilateral trade
surplus the USA, UAE. Indias trade to China has increased from US$ 2.3 billion in 2000-01 to US$
68.9 billion in 2013-14.
Indias share in world exports and imports increased from 0.7 per cent and 0.8 per cent
respectively in 2000 to 1.7 per cent and 2.5 per cent respectively in 2013.
ECONOMIC CHALLENGES FACED BY INDIA

Economic growth has slowed due to domestic structural and external factors. Sub five per cent
growth
Double digit inflation, especially food inflation (core inflation or non-food manufactured
commodities related remains low at 2-3% during whole year). Strategy must involve a three
pronged strategy - monetary policy, fiscal consolidation, and food market reforms. Food inflation
partly owes to large wastage of food articles in the supply chain owing to inefficiencies in
 Nitin Sangwan

distribution channels. The provisions of the State Agricultural Produce Marketing Committee
(APMC) Acts have prevented creation of competitive conditions in the distribution of
commodities and creation of a national market for agricultural commodities. Multiple layers of
intermediation in the distribution of food articles have also pushed up prices for consumers.
There is need for a formal monetary policy framework through which the Reserve Bank of India is
given clarity of objective (a CPI inflation target) and operational autonomy in pursuit of that
target. Low and stable inflation rate helps maintain the value of the currency, both domestically
and externally.
a. Deregulation of diesel prices, powersector reforms, and generally the move from
administered to market-determined prices will release suppressed inflation in the short
run. Nevertheless, the consequent reduction in subsidy and fiscal deficit will have the
salutary effect of reducing inflation.
b. Improving efficiency of public programs and breaking the wage-price spiral: The projects
selected for schemes like the Mahatma Gandhi National Rural Employment Guarantee
Scheme (MGNREGS) do not improve the productivity of the agricultural sector
commensurately. The increasing wages under such schemes have reportedly created
shortage of labor in the agricultural sector as well as caused a wage-price spiral. The
solution lies in selection of productivity enhancing projects for ambitious public policy
programs like the MGNREGS.
c. Rationalization of government support to farmers: If the policy of supporting farmers
through MSP and procurement is to continue, the MSP should be scrupulously linked to the
cost of production. Procurement should not be open-ended, and the practice of some state
governments of charging as high as 14-15 per cent mandi fee/tax and paying high bonuses
over and above the MSP must be discouraged.
d. Role of APMC Acts: The State Agricultural produce marketing committee (APMC) Acts have
created monopolies and distributional inefficiencies. They constitute a major roadblock in
the way of creating a national market for agricultural commodities. Apart from breaking
the monopoly and dissuading state governments from treating the APMCs as liberal
sources of revenue, substantive efforts have to be made to create alternative trading
platforms in the private sector where it is possible to reduce the layers of intermediation.
Since this may take time, fruits and vegetables should be taken out of the purview of the
APMC Acts immediately. A processor should be able to buy directly from farmers without
having to pay any mandi fee/tax to the APMC.
e. Government deficit should also be brought down.
Tax to GDP ratio must be improved Our ratio is around 10%, which is one of the lowest in its
peer group. We need to fast track GST and DTC bills.
 Nitin Sangwan

Non-tax revenues needs to be increased

Twin deficits Fiscal deficit high 4.5% and Current account deficit 4.5%. One of the major
factors that has resulted in an increase in the Centres fiscal deficit after 2008-09 has been the
build-up in subsidies. Another has been fiscal stimulus and expansionary fiscal stance adopted by
the government in wake of slowdown. The Indias balance-of-payments (BoP) position improved
dramatically in 2013-14, particularly in the last three quarters and came down to 1.7%.
Infrastructure The first wave of investment in infrastructure and natural resources, which
began in 2002, has run into numerous problems, reflecting inter alia the complexities of PPP
contracting and the limited capacity in the system. The weakness in integrated planning has led
to difficulties such as ports that lack railway lines or power plants that lack coal supplies.
Infrastructure projects are best financed through corporate bonds. However, other than issuance
by large financial institutions, the corporate bond market in India has been largely missing.
The inflexibility of labor markets have prevented high job creation. Recent moves by
government are a step in right direction.
Black money, tax evasion, parallel economy and money laundering
Tight liquidity condition expensive credit
A new Fiscal Responsibility and Budget Management (FRBM) Act with teeth. The modified Act
needs take into account business cycles and to have penalties that are strong enough so that it
cannot be ignored.
World Bank, Doing Business Report The Doing Business Report 2014 prepared by the World
Bank shows that India ranks 134 out of 189 countries in 2014. On Starting a business parameter
it fared even worse at 179. The report is based on more than 10 indicators like getting credit,
getting construction permit, taxation policies, insolvency measures, starting a business,
registering property, protecting investors, cross border trading, registering of contracts and so
on.
Gross fixed capital formation (GFCF) of the private corporate sector (at constant prices) declined
sharply: from growth of 17.94 per cent in 2006-07 to a decline of 3.2 per cent in 2012-13.
Difficulties in obtaining clearances and raw material supplies and of financing brought numerous
investment projects to a halt.
Building investors confidence cautious approach regarding retrospective taxation measures.
The major subsidies in 2013-14 amounted to Rs 2,47,596 crore. There has been a sharp increase
in total subsidies from 1.42 per cent of GDP in 2007-08 to 2.26 per cent in 2013-14. Food subsidy
is highest at Rs 90,000 crore followed by petroleum 85,000 crore and then fertilizer subsidy. Fuel
subsidies in India to be badly targeted, with the richest 10 per cent of households benefiting
seven times more than the poorest 10 per cent. The subsidy regime to be made more targeted
for full protection to the marginalized. Ill-targeted subsidies cramp the fiscal space for public
 Nitin Sangwan

investment and distort allocation of resources.

Reform direct and indirect tax regimes DTC and GST. Indias complex tax system suffers from
problems in both structures and administration. Tax reform in India can improve the ease of
doing business and promote efficiency and productivity growth. The tax/GDP ratio of the
government must be obtained through a burden-sharing mechanism where low rates apply on a
broad swathe of the population, through effective enforcement mechanisms. Taxes clarified as
bad in public finance theory like cesses, surcharges, transaction taxes, and taxes imposed for
ease of collection such as the dividend distribution tax, need to eventually go. India stands out,
among the EMs, with a high rate of total taxation of corporations as they are taxed as firms and
the individuals and shareholders taxed separately as well. GST, the DTC will yield gains by
removing distortions of individual and corporate decision making, reducing compliance cost and
litigation, and improving tax collections.
From a high of 36.8 per cent in 2007, the gross savings rate fell by 6.7 percentage points of the
GDP in 2012-13
What is particularly worrisome is the slowdown in manufacturing growth that averaged 0.2 per
cent per annum in 2012-13 and 2013-14. Low manufacturing base, especially of capital goods,
and low value addition in manufacturing
Expenditure reform At present in India, a government department gets resources through two
mechanisms: the budget process run by the Ministry of Finance and the budget process run by
the Planning Commission. This leads to sub-optimal resource allocation as well as diffused
accountability. There has been much criticism of the Indian cash-based accounting process.
Greater clarity, and better decisions, would be achieved by moving towards an appropriately
modified accrual based system, where the income and expenditure for the year is measured as
that which is attributed to the activities of the year. As an example, if a fertilizer subsidy were
operating in a year, the cost of that subsidy would be counted in that year regardless of when
the actual payment of the subsidy took place.
Presence of a large informal sector and inadequate labor absorption in the formal sector.
Absence of required skills is considered an important reason
Sustaining high economic growth is difficult without robust agricultural growth. Low agricultural
productivity is hampering this.
External global challenges, downturn and oil prices. As coal and petroleum are universal
intermediates, the slack in their production impacted the economy adversely.
Out of the total unemployment, 50% lies in agriculture
RUPEE DEPRICIATION

Rupee depreciation will have a domino effect on inflation. As oil imports will be worst affected,
 Nitin Sangwan

Its Causes are

I. Rising current account deficit due to falling exports and increasing crude and gold
import bill
II. Signals by US Federal bank of recovery of US economy and as a result flight f capital
from developing countries to US and other developed countries
III. Rising fuel subsidies
IV. Decrease in flow in FDI and FII due to slowing economy and unstable policies and
political environment.
V. Cancelling of many new manufacturing projects like POSCO and resultant negative
sentiments and flight of money.
Possible remedies

I. Limiting outflow of funds - The RBI reduced the limit for outbound investment and
remittances from India
II. Increase forex inflow - RBI has removed administrative restrictions on investment
schemes offered by banks to non-resident Indians, and removed ceiling on interest rates
on deposit accounts held by NRIs. The government liberalised the FDI limits for 12
sectors, including oil and gas.
III. Ministry of Commerce is exploring the possibility of using local currency for trade with
major trading partners. RBI allowed exporters and importers more flexibility in
management of their forward currency contracts
IV. Increasing duty on gold to discourage gold imports
V. RBI has also taken measures to curb speculative trading in currency, sold dollars
VI. Increase domestic production of gas from KG Basin and oil from new Rajasthan oil fields
to cut dependency on imports and hence decreasing dollar spending on oil imports.
VII. Containing current account deficit by promoting exports
VIII. Promoting manufacturing sector for long term measures to curb current account deficit
IX. Promote economic growth in general so that investments can be attracted and capital
flight can be curbed.
X. Government is also considering increasing its import of crude oil from Iran which will be
paid in Indian currency
XI. Currency swap agreement has been put in place with Japan and BRICS have also formed
a $100 billion fund
XII. Swadeshi consumption should be promoted. This on one hand will lead to less reliance
on foreign imports and on the other hand will lead to development of domestic
industries.
 Nitin Sangwan

DEBT

Debt to GDP Ratio in 2014 stood at 50%. Of the total public debt, internal debt constitutes 95.5
per cent, whereas external debt (at book value) constitutes the remaining. External debt US$
426.0 billion. Indias external debt continues to preponderantly consist of long-term borrowings.
Long-term external debt at US$ 333.3 billion at end December 2013, accounted for 78.2 per cent
of total external debt. Over the years, Indias external debt stock has witnessed a structural
change in composition. The share of concessional in total debt has declined on account of the
shrinking share of official creditors and government debt and the surge in non-concessional
private debt. The proportion of concessional debt in total debt declined from 42.9 per cent
(average) during the period 1991-2000 to 10.6 per cent at end December 2013.

INDIAN ECONOMY vs CHINESE ECONOMY

India is a service based, Chinese is manufacturing based
India is a mixed economy, Chinese is a socialist
Chinas FDI policy is far more controlled and regulated than Indias.
Chinese public sector enterprises still enjoy monopoly in banking and petroleum.
Chinese economy is export oriented with huge government support
SEZs in China were established with commensurate focus on rural areas
China has also backed industrial growth with a commensurate robust investment in
infrastructure

*Sectors of Indian Economy Industry, Service and Agriculture

SERVICE SECTOR

Globally it has 65.9 % share in the US$ 72.7 trillion world GDP (at current prices) in 2012. But its
share in global employment was only 44.0 per cent in 2012. Share of service sector in Indian
GDP is around 57%. The share of the services sector in employment increased from 19.7 per
cent in 1993-94 to 26.9 per cent in 2011-12. The growth of the services sector is closely linked to
FDI inflows into this sector and the role of transnational firms. From 2000 to 2014, share of
services in FDI has been 45%. Indias share in world service export is 3.3%, which is better than
its overall share in exports at around 1.7%. Inflation in the services sector is not captured in the
usual inflation indicators like the wholesale price index (WPI) and only partially covered in the
consumer price index (CPI) where items like medical care, education, recreation and
amusement, transport and communication, and housing are included. The ITbusiness process
management (BPM) sector (excluding hardware) is estimated to have grown by 10.3 per cent,
reaching US$ 105 billion in 2013-14. Of this, exports have a major share of 81.9 per cent. IT and
ITES is also a big employer with 3.1 million persons employed in 2013-14. India continues to
maintain a leadership position in global sourcing, accounting for above 55 per cent of the total
global sourcing market (excluding engineering services and R&D) in 2013.

INDUSTRY and MANUFACTURING SECTOR

 Nitin Sangwan

Core Industries There are 8 core infrastructure industries that comprise the core sector. They
are Crude Oil, Petroleum Refinery Products, Coal, Electricity, Cement, Steel, Natural gas and
Fertilizers. The Index of 8 core industries having a combined weight of 37% in the Index of
Industrial Production- Electricity has highest weightage of around 10.

Challenges in Industrial Sector

Indias manufacturing industry relies on inexpensive and skilled labour, and the
manufactured products are cost-effective; yet the competitiveness is not maintained
owing to low labour productivity.
Manufacturing sector in India has failed to absorb workers from farm sector.
To aggravate the issues, there has been a stagnancy in the per capita real wages.
Indian manufacturing scenario is still material intensive and material inputs count as
high as 2/3 of the value of the output (its 1/3 in US).
Key reasons for poor performance of industrial sector in past few years have been
contraction in mining activities and deceleration in manufacturing output.
Slowdown in construction activities has resulted in capacity underutilization in the steel
and cement sectors.
Continuing slowdown has impacted the performance of the corporate sector. While
corporate debt levels have risen, earnings and profitability remained under pressure.
This has partly impacted the banking sector, with a concomitant increase in non-
performing assets.
Medium-term challenge for Indian manufacturing is to move from lower to higher-tech
sectors, from lower to higher value added sectors, and from lower to higher productivity
sectors.
NATIONAL MANUFACTURING POLICY and the Progress in Implementation of the National
Manufacturing Policy and other INDUSTRIAL CORRIDORS The Government of India had
notified a National Manufacturing Policy (NMP) in November 2011 with the objective of
enhancing the share of manufacturing in GDP to 25 per cent and creating 100 million jobs over a
decade by 2022. Increase manufacturing sector growth to 12-14% over the medium term to
make it the engine of growth for the economy. Clustering and aggregation by creation of
National Investment and Manufacturing Zones (NIMZs). Enhance global competitiveness of
Indian manufacturing through appropriate policy support. Promote Green Manufacturing.
Special focus on employment Intensive Industries Special attention will be given in respect of
textiles and garments; leather and footwear; gems and jewellery; and food processing
industries. Focus is also on Capital Goods and strategic industries A special focus will be given
to machine tools; heavy electrical equipments; heavy transport, earth moving and mining
equipments, sectors like aerospace; shipping; IT hardware and electronics; telecommunication
equipment; defense equipment; and solar energy. It also talks about incentives for SMEs.
 Nitin Sangwan

Current progress

Till 2013-14, 16 NIMZs had been announced. Of these, eight are along the Delhi-Mumbai
Industrial Corridor (DMIC).
The DMIC project was launched in pursuance of a memorandum of understanding
(MOU) signed between the Government of India and the Government of Japan in
December 2006 along the Western Dedicated Freight Corridor (DFC) of the Railways.
The Chennai-Bengaluru-Chitradurga industrial corridor (around 560 km) will benefit the
states of Karnataka, Andhra Pradesh, and Tamil Nadu. The Japan International
Cooperation Agency (JICA) Study Team undertook the Preliminary Study for
Comprehensive Integrated Master Plan for Chennai-Bengaluru Industrial Corridor (CBIC)
and identified a total of 25 priority projects across various sectors aimed at removing
infrastructural bottlenecks.
Bengaluru-Mumbai Economic Corridor (BMEC) - India and the United Kingdom have
signed an MOU for the development of a new Bengaluru-Mumbai Economic Corridor
(BMEC).
East Coast Economic Corridor (ECEC) including Vizag-Chennai Industrial Corridor (VCIC)
- A concept note has been prepared by the Asian Development Bank (ADB) on an East
Coast Economic Corridor linking Kolkata-Chennai-Tuticorin and it has been decided to
initiate a feasibility study with the help of the ADB.
Amritsar-Kolkata Industrial Corridor (AKIC) - The government has, in January 2014,
accorded in principle approval for setting up of an Amritsar-Kolkata Industrial Corridor
(AKIC) along a 150-200 km band on either side of the Eastern Dedicated Freight Corridor
(EDFC) in a phased manner.
MSMEs THEIR STATUS and SCHEMES

Why MSMES are important?

Small Scale Industries account for more than 30% of the output in the
manufacturing sector and around 40% of the total exports.
95% of them are unregistered and are important source of livelihood for the
workers in the unorganized sector. They also represent a great diversity in terms
of production
The informal sector lacks easy access to credit and technology. The productivity
gap between the informal and formal industry sectors remains large. The role of
small businesses and the informal sector is of utmost importance in meeting
employment-generation targets.
 Nitin Sangwan

Manufacturing enterprises constitute 31.8 per cent of the micro, small, and
medium enterprises (MSME) sector and service enterprises account for the
remaining 68.2 per cent.
About 55.3 per cent of these enterprises are located in rural areas.
MSMES are employment intensive and have high labor to capitol ratio
They also promote equality as they prevent accumulation of wealth among a
few
They also promote entrepreneurship among the youth and make youth self-
dependent
They also promote regional balance in industrial growth as they are setup not
only in backward states but also in rural areas and hence help in tapping local
resources
The MSME sector showed consistent growth of more than 11 per cent every
year till 2010-11, whereas in 2011-12 the growth rate was 19 per cent and in
2012-13 about 14 per cent.
Challenges in MSME sector

Mortality rate is very high in this sector

Dereserving of many items over the years, government has dereserved many
items from their field which has led to more competition which is often
unequal.
Labor Protection Often working conditions re much worse than big organized
units and there is non-existence of trade unions and other regulations
High participation of informal labor in MSMEs and hence poor labor security
Skill levels of MSME workers are also poor
In order to boost the MSME sector, several schemes are operational. Some of the major
initiatives taken for the development of this sector are

I. Many financing bodies like IDBI and SIDBI provide concessional loans. Credit
Guarantee Fund was established in 2000 to ensure supply of credit without
collatoral. Credit Linked Capital Subsidy and Credit Guarantee Scheme are
other schemes for provision of capital and funding.
II. To enable greater access to finance by Small and Medium Enterprises (SME),
two SME exchanges launched in Mumbai recently.
III. Cluster Approach MSE-Cluster Development Program has been launched.
IV. For skill development, entrepreneur skill development programs are launched
to generate first generation of entrepreneurs. NSDC has also been formed.
 Nitin Sangwan

National Skill Development Mission (NSDM) has also been launched.

V. Import and Export Incentives in form of exemption from duty and
reimbursement of export duty
VI. Marketing support is also provided and National Small Industries Cooperation
has been established to provide marketing support to these industries
VII. Place in Industrial Estates Industrial Plots are reserved for MSMEs in
Industrial estates. National Manufacturing Policy 2011 also provides for
special treatment to MSMEs
VIII. Technology Centre Systems Program;
IX. India Inclusive Innovation Fund;
X. Prime Ministers Employment Generation Program;
XI. Scheme for Extension of non tax benefits to MSMEs for three years.
The government has also notified the Public Procurement Policy for Micro & Small
Enterprises (MSEs) order 2012. The policy mandates that every central
ministry/department/public sector-undertaking shall set a minimum annual
procurement goal of 20 per cent of total product and service purchases from MSEs from
financial year 2012-13 onwards, in a period of three years. Further, the policy has also
earmarked a sub-target of 4 per cent of this 20 per cent for MSEs owned by Scheduled
caste (SC)/Scheduled tribe (ST) entrepreneurs.

In 2014 budget, a nationwide District level Incubation and Accelerator Program was
announced to be taken up for incubation of new ideas and necessary support for
accelerating entrepreneurship. Definition of MSME will be reviewed to provide for a
higher capital ceiling. Entrepreneur friendly legal bankruptcy framework will be
developed for SMEs to enable easy exit.

Recent news

New separate law proposed for the MSMEs The Labour Ministry has proposed
the Small Factories (Regulation of Employment and Conditions of Services) Bill to
govern wages and conditions of work in small and medium enterprises (SMEs).
o The Bill envisages rules for wages, overtime hours, social security and
appointment of factory inspectors.
o It also proposes to increase the number of exempted laws for which the
register is required to be maintained.
o It also raises the minimum number of employees in units to 40 workers.
o The new Bill has been proposed to align the work conditions in the
SMEs with the Factories Act amendments and allow enterprises to file
compliance forms online
 Nitin Sangwan

o This Act will reduce the number of forms required for compliance with
rules.
o It will allow the SMEs to employ women in night shifts based on the
fulfilment of certain conditions.
o It will change the inspection system to one based on self-certification
and inspections based on computer lots.
o It also proposes to increase the number of permissible overtime
workhours
Improving Business Environment: Short, Medium, and Long-term Steps

Longer-term solution is a wholesale revamping of the laws and regulations governing business,
Removal of Infrastructure Bottlenecks

Steps in the Short Run

Create a website with all the rules and regulations applicable to businesses across states
and the centre.
Review the existing regulatory landscape for outdated regulations which can safely be
done away with.
Strengthen grievance redressal mechanisms against inspections.
Minimize human interaction and shift reporting/data submission to an online-only mode
whenever possible
Shift important decision making from the inspector to higher-level officers, who are
generally more trusted by firms. The inspectors remit would be to observe and
document violations, while significant penalties could be the remit of senior officials.
BUDGET 2014

Central Government Departments and Ministries to integrate their services with the e- Biz -a
single window IT platform- for services on priority by 31 December this year.
Perspective plan for the Bengaluru Mumbai Economic corridor (BMEC) and Vizag-Chennai
corridor to be completed with the provision for 20 new industrial clusters.

*Trade

Key Features

I. Major Items of Import are Oil, Metals, Capital Goods, Gems and Stones and Drugs
II. Major Items of Export are Traditionally India has been exporter of agriculture and raw
materials. As economy matures, raw materials are consumed at home industry and now major
 Nitin Sangwan

chunk of exports is contributed by Manufactured Items. Major items in their decreasing value
are - Manufactured Goods, Petroleum Products, Agriculture and Allied Products.
III. Trading Partners United Arab Emirates, China, United States, Saudi Arabia, EU. As a single
economy the Gulf Cooperation Council (GCC) is the largest trading partner of India with almost
$100 billion in total trade.
IV. Balance of Trade situation As of April 2012, Indias exports stand at $300 billion and imports
at more than $480 billion. Trade deficit has risen to around 38%. Main cause of the widening
deficit are rising crude prices (crude import costs India $150 billion) and obcession with bullion
(India imported $60 billion worth of gold in 2011-12).
V. Bilateral Agreements India has signed many FTAs and CECAs (Australia, New Zealand,
Malyasia) and CEPAs (Canada and Japan) to boost bilateral trade. A CEPA (Comprehensive
Economic Partnership Agreement) is much broader than FTA as it includes not only tariff
agreements but also TRIPS issues, regulation issues, dispute redressal mechanism etc. India has
signed it with many countries like Japan, Korea, Canada etc.
VI. New trade policy is committed to support the growth of project exports.
VII. Export Oriented Units (EOUS), Electronics Hardware Technology Parks (EHTPS), Software
Technology Parks (STPS) and Bio-Technology Parks (BTPS) have been setup to address the export
orientation needs of certain specific industries.
VIII. Market Diversification Weaker demand from developed countries has led to shift in focus and
South-South cooperation is emphasized. 26 new countries have been included within the ambit
of Focus Market Scheme.
IX. Handicrafts Duty free import of tools and machineries is allowed to promote handicraft and
special export incentives are given
X. WTO and India India joined WTO in 1995. Major issue for India is agriculture. If WTO provisions
are fully implemented, Indian markets will be deluged by cheaper food grains produced by
farmers of wealthy countries which also receive heavy subsidies. In this scenerios, Indian
farmers will fail to compete and have to face huge hardships. After Uruguy and Doha round,
India has agreed to lower trade barriers. It has exposed Indian industry to global competition.
Small Scale Industries cannot compete to the scale of big MNCs. Bias of Developed Countries
Countries like US offer subsidies to domestic industries which are detrimental to the developing
countries whose producers cannot compete with the highly subsidized goods and agriculture
produce from these countries. Barriers in forms of Intellectual property rights etc are erected
Indian drugs and textile industry is specially exposed to such barriers.
XI. Since 2001 all Quantitative Restriction (or non-tariff barriers) has been removed.
XII. Vishesh Krishi And Gram Udyog Yojana (VKGUY) This scheme is to incentivize the export of
agriculture and rural industry products. To compensate for high cost of transportation etc, duty
 Nitin Sangwan

benefits are provided to the listed area under this scheme. Recently other categories like
flowers and fruits are also added under this.
Core Competencies of India

I. 20% of worlds generic drugs are manufactured in India

II. Garments Export Hub
III. Gems and Jewellery Export
IV. IT and ITES export Plans to raise it by $250 billion by 2020
V. Refined Petroleum Products
Challenges in external trade sector

I. While there has been market diversification and compositional changes in India's export basket,
not much of demand-based product diversification has taken place. Till now our focus was on
exporting what we can (or supply based), now we have to shift to items for which there is world
demand and we also have basic competence.
II. India has done relatively better in terms of services trade, but not much on merchandise front.
III. Export infrastructure, particularly ports-related infrastructure, which affects trade, needs
immediate attention. Even the best of our ports do not have state-of-the-art technology as in
Singapore, Rotterdam, and Shanghai. Port infrastructure issues include poor road conditions and
port connectivity, congestions, vessel berthing delays, poor cargo handling techniques and
equipment, lack of access for containerized cargo. Just as drastic changes have been brought
about in India's airports and metro rail, sea ports should be the immediate priority.
IV. India should also ready itself to face new threats like the Transatlantic Free Trade Agreement
(TAFTA) between the US and EU which intends to create the world's largest free trade area,
protect investment, and remove unnecessary regulatory barriers.
V. Greater trade facilitation by removing the delays and high costs on account of procedural and
documentation factors, besides infrastructure bottlenecks is another major challenge. In Doing
Business 2015, India ranks 130 in ease of doing business with Singapore at first place and China
at 96. The number of import documents needed is 20 for India and 4 for Singapore. Cost of
exports per container is US$ 1170 in India, US$ 460 in Singapore.
So far, India has signed 10 free trade agreements (FTAs) and 5 preferential trade agreements (PTAs) and
these FTAs/PTAs are already in force. At present, India is in the process of negotiating 18 FTAs, including

India-EU Bilateral Trade and Investment Agreement (BTIA): Negotiations commenced in June
2007 in the areas of goods, services, investment, sanitary and phyto-sanitary measures,
technical barriers to trade, trade facilitation and customs cooperation, competition, intellectual
property rights (IPRs), and geographical indications (GIs). Fifteen rounds of negotiations and a
 Nitin Sangwan

number of inter-sessional and Chief Negotiator-level meetings have been held till date. A
Ministerial review meeting was held on 15 April 2013 at Brussels.
India-ASEAN Comprehensive Economic Cooperation Agreement (CECA)-Services and
Investment Agreement: Conclusion of negotiations on Agreement on Services and Investment
was announced at the ASEANIndiaCommemorative Summit on 20 December 2012. Cabinet
approved and ratified the Agreements on19 December 2013. The ASEAN Secretariat has been
asked to inform the dates for formal signing of the Agreements.
Regional Comprehensive Economic Partnership (RCEP) Agreement: The RCEP Agreement is
between ASEAN + six FTA Partners (Australia, China, India, Japan, South Korea, and New
Zealand): Based on the Declaration of the Leaders during the ASEAN Summit in November 2012,
negotiations for a comprehensive economic partnership between the 10 ASEAN member states
and its six FTA partners commenced in May 2013.

Issues relating to planning, mobilization of resources (taxation, borrowing/debt, disinvestment,

incomes and interests, savings)

PLANNING

ORIGIN OF PLANNING COMMISSION

Planning Commission was not a sudden invention. A section of the big Industrializts got together
in 1944 and drafted a joint proposal for setting up a planned economy in the country. It was
called the Bombay Plan. The Bombay Plan wanted the state to take major initiatives in industrial
and other economic investments. Thus, from left to right, planning for development was the
most obvious choice for the country after independence. Further, setting up of a planning
process is one of the constitutional directive principles.

FIVE YEAR PLANS IN INDIA THE REAL BEGINNING

Mahalanobis, the Architect of Indian Planning. Many distinguished thinkers contributed to the
formulation of our five year plans. Among them, the name of the statistician, Prasanta Chandra
Mahalanobis, stands out. Planning, in the real sense of the term, began with the Second Five
Year Plan. The Second Plan, a landmark contribution to development planning in general, laid
down the basic ideas regarding goals of Indian planning; this plan was based on the ideas of
Mahalanobis. In that sense, he can be regarded as the architect of Indian planning.

PLANNING FUNCTION POST INDEPENDENCE

I. Ambiguity in roles of finance ministry and planning commission The Ministry of

Finance is responsible for fiscal consolidation. Containing the budget deficit and
implementation of FRBM Act, 2003, is its task. But in formulating the budget its role in
 Nitin Sangwan

Plan expenditure budgeting is diluted by the discussions which the ministries have with
the Planning Commission.

II. Overlapping with finance commission

NEW ROLE OF PLANNING COMMISSION

Planning Commission played an over-arching role during 60s and 70s. However its role started
changing after that and in last two decades there is a significant shift and a further demand for
change of its role is there.Socio Economic Planning falls under concurrent list, but still center
played a greater role and hence, it was often accused of playing a centralizing role. Its new role
envisages

I. In wake of liberalisation A centralized planning and liberalsied economy seem

dichotomous to each other and Centralised Planning is now an Oxymoron.

a. Complementary Role Should Provide stimuli inform of key investment while

respect should be done by private players
b. Objectives are more selective As private sector carved out its space, planning
commission can now better focus on developmental role and infrastructure
building role. In recent years its stress on welfare schemes and infrastructure is
an indicator of that.
II. In wake of 73rd and 74th amendment

a. Guide and philosopher

b. technical assistance By providing information and expert advise
c. Cut back CSS Further number of centrally sponsored schemes not only
impinge upon the autonomy of PRIs, their large number also creates confusion
and wastage.
d. Strengthen monitoring role Recently in 2012, Parliamentary Standing
Committee on Finance has suggested that it should surrender its plan allocation
role to finance ministry and focus on monitoring
III. Others

a. Plan effectiveness It should now focus on attaining efficiency rather than

expanding plans over the years
b. Integrative role
c. Create self-managed institutions To make development sustainable, there
should be self-sustaining institutions. It should help in growth of such
institutions.
 Nitin Sangwan

d. Think tank Should chalk out new innovative long term strategies
e. Systems reforms commission Plan panel itself in 2010 had started a process of
converting itself into a systems reform commission. It will now work like an
informed advisor and will think ahead in time and help executive to forsee the
problems and opportunities ahead. China recently renamed the Planning
Commission the National Development and Reform Commission
f. Focus on development issues It should concentrate on poverty alleviation,
human resource development etc which are crucial to realize the potential of
our One billion workforce
g. Synchronize efforts Right now there are multiple overlapping schemes and
programs and huge wastage of resources.
h. Strategic vision It should set long term strategic vision
DECENTRALIZED PLANNING

It is not necessary that all planning always has to be centralized; nor is it that planning is only
about big industries and large projects. The Kerala model is the name given to the path of
planning and development charted by the State of Kerala. There has been a focus in this model
on education, health, land reform, effective food distribution, and poverty alleviation. Despite
low per capita incomes, and a relatively weak industrial base, Kerala achieved nearly total
literacy, long life expectancy, low infant and female mortality, low birth rates and high access to
medical care.

CRITICISM of PLANNING COMMISSION WHY IT WAS DONE AWAY WITH BY NEW

GOVERNMENT?

There are two basic pillars of the argument against planning commission first, the institution is
not a fit in the liberalized environment where market calls the shots and second, it has long
played a role of distorting the true federal nature of Indian polity. Planning Commission is more
than 60 years old modeled on Gosplan which was suited to a socialist economy in the then
USSR and was created for a closed economy, situation has changed now. Even a communist
country like China has changed the nature and name of its planning commission as National
Development and Reform Commission in wake of current requirements. Planning commission
cannot do mundane work of distribution of resources in a competitive world and it should also
focus on increasing productivity, promoting innovation and reforms, promoting center state
cooperation, setting a vision of development and so on. It has to adopt an integrated approach
and also identify key areas which require special focus from development, security and strategic
point of view. It should act like a deep think tank, not just a parking lot of IAS officers and
officials. It should be connected from ground and should not be like just another government
department. It has also be accountable for its plans.
I. It is accused of arrogating to itself certain executive functions. ARC recommended that it
 Nitin Sangwan

should confine itself to the planning only.

II. Its existence impinges upon autonomy of states in federal system For example states
demand for grants are approved only after Planning Commission approves them.
Further, according to Ashok Chanda, funds are tied to schemes and not free flowing this
limits the flexibility of states. Planning commission has encroached upon the autonomy
of the states as it can accept, modify or reject the states proposals for development
Programs, for which central assistance is sought and which can be granted only on the
acceptance of PC. CMs of the states have often complained that it was humiliating for
them as elected officials to beg for funds from mere nominated members of planning
commission.

III. It has failed to play the role of a reform body which also failed to provide a strategic
vision and come out with innovative ideas and practices.

IV. Over the years, the share of Gadgil formula normal plan assistance has fallen to just 19%
of the total PC assistance while those through CSS and special plans have increased.

V. Super Cabinet Apart from Defense Ministry and Ministry of External Affairs, every
other department is replicated here.

VI. Impinges upon authority of Finance Commission and Finance Ministry.

VII. While Finance Ministry is responsible for implementation of FRBM Act 2003, planning
commission doesnt have such responsibilities but at the same time its role in budgeting
of plan expenditures over-rides that of Finance Ministry. This creates a dichotomy and
imbalance between authority and responsibility.

VIII. States complain that planning commission has also emerged as another bureaucratic
hurdle. It has become a parking place for IAS officers. The Secretary of the Commission
has become the nodal point in plan formulation, thereby flushing out the experts. By
contrast, in China, the staff of the NDRC spend their entire careers in it and develop
professional expertise.

IX. The Planning Commission is also subjected to the criticism that even during plan
formulation the Commission is guided more by political pressures or expediency than by
its expert judgment.

X. Some critics also pose it with the very existential question Why it should exist in first
place? There are ministries for every economic and developmental activities. Divisions
 Nitin Sangwan

of planning commission seems to be a shadow of them. Further, its experts have no say
in final plan approval. It is suggested that Finance Ministry, Finance Commission etc
have both authority and competence to execute functions that planning commission
does and every ministry has competent workforce to look into technical nature of
planning in their respective fields.

XI. The Planning Commission has barely managed to perform the function of systematically
collecting best practices in policy or programme design from States and replicating
successful models.

XII. Planning Commission that has historically promoted one-size-fits-all CSSs which were
driven by autonomous bodies in districts and it often resented states much. ARC2 too
recommended curtailment of these. Even a planning commission appointed committee
headed by B K Chaturvedi recommended trimming of such schemes by half of their
existing number in 2011.

XIII. There was poor focus on pilot studies before rolling out full schemes. Chinese have the
tradition of carrying out nationwide reforms only after experiments to pilot reform. In
India, on the other hand, experimentation of this kind is an exception, not the rule.
Programmes are devised with top-down designs where the Centre provides funds and
the States implement them. Decades of experience demonstrate that this method of
planning or programme design does not work.

XIV. Further, planning commission has a very poor record of effective implementation of five
year plans and as a result, budget expenditure and revised expenditure used to have
huge gaps

XV. Planning commission has also fared poorly on reducing income and inter-state
inequalities

However, government while doing away with planning commission should also keep in mind
that while the commission can be done away with, planning cannot be. In a liberalized scenario,
where benefits have accrued mostly to the well off states, importance of the planning
commission has rather increased for backward states. Socio-economic planning is a
constitutional directive to the state. It should also be recognized that Planning Commission in
the past has played a crucial role in poverty alleviation and social change.

11th FYP EVALUATION

Growth rate remained unsatisfactory due to intervention by financial crisis. Various targets were
missed. The biggest failure has been on the social sector, and even in the economic front we
 Nitin Sangwan

could not deliver. This is due to lack of infrastructure and capacity to translate the goals into
achievement.

12thFYP Faster, Sustainable, and More Inclusive Growth

Main highlights

I. Growth targets Moving away from previous practice of presenting single growth
projection, the PC has come out with three different economic scenarios for 12th Five-
Year Plan. The NDC approved the strategy to achieve average growth rate of 8 per cent
during the 12th Five Year Plan (2012-17) in an aspirational scenario. The document also
cautions that in scenario of policy logjam, the GDP growth could slow down to 5-5.5
per cent.
II. Main thrust area It identifies Infrastructure, Health and Education as the main thrust
area, for which outlays have been increased.
III. Education Mean Years of Schooling to increase to seven years by the end of Twelfth
Five Year Plan.
IV. Health ReduceIMR to 25 and MMR to 1 per 1000 live births, and improve Child Sex
Ratio (06 years) to 950 by the end of the Twelfth Five Year Plan. Reduce Total Fertility
Rate to 2.1 by the end of Twelfth Five Year Plan. Reduce under-nutrition among children
aged 03 years to half of the NFHS-3 levels by the end of Twelfth Five Year Plan.
V. Infrastructure Efforts would be made to increase investment in infrastructure sector
to 9 % of GDP by the end of the plan period. Complete Eastern and Western Dedicated
Freight Corridors by the end of Twelfth Five Year Plan. $ 1 trillion investment in
infrastructure, half of it coming from private sector.
VI. Rural development Connect all villages with all-weather roads by the end of Twelfth
Five Year Plan.
VII. Poverty Bring down poverty by 10 percentage points by the end of the 12th Plan and 2
per cent annually on a sustainable basis during the Plan period.
VIII. Employment Generate five crore/50 million new jobs in non-farm sector.
IX. Energy Provide electricity to all villages and reduce AT&C losses to 20 per cent by the
end of Twelfth Five Year Plan.
X. RenewableEnergy Adding 30,000 MW of renewable energy generation capacity in the
Plan period.
XI. Agriculture The strategy for the full Plan would aim at raising agricultural output to 4
per cent
XII. Manufacturing Manufacturing sector growth to 10 per cent, which is critical to
achieve inclusive growth
 Nitin Sangwan

XIII. Financial inclusion and banking Provide access to banking services to 90 per cent
Indian households by the end of Twelfth Five Year Plan.
XIV. Subsidies Major subsidies and welfare related beneficiary payments to be shifted to a
direct cash transfer by the end of the Twelfth Plan, using the Aadhar platform with
linked bank accounts.
XV. Environment Increase green cover (as measured by satellite imagery) by 1 million
hectare every year during the Twelfth Five Year Plan. Reduce emission intensity of GDP
in line with the target of 20 per cent to 25 per cent reduction by 2020 over 2005 levels.
MOBILIZTION of RESOURCES

Taxation, borrowing/debt, disinvestment, incomes and interests and savings are primary
sources of resource mobilization of government.

Revenue augmentation measures include withdrawal/rationalization of tax exemptions;

broadening of tax base; cautious approach while signing Free Trade Agreements; increasing
compliance through deterrence; simplification of tax laws; liquidation of locked revenue and
recovery of arrears; and speedy disposal of pending cases. Various exemptions are provided
currently in form of preferential treatment, SEZ etc there is need to revise that also.

Issues related to growth and development (and employment)

GROWTH

DEVELOPMENT

Backward Regions Grant Fund (BRGF): The BRGF program launched in 2007 is now applicable in
272 identified backward districts of 27 states, except Goa. The untied funds under the BRGF
provide financial resources for supplementing and converging existing development inflows and
bridging the critical gaps in local infrastructure and other development requirements that are
not being adequately met through other sources of funding. The program marks a major shift
from top down to participative approach. Its unique features are

I. It puts Panchayats and municipalities at center stage and

II. Its funds are not tied to special schemes, they can be applied on the basis of the projects
identified with peoples participation
III. It provides for capacity building and staff like no other program
 Nitin Sangwan

Issues related to employment

Today, employment share of three sectors of economy is roughly industry (17%), agriculture (57%) and
services (26%).

Unemployment is mainly of two types disguised unemployment and open unemployment. Disguised
unemployment is also called under-employment. It is a situation in which a person is not contributing
fully to his potential for example, a task which could have been done by 2 people, is done by 3. It
happens when a field is over-crowded and everyone gets something out of it instead of getting full of it.
Agriculture sector in India is marked by such unemployment.

Factors behind unemployment and under-employment conditions in India

I. Failure of industrial sector to absorb workforce. Indian industrial sector is capital intensive and
less labor intensive. Unlike other developed countries, India failed to make a transition from
agrarian economy to industrial economy and is directly making a shift to service economy.
II. Skill mismatch and underskilled population. Quality of education and skill development is poor
in Indian institutions which affect the employability of the youth.
III. Agriculture has become over-crowded and burgeoning population has no other alternatives as
well.
IV. With liberalization, there is an increasing casualization of the workforce and it is also leading to
increase in incidences of under-employment and disguised employment.
V. Poor infrastructure and incentive also deter people from going into self-employment. There is
an acute shortage of vocational courses and government support. Access to credit is difficult to
start a new venture.
VI. Lax government regulation and inadequate social security measures in the unorganized sector
have also contributed to poor condition of labor force.
MNREGS is the primary scheme of government of India for rural unemployment. Following are the main
schemes

I. MNREGA aims at providing not less than 100 days of guaranteed wage employment in a
financial year to every rural household, with a stipulation of one-third participation of women,
through creation of assets that address causes of chronic poverty like drought, deforestation,
and soil erosion, thus encouraging sustainable development.
a. The average wage under the scheme has increased from Rs 65 in FY 2006-07 to Rs 132
in FY 2013-14, resulting in improvement in the bargaining power of agriculture labor.
b. Some recent initiatives under the MNREGA Inter-departmental convergence and
collaboration activities like construction of individual household latrines under the
Nirmal Bharat Abhiyan (NBA), construction of anganwadi centers under the Integrated
Child Development Services (ICDS) Scheme, construction of village playfields under the
 Nitin Sangwan

Panchayat Yuva Krida aur Khel Abhiyan etc.

c. Key issues that the Standing Committee on Rural Development raised There are
several issues related to existence of fake job cards, inclusion of fictitious names,
missing entries and delays in making entries in job cards. Delay in payment of wages as
the most of states have failed to disburse wages within 15 days as mandated by
MGNREGA. In addition, workers are not compensated for a delay in payment of wages.
Most states do not pay an unemployment allowance when work is not given on
demand. The non-issuance of dated receipts of demanded work prevents workers from
claiming an unemployment allowance. There has been a delay in the completion of
works under MGNREGA and inspection of projects has been irregular. On an average
40% works has been completed in past and the work completion rate appears to be
decreasing in recent years. There is also a concern over non-creation of durable assets
which may benefit the community at large. It is also observed, that MNREGA has led to
rise in wages of casual labor as labor supplying states now offer jobs under MNREGA to
the workers in their home states itself and this is also leading to shortage of agriculture
labors in states like Haryana and Punjab. There is also issue of low involvement of Gram
Sabhas and poor incidences of social audits.
d. Way ahead
Government has also approved of linking MNREGA work to sanitation works
linked with Swach Bharat Abhiyan.
Government is planning to rope in technologies like geo-tagging which may
help in identifying which assets were already there and which have been
created afresh.
Government is also planning to alter the ratio of labor and material costs to
make asset creation process more durable.
To make its focus sharper, government is also planning to restrict it to the
backward and tribal areas only.
Government is also planning workers to migrate from unskilled to skilled.
Person getting 100 days will next be provided training under NRLM.
MNREGA wages will be aligned to minimum wages.
There is also a need to involve NGOs who could support gram panchayats in
planning, implementing and conducting of social audits of MGNREGA works.
Such organizations can help in augmenting the capacity and technical skills at
village levels.
II. Swaran Jayanti Gram Swarojgar Yojnaor Aajeevika Now, This scheme will also be restructured
and revamped into NRLM or National Rural Livelihood Mission. It covers all aspects of self-
 Nitin Sangwan

employment of the rural poor viz. organization of the poor in to Self Help Groups (SHGs) and
their capacity building, training, selection of key activities, planning of activity clusters,
infrastructure build up, technology and marketing support. Women are prime focus of this
scheme. Under the SGSY, assistance is given to the poor families living below the poverty line in
rural areas for taking up self-employment. The persons taking up Self-Employment are called
swarozgaris. They may take up the activity either individually or in Groups, called the Self-Help
Groups. Key recent changes under the scheme are
a. NRLM will be fully based on SHGs
b. NRLM plans to give special attention to the household which are currently dependent
on the Mahatma Gandhi Rural Employment Guarantee Act (MNEGA)
c. The objective of NRLM is to shift from allocation based approach to demand driven
strategy enabling states to formulate their own poverty reduction action plan
d. There is a shift in focus now, instead of focusing purely on BPL households, a
participatively identification of the poor approach is used. The beneficiaries will be
chosen by the gram panchayat.
e. One woman of each poor household is included. Focus will be on women, SC and STs.
Limitations

a. NRLM talks of rural livelihoods primarily through SHGs but relying only on SHGs appears
to be serious limitation as not everyone in rural area is a member of an SHG and
unlikeness of a person to become its member lead to forceful mandatory membership
which in turn lead to corruption of the process. It can cause exclusion instead of
inclusion , of rural low income people.
b. NRLM lacks serious attention to value added agriculture and rural Micro, Small and
Medium Enterprises (MSMEs) which can play a major role in enabling and sustaining
inclusive growth in rural areas.
III. Swarna Jayanti Shahri Rozgar Yojana (SJSRY) Swarna Jayanti Shahari Rozgar Yojana (SJSRY) was
replaced by National Urban Livelihoods Mission (NULM) in 2013 and it aims to provide gainful
employment to the urban unemployed and underemployed. The NULM will focus on organizing
urban poor in SHGs, creating opportunities for skill development leading to market-based
employment, and helping them set up self-employment ventures by ensuring easy access to
credit. The mission aims at providing shelter with basic amenities to urban homeless. It also
plans to address livelihood concerns of urban street vendors. The Swarna Jayanti Shahari Rozgar
Yojana (SJSRY) has five components which address various needs from self employment,
community development to wage employment under this single scheme
a. The Urban Self Employment Program (USEP)
 Nitin Sangwan

b. Urban Women Self-help Program (UWSP)

c. Skill Training for Employment Promotion amongst Urban Poor (STEP-UP)
d. Urban Wage Employment Program (UWEP)
e. Urban Community Development Network (UCDN)
Inclusive growth and issues arising from it

Inclusive growth is based on the principle of economic justice and equity. It is a growth which benefits
more those who needs it most. Deprived sections of the society are the main targets of inclusive growth
and it tries to bridge the gap between the haves and the have nots.

It is mentioned in our constitution as well in an implicit manner, when it talks about minimizing socio-
economic inequalities under directive principles.

Issues arising from inclusive growth

I. Which approach should be taken top down or bottom up. Experience of past has shown that
top down approach has not helped much in past 60 years.
II. Whether subsidies or skill development there is an old proverb that Dont give a hungry man a
fish to eat, rather teach him how to catch one. It is also an issue of long term gains vs short
term measures.
III. Resource mobilization is another big challenge in the way of inclusive growth.
IV. Industries or social sector while industries generate jobs and employment, social sector
reflects the health of society.
V. Minimizing regional disparities is another big challenge
VI. Prudent distribution of resources among the various social sectors is also a big challenge.

Government budgeting (expenditure, taxation, annual budget highlights)

Issues in Budgetary Process

I. Emphasis on expenditure targets, not results At present, government departments often

measure their performance in relation to the expenditure targets laid down in the budget
without adequate regard to outputs and even less to outcomes.
II. Unrealistic budget estimates Weakness in preparing proper estimates leads to frequent
revisions and supplementaries. Despite having such an elaborate and time consuming system of
making budgetary estimates, large amounts of unspent money have been surrendered every
year. This indicates lack of efficiency in estimation at the departmental level.
III. March Rush
IV. Poor control of legislature on expenses and guillotine
 Nitin Sangwan

V. Budget Estimates and Revised Estimates should be prepared with reference to the measurable
commitments made in the Outcome Budget.
VI. No Correlation between Expenditure and Actual Implementation
VII. Irrational Plan Non-Plan Distinction It has led to ever increasing tendency to start new
schemes/projects to the utter neglect of existing ones. The distinction also often leads to the
misperception that non-plan expenditure is inherently wasteful and should be avoided.
*Committees, Acts etc related to economic health and monetary policy

FRBM Act 2003

It is a fiscal management tool which aims at curbing fiscal deficit to 3% of GDP and revenue
deficit to 0%. It also prescribes that the Reserve Bank of India must not subscribe to the primary
issues of central government securities from the year 2006-07. According to the Act, measures
have to be taken to ensure greater transparency in fiscal operations. Although the government
has emphasized that the FRBMA is an important institutional mechanism to ensure fiscal
prudence and support macro economic balance there have been fears that welfare expenditure
may get reduced to meet the targets mandated by the Act. Under this Act, the Government is
under obligation to present three statements before the Parliament along with the Annual
Budget

I. Macroeconomic Framework Statement

II. Fiscal Policy Strategy Statement
III. Medium-term Fiscal Policy Statement
KIRIT PARIKH COMMITTEE, 2011

Government set up Kirit Parikh Committee in 2011 to find ways to cut down fuel subsidy and
rationalize the price of petroleum product. However, its recommendations were criticized for
basing them on under-recoveries which are not same as losses.

KELKAR COMMITTEE on FINANCIAL CONSOLIDATION, 2012

It was constituted in 2012 under the chairmanship of former Finance Commission Chairman
Vijay Kelkar to recommend measures of fiscal consolidation. Its major recommendations were
a. Phasing out subsidies. b. Increasing tax to GDP ratio. c. Amend tax laws to charge a market
based interest rate from defaulters. d. Amendment of relevant laws to ensure that PAN and UID
are quoted in every financial transaction.

B N SRIKRISHNA COMMISSION or FINANCIAL SECTOR LEGISLATIVE REFORMS COMMISSION

The FSLRC was setup by government headed by Justice B N Srikrishna in 2011. It suggested its
final report in March 2013. Its objective was to suggest sweeping reforms in financial sector and
it suggested curtailing the role of RBI. The draft Indian Financial Code (IFC) that has been
proposed by the FSLRC has provisions that aim at replacing a large numbers of existing financial
 Nitin Sangwan

laws.

Other background

There was a public tiff between SEBI and IRDA over regulations of the ULIP (Unit Linked
Insurance Products).
Many financial sector laws date back several decades are not compatible with todays
financial scenario.
The Commissions recommendations would solve the problems of inter-regulatory
coordination and Regulatory arbitrage.
The FSLRC has designed a modified financial regulatory architecture, which would
increase accountability by achieving clarity of purpose for each organization and avoid
conflicts of interest.
Its major recommendations were

I. Three new key agencies and several other agencies should be set up and many of the
existing should be merged with these. These are UFS, DMO, Resolution Corporation.
a. There should be a Unified Financial Agency (UFA) subsuming the functions of 4
bodies SEBI, IRDA, Forward market Commission, Pension Fund Regulatory.
b. For government debt management, it suggested setting up of a Debt
Management Office (DMO) to manage public debt. (Currently this function is
performed by RBI and there is often a conflict of interest and management of
debt may not be in very professional manner). 13th FC (Kelkar) and FSLRC
(Srikrishna) recommend this path.
c. It also calls for creation of a Financial Appellate Tribunal.
d. A separate Resolution Corporation should be setup to look into systemic
weaknesses and suggest early warning.
II. RBI should focus on its core functions of Monetary Policy and banking supervision.
III. It suggests to change the rule based structure to principle based which do not
change with financial and technological innovations.
IV. It also suggested scanning by multiple agencies for foreign capital inflow. (currently FDI
policy is framed by DIPP and proposals or FDI are cleared by FIPB and necessary
clearances are needed from Enforcement Directorate, CBI, RBI and so on)
V. FSDC or Financial Sector Development Council which is headed by Finance Minister
should be given statutory status.
VI. Indian Finance Code Bill should be introduced to implement above recommendations
viz creation of a super regulator and limiting role of RBI.
 Nitin Sangwan

Sweeping reforms are suggested keeping in view the size to which Indian Economy is slated to
grow in next 20 years.

Its major criticism were

I. Amongst the chief concerns for most critics has been the suggestion to formulate a
unified financial regulator, which will be a single entity to regulate all financial firms
(except banks) for both the consumer protection and micro-prudential requirements. It
will lead to regulatory monopoly and there is also a lack of required skill sets for such
an organization.
II. The call to cut back some of powers of RBI and redefining its objectives has also met
significant resistance. The recommendations up to an extent curtails the role of RBI as a
regulator and reduces it to just a monetary regulator. It is argued that functions like
debt management should still remain with the RBI. Managing public debt is a complex
procedure. It requires coordination of the monetary policy as well as the fiscal policy
and thus RBI is ideally suited to tackle the situation. Limiting RBI to price regulation is
also unjust, which has a long history of good performance, and expertise.
III. Also the recommendation to give politician a greater say in deciding monetary policy is
ill conceived.
URJIT PATEL COMMITTEE to STRENGTHEN THE MONETARY POLICY FRAMEWORK, 2014

The main objective of the committee was to recommend what needs to be done to revise and
strengthen the current monetary policy framework with a view to making it transparent and
predictable with a focus on inflation management. The group submitted its report in January,
2014 and inter-alia, made the following recommendations with regard to managing inflation in
the country

I. CPI (combined) should be used as the nominal anchor for a flexible inflation targeting
(FIT) framework (instead of current WPI based framework). The choice of CPI as nominal
anchor was mainly on account of the fact that the CPI closely reflects cost of living and
has larger influences on inflationary expectations than other anchors.

II. The monetary policy decision-making should be vested with a monetary policy
committee, chaired by the RBI Governor with rate action decided by votes, the model
followed by the US Federal Reserve. (But recently government has decided that
government will set up inflation targets for RBI and not a committee of RBI as the report
suggests) (The FSLRC had also suggested setting up a five member monetary policy
committee headed by the governor) (Having a committee system in place would mark a
radical shift in the way monetary policy is decided in the country. Currently, the governor
 Nitin Sangwan

is the sole authority to decide policy and the RBI board only has an advisory role.
Following the change, policy will be decided by the proposed committee chaired by the
governor through a vote).

III. Target rate of inflation should be 4 per cent with a tolerance band of 2 per cent to be
achieved in a two-year time frame.

IV. Administered prices and interest rates should be eliminated as they act as impediments
to monetary policy transmission and achievement of price stability.

V. The transition path to the target zone should be graduated to bring down inflation from
the current level of around 10 per cent to 8 per cent over a period not exceeding 12
months and to 6 per cent over a period not exceeding the next 24 months.

VI. Its other suggestions include transition to a bi-monthly monetary policy cycle,
progressive reduction in access to overnight liquidity at the fixed repo rate, and a
corresponding increase in access to liquidity through term repos.

VII. The committee recommends maintaining a positive real policy rate i.e. Repo Rate higher
than CPI.

The latest report of Dr. Urjit Patel on strengthening monetary policy re-affirms the fact that in
the long run inflation control and growth are not anti-thetical to each other, actually both
complement each other.

Even the US Federal Reserve frames its monetary policy based on retail inflation. Thus the Urjit
Patel committee aims to bring the traditional monetary policy making practices at par with
international standards.

If RBI implements these recommendations then interest rates will not come down in the next
few years. This will be detrimental to growth in such fragile circumstances. This is the reason
finance ministry might not agree with this report.

NACHIKET MOR COMMITTEE on FINANCIAL INCLUSION (Committee on Comprehensive Financial

Services for Small Businesses and Low-Income Households), 2014

The Reserve Bank of India (RBI) appointment a Committee on Comprehensive Financial Services
for Small Businesses and Low-Income Households under the Chairmanship of Shri Nachiket Mor,
member on the Central Board of Directors, RBI in the month of Sep 2013.

Its prime object was to frame a clear and detailed vision for financial inclusion and financial
deepening in India and designing principles for achievement of financial inclusion and financial
deepening across the country and also development of comprehensive framework to monitor
the progress of financial inclusion.
 Nitin Sangwan

Committees recommendations are that in order to achieve the task of financial inclusion in a
manner that enhances both financial inclusion and stability, there is need to move away from an
exclusive focus on any one model to an approach where multiple models and partnerships are
allowed to thrive, particularly between national full-service banks, regional banks of various
types, NBFCs, and financial markets. The common theme of all the recommendations made by
the Committee is that instead of focusing only on large generalist institutions, specialization and
partnerships between specialists must be encouraged.

Some of the key recommendations of the CCFS include:

I. Universal Electronic Bank Account for every resident to be made available at the time
of issuing the Aadhaar number.
II. Licensing, with lowered entry barriers but otherwise equivalent treatment, more
functionally focused banks, including payment banks, wholesale consumer banks, and
wholesale investment banks.
III. Developing risk-based supervision processes for regional banks and strengthening
existing ones before creating new regional banks.
IV. Reorienting the focus of NABARD, SIDBI, and NHB to be market-makers and providers
of risk-based credit enhancements.
V. Consolidating NBFC definitions into two categories: Core investment companies and
other NBFCs. Restore permission of NBFCs-ND to act as business correspondents.
VI. On priority sector lending, while the Committee acknowledged that the current focus of
the policy, on small farmers, small businesses, and weaker sections, was well placed, it
recommended an approach that incentivizes each provider to specialize in one or more
sectors of the economy and regions of the country. It recommends raising priority sector
lending cap for banks to 50 per cent from the current 40 per cent.
VII. Government subsidies to be channeled as direct benefit transfers (DBTs) rather than as
subventions or waivers.
VIII. It also proposed for creation of a Payment Bank (PB) to provide payments services
including credit, insurance and risk management products.
IX. All financial firms regulated by the RBI be required to have an internal process to assess
suitability of products prior to advising clients with regard to them.
X. It recommends unified Financial Redress Agency under Finance Ministry for customer
grievances.
XI. Statutory liquidity ratio has outlived its utility for both Banks and NBFCs. So, it needs to
be scrapped
 Nitin Sangwan

The payment banks will be allowed to perform money transactions and open saving account but
without giving loans. This will be helpful to the migrant work force which has to frequently
transfer money. The payment banks can also be used as banking correspondence. Thus it will be
helpful in the creation of a mechanism which will allow the banking to percolate to the 60% of
the population who have no access to the formal banking sector. In the purview of scams like
Sharda and Sahara, where people are duped by the unscrupulous financial institutions, an move
towards institutionalization small transactions is a commendable step. Further if the initiative is
able to bring the millions of the poor under the formal banking institution, it will be give a huge
impetus to the reforms like direct cash transfers and may become a game changer in the public
delivery system existing in the country.

Its major criticisms are

I. Timeframe it has set for financial inclusion is too short just 24 months which is highly
unrealistic

II. It is also argued that there is no need for a new category of banks Payment Banks
and existing RRBs can be utilized for this purpose as RRBs themselves have not been
fully utilized.

III. Further, it pays too much attention on Aadhar and sees it as panacea to all challenges in
financial inclusion
 Nitin Sangwan

CONTERMPORARY ISSUES in ECONOMY

Effects of liberalization on the economy, changes in industrial policy and their effects on industrial
growth

Major steps towards liberalization of economy

I. Licensing was abolished except for certain Defense and strategic industries. Licenses not needed
for capacity expansion as well.
II. MRTP was kept alive (repealed and replaced in 2002 by Competition Act) but the focus is on
increasing competition. Threshold limits were abolished. Preapprovals are no longer required.
The CCI only checks monopolistic behavior and scrutinizes mergers.
III. FDI Automatic FDI approvals with varying participation rates except a few sensitive ones. RBI
needs to be notified just 30 days in advance of bringing funds. Foreign Investment Promotion
Board constituted to scrutinize FDI in other areas.
IV. Public Sector Disinvestment policy was adopted. Listing to bring about discipline and buybacks
also allowed. Sick industries to be referred to BIFR. Focus will be on strategic, high-tech sectors
where monopoly would be preserved. Thus areas reserved for public sector exclusively were
reduced from 18 to 3. More professional management and greater autonomy.
V. Steps were taken to devalue Indian currency, make India a more attractive destination for
investments.
VI. Steps were also taken to relax the hold of RBI over forex and Indian currency was now more
market driven.
VII. PPP was promoted.
VIII. In foreign trade, restrictions were lifted, almost all quantitative caps were done away with.
Import duties were gradually lowered down and in a significant move India also embraced itself
fully to join WTO and allow free trade. Many FTAs were signed at bilateral level.
IX. Broad banding of industry was also done. Instead of minor classifications, broad sectors were
defined which enabled manufacturers to better cater to the demand without requiring
additional approvals.
X. Incentives for export promotion 100% export oriented units were given further exemptions.
They were allowed to buy their import content at international prices. SEZ s and export oriented
zones were established.
Advantages of liberalization

I. Competition and lower prices of consumer goods

II. Growth in service sector
III. Growth in infrastructure As compared to 1970s when it grew at the rate of only 4%, after
 Nitin Sangwan

1990s, it grew at more than 10%.

IV. Fall in relative prices of capital goods due to import competition
Implications on liberalization

I. Trade and deficit Though trade increased at a significant pace, deficit also increased.
II. There has also not been any significant technological inflow and India still lacks critical
technologies especially in capital goods sector.
III. Real estate prices have shot up and cost of livings have increased significantly in Industrial
towns.
IV. There has been decline in public investment in infrastructure as a percentage of GDP
V. Casualization of workforce has increased as organized labor didnt increase and labor laws were
liberalized
VI. Agriculture growth has also been significantly lower than GDP growth over the years
VII. Stagnant share of industry in GDP despite hopes of higher growth in industrial sector, it didnt
happen. There was also sharp deceleration in capital and basic goods while rise in consumer
goods.
Infrastructure

Challenges in infrastructure sector

Long-term finance for infrastructure projects is one of the issues that need to be addressed in
the context of the limitation of banks to finance such projects. Banks which have been the main
source of funding for such projects are unable to provide long-term funding, given their asset-
liability mismatch and the ceiling on their exposure limits. Absence of a well-developed
corporate bond market has put additional burden on banks to meet the funding requirements of
the corporate sector.
Recent Initiatives for Development of the Infrastructure Sector in India

Infrastructure Financing

I. The Cabinet Committee on Investment (CCI) set up under the chairmanship of the Prime
Minister on 2 January 2013 to expedite clearances and decisions on large infrastructure
projects
II. Infrastructure Debt Fund: The government has conceptualized infrastructure debt funds (IDF)
for sourcing long-term debt for infrastructure projects. Potential investors under IDFs may
include off-shore institutional investors, off-shore high net worth individuals (HNIs), and other
institutional investors (insurance funds, pension funds, sovereign wealth funds, etc.). An IDF
can be set up either as a trust or as a non-banking financial company (NBFC). The income of
IDFs has been exempted from income tax. So far, two IDF-NBFCs and five IDFmutual funds
 Nitin Sangwan

(MFs) have been operational zed.

III. Tax-free Bonds: The government has attempted to broaden the corporate bond market by
according tax-free status to infrastructure bonds.
IV. The India Infrastructure Finance Company Limited (IIFCL) was set up in 2006 for providing
long-term financing for infrastructure projects that typically involve long gestation periods. The
IIFCL funds viable infrastructure projects through long-term debt as well as refinance to banks
and financial institutions for loans approved by them.
V. Municipal Borrowing: With a view to deepening the bond markets for infrastructure finance,
draft guidelines/framework has been prepared for issuance of municipal bonds in India.
VI. The government has put in place a liberal foreign direct investment (FDI) policy, under which
FDI up to 100 per cent is permitted under the automatic route in most sectors/activities.
Public-Private Partnership Initiatives in India

I. Viability Gap Funding for PPP Projects: Under the scheme for financial support to PPPs in
infrastructure (Viability Gap Funding [VGF] Scheme), 178 projects have been granted approval.
II. Support for Project Development of PPP Projects: The India Infrastructure Project
Development Fund (IIPDF) was launched in December 2007 to facilitate quality project
development for PPP projects and ensure transparency in procurement of consultants and
projects.
III. An institution to provide support to mainstreaming PPPPs called 4PIndia to be set up with a
corpus of Rs 500 crores.
Budget 2013-14 In this budget, an announcement has been made for an all-round development from
rural to urban. PMGSY-2 has been announced. Proposals are there to promote infrastructural debt fund
further and institutions will be allowed to issue tax free bonds in field of Infrastructure. Another major
announcement has been setting up of new industrial corridors Chennai-Bangalore, Bangalore-
Mumbai on lines of earlier Mumbai-Delhi Industrial Corridor.

DMIC Delhi-Mumbai Industrial Corridor is a mega infra-structure project of USD 100 billion with the
financial & technical aids from Japan, covering an overall length of 1483 KMs between the political
capital and the business capital of India, i.e. Delhi and Mumbai. Several smart cities will developed along
it. This project incorporates 9 Mega Industrial zones of about 200-250 sq. km., high speed freight line
(Dedicated Freight Corridor), three ports, and six air ports; a six-lane intersection-free expressway
connecting the countrys political and financial capitals and a 4000 MW power plant. 8 new cities will
also be established along DMIC. Recently, in 2013, 7 new cities has been identified that will come up
along this corridor. The Delhi Mumbai leg of the Golden Quadrilateral National Highway also runs
almost parallel to the Freight Corridor.

National Investment Board In wake of poor project performances in infrastructure sector, a new body
is setup which is headed by PM. It will smoothen the process from awarding, licensing, clearances and so
on. Currently projects worth Rs 2 lakh crore are in limbo. It is proposed that green signal by NIB shall be
 Nitin Sangwan

final and it will look into only those projects with capital investment of Rs 1000 crore. It will function as
an Empowered Standing Committee. However some ministries and departments like Ministry of
Environment and Forests have objected as this will weaken their role and may lead to approvals which
should not be given in first place.

Infrastructure Energy

Automatic approval (Reserve Bank of India route) for 100 per cent foreign equity is permitted in
generation, transmission and distribution, and trading in the power sector without any upper
ceiling on the quantum of investment.

Signing of fuel supply agreements The Cabinet Committee on Economic Affairs (CCEA) in a
meeting held on 21 June 2013 issued a directive to the Ministry of Coal/Coal India Limited to
sign fuel supply agreements (FSAs) for a total capacity of 78,000 MW.

POWER

In Jan 2014, the installed power generation capacity of India stood at 2,67,000 MW. 11th Plan
added almost 50,000 MW while 12th Plan projects to add 88,000 MW, half of which is expected
to be generated through private participation of PPP mode.

Total installed capacity 2,67,000 MW

Coal 60%
Gas 9%
Hydel 15% (40,000 MW)
Wind 8% (22,000 MW)
Nuclear 2% (5,000 MW)
Solar 1% (3,500 MW)
Current State of Power Sector in India

I. Demand supply mismatch and Peak Hour Shortage It is around 12% on an average in
the past 15 years with average shortage being around 8.6%
II. Transmission losses Transmission losses are as high as 25%. State Electricity Boards
(SEBs), which distribute electricity, incur losses which exceed Rs 500 billion.
III. Dependency On Conventional Sources Despite 60 years since independence, 65% of
households still depend upon the conventional sources of energy.
IV. Poor Plan Target Achievement Out of the target to expand generation capacity by
62,374 MW in five years ending March 2012, has added 54,000 MW. This is a
considerable improvement over the previous plan, but still fails to meet the target
V. Power Discoms/SEBs facing huge losses Recently cabinet cleared Rs 1.9 lakh crore
 Nitin Sangwan

debt recast package. Six states of UP, MP, JK, TN, RJ, HR account for 70% of
accumulated losses of power cos. Loss Making SEBs and Inability to arrive at Economic
Power Tariffs
VI. Populist Policies States like Andhra and Punjab provide free electricity to farmers.
VII. Inadequate private participation (Private participation has improved only after
enactment of Electricity Act 2003)
VIII. Tariffs and availability There is general public unrest due to high power tariffs and
prolonged power cuts in different parts of the country
IX. Thermal power plants which are the mainstay of India's power sector are facing
shortage of raw material and coal supplies.
X. Pollution Coal based power plants still constitute more than 50% of electricity
production in India.
XI. Power Sector Reforms Power sector reforms were introduced in India more than 15
years ago and there is dire need of fresh reforms.
XII. Nuclear Power contributes around 2 % of Indias power need or around 4800 MW. It is
well below the world average of around 13%. India has 20 nuclear power reactors
XIII. Germany is a successful model in green energy and it has currently 30% of its installed
capacity in form of green energy and it plans to scale it up to 80% by 2050. India
XIV. Discoms to buy 10% of renewable energy through Renewable Purchase Obligation
(RPO).
XV. Planning Commission also identifies these major issues for losses in power sector
Low Tariffs Charged
Lack of investment in Distribution Infrastructure
Credit Availability to the power projects
Coal prices and availability
Power sector reforms done in past

I. Enabling Legislations like Electricity Act 2003 which have penal provisions for
electricity theft
II. As per 2003 Act, no license is required for power generation and distribution in rural
areas.
III. The 2003 Act has also permitted captive power generation freely
IV. 2003 Act also makes setting up of State Electricity Regulatory Commissions (SERC) as
mandatory. This is an important step in direction of tariff rationalisation and hence
improving of financial health of the sector
V. Corporatization of SEBs
 Nitin Sangwan

VI. Apart from these Accelerated Power Development and Reforms Program has been
launched to curb power losses and improve distribution.
VII. Automatic FDI approval of 100% is allowed now in power sector
NUCLEAR POWER

Indias journey to nuclear power began in 1957 when first nuclear reactor Apsara was
commissioned which was the first nuclear reactor in Asia. Nuclear Power contributes around 3 %
of Indias power need or around 4800 MW. It is well
below the world average of around 13%. India has Indias Nuclear Doctrine
an ambitious plan of augmenting it to 63,000 MW
by 2032. India has 20 nuclear power reactors out of India was the first nuclear weapon
which 18 are indigenous Pressurized Heavy Water state to publicly announce a nuclear
Reactors. Two reactors at Tarapur are Boiling Water doctrine in aftermath of 1998 test
Reactors of the type being operated in Japan. which was first drafted in 1999 and
adopted in 2003. It has following
After conducting of its second nuclear test in 1998, principles
India was ostracized from global community and
No first use
severe restrictions were put on its nuclear program.
Voluntary moratorium on nuclear
India is neither a signatory of NPT, nor of CTBT since
tests
they were discriminatory. Since India was not a
Credible minimum deterrent
signatory of NPT, it made it even difficult for it to
No use of nuclear weapons
have nuclear commerce with other countries. A big
against a non-nuclear state
breakthrough came in 2005 when India signed 123
Universal, non-discriminatory
Agreement with the USA in 2005 which lifted
nuclear disarmament
restrictions and even made an exception for India
Non-proliferation
only and it was allowed to have nuclear commerce
Peaceful use of technology
with other Nuclear Supplier Group countries (which
was formed in 1974 as a response to Indias conduct of its first nuclear test).

Since, 2005, India has made significant progress on this front. Nuclear Agreement has been
signed with France, Russia, Tajikistan and Canada on fuel and equipment supply. French firm
Areva and USA firm Westinghouse are ready to setup nuclear plants in India in Jaitapur,
Maharashtra and Gujarat respectively. In 2014, Australia a country with 40% of global nuclear
reserves also signed a historic fuel supply agreement with India. India is also in talks with
Japan for nuclear agreement as Japan has technological prowess in building of nuclear reactors.

Apart from fission powered nuclear power that India currently operates, India is also gearing
itself up for futuristic fusion power based reactors. Currently, fusion power cannot be harnessed
through reactors. There is a global effort going on in Europe with name International
Thermonuclear Experimental Reactor and India is also one of the few stakeholders in it.

Recently, India also enacted it Nuclear Liability Law, 2010 (Civil Liability for Nuclear Damage Act,
2010 and its enactment was also a condition under 123 agreement) which is seen by equipment
 Nitin Sangwan

makers as unduly harsh and a deterrent factor in their investments in India. Russia also raised
objection on it regarding the Kudankulam plant and nuclear trade with USA is also hinged
around this single issue.

Strategy of India for Nuclear Power India has followed what is called 3 Phase Nuclear Power
Program, under which it aims at self-reliance by gradually moving from Uranium to Plutonium to
Thorium based power plants. India has around 30% of global reserves of Thorium in form of
Monazite minerals in sand of Kerala beaches. As India has sufficiently large reserves of thorium,
it has adopted this approach to avoid a 1970s like situation when US refused to supply fuel to
India in the wake of Pakistan war. Breeder reactors occupy the center stage in nuclear power
program of India and a connecting link between first and third stage as Thorium is not a fissile
material by itself. The three phases are

I. The first phase will include Uranium based PHWR Pressurized Heavy Water Reactors.
These reactors will, which will be used as a fuel in the next phase. This phase is now
nearing its completion and India is set to enter its second phase.
II. Second phase includes use of Plutonium as fuel, and use of Fast Breeder Reactors
FBRs, along with use of Plutonium, these reactors will be used to breed Plutonium from
Thorium. More fuel will be produced than the reactors consume in this phase. Bhartiya
Nabhikiya Vidyut Nigam Ltd (BHAVINI) is responsible for construction of stage 2 fast
breeder reactors. Prototype Fast Breeder Reactor has been completed at Kalpakkam in
2013 and India is likely to build 4 FBRs in 12th plan.
III. Third phase will include use of Thorium as fuel. It will begin in coming years with India
ready with its first prototype. Thorium offers many advantages over other nuclear fuels
it has higher efficiency, it is insulated from proliferation risks as it cannot be used in
nuclear weapons, it is more abundant than Uranium in Earths crust, it is available only
in single isotope and hence isotope separation is not required.
Atomic materials and atomic energy are governed by the Atomic Energy Act, 1962 andat
present, nuclear safety is regulated by the Atomic Energy Regulatory Board (AERB).

THORIUM REACTOR India is ready to build its first large-scale, thorium-fuelled nuclear power
reactor. A radioactive element, thorium is considered safer than conventional nuclear fuel
uranium and its wastes are also less radioactive. (However, Thorium itself is not fissile and it has
to be irradiated with Plutonium or Uranium to make it fissile.). The Advanced Heavy Water
Reactor (AHWR), to be built by Bhabha Atomic Research Centre (BARC), will be the worlds first.
India has one of the largest reserves of Thorium, so it makes sense to develop Thorium based
technologies. The Thorium reactor will take India closer to The Third Phase of its Nuclear Power
Program which was started 40 years ago.

Apart from energy generation, nuclear research is also promoted as a part and parcel. Radio-
Isotopes are such examples which are used in agriculture (for developing mutant crops with
 Nitin Sangwan

special features), medical treatments (especially for treatment of cancer), water management
(desalination etc) and industry (food irradiation, quality control and testing etc).

COAL POWER
India is the third largest producer of coal in the world. Coal contributes around 50% of Indian
power sector and will retain this percentage in coming 20 years.

Coal in India is sufficient for next 200 years atleast.

ULTRA MEGA POWER PROJECTS (UMPP) To augment power supply and to lower production
costs, 16 coal based UMPPs are planned with very high capacity of 4000 MW each and powered
by advance super critical thermal technology based on coal. Economies of scale will help in
lowering down production costs significantly. These will be developed by private sector. So far,
four UMPPs of 4000 MW have been awarded on the basis of competitive tariff-based bidding.
These are at Sasan in Madhya Pradesh, Mundra in Gujarat, Krishnapatnam in Andhra Pradesh,
and Tilaiya in Jharkhand and are at different stages of implementation.

In 2014 Budge, Rs 100 crore is allocated for a new scheme Ultra-Modern Super Critical Coal
Based Thermal Power Technology.

Challenges in the Coal Sector

I. Building critical feeder routes (rail links for supply) for coal.
II. Clearing pending environment and forest clearances and rehabilitation issues.
III. Permitting commercial coal mining by the private sector.
IV. Restructuring of CIL.
RENEWABALE ENERGY

Currently share of renewable energy around 12.6% with 26,000 MW. 12th plan aims to add
another 30,000 MW.

Germany is a successful model in green energy and it has currently 30% of its installed capacity
in form of green energy and it plans to scale it up to 80% by 2050.

Solar Wind Nuclear

Share 2600 MW 22000 MW 4800 MW
Percentage of installed 2% 10% 3.5%
capacity

As a part of policy measure, to promote renewable energy

Government has made it mandatory for SEBs and Discoms to buy 10% of renewable
energy through Renewable Purchase Obligation (RPO).
Tax benefit allows projects to deduct upto 80% of value of wind power equipment
during first year of project operation
 Nitin Sangwan

Renewable Energy Certificates have been issued.

WIND

India now ranks 5th in the world in wind energy in terms of installed capacity

Long coastline of 7500 km . wind blows faster and more uniformly at sea than on land

The prerequisites for maximizing wind potential viz. a robust manufacturing base, wind resource
availability; regulatory framework and investor confidence are available. Suzlon is one of the
biggest producers of wind turbines in the world.

SOLAR

India is a tropical country and has around 300 days availability of sunlight which is one of the
highest in the world. Germany is a sub-tropical country, now produces almost 40% of its energy
from renewable power. India has huge potential.

Solar power has one unique advantage that it can be used to supply electricity in farflung areas
in an off-grid manner and thus can tremendously help in achieving aim of 100% electrification.

Current installed capacity is 2600 MW. It was just 18 MW in 2010. Gujarat alone accounts for
850 MW. India as a part of its National Action Plan on Climate Change 2008, announced 3 phase
Jawaharlal Nehru National Solar Mission and now aims at adding 20000 MW of solar energy by
2022. 54 cities across India will be developed as Solar Cities.

According to 2014 budget, Rs 500 crores is provided for Ultra Mega Solar Power Projects in
Rajasthan, Gujarat, Tamil Nadu, Andhra Pradesh and Laddakh and Rs 100 crore provided for the
development of 1 MW Solar Parks on the banks of canals.

Challenges in solar power generation

I. One big hurdle is that there are not enough R&D initiatives in India and solar panels are
imported.
II. Secondly, current production costs are very high and cannot compete with average
production costs, leave alone costs of other cheaper sources like coal.
Target of renewable energy capacity revised to 175000 MW till 2022, comprising 100000 MW
Solar, 60000 MW Wind, 10000 MW Biomass and 5000 MW Small Hydro.

EMERGING TRENDS in ENERGY

I. SHALE GAS
Shale Gas is natural gas produced from shale formations (or the gas trapped in clay and
Sedimentary rocks beneath). Gas shales are organic-rich shale formations. In terms of its
chemical makeup, shale gas is typically a dry gas primarily composed of methane. So it is
categorized as Natural Gas. The primary differences between modern shale gas development
and conventional natural gas development are the extensive uses of horizontal drilling and high-
 Nitin Sangwan

volume hydraulic fracturing also called hydro-fracking or simply fracking. US is the biggest
producer of Shale Gas right now. It is said that it has reserves to last for 100 years. China is
another emerging player.

Hydraulic fracturing also called fracking is a method for extracting oil and natural gas.
Hydraulic fracturing is the propagation of fractures in a rock layer caused by the presence of a
pressurized fluid containing water, sand and some other chemicals. Hydraulic fractures form
naturally, as in the case of veins or dikes, and is one means by which gas and petroleum from
source rocks may migrate to reservoir rocks. This process is used to release petroleum, natural
gas (including shale gas, tight gas and coal seam gas), or other substances for extraction, via a
technique called induced hydraulic fracturing, often shortened to fracking or hydrofracking.

While unconventional gas sources like gas shales reserves are plentiful, cost to produce is more
than the conventional gas production of yesteryears.

Exploration is done in similar manner as in oil and Gas

It is termed as next energy revolution in the US as the output in this method by fracking will
provide shale gas even cheaper than the coal. It will solve the dual problem of rising fuel prices
and pollution. It will be cheaper and at the same time will also be less carbon intensive.

Limitations of Shale Gas and its Technology

I. It has a potential of contaminating the ground water. As the technology of fracking is

uses not only water, but also injections of surfactants and benzene into the shale
formations.
II. Composition of the reserves is still not totally predictable and there may be toxicity in
the gases.
III. Secondly Hydraulic Fracturing is seen as a potential for tremors in the region where it
will be used for extraction.
IV. Further it will be using a lot of water and hence it is seen as counterproductive for
wastage of scarce water. Another apprehension is that it will lead to contamination of
the ground water. As fracking involve use of other chemical substances also for the
exploration of the gas.
US is one of the pioneers in promoting the use of Shale gas. It is estimated that US has shale gas
reserves worth 100 years of supply.

SHALE GAS IN INDIA

India has huge shale gas potential. Based on the data gathered from exploration and
exploitation of conventional oil and gas, it is expected that sedimentary basins of India
have potential for shale gas. Six basins, namely Cambay, Assam-Arakan, Gondawana, KG
onshore, Cauvery onshore and Indo Gangatic basins, have been identified. India has so
 Nitin Sangwan

far only explored and produced conventional oil and gas as well as unconventional
sources like coal bed methane (CBM).

ONGC, entered into a MoU with ConocoPhillips of the US for collaboration in shale gas
and deep water exploration to tide over static growth from conventional resources.

However, availability of water is a major constraint in case of India.

(August 2012) DGH FORMULATES NEW DRAFT POLICY for EXPLOITATION of SHALE GAS
In the wake of not so encouraging results from the earlier natural gas policy which led
to gross disappointment regarding production and profit sharing, the new policy will
also have provisions regarding pricing mechanism.

Ministry has invited participation from private players to explore this opportunity.

II. COALBED METHANE

Coalbed Methane (CBM or Coal Bed Methane), coalbed gas, or coal mine methane (CMM) is a
form of natural gas extracted from coal beds. In recent decades it has become an important
source of energy in United States, Canada, and other countries. It is called 'Sweet Gas' because
of its lack of hydrogen sulfide.

The presence of this gas is well known from its occurrence in underground coal mining, where it
presents a serious safety risk.

As a 3rd largest producer of coal in the world, India has bright prospects of producing CBM
commercially. Estimated CBM reserves in the country are about 92 trillion cubic feet (TCF), of
which only 9.9 TCF has so far been established.

Under the CBM policy, 33 exploration blocks have been awarded in the states of Andhra
Pradesh, Assam, Chhattisgarh, Gujarat, Jharkhand, Madhya Pradesh, Maharashtra, Orissa,
Rajasthan, Tamil Nadu, and West Bengal. Production of CBM has already been started and it has
bright prospects of commercial production in India.

In 2014 budget, it was highlighted that production and exploitation of Coal Bed Methane
reserves will be accelerated.

Its biggest advantage is that it can be used an alternative automotive fuel and can replace CNG.
However, it is a mining hazard in coal mines and its secretion in environment leads to escaping
of green house gases.

III. BIOMASS GASSIFICATION

Gasification is a process that converts organic or fossil based carbonaceous materials into
carbon monoxide, hydrogen and carbon dioxide.

This is achieved by reacting the material at high temperatures (>700 C), without combustion,
with a controlled amount of oxygen and/or steam.
 Nitin Sangwan

The resulting gas mixture is called Syngas (from synthesis gas or synthetic gas) or producer gas
and is itself a fuel. The power derived from gasification of biomass and combustion of the
resultant gas is considered to be a source of renewable energy; the gasification of fossil fuel
derived materials such as plastic is not considered to be renewable energy.

The advantage of gasification is that using the Syngas is potentially more efficient than direct
combustion of the original fuel because it can be combusted at higher temperatures or even in
fuel cells

Recently, some states like Bihar also stepped up investment in biomass gasification using rice
husk etc.

IV. OTHER ALTERNATE SOURCES of ENERGY and POWER

A new study by Delhi based NGO Centre for Science and Environment (CSE) has revealed that
Sugar mills in India produce 2000 MW of biomass-based energy every year, as much as
windmills produce, and at half the cost.

Deen Dayal Upadhyay Gram JyotiYojana This scheme is for feeder separation (a model successfully
tried in Gujarat), creation of new sub-stations micro-grid and off grid distribution network HT/LT lines
and other rural electrification.

Infrastructure Ports, Water Transport

About 95 per cent of Indias merchandise trade accounting for 70 per cent of its total revenue is carried
out through maritime transport, but still, Indian shipping accounts for only 1% of the total volume
traded across the world. The importance of maritime transportation to Indias economic development
cannot be overstated, given that the country has a coastline exceeding 7,550 km.

Among all the modes of transportation, ports and waterways are the most neglected lot. Countries like
Singapore claim prominence in trade just because of its ports.

Costal Shipping The government finally seems to be waking up to the potential that water-borne
transport holds for domestic cargo movement. The Ministry of Shipping has given a fillip to sea-borne
domestic trade by allowing vessels that could hitherto ply only in rivers and other inland waters to
operate in waters along the coast. Coastal shipping offers distinct advantages, which include lower
operating costs and less environmental pollution than surface options. The Ministrys move follows a
series of initiatives easing restrictions on the sector. The government had earlier notified all waters
within the baseline around the coast as Internal Waters under the Maritime Zones of India Act, in order
to streamline and regulate shipping traffic that tended to hug the coast, as also to facilitate the
operation of inland vessels along these waters. Linking inland water trade and sea trade through coastal
ships could provide alternative means of unloading and transporting cargo from ships docked at sea, to
both inland destinations and to smaller ports. But such benefits can be reaped only if the government
 Nitin Sangwan

provides logistics support. The development of small ports, warehousing facilities, and container freight
infrastructure, as well as inter-modal connectivity, are extremely important for its success. Meanwhile,
inland waterways that extend to 14,500 km should be developed. Indias transport infrastructure
requires a substantial facelift, considering higher than average traffic growth projected along several
industrial corridors. The dependence on road and rail could be reduced by diverting a sizeable chunk of
cargo movement to coastal shipping.

Some of the major challenges affecting Indian ports and shipping industry are

I. Shipping fleet of India is very old and outdated ships are used.
II. Shipping industry in India has also not been able to keep pace with modern technological
developments. Shipping yards of India have limited capacity with limited technology.
III. Large vessels cannot dock at most of the Indian ports and ports are overstretched in their
capacity
IV. There is no rail-road-port coordination
V. Turnaround time or offloading time at Indian ports is in days, while it is in just a few hours in
Singapore. Further, most countries have single loading and unloading, in India we have multiple
loading and unloading. These factors make Indian ports expensive for freight ships.
Infrastructure Roads

There are 221 National highways; they are only 2% of the total road length but bear around 40% of the
total road traffic.

Major steps taken by government in recent times are

I. Golden QuadrilateralIt is part of the first phase of the National Highways Development
Program. NHDP will be completed in 6 phases at an estimated outlay of more than 2 lakh crore
and will connect cities and rural areas across the country.
II. National Highway Development Project The National Highways Development Project is a
project to upgrade, rehabilitate and widen major highways in India to a higher standard. The
project was implemented in 1998. It has 7 phases which include Golden Quadrilateral; North
South and East West Corridors; Four Laning of more than 4000 km of Highways; Four lane
highways will need to be upgraded/expanded to six lanes; Constructing expressways;
Improvements to city road networks by adding ring roads.
III. Increased outlay for 12th plan 12thPlan envisages an investment of more than $1 trillion in
infrastructure.
IV. Infrastructure bonds
V. Viability Gap Funding extended to other sectors also.
VI. Creation of Infrastructure Debt Fund.
Challenges in road infrastructure
 Nitin Sangwan

I. Rural Connectivity Still around 30% of the villages are not connected to roads
II. Rail & Road Non-Coordination Freight is now majorly handled by the road network
III. National highways and expressway constitute minuscule portion of road lengths. Expressway are
meager 600 km long. There is a target of building 3,500 km long expressways by 2015 which
seems like unrealistic planning.
IV. NHAI, which is the main agency responsible for building and maintenance of highways, is also
notorious for rampant corruption in projects under it.
Infrastructure Airports

New steps by government

I. Government has announced that it will built airports at tier-2 cities as well in a bid to make
transport in India as truly multi-modal.
Infrastructure Railways etc

Indian Railways cover a distance which is 2.5 times the distance between moon and earth daily. It also
carries 2.5 crore customers daily.

Railways in India have dual responsibility social and commercial. Its freight business is profitable at the
moment, but it cross-subsidies passenger business which is often a loss making proposition. Freight still
fors 70% of revenues.

Freight business of railways has witnessed tremendous slide over the years. This is because of several
reasons like cross subsidization and resultant higher freight charges, priority to passenger trains over
goods trains on single track, non-separation of freight and passenger tracks, delays and uncertainty, lack
of Modernization and so on. As a result, railways share in freight has come down to 20% in 2013 as
compared to 80% in 1951 as road is preferred mode now. Despite the fact that road is less preferable for
long haul, it is used for long hauls as well despite high costs over rail freight. Another disadvantage for
road freight is its unorganized nature, still it has an edge over railways.

Challenges in Railways Sector

I. There is less enthusiasm among private players for railway projects as there are no provisions
for returns like toll tax or service fee. No such provisions are there in case of railways.
Steps taken to improve rail transport

I. Proposal for high speed railways and bullet trains

II. Dedicated freight corridors Eastern Freight Corridor (Dunkini (WB)Ludhiana Dedicated
Corridor) and Western Freight Corridor (DelhiMumbai Dedicated Corridor) which is funded by
Japan partially as a part of Delhi Mumbai Industrial Corridor.
III. Government has announced 100% FDI in railways sector
IV. Government has also promoted private participation in railways. New railways projects will be
 Nitin Sangwan

developed in PPP mode

RECENT DEVELOPMENTS

HIGH LEVEL SAFETY REVIEW COMMITTEE or KAKODKAR COMMITTEE, 2006

The Committee recommends a total financial investment of Rs 1,00,000 crore over a five
year period. Its key recommendations are

The Committee notes that the present environment on Indian Railways reveals a
grim picture of inadequate performance largely due to poor infrastructure and
resources, and lack of empowerment at the functional level.

The financial state of Indian Railways is at the brink of collapse unless some
concrete measures are taken. Passenger fares have not been increased in the last
decade and the infrastructure is severely strained. All safety margins have been
squeezed. This has led to a neglect of infrastructure maintenance.

In the present situation, the three vital functions (rule making, operations and the
regulation) are all vested in the Railway Board. There is need for an independent
mechanism for safety regulation. The Committee recommends the creation of a
statutory Railway Safety Authority with enough powers to have a safety oversight
on the operational mode of Railways.

The Committee recommends restructuring of The Research Design and Standards

Organization (RDSO), the apex technical wing of the Railways, for greater
empowerment.

The Committee recommends the adoption of an Advanced Signalling System (akin

to the European Train Control System) for the entire trunk route length of 19,000
km within 5 years. This is estimated to cost Rs 20,000 crore.

All Level Crossings (both manned and unmanned) should be eliminated over five
years. An estimated expenditure of Rs 50,000 crore will be required for achieving
this target. The Committee is of the belief that this amount will be recovered within
7-8 years through savings in maintenance costs and improved train operations.

The Committee also recommends a switch over from the ICF design coaches to the
much safer LHB design coaches. This is likely to cost Rs 10,000 crore over the next
five years.

Other Committee recommendations on the maintenance of safety related

infrastructure are estimated to cost about Rs 20,000 crore.
 Nitin Sangwan

Bibek Debroy (Niti Aayog Member) Panel Report on Restructuring Indian Railways

Have an independent Regulator (for fair fixation, freight fixation, setting standards
and other things like dispute resolution)
Scrap Rail Budget
Promote private participation in railways (not privatization) run trains etc
Provide room for other players as well apart form Indian Railwas
Restructure railway board reduce number of members
Dedicated Freight Corridor Corporation should be made independent body so that
there is no discrimination between private players and Indian railways.
Social subsidy should be borne y the central government and should not be a part of
railways operational costs
Other suggestions include accounting system reforms, uniform and transparent
recruitment

Investment models

PPP, Public Investment like PSUs, free markets capitalist model as in case of USA.

There are also other theoretical models like

I. Autonomous Investment by government which doesnt depend on private savings and it is

largely relevant in scenarios of slow-down etc.
II. Growth Led Investment revolves around savings which play a dominant role in it.
III. Competitive Investment relies upon market forces
IV. Induced Investment which depends upon FDI, FII etc
V. Sector Specific Investment involves activities like setting up of SEZ, NMIZ etc
VI. Cluster Investment as in textile clusters, biotech clusters and so on.
 Nitin Sangwan

AGRICULTURE

Strengthening the agri sector is crucial for poverty alleviation, ensuring food security, increasing
employment opportunities, and enhancing rural incomes. 1 per cent growth in agriculture is at least
two to three times more effective in reducing poverty than the same growth emanating from non-
agriculture sectors.
China
China, with lesser amount of cultivable land and lesser amount of land per person, produces
more than double amount of food grains at 600 million tonnes
China started its economic reforms not from industry, but from agriculture when communes
were done away with and reforms were initiaated

Important figures related to agriculture are

I. Share of agriculture and allied sector in gross domestic product (GDP) declined to 13.9 % in
2013-14. While it still accounts for about 54.6 per cent of total employment (Census 2011).
II. The Central Statistics Office estimates 1.1% growth in 2014-15 in agriculture sector.
III. Agri sector has registered a remarkable average growth rate of 4.1 per cent during the Eleventh
Five Year Plan (2007-08 to 2011-12).
IV. Rainfed areas constitute about 61% of the total 140.30 million hectares
V. In the year 2013, more than 7000 farmers committed suicide as per NCRB data.
a. Maharashtra tops with 3,786 suicides, Haryana 250 suicides in 2012. All India suicides
13,000
b. 3 lakh farmers have committed suicide since 1995
VI. As quoted by Arvind Pangariya and a survey by NGO Lokniti 76% of the children of farmers dont
wish to continue in farming if given other opportunity
VII. 50% of the population working in agriculture produces only 14% of GDP.
VIII. Indian agriculture is highly inefficient and unproductive.
IX. Insurance penetration is very poor (only 5% insured) and the most important reason is that
they canot afford the premium which is very high. (Insurance assessment is faulty and generally
given only when damage is 80% in a sub-division)
X. A record food grains production of 264.4 million tonnes is estimated in 2013-14
XI. Today, 83% of the land holdings are small or marginal holdings.
XII. Despite Green Revolution, aggregate growth of food grain production is 2% which is just about
sufficient in context of food security. Availability of per capita food grains has already declined
from 480 gm in 1961 to 438 in 2010.
XIII. More than 85 per cent of investment in the agri sector is by the private sector.
 Nitin Sangwan

XIV. There has been a decline in the absolute number of cultivators, which is unprecedented, from
127.3 million (Census 2001) to 118.7 million (Census 2011). This is indicative of a shift from farm
to non-farm employment, causing real farm wages to rise by over 7 per cent annually in recent
years.
XV. Indias only agriculture commission National Commission on Farmers submitted its report 8
years ago in 2006, but till now no significant action has taken place.
Major problems in the agricultural sector

I. Agriculture is now a high volatility and high risk proposition

II. Agriculture insurance penetration in India is very poor and hence, agriculture in India is a very
risk proposition. Center has just Rs 2823 for National Crop Insurance Programme.
III. Poor overall government support direct support mainly in irrigation, insurance and
agricultural development is merely 17,000 crore which is less than 50% of outlay to a single
scheme like MNGREGS and just 10% of a single defence deal with France (Dassault)
IV. Diversification in agriculture has been given poor attention. Less than Rs 1,000 crore has been
laid out for fisheries and animal husbandry and that too from Rs 17,000 crore itself
V. No great attention has been paid to value addition and food processing Just around 400
crore allocation to Ministry of Food Processing and poor focus on
VI. Decreasing land holdings Average size is just 1.6 hectare with 85% farmers being small and
marginal farmers. As it is diverted to other activities like industrialization, housing etc, saturating
output and depleting water resources may create challenge regarding food security in future.
Given the limitations in expanding agricultural land, improvements in yield levels hold the key
for long-term output growth.
VII. Saturated, overcrowded and disguised unemployment Growth has been ust .2% in 2014-15.
Manufacturing sector has failed to provide exit opportunities
VIII. Slow growth of the sector less than 1% in 2014-15

IX. Poor infrastructure Lack of warehousing and investment in logistics leads to wastage of grain
and other perishable items. Fishes alone are spoiled to the tune of Rs 15,000 crore.

X. Other problems which beset Indian agriculture are monsoon dependency, credit availability
issues, cropping imbalances, poor technology interventions, low public investments especially in
assets creation (75% expenditure is in subsidies alone) and unfinished agenda of land reforms.

XI. Though there are a host of schemes in the agri-sector, none of them is a long term one which
may create sustainable infrastructure in the sector and provide for a long term plan for
transformation of the rural India.
 Nitin Sangwan

Some of the immediate steps that government may take are

I. Immediately announce MSP as 150% of the cost of production to make agriculture sustainable.
II. Secondly, MSP should also also bring into its ambit small and marginal farmers who are till now
defacto excluded out of it.
III. Thirdly, MNREGS should be linked to agriculture. It will lead to increase in farmers income and
rise in farm productivity.
IV. The plan of introducing soil-assesment based cropping should be implemented immediately
with setting up mobile testing laboratories.
Possible Solutions

Israel model
Johad water conservation
Mixed farming Haryanvi cows and buffalos are famous, use them extensively
Bring evergreen revolution
Use technology Jan Dhan, Aadhar, Mobile (JAM), make agricultural aid more efficient.
Diversification of agriculture mixed farming, horticulture
Create non-farm jobs It will reduce unemployment, improve returns for farmers
Technology like GIS can be used for faster settlement of crop damage claims
Increase public spending Public spending has decline over the years, in 2013 85% investment
in agriculture was from private sector
Insurance penetration and risk coverage. State should come forward to fund the premia paid by
farmers. Even in the USA, state funds the 70% of the premium.
There can be a cess to fund investment in agriculture.
As long as farmers get free power and water, they will not give up paddy. To wean farmers of
wheat-paddy cycle, alternate strategies needs to be adopted.
The country is saddled with surplus foodgrain but it has to import edible oil. Bring sarson and
makki back and grow soyabean, which will fix nitrogen in the soil and save water. Farmers will
not accept lower returns and marketing is an issue. Recommendations are that maize and
soybean get the same price and a certain amount is procured so that farmers get around the
same amount they get for paddy.
Preventing farmers suicide

Cover all crops by crop insurance with the village and not block as the unit for assessment.
Provide for a Social Security net with provision for old age support and health insurance.
Promote aquifer recharge and rain water conservation.
Ensure availability of quality seed and other inputs
 Nitin Sangwan

Price Stabilisation Fund in place to protect the farmers from price fluctuations.
Recent steps by government

Pradhan Mantri Krishi Sinchai Yojna Per drop, More Crop, by using technologies like laser
leveling and drip irrigation
Paramparagat Krishi Vikas Yojana For the promotion of organic farming
Directions to insurance companies to settle claim within 45 days
Reduced limit of damaged crop 33%
Soil Health Card Scheme launched
Card to display soil fertility and recommend fertilizers accordingly. This will improve crop yields,
prevent soil-water contamination due to excessive use of fertilizers and thus reduce
Government subsidy bill.
Hike in compensation by 50%
Rs 5000 pension for farmers of age 60 and above
Haryana Government
o Waived 100% electricity bills of all the farmers who suffered 50% or more damage
o Coversion of crop loans into medium term loans
o Interest free kharif loans to all farmers in 2015 season
o First Horticultural University will be set up
o Minimum compensation of Rs500 earlier checks of Rs 10, 20 were also given

NATIONAL COMMISSION on FARMERS

It was appointed under M S Swaminathan and submitted 5 reports by 2006. It called for
minimum price as 50% over and above the cost of production. It presented a 5 point solution to
the problems of the agriculture

I. Soil Health Enhancement

II. Irrigation Facilities Augmentation
III. Credit Supply - on four per cent interest on credit
IV. Technology
V. Marketing
There is need to expand the adoption of the decentralized system of procurement for the PDS from 11
states and union territories (UT) at present to all states. This would help save transport costs, reduce
transit losses and other leakages, increase food availability, reduce food prices in the open market and
ultimately rein in food subsidy.

Strengthening the agri sector is crucial for poverty alleviation, ensuring food security, increasing
employment opportunities, and enhancing rural incomes. 1 per cent growth in agriculture is at least two
to three times more effective in reducing poverty than the same growth emanating from non-
 Nitin Sangwan

agriculture sectors. Further, with 10.4 per cent of total households in rural areas being headed by a
woman (Census 2011), it is essential to formulate policies, and package technologies and services
keeping in view the productive role played by women in all facets of the agri sector.

Currently, India is in an anomalous situation of being largely self-sufficient with large stocks of food
grains on the one hand and registering high food inflation on the other, which is largely due to the
government becoming the single largest buyer.

Over the last decade Indian agriculture has become more robust with record production of food grains
and oilseeds.

NATIONAL POLICY on FARMERS

The National Policy for Farmers, 2007, on recommendations of National Commission on Farmers, has
provided for a holistic approach to development of the farm sector. The broad areas of its coverage
include:

I. Focus will be on the economic well being of the farmers in addition to production and
productivity.
II. Asset Reforms To ensure that a farmer household in villages either possesses or has access to
a productive asset or marketable skill.
III. Water Use Efficiency The concept of maximizing yield and income per unit or irrigation water
in all the crop production programmes would be accorded priority with stress on awareness and
efficiency of water use.
IV. New technologies like biotechnology, information and communication technology (ICT),
renewable energy technology, space applications and nano-technology would be encouraged
for improving productivity per unit of land and water on a sustainable basis.
V. National Agricultural Bio-security System would be established to organize a co-ordinate
agricultural bio-security programme.
VI. Seeds and Soil Health Quality seeds, disease free planting material and soil health
enhancement hold the key to raising small farm productivity. Every farmer is to be issued with a
soil health passbook containing integrated information on farm soils with corresponding
advisories.
VII. Support Services for Women Appropriate support services like creches, child care centers and
adequate nutrition needed by women working in fields would be funded.
VIII. Credit and Insurance The financial services would be galvanized for timely, adequate and easy
reach to the farmers at reasonable interest rates.
IX. Gyan Chaupals at village level with the help of ICT and farm schools in the fields of outstanding
farmers to promote farmer to farmer learning would be set up through the State Government
for strengthening extension services.
 Nitin Sangwan

X. Necessary steps would be taken to put in place an appropriate social security scheme for
farmers.
XI. Minimum Support Price (MSP) mechanism to be implemented effectively across the country so
as to ensure remunerative prices for agricultural produce.
XII. Food security basket is to be enlarged to include nutritious millets such as bajra, jowar, ragi, etc.
mostly grown in dry land farming areas.
NEW THRUST AREAS

I. To boost production of edible oils

II. Stagnation in the output of pulses pulses are the main source of protein for a large section of
population in India. According to WHO, an average person needs 80 gm of pulses or equivalent
protein intake per day. In India per capita availability is only 30 gm. Further, there is decline in
pulses consumption in India due to focus on vegetables and this is leading to severe
malnourishment in absence of supply of protein.

III. Emphasis on dry farming

IV. Refocus on Coarse Grains Coarse grains are high in calorific values and can be sown in dry land
areas too and hence are important from food security point of view.

V. New strategies for irrigation and water management Modern techniques such as micro-
irrigation, watershed management, rainwater harvesting and groundwater recharging. The
irrigation efficiency in the systems needs to be upgraded from the present level of 35% to about
60%.

VI. Use of sustainable agricultural practices

VII. Carrying forward the incomplete agenda of land reforms and introduce tenancy reforms,
promote cooperative

VARIOUS SCHEMES AND INITIATIVES IN THE FIELD OF AGRICULTURE DEVELOPMENT

RASHTRIYA KRISHI VIKAS YOJANA

The RKVY was launched in August, 2007 to achieve 4% annual growth in the agriculture sector
by a holistic development of agriculture and allied sectors. The scheme aims at incentivising
States to increase public investment in agriculture and allied sectors and enable them to
generate additional growth in agriculture and allied sectors through better planning and by
undertaking appropriate growth-oriented projects to achieve this goal. The areas of investment
under this scheme will be
 Nitin Sangwan

I. Integrated Development of Food Crops

II. Agricultural Mechanization
III. Soil Health and Productivity
IV. Market infrastructure
V. Horticulture, Animal Husbandry, Dairy, Fishing etc
The Scheme is an incentive scheme; wherein there are no automatic allocations. The eligibility
of a state for the RKVY is contingent upon the state maintaining or increasing the State Plan
expenditure for Agricultural and Allied sectors. Each state needs to ensure that the baseline
share of agriculture in its total State Plan expenditure is at least maintained, and upon its doing
so, it will be able to access the RKVY funds.

RKVY now has nine sub-schemes. The sub-schemes are as follows

I. Bringing Green Revolution to the Eastern India (BGREI): The Bringing Green Revolution
in Eastern India program launched in 2010-11 as a Prime Minster's initiative This sub-
scheme targets improvement in the rice and wheat based cropping systems of Assam,
West Bengal, Orissa, Bihar, Jharkhand, eastern Uttar Pradesh and Chhattisgarh. Bringing
Green Revolution to Eastern India. The scheme is under the flagship scheme RKVY.
Within a short span of two years, the scheme has turned the eastern region as a food
surplus region.

II. National Mission for Protein Supplements: To promote animal based protein
production through livestock development, dairy farming, piggery, goat rearing and
fisheries in selected blocks.

III. Integrated Development of Pulses Villages in Rainfed Areas: This sub-scheme aims at
attaining self-sufficiency in production of pulses within the next three years.

IV. Promotion of Oil Palm: It seeks to give special attention will be paid to oil palm as it is
one of the most efficient oil crops.

V. Initiative on Vegetable Clusters

VI. Nutri-cereals: To promote balanced nutrition, higher production of bajra, jowar, ragi
and other millets will be promoted in the arid and semi-arid regions of the country.

VII. Accelerated Fodder Development Program

VIII. Rainfed Area Development Program: This Program aims at improving productivity of
crops in rain fed areas.
 Nitin Sangwan

IX. Saffron Mission: This Program aims at revival of saffron cultivation in Jammu & Kashmir.

VISHESH KRISHI GRAM UPAJ YOJANA (VKGUY)

The objective of the Vishesh Krishi Gram Upaj Yojana (VKGUY) is to promote exports of:

I. Agricultural produce and their Value added products

II. Minor Forest Produce and their value added variants
III. Gram Udyog Products
IV. Forest Based Products
Duty benefits are granted with aim to compensate high transport costs.

INTEGRATED WATERSHED MANAGEMENT PROGRAM (IWMP)

During the Eleventh Plan, the three area development programs, namely IWDP, DPAP and DDP
were merged into IWMP. The main objectives of the IWMP are to restore the ecological balance
by harnessing, conserving and developing degraded natural resources such as soil, vegetative
cover and water and the outcomes are prevention of soil run-off, regeneration of natural
vegetation, rain water harvesting and recharging of the ground water table. Current Watershed
Management program is based upon a bottom-up approach and aims at following

I. Involvement of local people at Grass-root level.

II. Promotion of locally available low cost Technology.
III. Involvement of Panchayat Raj Institutions
IV. Upliftment of landless persons and others belonging to weaker sections
V. Special program for social and economic upliftment of women
HARIYALI SCHEME

It is a basically a Watershed management Scheme. It involves village communities in the

implementation of existing Watershed projects under all the area development programs
namely IWDP, DPAP & DDP. The main objective of the Hariyali is to harvest every drop of
rainwater, ensuring overall development of rural areas, employment generation, poverty
alleviation, community empowerment.

HORTICULTURE SCHEMES and INITIATIVE

India is second largest producer of fruits after China and Largest producer of spices.

I. National Horticulture Mission 2005-06

II. Hortnet
III. National Bamboo Mission
IV. Central Institute Of Horticulture, Nagaland has been opened.
V. All erstwhile schemes like National Horticulture Mission [NHM], Horticulture Mission for
 Nitin Sangwan

North East and Himalayas [HMNEH] etc. have been subsumed under the Mission for
Integrated Development of Horticulture (MIDH) during the Twelfth Plan.
MARKET INTERVENTION SCHEME

The Market Intervention Scheme (MIS) is an ad-hoc scheme under which are included
horticultural commodities and other agricultural commodities which are perishable in nature and
which are not covered under the minimum price support scheme. In order to protect the growers
of these horticultural/agricultural commodities from making distress sale in the event of
bumper crop during the peak arrival period when prices fall to very low level, Government
implements M.I.S. for a particular commodity on the request of a State Government concerned.
Losses suffered are shared on 50:50 basis between Central Government and the State.

NATIONAL WATERSHED DEVELOPMENT PROJECT FOR RAINFED AREAS (NWDPRA)

The scheme of National Watershed Development Project for Rainfed Areas (NWDPRA) was
launched in 1990-91.The scheme is now part of Macro Management of Agriculture Scheme.
Rainfed areas constitute about 57% of the total 140.30 million hectares cultivated in the
country. Rainfed agriculture is characterized by low levels of productivity and low input usage.
Variability in rainfall results in wide variation and instability in yields. The bulk of the rural poor
live in the rainfed regions. Therefore, Government of India accords highest priority to the holistic
and sustainable development of rainfed areas through watershed development approach.

AGRICULTURE INSURANCE SCHEMES

I. Modified National Agricultural Insurance Scheme (MNAIS)

II. Farm Income Insurance Scheme
III. Weather Based Crop Insurance Scheme (WBCIS)
NATIONAL FOOD SECURITY MISSION

Launched in 2007, it aims at enhancing the production of two main food crops and pulses Rice
and wheat and pulses. Its features are

I. Targeted Technical Intervention Technological intervention in the targeted areas.

II. Expansion of Scope Accelerated Pulse Production Program has also been made its
part.
III. Promoting Dryland Farming Under this, it specially focuses on areas under pulses.
IV. Expanding the scope of green revolution to the Eastern states also.
V. Capacity Building Farmers Field School level trainings are conducted under this.
AGRISNET SCHEME

Agrisnet as a comprehensive web portal is helping to converge and disseminate information

related to agriculture, horticulture, animal husbandry and fishery at one place. It is a mission
mode project under the National E Governance Plan. AGRISNET Project will bring farmers,
 Nitin Sangwan

researchers, scientists and administrators together by establishing online information for

Agriculture, Animal Husbandry, Horticulture and Fishries departments. The citizens can put their
queries online along with the scanned photographs (if any) on the web and get the advice from
the experts of concerned departments.

THE CROP DIVERSIFICATION SCHEME

The Crop Diversification Scheme has been introduced in the Punjab and Haryana region and is
expected to promote technological innovations and encourage farmers to choose crop
alternatives.

AGRI CLINIC and AGRI BUSINESS CENTER SCHEME

It is a scheme under which unemployed agriculture graduates can get loans from bank and can
open their own agri clinic or agri business centers.

Budget 2014 and Agriculture

I. Rs 100 crore is provided for Kisan TV, to disseminate real time information to the farmers on
issues such as new farming techniques, water conservation, organic farming etc.
II. Rs 200 crore provided to open Agriculture Universities in Andhra Pradesh and Rajasthan and
Horticulture Universities in Telangana and Haryana.
III. A scheme to provide every farmer a soil health card in a Mission mode will be launched.
IV. To meet the vagaries of climate change a National Adaptation Fund with an initial sum an
amount of Rs 100 crore will be set up.
V. Technology driven second green revolution with focus on higher productivity and including
Protein revolution will be area of major focus.
VI. To mitigate the risk of Price volatility in the agriculture produce, a sum of Rs 500 crore is
provided for establishing a Price Stabilization Fund.
VII. Central Government to work closely with the State Governments to re-orient their respective
APMC Acts.
VIII. To overcome problem of over-exploitation of water and break mono-cropping culture a Crop
Diversification program, targeted at promoting technological innovation and encouraging
farmers to choose crop alternatives in the states of Punjab and Haryana and in western UP to
counter the problems of stagnating yields and overexploitation of water resources, was
budgeted with Rs 500 crore in 2013-14.
Recent news

Prices of agricultural goods have fallen in both domestic and international market
 Nitin Sangwan

*Agricultural Credit and Issues

The Green Revolution was a harbinger of major changes in the credit system as it led to the
diversification of the portfolio of rural credit towards production oriented lending.

A major change occurred after 1969 when India adopted social banking and multiagency approach to
adequately meet the needs of rural credit. Nationalization of banks also helped in shifting the focus
towards agriculture. Lead Bank Scheme of 1960s was another major step. The scheme aimed at
nominating some banks in each district as lead banks and these will coordinate the credit activities of all
the financial institutes like cooperatives, commercial banks etc to promote financial inclusion. The LBS
has been able to achieve great success in the rural areas, and also it has aided in building up a cadre of
Bank Officers devoted to Rural Banking.

Later, the National Bank for Agriculture and Rural Development (NABARD) was set up in 1982 as an apex
body to coordinate the activities of all institutions involved in the rural financing system. It acts as a
major refinancing institution for agencies involved in disbursal of rural credit.

Kisan Credit Cards scheme is a robust mechanism through which farmers are given loans at highly
subsidized rates of around 4%.

Another significant step taken by government is inclusion of agriculture into Priority Sector Lending list
and minimum threshold is fixed for commercial banks.

New efforts towards financial inclusion in rural areas like Bank Mitra (Bank Correspondent) will
further penetrate financial services in rural areas. Another scheme launched in 2014 Jan Dhan Yojna
will also help in financial inclusion.

Currently, the institutional structure of rural banking today consists of a set of multi-agency institutions,
namely Commercial banks, Regional rural banks (RRBs), Cooperatives, Land Development Banks (The
special banks providing Long Term Loans are called Land Development Banks/Agencies (LDA) and Self
Help Groups (A more Recent Phenomenon despite their apparent success in credit facilitation, However,
It is alleged that the borrowings are mainly confined to consumption purposes. Since some kind of
collateral is required, vast proportion of poor rural households were automatically out of the credit
network).

Challenges in expanding rural credit are

I. Poor financial literacy

II. Popular moves like loan waiver discourage farmers to repay loans and make this makes financial
institutions risk averse
III. Collateral requirements in wake of rise in marginal holdings, many landless farmers and
marginal farmers are not able to provide collateral and hence deprived of financial benefits
IV. Web of money lenders presence of informal lending mechanisms have led to farmers being
trapped in debts. Disproportionately high rates are charged from non-institutional financial
 Nitin Sangwan

institutions. Micro finance institutions can be promoted in a regulated way to curb this problem
alongwith mainstream financial institutions
*Agricultural Insurance and Issues

Currently, following schemes are being operated

I. Modified National Agricultural Insurance Scheme (MNAIS)
II. Farm Income Insurance Scheme
III. Weather Based Crop Insurance Scheme (WBCIS)
Agri insurance is beset with the following problems
I. Poor penetration less than 7%
II. Inordinate time lag in settling claims-
III. High premiums
IV. Criteria for the minimum land- The area treated as the unit for assessing crop damage is usually
too large to serve the purpose of individual small farmers.
V. It also does not cover price-related risks associated with most crops (other than rice and wheat,
which are procured at the government-fixed minimum support prices at least in some areas).

Major crops cropping patterns in various parts of the country

Agriculture provides basis for the development of other sectors. A prosperous agriculture sector results
in rural prosperity and hence also generates demand for industrial goods.

Increase in total quantum of agricultural produce/foodgrains is ascribed to the expansion of net sown
area (area out of total land on which agricultural activities are carried out) until the mid sixties, but later
it was mainly achieved by the growth in productivity after the introduction of irrigation added fertilizer
technology. Cropping intensity (it is the ratio of Gross Cropping Area to Net Cropping Area and it can be
more than 100% and higher the ratio is more is the number of crops taken in one year) also increased.
Today, net sown area is around 142 million hectare.

Cropping pattern is dominated by food crops and it is evident in almost stagnant production of pulses
and oil seeds for many decades.

Cropping patterns in various parts are controlled by mainly pattern of rainfall in India. Other influencing
factors are type of soil, land topography, labor availability, technology, capital, size of land holdings,
latitude and altitude etc. are also major factors. The modern technology like greenhouse, irrigation,
fertilizers, improved GM seeds has now made it possible that some crops are today grown in non-
traditional areas as well. For example Rice is grown in Punjab and Haryana and wheat is grown in West
Bengal.

Cropping patterns and crop yields are also improved by improving intensity of cropping. In some areas
as much as 3 crops are grown in one year. As a result some crops which were only Rabi crops are now
grown in Kharif season in other parts of India.
 Nitin Sangwan

Crop rotation, mixed cropping are other factors which determine cropping patterns. In fact, today very
few areas have mono-cropping or monoculture practiced, in other areas different crops grow in close
association.

Further, at micro level, decision to cultivate on a particular land is taken by a particular household
depending upon suitability of soil, availability of water, capability of household to purchase inputs,
profitability, need of household etc.

A major change in cropping patterns in India was witnessed during mid-sixties when seed-fertilizer-
irrigation technology was introduced. Changes occurred not only in type of production, but also in the
yield.Foodgrains mainly rice and wheat witnessed most drastic changes. Pulses, oil seeds were least
affected.

100 cm isohyte divides the country in two broad agriculture zones area receiving less than 100 cm
rainfall is predominantly wheat zone while area receiving more than 100 cm rainfall is rice zone. But this
is not a rigid demarcation. There are transition zones as well. Further, introduction of package
technology (fertilizer, seeds, machines, irrigation etc in totality)interpenetration of different crops can
be witnessed across different zones in country.

Yield of dry farmed produces like pulses and oil seeds can be increased by using suitable dry farming
techniques. International Crop Research Institute for Semi Arid Tropics (ICRISAT), Hyderabad and Central
Arid Zone Research Institute, Jodhpur are two key institutes that promote dry land farming techniques.

Some of the major cropping systems are

I. Sequential system multiple crops are grown in a sequence using short duration crops and
intense input management. In Maharashtra, a sequence of Rice, Beans and Ground nuts is
followed. It is the most common cropping system in India.
II. Mixed cropping It refers to crop mixture of two or more crops simultaneously with no distinct
row arrangement. For example pulses and some oil seeds are grown along with maize, jowar
and bajra. Its more refined way is intercropping.
III. Mixed Farming Mixed farming is a system of farming on a particular farm which includes crop
production, raising of livestock etc.
IV. Plantation and other commercial crops Sugarcane, tobacco, potatoes, jute, tea, coffee,
coconut, rubber, spices and condiments etc. Some of these are seasonal, some are annual and
some are perennial. They generally occupy smaller areas, but commercially very important. In
jute growing areas, rice is usually alternative crops.
V. Intercropping system Growing two or more crops in 'definite row patterns' is known as inter-
cropping. The crops are selected such that their nutrient requirements are different. This
ensures maximum utilization of the nutrients supplied, and also prevents pests and diseases
from spreading to all the plants belonging to one crop in a field.Cotton and ground nuts are
 Nitin Sangwan

grown together or maize and groundnut are grown together in ranchi.

VI. Alley cropping system Annual crops are grown along with multipurpose perennial shrubs or
trees. It is done in a fragile environment. For example, Eucalyptus trees can help in regulating
salinity.
VII. Organic Farming Organic agriculture offers a means to substitute costlier agricultural inputs
(such as HYV seeds, chemical fertilisers, pesticides etc.) with locally produced organic inputs that
are cheaper and thereby generate good returns on investment. Organic agriculture also
generates income through exports as the demand for organically grown crops is on a rise.
Studies across countries have shown that organically grown food has more nutritional value
than chemical farming thus providing us with healthy foods. Since organic farming requires
more labor input than conventional farming, India will find organic farming an attractive
proposition.
Another classification is based on season

I. Winter cropping systems or Rabi Wheat together with Barley, Oats and Jowar are the main
crops. Wheat and Chick pea are mainly concentrated in the sub-tropical region in Northern India
whereas Rabi Jowar is grown in Deccan.
II. Rainy cropping system or Kharif It involves crops like Rice. Rice is grown in areas of high
rainfall or the areas which have assured secondary source of water. With rice, other crops like
fruits vegetable and cotton is grown in Meghalya. In Orissa and coastal Andhra, Jute is also
grown. In Bihar, alternative crops are Pulses, wheat and maize. Maize is grown in areas which
have high rainfall or soil type which can retain moisture. UP, Bihar, MP and Rajasthan are major
maize growing areas. Jowar or Sorghum is grown in areas with medium rainfall like MP,
Maharashtra etc. Bjara is grown in areas with less rainfall and light textured soil as it has good
draught resistant features. Haryana, Rajasthan are leading states. Groundnut is another major
crop o this season. Andhra, Gujarat, Karnataka, Tamil Nadu and Maharashtra are major areas. In
Tamil Nadu it is grown with rice as the main alternative crop. In Karnataka, Jowar is the main
alternative crop along with sugarcane and cotton.
III. Zaid In between the rabi and the kharif seasons, there is a short season during the summer
months known as the Zaid season. Some of the crops produced during zaid are watermelon,
muskmelon, cucumber etc.
Cropping distribution or regional patterns of crops

I. Rice Rice is the major food crop of the world. It is the staple diet of the tropical and sub-
tropical regions. Our country is the second largest producer of rice in the world after China.Rice
needs high temperature, high humidity and rainfall (everything high). It grows best in alluvial
clayey soil, which can retain water. It is a major crop in eastern parts of the North Indian plains,
 Nitin Sangwan

coastal plains, Himalayan valley and terraced slopes and other areas where means of irrigation
are available. Some of the most important rice-growing regions are Assam, West Bengal, coastal
regions of Orissa, Andhra Pradesh, Tamil Nadu, Kerala and Maharashtra, particularly the
(Konkan coast) along with Uttar Pradesh and Bihar. Recently, paddy has also become an
important crop of Punjab and Haryana.It is grown in both Kharif and Rabi season. In south where
climate remains humid throughout the year, it can be grown flexibly. But in North winters dont
allow this tropical crop and hence it is grown in Kharif. Eastern Coast produces more rice than
Western Coast. Eastern region accounts for 67% of total area and 50% of the total production of
rice in the country. Higher yields have been obtained in Punjab, Haryana and Uttar Pradesh as
these regions have an assured water supply, and dry climate with low incidence of pests and
diseases.
II. Wheat Wheat requires moderate temperature and rainfall during growing season and bright
sunshine at the time of harvest. It thrives best in well drained loamy soil. It requires 50 to 75 cm
of annual rainfall evenly distributed over the growing season. There are two important wheat-
growing zones in the country the Ganga-Satluj plains in the northwest and black soil region of
the Deccan. The major wheat-producing states are Punjab, Haryana, Uttar Pradesh, Bihar,
Rajasthan and parts of Madhya Pradesh. About 70% of the wheat production in the country is
obtained from Punjab, Haryana and UP. Haryana is the state with highest productivity of wheat.
After BGREI, West Bengal and other Eastern parts have also become self-sufficient in wheat
production.
III. Millets or CoarseGrains They are also known as coarse grains and can be grown on less fertile
and sandy soils. It is a hardy crop that needs low rainfall and high to moderate temperature and
adequate rainfall. They requires comparatively lesser time -3/4 months - for reaping. These are
highly suitable for dry land farming. Jowar, bajra, maize and ragi are the important millets grown
in India. Though, these are known as Coarse Grains, they have very high nutritional value. For
example, ragi is very rich in iron, calcium, other micro nutrients and roughage.
Jowar is the third most important food crop with respect to area and production. It is a rain-fed
crop mostly grown in the moist areas which hardly needs irrigation. Maharashtra is the largest
producer of jowar followed by Karnataka, Andhra Pradesh and Madhya Pradesh.
Bajra grows well on sandy soils and shallow black soil. Rajasthan is the largest producer of bajra
followed by Uttar Pradesh, Maharashtra, Gujarat and Haryana.
Ragi is a crop of dry regions and grows well on red, black, sandy, loamy and shallow black soils.
Karnataka is the largest producer of ragi followed by Tamil Nadu. Apart from these states,
Himachal Pradesh, Uttarakhand, Sikkim, Jharkhand and Arunachal Pradesh are also important
for the production of ragi.
Maize requires moderate temperature, rainfall and lots of sunshine. It needs well-drained fertile
soils. (It needs conditions similar to wheat).It is an important crop in Eastern Rajasthan, Uttar
 Nitin Sangwan

Pradesh, Bihar, Punjab etc. Among coarse grain it is the only one which has witnessed
substantial increase in yield.
Coarse cereals like Bajra, Maize, Ragi and Barley has importance for they are important items of
consumption for the poor people. Since they require little irrigation and low fertility soil, vast
areas of wasteland can be brought under their cultivation.
IV. Pulses India is the largest producer as well as the consumer of pulses in the world. These are
the major source of protein in a vegetarian diet. Major pulses that are grown in India are tur
(arhar), urad, moong, masur, peas and gram. Among these, peas and gram are sown in rabi and
while others in kharif season. Pulses need less moisture and survive even in dry conditions.
Being leguminous crops (leguminous crops have bacteria that help in fixing nitrogen, their roots
have nodules that contain Nitrogen fixing bacteria that hence help in sooil management and
reduce the need of adding nitrogenous fertilizers.), all these crops except arhar help in restoring
soil fertility by fixing nitrogen from the air. Therefore, these are mostly grown in rotation with
other crops. Share of pulse in the gross cropped area has remained constant. About 90% of the
area under pulses is rain fed. Pulses are widely produced in MP, Rajasthan, Haryana, Uttar
Pradesh, Bihar, Orissa, Andhra, Tamil Nadu etc. National Pulse Development Plan was launched
in 1986-87 to boost pulses production.
V. Oil Seeds India is the largest producer of oilseeds in the world, but still it is not able to meet its
domestic demand. Different oil seeds are grown covering approximately 12 per cent of the total
cropped area of the country. They refer to an aggregation of 9 different seeds viz groundnut,
castor seeds, sesame (til), mustard (sarson), linseed, sunflower, soyabean etc. Most of these are
edible and used as cooking mediums. However, some of these are also used as raw material in
the production of soap, cosmetics and ointments. Gujarat is largest oil seed producer state
followed by Andhra, Uttar Pradesh, MP, Maharashtra etc. National Oil Seed Development
Project was launched to boost oil seed production.
Groundnut is a kharif crop and accounts for about half of the major oilseeds produced in the
country. Andhra Pradesh is the largest producer of groundnut followed by Tamil Nadu,
Karnataka, Gujarat and Maharashtra. In Gujarat, groundnut occupies the most area than any
other crop.
Linseed and mustard (Sarson) are rabi crops.
Sesamum is a kharif crop in north and rabi crop in south India.
Castor seed is grown both as rabi and kharif crop.
VI. Sugarcane It is a tropical as well as a subtropical crop. It grows well in hot and humid climate
with a temperature of 21C to 27C and an annual rainfall between 75 and 100cm. Irrigation is
required in the regions of low rainfall. It can be grown on a variety of soils and needs manual
labor from sowing to harvesting. It is a fertilizer intensive crop and it grows well on fertile soils.
India is the second largest producer of sugarcane only after Brazil. It is the main source of sugar,
 Nitin Sangwan

gur (jaggary), khandsari and molasses. The major sugarcane-producing states are Uttar Pradesh,
Maharashtra, Karnataka, Tamil Nadu, Andhra Pradesh, Bihar, Punjab and Haryana. In Northern
plains, extreme weather conditions extreme heat and extreme cold are responsible for low
yiled. Yield of peninsular sugarcane is higher. Availability of assured irrigation is one of the
positive factors in North. Tropical sugarcane varieties are grown in Tamil Nadu, Karnataka,
Maharashtra and Andhra Pradesh.Sugarcane looses weight due to presence of heat. So this crop
is grown near the areas where mills are easily accessible. Like jute it is both labor intensive and
requires nutrient rich soil as it exhaust them easily. Cuba is the largest producer of sugar.
VII. Fiber Crops Cotton, jute, hemp and natural silk are the four major fibre crops grown in India.
The first three are derived from the crops grown in the soil, the latter is obtained from cocoons
of the silkworms fed on green leaves specially mulberry. Rearing of silk worms for the
production of silk fibre is known as sericulture.
Cotton grows well in areas having well drained deep soil, high temperature, uniformly
distributed light rainfall or irrigation during plant growth and sunshine at the time of picking. It
grows best on black and alluvial soils of Deccan plateau. India is the original home to cotton
plant. India is the first country in the world to develop hybrid variety of cotton. Sea-breeze is
beneficial for quality of the fibre. The ideal situation for plantation is lowlands near the sea coast
or on islands in semi-tropical latitudes. China, USA, India, Pakistan, Brazil and Egypt are the
leading producers of cotton. It is one of the main raw materials for the cotton textile industry. It
is grown in Maharashtra, Madhya Pradesh, Gujarat, Rajasthan Punjab and Haryana.
Jute was also known as the Golden Fibre. It grows well on alluvial soil and requires high
temperature, heavy rainfall and humid climate (cotton requires dry climate). This crop is grown
in the tropical areas. India and Bangladesh are the leading producers of jute. Jute requires highly
nutritive soil and the crop exhausts the soil-nutrients very rapidly. That is the reason that it is
grown in the regions where soil is flooded every year by new alluvium. It is a labor intensive
crop, but this is grown in areas where labor is easily available. Its contribution towards
employment is immense.
VIII. Horticulture Crops Horticulture sector comprising a wide array of crops from fruits and
vegetables to nuts, spices, medicinal plants, flowers, and plantation crops, provides many
opportunities for income generation. Horticulture production is estimated at 265 million tonnes
in 2012-13. The horticulture sector contributed 30.4 per cent of agri GDP. India is the second
largest producer of fruits and vegetables in the world. India is a producer of tropical as well as
temperate fruits. Mangoes of Maharashtra, Andhra Pradesh, Uttar Pradesh and West Bengal,
oranges of Nagpur and Cherapunjee (Meghalaya), bananas of Kerala, Mizoram, Maharashtra
and Tamil Nadu, lichi and guava of Uttar Pradesh and Bihar, pineapples of Meghalaya, grapes of
Andhra Pradesh and Maharashtra, apples, pears, apricots and walnuts of Jammu and Kashmir
and Himachal Pradesh are in great demand the world over. All erstwhile schemes like National
Horticulture Mission [NHM], Horticulture Mission for North East and Himalayas [HMNEH] etc.
 Nitin Sangwan

have been subsumed under the Mission for Integrated Development of Horticulture (MIDH)
during the Twelfth Plan. Capacity building of farmers by organizing them into farmer producer
organizations (FPO)/ farmer producer companies (FPC) is an added feature of the MIDH.
IX. RubberIt is an equatorial crop, but under special conditions, it is also grown in tropical and sub-
tropical areas. It requires moist and humid climate with rainfall of more than 200 cm i.e. high
rainfall. And temperature above 25C. Rubber is an important industrial raw material. It is
mainly grown in Kerala (it produces 90% of Indian production), Tamil Nadu, Karnataka and
Andaman and Nicabar islands and Garo hills of Meghalaya. India ranks fifth among the worlds
natural rubber producers. East Asian countries are also major rubber producing countries.
X. Coffee Coffee requires warm and wet climate and well drained loamy soil. Hill slopes are more
suitable for growth of this crop. Coffee plant requires humid tropical climate, while tea can be
cultivated in both tropical and sub tropical areas. Brazil is the leading producer followed by
Columbia, Cuba and India. In India, Karnataka is the leading producer of coffee.
XI. TobaccoIt was introduced in India by Portuguese. It requires hot and moist climate; rich soil.
Soil is more important factor in growth of tobacco than climate. This is the reason that tobacco
is scattered all over India and no single region has monopoly.
XII. TeaThe tea plant grows well in tropical and sub-tropical climates endowed with deep and
fertile well-drained soil (thats why its is grown on slopes), rich in humus and organic matter.
Laterite soil can be used for cultivation of tea. Tea bushes require warm and moist frost-free
climate all through the year. Frequent showers evenly distributed over the year ensure
continuous growth of tender leaves. Tea is a labor intensive industry. It requires abundant,
cheap and skilled labor. Tea is processed within the tea garden to restore its freshness.
Alternate warm and cold spells help in its growth and it is a shade loving plant. Presence of
Potash and Phosphorous give it a special flaour, as in case of Darjeeling Tea. Karnataka, Tamil
Nadu and Kerala are other tea growing areas. Sri Lanka and China are other big producers apart
from India.
Clayey and loamy soils are both suitable for growing cereals like wheat, and gram. Such soils are
good at retaining water. For paddy, soils rich in clay and organic matter and having a good capacity
to retain water are ideal. For lentils (masoor) and other pulses, loamy soils, which drain water
easily, are required. For cotton, sandyloam or loam, which drain water easily.

The sizes of the particles in a soil have a very important influence on its properties. Sand particles are
quite large. They cannot fit closely together, so there are large spaces between them. These spaces
are filled with air. We say that the sand is well aerated. Water can drain quickly through the spaces
between the sand particles. So, sandy soils tend to be light, well aerated and rather dry. Clay
particles, being much smaller, pack tightly together, leaving little space for air. Unlike sandy soil,
water can be held in the tiny gaps between the particles of clay. So clay soils have little air. But they
are heavy as they hold more water than the sandy soils. The best topsoil for growing plants is loam.
 Nitin Sangwan

Loamy soil is a mixture of sand, clay and another type of soil particle known as silt. Silt occurs as a
deposit in river beds. The size of the silt particles is between those of sand and clay. The loamy soil
also has humus in it. It has the right water holding capacity for the growth of plants.

Rivers of north India, which flow from Himalayas, bring a variety of materials including silt, clay, sand
and gravel. They deposit their materials called alluvial soil, in the planes of north India. This soil is
very fertile and supports nearby half the population of India.

Due to technology use and capital investment, natural cropping patterns are disturbed in many
areas. Punjab which used to grow coarse cereals like Bajra before artificial irrigation facilities
became available now grows it no more. Govrernment of India has taken steps to restore balance in
form of schemes like Agriculture Crop Diversification Scheme which is launched in Punjab to wean
farmers away from Paddy which was not naturally grown in Punjab.

Different types of irrigation and irrigation systems

Over the years, India has developed extensive irrigation facilities by way of canals, wells, lakes and
rainwater harvesting in ponds. But its irrigation efficiency continues to remain low. Even today, almost
65% of the area out of total 142 million hectare net sown area is rain fed.

Various types of irrigation systems can be classified on the basis of their source of water and the
irrigation techniques they use. On the basis of source of irrigation, following are major classifications

I. Well and tube well irrigation It is the dominant mode of irrigation and is used in many parts of
northern India.Gujarat has this practice as dominant mode of irrigation. It is the most used
mode of irrigation in India.
II. Canal irrigation It includes major and minor canal irrigations. Around 35% irrigated area comes
under this system. Command area development projects also fall under it. It is more popular in
those areas where rivers are almost perennial and gradient of ground is not high. Northern part
of India is suitable for such irrigation where Himalayan Rivers suit this purpose. The Northern
planes have very low gradient and this makes them suitable for irrigation by canals as canals can
take water to far off places without lifting requirement. Punjab, UP are the major states which
have benefitted from this type of irrigation. Some of the benefits of this system include that it
provides uninterrupted water supply, also brings fertile silt.
III. Tank irrigation On the other hand in Peninsula relief is un-even and surface is hard/rocky
which makes it unsuitable for canal irrigation. Due to rocky surface percolation is very poor and
farmers often make check dams on streams in rainy seasons to store water. Further rivers are
seasonal and dry up after rains pass. Scattered nature of agriculture and population also favors
tank irrigation. This is the reason that in southern states Tank Irrigation is more prevalent while
in north Canal and Tubewell irrigation is more prevalent. Andhra is the leading state where tank
irrigation is practiced.
 Nitin Sangwan

Irrigation systems can also be classified on the basis of techniques of irrigation used. They depend on
soil type, crop type, water availability and capital investment. Some of the common practices are

I. Flooding of fields this is perhaps the crudest technique of irrigation. It is also a requirement in
case of crops like rice. It can be made water saving if leveling of fields is done properly. Now a
days, laser leveling has become popular. Leveling helps in optimum use of water.
II. Sprinkler irrigation it is used in areas where well or tube well irrigation is used. It is better than
flooding, but still targeting is not very good.
III. Drip irrigation it is the latest technique in which water is supplied directly at the roots of the
individual plants. But it requires large capital investment and is currently subsidized by
governments.
Irrigation systems are also linked to the drainage systems. Type of irrigation also affects erosion of soil
as well. Scientifically promoted irrigation can provide additional benefits like protection of plants against
frosts, weeds etc as well.

There are also problems associated with irrigation systems used in India. Canal irrigation or command
area approach suffers from many problems like salination of surrounding lands, water logging and so on.
Well irrigation has its own challenges. Punjab has highest exploitation of ground water which is more
than 100%. Deficit recharge and excessive take out has resulted into many areas being declared as dark
zones. Excessive use of pesticides has also polluted ground water and it is leading to many diseases like
flourosis, arsenic contamination related diseases and cancer. Ludhiana and Bhatinda are emerging as
cancer capitals. Water harvesting is poorly promoted and in wake of the rising demand of water, it is
argued that India is headed for water wars among its states. New Water Policy lays guidelines for
prudent and efficient use of water for irrigation purpose as well and considers water as an economic
good.

RAIN FED AGRICULTURE

60 per cent of the total foodgrains and oilseeds produced being grown in the kharif season, and
with just about 35 per cent of arable area being irrigated, Indian agriculture is still largely
dependent on rainfall. The south-west monsoon (from June to September) accounts for nearly
75 per cent of total annual rainfall in India. The government has in place contingency measures
in about 500 districts. Further, the National Mission for Sustainable Agriculture (NMSA) is one
of the eight missions of the National Action Plan on Climate Change, whose focus is on
encouraging judicious utilization of common resources through a community based approach.
The Rain-fed Area Development Program (RADP), which adopts a holistic approach to enhance
farmers incomes in rainfed areas, was implemented in 22 states in 2013-14 and will be
substantially upscaled during the Twelfth Plan and will be merged with National Mission on
Sustainable Agriculture. Other initiatives include the National Initiative on Climate Resilient
Agriculture (NICRA) under the Indian Council of Agricultural Research (ICAR) to enhance
resilience of Indian agriculture to climate change and vulnerability through strategic research
and technology demonstration, capacity building, and sponsored/competitive grants.
 Nitin Sangwan

Storage, transport and marketing of agricultural produce and issues and related constraints

EXTENSION SERVICES

To ensure last-mile connectivity, extension services need to be geared to address emerging

technological and knowledge needs. Sub Mission on Agricultural Extension (SMAE) under the
National Mission on Agricultural Extension and Technology (NMAET). The schemes subsumed
under the SMAE include: District-level Agriculture Technology Management Agencies (ATMAs),
Mass Media and Kisan Call Centre schemes, Agri-Clinics and Agri-Business Centres (ACABC)
Scheme; SMS portal for farmers etc. To assess, refine, and demonstrate agricultural
technologies/products the ICAR has created a mechanism for technology application at district
level by establishing a network of Krishi Vigyan Kendras (KVK).

STORAGE and TRANSPORT of AGRICULTURAL GOODS

Need for adequate storage mechanisms Storage and transport are two basic infrastructure
requirements for the proper handling of agriculture produce and preventing wastage.

I. Prevent wastage Even today, more than 10 per cent of goods produced in farms and
30-40% of horticulture produce are wasted due to lack of storage. There is a proper
storage facility for only 1% of the milk produced and less than 6% of vegitables. As a
result food and grain worth thousands of crores get wasted every year. It makes
investment in warehousing an imperative.
II. Stabilize prices and inflation It will help in reducing wastages and will bring down the
prices as well.Currently cold storages in India use obsolete technology and they can
store only a single product at one time.
III. Provide remunerative prices to farmers Another big related issue is the price that
farmers get. Due to inefficient logistics, prices of food articles inflate greatly by the time
they reach end consumers. Thus, due to inadequate storage and transport mechanism,
consumer end up paying more and farmers get less.
IV. Prevent distress sales Inadequate storage and transportation facilities also lead to
distress sales by farmers and collusions by middlemen.
V. Provide food security The issue is also closely linked to national food security.
Therefore, state intervention became necessary to regulate the activities of the private
traders and state intervenes in form of Essential Commodities Act, Prevention of Black-
marketing Act and so on which distort free economy mechanisms.
Warehousing and storage At present there are 3 main agencies in the public sector engaged in
building warehousing capacity
 Nitin Sangwan

I. Food Cooperation of India (FCI)

II. Central Warehousing Cooperation (CWC)
III. State Warehousing Cooperations (SWCs)
Even these three are not able to store the procured grain and ever year, thousands of tonnes of
grain is wasted in open due to rains, rodents, pilferage etc.

Steps taken by government to boost storage infrastructure

Major policy initiatives taken recently by the government in this sector include

I. Construction of godowns under the 7-years/10-years guarantee scheme of the

Government of India, most of them being managed by the Central Warehouse
Corporations or State Warehouse Corporation
II. Up to 100 per cent FDI in the construction of warehousing infrastructure is now allowed
III. Construction of warehouses under the Gram Bhandaran Yojana of the National Bank for
Agriculture and Rural Development (NABARD) and the Rastriya Krishi Vikas Yojana. The
main objectives of the Gram Bhandaran Yojna scheme include creation of scientific
storage capacity with allied facilities in rural areas to meet the requirements of farmers
for storing farm produce, processed farm produce and agricultural inputs; promotion of
grading, standardization and quality control of agricultural produce to improve their
marketability; prevention of distress sale immediately after harvest by providing the
facility of pledge financing and marketing credit.
IV. In 2007-08, the government enacted the Warehousing (Development & Regulation) Act
2007 to make the warehouse receipt fully negotiable.
V. Recently the government took another major initiative for construction of additional
warehousing capacity in the country under its Private Entrepreneurs Guarantee (PEG)
Scheme.
VI. For boosting the warehousing sector, tax benefit under Section 35 AD of the Income Tax
Act 1961 is also being made available where the assessee is allowed a deduction of 150
per cent of the capital expenditure (except cost of land) for setting up and operation of
cold chain facility or warehousing facility for storage of agricultural produce.
Procurement policy of Indian government

The policy has various components -

I. Assurance of Minimum Support Prices (MSP) for agricultural products

It aims at providing remunerative price for farmers for crops. It ensures them a
minimum price. It also provides income security as well as help in maintaining buffer
stocks for national food security. It was introduced in 1967 in wake of bumper
production during Green Revolution. It is announced by central government and today it
 Nitin Sangwan

is given for around 30 crops. It is announced by central governments Commission for

Agricultural Costs and Prices.
II. Government of India announces MSP for not only food grains but also for other crops
like pulses, sugarcane, oilseeds etc.
III. Maintenance of buffer stocks of wheat and rice by Food Corporation of India
IV. Distribution of food grains and sugar through PDS.
These instruments are aimed at protecting the income of the farmers and providing food grains
at a subsidized rate to the poor.

AGRICULTURE MARKETINGSYSTEM

Objective of any agriculture marketing system is to fulfill three basic goals

I. Ensuring remunerative prices to the farmers

II. Narrowing the gap between the price which farmer gets and the price paid by final
consumer
III. Ensuring that there are no unauthorized commissions and charges to be paid by the
farmer while selling his produce and ensuring that the role of middleman is minimized.
Current mechanism of agriculture marketing in India is predominantly a highly regulated one
which provides little choice to the farmer due to existence of state APMC Acts which make it
mandatory for the farmers to sell through designated mandis only.

Major limitations with the existing mechanisms are

I. There is absolutely inadequate warehousing and logistical capacity as they are the
starting point of agriculture marketing
II. Secondly, sub standard weights and measures are used often to the disadvantage of
producer as well as consumer
III. There is lack of grading mechanisms also. FPO, Agmark etc are not up to the mark and
not applied to all the goods
IV. Lack of credit facility
V. Presence of a large number of middlemen who exploit farmers who exploit farmers by
way of various unauthorized and undue commissions, charges and fees
VI. Lack of up to date market information regarding prices, situation of plenty or scarcity
and other market related information
VII. Essential Commodities Act, and the administrative measures at local and state levels
distort the decision to grow and the decision to store.
VIII. In addition, some state governments have introduced barriers to trade within the
country through taxation and technical requirements.
Steps taken by government so far -
 Nitin Sangwan

I. It has set up CWC and SWCs which have constructed a network or rural godowns.
II. Government has enacted Agricultural Produce (Grading and Standardization) Act under
which seal of Agmark is given
III. Enactment of Standard Weights and Measures Act which makes it mandatory to use
metric weights
IV. Credit facilities have also been expanded and it is mandatory for banks to lend 18% to
agriculture sector under priority lending scheme
V. Commodity boards have been setup for marketing of various commodities like Tea
Boar, Choir Board, Coffee Board etc
VI. Government has also taken steps to promote cooperative marketing. National
Cooperative Development Corporation (NCDC) for this purpose. National Agriculture
Cooperative Federation (NAFED) has been formed for not only interstate marketing of
commodities, but also their export.
VII. Government also has an active buffer stock policy under which farmers can sell their
produce for around 27 commodities at MSP from time to time
VIII. Government has also promoted future trading in agricultural commodities. National
level exchanges have been established under Forward market Commission since 2003
IX. Special incentives are provided for export in successive exim policies. Government has
also set up Agri Export Zones
X. Government has also set up Regulated Markets under various state APMC Acts which
take care of all the problems like use of substandard weights and measures, presence
of middlemen, unauthorized commission etc.
Regulated markets and states APMC Acts

Regulated markets are set up by every state under its respective Agriculture Produce Marketing
Committee Act (APMC Act). Such a market can be setup for either a single commodity or a group
of commodities. Generally, for every specific area there has to be a regulated market. This
system began in 1951 and every state established its own markets for both commercial crops as
well as food crops.

Such markets are managed by a market committee which generally consists of representatives
of state government, a legal body (generally a district board), traders, commission agents and
farmers. In most of the cases, chairman is from the farming community. It determines the fee to
be charged for various transactions and also facilitates determination of prices to make selling
remunerative to farmers. No brokers are allowed to be represented from either buyer side or
seller side. Committee is authorized to impose fines and penalties for any irregularities observed
in conducting the transactions.

Currently nearly 80% of the agriculture produce is marketed through these regulated markets
 Nitin Sangwan

and they have done a commendable job in doing away with the middlemen.

They have also helped farmers in realizing remunerative prices for their produce.

However, over the years they have become too monopolistic and suffer from many problems
like

I. They have hindered growth of third party transactions outside APMC Act framework
and even in such a case one has to pay mandi fee
II. They failed to act as a platform of information exchange among farm community
III. While industry was liberalized and allowed to buy from, and sell to, anyone in the world,
Indian farmers in many states, are still required to buy and sell only in the government-
designated Agricultural Produce and Marketing Committees (APMC) to licensed entities.
Farmers are not allowed to sell their produce directly to the consumers. A national
market for food is yet to develop.
IV. They have also failed to assure supply of raw materials for agriculture producers
V. These markets have worked in a typical bureaucratic manner and have failed to adopt
innovative practices
VI. Alternative markets are not allowed to be setup in the areas in which such markets are
established due to which they have become monopolistic and have made agriculture
marketing non-competitive
E-Chaupal An Innovative Initiative in Agri-Marketing
VII. Cold storage facilities exist
in just 10% of such markets It is a platform by ITC which is used by farmers both as
consumers and producers and allows them to connect
and grading and
domestic as well as global markets.
standardization facilities
A kiosk is provided in the village or group of villages where
exist in just 30% of these
Government setup Shankarlal Guru such e-Chaupal is setup along with an ITC trained local
farmer. It can be used to obtain various types of
Committee in 2001 and set up an
information. Secondly, there is a brick and mortar structure
inter-ministerial group to review
within a distance of around 25 km. It can used as a
regulated market system and both truncation point as well. Those who manage this system
advised that regulated markets also get paid through nominal commissions.
have become too restrictive,
prohibitive and monopolistic. They
also suggested that these regulated markets have failed to reflect situation of plenty and
scarcity with the result that there is overflowing of stock from time to time. It was also
suggested that state intervention in working of agriculture marketing should be selective and be
combined with situation of emergency. It also recommended replacing of Essential Commodities
Act with APMC Act.

Based on above recommendations, government came up with Model APMC Act 2003 and urged
 Nitin Sangwan

state governments to amend their state Acts in line with this Act. It had following key features

I. De-regulate agriculture marketing system farmers and traders should not be obliged
to sell their produce through regulated markets
II. Make agriculture marketing system more competitive
III. Encourage private sector in setting up and expanding marketing infrastructure
IV. Farmers and traders should be allowed to setup Special Purchase Centers for direct sale
of produce to consumers
V. Special markets should be setup for perishable commodities like fruits, vegetables etc
VI. PPP model should be encouraged for development of agriculture markets
VII. Regulation and promotion of contract farming as there is currently no policy of contract
farming as this will also help in disseminating of technology
Many states have adopted the provisions of Model APMC Act and others are in process of
adoption. Its essence is setting up of parallel markets to regulated markets and farmers will be
free to sell wherever they like. There are some other shortcomings with this model Act also
which needs to be ironed out.

There is a need for a true pan-Indian market for agri products without any barriers so that
farmers get the best prices and consumers get the best products. The Committee on
Agricultural Reforms (2013) recommended, inter alia, a barrier-free national market for the
benefit of farmers and consumers. The Committee on Agricultural Reforms (2013) noted that,
By and large, the APMCs have emerged as some sort of Government sponsored monopolies in
supply of marketing services/ facilities, with all drawbacks and inefficiency associated with a
monopoly. Parliament has the power to legislate a national market under the Constitution,
which gives it the ability to legislate the freedom to buy and sell, for farmers and traders, across
state lines. This law can override state APMC laws and restrictions that have been placed on the
farmers right to sell food within and outside the state. Under such a law, APMCs would become
one among many trading venues in a competitive market. Further, under the Constitution,
Parliament can legislate the creation of a Commission that monitors the country for anti-
competitive practices.

Some measures that would facilitate the creation of a barrier-free national market are:

I. Permit sale and purchase of all perishable commodities such as fruits and vegetables,
milk and fish in any market. This could later be extended to all agricultural produce.
II. Exempt market fee on fruits and vegetables and reduce the high commission charges on
agricultural/horticultural produce.
III. Taking a cue from the success of direct marketing efforts of states, the APMC/other
market infrastructure may be used to organize farmers markets. FPOs/self-help groups
(SHGs) can be encouraged to organize farmers markets near urban centers, malls, etc.
 Nitin Sangwan

that have large open spaces. These could be organized every day or on weekends,
depending on the concentration of footfalls.
IV. Include facilitating organization of farmers markets under the permitted list of
corporate social responsibility (CSR) activities under Companies Act 2013, to encourage
companies engaged in agri-allied activities, food processing etc to take up this activity
under CSR and also help in setting up supply chain infrastructure. This would be similar to
the e-Choupal initiative of ITC Ltd., but under CSR.
V. All the above facilitators can also tie-up a link to the commodity exchanges platform to
disseminate spot and futures prices of agricultural commodities.
For establishing a national common market, some reforms are needed:

I. Examine the APMC Act, EC Act, Land Tenancy Act, and any such legally created structures
whose provisions are restrictive and create barriers to free trade.
II. Rigorously pursue alternate marketing initiatives, like direct marketing and contract
farming.
III. Examine inclusion of agri related taxes under the General Goods and Services Tax (GST).
IV. Establish stable trade policy based on tariff interventions instead of non-tariff trade
barriers.
V. Develop and initiate competition in the agro-processing sector. Incentivize the private
sector to scale up investments.
Expansion of cooperative marketing in realizing fair prices for farmers products can also be
given a relook and similar models like milk cooperatives can be adopted in field of agriculture
also.

It has also been realized that if farmers directly sell their produce to consumers, it increases
their incomes. Some examples of these channels are Apni Mandi (Punjab, Haryana and
Rajasthan), Hadaspar Mandi (Pune), Rythu Bazar in Andhra Pradesh, Krushak Bazaar in Odisha,
and Kisan Mandi in Rajasthan etc.

e-technology in the aid of farmers

FARM-MECHANIZATION

Despite being among the top countries in agricultural production, Indias level of mechanization
averages only 25 per cent as compared to more than 90 per cent in developed countries. The
main challenges for farm mechanization are, first, a highly diverse agriculture with different soil
and climatic zones, requiring customized farm machinery and equipment and, second, largely
small land holdings with limited resources. A dedicated Sub-Mission on Agricultural
Mechanization has been initiated in the Twelfth Plan, with focus on spreading farm
mechanization to small and marginal farmers and regions that have low farm power availability.
 Nitin Sangwan

e-TECHNOLOGY in FARMING

I. Kisan Call Center, laser leveling, satellite based geographical mapping.

II. e-Chaupal like initiatives to connect farmers to the agricultural markets.
III. SMS based facilities to give farmers useful tips and alert them regarding weather developments.
IV. Programs like Krishi Darshan to guide farmers on new agricultural developments.
V. Government is also rolling out National Optical Fiber Plan (NOFN) to connect all the villages with
broadband. It will facilitate faster connectivity for villagers.
VI. A new channel has also been launched in 2014 dedicated to agriculture.
VII. Agricultural Marketing Information Network AGMARKNET was launched in March 2000, it
links around 7,000 agricultural wholesale markets in India with the State Agricultural Marketing
Boards and Directorates for effective information exchange. This e-governance portal facilitates
generation and transmission of prices, commodity arrival information from agricultural produce
markets, and web-based dissemination to producers, consumers, traders, and policy makers
transparently and quickly. The AGMARKNET is a G2C e-governance portal that caters to the
needs of various stakeholders such as farmers, industry, policy makers and academic institutions
by providing agricultural marketing related information from a single window.
Issues related to direct and indirect farm subsidies and minimum support prices

Subsidies are as opposite to taxes a way to inject money into circulation and mobilize resources by
promoting consumption. They also act as a redistributing tool. The money spent, more than Rs 1,75,000
crore, out of which food subsidy bill is highest (Rs 75,000 crore) followed by fertilizer subsidy (Rs
60,000 cr) and Petroleum Subsidy around Rs. 40,000 crore.

Farm subsidies mainly constitute fertilizer subsidies, concessional loans, subsidy through price support
(MSP), subsidy on agricultural equipments and machinery.

Kelkar Committee recently called for phased elimination of Subsidies.

Implicit subsidies are provided through under-pricing of public goods and services like education and
health, the government also extends subsidies explicitly on items such as exports, interest on loans,
food and fertilizers.

DIRECT SUBSIDIES INDIRECT SUBSIDIES

In direct subsidies, the product is bought at the
same price, but buyer is separately compensated
for it in cash. It is also called as Direct Cash
Transfer. Conditional Cash Transfer is a subset of
DCT subsidies.
Direct subsidies also have disadvantages in terms
of poor IT penetration and computer literacy, lack
of infrastructure, lack of UID penetration, poor
financial inclusion. Further, direct subsidies are
Indirect subsidies are in-kind subsidies in which
provision of a product is at a lower price than the
market price. PDS ration, subsidized urea are such
examples.
Indirect subsidies have many problems like ill
targeting, not being timely, pilferage and
corruption, higher logistics costs, poor delivery
mechanisms.
Disadvantages associated with them are same as
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also not insulated from inflation. those associated with a typical PDS mechanism.

Need for farm subsidies

I. Its protagonists argue that Indian agricultural sector remains a risk prone proposition and
subsidies should continue.
II. There are crores of farmers in India who are marginalized and cannot sustain their lives with
meager incomes. 80% of marginal farmers cannot afford high priced agricultural inputs.
III. They are a means of income redistribution as well.
IV. They are a means of incentivize the farmers to contribute towards food security. In absence
of subsidies, farmers may not food crops and instead turn to cash crops.
V. In similar way they are also given in specific areas to incentivize technology use and
modernization of agriculture. For this reason, subsidy is given for drip irrigation, solar
pumpsets, Poly-houses and so on.
Shortcomings of farm subsidies

I. Arguments against it are that it mainly benefits the already well off social groups and
industries through which it is routed.
II. It leads huge fiscal deficits and lead to inflationary pressures.
III. They also lead to unwise use of resources. Free electricity to farmers led to excessive
exploitation of ground water in Punjab.
IV. They distort the markets and make the inefficient in workings. They also provide an incentive
for black marketing.
V. Subsidies lead to multiple pricing and dont reflect actual levels of scarcity and abundance.
VI. Targeting of subsidies is poor in India and there are enormous leakages. Direct Cash Benefit is
mooted as a solution to some of such problems.
VII. In other cases, such as the fertilizer subsidy, the expenditures generate a distorted resource
allocation that hampers productivity. Urea is highly subsidized. Farmers pay approximately Rs
5360 per tonne, and the government pays Rs 11,760 per tonne. Subsidy for other fertilizers
has been capped since 2010 under the Nutrient Based Subsidy (NBS) regime. The correct
proportions in which Nitrogen (N), Phosporus (P), and Pottasium (K) should be used are 4:2:1.
These are the proportions in which these nutrients are used by plants. The skewed subsidy
scheme has given farmers a distorted notion that urea, the main provider of N, is cheap while
the other two elements are expensive. As a consequence, fertilizer use in India is taking place
in the ratio 8:3:1. This purchase of urea, beyond what is required, works out to roughly 50
lakh metric tonnes (MTs). Farmers and the government are wastefully spending Rs 2680 and
Rs 5860 crore respectively for this. These costs are ultimately paid by the consumers as
 Nitin Sangwan

higher food prices and higher taxes, in return for a zero or negative impact upon agricultural
output.
So, shifting subsidy programs away from price distortions to income support should be the way
out. It is increasingly feasible to identify households below the poverty line and give them cash.
The new technologies of biometric identification, and payments through mobile phones, have
created a range of new possibilities for the design of programs. These would lead to a reduction
in poverty at a lower cost when compared with the present subsidy programs.

Fertilizer Subsidy

Government controls the prices of Urea and it provides the Urea producers the difference of
MRP and Cost of production. India meets 80 per cent of urea requirement through indigenous
production, but is largely import dependent for its potassic (K) and phosphatic (P) fertilizer
requirements. The pricing of subsidized fertilizers is also probably responsible for higher usage
of straight fertilizers and skewed usage of nutrients.

Nutrient Based Subsidy The New Approach In Fertilizer Subsidy Presently, subsidy is given
to manufacturers and not to farmers. Further, government still continues to give subsidies on
Urea only a nitrogenous fertilizer which has led to its indiscriminate use and hence need to
check that also. The old system encouraged excessive use of nitrogenous fertilizers, notably
urea, and reduced application of phosphatic and potassic fertilizers. This has resulted in
imbalance in the use of N, P and K, resulting in lower soil fertility.The objective of shifting from a
product-based subsidy (PBS) to nutrient-based subsidy (NBS) regime in 2010 was to address NPK
nutrient imbalances and lack of secondary and micronutrients, through use of fertilizers on
specific soil-moisture conditions and crop needs. However, fertiliser efficiency is declining and
there is a need to review the nutrient based subsidy (NBS) policy, which does not have urea
under its purview.

MINIMUM SUPPORT PRICE POLICY (MSP) or AGRICULTURE PRICING POLICY

Minimum Support Price (MSP) is announced by central government for many commodities. It is
that price at which government will buy any quantity of a particular agricultural commodity
during procurement period on which MSP is announced.

In India, MSP is calculated by Commission on Agriculture Cost and Pricing (CACP) which is under
ministry of agriculture. Initially MSP was announced only in case of essential food crops viz
wheat and rice, but now it is extended to about 27 crops. It is partly to provide remunerative
prices to farmers and partly due to populist moves. Since 1997-98, government has been
providing higher MSP than as recommended by the CACP. As a result, MSP for wheat and a few
other items is today even above market prices.

Another objective of MSP is to insulate consumers from high fluctuations in prices of certain
essential agricultural items. Government also uses grains which are procured through MSP for
availability through PDS and hence to ensure food security.
 Nitin Sangwan

This difference in MSP which is higher than market prices and the price which government
charges from poor through PDS which is well below market prices constitute food subsidy
bill of the government. Additional costs are also there in form of storage, wastages,
procurement costs and distribution costs.

Some of the issues related to MSP are

I. It leads to increase in expenditures of government leading to rising subsidy bill, higher

fiscal deficit and less resource availability for other developmental activities.
II. MSP is also a market distorting mechanism and also leads to food inflation.
III. Due to excessively high procurements, there is a lot of wastage due to inadequate
storage capacity as procurements always exceed capacity.
IV. It also leads to distortion of cropping patterns. Allure of MSP for grains like rice has led
to states like Punjab becoming rice growing states which is not natural and leading to
many ecological problems as well.
V. Further, subsistence farmers and marginal farmers dont get benefitted from it as they
produce just enough to meet their own ends. This benefits only big farmers and divide
increases.
VI. Arbitrary fixation of cane prices by state governments over and above the MSP fixed by
the centre has been adversely affecting the sugar mills and they are not able to pay the
dues of farmers.
VII. Expansion in area and increase in MSPs of select agricultural crops, inter alia, have
resulted in higher foodgrains production. Owing to higher procurement, there are huge
stocks of foodgrains in the central pool, which as on 1 June 2014, was 77.7 million tones.

Public Distribution System objectives, functioning, limitations, revamping

Public Distribution System or PDS is known as more popular name ration system which is operated
through PDS shops or fair price shops or ration shops.

OBJECTIVES of PDS

Its primary objective is to eliminate hunger and ensure food security.

Its objective is to make available not only essential food items, but other essential commodities
like Kerosene oil, pulses etc to the people who live below poverty line.

Indirectly, existence of PDS is also beneficial for farming community as government buys a lot of
grains from them at MSP. Elimination of PDS system will pose a problem in front of government
regarding handling of such huge amount of grains.

FUNCTIONING of PDS
 Nitin Sangwan

Health of PDS varies from state to state. While on one hand there are states like Himachal
Pradesh and Tamil Nadu where PDS is making considerable impact on poverty, and it provides
not only food and other commodities like pulses and oils. On the other extreme there are states
like Bihar and Jharkhand, where PDS reforms have just barely begun.

Another welfare schemes like Antyodya Anna Yojana, Annapoorna also operate through PDS
system and there are different pricing mechanisms for BPL, APL, AAY and Annapurna
beneficiaries. National Food Security Mission also operates through it.

While center is responsible for issuance of grains from FCI godowns, overall functioning of PDS is
a responsibility of states.

LIMITATIONS of PDS

Various limitations associated with the current system are

I. Reachability Many BPL families are not able to acquire ration cards either because
they are seasonal migrant workers or because they live in unauthorized colonies.
II. Erratic PDS Timings
III. Ghost BPL/AAY Cards In Chattisgarh alone 22 lakh ghost beneficiaries were found
IV. Urban Bias Reach of PDS is restricted and it has been criticized for its urban bias.
V. Costly Logistics According to a study by ORG, for one rupee worth of income transfer
to the poor, the Gol spends Rs 3.65.
VI. Opaque System The present procedure for selection of BPL beneficiaries is opaque,
bureaucratic, and does not involve gram sabhas.
VII. Leakages Only 41 per cent of the food grain released by the government reach their
target, as per findings of National Sample Survey.
REVAMPING and ALTERNATIVES

Until 1992, the PDS had universal targeting, being available to all consumers. GoI introduced a
revamped PDS (RPDS) in 1992 in limited areas, primarily drought prone, tribal and hilly, and
remotely located. The RPDS was a purely location targeted scheme, being available to all in the
selected area. This has been substituted in 1997 by the Targeted PDS (TPDS), specifically aimed
at BPL people in all parts of the country. However, this led to the exclusion of many poor who
couldnt qualify the criteria set.

Another proposed revamping is issuance of Aadhar Card and linking it with PDS system. It will
help in curbing of leakages by eliminating ghost beneficiaries and also provide anywhere access
to the PDS beneficiaries. It will be beneficial to the migrant labor who travel from place to place.

Another innovative technological initiative is installation of GPS system in the vehicles which
carry PDS ration. It will help in pilferage of ration. There were recently reports that PDS ration
was diverted to private flour mills and substandard ration was supplied to fair price shop. It will
 Nitin Sangwan

curb such practices.

IT and e-Governance can be used to bring in more transparency and accountability. It will help in
Modernization of records, computerization will make the information available in real time.

SMS facility and mobile governance can be used to inform the beneficiaries about the
availability of the ration and other information related to their account.

There are two broad alternatives direct cash transfers or food coupons. Both have their own
advantages and disadvantages.

Mechanism Advantages Disadvantages

PDS I. Insulates beneficiaries from I. Poor identification and

inflation and price volatility targeting of beneficiaries
II. Ensures entitlement is used for II. Low offtake of food grain from
food grains only each household
III. Well-developed network of Fair
III. Large leakages and diversions
Price Shops ensures access to food
of subsidized foodgrain
grain even in remote areas
IV. Adulteration of foodgrain
V. Lack of viability of FPSs due to
low margins
Cash I. Cash in the hands of poor expands
transfers I. Vulnerable to targeting errors
their choices
II. Cash may relieve financial
constraints faced by the poor, II. Cash can be used to buy non-
make it possible to form thrift food items
societies and access credit
III. Administrative costs of cash
transfer programs may be much III. May expose recipients to price
less than that of centrally volatility and inflation
sponsored schemes
IV. Potential for fully electronic IV. There is poor access to banks
transfer and post offices in some areas
Food I. Household is given the freedom to
coupons I. Vulnerable to targeting errors
choose where it buys food
 Nitin Sangwan

Mechanism Advantages Disadvantages

II. Increases incentive for competitive II. Food coupons are not indexed
prices and assured quality of for inflation; may expose
foodgrain among PDS stores recipients to inflation
III. Difficult to administer; known
III. PDS stores get full price for
to have delays in issuing food
foodgrains from the poor; no
coupons and reimbursing
incentive to turn the poor away
shops

Issues of buffer stocks and food security

The prices of agricultural products such as wheat, tea and coffee tend to fluctuate more than
the prices of manufactured products and services. This is largely due to the volatility in the
market supply of agricultural products coupled with the fact that demand and supply are price
inelastic. One way to smooth out the fluctuations in prices is for the government to operate
price support schemes through the use of buffer stocks.

Buffer stock schemes seek to stabilize the market price of agricultural products by buying up
supplies of the product when harvests are plentiful and selling stocks of the product onto the
market when supplies are low. Buffer stocks also help in meeting unforeseen calamities like
Famine etc.

Technology missions

GREEN REVOLUTION

First Phase The first phase of the green revolution (approximately mid 1960s upto mid 1970s),
the use of HYV seeds was restricted to the more affluent states such as Punjab, Andhra Pradesh
and Tamil Nadu. Further, the use of HYV seeds primarily benefited the wheat growing regions
only.

Second Phase In the second phase of the green revolution (mid-1970s to mid-1980s), the HYV
technology spread to a larger number of states and benefited more variety of crops. A good
proportion of the rice and wheat produced during the green revolution period (available as
marketed surplus) was sold by the farmers in the market. As a result, the price of food grains
declined relative to other items of consumption. The low income groups, who spend a large
percentage of their income on food, benefited from this decline in relative prices. The green
revolution enabled the government to procure sufficient amount of food grains to build a stock
which could be used in times of food shortage.

However there were a few side effects also the green revolution majorly benefitted the
 Nitin Sangwan

bigger farmers who were already prosperous. As the revolution required expensive high yield
varieties which were expensive. Further high use of fertilizers set such a trend that states like
Punjab are now suffering from nitrates contaminated ground water.

RAINBOW REVOLUTION

It is concerned with all round development of the agriculture. It implies radical changes in multi
dimensions in agriculture viz. Irrigation, Biotechnology, Protected Cultivation, Horticulture, Post-
Harvest technology and Crop Specific Missions. It also focuses on nutritional needs of the
country in terms of protein, milk etc as well.

GOLDEN REVOLUTION

Blessed with a varying climate and soil conditions, India has adopted growing of diverse
horticultural crops such as fruits, vegetables, tuber crops, flowers, medicinal and aromatic
plants, spices and plantation crops. The period between 1991-2003 is also called an effort to
heralding a golden revolution'.

NATIONAL MISSION on OILSEEDS and OIL PALM

It will increase production and productivity of oilseeds and oil palm.

NATIONAL MISSION FOR PROTEIN SUPPLEMENT

The consumption of foods, rich in animal protein and other nutrients, has risen of late, with
demand growing faster than production. The National Mission for Protein Supplements was
launched in 2011-12 to take up activities to promote animal based protein production through
livestock development, dairy farming, piggery, goat rearing and fisheries in selected blocks. It is
a sub-mission under RKVY.

Economics of animal-rearing

Today, livestock sector alone provides alternate livelihood options to over 70 million small and marginal
farmers including landless laborers.

Milk production in the country has increased by more than four times between 1960-2002. This can be
attributed mainly to the successful implementation of Operation Flood. It is a system whereby all the
farmers can pool their milk produced according to different grading (based on quality) and the same is
processed and marketed to urban centers through cooperatives. In this system the farmers are assured
of a fair price and income from the supply of milk to urban markets.

Though, in terms of numbers, our livestock population is quite impressive but its productivity is quite
low as compared to other countries.

Livestock and Fisheries is the new growth area. Both have been growing faster than crops component.

LIVESTOCK
 Nitin Sangwan

Livestock now account for 30% of the Agriculture GDP and 5% of the national GDP.

Indian agricultural system is a model of sustainable agriculture, as it is predominantly a mixed

crop-livestock farming. National Commission on Farmers, 2004 also advocated for multiple
livelihood opportunities through mixed-farming.

India ranks first in milk production, accounting for 17 per cent of world production. The per
capita availability of milk at 295 g per day is higher than the world average. A comprehensive
new scheme National Program on Bovine Breeding and Dairy Development was launched with
the objective of enhancing milk production and productivity in a sustainable manner. The
National Dairy Plan launched in March 2012 with the objectives of improving productivity of
milch animals, strengthening and expanding village-level infrastructure for milk procurement,
and providing producers greater access to the market in the dairy sector continues. The number
of milch animals increased from 62 million in 2000 to 83.15 million in 2012. India also ranks
second in world fish production. The National Livestock Mission (NLM) has been formulated
encompassing seven centrally sponsored and seven central-sector schemes, with the objective
of sustainable development of the livestock sector. The Mission is designed to cover all the
activities required to ensure quantitative and qualitative improvements in livestock production
systems and capacity building of all stakeholders. Productivity of Indian livestock is poor and is
almost half of world average.

It has also implication on rural poverty. Rural poverty is less in states where livestock contributes
more to farm incomes. As livestock is less prone to global warming and climate change, it can be
considered more reliable than rain fed agriculture. When average land holdings have depleted
to dangerously low levels 80% of the farmers are small (1-2 hectares) and marginal (less than 1
hectare, these alone make 62%) farmers animal rearing can provide alternative sources of
livelihood. Productivity on such small holdings is very low.

Food basket in India is

Poultry Farming This segment grows at more than 15% since last few years. It is
also changing and we
labour intensive and needs smaller investments and quicker returns. Poultry litter is
are moving towards a now also used as manure as it is rich in nitrogen and phosphorous. It also provides
high protein diet. opportunities for contract farming Venketeshwara Hatcheries, Suguna Chicken are
Government has also examples of successful models. However, processing of poultry remains poor at 3%
and rest is sold as live birds. Profitability is also sensitive to input maize which is
called for a Pink major component of food of birds.
Revolution for
increasing production Dairy Sector Indias milk production was 112.5 million tonnes in 2009-10. Out of
total livestock, almost 50% is cattle. India ranks first in world milk production. Milch
of meat. It makes cattle provide additional income for rural household. 75% of buffalo population is
animal rearing even female. Despite growth due to cooperative movement, just 30-35% dairy is in
more attractive. As organised sector. There is still a need to penetrate the Anand/Amul pattern to other
areas. Operation Flood which was started in 1970s needs to be replicated elsewhere
disposable income of
also.
Indians is increasing,
people are expending
more on food and high value food items are seeing an increase in demand. Share of protein rich
 Nitin Sangwan

food has increased from 25% in 1950 to 33% in 2012.

Currently, India has a poor share in meat export which is less than 1%. Government has
incentivized modernization of abattoirs.

Further, animal rearing engages lots of women and encourages participation of women in
workforce.

There is also a symbiotic relation between livestock and farming as livestock also provides for
manure.

Manure is another important component in rural areas and it may also act as a vehicle to
promote organic farming.

Steps to be taken

India also needs to ensure that it meets sanitary and phytosanitary standards as laid
down by Codex Alimentarius Commission which is formed by FAO and WHO which are
currently a hindrance to export.
Government also needs to boost infrastructure as animal products are perishable in
nature.
Biggest impediment to growth of dairy and livestock productivity is the large-scale
prevalence of animal diseases like FMD, PPR, Brucellosis, Avian Influenza etc, which
adversely affect the productivity. So veterinary services also needs to be strengthened
up.
Penetration of insurance also needs to be increased as animals rearing is risky as
animals are susceptible to epidemics and diseases.
Veternary services should also need to be strengthened.
Another challenge is that Indian cattle is of poor quality in terms of milk and draught
(load pulling) capacity. So, there needs to be some research in this direction to improve
cattle productivity.
National Livestock Mission is launched in 2013-14 to attract investment and enhance
productivity taking into account local agro-climatic conditions. There will be an emphasis on
enhancing feed and fodder and Rs 300 crore has been allocated in 2013-14 budget. It will
support poultry, dairy farming and fisheries which are critical for small farmers earnings.

FISHERY

The three leading states in aquaculture are

a. West Bengal
b. Andhra
c. Gujarat
 Nitin Sangwan

Food processing and related industries in India scope and significance, location, upstream and
downstream requirements, supply chain management.

India is second largest producer of food in the world and according to McKenzie report, India is also
likely to become second biggest dairy producer after USA in coming few years.

Food processing industry is the 5th largest in India and 70% is in unorganized sector. It covers industries
from chips, wine, tomato sauce, juices, frozen food, bread fisheries, beverages, milk products, and
edible oils and so on. This industry has also been given status of priority sector by the government of
India. This sector also involves 16% of all the work force in the organized sector and employs close to 5
crore people directly or indirectly. Though 70% of industry is in unorganized sector, it contributes only
15% in terms of value.

SCOPE and SIGNIFICANCE

In India, around 25-35% food is wasted due to inadequate handling, storage and logistical issues.
Only 6% of perishable food is processed at the moment. This makes a compelling case for
establishing food processing industries so that wastage is prevented. An efficient system will
also reduce burden on agriculture.

During the last five years ending 2012-13, the sector has been growing faster than the
agriculture sector, at an average annual growth rate of around 8.4 per cent.

Food and grocery accounts for a major portion of household spend around 53% in rural and
40% in urban areas.

Increasing urbanization and employed women make ready to eat food more in demand,
especially among the youth.

There has also been a tremendous growth in retail penetration. Kirana shops have opened even
in small hamlets and multibrand retails outlets have been opened even in medium sized cities.

Secondly, food processing industries makes value addition to the raw food materials and hence
makes food items competitive in markets, easy to export and easy to preserve.

Thirdly, India is also witnessing a shift in consumption habits as share of high value items is
increasing with economic development and increasing disposable incomes.

Fourthly, Indias share in global processed food items is very poor. It can help in offsetting the
increasing trade deficit.

Fifthly, its backward integration with agriculture will also promote contract farming and open
market procurement. It will help in increasing investment in Indian agriculture, bring new
technological inputs and will raise farmers incomes. It will also promote diversification of Indian
agriculture.

Sixthly, this industry has very high employment intensity and hence it can play a role in
 Nitin Sangwan

employment generation as well. Food-processing sector will address several concerns such as
disguised unemployment in agriculture, rural poverty, food security, food inflation, improved
nutrition, and prevention of wastage of food.

CHALLENGES in THE FOOD PROCESSING SECTOR

I. Low public investment

II. Poor infrastructure - The sector needs huge investments in logistics.
III. Inadequate credit availability
IV. High levels of fragmentation
LOCATION DRIVERS and SUITABILITY

Within India, India is a densely populated country and is well connected with road and rail.
Markets are well in reach as even rural areas are within reach of transport.

Geographical location of India is also very conducive as it is in the middle of Asia and has good
connectivity with Middle East and South East Asia.

It has a large coastline which provides ample opportunities to export in east as well as west.

Raw material is also easily available within India as India is still an agrarian economy and all
types of produces are grown.

UPSTREAM AND DOWNSTREAM REQUIREMENTS and SUPPLY CHAIN MANAGEMENT

Major upstream requirements are

I. Upstream or backward linkages include a robust supply of raw materials.

II. Quality raw food is an essential requirement.
III. It will require contract farming to ensure that quality of food is maintained by farmers. It
will require deregulation of agriculture market which is currently restricted by various
state APMC Acts.
IV. Essential Commodities Act also needs to be sparingly used or abolished.
V. It will also require strict quality control from field to factory. FPO and FSSAI needs to
standardize the benchmarks.
VI. Credit mechanism also needs to be strengthened, especially at startup stage.
VII. Laws regarding adulteration, sanitary and phytosanitary measures also need to be
strengthened.
VIII. Logistic mechanism also needs to be strengthened especially transport. More initiatives
like dedicated freight transport corridor needs to be taken
IX. Cold chains and other infrastructure needs to be bolstered up. Currently cold storages
can handle only one or two types of food items at a time. There is an urgent need of
 Nitin Sangwan

technological up gradation and investment.

X. Import duties on machinaries should be eliminated or brought close to zero.
Major downstream requirements are

I. There is a need of reforms of retail market

II. Rural markets also need development and connectivity
III. Government should also incentivize exports
IV. Regulatory mechanism to check the standard of finished products
V. To tap foreign markets, sanitary standards need to confirm international standards like
Codex Alimentarius. Food Safety standards were implemented in India only in 2006
when Food Safety and Standards Act was brought.
VI. State government also need to show response, currently only center government is
pursuing the agenda. State level tax structure also needs to be rationalized and inter-
state movement of processed food should be tax free.
STEPS TAKEN by GOVERNMENT to PROMOTE FOOD PROCESSING INDUSTRIES

I. Mega Food Parks, 2008 (11th FYP) 30 of such parks are aimed at establishing across the nation,
out of which 8 have come up by January 2014. They will mainly focus upon processing the food
products. They are an effort to boost the food processing industry in India which is small in size,
contain post harvest loses and increase share in global trade. Main features are
They will be primarily setup up private sectors, with government equity not exceeding 26%
and government will play a facilitating role only
They will have integrated facilities under one roof cleaning, grading, processing and
packing
They will be based on twin principles of - Hub and Spoke, and Farm to Plate approach
The Cluster Approach used will make them economically viable
They will be demand driven
They will use common infrastructure
They will offer better returns to farmers
II. National Mission on Food Processing (NMFP) has been launched in 2012-13 in co-operation
with the State Governments and will operate at three levels national, state and district. It is
based on twin principles of decentralization and outreach. The NMFP scheme would help the
States/UTs in maintaining requisite synergy between agriculture plans of States and
Development of food processing sector, which in turn would help in Increase in farm
productivity thereby increase in farmers' income also. This would also help in ensuring efficient
supply chain by bridging Infrastructural/institutional gaps. Its major provisions are
A National Food Processing Development Council (NFPDC) has been set up
 Nitin Sangwan

It aims at increasing processing of perishable food items from 6% to 20%

It aims to raise value addition from 20% to 35%
It aims at raising Indias share in food processing from 1.5% to 3%
It also aims at creating skilled manpower to the tune of 1.5 million
Bring about awareness about the food safety standards
III. National Institute of Food Technology Entrepreneurship and Management has also been setup
in Sonepat, Haryana.
IV. Government has accorded priority status to this industry and 100% FDI is allowed.
V. Government has also lowered down import duties on machinery required for food processing
industry.
VI. In 2012-13, Ministry of Food Processing spent Rs 660 crores in various activities to promote food
processing and 12th FYP has an outlay of Rs 15,000 crore for this industry.
VII. 5 years tax holiday is provided to food processing industries setup in fruits and vegetable sector.
VIII. Other steps like modernization of abattoirs has also been taken up, cold chain, value addition
& preservation infrastructure has also been set up.
Food Safety and Standards Act, 2006
FSS Act aims to establish a single reference point for all matters related to food safety and standards by
moving from multi-point multi-departmental control to a single line of command.
As a process of consolidation, eight contradicting and overlapping laws were repealed.
This unified law enabled unidirectional compliance and established a single regulatory body -
Food Safety and Standards Authority of India (FSSAI).
Integrated response to strategic issues like Novel foods, Health Foods, Nutraceuticals, GM foods,
international trade etc.
Decentralization of licensing for manufacture of food products
Consistency between domestic and international food policy measures without reducing
safeguards to public health and consumer protection
Also covers health foods, supplements, nutraceuticals
Issuing Licenses within a time frame of 2 months
Special Courts for summary trials
Reward to informer (informing about the violators adulteration etc.) by State Govt.
Stakeholders involvement in decision making: Apex body-FSSAI- has wider representation of
eminent food technologists/scientist, State Govt, consumer organisations, food industries and
ministries.
Gradual shift from regulatory regime to self compliance through food safety management
system.
Only registration (by local authorities) for petty/small food business operators and licensing (by
 Nitin Sangwan

central/state licensing authority) for others.

Consumer empowerment: Empowering consumers to take sample and get it analysed.
Provision of penalty against food safety officer to ensure accountability.

Land reforms in India

Before colonial times, land was owned by aristocracy and there were no popular ownership rights
among the ruled. British, to enhance their revenues introduced reforms in form of tenure systems like
Zamindari System, Ryotwari System etc, but it led to exploitation of peasantry. It also worked in disfavor
of overall farm community as it didnt lead to advanced mode of production and agriculture in India
remained backward, productivity declined as land holding size decreased and peasants often left their
lands to escape oppressive revenue and tenure terms. In this background, land reforms were required to
both ameliorate the condition of farmers as well as introduce a scientific outlook in Indian agriculture.

From the 1950s to the 1970s, a series of land reform laws were passed by the welfare state to improve
tenancy system, bring food security, bring agriculture out of colonial backwardness and improve
efficiency of Indian agriculture and so on. Thus goal was not only to bring about social justice, but also to
improve productivity of land. Social justice was planned by eliminating intermediaries, conferring land
rights on landless and removal of taxes.

First major landmark was in form of Congress Agrarian Reforms Committee, 1949 headed by J C
Kumarappa. Its biggest recommendation was abolition of feudal intermediaries. It called for land to the
tiller. Second Plan also suggested sweeping reforms. Land reforms in India were primarily from above
in form of legislations. However, some movements like Bhoodan, Gramdan were also started. Major
areas of land reforms included

I. Abolition of Intermediaries The first important legislation was the abolition of the Zamindari
system and elimination of intermediaries. Revenue system and taxes were abolished. This was
moderately successful as there was general negative perception towards Zamindars and
intermediaries.
II. Tenancy Reforms Among the other major land reform laws that were introduced were the
tenancy reforms, security of tenure and rent regulation Acts. In West Bengal and Kerala, there
was a radical restructuring of the agrarian structure that gave land rights to the tenants. In West
Bengal Operation Barga was launched under communist leadership which led to passing of
legislation as well as forced occupation of sharecroppers. But in other part of country it didnt
take off very well. Land owners were apprehensive of entering into formal contracts as they
were skeptical that prolonged occupancy of tenants may deprive original owners of their lands.
As a result, tenancy reforms were implemented in just 4% of the area.
III. Land Ceilings and redistribution of Land Holdings The third major category of land reform laws
were the Land Ceiling Acts. But in most of the states these acts proved to be toothless despite
their major revision in 1972 after Chief Ministers conference. Only 2% of the operational area
 Nitin Sangwan

could be brought under it. J&K, West Bengal and Assam were a few exceptions. Flawed laws,
frequent litigations, collusion of landlords, administrators and politicians marred these reforms.
Government clearly lacked a political will to pursue these.
IV. Reorganization and Consolidation of Land Holdings Reorganization of agriculture was also
carried out in form of consolidation of land holdings, cooperative farming etc. Small
uneconomical landholdings were grouped together and redistribute to make cultivation
economical. It also had a limited impact except in states of Haryana and Punjab where green
revolution made it a requirement as fertilizers and HYV application required consolidated
holdings.
V. Cooperative Farming It was also mooted on the pattern of socialist economies to gain from
economies of scale, but remained almost a non-starter.
VI. Up-gradation of land records was also taken up as lack of land records was one of the biggest
hurdles in implementation of land reforms and conferment of titles. This activity is still going on.
VII. Granting of homestead rights provided for construction of homes on agriculture land.
However, there were marked hurdles in implementation of land reforms. The old system resisted the
new. Many big Zamindars took the benefits of the loopholes in legislation. Major hurdles in Land
Reforms included

I. Socio cultural factors traditional sentiments attached with land, ignorance hindered
consolidation and redistribution. Caste hierarchies also obstructed the process and community
farming failed. So, consolidation was largely dropped by every state.
II. Legal Factors In case of tenancy laws, burden of proof lied with tenant. Loopholes were
liberally exploited by rich farmers. Often land was forcefully evicted and was fraudulently shown
as voluntarily surrendered.
III. Politico Administrative Factors Bureaucracy was uncommitted and was hand in glove with rich
farmers.
The agrarian structure varies greatly across India, and the progress of land reforms has also been uneven
across the states. In West Bengal, redistribution work was carried out quite successfully, in Haryana and
Punjab consolidation work was done quite effectively, in Karnataka land record Modernization was
implemented effectively.

Consequences of land reforms were felt in form of food security and social impacts which were both
positive and negative.

I. Land reforms have resulted in redistribution of land and systematization of land records.
Intermediaries were largely abolished and ownership rights were awarded to some 200 lakh
tenants. More than 53 lakh acre of land was redistributed and most of the beneficiaries were
SCs and STs.
 Nitin Sangwan

II. Impact on joint family Concept of individual ownership under revised land ceiling Acts led to
breakdown of joint family as authority of Karta declined.
III. Rural Inequalities Rural inequalities increased due to land reforms. Incidence of land lease
reduced due to fear of alienation of land and incidence of agricultural laborer increased. A form
of concealed tenancy was put into practice. Due to ineffective land distribution, landless
household number increased from 9.6% in 1971 to 11.2 in 1992.
IV. Agrarian Class Structure It underwent complete transformation. Landlords were replaced by
rich farmers and tenants were replaced by marginal farmers and agricultural laborers. Due to
redistribution of land share of Backward Caste/Classes swelled. Share of Backward classes
increased from 8% before independence to 38% in 1989.
V. Social Conflicts Erstwhile dominant caste retaliated the land alienation in many ways which
also included violent backlashes. In Bihar, caste senas like Ranvir Sena, Diamond Sena etc were
formed.
VI. Migration Poor implementation of land reforms and eviction of tenants rendered large
population in poorer states to take to agriculture labor in other prosperous states. Rich farmers
also resorted to self cultivation and traditional social ties broke. This led to rural urban
migration.
VII. Impact on Caste System Land reforms led to emergence of strong middle peasant castes.
Traditionally cultivator classes were largest beneficiaries. After success of Green Revolution,
emerged as dominant castes. Post 1970s political consolidation of these castes projected their
interests on national and state level political theater as well.
VIII. Achievement of land reforms in terms of increasing production and productivity which was
twin objective of land reforms is also not very great. Green revolution further complicated the
situation as it also led to gross regional inequalities.
IX. Homestead Rights Peasants also derived right to make homes on agricultural land without
change of use of land.
Land reforms didnt create much upheaval as they did in China, nor did they bring radical changes as
they did in Japan. In Words of Prof M L Dantewala, Reforms had been more or less in right direction, but
due to lack of implementation results were far from satisfactory. M S Swaminathan, chairman of the
first National Commission on Agriculture termed land reforms as Unfinished Agenda in his report.

Post 1990s period saw market led land reforms. Land reforms were now not purely related to
agriculture alone, but also included infrastructure, Industrialization and land acquisition issues as well.
New legislation on land acquisition was framed in 2013 which address issues regarding social impact as
well.