ERUDITION IAS

ECONOMY
CURRENT ISSUES in INDIAN ECONOMY

Specially designed for UPSC Mains 2018

by
VIVEK SINGH (IIT+MBA)
____________________________________________________________________________
Office Address: 18/4, 3rd Floor, Old Rajinder Nagar,
(Opposite Aggarwal Sweets), New Delhi – 110060
Mob: 9899449709, 9953037963

This material is also available @ www.eruditionias.com/notes.html

 INDEX
SN DESCRIPTION P. No
1 Agriculture 1
(Doubling Farmers' Income, Farmers' Protest and Loan Waiver, Minimum Support
Price, Agriculture Exports, Farmer Producer Organization, National Agricultural
Market, Model Agricultural Produce and Livestock Marketing Act 2017, Model
Agricultural Land Leasing Act 2016, Model Contract Farming Act 2018, Horticulture
Revolution, Government Regulation regarding BT Cotton seed pricing, PPVFR Act
2001, GM Mustard, Organic Farming, Zero Budget Natural Farming, National
Bamboo Mission)
2 National Nutrition Mission 24
3 Food Processing 25
4 Demographic Dividend 27
5 Rising Income Inequality in India 28
6 NPAs, Bad Banks, Inter Creditor Agreement & Insolvency & Bankruptcy Code 30
7 Fugitive Economic Offenders Bill 2018 34
8 Demonetization and its Impact 35
9 Universal Basic Income (UBI) 37
10 GST and its Impact on Economy 40
11 Make in India 44
12 Smart Manufacturing: Industry 4.0 47
13 Micro, Small and Medium Enterprises (MSME) 50
14 Global Situation moving towards protectionism (Trade War) and its Impact 52
15 National Intellectual property rights policy 2016 57
16 Railways 59
17 Metro Rail Policy 2017 (with Last mile connectivity) 65
18 Road Sector 68
19 Ports, SAGARMALA and Coastal Economic Zones (CEZs) 70
20 Multi Modal Logistics Park (MMLP) 75
21 Solar Parks 77
22 Commercial coal mining opened for private sector 79
23 Oil and Gas Policy (HELP) 81
24 Energy Security for India and National Policy on Bio fuels 2018 83
25 The Real Estate (Regulation & Development) Act 2016 86

Note for the Students

The above topics cover only the current/expected issues in Indian Economy. Students are advised
to cover the entire syllabus for which they may refer the book on Indian Economy by Erudition IAS.

Copyright by ERUDITION IAS

1. Agriculture
1. Doubling Farmers' Income
The government is planning to double the farmers' (real) income by the year 2022-23,
measured from the agricultural year (1st July - 30th June) 2015-16. It has to be noted
that growth in agricultural output does not translate into a proportionate growth in farmers
income because of the price factor. The experience shows that in some cases, growth in
output brings similar increase in farmers' income but in many cases farmers' income did
not grow much with increase in output. Farmers welfare is more linked to farmers
income rather than the agricultural output.

Facts:
Period 1993-94 - 2004-05 2004-05 - 2011-12 2012-13 - 2017-18
Farmers 3.3% 5.52% 2.2%
Income (real)

During the past 22 years, between 1993-94 to 2015-16, farmers' income in nominal
terms increased by 9.18 times and consumer price index for agricultural labour increased
by 4.62 times. Taking away the effect of inflation, real farm income just doubled
(9.18/4.62) during the past 22 years and the annual increase was 3.13%. And we have
set a target of doubling the farmers' income in the next 7 years which requires an annual
growth rate of 10.4% in real terms.

As far as agriculture is concerned, our political and bureaucratic system has always been
more tonnage-centric than farmer-centric. We are happy and satisfied when production
goes up, but did not care whether farmers have gained from it. That is the reason why
Central Government changed the name of Ministry of Agriculture to Ministry of
Agriculture and Farmers Welfare in 2015.

To double the farmers income, strong measures are needed to harness all possible
sources of growth in farmers' income within as well as outside agriculture sector. The
major sources of growth operating within agriculture are:

i. Improvement in productivity:
Productivity of most of the crops in the country is low and there is considerable
scope to raise it. Except wheat, productivity of other crops in the country is below
world average and much lower than agriculturally advanced countries. Even,
within the country there is large variation in yield across states which is due to
variation in access to irrigation. Enhancing access to irrigation and technological
advancement are the most potent instruments to raise agricultural productivity
and production in the country.

ii. Increase in cropping intensity:

India has two main crop growing seasons namely kharif and rabi, which make it
possible to cultivate two crops a year on the same piece of land. With availability
of irrigation and new technologies it has become possible to raise short duration
crops after the main kharif and rabi season. Land use statistics show that the
second crop is taken only on 39 percent of net sown area. This implies that more

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 than 60 percent agricultural land in the country remains unused for half of the
productive period. Lack of access to water (less than 50% of cultivable land is
under irrigation) to meet crop requirement is said to be the main reason for low
crop intensity. Cropping intensity is equal to gross cropped area/ net sown area *
100. For example, if one hectare of land is sown twice a year then gross cropped
area is 2 hectare and net sown area is 1 hectare and cropping intensity will be
200%.

iii. Resource use efficiency or saving in cost of production:

The improvement in Total Factor Productivity (TFP) is an important source of
output growth which directly contributes to cost savings and thus increase in
farmers income. TFP accounts for effects in total output growth relative to the
growth in total inputs used in production. TFP growth represents effect of
technological change, skill, infrastructure, etc.

iv. Diversification towards high value crops:

Diversification towards high value crops (HVC) offers great scope to improve
farmers' income. The staple crops (cereals, pulses, oilseeds) occupy 77 percent
of gross cropped area but contribute only 41 percent of total output of the crop
sector. Interestingly, almost the same value of output is contributed by HVC
(fruits, vegetables, fibre, spices, sugarcane) which just occupy 19 percent of the
gross cropped area. Average productivity of HVCs was estimated as Rs.
1,42,000 lakhs per hectare as compared to Rs. 41,000 per hectare for staple
crops.

The sources outside agriculture include:

v. Shifting cultivators from farm to non-farm occupations:
Approximately 50% of the labour force is involved in agricultural activities
contributing just 15% of the GDP. This shows over-dependence of workforce on
agriculture with significant underemployment. This also reveals large difference in
per worker productivity between agriculture and non-agriculture sectors. Thus,
income of farmers can be improved substantially by shifting workforce away from
agriculture as the available farm income will be distributed to less number of
workforce.

vi. Improvement in terms of trade for farmers:

To arrive at the change in real income of farmers, we need to adjust the current
income of the farmers with an appropriate inflation index. If the inflation in the
economy is higher than the farm produce prices then actually it reduces the real
income of farmers. And when prices received by farmers for agricultural produce
rise faster than the inflation, it adds to the real income, even without an increase
in the volume of output. During the period 2011-12 to 2016-17, farmers' income
received a serious blow on two counts. One, growth in output in agriculture was
very low. Two, increase in inflation was 50 percent higher than the increase in
farm gate prices of agricultural produce. That is the reason, real income of
farmers have actually decreased in this period.

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The neglect of required reforms in agriculture sector has created wide disparity between
agriculture sector and non-agriculture sectors. Till 1990-91, the growth rates in the two
sectors moved in tandem and show very close correlation. As the LPG reforms
progressed, the growth trajectories diverged. Growth rate in the non-agriculture sector
accelerated from below 6% towards more than 8% for most of the period. However,
agriculture sector moved on cyclical path around long term trend of 3%. It emerges from
this comparison that in the absence of market reforms in agriculture sector, the
agriculture growth remained low and the sector could not keep pace with the growth in
the non-agriculture sector.

The centre is persuading states to undertake various market reforms like reducing
middle men, modernizing value chain, attracting modern private investments in agri-
market which will enable farmers to receive higher prices for their produce and enhance
economic activities both of which are part of farmers' income. Government of India has
drafted several model Acts such as Model Agricultural Land Leasing Act 2016, Model
Agricultural Produce and Livestock Marketing Act 2017, Model Contract Farming Act
2018 (discussed later) and has forwarded to States to implement, which can have a
major impact in doubling farmers income.

2. Farmers' Protest and Loan Waiver

After two successive years of draught in 2014-15 and 2015-16, the year 2016-17 and
2017-18 achieved bumper crop which ultimately resulted in price fall of most of the
agricultural produce, which is good for consumers but terrible for farmers. The farmers
are resorting to protests and committing suicides. The following are the main reasons:

 The underlying cause of the recent protest by farmers is the price crash of
agricultural commodities. This can be explained by the governments flip-flop policy
on exports and imports, stocking restrictions and trading in futures. For example,
India had a bumper harvest of "tur" in the last season. But government had banned
its exports, private trade was not allowed to hold its stocks (through Essential
Commodities Act 1955) and trading in futures had also been banned. No wonder,
with bumper harvest on one hand and strangulated markets on the other, prices
crashed, tumbling way below MSP and creating misery and unrest amongst farmers.
(Futures are financial contracts obligating the buyer to purchase an asset or the
seller to sell an asset, such as a physical commodity or a financial instrument, at a
predetermined future date and price. When the price of 'commodity futures' rise in the
market it tells us that people think there will be shortage of the commodity in future,
which encourages farmers to plant more crops and also importers to import more.
And when the price of 'commodity futures' fall it gives information to the farmers that
there will be a glut in the market and farmers reduce sowing. Commodity futures give
price signals and helps in taming inflation and price crash.)

 The MSP mechanism exists for 25 crops, but official procurement at MSP is
effectively limited to wheat and rice and that too concentrated in few states like
Punjab, Haryana, Andhra Pradesh etc. A substantial portion of the crops are sold to
local private traders and input dealers to whom the resource poor marginal and small
landholders are obligated to sell their crops due to tie-up with credit.

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 Successive governments have claimed to have increased institutional credit flow to
the agricultural sector through increased budgetary allocation on crop loans but
according to NSS data, over 40% of farmers still rely on non institutional lenders, who
mostly happen to be moneylenders-cum-traders and input dealers.

 Various studies show an increasing divergence between agricultural and non-

agricultural income. And the rising aspirations among rural youth to emulate urban
lifestyles put enormous pressure on them to find ways to increase income through
various agricultural activities. Unfortunately, income from crop cultivation, which is a
major segment of agriculture is not growing enough to meet the expected level. On
the contrary, the increasing market orientation and reforms in the input sector have
resulted in a substantial rise in input costs (between 1991-92 and 2013-14, the price
of urea increased by 69% and DAP and MoP increased by 300% and 600%).

The farmers want a reasonable price for their produce, better marketing facilities,
institutional credit, irrigation, quality seeds and fertilizers, procurement during times of
market glut and a social safety net during natural calamities. And the demand of the
farmers are not unjust. The government must take the following steps to address the twin
tragedies of suicides and violent protest by farmers:

 Diversification to other forms of livelihood such as livestock and fisheries which are
among the fastest growing segments of rural economy.

 Strong Farmer Producer Organizations (FPO) to overcome the massive handicaps

faced by isolated and marginal farmers and enable them to really benefit from market
participation.

 Investments in agro-processing infrastructure are urgently required to enable farmers

to move up the value chain. We cannot continue to have dumping them on the road.
They should be processed before they are sold and farmers must get their due share
in the value chain.

 Ensure access to credit and crop insurance, especially to our 85% small and
marginal farmers. And the farm loan waivers should be opposed as they motivate
people to not pay their loans on time and destroys the integrity of the banking system
and creates a huge drag on the States' finances.

India has too many people on the farm producing too little, and it can't create enough
jobs to shift them, so creating more value on the farm is critical. Government must shift
its support system from cereals to ensuring processing and storage of fruits and
vegetables which will not only bring stability to farmer incomes but will also create
millions of jobs in food processing. Government in the budget 2018-19 has proposed to
launch "Operation Greens" on the lines of "Operation Flood", which will promote Farmer
Producer Organisations (FPOs), processing facilities and cold chains. We can just look
at the price difference between tomatoes and ketchup and potatoes and french fries to
understand how this will change the face of farming in India.

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3. Minimum Support Price (MSP)
In our country, MSP for 24 agricultural commodities (including sugarcane it is 25) of
Kharif and Rabi season are announced by the Government based on the
recommendations of the Commission for Agricultural Cost and Prices
(CACP). However, procurement by Central and State Agencies is limited to rice and
wheat and some amount of coarse cereals. The Government also procures limited
quantity of oil seed and pulses through NAFED, SFAC and some other agencies.

Among several criteria for recommending the MSP, the most important one is the cost of
production of farmers and margin/profit on it.

The cost of production of agricultural produce is calculated in three ways: A2, A2+FL and
C2.
 A2 costs basically cover all paid-out expenses, both in cash and in kind, incurred
by farmers on seeds, fertilisers, chemicals, hired labour, fuel, irrigation, etc.
 A2+FL cover actual paid-out costs plus an imputed value of unpaid family labour.
 C2 costs are more comprehensive, accounting for the rentals and interest
forgone on owned land and fixed capital assets respectively, on top of A2+FL.

Presently, CACP uses the A2 + FL cost to recommend the MSP of various crops but the
margin may be lesser than 50 percent over the cost of production. Finance Minister,
while presenting the budget 2018-19 announced that, the Government will be offering
MSP of 50 percent over cost of production (A2 + FL) . But the farmers and its
organizations are demanding 50 percent over C2. Higher MSP leads to higher inflation
in the economy which may also hit agriculture exports and those based on farm
products. Higher sugarcane prices have already meant India’s sugar exports are
uncompetitive; hiking cotton prices by 19-28%, as will happen if the 1.5X formula is used,
will mean that most exports of textiles and readymade garments will be badly hit.

Higher MSP is disaster in waiting: Had governments over the years, focused on
agricultural reforms, the farm sector would not have been in as much distress as today.
Thanks to surplus production and lack of adequate market linkages, in just the last year,
maize prices fell 10%, jowar 21%, chana 34% and toor 31%. With little time now for any
reforms to have an impact, and farmers taking to the streets, governments have few
options other than to waive their loans or to compensate through higher MSP.

The MSPs for Kharif 2018-19 have been announced and there has been an increase of
4-52% from the last year and which is 50-97% higher than the cost A2+FL. Till now the
government essentially procured only wheat and paddy, so it was only the MSPs for
these crops that mattered till now. But, if the government is able to procure significant
amounts of other crops now, the MSP would become the base price and cause
significant inflation. If the government is not able to procure crops and plans to make
MSP-based deficiency payments, the costs can be huge and the system can be gamed -
in Madhya Pradesh, the government was compelled to withdraw the Bhavantar scheme
(deficiency based payment) since it didn’t have the resources as traders colluded to
depress market prices.

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It is better for the government to follow the Telangana model (recently launched) where
farmers are given a fixed amount of cash transfers for every acre of land holding. The
government needs to estimate the increase in profits based on the 1.5x formula and
convert this into a per-acre cash payment. Cash transfers are more efficient—with little
or no leakage—and there would be no need to procure the produce except for the
amount required for PDS rations. The Telangana model will also be inflationary since the
cash would lead to spends on consumer staples, for instance, but this is likely to be far
less inflationary. More important, it will not distort the market since the base prices of the
food crops will not be touched. Till such time the government is able to free agriculture
markets and carry out other reforms to limit the role of middlemen, this is probably the
best strategy to alleviate farm distress.

Cost-plus pricing of MSPs is risky in that it entirely ignores the demand side, i.e.
demand-supply, domestic and international price trends, terms of trade, inter-crop price
parity, etc. It is apparent from history and experience that higher MSPs don’t necessarily
fetch better value to the farmer, nor prevent distressing surpluses and price crashes
rather it causes deficits and surpluses. MSP based procurement create distortions in
market affecting not just prices, but cropping patterns, deteriorations in soil quality, water
tables, and so on and it also deters sale through e-NAM. There are other spillovers too,
the most serious being deterring fresh, private investments in the sector—investors are
attracted by freeing markets, not by restricting free play.

Comment: China started its economic development by agriculture reforms, moved on to

manufacturing and now, its services sector. India, once again, is an outlier—it started
with services, then manufacturing, but is still vacillating where agriculture is concerned.

4. Agriculture Exports
A dynamic nation of 1.3 billion consumers with rising discretionary incomes, changing
food patterns, vast farming area and a large population dependent on agriculture has
propelled India to the world’s centre stage - not just as a big consumer market but also
as a potential food factory of the world. It has often been suggested that an essential
element of “Make in India” has to be “Bake in India”, i.e. a renewed focus on value
addition and on processed agricultural products.

World agricultural trade has been relatively stagnant in the last five years (2013-2017).
The sharp drop in oil prices was a major contributor to softening of global agricultural
commodity prices. In similar vein, India’s agricultural trade dropped from $36 Billion in
FY13 to $31 Billion in FY17. But India has remained a net exporter of agricultural
commodities since last two decades with a net export of $16 billion in 2013-14. India’s
export basket is a diversified mix led by marine products ($5.8 billion), meat ($4 billion)
and rice ($6 billion) which together constitute ~52% of its total agri exports. While India
occupies a leading position in global trade of aforementioned agri products, its total agri
export basket accounts for little over 2% of world agri trade, estimated at $1.37 Trillion.
India is currently ranked ninth amongst the major exporters globally as per WTO trade
data for 2015.

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India is planning to double the agricultural exports from present (FY 17) $31 billion to
more than $60 billion by 2022 and it will also play a major role in realizing the dream of
doubling farmers' income by 2022. The following are the various ways to achieve this.

1) Stable Trade Policy Regime: Given the domestic price and production volatility of
certain agricultural commodities, there has been a tendency to utilize trade policy as
an instrument to attain short-term goals of taming inflation, providing price support to
farmers and protecting the domestic industry. Such circumstantial measures are
often product and sector specific, for instance, the ad-hoc ban or imposition of
minimum export prices (MEP) for onion and non-Basmati rice exports. Such
measures require constant fine tuning and keep the market anxious. India is seen as
a source of high quality agricultural products in many developing nations, ASEAN
economies and changes in export regime on ground of domestic price fluctuations,
religious and social belief can have long-term repercussions. While these decisions
may serve the immediate purpose of maintaining domestic price equilibrium, they
end up distorting India’s image in international trade as a long term and reliable
supplier. It is imperative to frame a stable and predictable policy with limited State
interference to send a positive signal to the international market.

Thus we should provide a policy assurance that the processed agricultural products
and all kinds of organic products will not be brought under the ambit of any kind of
export restriction (viz. MEP, export duty, export ban, etc.) even though the primary
agricultural products which are essential from food security perspective or non-
organic agricultural products is brought under some kind of export restrictions.

2) Land Leasing, Contract Farming and APMC reforms:

(discussed in later topics)

3) Infrastructure and Logistics: Presence of robust infrastructure remains a critical

component of a strong agricultural value chain. This involves pre-harvest and post-
harvest handling facilities, storage & distribution, processing facilities, roads and
world class exit point infrastructure at ports facilitating swift trade. Given their
perishable nature and stringent import standards, efficient and time-sensitive
handling is extremely vital to agricultural commodities. Identifying strategically
important clusters, creating inland transportation links alongside dedicated agri
infrastructure at ports with 24x7 customs clearance for perishables will therefore go a
long way in boosting trade exponentially. It is often pointed out that expenses
towards logistics handling in India is about 14 to 15% of the cost of exports.
Benchmarked against 8 to 9% in some of the developed economies, the savings on
account of improved logistics can make Indian agricultural exports significantly
competitive in the global market place.

4) Cluster Development:
Exporting horticultural products requires significant volumes of high quality produce
of the same variety with standard parameters matching import demands. Small
landholding pattern and low farmer awareness in India has often meant limited
volumes of different varieties of multiple crops with little or no standardization. Export

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 oriented cluster development across States will be key to ensuring surplus produce
with standard physical and quality parameters which meet export demands.

5) Promoting Value Added Exports:

India’s export basket is dominated by products with little or no processing or value
addition. Industry estimates also suggest a significant quantity of our exports head to
countries which conduct limited value addition and re-export it. There is a huge
demand for processed products in the global market. Only a limited range of products
(mango pulp, puree, by-products of oil crops, soya meal, cakes and few ready to eat
products) and single processed products such as Sugar, tea, edible oils, coffee and
essential oils are exported from India. India can look at exports of a whole range of
value added fruits and vegetables, Ready to eat products, Pickles, soups and
sauces, Dairy products, Processed livestock, Aquaculture products, textile products,
etc.

6) Ease of Doing Business:

There has been a consistent demand from exporters across sectors for a dedicated
platform to access trade and market related information. There is a portal on Trade
Analytics which provides the trends for different commodities in different markets.
Similarly, APEDA (Agricultural and Processed Food Exports Development Authority)
and MPEDA (Marine Products Export Development Authority) run agri exchange
portal and fish exchange portal respectively to provide market intelligence to their
stakeholders. India Trade portal provides information relating to tariff scenarios in
FTA and non-FTA situations, the SPS (Sanitary and phytosanitary) notifications and
also provides a window for Indian Embassies to offer market leads. Thus, relevant
information on market intelligence is scattered in different web pages. There is a
need to develop an integrated online portal for real time updates relating to tariff,
non-tariff, documentation, pesticide & chemical MRL notifications. This portal will
facilitate exporters to make well-informed decisions related to markets, pricing,
hedging and SPS notifications. The portal may also include a grievance redressal
mechanism allowing exporters to flag off market related issues and challenges.

Exporters reveal that lengthy and cumbersome documentation and operational

procedures at ports are a constant challenge. They have often recommended to
implement 24 x 7 single window clearance of perishables imports and exports at key
ports across the nation. It is equally important to station more quarantine officers at
strategically important ports.

7) SPS and TBT (Technical Barriers to Trade) Response Mechanism:

It is common knowledge that issues relating to market access go on for months,
sometimes years before countries allow market access for products. Apart from tariff
barriers, which have been declining over the years on account of Free Trade
Agreements & Regional Trade Agreements, the Non-Tariff Barriers (NTBs) and
stringent quality/ phyto-sanitary standards are becoming the norm for restricting/
preventing market access. It is necessary to respond to rapid alerts and warnings
and to ensure that the concerns/ problem areas percolate to the producers/
processors and exporters. In the absence of a response mechanism, the likelihood of

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 temporary restriction/ ban looms large and sometimes it may take years to lift the
ban. (e.g. ban on fruits and vegetables to EU, ban on green chilly to Saudi Arab, etc).

8) Developing Sea Protocol

Developing sea protocols for perishables must be taken on priority for long distance
markets. Export of perishables requires special storage, transportation and handling
at desired temperatures. Time is a major constraint and air freight proves costly for
exporters. However, India’s export of fresh produce can grow exponentially if sea
protocols are established across exported/exportable varieties of shortlisted
commodities. A sea protocol will indicate at what maturity level harvesting can be
done for transportation by sea. This exercise, has to be carried out in partnership
with shipping lines, reefer service providers, Indian Council of Agriculture Research
and APEDA. Philippines and Ecuador are a classic case in point – both countries
were successful in developing sea protocols for exporting bananas for 40 and 24
days of sea journey respectively. Philippines has been shipping Bananas to the
Middle East which takes around 18 days while India has only been able to ship
produce around 2-4 days transit period. Thus developing sea protocol will go a long
way in promoting trade.

9) Conformity Assessment:
Many importing countries do not recognize India’s export inspection and control
processes. The lack of recognition of Indian testing procedures and conformity
standards proves costly to exporters and therefore farmers. Many times this means
multiplicity and duplication of tests by various laboratories across the country. Spices,
organic food, Basmati products have been most affected by this. Equally, the
government must make concerted efforts during bilateral discussions for mutual
recognition of ethnic and organic products and standards.

(Ministry of Commerce and Industry proposed a draft Agriculture Exports Policy in

March 2018 to promote agri exports which included the above measures. The
policy is yet to be finalized)

5. Farmer Producer Organization (FPO)

A Producer Organisation (PO) is a legal entity formed by primary producers, viz. farmers,
milk producers, fishermen, weavers, rural artisans, craftsmen. A PO can be a producer
company, a cooperative society or any other legal form which provides for sharing of
profits/benefits among the members. The main aim of PO is to ensure better income for
the producers through an organization of their own. Farmers Producer Organization
(FPO) is one type of PO where the members are farmers.

Indian agriculture is dominated by marginal and small farmers, who suffer serious
disadvantage in terms of scale. Small farm size discourages many farmers to go for
diversification of fruits and vegetables mainly because of the price risk and uneconomic
lot for marketing. Small sized farmers are also disadvantaged in terms of bargaining
power in various transactions in the input and output markets. Besides, in agricultural
marketing, there is a long chain of intermediaries who very often work non-transparently
leading to the situation where the producer receives only a small part of the value that

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the ultimate consumer pays. These handicaps can be overcome by organising farmers
under some institutional mechanism like the farmers producers organizations. Small
Farmers’ Agribusiness Consortium (SFAC) and NABARD is providing support for
promotion of FPOs.

6. National Agricultural Market (NAM)

National Agricultural Market is not entirely a new concept but it is an online platform with
physical markets or mandis at the backend. NAM is not a parallel marketing structure but
rather an instrument to create a national network of physical mandis which can be
accessed online. NAM seeks to leverage the physical infrastructure of mandis through
an online trading portal, enabling buyers situated even outside the State to participate in
trading at the local level. The scheme is being implemented through Small Farmers
Agribusiness Consortium (SFAC), which is an autonomous organization under the Dept.
of Agriculture and Cooperation (DAC).

NAM provides for a pan-India electronic trading portal which connects selected APMC
mandis to create a Unified National Market for agricultural commodities. The e-platform
will be deployed in selected 585 APMC mandis across the country. But the States will
have to carry out prior reforms in their marketing laws/ APMC Acts in respect of the
following, before they could join the NAM network.

 a single license to be valid across the State for trading,

 single point levy of mandi charges or market fee, and
 provision for electronic auction/bidding as a mode for price discovery.

NAM was launched in April 2016 by govt. of India, Ministry of Agriculture, in which 585
markets across the country were targeted for integration to e-NAM by March, 2018. (The
current status is all 585 mandis have been integrated). The following are some of the
important features/benefits of NAM:-

 NAM increases the choice for a farmer after he brings in his produce to a mandi.
Local traders (present in the physical mandi) can bid for the produce brought by the
farmer, as also traders on the electronic platform sitting in other States. The farmer
may chose to accept either the local offer or online.

 The integration of all major mandis into the NAM e-platform would ensure common
procedures for issue of licenses, levy of fee and movement of produce. Over the next
5-7 years volume of business will significantly increase creating greater competition
and better price discovery and resulting in major benefits through higher returns to
farmers, lower transaction costs for buyers and stable prices and availability to
consumers.

 NAM will facilitate the emergence of integrated value chains in major agricultural
commodities across the country and help promote scientific storage and movement
of agricultural goods.

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 Respective APMC mandis will have to ensure quality standards of agricultural goods
sold through the e-platform. NAM envisages harmonization of quality standards of
agricultural produce and provisions of quality testing infrastructure in every market to
enable informed bidding by buyers.

 NAM will offer trading in commodities such as paddy, wheat, maize, chana, castor
seed, mustard, tamarind etc. But fruits and vegetables, where there are often price
fluctuations, are yet to be included in the NAM platform.

The government is aiming at reduction in taxes and levies imposed by different States in
the next phase of reforms.

Challenges:
The major challenge of the electronic portal is in making traders/farmers to move online
who have been transacting physically and dealing in cash all throughout these years.
Present APMCs also do not have operational assaying (testing for quality) labs for
grading commodities prior to putting them up for online auction. Since the electronic
national agriculture market (eNAM) project was launched in April 2016, as far as inter-
mandi/inter-state eNAM trade is concerned, it has remained a non-starter, meaning the
objective of empowering farmers with a wider buyer base hasn’t been met. It has been
learnt that showing the government’s own minimum support price operations as eNAM
sales is what helped even the handful of states like Haryana to report relative progress
on this project.

7. Model Agricultural Produce and Livestock Marketing Act 2017

Central Government unveiled a draft model law "Agricultural Produce and Livestock
Marketing (Promotion and Facilitation) Act 2017" on 25th April 2017. The draft law seeks
to liberalize the trade in agri-products and livestock and will thereby help in doubling the
farmers' income by 2023. The new model law replaces the earlier model law proposed
by the centre in 2003 which the states were not keen to adopt.

The following are some of the important features of the model Act:

 The law proposes private wholesale markets, direct sale by farmers to bulk
buyers (presently the States restrict bulk buying directly from the farmers) and
promotion of electronic trading.

 The law also allows godowns, warehouses and cold storages to act as regulated
markets. Currently a regulated market is available per 462 sq km while ideally
there should be one every 5 sq km. So the goal is to increase the avenues where
a farmer can sell the produce which will in turn increase competition among
buyers and lead to better farm gate prices for the farmers.

 The law proposes to have a single licence and single point of levy of market fee/
mandi charges at the State level and then gradually move towards a single
licence and single point of levy of market fee at the national level. The idea is to
remove disincentives for farmers and traders to trade across the country.

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 (Presently a trader requires separate licenses for trading in each mandi and the
mandi charges are levied several times if the produce moves through several
markets) The law also proposes a cap on levy of market fees at 2% of sale price
for fruits and vegetables and 1% for foodgrains.

 Other proposals in the model Act include promotion of national market for
agriculture produce through provisioning of inter-State trading licence, grading
and standardisation and quality certification, rationalisation of market fee and
commission charges, provision for special commodity market yard and promotion
of e-trading to increase transparency.

The Centre's decision to issue a new model law liberalising marketing of farm produce is
a long overdue measure that will not only give farmers a better deal but will also help
consumers with more stable prices of food items. Bringing down intra State and inter
State barriers to free movement of agriculture and livestock produce is also essential to
transform India into one common market. But the key to its success lies in efficient
adoption and implementation by State governments as it is a State subject and the law is
not binding on the States. (Actually the features of the e-NAM scheme has now also
been included in this Model Act which the States are supposed to enact replacing their
previous APMC laws).

8. Model Agricultural Land Leasing Act 2016

The model act, drafted by an expert panel under the NITI Aayog, was proposed by the
Centre in April 2016. It secures the rights of landowners while allowing tenant farmers
access to facilities like insurance, credit and compensation for crop damage.

Currently, states impose varying degrees of restrictions on leasing of farm land. While
Kerala prohibits leasing altogether, states such as Bihar allow leasing by certain
categories of landowners—those who are disabled, widows or are in the armed forces. In
Uttar Pradesh only disabled owners were allowed to lease land. In Punjab, Haryana,
Gujarat and Maharashtra, tenants have the right to purchase land from the owner after a
period of tenancy—a rule that discourages leasing or prompts owners to frequently
change tenants.

The idea behind the model law is to allow owners to lease out agricultural land to tenant
farmers without any fear of losing it. This would allow unused land to be used
productively, and enable tenant farmers to invest in the land and access credit and
insurance. As per estimates, about 20% of land holdings are managed by tenant
farmers, with the figure in states like Andhra Pradesh going up to 60%.

Important features of the model Act:

 The model law enables tenant farmers and share croppers to avail bank credit, crop
insurance and disaster relief benefits.

 The model law will allow consolidation of farm land so that small plots of land that are
economically unviable can be leased out (using tractors and farm equipment is not

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 economically viable for small plots of 2-3 acres). Large operational holdings will
reduce the cost of cultivation and increase profitability of farming.

 The duration of the lease and the consideration amount will be decided mutually by
the owner and the tenant.

 There will be no ceiling on the amount of land that can be leased out or consolidated
as the state wants market forces to determine the size of operational holdings.

 Under the new law, land can also be leased out for allied activities like livestock or
animal husbandry for a maximum period of five years.

 The Model Act proposes quicker litigation process in case of disputes, by suggesting
recourse through criminal proceedings and special tribunal. The dispute settlement
will be taken up at the level of the Gram Sabha, Panchayat and Tehsildar and are
kept outside the jurisdiction of courts.

Current restrictions on land leasing have reduced the occupational mobility of

landowners who want to take up employment outside agriculture but are forced to stick
to their land due to the fear of losing it. Bans or restrictions on land leasing have led to
‘concealed tenancy’—where agreements between landowner and tenant are informal or
tenancy agreements are not recorded—due to which tenant farmers do not have any
incentive to invest in land improvement. Lease farming has now become an economic
necessity and not a symbol of feudalism, as it was thought before. The growth of an
active land lease market would be helpful for the rural poor to get out of the poverty trap.

9. Model Contract Farming Act 2018

Introduction:
Contract farming can be defined as agricultural production carried out according to an
agreement between a buyer and farmers, which establishes conditions for the production
and marketing of a farm product or products. Typically, the farmer agrees to provide
agreed quantities of a specific agricultural product. These should meet the quality
standards of the purchaser and be supplied at the time determined by the purchaser. In
turn, the buyer commits to purchase the product and, in some cases, to support
production through, for example, the supply of farm inputs, land preparation and the
provision of technical advice.

The model APMC Act 2003 had clear provisions for contract farming, which allow buyers
and sellers to transact without routing through mandis. But, contract farming has not
been promoted or has become popular to the extent expected. Even in States that
adopted the model marketing Act and allowed direct transactions between organized
private sector and producers/farmers, contract farming has been minimal.

Contract farming in India have some major success stories. For example, in poultry it has
been widely successful, but in numerous other commodities contract farming has not
taken off or has failed. The roadblocks for contract farming relate to both demand as well
as supply side of the market. On the supply side, the most important constraint has been

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the scale of farm produce. Most Indian farmers are marginal and small (86% land
holdings are less than 2 hectares). All states except Punjab, have less than one hectare
average size. With such small holding, the marketable surplus of individual farmer has
turned out to be extremely small. Buyers have no incentive for contract farming with a
large number of small and marginal farmers due to high transactions (ex. costs related
to negotiation) and marketing costs (ex. cost of collecting produce). Further the problem
is heterogeneity in quality of produce with a large number of small farmers who can't be
monitored for quality and safety. If contract farming is to succeed, we have to consolidate
farmers through farmer producer organizations (FPOs) and self help groups as a
precursor to firm-farm coordination.

On the demand side, we have not allowed the big foreign retail chains like Amazon,
Tesco to invest in India (FDI in food retail was opened in 2016). These retail chains have
an efficient supply chain and a successful business model running in other countries. If
we can allow these companies in India, along with bringing in technology and expertise,
they will definitely create a demand for the direct sourcing of farm produce from the
farmers.

Government of India in May 2018 finalized the Model Agriculture Produce and
Livestock Contract Farming and Services (Promotion & Facilitation) Act, 2018 and
has asked States to adopt the same. (The Model Agricultural Produce and Livestock
Marketing (Promotion and Facilitation) Act, 2018 left out all provisions relating to
contract farming and paved the way for drafting an exclusive model law on the
subject of contract farming.)

The following are the salient features of the Model Contract Farming Act 2018:

 Setting up of an appropriate and unbiased state level agency called “Contract

Farming (Development and Promotion) Authority” to carry out the assigned mandates
under the provisions of contract farming and popularize it among the stakeholders.

 Constitution of a “Registering and Agreement Recording Committee” at

district/block/taluka level for registration of contract farming sponsor and recording of
contract, so as to implement effectively contract farming.

 No rights, title ownership or possession to be transferred or alienated or vested in the

contract farming sponsor etc.

 Contract farming to remain outside the ambit of respective Agricultural Produce

Marketing Act of the states/UTs. The additional benefit in consequence to the buyers
is freedom from mandi fee and commission charges, resulting in a saving of 5–10 per
cent to their transaction costs.

 Enables production support, including extension services to the contracting farmers

or group of farmers through supply of quality inputs, scientific agronomic package of
practices, technology, managerial skills and necessary credit.

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 Promoting Farmer Producer Organization (FPOs) / Farmer Producer Companies
(FPCs) to mobilize small and marginal farmers to benefit from scales of economy in
production and post-production activities.

 Ensuring buying of entire pre-agreed quantity of one or more of agricultural produce,

livestock or its product of contract farming producer as per contract

 Making provision to guide the contracting parties to fix pre-agreed price and also to
decide sale-purchase price in case of violent movement (upswing or downswing) of
market price vis-à-vis pre-agreed price as a win-win framework.

 Purchasing of agricultural produce, livestock and/or its produce based on quality

parameters as per contract farming agreement.

 Providing Contract Farming Facilitation Group (CFFG) at village /panchayat level to

take quick and need based decision relating to production and post production
activities of contracted agricultural produce, livestock and/or its product.

 Catering to a dispute settlement mechanism at the lowest level possible for quick
disposal of disputes arising out of the breach of contract or contravention of any
provision of the Act.

10. Horticulture Revolution

[The next bright spot in Indian Agriculture, a blog by NITI Aayog Member]

Fruits and vegetables gives 4-10 times the return from other crops namely cereals,
pulses and oilseeds. Study indicates that diversification towards horticultural crops is the
most powerful factor in raising growth rate of agriculture GDP. A 1% shift in area from
non horticultural crops to horticultural crops adds 0.46 percentage points to growth rate
of agriculture sector. Due to changes in taste, preferences and food habits, the
consumption pattern in India has been shifting towards fruits and vegetables and the per
capita intake of fruits and vegetables will keep rising in coming years. Such changes are
also happening globally. Moreover, there is large deficiency of these items in Indian diet.
All these indicators suggest that demand side prospects for fruits and vegetables are
very bright. However, area under fruits and vegetables in the country has remained
below 10%, despite favorable demand side factors. Even with 1/10 share in area, fruits &
vegetables contribute more than one fourth of earnings from crop sector in the country.

Highly elastic demand for fruits and vegetables, preference of consumers for fresh farm
produce and new e-commerce offer vast scope for increase in production of fruits and
vegetables and farmers’ income in the country. The major constraint however is
marketing. This is reflected in very high growth of 20% in horticultural imports, large
price gap between producers and end users, high level of post harvest losses, frequent
and often violent price fluctuations, low level of processing, and very low post harvest
value addition. The main constraint to expand production of fruits and vegetables is the
system of marketing and inadequate processing facility.

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Horticultural crops, particularly vegetables, are more popular with smaller size land
holdings as they have advantage in terms of family labour required for labour intensive
production. However, such farmers are severally constrained by scale factor in
marketing of produce. In most cases a horticultural crop does not come to maturity at the
same time and harvestable produce is distributed over a span of a few weeks. Being
perishable, these crops cannot be stored at home to make a economical lot for taking
to market. This further lowers the scale of marketable lot of farmers. The standard mode
of disposal of marketable surplus is sale in nearby mandis which is subject to APMC
rules and regulations. This requires produce to pass through long market channel which
involves payment of approved and unapproved taxes, market charges, and margins to a
large number of intermediaries. Recently some states have brought perishable fruits and
vegetables out of purview of APMC Act but it has made difference only to small quantity
of produce. The practice of marketing, required by market regulation, has prevented
application of e-commerce in fruits and vegetables and kept producers and consumers
apart. Recently in many cities online sale of fruits and vegetables has been started by
some innovative vendors but it has no back-end support. Market regulations constrain
online purchases from the farmers/producers which can be of immense benefit to
producers as well as consumers.

Comparing with White Revolution: India’s experience of milk marketing, which ushered in
the white revolution, offers interesting lessons for harnessing its horticulture potential.
Milk and horticulture have lot of similarities. Both are high value, perishable, labour
intensive, and income augmenting enterprises. Very stable and robust growth in milk
production is attributable mainly to three market factors, namely, institution of milk
cooperatives, complete freedom to milk producers and buyers for sale/purchase of milk
throughout the country and deregulation of dairy sector. With similar market conditions
India can achieve horticulture revolution in a much shorter period than White Revolution.
We need simple measures for this.

 One, take fruits and vegetables out of APMC Act and make their sale and purchase
completely free. This will allow setting up vegetable/fruit collection centres by local
entrepreneurs, like milk collection centres, where farmers can sell even a few kg of
their produce. In some cases integrators will start pooling the produce for marketing,
like informal milk vendors in the countryside. They can make economic lot and sell
the produce in a market or they can have direct contact with vendors or other buyers
in towns, cities and various consuming centres. This will also encourage private
sector to go for contract farming and having assured supply of suitable material for
processing. Many innovative vegetable & fruit sellers in urban areas will be attracted
to develop back-end linkage to get direct supply from the producers. India has waited
for development of modern value chain in horticulture for a long time but this has not
been happening due to legal hurdles and restrictions on free and direct marketing.

 Two, horticulture producers companies or associations of various types, like dairy

cooperatives, can also help farmers in marketing their produce without involvement
of long chain of market intermediaries. Some progress has been made in this area in
the last two years and there are some impressive success stories; such experiences
need to be scaled up.

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 Three, as delicensing of dairy in 1991 and the amendments in Milk and Milk Product
Order in year 2002 attracted large investments in milk marketing and processing, free
marketing of horticultural produce will attract lot of investments in horticultural
processing and value chains.

Demand side factors and technology are highly favourable for horticulture revolution at
small farms. What is needed is policy support for market liberalization, producers
organizations and processing. These require action both by the states and the Central
govt. The onus for freeing market for horticultural produce rests with the states while
support of Central government is crucial for promoting producers’ organizations (for ex.
Small Farmers Agribusiness Consortium (SFAC)) and fruits and vegetable processing.

11. Government regulation regarding BT cotton seed pricing:

In India, Monsanto Mahyco Biotech Ltd. (a joint venture of Mahyco Seeds Ltd and
Monsanto), licenses its patented Bollgard II cotton seed technology to 50 seed
companies in exchange for a royalty/trait fee. More than 90% of the cotton grown in India
uses this technology. In March 2016, the government cut the price of genetically
modified Bollgard II cotton seeds to Rs.800 per 450g packet from Rs.830 - Rs.1000
earlier and slashed royalty (trait) fees by 74% from Rs. 163 to Rs. 43 to bring uniformity
in pricing of Bt cotton seeds across the country. The government said that the order to
regulate the Bt Cotton seed prices has been issued to safeguard the interests of the
farming community under section 3 of the "Essential Commodities Act 1955".

The industry lobby of R&D firms slammed the government's decision as "it violates the
principle of free market economics. It said that by slashing trait/royalty fees, the govt. has
clearly shown that it is going for short-term populist measures rather than supporting
innovation in the long term. They said that the decision will be detrimental in the long run
as companies may have to reconsider their investments in seed-based R&D in the
country due to the current uncertain environment. This sends a bad signal internationally
that we’re fairly arbitrary. We have the power to regulate patents, no doubt, but it should
be open, transparent and based on robust methodology for a concrete, legitimate
purpose".

Use of BT cotton revolutionized the production of cotton in India, increasing its

production from 95.2 lakh bales in 2000-01 to 339.15 lakh bales in 2017-18. (GoI granted
permission to use BT cotton seeds since 2002).

In one of the cases before the Delhi High Court, involving Monsanto and Nuziveedu
(seed company) and the other with the Protection of Plant Variety and Farmers Rights
(PPVFR) Authority, the Government has submitted that the Indian Patents Act 1970
(Section 3(j)) excludes patenting of seeds, plants and their varieties. [But the question
arises, how come Patent office, GoI, had given Monsanto a patent if this is in
contravention of the Act ]. Whereas, Monsanto argues that it is not patenting Bt cotton
seeds but the genes in them (when you buy a software on a CD, the copyright is for the
software even though it is made available via the CD), the government is arguing that
under PPVFR Act 2001, once a gene is inserted into the seed it is a plant 'variety' and
hence not patentable under the Indian Patent Act 1970. That is, even if a patent is valid,

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it becomes invalid the moment the gene is put into a seed and cross-pollinated to create
new hybrids.

The Delhi High court in April 2018 ruled in favour of Nuziveedu and PPVFR Authority by
declaring Monsanto's Bollgard and Bollgard-II patent illegal and has allowed Monsanto to
move to Supreme Court.

12. Protection of Plant Varieties and Farmers Rights (PPVFR) Act 2001
The Act provides for the establishment of an effective system for protection of plant
varieties, the rights of farmers and plant breeders and to encourage the development of
new varieties of plants. The following are the rights granted to breeders and farmers
under the PPVFR Act:

Breeders' Rights
 A breeder can be a person or group of persons or a farmer or group of farmers or
any institution which has bred, evolved or developed any plant variety. And the
breeder (or his successor, his agent or licensee) of the protected variety will have the
right to produce, sell, market, distribute, export and import such variety.
 Benefit-Sharing: The breeder will be entitled for benefit-sharing (royalty) under this
Act as decided by the PPVFR Authority

Farmers' Rights
 a farmer who has bred or developed a new variety shall be entitled for registration
and other protection in like manner as a breeder of a variety under this Act;
 a farmer who is engaged in the conservation of genetic resources of land races and
wild relatives of economic plants and their improvement through selection and
preservation shall be entitled in the prescribed manner for recognition and reward
from the Gene Fund, provided that material so selected and preserved has been
used as donors of genes in varieties registrable under this Act
 a farmer shall be deemed to be entitled to save, use, sow resow, exchange, share or
sell his farm produce including seed of a variety protected under this Act in the same
manner as he was entitled before the coming into force of this Act, provided that the
farmer shall not be entitled to sell branded (packaged) seed of a variety protected
under this Act

13. GM Mustard
In May 2017, Genetic Engineering Appraisal Committee (GEAC) gave its approval for a
genetically modified (GM) variety of Mustard for commercial cultivation. Now it is up to
the Environment Minister to give his final nod. The following are the issues which have
been raised by various scientists and environmentalists regarding GM (Mustard) crops:-

 Studies have shown a strong correlation between growth of GM crops, the herbicides
they promote and the diseases such as acute kidney injury, diabetes, Alzheimer's
and cancers in the past 20 years in US. (Seventeen of the 20 most developed
countries including Japan, Russia, Israel and most Europe refuse to grow GM crops).

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 The GM crops are said to be herbicide tolerant (i.e. one can use the herbicide to
remove the herbs/weeds in GM crops). But it promotes constant exposure to a single
herbicide to which the weeds eventually become resistant. And to control these
weeds, desperate farmers increases the use of these herbicides manifold which is
very hazardous to human health. (Three big corporations around the world control
65% of global pesticide sales and they also control almost 61% of commercial seed
sales, what an irony).

 The GM mustard, if introduced in India, will affect every Indian who consumes
mustard in any form, as he will consume the herbicide residues on it; the millions of
poor women who depend on weeding to support their family who will be displaced;
the bee keepers whose honey will be contaminated; farmers whose yields will fall
eventually as bees die out; and the Indian nation, which will find that it has lost its
seed diversity and the international competitive advantage of its non-GM mustard
and honey.

 The high yield of GM mustard, the claim on which it has been cleared, also does not
seem to be true as the highest yields in mustard are from the five countries which do
not grow GM mustard - UK, France, Germany, Poland and Czech Republic.

 Our small and marginalized farmers (85% holdings) will not be able to afford the high
cost of cultivation of GM (Mustard) crops and it will further push them into stark
poverty.

14. Organic Farming

Introduction: Organic farming is a form of agriculture that relies on techniques such
as crop rotation, green manure , and biological pest control. It is a method of farming
system which primarily aims at cultivating the land and raising crops in such a way,
as to keep the soil alive and in good health by use of organic wastes and other
biological materials along with beneficial microbes (bio fertilizers) to release nutrients
to crops for increased sustainable production in an eco friendly pollution free
environment. This is a method of farming that works at grass root level preserving the
reproductive and regenerative capacity of the soil, good plant nutrition and sound soil
management, produces nutritious food rich in vitality which has resistance to
diseases.

As per the available statistics, India’s rank in terms of World’s Organic Agricultural
land was 15 as per 2013 data. The cultivable land under organic farming is 1.7
million hectare in India as on January 2018 and produced around 1.35 million MT of
certified organic products in 2015-16 which includes all varieties of food products
namely Sugarcane, Oil Seeds, Cereals & Millets, Cotton, Pulses, Medicinal Plants,
Tea, Fruits, Spices, Dry Fruits, Vegetables, Coffee, cotton fibre etc. Among all the
states, Madhya Pradesh has covered largest area under organic certification followed
by Himachal Pradesh and Rajasthan. Sikkim is the first truly Organic state of India in
January 2016, as declared by PM Narendra Modi.

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Certification of Organic Products:
In India, The Food Safety and Standards Authority of India (FSSAI) has issued
guidelines that requires food companies selling organic produce to get certified with
one of the two authorities - National Programme for Organic Production (NPOP) or
the Participatory Guarantee System for India (PGS-India).

The National Programme for Organic Production (NPOP) is a third party certification
programme, run by the ministry of commerce and industries since 2001, which lays
down the norms governing the production of organic food. The guidelines have a
sweeping scope and cover even the smallest details. These norms need to be
followed by the farmers and enterprises who are involved in the production of organic
fruits, vegetables, grains and process and packaging. For instance, for a honey
manufacturing enterprise to be certified, everything from bee box to farmer's land on
which the bee box is kept, to farms within a 5 km radius of the bee box, all have to
meet organic standards.

While the NPOP lays down the guidelines, central bodies such as National
Accreditation Board and Agricultural & Processed Food Products Export
Development Authority (APEDA) accredit the certifying bodies that carry out
inspections and grant organic status to individual farmers and enterprises after
verification of their farms, storages and processing units. Apart from a number of
private certifying bodies like Indian Organic Certification Agency (INDOCERT),
Natural Organic Certification Pvt. Ltd., the Central government agency FSSAI and
State government bodies such as Uttarakhand State Organic Certification Agency
also issue certification for organic products. Indian organic products duly certified by
the accredited certification bodies of India are accepted by the importing countries.
(Some major organic brands in India are: Big basket, 24 Mantra, Just Organic etc.)

Although the idea of organic farming harks back to older methods of agriculture that
involved fewer machines and more natural pesticides and fertilisers, in practice, it
involves significant investment of manpower and financial resources. For a farm to be
certified organic, every step in the production process must meet organic standards.
The farmer or enterprise is required to keep detailed records of every step to ensure
that no material that does not conform to organic standards is used. For instance, if a
farmer uses a natural fertiliser on his farm, he has to keep a record of its name for
future inspection. This record keeping is referred to as traceability, and it is one of the
pillars of the organic food movement.

It stands to reason that the farmer or producer incurs a significant additional cost to
meet these high standards. Even though organic farmers use their own prepared
inputs such as compost and natural pesticides, the requirement for labour goes up
significantly. In addition, the actual process of certification involves a hefty initial
investment as well as an annual fee for renewal. Once a farmer starts using organic
techniques, it takes three years for his farm to be certified — this is known as the
conversion period. All this translates into higher retail price.

In contrast to NPOP, Participatory Guarantee System (PGS-India) programme has

been around for only two years and is implemented by Ministry of Agriculture through

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 the National Centre for Organic Farming. Unlike the top-down approach of NPOP,
PGS-India involves a peer-review approach and is a self -certification process
supported through the Paramparagat Krishi Vikash Yojana. Here, farmers play a role
in certifying whether the farms in their vicinity adhered to organic cultivation
practices.

15. Zero Budget Natural Farming (ZBNF)

Natural farming is a system where the laws of nature are applied to agricultural
practices. This method works along with the natural biodiversity of each farmed area,
encouraging the complexity of living organisms, both plants, and animals that shape
each particular ecosystem to thrive along with food plants.

Zero Budget Natural Farming (ZBNF) is a set of farming methods, and also a grassroots
peasant movement, which has spread to various states in India. It has attained wide
success in southern India, especially the southern Indian state of Karnataka where it first
evolved. The movement in Karnataka state was born out of collaboration between Mr
Subhash Palekar, who put together the ZBNF practices, and the state farmers
association Karnataka Rajya Raitha Sangha (KRRS).

The neoliberalization of the Indian economy led to a deep agrarian crisis that is making
small scale farming an unviable vocation. Privatized seeds, inputs, and markets are
inaccessible and expensive for peasants. Indian farmers increasingly find themselves in
a vicious cycle of debt, because of the high production costs, high interest rates for
credit, the volatile market prices of crops, the rising costs of fossil fuel based inputs, and
private seeds. Debt is a problem for farmers of all sizes in India. Under such conditions,
‘zero budget’ farming promises to end a reliance on loans and drastically cut production
costs, ending the debt cycle for desperate farmers. The word ‘budget’ refers to credit and
expenses, thus the phrase 'Zero Budget' means without using any credit, and without
spending any money on purchased inputs. 'Natural farming' means farming with Nature
and without chemicals.

Features of Zero Budget Natural Farming:

 Commercial level farming can be done in almost zero budget only by using locally
available and farm-based resources.
 According to ZBNF principles, plants get 98% of their supply of nutrients from the air,
water, and sunlight. And the remaining 2% can be fulfilled by good quality soil with
plenty of friendly microorganisms. (Just like in forests and natural systems)
 The soil is always supposed to be covered with an organic mulch, which creates
humus and encourages the growth of friendly microorganisms.
 The system requires cow dung and cow urine obtained from Indian breed cow only.
Desi cow is apparently the purest as far as the microbial content of cow dung, and
urine goes.
 A farm made bio-culture named ‘Jeevamrutha’ is added to the soil instead of any
fertilizers to improve microflora of soil. Jeevamrutha is derived from very little cow
dung and cow urine of desi cow breed.
 Natural, farm-made pesticides like Dashparni ark and Neem Astra are used to control
pests and diseases.

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 Weeds are considered essential and used as living or dead mulch layer
 In ZBNF, multi-cropping is encouraged over single crop method.

Similarities between Organic Farming and ZBNF:

 Organic and natural farming both systems discourage farmers from using any
chemical fertilizers, pesticides on plants and in all agricultural practices.
 Both farming methods encourage farmers to use local breeds of seeds, and native
varieties of vegetables, grains, pulses and other crops.
 Both farming methods promote nonchemical and homemade pest control methods.

Differences between Organic Farming and ZBNF:

 In organic farming, organic fertilizers and manures like compost, vermicompost, cow
dung manure, etc. are used and added to farmlands from external sources. While in
natural farming, neither chemicals nor organic fertilizers are added to the soil. In fact
no external fertilizers are added to soil or given to plants whatsoever. In natural
farming, decomposition of organic matter by microbes and earthworms is
encouraged right on the soil surface itself, which gradually adds nutrition in the soil,
over the period.
 Organic farming requires basic agro practices like ploughing, tilting, mixing of
manures, weeding, etc. to be performed. While in natural farming there no ploughing,
no tilting of soil and no fertilizers, and no weeding is done just the way it would be in
natural ecosystems.
 Organic farming is still expensive due to the requirement of bulk manures, and it has
an ecological impact on surrounding environments; whereas, natural agriculture is an
extremely low-cost farming method, completely moulding with local biodiversity.

16. National Bamboo Mission

Bamboo (green gold) is a type of grass, but its classification as a tree for 90 years
prevented the northeast, which grows 67% of India's bamboo, from commercially
exploiting it. Last year in 2017, bamboo grown outside the forest area was struck off the
list of trees by amending the Indian Forest Act 1927. Subsequently, in April 2018, Govt.
approved Centrally Sponsored Scheme of (restructured) National Bamboo Mission under
National Mission for Sustainable Agriculture (NMSA) for the period 2018-19 & 2019-20.

NBM was initially started in 2006-07 and was subsumed under Mission for Integrated
Development of Horticulture during 2014-15 and continued till 2015-16. Funds were
released thereafter only for maintenance of bamboo plantations raised earlier under
NBM, and no new work or annual action plan was initiated.

Following are the objectives of restructured National Bamboo Mission:

 To increase the area under bamboo plantation in non forest Government and private
lands to supplement farm income and contribute towards resilience to climate change
 To improve post-harvest management through establishment of primary processing
units, treatment & seasoning plants, preservation technologies &market infrastructure

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 To promote skill development, capacity building, awareness generation for
development of bamboo sector
 To promote product development at MSME levels and feed bigger industry
 To rejuvenate the under developed bamboo industry in India

The Mission will focus on development of bamboo in limited States (North East and few
others) where it has social, commercial and economical advantage with focus on
genetically superior planting material of bamboo species of commercial and industrial
demand. Adoption of end to end solution in bamboo sector i.e. complete value chain
approach starting from bamboo growers to consumers would be emphasized. Focus will
be given on Research & Development to increase the production and productivity of
bamboo. The Mission is expected to establish about 4000 treatment/ product
development units and bring more than 1 lakh ha area under plantation.

Bamboo plantation will contribute to optimizing farm productivity and income thereby
enhancing livelihood opportunities of small & marginal farmers including landless and
women as well as provide quality material to industry. Thus, the Mission will not only
serve as a potential instrument for enhancing income of farmers but also contributing
towards climate resilience and environmental benefits. The Mission will also help in
creating employment generation directly/indirectly in both skilled and unskilled segments.

Comment: National Bamboo Mission (NBM) started in 2006-07, was mainly

emphasizing on propagation and cultivation of bamboo, with limited efforts on
processing, product development and value addition. There, was weak linkage between
the producers (farmers) and the industry. The restructured NMB gives simultaneous
emphasis to propagation of quality plantations of bamboo, product development and
value addition including primary processing and treatment; micro, small & medium
enterprises as well as high value products; markets and skill development, thus
addressing the complete value chain for growth of the bamboo sector.

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2. National Nutrition Mission
The Government of India has set up National Nutrition Mission (NNM) for improving the
nutritional indicators of children and pregnant women and lactating mothers, with a three
year budget of Rs.9046 crore commencing from 2017-18. The NMM is an apex body
which will monitor, supervise, fix targets and guide the nutrition related interventions
across the Ministries.

Following are the important features:

 mapping of various Schemes contributing towards addressing malnutrition
 introducing a very robust convergence mechanism
 ICT based Real Time Monitoring system
 incentivizing Anganwadi Workers for using IT based tools
 introducing measurement of height of children at the Anganwadi Centres (AWCs)
 Social Audits
 incentivizing States/UTs for meeting the targets
 setting-up Nutrition Resource Centres, involving masses through Jan Andolan for
their participation on nutrition through various activities, among others.

The NMM through the targets will strive to reduce the level of stunting, under-nutrition,
anaemia and low birth weight babies. It will create synergy, ensure better monitoring,
issue alerts for timely action, and encourage States/UTs to perform, guide and supervise
the line Ministries and States/UTs to achieve the targeted goals.

Implementation strategy would be based on intense monitoring and Convergence Action

Plan right up to the grass root level. NNM will be rolled out in three phases from 2017-18
to 2019-20. NNM targets to reduce stunting by 2%, under-nutrition by 2%,
anaemia (among young children, women and adolescent girls) by 3% and low birth
weight by 2% per annum. More than 10 crore people will be benefitted by this
programme. All the States and districts will be covered in a phased manner

Comment:
There are a number of schemes and programmes like Anganwadi Services, Scheme for
Adolescent Girls and Pradhan Mantri Matru Vandana Yojna, which are directly/indirectly
affecting the nutritional status of children (0-6 years age) and pregnant women and
lactating mothers. In spite of these, level of malnutrition and related problems in the
country is high. There is no dearth of schemes but lack of creating synergy and linking
the schemes with each other to achieve common goal. NNM through robust
convergence mechanism and other components would strive to create the synergy.

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3. Food Processing
India opened up 100% FDI in multi-brand food retail (including through e commerce) and
food processing sectors in June 2016 with the condition that the foreign
investors/retailers will sell only those food items which have been produced and
manufactured in India (sourced from India). But the foreign retail giants are demanding
that along with the food items they should also be allowed to sell some kitchenware and
small home care items as well under one roof.

The business model of big corporate retailers in other countries is to sell kitchenware,
beauty care products and small home care items along with the food items under one
roof in their retail chains. This is because a consumer coming to buy food items generally
likes to explore as many items as possible under one roof rather than going to different
retailers.

If in India they are restricted to sell only food items then they will have to create a new
business model for India and check the financial viability of that model. As per the retail
giants, the margin (profit) is very low in food items, which won't allow them to invest and
create massive infrastructure required to set up proper outlets. Usually, they balance out
the outgo in terms of investment in food retail through the sale of non-food items in which
the margin is better. Hence, the food-only model will be a challenge for them.

The Ministry of Food Processing has suggested to PMO that "whatever amount the
foreign retailer invests at the farm-gate level, the sale of additional items (non food items)
worth 20-25% of that investment be allowed to the retailer as a sweetener."

India has a $600 billion of retail sector out of which food items accounts for a major
chunk. If we can tweak in the FDI rules, it has the potential to attract foreign investments
to the tune of $10 billion in the next few years. Presently our processing capacity is less
than 10% and around Rs. 93,000 core of farm and food items are wasted every year
during and after the harvest. We require massive investment in infrastructure (cold
storages), especially at the farm gate level, access to modern technology and facilitate
more direct tie-ups between farmers and large corporations.

Once large retailers such as Walmart and Tesco set up shop, they would start buying
directly from farmers. Once they did this, not only would farmers get a higher share of
the final price of the fruits and vegetables as compared to the fraction they get today, the
high level of losses due to a virtually non-existent cold chain would also fall considerably
since the time from farm to fork would reduce sharply and high inflation in the sector
would also dampen.

While the government has, historically, offered incentives for setting up cold chains, the
progress has been slow since, without an assured front-end off-take for fruits and
vegetables, few cold-chain suppliers have wanted to invest. If, however, a WalMart was
to come in and assure a certain level of business (i.e. procurement from cold chains),
cold-chain units would be more ready to come and invest. Sadly, opposition from
retailers in India ensured the FDI proposal went nowhere and while home-grown
organised players did expand their retail footprint, the pace was limited and the
proportion in fruits and vegetables was relatively low. That is why, it is not surprising that,

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for several decades now, allowing FDI in retail has been touted as the single-biggest
solution to agriculture’s problem.

Mega Food Parks and Cold Chains schemes were started by Govt. of India in 2008 and
till now 8 Mega Food parks and 100 Cold Chains have become operational.

SAMPADA
(Scheme for agro-marine processing and development of agro-processing clusters)
The objective of SAMPADA scheme is to supplement agriculture, modernize processing
(of marine and agri-produce) and decrease agri-waste. With an allocation of Rs. 6,000
crore, the scheme is expected to leverage investment and create a handling capacity of
33.4 Million Tonne, benefiting 20 lakh farmers and in the process generating 5 lakhs of
direct and indirect jobs in the country by the year 2019-20.

SAMPADA is an umbrella scheme incorporating ongoing schemes of the government

like Mega Food Parks, Integrated Cold Chain and Value Addition Infrastructure, Food
Safety and Quality Assurance Infrastructure, etc. and also new schemes like
Infrastructure for Agro-processing Clusters, Creation of Backward and Forward
Linkages, Creation of Food Processing & Preservation Capacities.

The SAMPADA is a comprehensive package to give a renewed thrust to the food

processing sector in the country. It aims at development of modern infrastructure to
encourage entrepreneurs to set up food processing units based on cluster approach,
provide effective and seamless backward and forward integration for processed food
industry by plugging gaps in supply chain and creation of processing and preservation
capacities and modernization/ expansion of existing food processing units.

Advantages: The implementation of SAMPADA will result in creation of modern

infrastructure with efficient supply chain management from farm gate to retail outlet. It
will not only provide a big boost to the growth of food processing sector in the country but
also help in providing better prices to farmers and is a big step towards doubling of
farmers’ income. It will create huge employment opportunities especially in the rural
areas. It will also help in reducing wastage of agricultural produce, increasing the
processing level, availability of safe and convenient processed foods at affordable price
to consumers and enhancing the export of the processed foods.

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4. Demographic Dividend
Demographic Dividend is an episode of higher economic growth driven by changes in
the age structure of the population and by accompanying policies (demographic dividend
is the additional growth due to demographic factors alone). The specific variable driving
the demographic dividend is the ratio of the working age (WA) population (15-59) to non-
working age (NWA) population. Both the level and the growth of the WA/NWA ratio have
a positive impact on economic activity.

Figure: Ratio of Working Age to Non-Working Age Population of Emerging Economies.

As can be seen from the above figure, India's demographic cycle is about 10-30 years
behind that of the other countries, indicating that the next few decades present an
opportunity for India to catch up to their per capita income levels.

India's WA to NWA ratio is likely to peak in the early 2020-30 decade at 1.7 which is
much lower than the peak level of Brazil (1.87) in late 2010-20 decade and China (2.35)
in the late 2000-10 decade, both of which sustained a ratio greater than 1.7 for at least
25 years. But India will remain close to its peak for a much longer period than other
countries. The incremental growth boost due to the demographic change of India in the
2020's, is estimated to be about 1.8 percent. In other words, India will approach, within
two to three years, the peak of its demographic dividend. This does not mean that the
demographic dividend will turn negative thereafter, rather positive impact will slow down.

A distinctive feature in India is the large heterogeneity among the States in their
demographic profile evolution. There is a clear divide between peninsular India (West
Bengal, Karnataka, Kerala, Tamil Nadu and Andhra Pradesh) where WA/NWA
population ratio will peak early as compared to the hinterland States (Madhya Pradesh,
Rajasthan, Uttar Pradesh and Bihar). The divide in the WA/NWA ratio of the peninsular
India and the hinterland States is because of the difference in their levels of Total Fertility
Rate (the average number of children that a woman would have over her childbearing
years). So demographically, there are two Indias, with different policy concerns: a soon-
to-begin ageing India where the elderly and their needs will require greater attention: and
a young India where providing education, skills, and employment opportunities must be
the focus. Of course, heterogeneity within India offers the advantage of addressing some
of these concerns via greater labour mobility, which would in effect reduce this
demographic imbalance

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5. Rising Income Inequality in India
Spectacular economic growth over the past three decades has made India a global
economic powerhouse. Between 1990 and 2016, India’s economy grew at a rate of
around 7% at constant prices, making it a $2.5 Trillion economy. The Indian economy is
now the third largest in the world by purchasing power parity after China and the United
States. The surging economic growth has improved living conditions of its citizens, but
these improvements were not uniformly distributed among India’s diverse population.
Despite being among the richest countries in the world, India has attracted negative
attention in recent years as the second most unequal country in the world, after Russia.

Income inequality has reached historically high levels in India since the 1980s when
economic and trade liberalisation began in the country, with the top one percent of the
population accounting for 22% of the national income in 2014. In terms of wealth, the top
1% of India’s population owns nearly 60% of its wealth.

The Gini coefficient is one of the important variables used to examine trends in
inequality across income, wealth and consumption. According to some estimates,
consumption Gini coefficient was 0.36 in 2011-12 in India. On the other hand, inequality
in income was high with a Gini coefficient of 0.55 while wealth Gini coefficient was 0.74
in 2011-12. Thus, income Gini was about 20 points higher than consumption Gini while
wealth Gini was nearly 40 points higher than consumption Gini. Thus, inequality in
income and wealth is much higher than that of consumption in India.

Inequality in India declined in the post independence period for three and a half decades
since 1950. But since we introduced the reforms in 1991, it has increased and more in
the high growth phase of 2004 to 2011-2. The reasons for the same could be found in a
famous paper of 1955 by Simon Kuznets, where he has argued that in the early period of
economic growth, distribution of income tends to worsen i.e. inequality increases, and
that only after reaching a certain level of economic development an improvement in the
distribution of income occurs.

One of the main reasons of increase in inequality in the post reform period is that when
the economy was opened in 1991, the people having financial and educational
resources grabbed up the opportunities created by opening of the economy and
were able to multiply their wealth and income in a much faster way as compared to
the poor people who lacked these resources. But once the government (tax) resources
will increase from the expanding economy and the government spends these resources
in the human capital then in future the inequality may decline. Human capital can be
understood as a person's endowment derived from education and robust health. When a
population is more or less equally endowed with human capital then the returns to labour
would be relatively equal compared to the country in which the distribution of human
capital is unequal (pyramidical), which is the case for India till now. The focus of the
government is still on subsidies rather than health and education which will ultimately
provide equalisation of opportunities.

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Many economists reckon that poor governance is the biggest constraint in achieving the
aspirations of a new generation and reduction in poverty and inequality in India. A major
institutional challenge is the accountability of service providers, particularly the public
sector. Recent literature also focused on eradication of corruption for reduction in
inequalities. Issues like electoral reforms, crony capitalism, election funding and
corruption should be part of the reform agenda to reduce inequalities and the economic
reforms should focus more on efficient delivery systems of public services. Fiscal
instruments like public investment in physical and social infrastructure can be used to
reduce inequality. For reducing inequality, some advocate measures such as
redistribution of assets and wealth in favour of the poor via higher taxes for the rich.
However, these may not be pragmatic solutions. The tax/GDP ratio has to be raised with
a wider tax base rather than increasing the tax rate. The new and aspiring India wants
equality of opportunity rather than redistributive measures.

As we initiated the reforms in 1991, the Indian economy moved on a higher growth
trajectory of 6.3%, which helped the government to raise more resources and it also
pulled in a lot of population in the growth process. The proportion of nationwide
population living below the poverty line (as per the planning commission estimates) fell
from 36% (40.7 cr) in 1993-94 to 27.5% (35.5 cr) in 2004-05 and 21.9% (26.9 cr) in
2011-12. Growth helps in reduction of poverty in two ways; first through the percolation
(trickle down) effect and second through the ability to raise more resources on the part of
the government to provide for increased social sector expenditures.

While economic growth is absolutely crucial in raising living standards of India’s vast
population, the distributional effects of economic growth, as measured by income
distribution, play a significant role in determining the long-term development trends and
socio-economic well-being of the citizens. India is one the richest countries in the world,
and yet, the average Indian is relatively poor as a result of highly-skewed income
distribution. Economic inequality can adversely exacerbate a range of social problems,
including inter-group relations and conflict, social cohesion and violent crime. Inequality
hurts not only the poor but everyone with increased crime and increased workplace
accidents.

Comment: We now need to reorient our public policy so that the government is more
enabling of private entrepreneurship while being directly engaged in the equalisation of
opportunity through a social policy that raises health and education levels at the bottom
of the pyramid.

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6. Nonperforming Assets (NPA), Bad Banks, Inter
Creditor Agreement and IBC Code
NPA Issue:
The origins of the India's NPA problem lie not in the events of the past few years, but
much further back in time, in decisions taken during the mid-2000s. During that period,
economies all over the world were booming with India's GDP growth surging to 9-10
percent per annum. For the first time in the country’s history, everything was going right:
corporate profitability was amongst the highest in the world, encouraging firms to hire
labour aggressively, which in turn sent wages soaring.

Firms made plans accordingly. They launched new projects worth lakhs of crores,
particularly in infrastructure-related areas such as power generation, steel, and telecoms,
setting off the biggest investment boom in the country’s history. Within the span of four
short years, the investment-GDP ratio soared from 27% in 2003-04 to 38% by 2007-08.

This investment was financed by an astonishing credit boom which was the largest in the
nation’s history. In the span of just three years, running from 2004-05 to 2008-09, the
amount of non-food bank credit doubled. And this was just the credit from banks: there
were also large inflows of funding from overseas, with capital inflows in 2007-08 reaching
9 percent of GDP. All of this added up to an extraordinary increase in the debt of non-
financial corporations. Put another way, as double digit growth beckoned, firms
abandoned their conservative debt/equity ratios and leveraged (took loan) themselves up
to take advantage of the perceived opportunities.

But just as companies were taking on more risk, things started to go wrong. Cost of the
firms soared far above their budgeted levels, as securing land and environmental
clearances proved much more difficult and time consuming than expected (in the last
three years of UPA-II, a lot of project clearances and land acquisition were blocked). At
the same time, forecast revenues of the firm's collapsed after the Global Financial Crisis;
projects that had been built around the assumption that growth would continue at double-
digit levels were suddenly confronted with growth rates half that level.

As if these problems were not enough, borrowing costs increased sharply. Firms that
borrowed domestically suffered when RBI increased interest rates to tackle double digit
inflation. And firms that had borrowed abroad when the rupee was trading around Rs
40/dollar were hit hard when the rupee depreciated, forcing them to repay their debts at
exchange rates closer to Rs 60-70/ dollar. Higher costs, lower revenues, greater
financing costs — all squeezed corporate profits, quickly leading to debt payment
problems. By 2015, around 40 percent of the company's were not in a position to pay off
their interest charges.

Since 2014, India has been trying to solve its Twin Balance Sheet (TBS) problem of
overleveraged (high loan) companies and bad loan encumbered banks, but the problem
has continued to fester. It has now become imperative to tackle record stressed loans of
$133 billion (or 9% of total loans) held by Indian banks by September 2016, as the

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burden constrains lending and delays private investment. (More than four-fifths of the
NPAs are with the public sector banks).

Approaches to resolve the NPA issue and drawbacks: Thus far, decisions to solve
individual stressed loans have been left to banks themselves, who find it difficult to
resolve these cases for many reasons. Banks are required to recognise the true extent of
bad loans and inform RBI but have flexibility to restructure them. The current framework
leaves banks with too much discretion in solving the problems. In most cases, banks
simply refinance/restructure the debtors, making it costlier for the government as it
means the bad debts keep rising, increasing the ultimate recapitalisation bill for the
government.

Further, the decision to refinance the banks to continue their lending has also not worked
out quite as well, as banks hesitate to lend even with adequate capital in hand till they
can’t assess the future impact of bad loans on their books/accounts. Moreover, private
asset reconstruction companies (ARCs) too haven’t proved any more successful than
banks in resolving bad debts. Banks have been reluctant to resolve NPAs through
settlement schemes or sell bad loans to asset reconstruction companies for fear of being
hauled up (in case of public sector banks, if the recovery from bad loans is very less) by
investigation agencies.

The Economic Survey (January 2017) has suggested that it is time to consider a different
approach - a centralized Public Sector Asset Reconstruction Agency (or a Bad Bank)
that could take charge of the largest, most difficult cases and make politically tough
decisions to reduce the NPAs.

Bad Banks: In simple language, the bad bank buys up all the bad assets of banks and
pays them partly in cash with the rest in securities, and then takes on the job of collecting
and resolving the same, analogous to what a recovery agent does for retail loans. The
bank is freed of such assets and continues with business, while the bad bank resolves
and pays back the bank based on the success of the recovery.

In May 2017, the President approved the Banking Regulation (Amendment) Ordinance,
2017 , which has a provision under which the central government may authorise the
Reserve Bank of India to issue directions to any banking company to initiate insolvency
in respect of a default under the provision of the Insolvency and Bankruptcy Code 2016.
It also has provisions to empower the RBI to issue directions to banking companies for
resolution of stressed assets. The ordinance basically enhances the power of RBI to
manage bad loans.

Inter Creditor Agreement:

In July 2018, a group of banks, including public sector, private sector and foreign banks,
signed an inter-creditor agreement for the speedy resolution of non-performing loans on
their balance sheets. The inter-creditor agreement is aimed at the resolution of loan
accounts with a size of ₹50 crore and above that are under the control of a group of
lenders. It is part of the “Sashakt” plan approved by the government to address the
problem of resolving bad loans.

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Over the last few years, Indian banks have been forced by the Reserve Bank of India to
recognise troubled assets on their books, but their resolution has remained a challenge.
According to banker Sunil Mehta, who headed a panel that recommended the plan,
disagreement between joint lenders is the biggest problem in resolving stressed assets.
The government hopes that the holdout problem, where the objections of a few lenders
prevent a settlement between the majority lenders, will be solved through the inter-
creditor agreement.

As per the terms of the agreement, if 66% of the lenders agree to a resolution plan it
would be binding on all lenders. A dissenting creditor could sell its loan at a discount of
15% of the liquidation value to other lenders or buy the entire loan at 125% of the
resolution plan agreed to by other lenders. Another option with a dissenting creditor is to
sell their loans to any person at a price mutually arrived between dissenting lender and
the buyer.

In case there is no resolution in 180 days, the stressed asset will be referred to the
National Company Law Tribunal (through IBC).

Insolvency and Bankruptcy Code (IBC)

Insolvency is a situation when an individual or company is unable to pay its debt while
bankruptcy is a legal procedure for liquidating (winding up) a business (or property
owned by an individual) which cannot fully pay its debts out of its current assets.

Before the IBC code, there were multiple overlapping laws and adjudicating forums in
India like Company Law Boards, Debt Recovery Tribunal, SARFAESI Act 2002, Sick
Industrial Companies (Special Provisions) Act, 1985 and the winding up provisions of the
Companies Act, 1956 etc. dealing with financial failure of companies and individuals
leading to significant delays in winding up a company. The legal and institutional
framework did not help lenders in effective and timely recovery or restructuring of
defaulted assets and caused undue strain on the Indian credit system. Recognizing that
reforms in the bankruptcy and insolvency regime were critical for improving the business
environment and alleviating distressed credit markets, the Government enacted the
Insolvency and Bankruptcy Code in May 2016, making it easier to wind up a failing
business and recover debts.

The Code makes a significant departure from the existing resolution regime by shifting
the responsibility on the creditor to initiate the insolvency resolution process against the
corporate debtor. Under the previous legal framework, the primary onus to initiate a
resolution process lied with the debtor, and creditor may pursue separate actions for
recovery, security enforcement and debt restructuring.

Under the IBC code, a creditor or the corporate debtor may initiate corporate insolvency
resolution process in case a default is committed by corporate debtor. An application can
be made before the National Company Law Tribunal (NCLT) for initiating the resolution
process. The creditor needs to give demand notice of 10 days to corporate debtor before
approaching the NCLT. If corporate debtor fails to repay dues to the creditor or fails to
show any existing dispute or arbitration, then the creditor can approach NCLT. Upon

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admission of application by NCLT, Corporate insolvency process shall be completed
within 180 days during which time NCLT hears the proposals for revival and decide on
the future course of action.

NCLT appoints the Insolvency Professionals (IP) upon confirmation by the Insolvency
and Bankruptcy Board (IBB). NCLT causes public announcement to be made of the
initiation of corporate insolvency process and calls for submission of claims by any other
creditors. After receiving claims pursuant to public announcement, IP constitutes the
creditors’ committee constituting all creditors (first interim IPs are appointed and when
the creditors' committee approves, then the IPs are confirmed as Resolution
Professionals). Resolution Professionals shall submit the insolvency resolution plan
before the creditors’ committee for its approval. The creditors’ committee has to then
take decisions regarding insolvency resolution (within 180 days but in complex cases it
can be further extended to 90 days) by a 66% majority voting. Once a resolution is
passed, the creditors’ committee has to decide on the restructuring process that could
either be a revised repayment plan for the company, or liquidation of the assets of
the company. The resolution plan will be sent to NCLT for final approval, and
implemented once approved. If no decision is made during the resolution process, the
debtor’s assets will be liquidated to repay the debt.

The objective of the new law is to promote entrepreneurship, availability of credit, and
balance the interests of all stakeholders by consolidating and amending the laws relating
to reorganization and insolvency resolution of companies and individuals in a time bound
manner and for maximization of value of assets. Some business ventures will always fail,
but they will be handled rapidly and swiftly. Entrepreneurs and lenders will be able to
move on, instead of being bogged down with decisions taken in the past.

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7. Fugitive Economic Offenders Bill 2018
The Bill aims to stop economic offenders who leave the country to avoid due legal
process. Offences involving amounts of ₹100 crore or more fall under the purview of this
law. Economic offences are those that are defined under the Indian Penal Code, the
Prevention of Corruption Act, the SEBI Act, the Customs Act, the Companies Act,
Limited Liability Partnership Act, and the Insolvency and Bankruptcy Code. The bill will
extend not only to loan defaulters and fraudsters, but also to individuals who violate laws
governing taxes, black money, benami properties and financial corruption.

According to the Bill, a ‘fugitive economic offender’ (FEO) is “any individual against
whom a warrant for arrest in relation to a scheduled offence has been issued by any
court in India, who:

 leaves or has left India so as to avoid criminal prosecution; or

 refuses to return to India to face criminal prosecution.”

A Director, appointed by the central government, will have to file an application to a

Special Court to declare a person as a ‘fugitive economic offender’. The Court will issue
a notice to the person named a ‘fugitive economic offender’. Within six weeks from the
date of notice, the person (or through his lawyer) will have to present themselves at “a
specified place at a specified time”. If the offender fails to do so, then the court can
proceed to hear the application in the absence of the defence. Once the court is
convinced, it can declare him/her a ‘fugitive economic offender’ and may order the
confiscation of the properties.

The Government can confiscate the proceeds of crime in India or abroad, even if it is not
owned by the FEO and any other property, including benami property, owned by the
FEO. The proceeds from the disposed property will be used to satisfy creditors’ claims.
Once the property is confiscated, the offender cannot file a civil claim. But, if at any point
of time in the course of the proceeding prior to the declaration, however, the alleged FEO
returns to India and submits to the appropriate jurisdictional court, proceedings under the
proposed Act would cease by law. Those classified as fugitives will also not be able to
pursue civil cases in India unless they come back to India and face prosecution. The bill
will help the government confiscate properties of fugitives even before FEOs are
convicted. Enforcement Directorate will be the apex agency to implement the law.

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8. Demonetization and its Impact
Introduction:
On November 8, 2016, the Central Government demonetized the Rs. 500 and Rs. 1000
currency notes which constituted 86% of the cash/currency in circulation. This was done
as per the RBI Act 1934 which says that "on recommendation of the Central Board of
RBI, the Central Government may, by notification in the Gazette of India, declare that
any series of bank notes of any denomination shall cease to be legal tender". The aim of
the action was fourfold: to curb corruption; counterfeiting; the use of high denomination
notes for terrorist activities; and especially the accumulation of black money.

"Black economy is the market based production of goods and services – legal or illegal –
that escapes capture in the official GDP statistics. And the tax that the government
forfeits on this activity circulates as black money."

Impact of Demonetization in the short run:

On liquidity
 Demonetization led to liquidity (effective cash in circulation) crunch as the old Rs.
1000 and Rs. 500 notes could not be used for transaction purpose and there
were restriction on withdrawal of new currency notes.
 In the banking system, demonetization led to increase in liquidity (here liquidity
means deposits with the banks) which has resulted in decreased market interest
rates.

On Money Supply
 Economists define money supply as broad measures that encompasses both
cash and bank deposits, because these are very close substitutes. A key aspect
of the November 8 demonetization, however, is that the convertibility between
cash and bank deposits was impeded. Cash could not be easily deposited into
bank accounts, while withdrawals were subject to strict limits. So we can say that
demonetization led to reduction in money supply in the economy.

On GDP
 An aggregate demand shock, because demonetization reduced the supply of
money and affected private wealth (especially of those holding unaccounted
money and owning real estate)
 An aggregate supply shock to the extent that cash was a necessary input for
economic activity (for example agricultural producers required cash to pay labour)
 An uncertainty shock because economic agents faced difficulty in assessing the
impact and duration of the liquidity shock as well as further policy responses
(causing consumers to defer or reduce discretionary consumption and firms to
reconsider investment plans).

Year 2016-17 2017-18

Quarter Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Growth% 7.9 7.5 7.0 6.1 5.7 6.3 7.2 7.7
Growth% 7.1 6.7
Demonetization happened in Q3 of 2016-17

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Impact of demonetization on Agriculture and informal sector in short term
Farmers use cash to buy quality seed, fertilizers, chemicals and diesel and to hire labour
and machinery. As rabi season crops are mainly self pollinated, farmers need not buy
fresh seed in rabi season every year. More than 70 per cent seed used in rabi crops is
self produced and rest is purchased from public sector agencies, research institutes and
private sources. Sale of seed in the Rabi season of 2016-17 by public institutions was
reported to be much lower than normal sales. According to Ministry of Agriculture,
fertilizer off-take during the 2016-17 rabi season (till 21 December 2016) was lower than
the fertilizer off-take in the corresponding period during 2014-15 and 2015-16 by 7.47 per
cent and 7.0 per cent.

During the week ending 30th December 2016, net sown area under rabi crops exceeded
the area sown previous year by 6.86 per cent. The data on sowing of rabi crops indicated
that, at country level, there was absolutely no adverse effect of demonetization as for as
sowing of major crops was concerned. There was a delay of 1-2 weeks in sowing in
2016-17 in the beginning of rabi season but it picked up pace subsequently.

Due to the demonetization, the rural areas faced cash shortages which was reinforced
by credit squeeze, which saw a loan growth slowing from 16 percent in September 2016
to 8-9 percent in Jan to March 2017. This cash and credit squeeze could have reduced
acreage and the use of fertilizer. Yet rabi plantings in 2016-17 - which coincided with the
peak period of demonetization - and output growth were unaffected (growth of 5.7
percent in area sown and 7 percent in production). So in contrast to expectation of some
observers, demonetization did not reduce supply of the rabi crop. The growth in Gross
Value Addition (GVA) in agriculture and allied sector in 2016-17 was 4.9% as compared
to 2015-16. One reason of increase in output in 2016-17 as compared to 2015-16 can be
attributed to the good monsoon where 2015-16 was a drought year (so base effect is one
of the reasons of high agriculture growth in 2016-17).

In a country where 69% of the population lived in rural areas and more than 90% of the
transactions are cash based, the demonetization move was paralysing. For the Micro
Finance industry this came as a blow too. Most of the borrowers of the MFIs are based in
rural areas; they borrow in cash and repay in cash. Typically, MFIs that have had a
repayment rate of 99% have had a fall of upto 12% in repayment rates. For many MFIs
the non-performing assets rose by 7-10%. Particularly farmers and SMEs that make up
most of the customers were affected in a big way. The drying up of liquidity that the
demonetization drive caused affected cash dependent rural communities in a big way but
its impact on overall output was muted.

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9. Universal Basic Income (UBI)
Introduction:
Universal Basic Income (UBI) is a radical and compelling paradigm shift in thinking about
both social justice and a productive economy. It could be to the twenty first century what
civil and political rights were to the twentieth. It is premised on the idea that a just society
needs to guarantee to each individual a minimum income which they can count on, and
which provides the necessary material foundation for a life with access to basic goods
and a life of dignity. A universal basic income is, like many rights, unconditional and
universal: it requires that every person should have a right to a basic income to cover
their needs, just by virtue of being citizens. UBI has the following characteristics:

 Periodic: Paid at regular intervals and not as a onetime grant

 Cash Payment: It is paid in appropriate medium allowing those who receive it to
decide what they spend it on. It is therefore not paid in kind or in vouchers
dedicated to a specific use.
 Individual: It is paid on an individual basis and not to household
 Universal: It is paid to all without means test
 Unconditional: It is paid without a requirement to work or to demonstrate
willingness-to-work

UBI will promote the following in the society:

 Social Justice: UBI promotes many of the basic values of a society which respects all
individuals as free and equal. It promotes liberty and equality by reducing the
poverty.

 Poverty Reduction: Even by pegging at a relatively low level of income, UBI can
result in immense welfare gains with the only condition that a well-functioning
financial system exists for the transfer of income.

 Agency: The poor in India have been treated as objects of government policy. Our
current welfare system, even when well intentioned, inflicts an indignity upon the poor
by assuming that they cannot take economic decisions relevant to their lives. An
unconditional cash transfer treats them as agents (where they are free to purchase
whatever they want), and not subjects.

 Employment: UBI is an acknowledgement that society's obligation to guarantee a

minimum living standard is even more urgent in an era of uncertain employment
generation. UBI creates flexibility and allows for more non-exploitative bargaining
since individuals will no longer be forced to accept any working conditions, just so
that they can subsist.

 Administrative Efficiency: In India in particular, the case for UBI has been enhanced
because of the weakness of existing welfare schemes which are riddled with
misallocation, leakages and exclusion of the poor. With JAM (Jan-Dhan, Aadhaar
and Mobile) fully established, we could move on to a mode of delivery which is

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 administratively more efficient and which requires less human (government)
interface. But UBI is not a substitute for State capacity rather it is a way of ensuring
that State welfare transfers are more efficient so that the State can concentrate on
other public goods like education, health, infrastructure etc.

Other benefits of UBI

1. Solve the problem of misallocation, leakage and exclusion error:

Misallocation: (Presently there is evidence on misallocation of the government's

resources. The poorest areas of the country are obtaining a lower share of
government resources transferred through various schemes when compared to their
richer counterparts. And a natural consequence of misallocation is "exclusion error" -
genuine poor find themselves unable to access programme benefits). A UBI will
simply amount to a transfer of resources from above and need not be accessed by
beneficiaries (like going to PDS shops to access the benefit). Beneficiaries are simply
required to withdraw money from their accounts as and when they please, without
having to jump through bureaucratic hoops. The simplicity of the process also implies
that the success of a UBI hinges much less on local bureaucratic ability than do other
schemes. In addition, by focussing on universality, UBI reduces the burden on the
administration further by doing away with tedious task of separating the poor from the
non-poor.

Leakage: Conceptually, a UBI reduces out of system leakage because transfers are
directed straight to the beneficiaries' accounts. The scope for diversion is reduced
considerably, since discretionary powers of authorities are eliminated almost wholly.

Exclusion Error: Given the link between misallocation and exclusion errors, a UBI
that improves allocation of resources will automatically bring down exclusion error.
Furthermore, by virtue of being universal, exclusion errors under the UBI should be
lower than existing targeted schemes.

2. Insurance against risk and psychological benefits:

Poor households are often faced with various kinds of shocks like job loss, bad
health, crop loss, loss of property etc. The data shows about 60 percent of individuals
use personal savings to cope with these shocks. Government assistance comes a
distant second with only close to 10 percent of individuals accessing it. In the face of
such prominence of shocks, a guaranteed basic income can provide a basic form of
insurance.

3. Improved financial inclusion:

When a person is guaranteed to receive a basic minimum income every month in his
bank account, it will be the single biggest factor for him to open a bank account and
operate it. It will also be more profitable for banks to open branches in rural areas.

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Misconceptions/Arguments against UBI
1. Whether UBI reduces the incentive to work?
The levels at which UBI is likely to be pegged are going to be minimal guarantees at
best; they are unlikely to crowd incentives to work.

2. Moral Hazard: Would a UBI reduce labour supply?

Another argument against UBI is the moral hazard i.e. free money makes people lazy
and they drop out of the labour market. The explanation is unconditional cash
transfers raise the income of households for each unit of labour it already supplies
and so can afford to reduce labour without necessarily affecting the household's
income. But the data from various surveys show non-impact of UBI on labour supply.

3. Would UBI promote vice (temptation goods)

Detractors of UBI argue that, as a cash transfer programme, this policy will promote
conspicuous spending or spending on social evils such as alcohol, tobacco etc. But
the evidence shows that an increase in income from UBI alone will not necessarily
lead to an increase in temptation goods consumption. An NSSO survey finding is that
the temptation goods form a smaller share of overall budget/ consumption as overall
consumption increases.

Way Forward:
If universality has powerful appeal, it may also elicit powerful resistance. Keeping in mind
the fiscal cost, the notion of transferring even some money to the well-off may be difficult
in our country. It is, therefore, important to consider ideas that could exclude the
obviously rich i.e., approaching targeting from an exclusion of the non-deserving
perspective than the current inclusion of the deserving perspective. So, a UBI can
be de jure universal, but de facto it will be quasi-universal with a rate of 75 percent.

Women face worse prospects in almost every aspect of their daily lives - employment
opportunities, education, health or financial inclusion. Simultaneously, there exists plenty
of evidence on both, the higher social benefits and the multi-generational impact of
improved development outcomes for women. A UBI for women only can, therefore, not
only reduce the fiscal cost of providing a UBI (to about half) but have large multiplier
effects on the household.

Comment:
UBI shall not be framed as a transfer payment from the rich to the poor. The idea of UBI
is that we have a right to a minimum income, merely by virtue of being citizens. It is the
acknowledgment of the economy as a common project. This right requires that the basic
economic structure be configured in a way that every individual gets a basic income.

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10. GST and its impact on economy
Introduction: Before the GST regime, when a raw material supplier A used to sell raw
material worth Rs. 100 to B then A used to pay tax on Rs. 100 and when B used to sell
the final product worth Rs. 150 then B again used to pay tax on Rs. 150 rather than on
Rs. 50 (which used to create tax on tax and cascading effect). This used to continue
along the value chain to the wholesaler and then the retailer who sells the final product to
the consumer ultimately leading to tax on tax and cascading effect and making the
effective tax rate very high.

Under the GST regime, every supplier/entity in the value chain needs to pay tax only on
his value addition (for example in the above case, B will pay taxes only on his value
addition of Rs. 50 rather than on Rs. 150) i.e. credits of input taxes paid at each stage
will be available in the subsequent stage of value addition across India and thus
will prevent the dreaded cascading effect of taxes.

Before the GST, there were various Central and State taxes like Central Excise Duty,
Additional Excise Duty, Service Tax and State taxes like VAT, Entertainment tax, Entry
tax, Purchase Tax, Luxory tax etc. which used to be imposed on sale of various goods
and services. Now, a total of 17 Central and State indirect taxes have been subsumed
under GST. So, GST is one indirect tax on the supply of goods and services for the
whole nation, which will make India one unified common market.

There are various benefits of GST which are summarized as under:

For business and industry

 Easy compliance: A robust and comprehensive IT system is the foundation of the
GST regime in India. Therefore, all tax payer services such as registrations, returns,
payments, etc. is available to the taxpayers online, which would make compliance
easy and transparent. Under the pre-GST regime, separate returns had to be filed for
VAT to States and for Central Excise to Centre but now under GST only one return
need to be filed.

 Uniformity of tax rates and structures: GST will ensure that indirect tax rates and
structures are common across the country, thereby increasing certainty and ease of
doing business. In other words, GST would make doing business in the country tax
neutral, irrespective of the choice of place of doing business. Previously, every good
faced an excise tax levied by the Centre and a state VAT. There were at least 8-10
rates of excise and 3-4 rates of state VATs. So a structure of multiple rates (as much
as 10 times X 4 times) has been reduced to a structure of 6 rates.

 Removal of cascading: A system of seamless tax-credits throughout the value-chain,

and across boundaries of States, would ensure that there is no cascading of taxes.
This would reduce hidden costs of doing business.

 Improved competitiveness: Reduction in transaction costs of doing business would

eventually lead to an improved competitiveness for the trade and industry.

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 Gain to manufacturers and exporters: The subsuming of major Central and State
taxes in GST and complete and comprehensive set-off of input goods and services
would reduce the cost of locally manufactured goods and services. This will increase
the competitiveness of Indian goods and services in the international market and give
boost to Indian exports. The uniformity in tax rates and procedures across the
country will also go a long way in reducing the compliance cost.

For Central and State Governments

 Furthering cooperative federalism: Nearly all domestic indirect tax decisions to be
taken jointly by the Centre and states.

 Simple and easy to administer: Multiple indirect taxes at the Central and State levels
have been subsumed under one GST. Backed with a robust end-to-end IT system,
GST would be simpler and easier to administer than all other indirect taxes of the
Centre and State levied so far. With the elimination of the inter-state check posts
(Entry Tax), GST will reduce the compliance scrutiny for inter-state movement of
goods , which used to be a major source of concern.

 Better controls on leakage and reducing corruption: GST is self-policing in nature

where invoice matching to claim input tax credit will deter non-compliance and foster
compliance. Previously invoice matching existed only for intra-state VAT
transactions and not for excise and service taxes nor for imports. Due to the
seamless transfer of input tax credit from one stage to another in the chain of value
addition, there is an in-built mechanism in the design of GST that would incentivize
tax compliance by traders.

 Increase in tax base: A lot of new businesses, previously outside the tax net have
sought GST registration. Preliminary estimates point to potentially large increases in
the tax base as a consequence.

 Effective taxation on Imports: Under the GST, the full taxes on domestic sales levied
by the Centre and states (the IGST) will be levied when imported goods first arrive
into the country with full tax credits available down the chain to a greater extent than
previously. This will lead to more transparent and more effective taxation on imports.

 Higher revenue efficiency: GST is expected to decrease the cost of collection of tax
revenues of the Government, and will therefore, lead to higher revenue efficiency.

For the consumer

 Single and transparent tax proportionate to the value of goods and services: Due to
multiple indirect taxes being levied by the Centre and State, with incomplete or no
input tax credits available at progressive stages of value addition, the cost of most
goods and services in the country used to be laden with many hidden taxes. Under
GST, there would be only one tax from the manufacturer to the consumer, leading to
transparency (of taxes paid) to the final consumer.

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 Relief in overall tax burden: Because of efficiency gains and prevention of leakages,
the overall tax burden on most commodities will come down in future, which will
benefit consumers.

GST will bring the informal sector into formal one:

The GST regime is particularly good at formalising areas where India’s formal sector
interacts with the informal industry through its input tax credit mechanisms. India’s
biggest companies across various industries have incentives to bring their informal
supply chain into the formalised tax net to avail the benefits of input tax credit.

GST sharply impacts the intersection between India’s formal and informal economy.
The basic principle is that the greater portion an industry is vertically integrated (where
one company performs a lot of roles across the supply chain), the less pain there will be
over the GST roll-out. But if an industry has disaggregated value chain (having many
intermediaries) then it might end up paying more taxes than a vertically-integrated
company. Nowhere is this seen more clearly than the textile and fabric industry (for
example Surat's textile industry). Now the GST will be levied on each intermediary
transaction that occurs between the producers of yarn, weavers and processing mills.
That is the reason, across India, in major textile hubs, traders and MSMEs that provide
weaving, printing, processing and embroidering services staged protests and bandhs
during the launch of GST. Textiles and clothing, that have historically paid little tax
(whether in the form of duty or VAT) now have a formal GST rate and will have little
choice but to start registering, formalising and digitising their business. Previously, some
parts of the value chain, especially fabrics, were outside the tax net, leading to
informalization and evasion but now the textile and clothing sector is fully part of the GST
tax net.

Another crucial aspect is that while the exemption threshold in GST is Rs 20 lakhs, for
many small manufacturers it used to be Rs 1.5 crore earlier, which means that
thousands of hitherto informal or unorganised MSMEs will have to register for GST and
come into the tax net. Hence, GST will bring these informal enterprises into the formal
economy and curb tax evasion practices and will certainly expand India’s tax base.

Impact of GST on logistics:

Statistics suggest that logistical costs within India are very high. For example, one study
suggests that trucks in India drive one third of the daily distance of trucks in the US (280
km vs 800 km). This raises direct costs (especially in terms of time to delivery), indirect
costs (firms keeping larger inventory), and location choices (locating closer to suppliers/
customers instead of the best place to produce). Further, only about 40 per cent of total
travel time is spent driving; while 25 percent (6 hrs) is taken by check points and other
official stoppages, adding to inefficiencies in logistics and transportation.

With the implementation of GST, the states have abolished check posts (Entry Tax which
used to be levied by every State on inter State movement of goods have been subsumed
under GST). This could keep trucks moving almost 6 hours more per day, equivalent to
additional 164 kms per day - pulling India above global average. All the states have
abolished these check-posts which could lead to reduction in transport costs, more inter-
state trade, fuel use efficiency, and reduced corruption.

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Challenges: The GST council has decided a four-rate structure: 5%, 12%, 18% and
28%, in addition to the exempt category (0%) and gold 3% and additional cesses that are
charged on top of certain products, making GST effectively a six/seven tax rate slab
structure. This makes the present GST structure a complicated one. Differences in rates
and concessions across items are a primary reason behind tax disputes and as per the
government record, as of September 2015, there were 1,36,365 lakh indirect tax cases
pending against the various courts. (For example, is Lal Dant Manjan a toothpowder or a
medicinal product? Is McDonald's McSwirl ice-cream or a dairy product? Is green
coconut a fruit or vegetable)

Alcohal, petroleum and energy products, electricity, land and real estate transactions are
outside the GST base but are taxed by the Centre and/ or states outside the GST. For
example, keeping electricity out of GST undermines the competitiveness of Indian
industry because taxes on power get embedded in manufacturer's costs and cannot be
claimed back as input tax credits.

India’s current GST regime goes against one of the more basic principles of increasing
revenue: the lower the rate of taxation, the more number of people and businesses that
will comply. In other words, if the ideal taxation regime is the one that taxes more items
at lesser rates, our new GST regime is far from that.

Another closely connected issue is the GST threshold limit, which exempts businesses
from registration for GST that has turnover of under 20 lakhs per year. These exemption
limits are exploited to under report the sales figures by various business units.

India has roughly more than six crore firms in the informal sector, out of which 2.5 crore
businesses are quite small and will be exempt from GST as they won’t cross the Rs 20
lakh threshold limit. But the remaining four crore firms don’t own a computer or are not
digitally literate and their operating costs will go up as business owners hire accountants
and computerise their operations to comply with the new GST regime ultimately making
some of the firms in this sector unviable. What makes matters worse are the heavy filing
requirements for service providers under GST.

Most economists believe a well-designed GST that ensured demand-driven production

rather than tax-driven production could have added two percentage points to India’s
GDP growth. A more complicated GST which we have implemented, multiple tax rates
and exemptions announced, are far from an ideal structure and could blunt the growth
impact of the reform process and is likely to yield less favourable returns, more in the
range of half a percentage point to one percentage point increase in GDP in the short-
term.

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11. Make in India
Introduction:
Government launched the “Make in India” campaign in September 2014 which is the first
of its kind for the manufacturing sector as it addresses areas of regulation, infrastructure,
skill development, technology, availability of finance, exit mechanism and other pertinent
factors related to the growth of the sector. It contains a vast number of proposals
including easier norms and rules designed to get foreign companies (and domestic) to
set up shop and make the country a manufacturing powerhouse.

The main targets under the scheme are:

 Increase in manufacturing sector growth to 12-14% per annum
 Increase in the share of manufacturing in country’s GDP from 15% to 25% by
2022
 Create 100 million additional jobs by 2022 in manufacturing sector
 Increase in domestic value addition and technological depth in manufacturing
 Enhance the global competitiveness of the Indian manufacturing sector
 Create appropriate skill sets among rural migrants & urban poor for inclusive
growth
 Ensure sustainability of growth, particularly with regard to environment

Scope for manufacturing/ Make in India:

After India liberalized its economy in 1991, the services sector was among the fastest
growing part of the economy, contributing significantly to GDP, economic growth,
international trade and investment. Manufacturing contributes just 17 percent to India’s
GDP, compared to a 54 percent contribution by services. But the services sector employ
fairly skilled people and India's most abundant resource is unskilled labor, that is
why it has not been able to provide employment to the large unskilled Indian population.
At present, 12 million people enter the Indian workforce each year. A substantial part of
them is low skilled workers, many having migrated from rural India to the urban centers.
Jobs are not being created at a proportionate pace. During 2005-12 India added only 15
million jobs, a quarter of the figure added in the previous six years. The scale and nature
of employment that is required to employ these people with limited skills and education
can only be provided by low and semi skilled manufacturing. While India is good at
making complex things which require skilled labour and frugal engineering (cars and
automotive components), it is quite uncompetitive at low skilled manufacturing.

For manufacturing to take off in India, we must create hubs that are ecosystems for
innovation, specialized skills and supply chains as it is difficult to make a country the size
of India into a uniformly attractive manufacturing location. Even China started its
manufacturing journey by creating a few oases in the form of four special economic
zones which were remarkably easy places to manufacture in. Pune, Chennai, Bengaluru
and Delhi are already emergent hubs but we must give incentives to attract the world's
leading companies to establish global innovation and manufacturing centres in these
hubs. India must improve the physical infrastructure, reform labour laws, invest in skills
development, make it easier to acquire land, implement Goods and Services Tax (GST)
and fast track approvals. And through these measures, it should improve in the ranking
of "ease of doing business" from the current 130 out of 189 countries to become a

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manufacturing powerhouse in order to gainfully employ its demographic dividend. With
China's competitive advantage in manufacturing eroding (because of higher wages),
India has the opportunity to take some share of global manufacturing away from China
and fortunately we have two major natural advantages of a big labour pool and a large
domestic market.

Challenges:
There is only one time-tested way for a country to get rich. It moves farmers to factories
and imports foreign manufacturing technology. When surplus farmers are moved to
cities their productivity soars. So far, no country has reached high levels of income by
moving farmers to service jobs en masse. This may be because manufacturing
technologies are embodied in the products themselves and in the machines that are
used to make the products, while service businesses get their productivity from
organizational models, human capital and other intangibles that are harder for poor
countries to imitate and tougher to grow quickly.

But the problem is that manufacturing is shrinking. Although the total amount of physical
stuff that humans make keeps expanding, the percent of our economic activity that we
put into making physical goods keeps going down. This is happening all across the
globe, even in China. This may be partly because manufacturing has been a victim of its
own success - this sector has grown so productive that it is now pretty cheap to make all
the stuff we need. (And after all that is what happened in agriculture).

The main engine of global growth since 2002 has been the rapid industrialization of
China. By channelling the vast savings of its population into capital investment, and by
rapidly absorbing technology from advanced countries, China was able to carry out the
most stupendous modernization in history, moving hundreds of millions of farmers from
rural areas to cities. And that in turn also powered the growth of the countries like Brazil,
Russia and many developing nations which exported oil, metal and other resources to
the new workshop of the world. But now China has started slowing down.

Comparison with China

There is a risk in focusing on manufacturing and attempting to follow the export-led
growth path that China followed.

 First, the slow growing advanced/ industrial countries will be much less likely to
be able to absorb a substantial additional amount of imports in the foreseeable
future and the world as a whole is unlikely to accommodate another export-led
China.

 Second, industrial countries have been improving capital-intensive flexible

manufacturing, so much so that some manufacturing activity is being re-shored
(brought in their own countries). Emerging markets wanting to export
manufacturing goods will have to compete with this.

 Third, when India pushes into manufacturing exports, it will have China to
compete with. Export-led growth will not be as easy as it was for the Asian
economies who took that path before us.

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Accordingly, China might have been the last country to hop on board the industrialization
train. And in that case, India, Africa, Latin America and the Middle East might get left
behind and may not be able to catch up, as China did.

Our Strategy for "Make in India" and Comments

While focusing on "Make in India", we should not follow export-led strategy that involves
subsidizing exporters with cheap inputs as well as an undervalued exchange rate, simply
because it is unlikely to be as effective at this juncture. And we should accept that, India
is different from China and is developing at different time. Further, we should also not
see "Make in India" as a strategy of import substitution through tariff barriers (import
substitution means substituting our import requirements with domestic manufacturing).
This strategy has earlier not worked because it ended reducing domestic competition,
making producers inefficient, and increasing costs to consumers. Instead "Make in India"
shall mean more openness, creating an environment that enables our firms to compete
with the rest of the world and encourage foreign firms to create jobs in India.

As building things (manufacturing) becomes less important and doing things becomes
more important to the global economy, human capital will be more crucial than ever.
This requires enhancing the quality and spread of healthcare, nutrition and sanitation,
better and more appropriate education and training for skill valued in the labour markets.
So, while we should continue to push to improve infrastructure of the country but it may
be even more important to focus on education (human capital).

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12. Smart Manufacturing: Industry 4.0
Virtual Reality is an artificial environment that is created with software and presented to
the user/person in such a way that the user suspends belief and accepts it as a real
environment. It is a computer technology that uses virtual reality headsets to generate
realistic images, sounds and other sensations that simulate a user's physical presence
in a virtual or imaginary environment. On a computer, virtual reality is primarily
experienced through two of the five senses: sight and sound.

Artificial Intelligence is intelligence exhibited by machines. Artificial intelligence is a

branch of computer science that emphasizes the creation of intelligent machines that
work and react like humans. Some of the activities computers with artificial intelligence
are designed for, include visual perception, speech recognition, learning, decision
making, problem solving and translation between languages. Robotics is also a major
field related to Artificial Intelligence. Robots require intelligence to handle tasks such as
object manipulation and navigation.

"Data is often referred to as the raw material of the twenty-first century."

First Industrial Revolution: 1765

The first industrial revolution began in Britain in the late 18th century, with the
mechanisation of the textile industry. Tasks previously done laboriously by hand in
hundreds of weavers' cottages were brought together in a single cotton mill, and the
factory was born. It witnessed the emergence of mechanization, a process that replaced
agriculture with industry as the foundations of the economic structure of society. Mass
extraction of coal along with the invention of the steam engine created a new type of
energy that thrusted forward all processes.

Second Industrial Revolution: 1870

Nearly a century later at the end of the 19th century, new technological advancements
initiated the emergence of a new source of energy: electricity, gas and oil. As a result,
the development of the combustion engine set out to use these new resources to their
full potential. Methods of communication were also revolutionized with the invention of
the telegraph and the telephone and so were transportation methods with the emergence
of the automobile (Ford's mass production techniques) and the plane at the beginning of
the 20th century.

Third Industrial Revolution: 1969

Nearly a century later, in the second half of the 20th century, a third industrial revolution
appeared with the introduction of electronics and information technology. For industry,
this revolution gave rise to the era of high-level automation in production thanks to two
major inventions: automatons (programmable logic controllers) and robots.

The first industrial revolution used water and steam to mechanize production, the second
used electric energy to create mass production and the third used electronics and
information technology to automate production. Today, a fourth industrial revolution is

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underway which builds upon the third revolution and the digital revolution that has been
taking place since the middle of the last century. This fourth revolution with exponential
expansion is characterized by merging technology that blurs the lines between the
physical, digital and biological spheres to completely uproot industries all over the world.
The extent and depth of these changes are a sign of transformations to entire
production, management and governance systems.

Fourth Industrial Revolution (Industry 4.0): Present

With rapid development in the fields of information technology and hardware, the world is
about to witness a fourth industrial revolution i.e. Industry 4.0, which is rooted in a new
technological phenomenon - digitalization. This digitalization enables us to build a new
virtual world from which we can steer the physical world.

While Industry 3.0 focussed on the automation of single machines and processes,
Industry 4.0 concentrates on the end-to-end digitisation of all physical assets and their
integration into digital ecosystems with value chain partners. Driven by the power of big
data, high computing capacity, artificial intelligence and analytics, Industry 4.0 aims to
completely digitise the manufacturing sector. Driven by the amalgamation of emerging
technologies like advanced robotics and cyber-physical systems, it is making it possible
the meeting of the real and virtual worlds.

Industry 4.0 is the next phase in bringing together conventional and modern technologies
in manufacturing to create "smart factories”. Such factories consist of machines (in
the entire production chain) that are digitally connected and can learn from the
large amount of data generated and then make autonomous decisions.

Challenges for the Labour Force (Industry 4.0 and Labour 1.0)
The shift in employment caused by adoption of industry 4.0 will be gradual but profound
and existing jobs will require to be transformed with the aid of virtual reality and
augmented reality. The existing workforce would require large scale re-skilling to adjust
to the new reality as there is fundamental incompatibility of Industry 4.0 and our Labour
Standards 1.0. There will be a need for massive up skilling as ‘digital labour would
become integral to most work profiles.

At the very core of Industry 4.0 is the fact that lifetime or permanent employment as we
know it—that is becoming increasingly rare in even Industry 3.0—will more or less cease
to exist with workers. Instead of finishing their education and then looking for a job as
they do today, the labour force will continuously be retooling themselves depending upon
what the market wants and what robots can’t do better.

The maximum impact of the emergence of intelligent automation will be felt on the global
industry of IT services and BPO workers. A technology research firm had predicted in
2015 that one in three jobs will be converted to software, robots and smart machines by
2025.

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Industry 4.0 and India
Usually, physical systems in any industry go through a technology ladder — from
electrification, automation to digitisation and then “smart factories”. Most parts of the
manufacturing sector in the country are still in the post-electrification rungs of the
ladder. Similarly, the use of IT in manufacturing is dominated by embedded systems in
machine units that operate independently of each other. The integration of physical
systems on cyber platforms, too, is at a very nascent stage. Also, a huge number of
MSMEs have just started to enter the automation phase.

To achieve the ambitious target of making India a global hub for manufacturing, design
and innovation, and augmenting the share of manufacturing in GDP from the current
16% to 25% by 2022, the adoption of Industry 4.0 technologies becomes imperative to
increase competitiveness and build efficient value chains. In its pursuit to foster best-in-
class manufacturing infrastructure in India, the “Make in India” initiative is spearheading
wider adoption of ‘Industry 4.0’. Banking on India’s strength in Information Technology
and a large workforce of IT professionals, the transformative journey of manufacturing
through Industry 4.0 has already begun in the country. Under the Government of India’s
‘Smart Cities Mission’, the projects to build 100 smart cities across India are being touted
as the forerunners of the Industry 4.0 environment.

Three years back General Electric (GE) established a smart factory in Pune which can
be termed as Industry 4.0. While most factories take weeks to switch over from one
production line to another, GE has produced a multi-product factory that reduces this
switchover time dramatically, as a result of which it can produce items as diverse as
locomotive engines and wind turbine blades within days from the same factory. Designs
coming in from engineers automatically get converted into 3D drawings that are fed into
the machines—overhead cranes take parts from one machine to another while an
optimising solution reconfigures the assembly line depending upon the need of the day;
the latter, in turn, is decided by the fact that the factory’s equipment ‘talk’ to one another
over the internet and can take decisions based on what customers across the world
want.

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13. Micro, Small and Medium Enterprises (MSME)
Introduction: Economic development of a nation is closely associated with the growth of
its industrial sector. Industrial sector is composed of Large, Medium, Small and Micro
enterprises. While large industries help in the overall economic development of a nation,
the contribution of MSMEs is quite significant in employment generation, industrial
production and exports. MSME industries have the advantage of labour intensiveness,
low cost technology, low capital/investment, short gestation period and their strong
forward and backward linkages with other sectors . In India, there are 3.6 crore MSME
units spread across the country employing 8 crore people and contributing 37.5% to the
country's GDP. (Whether an enterprise is Micro, Small or Medium is based on Turnover.
Turnover < 5 crore Micro, 5 crore to 75 crore Small and 75 crore to 250 crore Medium).

MSME's role in socio-economic development: MSME sector has emerged as a highly

vibrant and dynamic sector of the Indian economy over the last five decades. MSMEs
not only play crucial role in providing large employment opportunities at comparatively
lower capital cost than large industries but also help in industrialization of rural &
backward areas, thereby, reducing regional imbalances, assuring equitable distribution
of national income and wealth and leading to socio economic development of the
country. MSMEs don't compete with large scale industries rather they complement them
as ancillary units and play critical role in manufacturing value chains. They also play a
key role in the development of economies with their effective, efficient, flexible and
innovative entrepreneurial spirit.

Generally as the economies develop, share of agriculture in GDP begin to decrease and
it results in surplus labour force. In 1951, more than 75% of Indian population depended
on agriculture for their livelihood and now it is nearly 50%. It is quite relevant that
MSMEs in most of the nations including India provide employment to this surplus labour
force from the agriculture sector. It is well known that the MSMEs provide maximum
opportunities for both self-employment and jobs after agriculture. MSMEs, including
khadi and village/rural enterprises are credited with generating the highest rates of
employment growth and account for a major share of industrial production and exports.

MSME sector has huge growth potential and consistently registered higher growth rate
than rest of the industrial sector. There are over 6000 products ranging from traditional to
high-tech items, which are being manufactured by the MSMEs in India. The MSME
sector in India is highly heterogeneous in terms of the size of the enterprises, variety of
products and services produced and the levels of technology employed. While one end
of the MSME spectrum contains highly innovative and high growth enterprises, on the
other hand more than 94% of MSMEs are unregistered i.e. they belong to the informal &
unorganized sector.

The MSME sector has huge potential in addressing the structural problems like
unemployment, regional imbalances, unequal distribution of national income and wealth
across the country but is fraught with various issues. Following are the major issues
concerning MSME sector:-
 Lack of availability of adequate and timely credit
 Lack of access to skilled labour, modern technology and global markets

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  Lack of infrastructure facilities like power, transportation etc.
 Multiplicity of labour laws and complicated procedures of compliance

Role of government in the promotion of MSME sector:

The majority of people living in rural areas draw their livelihood from agriculture and
allied sectors. However, the growth and balanced development of other sectors such as
industry and services is also necessary to sustain the growth of Indian economy in an
inclusive manner. The socio-economic policies adopted by the Indian Govt. since the
Industries (Development and Regulation) Act, 1951 have laid stress on MSMEs as a
means to improve the country’s economic conditions. The primary responsibility of
promotion and development of MSMEs is of the State Governments. However, the
Government of India, supplements the efforts of the State Governments through various
initiatives. The role of the Ministry of Micro, Small and Medium Enterprises and its
organizations is to assist the States in their efforts to encourage entrepreneurship,
employment and livelihood opportunities and enhance the competitiveness of MSMEs in
the changed economic scenario.

Following are some of the new initiatives undertaken by the government for the
promotion and development of MSMEs:-
 MSME entrepreneurs need to file an online entrepreneurs' memorandum to instantly
get a unique "Udyog Aadhaar Number" (under MSMED Act 2006). It is a path
breaking step to promote ease of doing business for MSMEs as it will replace the
earlier complex and cumbersome procedure of filing with respective states.
 Government has launched A Scheme for Promoting Innovation and Rural
Entrepreneurs (ASPIRE) with the objective of setting up a network of technology
centres and incubation centres to accelerate entrepreneurship and promote startups
for innovation and entrepreneurship in rural and agriculture based industries.
 In June 2015, government launched Employment Exchange for Industries to facilitate
match making between prospective job seekers and employers
 Government has created a framework for revival and rehabilitation of MSMEs

Micro; Small and Medium Enterprises Development (MSMED) Act 2006

The MSMED Act was notified in 2006 to address policy issues affecting MSMEs as well
as the coverage and investment ceiling of the sector. The Act seeks to facilitate the
promotion and development of these enterprises as also enhance their competitiveness.
It provides the first-ever legal framework for recognition of the concept of "enterprise"
which comprises both manufacturing and service entities. The Act also provides for a
statutory consultative mechanism at the national level and with a wide range of advisory
functions. The following are some other basic features of the Act:-

 Establishment of specific funds for the promotion, development and enhancing

competitiveness of these enterprises
 Preference in Government procurements to products and services of the micro and
small enterprises
 Progressive credit policies and practices
 More effective mechanisms for mitigating the problems of delayed payments to micro
and small enterprises, and
 Assurance of a scheme for easing the closure of business by these enterprises.

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14. Global situation moving towards protectionism
(Trade War) and its impact on Indian Economy
Introduction:
Globalization is the processes by which ideas, people, money, goods and services cross
borders at unprecedented speed. The latest/third wave of globalization which began in
the early 1990's was fed by enormous increase in volume of world trade [First phase of
globalization started in 1870 and ended with the First World War and Second phase
started after the Second World War and ended in 1970's]. The increase was not limited
to trade among developed countries. Emerging markets, as well as low-income
countries, became important actors of global trade. Commerce expanded rapidly as
barriers came down on movement of goods across borders and countries began lifting
restrictions on investments. It was further boosted by the liberal immigration policies
adopted by many countries making the global labour market a great domain of
opportunity for many as people began moving rapidly to jobs. This phase has also been
described by some economists as the phase of 'hyper-globalization' as there was a
dramatic increase in international trade. But the things started changing after the global
financial crisis of 2008.

Globalization and its impact

The recent phase of globalization created two sets of winners. First, the world's richest
have increased their share of global wealth. Today, the world's 85 richest people own the
same amount of wealth as the bottom 50% of the global population. And second,
hundreds of millions of people in developing countries have been lifted out of poverty into
the global middle class as emerging economies ramped up their industrial production.
The globalized marketplace has benefited workers in China, Brazil, Mexico, South
Korea, Turkey, Malaysia, India etc.

But, the early losers are those in wealthier countries, like the U.S., who have fallen from
the middle class as factory jobs have vanished. As global value chains developed,
companies took to outsourcing of production and letting cheaper locations do more
activities at the expense of the more expensive ones. One of the major implications of
these decisions was the loss of jobs in countries with higher wages. As industrialized
country businesses decided to shift bulk of their manufacturing jobs to low-wage
locations, workers in several industries in the US and Europe, found themselves out of
job.

Globalization leads to the movement of four things viz. capital (money), goods, services
and labour. Movements of capital and goods and services benefits everyone. Free
movement of labour benefits the migrant worker and the employers and consumers of
the fruits of his labour services. But it does not necessarily benefit the citizen-worker
who is competing for the same jobs. As a consumer, he may benefit but not as a
supplier of labour services. If the economy is growing and providing full employment,
the competition is muted and there is tolerance of the migrant worker. But come
recession, the antagonism goes deep. It cannot be more visible than in the case of

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election of Mr. Donald Trump as the US President and the Britain's decision to exit the
European Union (BREXIT).

In democratic politics, there is an expectation that the State is responsible for the welfare
of their citizens and the citizens insist that the political system look after them. US
President built up his political campaign against the outsourcing of jobs by US corporates
to the emerging economies like China and India and the easy immigration policies of the
previous government's resulting in huge influx of labour in US. BREXIT is also the result
of the reaction against immigration which the Brexiters (probably those who were left out
of the benefits of globalisation) demonstrated because of the eight year long recession
the citizens have suffered since the Lehman Brothers crisis in 2008.

Trade War:
A trade war is when countries deliberately enact policies on each other, that adversely
affects trade.

Trade wars usually start, when a country tries to protect a specific domestic industry by
enacting custom duties or other kinds of taxes on competing foreign goods. Countries,
whose industries were affected, sometimes react with enacting some kind of duties on
goods imported from the country, which had originally enacted protectionist duties. This
can easily escalate into tit for tat duty enactment and in very short time the trade
between the countries can drop to a minimal level, hurting various industries in both
countries and also related industries in other countries, which can then get involved in
the trade war. Trade barriers not only damage both countries but also disrupt global
supply chains. Any disruption to supply and distribution chains, which are a key part of
world trade, could have a lasting impact. In the worst-case scenario, companies may
have to relocate factories or distribution centres. Investment decisions affect employment
and taxes raised, and are in some ways more disruptive than tariffs, which can be
reversed more easily. All this leads to increased prices of products for consumers and
overall decrease in aggregate demand worldwide leading to recession.

Once the trade war escalates, it is very difficult to stop, and it takes a long time to
reverse all of the tariffs, that were enacted during the trade war. The Great Depression
was exacerbated by the increase in the global tariffs/ trade war in 1930's.

Recent Developments:

1. On 8th March 2018, US president Donald Trump announced a 25% tariff on imported
steel and a 10% tariff on imported aluminium, on the reasoning that other countries’
trade practices endanger American “national security” by undermining domestic
production. Imports from Canada and Mexico have been exempted from such tariffs,
and the US has indicated its openness for bilateral discussions with other countries
to have similar arrangements.

China, being the largest exporter into the US, will be most affected. The general view
is that the impact will not be much for India’s limited exports that currently account

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only for approximately 2.4% and 2% of the US total imports of steel and aluminium,
respectively.

The US has already 169 anti-dumping and countervailing duty orders in place on
steel, of which 29 are against China, and there are several ongoing investigations.
The report on aluminium is along similar lines. The US, therefore, seems to be
suggesting that since WTO-consistent trade remedial action (in the form of anti-
dumping and countervailing duty orders) has not made its domestic producers
competitive, higher tariffs will be imposed. This turns the entire concept of global
trade based on the principle of comparative advantage, on its head. If all countries
follow suit, then this very well be the beginning of the end of a rules-based trading
system.

But how can import of steel and aluminium be a threat to national security? The US
is both an exporter and importer of these items. In 2016, it exported steel and
aluminium worth $38.2 billion. The import values were $74.8 billion. As such there is
no surge in import and the US meets 70 per cent of its requirements from the
domestic sources. So there is no threat to national security.

As per the WTO GATT Agreement, Most Favoured Nation (MFN) principle, the tariffs
should be same for all the member countries. Every member country declares a
'bound rate' (ceiling tariff) beyond which they cannot increase the tariff but they can
always keep the duty less than that which is called 'applied duty'. The US has
increased the duties on steel and aluminium beyond the bound rate. But there is an
exception provided in the GATT agreement for the same which relates to national
security. The security exception provides for some flexibility for a country’s own
evaluation of what actions are “necessary for the protection of its essential security
interests”, but does not provide unfettered discretion for countries to justify any
protectionist action as a matter of essential security”.

The US appears to be saying that its industry’s non-competitiveness, and the

reliance on imports, is a “national security” concern. But the experts say that the
national security exception did not allow for the imposition of restrictions with the
objective of sustaining domestic industries. Such a sweeping and unprecedented
unilateral measure by the US will lead to chaos not only in global trade, but for
international relations in general, in the event each country was to replicate such a
step in a tit-for-tat move. Tit-for-tat discrimination and retaliatory policies will be self-
defeating and not achieve much purpose.

The US is targeting hi-tech manufacturers to disrupt President Xi’s flagship industrial

strategy, the Made in China 2025 Plan which seeks to make Chinese manufacturing
globally competitive by introducing more artificial intelligence and automation. The
ability of emerging economies such as China to “catch up” with rich economies
depends on their being able to access and adapt the best technology in the world.
This lies at the heart of the problem. The US has launched these trade measures in
retaliation for China’s poor record on intellectual property rights protection, which
includes requiring foreign companies to transfer their technology as a condition of
investing in China.

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2. On 14th March 2018, in a separate issue, the US moved to the WTO dispute
settlement mechanism in order to challenge India’s export subsidy programmes—
Merchandise Exports from India Scheme (MEIS), Export Oriented Units Scheme,
Sector-Specific Schemes, Special Economic Zones, Export Promotion Capital Goods
Scheme, among others. The US has alleged that these export subsidies “unfairly”
benefit Indian companies by creating an “uneven playing field” for the US-based
manufacturers and exporters. The US has, thus, initiated the process of
“consultations at the WTO dispute settlement process” and if the two parties do not
reach a mutually agreed solution, the US may request WTO dispute settlement panel
to review the matter. Even other trading partners have also put India under "careful
observation" for its subsidy programmes.

India under its Foreign Trade Policy gives various incentives to its exporters under
different schemes for example under MEIS if an exporter exports goods worth Rs.
100 cr then he may get 3% of Rs. 100 crore as duty credit scrips (paper money)
which they can use for payment of customs duty on import of inputs or any other
taxes.

Under the Agreement on Subsidies and Countervailing Measures (ASCM) of WTO,

there are rules and provisions pertaining to subsidisation and material injury.
Subsidies contingent on export performance and use of domestic over imported
goods are prohibited under the ASCM of WTO. But since WTO recognises that
subsidies play an important role in the economic progress of a developing country,
certain provisions have been provided under special and differential treatment to
select developing countries. These are basically of two types:

 First, any developing country with per capita income below $1,000 is eligible to
extend the prohibited subsidies to their domestic industry. However, if their per
capita income increases beyond $1,000, then, as per the Doha Ministerial
Meeting (2001), the developing countries would remain eligible for the exemption
until their GNI per capita reached $1,000 in constant 1990 dollars for three
consecutive years.

Issue: India’s GNI per capita crossed $1,000 level for the three consecutive
years, starting 2013 to 2015 (and it came to the knowledge when the WTO
secretariat produced its calculations in 2017), and, thus, India is no more allowed
the flexibility to provide these subsidies to its domestic manufacturers.

Now, India's contention is, at the time ASCM came into force, the developing
countries above $1000 per capita GNI were given a period of eight years in order
to bring down/phase out their export subsidies. And India has clearly assumed
that the same period of eight years is available to these countries as and when
they reach the threshold of $1000. India has submitted a paper regarding this
and has been raising it in the committee. India's logic is "It is very absurd to
expect someone to get eight years if the country's GNI is above $1000 threshold
and deny another country the same benefit if it reaches the threshold immediately
next year."

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  Second, as per the product criteria, export competitiveness in a product is
deemed to exist if the developing country’s exports of that product have reached
a share of at least 3.25% in the world trade for that product for two consecutive
calendar years. Thus, such products are not eligible for subsidies even if the
countries GNI per capita is below $1,000.

Issue: India's labour intensive textile and clothing industry crossed the sector-
wise threshold of 3.25% of global trade as early as 2010. An eight year window to
end the subsidies in the sector will expire in Dec 2018.

Comment:
If the world becomes more protectionist, it's going to have a big impact on the Indian
economy. If India wants to achieve its growth ambitions of 8-10 percent then it will
require growth in exports of about 15-20 percent (GDP growth demand comes from four
sectors i.e. household, private, government and external/exports). Any serious retreat
from openness on the part of India's trading partners would jeopardize those ambitions.
Since we've a stake in ensuring that other countries remain open, we need to be more
proactive in becoming champions of keeping world markets more open.

But we should also think of an alternative strategy of increasing the growth of our home
market, which is the demand for goods and services emanating from within the country.
And the most important sector for raising the aggregate demand is the investment in
infrastructure, which in the long run also raises the productivity of investments elsewhere
in the economy.

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15. National Intellectual Property Rights Policy 2016
Introduction: Intellectual Property (IP) refers to creations of the mind, such as
inventions; literary and artistic works; designs; and symbols, names and images used in
commerce. Intellectual property rights (IPRs) are the protections granted to the creators
of IP and include patents, copyrights, trademarks etc. which enable people to earn
recognition or financial benefit from what they invent or create. By striking the right
balance between the interests of innovators and the wider public interest, the IP system
aims to foster an environment in which creativity and innovation can flourish.

Government of India, Ministry of Commerce and Industry, Department of Industrial Policy

and Promotion (DIPP) released the new National IPR Policy in May 2016. The National
IPR Policy is a vision document that aims to create and exploit synergies between all
forms of intellectual property (IP), concerned statutes and agencies and lays the
roadmap for the future IPRs in India. The policy seeks to reinforce the IPR framework in
the country that will create public awareness about economic, social and cultural benefits
of IPRs among all sections of the society. It reiterates India’s commitment to the Doha
Development Agenda and the TRIPS agreement. The policy slogan is "Creative India;
Innovative India".

The policy lays down the following seven objectives:-

1. To create public awareness about the economic, socio and cultural benefits of IPR
among all sections of society: In India, many IP holders are unaware of the benefits
of IP rights or of their own capabilities to create IP assets or the value of their ideas.
They are often discouraged by the complexities of the process of creating defendable
IP rights. Conversely, they are also unaware of the value of others' IP rights and the
need to respect the same. This policy proposes to tackle both perspectives through
outreach and promotion programmes. The policy proposes to reach out to the less
visible IP generators and holders especially in rural and remote areas.

2. To stimulate the generation of IPRs: The policy targets filing of more IP applications
in those areas where we are way below our potential like the protection of designs
given its vast pool of designers, artisans and artists. It emphasizes developing,
promoting and utilizing the unexplored traditional knowledge which is a unique gift
of India. The policy proposes a comprehensive base line survey or IP audit across
sectors to enable assessment and evaluation of the potential in specific sectors.

3. To have strong and effective IPR laws, which balance the interests of rights owners
with larger public interest: The Indian IP laws along with various judicial decisions
provide a stable and effective legal framework for protection and promotion of IPRs.
The new policy proposes to utilize the legal framework to enhance transparency and
efficiency in the administration and enforcement of IPR laws.

4. To modernize and strengthen service oriented IPR administration: Since IPR offices
are cornerstone of an efficient and balanced IPR system, the policy proposes
modernization of various IP offices (IPO) including improvement of information and
communication technology infrastructure. Aiming towards a service oriented regime
at IPOs, steps shall be taken to fix and adhere to timelines for disposal of IPR
applications. To facilitate promotion, creation and commercialization of IP assets, a
Cell for IPR Promotion and Management should be constituted under the aegis of
DIPP.

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5. Get value for IPRs through commercialization: The policy proposes
commercialization of the research outcomes of the various public funded research
laboratories, academia and other institutions and they should be suitably supported
by the government in the development and deployment of their IPRs. It also lays
emphasis to establish facilitative mechanisms that can address the limitations of
individuals and MSMEs in the commercialization of their innovations.

6. To strengthen the enforcement and adjudicatory mechanisms for combating IPR

infringements: The policy proposes to build respect for IPR among the general public
and to sensitize the inventors and creators of IP on measures for protection and
enforcement of their rights. It also proposes to build capacity of the enforcement
agencies at various levels, including strengthening of IPR cells in State police forces.

7. To strengthen and expand human resources, institutions and capacities for teaching,
training, research and skill building in IPRs: The policy lays emphasis to develop an
increasing pool of IPR professionals and experts in various spheres such as policy
and law, strategy development, administration and enforcement. Such a reservoir of
experts will facilitate in increasing generation of IP assets in the country and their
utilization for development purposes.

The IPR policy mentions detailed action points to achieve the above objectives. The
action by different Ministries/ Dept. shall be monitored by DIPP which shall be the nodal
dept. to coordinate, guide and oversee the implementation and future development of
IPRs in India.

Criticism:
 The IPR policy unfortunately suffers from a fundamental flaw - its assumption that
more IP translates to more innovation. It fails to appreciate that IP is not an end in
itself but a mere means to an end. It is just one tool in our tool kit for spurring
innovation and creativity. The policy advocates that "all knowledge should be
converted to IP" whereas the fact is IP does not work well in certain technology
sectors, for which a free flow of knowledge is more suitable.
 The policy suggests that our informal economy in rural areas needs a strong dose of
IP. Superimposing a formal IP regime in the informal economy may do more harm
than good as we have still not understood this informal economy and how creativity
takes place and how knowledge is shared here.
 There is a reasonable apprehension about the enlargement of the protection to the
objects which fall in the public domain.
 Experts also feel that the National IPR policy lacks specifics and won't be enough to
foster innovation.

Comment: The National IPR Policy has asserted clearly that we will not roll back any
aspects of Indian patent law, which was amended in 2005 to comply with WTO TRIPS
rules, however much they might rankle the U.S., the EU, and other rich countries.
Unfortunately, almost every other assertion in the policy contradicts the principles
espoused in our patent law. The Indian patent law extols a philosophy of minimalism —
less is more. With the new IPR policy, this minimalism is now inexplicably shrouded in a
cloak of maximalism, the lesson apparently having been revised to mean more is more.

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16. Railways
1. Engine of future Economic growth
Introduction: Since its inception, the Indian Railways has served to integrate the
fragmented markets and thereby, stimulating the emergence of a modern market
economy. It connects industrial production centres with markets and sources of raw
materials and facilitates industrial development. It provides rapid, reliable and cost-
effective bulk transportation to the energy sector, to move coal from the coal fields to
power plants and petroleum products from refineries to consumption centres. It links
agricultural production centres with distant markets and thus acts as the backbone of
transportation needs of the various sectors. It also links places, enabling large-scale,
rapid and low-cost movement of people across the length and breadth of the country. In
the process, the Indian Railways has become a symbol of national integration.

The Indian Railways contributes to India's economic development, accounting for about
one per cent of the National Income. It accounts for six per cent of the total employment
in the organised sector directly and an additional 2.5 per cent indirectly through its
dependent organisations. The Indian Railways, with nearly 63,000 route kilometres fulfils
the country's transport needs, particularly, in respect of long-distance passenger and
goods traffic.

Thus, Indian Railway has played a major role in the socio-economic development of the
country but due to lack of capacity addition, congestion, poor services and weak financial
health the share of railways in the country's GDP has declined to around 1% in recent
years. But it has the potential to increase the growth of the economy by 2-3% if the
country's railway network is pumped with massive investment to boost the connectivity.

Present Situation of the economy:

Currently, the private sector is debt ridden due the aggressive debt led growth in the past
decade and the banking sector is burdened with huge level of NPAs. So the only way to
pull the economy at a higher growth path of 8-10% is reviving targeted public
(government) investment as a key of growth in the short run. It is to be noted that, in
present situation, higher government investment will not substitute/replace the private
investment but will complement it and will crowd it in. (Crowd in is opposite of Crowd
out in which government investment replaces private investment).

Now, the targeted public investment should be in those sectors of the economy which
can generate the maximum positive spill over effect. The best example is transport
infrastructure (rail and road) as transport networks links the markets, reduce a variety of
costs, boost agglomeration economies (benefits that firms obtain by locating near each
other) and improve the competitiveness of the economy, especially manufacturing. Now
time is ripe for huge investments in the railway sector as it is already highly congested
and underinvested.

Rail Route to higher growth:

Increase in public infrastructure investment like railway, affects the economy in two
ways:

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  In the short run, it boosts aggregate demand and crowds in (pulls in) private
investment due to the complementary nature of infrastructure services

 In the long run, a supply side effect also kicks in as the infrastructure built feeds
into the productive capacity of the economy

Railways are found to posses strong backward linkages (i.e. when we develop railway,
it requires iron and steel as well as engineers therefore these industries will also develop
with the growth of railways). Increasing investment in railway by Rs. 1 would increase
output in the economy by Rs. 3.3. This large multiplier has been increasing over time
and the effect is greatest on the manufacturing sector i.e. it will be good for "Make in
India" also.

Further there are sectors where railway services are input to production i.e. forward
linkages (with the development of railways other industries like power plant, tourism will
also get developed where railways is used as input). A Rs. 1 push in railways will
increase the output of other sectors by about Rs. 2.5. This forward linkage effect has
declined over time but this is largely due to the capacity constraint in the railways which
has led to reliance on other modes of transport mainly road.

Combining forward and backward linkage effects suggests a very large multiplier (over 5)
of investment in railways i.e. Rs. 1 increase in railways investment would increase
economy wide output (GDP) by Rs. 5.

Also, rail transportation has a number of favourable characteristics as compared to road

transportation. It is six times more energy-efficient than road and four times more
economical. The social costs in terms of environmental damage or degradation are
significantly lower in case of rail transport.

Foreign Investment in railway up to 100%

Government of India, on 27th August 2014, notified 100% FDI through automatic route in
railway infrastructure but not in train operations and safety.

Railways are a capital intensive (i.e. huge amount of funds are required for development)
sector and its growth depends heavily on availability of funds for investment in rail
infrastructure. Currently, internal revenue sources (profit generated from Indian railway)
and government funding through budget are insufficient to meet the capital requirement
of the cash strapped rail sector. Increased foreign investment cap of 100% in building
and maintenance of rail infrastructure will help in bringing the required capital for the
highly congested rail infrastructure.

2. High Speed Rail (HSR)/Bullet Trains

Background: Presently, Indian Railways (IR) operates 12,617 passenger and 7421
freight trains every day on a 65,436km network. The average speed of Mail and Express
trains is just 54km/h, while freight trains run at an average of 26 km/h. Most of the main
train routes runs at over 100% capacity leading to delays and accidents. The IR
presently is highly constrained by capacity (and not by the demand).

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Per capita mobility in India is lower than most of the developed countries. Driven by
increase in population, GDP, income level and urbanization, intercity passenger travel
demand is expected to leapfrog in the coming years.

Introduction: The High Speed Rail (HSR) System comprises of the infrastructure
system, rolling stock (locomotives, wagons used on a railway) and operating conditions.
Globally high speed trains differ in their technology, infrastructure, rolling stock and
achievable speeds. Currently, high speed rails can achieve speeds ranging from 200
kmph to 350 kmph depending on the technology and infrastructure.

Ministry of Railway, Govt. of India has planned to build the following HSR corridors:-
 Golden Quadrilateral
 Delhi-Chandigarh-Amritsar
 Delhi-Chennai
 Chennai-Bangalore-Mysore
 Mumbai-Ahmedabad

The Indian Railways’ vision 2020 envisages a two-pronged approach to bring high speed
rail in the country.
 The first strategy involves using conventional technology to increase the speed
on segregated existing passenger corridors on trunk/ main routes, from the
existing 80-100km/hr to 160-200 km/hr.
 The second approach involves identifying viable intercity routes to build new
advanced high speed corridors for speeds up to 350 km/hr (HSR).

Advantages of HSR:
 HSR is more time efficient as compared to air travel for distances below 800 km, if
the access and exit to airports is considered. HSR also delivers multiple benefits
including: revitalizing cities, encouraging high density real estate development along
corridors, boosting the development potential of smaller cities along the corridor,
providing employment access and choice to workers through better connectivity,
linking cities into integrated economic regions and enhancing tourism.

 HSR transports more passengers per unit of energy compared to all other modes like
air bus and private car. Hence it will offer a friendly environment, electrified railway
with minimal environment damage.

 HSR can provide an opportunity to develop domestic manufacturing capacity for

wagons and allied infrastructure. Railway modernization and HSR, in particular, are
technology and capital intensive. The domestic manufacturing of rail and its
components can promote innovation, opportunities for technology transfer and
demand for industry – in particular, steel industry from manufacture of wagons and
allied infrastructure.

 HSR creates opportunities for regional economic development by improving

connectivity between large urban centres, as well as other small and medium cities
along the corridors, and generates socio-economic benefits by improving access to

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 employment, health, education and time savings. The ability of HSR to link small and
medium cities can lead to a more geographically balanced development compared to
air transport where only select few cities benefit.

Criticism
 HSR trains run at loss in every single country where they operate currently, despite
the fact that tickets on these trains are often priced higher than an air ticket. For a
country where majority of the population finds even Rajdhani fares beyond its reach,
the number of people using the fancy HSR would be very limited and it could prove
to be a while elephant.

 Some experts believe that India’s current tracks can be improved to run trains at
around 200 kmph, so why HSR, which will arguably soak in the entire budget of the
Indian railways, which badly needs to upgrade and modernize its creaking
infrastructure as well as add new lines to improve connectivity with the remote parts
of the country, which remain cut off even over 70 years after the independence.

Comment:
India has the fourth-largest rail network in the world. Considering the size, scale of
operations and technology, it is appropriate that the railways builds its first HSR line to
move forward on the technology learning curve. Constructing HSR lines in the country
should be seen as a nation-building exercise rather than a standalone project justified
only on transport demand. "India cannot remain blind to the technological advancements
made across the world".

Upfront investments for developing high speed rail corridors are high, however, the
sustainability benefits are diffused and occur over a longer time frame. Therefore,
investments for HSR would have to be viewed comprehensively for the long-term
development benefits they generate.

Given the large demand for intercity transport and increasing future incomes, the
presence of several high-density corridors makes a strong case in India’s intercity
transport transition.

3. Dedicated Freight Corridors (DFCs)

Ministry of Railways has established “Dedicated Freight Corridor Corporation of India
Ltd.” in 2006, an Special Purpose Vehicle for planning, development, mobilization of
financial resources and construction, maintenance and operation of the eastern and
western DFCs.

Eastern Corridor: Ludhiana – Mugalsarai- Sonnagar-Kolkata (1835 Km)

(Ludhihana-Mugalsarai section funded by World Bank
Mugalsarai-Sonnagar section funded by Ministry of Railway
Sonnagar-Kolkatta section funded by PPP)

Western Corridor: Delhi–Rewari–Vadodara–Mumbai (1483 Km) (funded by japan)

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Total cost of the two corridors is 1 lakh crore and is expected to be completed by 2018-
19. There will be centralized control of operations on the DFC and double stacking
containers will be running along these corridors. The operation and maintenance cost is
expected to be half on DFC as compared with present IR network. It has been planned
to build multimodal logistics park along the corridors to provide complete transport
solutions to the customers.

PPP in Dedicated Freight Corridor: When a section of the railway line or DFC is built
on PPP model then all the clearances and land acquisition is done by Indian railway (IR)
and design, build, construction & maintenance of the track is done by the private player.
Freight is collected by the Indian Railway (IR) and 50% of the freight of that section is
given by IR to the private party. The private party is selected through tendering process.
If 50% of the freight (which is going to the private party) is not expected to cover the full
construction and maintenance cost then the private party will ask for Viability Gap
Funding (VGF) from IR and that private party which asks for minimum funding will be
selected. If 50% of the freight is expected to cover the full construction and maintenance
cost then that private party will be selected which will give the maximum one time
premium (funds) to the IR.

4. Rail Development Authority (RDA)

Introduction: The Government in April 2017, initiated a major reform in the railways by
approving the setting up of Rail Development Authority (RDA) which will act as the
regulator for the railway sector. It is envisaged that RDA will comprise of a Chairman and
three other Members which shall make recommendations to the Government for
appropriate consideration/decision.

Why RDA? Since long it was being suggested that for the purpose of orderly
development of infrastructure-enabling competition and protection of customer interest, it
was important to have a regulation mechanism which is independent of the service
provider i.e. the Ministry of Railway. The need for a regulatory authority had become
acute over the years with railway ministers refusing to raise passenger fares, thus
leading to freight revenue subsidising passenger traffic more and more, and
consequently adding to the costs of industry. It was then felt that if an independent
regulator handed down a revision of fares and freight rates which the railways had no
option but to accept, then that would take the political sting out of the decision.

The RDA will act within the parameters of the Railway Act, 1989, and undertake the
following broad functions:

 Recommend tariff, frame principles for social service obligation and guidelines for
track access charge

 Ensure fair play and level playing field for stakeholder investment, make suggestions
regarding policies for private investment, ensure reasonable safeguards to investors
and resolve dispute regarding future concession agreements

 Set efficiency and performance standards

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 suggest measures for absorption of new technologies and human resource
development

 Disseminate information, benchmarking of service standards against international

norms and ensuring global best practices

 provide a framework for non-discriminatory open access to the dedicated freight

corridor infrastructure.

 Monitor policies on public-private partnerships

Comment: The RDA will help the government take appropriate decisions on important
policy and operational issues, including pricing of services commensurate with costs,
suggest measures for enhancement of non-fare revenue, ensure protection of consumer
interests, promote competition, encourage market development, create positive
environment for investment and promote efficient resource allocation. RDA would
provide transparency to passenger and freight tariff determination and protect consumer
interest by ensuring quality of service and cost optimisation.

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17. Metro Rail Policy 2017 (with Last Mile connectivity)
Introduction:
Indian cities are growing rapidly. There is a need to direct growth in a planned manner
with adequate attention to the transport system at early stages in their development.
Cities are witnessing fast growth in the number of personal motor vehicles, with severe
congestion and pollution being the most visible manifestation of the growth in the number
of motor vehicles. Efforts at remedying the situation will need to focus on improving the
public transport system. In several cities this would require implementation of Mass
Transit systems such as metro rail, bus rapid transit, light rail, etc.

Urban Rail, popularly referred to as Metro Rail, has seen substantial growth in India in
the recent years. More cities are experiencing the need for metro rail to meet their day
today mobility requirements. Metro rail projects provide high capacity public transit and
are capital intensive. Considering the rapid urbanization and the imminent need for
enhancing mobility in cities through metro rail, it is imperative to explore alternative and
innovative sources of funds to supplement the budgetary resources. At the same time it
is also important to ensure that the proposals are prepared and appraised in a
comprehensive manner to enhance urban mobility and such systems are decided upon
and implemented in the most sustainable manner from the social, economic and
environmental perspectives. It is in this context that the Central Government has
designed the Metro Rail Policy 2017. This is the first such policy document prepared by
the Centre since Metro Rail operations began in Delhi in 2002.

Mass Rapid Transit System (MRTS):

The mass transit systems in cities/ urban agglomeration can be broadly classified into
the following categories:
 Bus ways and Bus Rapid Transit System (BRTS)
 Light Rail Transit (LRT)
 Tramways
 Metro Rail
 Regional Rail

The choice of a particular MRTS will depend on a variety of factors like demand,
capacity, cost and ease of implementation. A BRT or LRT systems at grade may require
linear pathway to be carved out of existing land if additional space cannot be made
available on the sideways and will reduce the space for other traffic depending on the
width of existing roads. LRTs and Tramways without horizontal separation will have
reduced speed and hence reduced capacity. A BRTS typically has a capacity of 10,000-
15,000 PPHPD (passengers per hour per direction) on a single lane but can be
enhanced with additional lanes. Comparatively metro rail systems are able to carry much
higher passenger volumes of 60,000 PPHPD and can go up to 80,000. Such rail based
systems also generally provide rapid service, a higher quality ride and service regularity
due to grade separation.

Regarding which of the various alternatives of MRTS is chosen, the spatial pattern of a
city is important. Cities with a well spread out spatial pattern, even if they have a high

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population, may not have sufficient number of corridors with adequate density to justify
investments in a metro. Yet cities with a linear spatial pattern may justify a metro even at
lower population levels as they have fewer corridors and each would have a high traffic
density. A comparative analysis of alternate modes should be an essential requirement
for the transit mode selection. The mode which matches the demand projections over the
project life cycle and has the least cost should be chosen.

Mass Rapid Transit Systems in urban areas not only facilitate easy and quick movement
of people but also have a positive impact on the economic growth and quality of life. This
results in increased income and various benefits to the society like reduced external cost
due to reduction in traffic congestion, road and parking cost, transport cost and per
capita traffic accidents. Mass Rapid Transit Systems tend to reduce per capita vehicle
ownership and usage and encourage more compact & walkable development pattern
which provide developmental benefits to the society. Reduction in cost and time of travel
lowers the cost of production of goods and services which significantly improves city’s
competitiveness. One of the significant contributions is substantial reduction in per capita
pollution emission bringing down various chronic diseases; hence, results in huge public
health benefits.

Metro Rail:
Metro rail, though being capital intensive, provides the much needed high capacity rapid
transit in the cities. Though they have a life of 100 years and beyond, due to the nature
of construction, the flexibility in design changes after the construction is very limited.
Hence they should be decided upon with due care and after a systematic and unbiased
analysis of different alternatives and should be planned and executed with a longer
future perspective. Being a high capacity transport system, they are most suited for
growing cities having prospective increase in population over several years. Therefore,
the metro rail systems are best suited for cities with teeming population and favourable
future growth prospects.

As per global practice, urban transport projects, including urban rail, are treated as public
projects which deliver public good. Therefore, appraisal of metro rail projects should
entail economic and social cost benefit analysis. Metro rail projects provide larger
economic and social benefits to the society in terms of reduction in cost and time of
travel, substantial reduction in per capita pollution emissions resulting in reduction in
chronic diseases, reduction in road accidents, bringing down noise pollution etc.
Enhancing mobility catalyzes the economic development and improves the livability of a
city. Hence, while appraising such project proposals the economic and social viability
may be assessed. The economic internal rate of return for any metro rail project proposal
should be 14% and above for consideration of its approval.

The policy seeks to ensure that metro projects are initiated for sound reasons. The
Urban Development Ministry recently turned down a metro project proposal from
Vijayawada due to lack of passenger traffic. The policy states that “the metro project can
be proposed only if it is found to be more cost effective as opposed to other mass transit
projects such as tramways, light rail transit, or bus rapid transit system”. The policy also
states that for an integrated approach in planning and management of urban transport,
State Governments should constitute Unified Metropolitan Transport Authority (UMTA)

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as a statutory body. This Authority would prepare Comprehensive Mobility Plan for the
city, organize investments in urban transport infrastructure, establish effective
coordination among various urban transport agencies, manage the Urban Transport
Fund (UTF) etc.

Financing:
The following are the various options under which a State government implementing a
Metro Rail project can avail central financial assistance.

 Public Private Partnership (PPP) with central assistance under the Viability Gap
Funding (VGF) Scheme
 Grant by Government of India under which 10% of the project cost will be given
as lump sum central assistance
 The project will be undertaken under the equal ownership of Central and State
Government concerned through equal sharing of equity/ownership

But in all the above cases private participation (Public Private Partnership) wherever
feasible either for complete provisioning of metro rail or for some unbundled components
of the project like implementation, operation and maintenance, fare collection etc. will
form an essential requirement for all metro rail project proposals seeking central
financial assistance.

Last Mile Connectivity (Feeder System to Metro Rail):

One of the key aspects of the policy is the last mile connectivity. Every proposal for Metro
Rail should necessarily include proposals for feeder systems that help to enlarge the
catchment area of each metro station at least to 5 kms. Last mile connectivity through
pedestrian pathways, Non-Motorized Transport infrastructure, and induction of facilities
for para-transit modes will be essential requirements for availing any central assistance
for the proposed metro rail projects. State governments will be required to commit
provisioning of feeder systems for the metro rail proposed for availing central financing
assistance.

Comment:
The country is witnessing a revolution in metro transport facilities at present. As on
August 2017, metro projects with a total length of 370 kms are operational in 8 cities
across the country and construction of another 595 kms metro projects are in progress in
13 cities including the above 8 cities.

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18. Road Sector
Presently, the road projects in India are mainly built on the following three models:

1. Engineering Procurement and Construction (EPC):

The government gives the contract only for building/constructing the road to a private
contractor based on submission of the tender by the party at the lowest cost. Private
party builds the road and hands it over to the government who then maintains the
road. (It is not a Public Private Partnership (PPP) model as the minimum condition for
PPP is the private entity must be involved in the operation and maintenance of the
infrastructure)

2. BOT - Toll :
The private party is selected to build, maintain and operate the road based on the
party submitting the tender for maximum sharing of toll revenue to the
government. In case the revenue from toll is expected to be not enough to cover the
cost of the project then the government gives one time support in terms of upfront
grant called Viability Gap Funding (VGF) and the private party is selected based on
who asks for minimum VGF. All the traffic and commercial risk lies with the private
party and the private party is dependent on toll for its revenues. (It is a Public Private
Partnership model)

3. BOT - Annuity:
The private party is selected to build, maintain and operate the road project based on
the party submitting the tender asking for minimum annual payment from the
government for the entire term of the contract. The private party recovers all the cost
of construction and maintenance of the project from the government yearly and there
is no traffic and commercial risk to the private party. Toll collection right will be of the
government and it may or may not collect toll. (It is a public private partnership
model)

The major drawback of the annuity model is, the private party bears almost the entire
cost of the project during the initial construction period but it receives payment from the
government in equal annual instalments and it takes a long time for the private party to
recover cost and become profitable. And because of this private parties were becoming
reluctant to participate under the Annuity model. Hence, central government approved a
fourth model for the road sector in January 2016.

4. Hybrid Annuity Model:

It is a mix of Annuity and EPC model. 40% of the bid project cost shall be payable by
the government to the private party during the construction period (generally 2-3
years) linked to the physical progress of the project. Rest 60% of the cost will be paid
annually by the government after the completion of construction i.e. during the
operation and maintenance period. The benefit of hybrid annuity is that, while the
private partner continues to bear the construction and maintenance risks as in Toll
and Annuity projects, it is required only to partly bear the financing risk. (It is a PPP
model)

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Bharatmala Pariyojana:
The largest highway construction programme was launched under "National Highway
Development Grogramme (NHDP)" in 1998 by the then Prime Minister Atal Bihari
Vajpayee. NHDP spread across phase - I to phase - VII and had an aggregate length of
55,792 Kms. A large part has been completed and the rest will be subsumed under
Bharatmala Pariyojana.

Bharatmala Pariyojana is a new umbrella program for the highways sector that focuses
on optimizing efficiency of freight and passenger movement across the country by
bridging critical infrastructure gaps through effective interventions like:

 development of Economic Corridors

 Inter Corridors and Feeder Routes
 National Corridor Efficiency Improvement
 Border and International connectivity roads
 Coastal and Port connectivity roads
 Green-field expressways

A total of around 24,800 kms are being considered in Phase I. In addition, Phase I also
includes 10,000 kms of balance road works under NHDP. Estimated outlay for Phase I
is Rs 5,35,000 crores spread over 5 years. The objective of the program is optimal
resource allocation for a holistic highway development/improvement initiative.

The project will be implemented through National Highway Authority of India, National
Highways and Infrastructure Development Corporation Limited (NHIDCL) , Ministry of
Road, Transport and Highways and State PWDs.

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19. Ports, Sagarmala and CEZs
Ports create significant economic payoffs for their city and state as they help generate
jobs, add value, mobilize new investment, bring in tax revenues and support trade
through reducing logistics costs. 1 Tonne increase in port throughput (volume of cargo
handled at the ports) is associated with value addition of $100 and 1 Million Tonne
increase in port throughput is associated with 300 new jobs being created in the port
region in short term.

There are 13 Major Ports (defined as those owned/controlled by Central government)

and around 187 Minor Ports (either owned by State government or private parties) in the
country.

Many countries with long coastlines have leveraged ports for supporting industrial
growth. Energy, materials and manufacturing industries have strong port linkages due to
the volume of cargo handled. Logistics contributes a significant proportion of the total
costs in these industries and ports have played crucial role in reducing logistics costs,
thus adequate port linkages can significantly improve the competitiveness of these
industries. Globally cargo of these three types of industries form majority of the cargo
handled at ports and thus these industries must be considered under any port led
development programme.

Sagarmala Project:
Background: India is richly endowed with natural maritime advantages, with a 7,500 km
coastline covering 13 states and UTs, a strategic location on key international trade
routes and 14,500 km of navigable and potentially navigable waterways. Maritime
logistics has been an important component of the Indian economy, accounting for 90% of
EXIM trade by volume. A robust maritime logistics sector with modern and efficient port
infrastructure can be a strong catalyst of economic growth.

In India, the planning of industrial clusters and zones have not adequately taken into
account proximity to ports because of which the port land has not been adequately
utilized for setting up industries and manufacturing. Since adequate road and rail
connectivity linkages to ports have not been developed in tandem with port development,
resulting in instances of new ports with modern facilities being underutilized due to
connectivity bottlenecks. Raw material often travels a large distance from coastal areas
to the hinterland and then finished products travel back from the hinterland to the coast
for exports. This reduces the competitiveness of Indian exports compared to other
exporting countries.

Introduction:
The sagarmala initiative was conceived by the Government of India to address the
challenges and capture the opportunity of port-led development comprehensively and
holistically. Sagarmala is a national programme aimed at accelerating economic
development in the country by harnessing the potential of India's coastline and river
network. Sagarmala was articulated by the then Prime Minister Shri Atal Bihari Vajpayee

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in 2003 and announced by the Prime Minister Shri Narendra Modi in 2014. It was
approved by the Union Cabinet in March 2015.

The vision of Sagarmala is to reduce logistics cost for both domestic and EXIM (export &
import) cargo with minimal infrastructure investment. The ambitious Sagarmala project
intends to enhance the capacity of major and minor ports and promote port-led direct
and indirect development.

Sagarmala project has been proposed to connect all coastal cities in the country through
road, rail, ports and airports through a special development package. It will include
coastal economic zones, smart cities, islands to attract tourists etc. The project is
designed to enhance the unique identities of coastal cities in consonance with their sea-
side culture.

The Sagarmala project is based on four pillars:-

 Port modernisation
 Efficiency improvement of ports
 Capacity improvement at major ports
 6-8 new ports

 Port connectivity
 Coastal and inland waterway projects
 Port and industrial connectivity

 Port led industrialization

 14 Coastal Economic Zones (CEZ)
 12 high potential industries across energy, materials and manufacturing

 Coastal community development

 Skill development
 Uplifting fishermen and other local communities
 Island development

Coastal and inland waterway transportation is energy efficient, eco-friendly and reduces
logistics costs for domestic freight but inadequate focus on its development has skewed
the modal mix of transport in India with a disproportionately high share of roadways. A
multimodal logistics optimization model has been developed under the Sagarmala
project to identify the most optimal mode of evacuation to/from ports for both EXIM and
domestic cargo. The project will reduce overall logistics cost, thereby improve the overall
efficiency of the economy and increase competitiveness of exports.

Transportation cost comparison through road : rail : ship = 18 : 6 : 1

Waterways is the cheapest mode of transportation, then railway and road.

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Coastal Economic Zones (CEZs), a part of Sagarmala Project

The CEZs are spatial economic regions

comprising a group of coastal districts or districts
with a strong port linkage. Each CEZ could be in
the immediate hinterland of ports, in a radius of
100 Km with a sizable domestic market along
with export potential. Within each CEZ, there will
be multiple industrial clusters, each with distinct
and separate land banks and a minimum size
based on analysis of economies of scale for a
given industry. These are bounded land parcels
that could actually house industrial units and
requisite infrastructure. (Elliptical shapes are CEZs)
Fourteen CEZs have been identified along the coastline of the country. Leveraging the
port ecosystem, these CEZs will provide the geographical boundary within which port-led
industrialization will be developed.

[Jobs, Manufacturing, CEZs and Exports] (from a blog of Arvind Panagariya)

The most important element in the transformation of India is the creation of a large
number of good jobs. While micro and small enterprises provide lots of jobs, consistent
with (or due to) their low productivity, they pay relatively low wages. This is because, in
India, manufacturing firms with less than 20 workers each, employed 73% of
manufacturing workforce but produced only 12% of manufacturing output in 2010-11.
With such a large share in employment but small share in output, these firms are able to
pay only a fraction of the average wage paid by larger firms, which is itself low in India
when seen in international context. The position of the small firms within manufacturing
is similar to that of agriculture in the economy as a whole because agriculture has 49%
share in the workforce and only 15% share in the GDP in 2011-12.

Generally, wages rise with the size of the enterprise due the increase in average
productivity of labour. High productivity of large firms partially results from their ability to
effectively exploit scale economies (Larger the size of enterprise, lower will be per unit
cost).

Since domestic markets are often small, large firms overwhelmingly operate in the world
market, where competition is intense and hence are under constant pressure to innovate
and adopt cost-saving technologies and management practices. The presence of large,
export-oriented firms also fosters a highly competitive environment in regions of their
location. In so far as small and medium firms either become ancillaries of large firms or
must compete against them, they too are compelled to strive for efficiency. Therefore,
substantial presence of large firms combined with an outward-oriented trade policy
fosters high overall productivity. Conversely, the absence of large firms is often
associated with low average productivity.

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India’s own experience is consistent with these observations. In apparel, where we lack
substantial presence of large firms, average labour productivity is low. This in turn
translates into meagre exports in relation to the total employment in the sector. Our
apparel exports are less than one-tenth those by China and less in absolute terms than
those by much smaller Bangladesh and Vietnam. In contrast, in software, we have
significant presence of large firms and this sector exhibits high productivity and a large
volume of exports.

Lack of substantial presence of large firms in India has impacted average labour
productivity in two ways.
 First, the level of productivity in MSME firms is low compared with their
counterparts in countries such as China.
 And second, a disproportionately large volume of the workforce is employed in
these low productivity firms as compared to the large firms.

According to a 2009 ADB study, only 10.5% of manufacturing workforce in India was
employed in firms larger than 200 workers compared to China’s 51.8% in 2005. At the
other extreme, 84% of India’s manufacturing workforce was in firms with less than 50
workers compared to China’s 24.8%. These differences translate into substantially lower
average labour productivity and wages in India than China.

Unfortunately, large firms are missing in India in precisely the sectors in which they are
needed the most: employment-intensive sectors such as apparel, footwear, electronic
and electrical products and host of other light manufactures. These are products in which
China has done well thereby generating a large volume of good jobs for its workers. In
2014, the country exported $56 billion worth of footwear compared with $3 billion by
India and $782 billion worth of electrical and electronic goods compared with $9 billion by
India.

The single most important key to China’s success in manufacturing has been its decision
to go for the large world markets in preference to its smaller domestic market. In 1980
China began by establishing four very large Special Economic Zones (SEZs) along its
southeast coast. These zones were located directly across from Taiwan and Hong Kong,
which then faced the prospect of being priced out of the world market due to their high
wages. Attracted by low wages and business and foreign-investment-friendly
environment, investors from Hong Kong immediately flocked to these SEZs. Later,
investors from Taiwan, Japan, United States and other countries followed as well.
Coastal location allowed these firms to operate in the world markets unhindered by the
poor infrastructure in the hinterland, especially in the early years. They could import
inputs from and export outputs to foreign destinations. Today most of the major
multinational firms have a presence in these SEZs and the employment opportunities for
Chinese workers have multiplied.

The average annual manufacturing wages in China have risen at the rate of 10% a year
in real terms since at least 2007 but due to demographic transition, the country now
faces worker shortage that would only get worse in the years to come. When asked in
surveys, Chinese firms today point to labour costs as the most important barrier to their

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development. Already, many multinational firms are looking for alternative locations
where they can find abundant supply of workers.
But so far the firms exiting China have gravitated more towards countries such as
Vietnam and Malaysia. But with its large labour force, India is well positioned to take
advantage of the opportunity. What is needed to convert this opportunity into reality is a
business friendly ecosystem in regions that can serve as export bases of the migrating
firms. Given our relatively weak internal infrastructure links, coastal regions adjacent to
deep-draft (large depth) ports are the best candidates for such bases.
This opportunity coincides with the launch of the Sagarmala project which seeks to
unleash port-led development in the country.

Therefore, in the context of Sagarmala project, India could begin by creating one
Chinese SEZ style Coastal Economic Zones (CEZ) on its western coast and another on
the eastern coast near deep-draft ports capable of accommodating very large and
heavily loaded ships. To be successful, these zones would have to cover a large area
(may be 2,000 square kms) and would have to have some existing infrastructure and
economic activity. They would need to must provide a business friendly ecosystem
including ease of doing business, especially, ease of exporting and importing, swift
decisions on applications for environmental clearances and speedy water and electricity
connections. Apart from conventional infrastructure, the zones would need to create
urban spaces to house local resident workforce. For firms that create a threshold level of
direct employment (e.g., 50,000 jobs), a tax holiday for a pre-specified period may be
considered. To incentivize early investments in the zones, the tax holiday might be
limited to investments made in the first three or four years of the creation of the zones.
An important advantage of locating the zones near the coast is that they would attract
large firms interested in serving the export markets. These firms would bring with them
technology, capital, good management and links to the world markets. They would help
create an ecosystem around them in which productive small and medium firms would
emerge and flourish.
It may make sense to initially limit the number of zones to a few, perhaps two or three.
This would help ensure that many sector-specific zones and clusters emerge within each
CEZ to fully exploit economies of scale and agglomeration. Simultaneous creation of too
many zones would spread the available public resources thinly while also diffusing
economic activities with potential synergies. As initial zones succeed, more may be
subsequently launched. This is like the software industry, which initially concentrated in
Bangalore but subsequently spread to other towns. (Of course, since software travels on
the wire, this industry did not require location near a coast.)
There remain two final questions.
 First, why can we not rely on a protected domestic market to attract investment?
The answer is that the domestic market still remains small and fragmented so
that it will not give rise to genuinely large firms.
 Second, with the export market growing slowly, can we rely on an export-oriented
strategy? The answer is in the affirmative. At $18 trillion, the world export pie is
extremely large. Even if this pie is not growing, our current share of it at 1.7 per
cent leaves us considerable scope for expansion.

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20. Multi Modal Logistics Park
Definitions:
Logistics is defined as the process of planning, implementing and controlling in a cost
effective way the flow and storage of raw materials, in-process inventory, finished goods
and related information from point of origin to point of consumption. The functionality of
logistics include processing the orders received from the customers, inventory planning
and management, packaging, warehousing and transportation.

Multimodal transport refers to the transport of goods from one point to another via
more than one mode of transport. Multimodal Logistics can be viewed as the chain that
interconnects different links or modes of transport – air, sea, and land into one complete
process that ensures an efficient and cost-effective door-to-door movement of goods
under the responsibility of a single transport operator, known as a Multimodal
Transport Operator (MTO), on one contract/transport document.

Multimodal Logistics Park (MMLP) provide all types of transportation facilities at a

place for the end user or defined as a rail, road, ship, airplane based inter-modal traffic
handling facilitation complex comprising container terminals, bulk cargo terminals,
warehouses, banking and office space and facilities for mechanized handling,
sorting/grading, cold chain, aggregation / desegregations etc. to handle freight traffic.
The key components of a Multimodal Logistics Park are warehousing, transport and
value-added services. The concept of multimodal logistics parks is relatively new in
India.

Introduction:
The transport and logistics sector are fundamental to the development of a country. In
India, since the 1990s, the transportation infrastructure has undergone a significant
change. In a study by McKinsey, transport was identified as one of the most capital
intensive sectors in India, needing huge investments over the next several decades to
sustain rapid urbanisation and growth of the Indian cities. Since freight (goods
transported in bulk) forms an important part of the transport, the role of logistics and
freight assumes importance.

In India, the logistics service providers are small players, mainly belonging to the
unorganized sector. Even among the organized logistics players, few have offerings
across multiple modes (air, water, rail and road) and services (transportation,
warehousing and value-added services such as packaging, cold chain and customs
clearance). This increases the cost of logistics in India with an unfavourable model mix.
Logistics account for 18% of the total product cost in India, as against 8-12% in China
and 12% in Europe. Thus the focus needs to be given to ‘integrated transport solutions’
in preference to individual ‘transportation’ and ‘distribution’ services.

Why Multi Modal Logistics Parks?

Multi Modal Logistics Parks are the way forward for reducing logistics costs in India.
They are expected to bring down logistics costs by serving four functionalities - Freight
aggregation and distribution, Multi Modal freight transportation, Storage and
Warehousing with modern, mechanized warehousing space satisfying the special

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requirements of different commodity groups and value added services such as customs
clearance with bonded storage yards, warehousing management services, etc.

Developing a network of multimodal logistics parks to act as logistics hubs will address
the issues of unfavourable modal mix, inefficient fleet mix and an underdeveloped
material handling infrastructure. Logistics parks are expected to help transition from the
current situation of point-to-point freight movement to an ideal situation of hub and
spoke model of freight movement.

Advantages of Multi Modal Logistics Park (MMLPs)

 MMLPs help in reducing transportation costs by using the right mode for the
movement of goods.

 Since MMLPs help in reducing the transit time of the goods, it helps in reducing the
inventory cost both for logistics operators as well as for the ultimate user of the
transport mode.

 As the transit time is less, MMLPs help in the proper utilization of the assets like rail
infrastructure, roads, warehouses etc. and the goods vehicles and the other
infrastructure are free to be used for the other businesses. Thus the per unit cost of
the transportation of goods is reduced considerably.

 It helps in the optimal modal choice and balanced growth of all the modes of
transport.

Challenges in logistics:
 Indian logistics market suffer from higher costs due to poor quality of road and rail
infrastructure
 Large number of small and unorganised players exist in road transportation, with no
industry consolidation and hence lack economies of scale
 Rail freight tariffs in India are among the highest in the world
 Rail freight lacks reliability and is deficient in terms of quality of operations, speed,
and customer orientation
 There are inadequacies in gateway and hinterland connectivity of air freight and ports
through rail and road
 There are inefficiencies and delays in loading and unloading of vessels at the ports

The Centre is discussing to set up a national level nodal body for all transport-related
matters across modes including aviation, railways, surface transport and waterways. The
proposed ‘Logistics and Integrated Transport Board’ will initially work on improving inter-
ministerial co-ordination to facilitate an efficient multi-modal transport system in India.
The aim, however, is gradually to set up a single unified transport ministry by merging
the ministries of Aviation, Railways, Surface Transport and Shipping to ensure greater
ease of doing business and boost India’s internal and external trade. The Centre is also
reportedly planning to build 35 multi-modal logistics parks by investing more than
₹50,000 crore.

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21. Solar Parks
Introduction: India with its large population and rapidly growing economy, needs access
to clean, cheap and reliable sources of energy. India lies in the high solar insolation
region, endowed with huge solar energy potential with most of the country having about
300 days of sunshine per year. Solar power projects can be set up anywhere in the
country, however the solar power projects scattered in multiple locations lead to higher
project cost per Mega Watt and higher transmission losses, due to drawing separate
transmission lines to nearest substation, procuring water and in creation of other
necessary infrastructure. Also it takes a long time for project developers to acquire land,
get change of land use and various permissions etc. which delays the projects.

A solar park is a concentrated zone of development of solar power generation projects

having a large contiguous stretch of land with high insolation levels. It provides
developers an area that is well characterized with proper infrastructure like access roads,
boundary fence, security, water and other amenities.

Solar Park Scheme:

Ministry of New and Renewable Energy (MNRE), Government of India has drawn up a
scheme for the development of Solar Parks in collaboration with the State Governments
and their agencies. MNRE through this scheme plans to set up at least 50 solar parks,
each with a capacity of 500 MW and above by 2019-20. Solar Energy Corporation of
India (SECI), a central public sector enterprise under MNRE, is administering the
Solar Park Scheme on behalf of Govt. of India and is also handling
the funds to be made available under the scheme on behalf of Govt. of India. The
states shall have to designate a nodal agency for the implementation of the scheme.

Under the proposed scheme, State Governments will identify the land for the proposed
solar park and select/ nominate the Solar Park Developer for developing and
maintaining the solar parks. The Solar Park Developer will acquire the land for the park,
cleans it, levels it and provides all the infrastructure support and then allocates the plots
to individual Solar Project Developers for solar projects.

This scheme envisages supporting the States in setting up solar parks at various
locations in the country with a view to create required infrastructure for setting up of solar
power projects. The solar parks will provide suitably developed land with all clearances,
transmission system, water access, road connectivity, communication network, etc.
Solar Parks provide specialized services to incentivize Solar Project Developers to invest
in solar energy in the park. These services while not being unique to the park, are
provided in a central, one-stop-shop, single window format, making it easier for investors
to implement their projects within the park in a cost effective way and in a significantly
shorter period of time, as compared to projects outside the park which would have to
obtain these services individually and at a higher cost. This saves the Solar Project
Developers from making the effort of identifying the ideal site for the project and
minimizes the projects risks. Assured availability of land and transmission infrastructure
are the major benefits of a solar park.

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Central Financial Assistance:
Govt. of India will be giving a total financial support of Rs. 8,100 crore under this
scheme. The State governments will first select/ nominate the Solar Park Developer, for
developing and maintaining the solar parks and then the proposal will be sent to the
MNRE for approval, following which the Solar Park Developers will be sanctioned a grant
of up to ₹25 lakh for preparation of Detailed Project Report, conducting surveys, etc.
Following this, the Central Government will provide additional funding assistance of Rs.
20 lakh per megawatt or 30% of the project cost including grid connectivity, whichever is
lower.

Objectives and Benefits:

The scheme aims to provide a huge impetus to solar energy generation by acting as a
flagship demonstration facility to encourage project developers and investors, prompting
additional projects of similar nature, triggering economies of scale for cost-reductions
and technical improvements. It would enable States to bring in significant investment
from project developers, meet its Solar Renewable Purchase Obligation (RPO) mandate
and provide employment opportunities to local population. The State will also reduce its
carbon footprint by avoiding emissions equivalent to the solar park’s installed capacity
and generation. Further, the State will also avoid procuring expensive fossil fuels to
power conventional power plants.

It would also contribute to long term energy security of the country and promote
ecologically sustainable growth by reduction in carbon emissions, as well as generate
large direct & indirect employment opportunities in solar and allied industries like glass,
metals, heavy industrial equipment etc. The solar parks will also provide productive use
of abundant uncultivable lands which in turn facilitate development of the surrounding
areas. The scheme is intended to facilitate and speed up installation of grid connected
solar power projects for electricity generation on a large scale.

Solar Park in Bhadla:

Bhadla Phase-III Solar Park (500 MW) in Rajasthan is being set up by M/s Saurya Urja
Company of Rajasthan Limited (Solar Park Developer) which is a joint venture between
the Govt. of Rajasthan and M/s IL&FS Energy Development Company Limited. The
individual Solar Power Developers are M/s ACME Solar Holdings Pvt. Ltd. (200 MW) at a
tariff of Rs. 2.44 per unit and M/s SBG Cleantech Ltd. (300 MW) at a tariff of Rs. 2.45 per
unit (fixed for 25 years without any escalation), awarded in May 2017. The Solar Power
Developers will pay solar park charges of Rs.45.2 lakh per megawatt towards land,
connectivity (from pooling substation to state network) and other infrastructural facilities.

This is the minimum solar power tariff that has been bid out in India (power tariff from
coal is around Rs. 3.5 per unit) . It is a historic fall in solar tariffs which is the result of
combination of various factors, most important being the decision of the Government of
India to cover solar power by SECI under the ambit of Tripartite Agreement for payment
security against defaults by State distribution companies. Other factors contributing are
about 7-8% higher yield in Rajasthan due to better solar radiation conditions, drop in
module prices in International market, and strengthening of Indian rupee against US
dollar.

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22. Commercial Coal Mining opened for Private Sector
Introduction:
In the federal structure of India, the "Regulation of mines and mineral development" falls
under the Union List. Accordingly, the Central Government frames rules and regulation
regarding the development and extraction of minerals but it has entrusted the respective
state governments with mining related activities except in case of Coal, Petroleum &
Natural gas and Atomic minerals.

The State Governments are the owners of minerals located within the boundary of the
State concerned and have the authority to collect "taxes/ royalty" on mineral rights. The
Central Government is the owner of the minerals underlying the ocean within the
territorial waters or the Exclusive Economic Zone of India. The State Governments grant
the mineral concessions/rights for all the minerals located within the boundary of the
State, under provisions of the Mines and Minerals (Development and Regulation) Act,
1957 (MMDR Act 1957) by taking prior permission of Central Government.

The history of coal sector:

With the passing of the Coal Mines (Nationalization) Act 1973, the private companies
were debarred from mining of coal and Coal India Ltd (CIL) got the monopoly for mining
and sale of coal in India. The Act was amended in 1976 and 1993 to allow government
and private companies for captive mining of coal for the purpose of generation of power
and production of iron and steel (captive use means the coal from the allocated coal
blocks could only be used by the companies for their specified end-use projects and they
cannot sell the coal mined from the captive block in the market). After 1993 the Ministry
of Coal (Govt. of India) started allocating coal blocks to the private and government
companies on a large scale but only for captive mining for generation of power and
production of iron & steel.

But the process of allocation of coal blocks to the government and private companies for
captive mining was, however, flawed (it was not done through auction process and there
was no clear criteria). Companies with political links got multiple blocks while more
deserving candidates did not get any. On September 24, 2014 Supreme Court cancelled
the 204 captive coal blocks allocated to the companies since 1993 to till date, out of the
total 218 blocks terming it as illegal.

Recent Changes:
Government enacted the Coal Mines (Special Provisions) Act 2015 in March 2015 to
allocate the coal mines cancelled by the supreme court judgement and new mines. The
following were the important provisions of the new Act:

 The allocation of coal mines shall be done through (electronic) auction in a

transparent manner.
 Enabling provisions were made to allow auction of coal mines to private
companies for commercial/sale purpose without any end use restriction
 The proceeds/money coming from the auction process will be disbursed to the
respective state governments.

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Enabling Provisions for commercial mining by private sector were already made in the
Coal Mines Act in March 2015, and now the Government on 20th Feb 2018
approved/notified the bidding process for commercial mining. The auction will be
through an online transparent platform and will be an ascending forward auction (the
company offering the highest price will win the bid) whereby the bid parameter will be the
price offer in rupees per tonne, which will be paid to the State government on the actual
production of coal.

Impact on Economy:
This is the most ambitious reform of the coal sector since its nationalisation in 1973. This
reform is expected to bring efficiency into the coal sector by moving from an era of
monopoly to competition. It will increase competitiveness and allow the use of best
possible technology into the sector. Public sector undertaking Coal India Ltd. was so far
the lone commercial miner in the country for over four decades. The company accounts
for 80% of India’s coal output while the rest is met through captive mining and imports.

The new law gives highest priority to transparency, ease of doing business and ensures
that natural resources are used for national development. As the entire revenue from the
auction of coal mines for sale of coal would accrue to the coal bearing States, this
methodology shall incentivise them with increased revenues which can be utilised for the
growth and development of backward areas and their inhabitants including tribals. States
in Eastern part of the country such as West Bengal, Odisha, Jharkhand, Chhattisgarh,
and Madhya Pradesh are the major coal-bearing states which will specially benefit.

The move will bring efficiency and competition in coal production, attract investments
and best-in-class technology including for ‘safe and efficient mining’, and help create
more direct and indirect jobs in the sector. The volume growth and cost reduction from
commercial coal development will reduce imports and help in keeping import prices in
check. Till now we used to spend billions of dollars of our foreign exchange reserves
every year for import of coal even if our country is endowed with the fourth largest coal
reserves. The main reason was lack of production due to inefficient and monopolistic
nature of the CIL.

This reform will lead to industry consolidation, and rise of large vertically-integrated
energy companies with interests in coal mining, power generation, transmission and
distribution to retail supply. It will also help stressed power plants to attempt a
turnaround/profit through better fuel management and cheaper prices. The utilities and
manufacturing sector too will benefit from lower energy costs. But to introduce
competition and efficiency, Government must auction larger blocks in sufficient numbers
in order to attract new investment in high-capacity fleet and bring in big multinationals in
the country.

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23. Oil and Gas Policy
Old regime of oil and gas sector:
Govt. of India opened up hydrocarbon (oil & gas) exploration and production sector in the
country to the private players in 1991. Initially small and medium size blocks were
offered to private players and since 1997-98 onwards, bigger blocks were being offered
as per the New Exploration and Licensing Policy (NELP). The NELP policy has been in
existence for 18 years and over the years, various problems and issues have arisen.

 There are separate policies and licenses for different hydrocarbons like conventional
oil and gas, coal-bed methane, shale oil and gas.

 Different fiscal terms (business models) are in force for allocation of blocks for
exploration for different hydrocarbons.

 In practice, there is overlapping of resources between different contracts. This

fragmented policy framework leads to inefficiencies in exploiting natural resources.
For example, while exploring for one type of hydrocarbon, if a different one is found,
it will need separate licensing, which adds to cost.

 "Profit Sharing": Under NELP, blocks are awarded based on the principle of profit
sharing (in which private party signs Production Sharing Contract with the
govt.). When a contractor discovers oil or gas, he is expected to share profit with the
Govt., as per the percentage given in his bid. Until a profit is made, no share is given
to Govt., other than royalties and cesses. Since the contract requires the profit to be
measured, it becomes necessary for the Govt. to check and account the cost. To
prevent loss of Govt. revenue, there are requirements for Govt. approval at various
stages to prevent the contractor from exaggerating the cost and activities cannot be
commenced till the approval is given. This process of approval of activities and cost
gives the Govt. a lot of discretion and has become a major source of delays and
disputes. Many projects have been delayed for months and years due to
disagreement between the Govt. and the contractor regarding the necessity or lack of
necessity for particular items of cost, and the correctness of the cost. Another
demerit of this model is it does not give any incentive to the operator to reduce its
costs and become efficient rather the operator tries to inflate the costs so that to
postpone sharing of profit to the govt.

 Another feature of the current system is that exploration is confined to blocks which
have been put on tender by the Government. There are situations where exploration
companies may themselves have information or interest regarding other areas where
they may like to pursue exploration. But presently these opportunities remain
untapped, until and unless Government brings them to bidding at some stage.

 Presently, the producer price of gas is fixed administratively by the Govt.

(presently the price is fixed as $3.8/unit but changes with market conditions). This
has led to loss of revenue, a large number of disputes, arbitrations and court cases.

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New regime/policy for oil & gas (hydrocarbon sector)
Currently, the country faces a situation where oil and gas constitutes a major and
increasing share of total imports. Oil production has stagnated while gas production has
declined. There was a need for concerted policy measures to stimulate domestic
production. Keeping in view this objective, the Govt. effected a new policy regime in
March 2016 for exploration licensing for new blocks, the Hydrocarbon Exploration
and Licensing Policy (HELP). The following are its key features:-

 There will be a uniform licensing system which will cover all hydrocarbons, i.e. oil,
gas, coal bed methane etc. under a single license and policy framework.

 An 'Open Acreage Licensing Policy' (OALP) will be implemented whereby a bidder

may apply to the Govt. seeking exploration of any block not already covered by
exploration. The Govt. will examine the proposal and if it is suitable for award, Govt.
will call for competitive bids after obtaining necessary environmental and other
clearances. This will enable a faster coverage of the available geographical area.

 Contracts will be based on "revenue sharing" model. Bidders will be required to

quote % of revenue share to the Govt. in their bids which will be a key parameter for
selecting the winning bid. In this model the operator will have to share the revenue
with the government from the first year of production notwithstanding the operator is
making a profit or loss. This model does not require auditing of costs incurred by the
operator but is more risky for investors as it requires sharing of the revenues with the
government from the first year itself before the operators have recovered their costs
and even if they are making losses.

 The contractor will have freedom for pricing and marketing of gas produced in the
domestic market on arms length basis.

 In order to incentivize offshore exploration/production which involves higher risks and

costs, a graded system of reduced royalty will be applicable. For shallow water
royalty will be 7.5%, for deep water 5% and for ultra deep water royalty will be 2%.

In January 2018, the first round of OALP bidding was conducted under which 55 blocks
were bid out.

Comment:
The new policy regime marks a generational shift and modernization of the oil and gas
exploration policy. It is expected to stimulate new exploration activity for oil, gas and
other hydrocarbons and eventually reduce import dependence. It is also expected to
create substantial new job opportunities in the petroleum sector. The introduction of the
concept of revenue sharing is a major step in the direction of “minimum government
maximum governance”, as it will not be necessary for the Government to verify the costs
incurred by the contractor. Marketing and pricing freedom will further simplify the
process. These will remove the discretion in the hands of the Government, reduce
disputes, avoid opportunities for corruption, reduce administrative delays and thus
stimulate growth.

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24. Energy security for India - Creating a Biofuel
Economy and National Policy on Biofuels 2018
Introduction: Biofuels are fuel/energy derived from biomass - any matter derived from
plants or animals. Some biofuels are produced by extracting of sugar or starch from
crops and then fermenting it to make alcohol. Other biofuels are made by the decaying of
organic matter and capturing of the resultant gases. Biofuels can be produced from any
carbon source that can be replenished rapidly, such as plants. Example of biofuel
include ethanol (made from corn and sugarcane), biodiesel (from vegetable oils and
liquid animal fats), green diesel (derived from algae and other plant sources) and biogas
(methane derived from animal manure and other digested organic material). Biofuels are
basically substitutes for conventional fossil fuels, such as petroleum, coal, natural gas
etc. Biofuels are most useful in liquid or gas form because they are easier to transport,
deliver and burn cleanly.

Bio-fuels provide a strategic advantage to promote sustainable development and to

supplement conventional energy sources in meeting the rapidly increasing requirements
for transportation fuels associated with high economic growth, as well as in meeting the
energy needs of India’s vast rural population. Bio-fuels can increasingly satisfy these
energy needs in an environmentally benign and cost-effective manner while reducing
dependence on imported fossil fuels and thereby providing a higher degree of National
Energy Security.

Economics of biofuel:
The crop and energy markets are closely linked, since agriculture both supplies and uses
energy. Agricultural crops compete with each other for land and water and farmers will
sell their produce to markets regardless of end use, be it for biofuel production or food
use. The raw material (feedstock) accounts for the largest share of total biofuel
production cost. Prices for liquid biofuels and for the crops needed to produce them are
partly driven by fossil fuel prices in the market. When the crude oil prices in the market is
high, then the market value of biofuel crop will also be high and prices for other
agricultural crops that also need land and water will tend to rise too. Hence, in the longer
term biofuel production could revitalize the agriculture sector and alleviate poverty by
raising rural incomes. But Government support schemes will play a key role as most
biofuels are not generally competitive without subsidies even when crude oil prices are
high.

Conclusion:
 Poor people’s food security in urban and rural areas could be under threat from
higher food prices partly induced by increased biofuel production. Well designed and
targeted safety nets are needed to support their access to food.
 In the longer run, higher food prices could stimulate agricultural development, but
measures will be needed to ensure that benefits reach small farmers and
marginalized people including women.
 Some biofuels may reduce greenhouse gas emissions when replacing fossil fuels,
but the net effect on climate change depend on where and from what raw materials

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 they are produced. Carbon emissions from land use change when forest/pastures
are converted to cropland can largely negate the greenhouse gas savings obtained
by using biofuels.
 Expanded biofuel production may threaten land and water resources and
biodiversity. Appropriate policy measures are required to minimize possible negative
effects.

Biofuels represent an immense growth opportunity around the world and have an
important role to play in displacing the fossil fuels the world has relied upon in the past
with a cleaner, renewable alternative. However, till now, biofuel growth has been driven
primarily by government policies rather than market forces. Policies must be reviewed to
avoid negative impacts and promote sustainable biofuel production.

The National Policy on Bio-fuels under Ministry of New and Renewable Energy was
earlier approved by the Govt. in 2009. The Policy endeavours to facilitate and bring
about optimal development and utilization of indigenous biomass feedstock for
production of bio-fuels. The Indian approach to bio-fuels is based solely on non-
food feedstock to be raised on degraded or wastelands that are not suited to
agriculture, thus avoiding a possible conflict of fuel vs. food security.

National Policy on Biofuels 2018

The government approved the National Policy on Biofuels in May 2018. The following
are its salient features:

 The Policy categorises biofuels as "Basic Biofuels" viz. First Generation bioethanol
& biodiesel and "Advanced Biofuels" - Second Generation ethanol, Municipal Solid
Waste to drop-in fuels (that are engineered for blending and which do not require
substantial changes in refining or distribution infrastructure), Third Generation
biofuels, bio-CNG etc. to enable extension of appropriate financial and fiscal
incentives under each category.
 The Policy expands the scope of raw material for ethanol production by allowing use
of Sugarcane Juice, Sugar containing materials like Sugar Beet, Sweet Sorghum,
Starch containing materials like Corn, Cassava, Damaged food grains like wheat,
broken rice, Rotten Potatoes, unfit for human consumption for ethanol production.
 Farmers are at a risk of not getting appropriate price for their produce during the
surplus production phase. Taking this into account, the Policy allows use of surplus
food grains for production of ethanol for blending with petrol with the approval of
National Biofuel Coordination Committee.
 With a thrust on Advanced Biofuels, the Policy indicates a viability gap funding
scheme for second generation ethanol Bio refineries of Rs.5000 crore in 6 years in
addition to additional tax incentives, higher purchase price as compared to first
generation biofuels.
 The Policy encourages setting up of supply chain mechanisms for biodiesel
production from non-edible oilseeds, Used Cooking Oil, short gestation crops.
 Roles and responsibilities of all the concerned Ministries/Departments with respect to
biofuels has been captured in the Policy document to synergise efforts.

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Expected Benefits:

 Reduce Import Dependency: One crore litre of E-10 (10% ethanol) saves Rs.28
crore of forex at current rates. In 2017-18 we have supplied around 150 crore litres of
ethanol which resulted in savings of over Rs.4000 crore of forex.
 Cleaner Environment: Using of biofuels will result in lower emission of CO 2. By
reducing crop burning & conversion of agricultural residues/wastes to biofuels there
will be further reduction in Green House Gas emissions.
 Health benefits: Prolonged reuse of Cooking Oil for preparing food, particularly in
deep-frying is a potential health hazard and can lead to many diseases. Used
Cooking Oil is a potential feedstock for biodiesel and its use for making biodiesel will
prevent diversion of used cooking oil in the food industry.
 MSW Management: It is estimated that, annually 62 MT of Municipal Solid Waste
(MSW) gets generated in India. There are technologies available which can convert
these waste/plastic to drop in fuels (used for blending).
 Infrastructural Investment and job creation in Rural Areas: At present Oil
Marketing Companies are in the process of setting up twelve second generation bio
refineries with an investment of around Rs.10,000 crore. Further addition of these bio
refineries across the country will spur infrastructural investment in the rural areas.
One 100klpd second generation bio refinery can contribute 1200 jobs in Plant
Operations, Village Level Entrepreneurs and Supply Chain Management.
 Additional Income to Farmers: By adopting second generation technologies,
agricultural residues/waste which otherwise are burnt by the farmers can be
converted to ethanol and can fetch a price for these waste if a market is developed
for the same. Also, farmers are at a risk of not getting appropriate price for their
produce during the surplus production phase. Thus conversion of surplus grains and
agricultural biomass can help in price stabilization.

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25. The Real Estate (Reg. & Dev.) Act 2016
Introduction:
The Real Estate Act 2016 has been passed with the objective of bringing in transparency
and safety in the market for consumers of residential and commercial projects by
introducing a sectoral regulatory mechanism. The Act seeks to address distortions in the
real estate market due to the asymmetrical relationship between real estate developers
and consumers. Preventing structural abuse of dominance in a sector that has been
rated as the second lowest in terms of consumer satisfaction, is also a key objective of
this legislation.

The Act contains several provisions to address the lacunae in the real estate market,
principally by way of establishing a disclosure framework and setting strict liabilities for
promoter's irregularities. The following are its salient features:-

 Regulator: The Act mandates setting-up of real estate regulatory authorities (RERAs)
and real estate appellate tribunals in all states and union territories. This will help
settle timely disputes.

 Registration: The Act requires mandatory registration of real estate projects with the
RERA where the total area of land proposed to be developed exceeds 500 sq.
meters or there are more than 8 apartments/units. Projects cannot be advertised,
booked or sold in any form prior to registration and obtaining the necessary
construction approvals. This will bring a large proportion of projects under the
purview of the regulation.

 Disclosures: Publicly accessible disclosures of the project and promoter details,

along with a self-declared timeline within which the promoter is required to complete
the project, are mandatory. This will help buyers take more informed decisions.

 Standardization: The Act defines key terms such as 'apartment', 'carpet area', which
will help in homogenizing sector practices and prevent abuse of consumers due to
biased classifications such as 'super built-up area' etc.

 Ring-fencing of project receivables: Promoters must park 70% of all project

receivables (money given by people for booking of flats) in a separate account and
withdrawal from such account is permitted for land and construction costs only, in line
with the percentage of project completion. This will help curb diversion of collected
funds for other purposes.

 Project sanctity: The promoter is not permitted to alter plans, structural designs and
specifications of land, apartment or building without prior consent of 2/3 of the
allottees.

 Legal recourse: The Act provides for time bound resolution of complaints and
disputes by the RERAs and the real estate appellate tribunals. The Act also provides
for refund of amounts paid by consumers (along with interest and compensation) for

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 promoter's failure to give possession of the apartment in accordance with the
agreement for sale, or any breach of such agreement.

 Penalties: The Act imposes monetary penalties on the promoter for disclosure related
and other defaults, along with a maximum imprisonment of 3 years. Consumers are
also liable to a fine or imprisonment up to 1 year for non-compliance with orders of
the real estate appellate tribunal.

Shortcomings/criticism:
 The Act requires all necessary approvals to be obtained prior to project launch,
instead of certain specific approvals as previously required. This may delay project
initiation and restrict supply of new properties.

 The Act has provisions for penalizing developers in case of delays. But in many
cases the main cause of delay is slow approvals from government agencies. Without
a single-window clearance mechanism and fixed timeline for approvals there may be
cases where bona fide delays by developers may still result in an unfavourable
penalty on developers.

 The Act does not address the practice of using black money in real estate
transactions.

Comment:
The Act has set standards for the real estate sector and performs the critical task of
identifying and allocating risks associated with construction and development projects.
The Act intends to increase transparency and accountability in the real estate sector, by
providing mechanisms to facilitate and regulate the sale and purchase of commercial
and residential projects and timely completion of projects by the promoters. The Act
disrupts existing sector practices to raise efficiency of the real estate market and is likely
to benefit all stakeholders by imposing financial and operational discipline, accountability
and diligence. But the ultimate responsibility lies with the State governments as they
have to enact this law in their respective states and it is being observed that some states
have already started diluting the provisions of the Act.

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