Mains Compass Economic Development

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MAINS COMPASS
The Civil Services Mains Examination is all about collection, processing and application of INFORMATION – whether
conceptual or current - of each subject according to the question asked.
In essence, MAINS EXAMINATION is more about a combination of
 Conceptual knowledge
 Analytical skill
 Inter-disciplinary approach
 Articulate and objective presention of information
The Mains Compass booklets are designed to meet two objectives:
 Knowledge enhancement:
 Important themes have been identified after studying the previous year papers, past 18 months current
affairs and syllabus.
 Each theme has been designed to cover 360-degree view of the topic to develop the analytical skill among the
aspirants.
 Each theme has been designed with proper sub-headings so that aspirant can easily differentiate how to
utilize that in answer writing.
 Each theme has been supplemented with SPICE (Social, Political, Institutional, Cultural and Economic)
APPROACH to develop multi-dimensional
approach among the aspirants.
 Time management: Social
 The content has been compiled so that Dimension
aspirant may save time by avoiding
reading from different sources.
How to use this book? Economic Political

Dimension dimension
 The first part of the book provides Main
detailed analysis of the previous year Theme
papers theme-wise and expected
topics for the Mains 2019. Read this
section thoroughly to get an idea about
the pattern of questions asked in the Cultural Institutional
examination. dimension dimension
 The second part covers detailed analysis
of each theme with proper sub-
headings. Student should read the topic thoroughly and design self-notes for last minute revision.
 Read the SPICE APPROACH to develop a multi-dimensional approach. Utilize the information to broaden your
outlook as question is usually designed keeping at least one dimension in loop.
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CONTENTS
SYLLABUS AND PREVIOUS YEAR QUESTIONS & THEME MAP 01
33
►RBI’S AUTONOMY: RIFT BETWEEN RBI AND GOVERNMENT 34
09 ►MERGER OF BANKS 35
►UNIVERSAL BASIC INCOME 10 ►ISSUES IN SMALL FINANCE BANKS AND PAYMENT BANKS 37
 THE DEBATE SURROUNDING UBI 10 ►NPA PROBLEM 39
►RURAL INDEBTEDNESS 12 ►EXTERNAL BENCHMARKING OF LOANS 44
►EMPLOYMENT RELATED CHALLENGES AND LABOUR REFORMS ►CRISIS IN NBFCs 45

15 ►PUBLIC CREDIT REGISTRY 46
►HUMAN CAPITAL INDEX 18
►CREDIT RATING AGENCIES 47
►SOCIAL IMPACT BONDS 21 ►INFLATION TARGETING IN INDIA 48
►SUSTAINABLE DEVELOPMENT GOALS 22 ►DATA LOCALISATION 50
SDG 1: NO POVERTY 23
►PAYMENT REGULATORY BOARD 52
SDG -2: ZERO HUNGER 23
►INSOLVENCY AND BANKRUPTCY CODE, 2016 - AN APPRAISAL
SDG – 3: GOOD HEALTH AND WELL BEING 24 53
SDG – 4: QUALITY EDUCATION 25
SDG 5: GENDER EQUALITY 25
SDG - 6: CLEAN WATER AND SANITATION 26
SDG 7: AFFORDABLE AND CLEAN ENERGY 27
SDG 8: DECENT WORK AND ECONOMIC GROWTH 27
SDG 9: INDUSTRY, INNOVATION AND INFRASTRUCTURE 28
SDG 10: REDUCED INEQUALITIES 28
SDG 11: SUSTAINABLE CITIES AND COMMUNITIES 29 57

SDG 12: SUSTAINABLE CONSUMPTION AND PRODUCTION 29
►FISCAL COUNCIL IN INDIA 58
SDG 13: CLIMATE ACTION 30
►FISCAL FEDERALISM 58
SDG 14: LIFE BELOW WATER 30
►ANGEL TAX CONTROVERSY 60
SDG 15: LIFE OF LAND 31
►REFORMS IN INDIAN STATISTICAL SYSTEM 61
SDG 16 PEACE, JUSTICE AND STRONG INSTITUTIONS 32
►REFORMING PUBLIC SECTOR BANKS 62

►GST: ISSUES IN IMPLEMENTATION 66
111
►PUBLIC DISTRIBUTION SYSTEM- REFORMS 112
69
►PM-AASHA 70
►DRAFT CONTRACT FARMING ACT 71
►ALLIED SECTOR AS SOURCE OF ECONOMIC PROSPERITY 74
 POULTRY SECTOR 75
 FISHERIES SECTOR 76
 APICULTURE SECTOR 77
 SERICULTURE 77
116
 HORTICULTURE SECTOR 78
►ROAD TRANSPORT 117
 GOVERNMENT SCHEMES 79
►RAILWAYS 118
►BLUE ECONOMY 81
►PORTS & SHIPPING AND INLAND WATERWAYS 119
►PRADHAN MANTRI FASAL BIMA YOJANA: CRITICAL ANALYSIS
►MODEL BIT 121
84
►SPECIAL ECONOMIC ZONES IN INDIA 122
►FARMER PRODUCER COMPANIES (FPCS) 85
►PUBLIC-PRIVATE PARTNERSHIP – CONCEPT AND ISSUES 124
►FARM LOAN WAIVER: CRITICAL ANALYSIS 86
►DIGITAL INFRASTRUCTURE: PROSPECTS, ISSUES AND
►AGRICULTURE CREDIT AND ISSUES RELATED TO IT 89
CHALLENGES 127
►AGRICULTURAL EXPORT POLICY 90
►COMMITTEE ON DOUBLING FARMERS INCOME 92
►CRITICAL ANALYSIS OF PM-KISAN SCHEME 95
►NATIONAL BIOFUEL POLICY 97
►AGRICULTURE MARKETING 99
130
►MANUFACTURING POLICY AND ISSUES 131
104 ►COAL SECTOR 132
►MSME SECTOR 135

►MODEL LAND LEASING ACT 105
►SUGAR INDUSTRY 137
►LAND RECORDS MANAGEMENT IN INDIA 106
►POWER SECTOR AND UDAY SCHEME 139
►LAND DEVELOPMENT BANKS IN INDIA 109
 UDAY SCHEME 139
ii

 SAUBHAGYA SCHEME 140
►AVIATION SECTOR 141
►TEXTILE INDUSTRY 144
►ELECTRIC MOBILITY 146
►NATIONAL STRATEGY FOR ARTIFICIAL INTELLIGENCE 149

161
►FOURTH INDUSTRIAL REVOLUTION 150
►FOOD PROCESSING SECTOR IN INDIA: OPPORTUNITIES AND
►THE INVESTMENT CLIMATE IN INDIA 152
CHALLENGES 162
►WTO REFORMS 154
►E-COMMERCE SECTOR 156
►REAL ESTATE SECTOR: FINANCING MECHANISMS 158
iii

SYLLABUS & PREVIOUS YEAR QUESTIONS AND THEME MAP
Syllabus (Economic Development)

• Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
Inclusive growth and issues arising from it (Inclusive Growth)
• Government Budgeting ( Budgeting and Taxation)
• Major crops cropping patterns in various parts of the country, different types of irrigation and irrigation systems storage,
transport and marketing of agricultural produce and issues and related constraints; e-technology in the aid of farmers;
Issues related to direct and indirect farm subsidies and minimum support prices; Technology missions; economics of
animal-rearing. (Agriculture and Allied Sectors)
• Public Distribution System- objectives, functioning, limitations, revamping; issues of buffer stocks and food security;
(Food Security & PDS)
• Food processing and related industries in India- scope and significance, location, upstream and downstream
requirements, supply chain management.(Food Processing Industries)
• Land reforms in India. (Land Reforms)
• Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth. (Industrial
Policy and Liberalisation)
• Infrastructure: Energy, Ports, Roads, Airports, Railways etc, Investment models (Infrastructure and Investment)
Previous Year Questions and Theme Map
THEME- INCLUSIVE GROWTH

SUB- THEME YEAR QUESTION IMPORTANT THEMES 2019
With a consideration towards the strategy of • Universal Basic Income

2013 inclusive growth, the new companies bill, 2013 has • Rural Indebtedness
indirectly made CSR a mandatory obligation.
• MSME Sector: Opportunities and
Discuss the challenges expected in its
Challenges
implementation in right earnest. Also discuss
other provisions in the bill and their implications. • PM-KISAN Vs. MGNREGA
• Financial Inclusion- Issues and
Capitalism has guided the world economy to
Challenges
unprecedented prosperity. However, it often
encourages short-sightedness and contributes to • MUDRA Loans
wide disparities between the rich and the poor. In • Human Capital Formation in India
Inclusive Growth 2014 this light, would it be correct to believe and adopt
• Feminisation of Indian Agriculture-
capitalism driving inclusive growth in India?
Prospects and Challenges
Discuss.
• India’s progress on Sustainable
While we found India’s demographic dividend, we Development Goals (SDGs)
ignore the dropping rates of employability. What
• Unemployment in India- Reasons
are we missing while doing so? Where will the jobs
and Solutions
that India desperately needs come from? Explain.
1
RAU’S IAS FOCUS SPECIAL EDITIONS | MAINS COMPASS (C3 CURATION) for CSE 2019
2015 The nature of economic growth in India in • Informalisation of Indian

described as jobless growth. Do you agree with Workforce
this view? Give arguments in favour of your • Social Impact Bonds- Prospects in
answer. India
• Decreasing Labour Force
2016 Comment on the challenges for inclusive growth
Participation rate of Women
which include careless and useless manpower in
the Indian context. Suggest measures to be taken • Skilling India – Need, Steps Taken,
for facing these challenges. challenges
What are the salient features of ‘inclusive growth’?

Has India been experiencing such a growth
process? Analyze and suggest measures for
inclusive growth.
2017
Account for the failure of manufacturing sector in
achieving the goal of labour-intensive exports
rather than capital-intensive exports. Suggest
measures for more labour-intensive rather than
capital-intensive exports.
Among several factors for India’s potential growth,

savings rate is the most effective one. Do you
agree? What are the other factors available for
growth potential?
“Success of ‘Make in India’ programme depends

on the success of ‘Skill India’ programme and
radical labour reforms.” Discuss with logical
2015
arguments.
Craze for gold in Indians have led to a surge in • FAME 2.0- Electric Mobility- Need,
import of gold in recent years and put pressure on Prospects, Challenges and Way
Government balance of payments and external value of rupee. Forward
Schemes In view of this, examine the merits of Gold • Issues and Challenges: PMFBY,
Monetization Scheme. PM-AASHA, PM-KISAN, e-NAM
Pradhan Mantri Jan-Dhan Yojana (PMJDY) is • Problems with UDAY Scheme

necessary for bringing unbanked to the
institutional finance fold. Do you agree with this
2016
for financial inclusion of the poorer section of the
Indian society? Give arguments to justify your
opinion.
What are ‘Smart Cities? Examine their relevance

for urban development in India. Will it increase
rural-urban differences? Give arguments for Smart
Villages’ in the light of PURA and RURBAN Mission.
Planning and 2018 How are the principles followed by the NITI Aayog • RBI’s Autonomy
Mobilisation of different from those followed by the erstwhile • Financial Inclusion- Prospects and
2
Resources Planning Commission in India? Challenges

• External Benchmarking of Loans
• NPA Problem- Genesis, Issues and
Challenges
• Reforms in governance of PSBs
• Public Credit Registry
• Back Series GDP calculation
• Challenges faced by Payment
banks and Small Finance Banks
(India Posts Payment bank)
• Merger of Banks- Benefits and
Challenges
• Crisis in NBFCs- Genesis,
Challenges and Solutions
• Finance Commission Vs. NITI Aayog
• Controversy related to GDP
estimates
• Cashless payments- Issues and
Challenges
THEME- BUDGETING AND TAXATION

SUB- THEME YEAR QUESTION THEMES 2019
What are the reasons for introduction of Fiscal • Off Budget Financing- Concerns
responsibility and Budget Management (FRBM) act, and Challenges, CAG’s
2003? Discuss critically its salient features and Recommendations
their effectiveness. • Fiscal Council in India – Need and
2013
Benefits.
What is meaning of the term tax-expenditure?
Taking housing sector as an example, discuss how • Concerns related to Finances of the
it influences budgetary policies of the government. States
2015 In what way could replacement of price subsidy

Budgeting with Direct Benefit Transfer (DBT) change the
scenario of subsidies in India? Discuss.
2016 Women empowerment in India needs gender

budgeting. What are the requirements and status
of gender budgeting in the Indian context?
2017 One of the intended objectives of Union Budget

2017-18 is to ‘transform, energize and clean India’.
Analyse the measures proposed in the Budget
2017-18 to achieve the objective.
3
Taxation 2018 Comment on the important changes introduced in • Angel Tax

respect of the Long-term Capital Gains Tax (LCGT) • Challenges in the
and Dividend Distribution Tax (DDT) in the Union implementation of GST
Budget for 2018-2019.
THEME- AGRICULTURE AND ALLIED SECTORS

Given the vulnerability of Indian agriculture to • National Biofuels Policy- Impact on

vagaries of nature, discuss the need for crop Energy Security and Agriculture
insurance and bring out the salient features of the • Reducing Water use through
2016
Pradhan Mantri Fasal Bima Yojana (PMFBY) changes in Cropping Pattern
What is allelopathy? Discuss its role in major • Zero Budget Natural Farming
cropping systems of irrigated agriculture.
2017 What are the major reasons for declining rice and
wheat yield in the cropping system? How crop
Cropping Pattern diversification is helpful to stabilize the yield of the
crop in the system?
How has the emphasis on certain crops brought

about changes in cropping patterns in recent past?
Elaborate the emphasis on millets production and
2018
consumption.
Assess the role of National Horticulture Mission

(NHM) in boosting the production, productivity and
income of horticulture farms. How far has it
succeeded in increasing the income of farmers?
Sikkim is the first ‘Organic State’ in India. What are

the ecological and economical benefits of Organic
State?
What are the different types of agriculture • Farm loan waivers- Problems and
2013 subsidies given to farmers at the national and Alternatives

state levels? Critically analyze the agriculture • KALIA and Rythu Bandhu Scheme
subsidy regime with the reference to the
• Agricultural Credit- Issues and
distortions created by it.
Challenges
“In the villages itself no form of credit organisation • Doubling farmers’ income- Dalwai
Subsidies and MSP will be suitable except the cooperative society.” – Panel Recommendations
All Indian rural credit survey. Discuss this
2014
statement in the background of agriculture finance
in India. What constrain and challenges do
financial institutions supplying agricultural
4
finances? How can technology be used to better

reach and serve rural clients?
How do subsidies affect the cropping pattern, crop
2017 diversity and economy of farmers? What is the

significance of crop insurance, minimum support
price and food processing for small and marginal
farmers?
2018 What do you mean by Minimum Support Price

(MSP)? How will MSP rescue the farmers from the
low income trap?
Irrigation 2016 What is water-use efficiency? Describe the role of

micro-irrigation in increasing the water-use
efficiency.
Technology 2015 How can the ‘Digital India’ programme help

missions farmers to improve farm productivity and income?
What steps has the Government taken in this
regards?
Economics of 2013 India needs to strengthen measures to promote • Allied Sectors of Agriculture-
animal rearing the pink revolution in food industry for better Livestock rearing, Dairy farming,
nutrition and health. Critically elucidate the Horticulture etc- Opportunities and
statement. Challenges
• Sericulture- Opportunities and

2015 Livestock rearing has a big potential for providing
Challenges
non-farm employment and income in rural areas.
Discuss suggesting suitable measures to promote
this sectors in India
Marketing of 2014 There is also a point of view that agriculture • Agricultural Marketing Reforms-
agricultural produce market committees (APMCs) set up under Launch of Ease of doing Agri-
produce the state acts have not only impeded the Business and E-NAM
development of agriculture but also have been the • Agricultural Export Policy-
cause of food inflation in India. Critically examine. Prospects, Challenges and Way
2015 In view of the declining average size of land forward
holdings in India which has made agriculture non-
• Farmer producer companies-
viable for a majority of farmers, should contract
Prospects, Challenges and
farming and land leasing be promoted in
agriculture? Critically evaluate the pros and cons. Suggestions
THEME- FOOD PROCESSING INDUSTRIES

Food Processing 2015 What are the impediments in marketing and Food Processing Industries- Growth
supply chain management in industry in India? Can
5
Industries e-commerce help in overcoming these Drivers, Opportunities and Challenges

bottlenecks?
2017 What are the reasons for poor acceptance of cost

effective small processing unit? How the food
processing unit will be helpful to uplift the socio-
economic status of poor farmers?
2018 Examine the role of supermarkets in supply chain

management of fruits, vegetables and food items.
How do they eliminate number of intermediaries?
THEME- FOOD SECURITY AND PDS

2013 Food security bill is expected to eliminate hunger PDS Reforms- Nilekani Panel
and malnutrition in India. Critically discuss various
apprehensions in its effective implementation
Food Security
along with the concerns it has generated in WTO
2017 Explain various types of revolutions, took place in

Agriculture after Independence in India. How these
revolutions have helped in poverty alleviation and
food security in India?
THEME- LAND REFORMS

SUB- THEME YEAR QUESTION THEMES
Establish the relationship between land reform, • Land Reforms- Rationale,

2013 agriculture productivity and elimination of poverty in Progress and Challenges
Indian Economy. Discussion the difficulty in designing
• Land Banks- Prospects and
and implementation of the agriculture friendly land
Challenges
Land Reforms reforms in India.
• Land Leasing in Agriculture
Discuss the role of land reforms in agricultural
• Land Acquisition- Problems
2016 development. Identify the factors that were
responsible for the success of land reforms in India. • Tenancy in Indian Agriculture
THEME- INDUSTRIAL POLICY AND ECONOMIC LIBERALISATION

Discuss the impact of FDI entry into multi-trade retail

• E-Commerce
sector on supply chain management in commodity
2013 • Aviation Industry- Challenges
trade pattern of the economy.
6
and Way Forward
• Fourth Industrial Revolution

Though India allowed foreign direct investment (FDI)
and is India ready for it?
in what is called multi brand retail through joint
venture route in September 2012, the FDI even after a • Labour Reforms- key to
year, has not picket up. Discuss the reasons. boosting Manufacturing Sector
Industrial Policy
• Promotion of Electronics
Foreign direct investment in the defence sector is now
said to be liberalised. What influence this is expected Hardware Manufacturing
to have on Indian defence and economy in the short • Coal Sector- Shortage of Coal
and long run? and impact on Power
Normally countries shift from agriculture to industry • Sugar Industry- Challenges

and then later to services, but India shifted directly • Future of Work – Problems and
2014 from agriculture to services. What are the reasons for Challenges
the huge growth of services vis-a-vis industry in the
• Manufacturing Sector-
country? Can India become a developed country
Replicating the Success of IT
without a strong industrial base?
• Fintech Companies- Growth
There is a clear acknowledgement that Special Drivers, Prospects and
Economic Zones (SEZs) are a tool of industrial
Challenges
development, manufacturing and exports.
2015 Recognizing this potential, the whole instrumentality • India’s Textile Industry-
of SEZs requires augmentation. Discuss the issues Prospects, Challenges and Way
plaguing the success of SEZs with respect to taxation, Forward
governing laws and administration.
“Industrial growth rate has lagged behind in the

overall growth of Gross-Domestic-Product(GDP) in the
2017 post-reform period” Give reasons. How far the recent
changes in Industrial Policy are capable of increasing
the industrial growth rate?
Examine the impact of liberalization on companies • Recent controversy related to

2013 owned by Indian. Are the competing with the MNCs Independent Payment
satisfactorily? Regulatory Board
• Data Localisation in India- Pros

and cons, EU’s GDPR,
Suggestions
Economic • Regulation of OTT services

Liberalisation How globalization has led to the reduction of • Issues with the Credit rating
employment in the formal sector of the Indian
2016 agencies
economy? Is increased informalization detrimental to
the development of the country? • Impact of Monetary Policies of
developed countries on Indian
Economy
• Impact of Economic Slowdown

in China on India
7
• Reforms in WTO
• Impact of Crude oil Price shock

on Indian economy
How would the recent phenomena of protectionism
International • WTO negotiations on E-
2018 and currency manipulations in world trade affect
Trade Commerce and Fisheries
macroeconomic stability of India?
• India’s revocation of MFN Status
to Pakistan
• Withdrawal of GSP benefits
THEME- INFRASTRUCTURE AND INVESTMENT

Adaptation of PPP model for infrastructure

development of the country has not been free from
2013
criticism. Critically discuss the pros and cons of the
model.
Explain how private public partnership agreements,

in longer gestation infrastructure projects, can
PPP Model/ transfer unsuitable liabilities to the future. What • Digital Infrastructure- Prospects
2014
Infrastructure arrangements need to be put in place to ensure that and Challenges
successive generations’ capacities are not
compromised?
Examine the developments of Airports in India

through Joint Ventures under Public-Private
2017
Partnership (PPP) model. What are the challenges
faced by the authorities in this regard.
National urban transport policy emphasizes on

moving people instead of moving vehicles. Discuss
Transport 2014 • Transformative Mobility in India
critically the success of various strategies of the
government in this regard.
Justify the need for FDI for the development of the

Indian economy. Why there is gap between MOUs
Investment 2016 • Real Estate Investment Trusts
signed and actual FDIs? Suggest remedial steps to be
taken for increasing actual FDIs in India.
Access to affordable, reliable, sustainable and

modern energy is the sine qua non to achieve
Sustainable Development Goals (SDGs). Comment on • Renewable Energy- Challenges
Energy 2018 the progress made in India in this regard. and opportunities
With growing energy needs should India keep on

expanding its nuclear energy programme? Discuss
the facts and fears associated with nuclear energy.
8
SECTION 1
I NCLUSIVE
G ROWTH

INCLUSIVE GROWTH
►UNIVERSAL BASIC INCOME meet their basic needs. The UBI is defined by 3
characteristics:
CONTEXT
• Universality: Covers the entire population without taking
The concept of UBI has entered policy debate in India ever into account the socio-economic status.
since UBI was proposed by the Economic Survey 2016-17. • Un-conditionality: It should be given without any
Recently, the Sikkim government has declared that it would conditionality.
be implementing the UBI from 2022. • Agency: UBI should be in the form of cash transfers
CONCEPT OF UBI without dictating the choices i.e. the recipients should
have complete freedom to use the UBI in whatever way
It is a regular fixed cash transfer payment provided by the
they deem fit.
government to every citizen or resident regardless of their
socio-economic status to ensure that they are at least able to
 THE DEBATE SURROUNDING UBI
FAVOUR AGAINST
FREEDOM AND JUSTICE SOCIAL COST

• Guarantees Right to life under Art 21. • Increase in the expenditure on temptation
• Ensures basic human rights to the people. goods such as Alcohol by the male members.
• Acknowledgment of the unpaid work done by the homemakers. • Gender disparity- Men are likely to exercise
control over spending of the UBI. This may not
POVERTY REDUCTION
always be the case with other in-kind transfers
• Does away with “One size fits all approach” of the Government such as LPG subsidies.
schemes to eradicate poverty. • Goes against the Principle of Reciprocity
• Empowers the families to take their own decisions based upon their which mandates that the rights should be
needs ( a better tool for poverty eradication) commensurate with the obligations/duties of
• Does away with problem of Exclusion errors in the BPL List (“wipe out the person.
every tear from every eye”)
POLITICAL COST
REDUCING INCOME INEQUALITY
• Problem of Exit- Difficult for the government to
• Provides security net to withstand any potential job losses in future due introduce UBI by doing away with subsidies.
to growing automation.
• UBI may emerge as add-on rather than a
• Enables the poor people to improve their skill set leading to higher
replacement to the existing poverty
productivity.
eradication schemes leading to inefficiencies.
• Enhances the bargaining power of the labour class leading to increase in
• Competitive populism in fixing UBI leading to
wages and better working environment.
higher fiscal deficit.
• Financing of UBI through progressive taxation would help in transfer of
income from the richer class to poor
• Positive spill over effects such as increased levels of entrepreneurship ECONOMIC COST
among the poor families.
• Feasibility of UBI- Implementation of UBI
MENTAL HEALTH would need 12.5% of GDP ( based upon
• Free from mental burden of meeting basic needs. Tendulkar Committee’s poverty line estimates
of Rs 1190 per person per month)
• Increased personal satisfaction and emotional well-being leading to
higher productivity. • Exposure to market risks- Unlike food
subsidies that are not subject to fluctuating
• Gives choice to the people and liberates citizens from paternalistic and
market prices, the cash transfer’s purchasing
clientelistic relationships with the state.
power may severely be curtailed by market
FINANCIAL INCLUSION fluctuations.
10
INCLUSIVE GROWTH
• UBI Transfers will encourage greater usage of bank accounts and hence • Difficult to improve tax-GDP ratio to fund UBI.
improvement in financial inclusion. IMPLEMENTATION
• Increase in the customer base of the banks and opening of more
• Lack of financial inclusion among the poor
branches in rural areas.
would pose a major challenge.
ADMINISTRATIVE EFFICIENCY
• Poor financial awareness among the people.
• Reduce the administrative burden of implementing large number of ABDICATION OF RESPONSIBILITY BY THE STATE
overlapping schemes.
• The state may abdicate its responsibility of
• Adoption of JAM trinity (Jan Dhan, Aadhaar and mobile) leading to
providing basic services such as Education,
increase in efficiency.
Health etc upon transferring UBI to the people.
DOES NOT AFFECT THE INCENTIVE TO WORK
FAILURE OF PILOT UBI PROGRAMS IN SOME
• UBI covers only the basic needs and the people would work in order to COUNTRIES
meet higher order needs (can be explained by Maslow’s Theory of
• Finland has decided not to extend the pilot UBI
Motivation)
programme since it has led to increase in
• People work not just to meet their financial needs but also to meet their
income inequality and decrease in the labour
social and psychological needs
force.
DOES NOT LEAD TO INCREASE IN TEMPTATION GOODS
• Both alcohol and Tobacco are inferior goods and not normal goods i.e.
their demand reduces as the income level of the people increases due to
the substitution effect (Law of Demand).
• The assumption that the UBI would lead to increase in the temptation
goods goes against the empirical evidence.
GUIDING PRINCIPLES FOR SETTING UP UBI  Gradualism
The Economic Survey has highlighted the possible 1. Rather than providing UBI in addition to current schemes,
approaches to implement UBI: UBI can be offered as choice to beneficiaries of existing
programs.
 De jure universality, de facto quasi universality
2. Provision of UBI for the women only. This would reduce
1. Automatic Exclusion criteria such as ownership of movable
the expenditure on UBI by half with greater benefits to the
and immovable assets to exclude the non-deserving
families.
people from the ambit of UBI.
3. Start with implementation of UBI only in the urban areas
2. ‘Give it up’ scheme wherein those who are non-deserving
since higher financial inclusion would ensure its success.
chose to opt out of the programme just as in the case of
LPG and are given credit for doing so. Further, we can also think of introducing Negative Income
Tax (NIT) instead of UBI. Under the NIT, all the individuals
3. Introduce a system where the list of UBI beneficiaries is
whose annual income is below the threshold for tax liability
publicly displayed; this would “name and shame” the rich
would be able to get the monetary support from the
who choose to avail themselves of a UBI.
government. Hence, unlike the UBI, the NIT is not universal
and hence would incur fewer costs.
SPICE APPROACH
The objective of UBI is very noble and that is to lower social disparity in a nation. At the same time, it
Social dimension will empower a person to take care of his/her basic needs and will allow an opportunity develop
his/her potential.
Political/Legal • The policy to implement UBI requires meticulous planning and execution. Political will of
11
IN
NCLUSIVE G
GROWTH
Dim
mension paramountt importance ffor smooth ex
xecution this program.
• However, tthe idea of UUBI is a difficult step for many
m developing countriees. It is possiible that
populist na
ature of democratic goverrnments highjjacks the und derlying agennda and prob blems of
ensuring fu
unding for the
e scheme may y cause more problem thann it solves.
There
T is a neeed to have right set of institutions and a parametters to monittor the intro oduction,
expected
e outccomes and beenefit. This idea is still implemented at a very small sscale (2000 peeople) in
Ins
stitutional
Finland.
F We n need to thoro
oughly assess s the requirem ments of thiss scheme esp pecially when
n we are
dim
mension
planning
p to im
mplement thee same in a de eveloping cou untry like Indiia (Many Euro
opean countrries have
an
a advantage of low popula ation).
A nation growws when its pe

eople work to make the nation great. Cu
ulture of workking is very immportant
n this approach. However, when we imp
in plement the scheme
s of UB
BI, there is a p
possibility tha
at people
may
m become complacent and stop orr limit the work
w that the
ey do. We haave seen thiss in the
Cultural dime
ension
im
mplementatio on of MNREG GA scheme ass cheap labouur from UP an nd Bihar has stopped travveling to
Punjab
P and Ha
aryana even when they were getting much
m higher wages
w than th he one recommended
in
n MNREGA
The
T initiative of UBI can b
be a double edged sword d. If is implemented correectly, it can increase
economic
e pow
wer and emp ployability of person to suuch an extentt that the peerson become es a net
Eco
onomic dim
mension contributor
c in
n the econom
my. However, the scheme as such requires lot of rresources wh hich may
trigger many economic p problems (like e deficit fina
ancing, inflatiion and lackk of investment and
unemploymen
u nt).
►RURAL INDEBTEDNESS According

A to
o a recent NABARD sstudy, incidence of
indebtedness is 52.5% for agricultural h
households annd 42.8%
CO
ONTEXT for
f non-agriccultural housseholds, All India Incid dence of
Thee issue of fa
armer's indeb btedness beccomes a mattter of Indebtedness stands taking all rural ho ouseholds together is
inte
ense debate e whenever the agricullture sector faces 47.4%.
4
distress. But th
he root causse of the cu urrent crisis is not
ind
debtedness aloone - indebtedness is just a symptom.
 EXTE
ENT OF THE PROBLE
EM
NABARD ’s All India Rural Financia
al Inclusion Survey
S 2016-1
17
12
RAU’S IAS FOCUS SPEECIAL EDITIONS | MAINS COMPASS (C
C3 CURATION
N) for CSE 20019
INCLUSIVE GROWTH
REGIONAL CONCENTRATION interest. However, due to increasing breaking of these

institutions and growing individualism, farmers are more
Among the states southern states of Telangana, Andhra
often resorting to lending from outside sources.
Pradesh and Karnataka showed the highest levels of
indebtedness among agricultural households followed by  Political causes:
Arunachal Pradesh, Manipur, Tamil Nadu, Kerala and Odisha. • Farmers and rural sector though constitute large part of
REASONS FOR RURAL INDEBTEDNESS electorate but due to fragmentation among them on
issues of caste, religion and other factors, rural distress
 Agricultural causes
fails to get adequate attention during elections.
• Rigidities in Agricultural Marketing which leads to farmers • Lack of implementation of recommendations of various
getting below the mandated Minimum Support Prices for committees such as National farming committee.
their output. This leads to distress selling.
• Lack of political will to resolve the issue of farming distress.
• Low amount of surplus to sell for small and marginal
• Agriculture being a state subject creates issues of
farmers.
federalism to resolve it.
• Fragmented land-holdings; size of average farm is
reducing to reach unsustainable levels.
STEPS TAKEN BY THE GOVERNMENT:
• Agriculture is often hit by disasters such as flood, draught. • Enhance scope of Kisan Credit Card cover agriculture and
• Very low inflation in agricultural commodities in recent allied sectors.
years have led to reduced increase in income for farmers. • Agricultural lending has been inside Priority sector lending
• Low level of value addition in agricultural commodities. with 18% weight.
Food processing industry growth rates have been very low. • PM Jan Dhan Yojana for financial inclusion.
 Economic causes: • Various states have brought laws to regulate informal

lending such as Punjab etc.
• Lack of availability of non-farm well-paying jobs in rural
• PM-KISAN, KALIA, Rythu Bandhu schemes to give direct
areas.
cash transfers to Farming sector.
• Majority of rural indebtedness is from private
• Steps to promote MGNREGA
moneylenders who lend at very high rates leading to debt
• Steps to generate non-agricultural sources for rural
trap.
people: KUSUM scheme to promote solar power
• Delay in payments by government and private sector for
generation in agricultural lands, Gobar-Dhan Yojana to
ex. Delay in payments to farmers for sugarcane.
promote waste to energy in rural areas.
• Lack of awareness among farmers about Kisan Credit Card
(which provides subsidised loans to farmers), cooperatives STEPS TO AMELIORATE RURAL INDEBTEDNESS:
etc.  Related to Financial Inclusion:
• Increasing cost of doing farming such as labour costs, • Increase in access to institutional credit via Kisan Credit
costs related to fertilisers, and farm mechanisation. Card (Zero interest Short Term Loans), Cooperative Banks,
• Agriculture insurance has been limited success in the Post Offices
country. Fasal Bima Yojana has high premium rates for • Law to regulate usurious private lending in rural areas for
small and marginal farmers. Payments are also often very ex. In Punjab.
late.
• Priority Sector Lending to be met.
 Social Causes: • Post office bank to be made to lend to farmers in rural
• Increase aspirational spending by rural households on areas.
consumer items, marriages, vehicles and dowry. • Promotion of SHGs, Micro-finance in rural areas.
• Increase expenditure on education.  Related to making farming more profitable
• Social evils such as alcoholism etc.
• Marketing reforms as suggested in Draft Agricultural
• Expenditure on health issues Pricing and Livestock Marketing Model Act, Model Contract
• Earlier due to the joint family structure and high social Farming Law, Model Land Leasing Law to be enacted by
capital in the rural areas most of the lending was done states,
from among friends and family which was often at zero
13
INCLUSIVE GROWTH
• Agricultural Marketing to be brought under concurrent list. • Farm Producer Companies need to be encouraged.
• Promotion of agricultural exports. • Rural entrepreneurship needs to be promoted with
• Investment in Irrigation, Farm mechanisation. schemes like MUDRA, Stand Up and Start Up India.
• Agricultural insurance to be made more accessible to • Investment in the infrastructure of rural areas with access
farmers. Its scope and accesss should be increased with to quality roads, electricity, digital and telecommunications
prompt payments in the event of crop failure. connectivity.
 Promoting non-farming sources of income for rural  Other Steps

areas: • Social safety net to be broadened in rural areas with 150
• Focus on development of labour intensive manufacturing days coverage of MGNREGA in areas suffering from
in backward and rural areas of the country which will wean disasters.
people away from farming. • Creation of social safety net with wider access to universal
• Promoting non-agriculture sources of livelihood and health care under Ayushman Yojana, Education etc needs
income in rural areas. to be promoted.
• Agriculture value addition and food processing needs to be
incentivised.
SPICE APPROACH
• Social problems such as farmers suicide
• High cost of emergency medical spending is one of the major reasons for high indebtedness.
Universal Health Coverage as envisaged in National Health Policy and Ayushman scheme can help
Social dimension
ameliorate the situation.
• Many of the rural households borrow from their friends and relatives which is usually interest
free reflecting the high social capital and strong family ties in rural India.
• Rural Indebtedness leads to various types of farmers and peasants movements and creates
ground for agitation, protests and marches.
Political/Legal
• The issues of Left Wing Extremism is also linked to it.
Dimension
• Demand for farm loans waivers
• Increasing inequality
• Institutional architecture to promote institutional lending to farmers is very limited. Small

Institutional and marginal farmers and tenant farmers do not usually borrow from Kisan Credit Card,
dimension Cooperative banks, Microfinance Institutions.
• Non-institutional lending from moneylenders is usually at very high interest rates.
Various cultural changes taking place in rural areas such as demise of joint family, high aspirational
living standards, high spending in marriages, dowry, increasing consumerism force households to
Cultural dimension
borrow as their income from agriculture and other livelihood sources is not enough for them to
achieve these.
• Small and fragmented landholdings, non-remunerative prices for farming output, lack of exports
of agricultural commodities, non-availability of well paying non-farm sector jobs etc. contribute to
Economic dimension farming distress and high borrowings.
•
14
INCLUSIVE GROWTH
►EMPLOYMENT RELATED • With the advent of Artificial Intelligence, Robotics, Machine

Learning various low grade monotonous jobs are
CHALLENGES AND LABOUR REFORMS threatened to be mechanised. Thus, there is a need of
A rapid expansion of the manufacturing sector has been a continuous reskilling, upskilling and life-long education.
key element of the growth experience of successful CURRENT STATUS
developing countries, especially labour-abundant ones.
Recent data from the First Annual Periodic Labour Force
In this context, the Indian manufacturing sector exhibits Survey Reports for 2017-18:
many peculiarities: first, it contributes small and stagnant
 Source of Income for Households
share to GDP (17%) ; second, its composition is more skewed
towards skill and capital intensive activities; third, only a • About 52.2 per cent of rural households had major
small share of employment in manufacturing is in organized source of income from self-employment. The share of
manufacturing (the unorganized manufacturing sector rural households with major source of income from casual
accounted for almost 70 per cent of total manufacturing labour during 2017-18 was 25 per cent and that of regular
employment); and fourth, employment is heavily wage/salary earning was 12.7 per cent.
concentrated in small firms. • In urban areas, the share of the household type self-
employment during 2017-18 was 32.4 per cent, the share
It is being said that the labour laws in India are more geared
of households with major source of income from regular
towards protecting employment rather than boosting
wage/salary earning was 41.4 per cent while that of casual
employment and hence have proved to be a major hindrance
labour was 11.8 per cent.
for the development of manufacturing sector.
 Labour Force
NATURE OF EMPLOYMENT IN INDIA
• About 54.9 per cent of the rural males, 18.2 per cent of the
• Seasonality of employment: Only around 60% of the
rural females, 57 per cent of the urban males and 15.9 per
employed were engaged for the entire duration of year.
cent of the urban females were in the labour force in usual
• Disconnect between Growth and Employment in post-
status.
liberalisation era. Despite clocking very rapid rates of
• Among persons of age 15-29 years, LFPR in usual status
economic growth, the employment intensity has been
(ps+ss) in India was 38.2 per cent: it was 38.1 per cent in
falling.
rural areas and 38.5 per cent in urban areas.
• Capital Intensive Manufacturing as opposed to labour
• Among persons of age 15 years and above, LFPR in usual
intensive manufacturing.
status (ps+ss) in India was 49.8 per cent: it was 50.7 per
• Rising education levels in youth has resulted in demand
cent in rural areas and 47.6 per cent in urban areas.
for high paying quality jobs
• Very low female labour force participation rate (around UNEMPLOYMENT RATE
25%) • In usual status, Unemployment rates was 5.8% among
• Skill base of our work force is one of the lowest in the males and 3.8% among females in rural areas, while the
world. rates were 7.1% among males and 10.8% among females
• According to NSSO reports, 93% of employment in India is in urban areas.
in informal sector. These jobs are generally low paying and • In Current Weekly Status, unemployment rate was 8.8 per
offer low social security and prestige. cent among males and was 7.7 per cent among females in
• Still close to 50% of workforce is employed in the rural areas while the rates were 8.8 per cent among males
agriculture sector which contributes only about 14% to the and 12.8 per cent among females in urban areas.
GDP. These workers have very low incomes and low • For Educated rural males and rural females,
quality of life. unemployment rates in usual status were 10.5% and
• Increasingly, there has been a trend towards casualization 17.3% respectively.
and contractual labour even in the organised • For educated males of age 15 years and above in rural
sector.According to Economic Survey 2017-18, the share of areas, unemployment rate was 9.2% and among educated
contractual workers in the organised sector has increased females of 15 years and above in the urban areas the
from 12% in 1999 to 25% in 2010. unemployment rates was 19.8% in 2017-18.
15
INCLUSIVE GROWTH
• The unemployment rate among the rural male youth firms to stay smaller. This in turn adversely affects the job
(persons of age 15-29 years) was 17.4 per cent while the creation in the Indian Economy.
unemployment rate among the rural female youth was • Lack of Flexibility to the Firms: Keeping in tune the
13.6 per cent during 2017-18. The unemployment rate development of Indian economy, the labour laws should
among the urban male youth was 18.7 per cent in 2017-18 be able to provide sufficient amount of autonomy to the
while the unemployment rate for urban female youth was firms to manage its workforce efficiently. However, the
27.2 per cent during 2017-18. labour laws fail to provide necessary flexibility to the firms.
LABOUR LAWS IN INDIA • For example: Industrial Disputes Act (IDA) requires firms
employing more than 100 workers to seek permission
Labour laws are under concurrent list. Currently, there are 44
from their respective state governments to retrench or lay
labour laws under the purview of Central Government and
off workers. Further, Section 9A of the IDA lays out the
more than 100 under State Governments, which deal with a
procedures that must be followed by employers before
host of labour issues. Some of the laws related to Labour are
changing the terms and conditions of work, which
Factories Act ,1948, Minimum Wages Act, 1948, Industries
introduces additional rigidities for firms in using their
(Regulation and Development) Act of 1951, Industrial
existing workers effectively. Similarly, Contract Labour Act
Disputes Act, 1947, Contract labour Act 1970, Trade Unions
regulates and restricts the use of contract labour for
Act 1926 etc.
certain tasks in the Industries.
PROBLEMS WITH THE LABOUR LAWS
• Growing Informalisation of Workforce: The slow pace of
• Low Employment Elasticity: Even though, the Indian labour reform has encouraged firms to resort to other
Economy has grown rapidly, it has failed to create strategies to negotiate “regulatory cholesterol”. One
sufficient number of jobs leading to low employment popular strategy is to hire contract workers, which has two
elasticity. key benefits: first, the firm essentially subcontracts the
• Archaic Labour Laws: Most of the labour laws were work of following regulations and “managing” inspectors to
enacted 40-70 years back, to address the then needs of the contract labour firm. Second, because contract
regulating the manufacturing sector. Today, service sector workers are the employees of the contractor and are not
has taken the lead with 55% share in the GDP. Labour considered workmen in the firm, the firm stays small
Laws need to be reoriented to address the emerging enough to be exempt from some labour law. This can be
needs of the service sector and the new technology seen in the fact that the share of contractual workers
intensive manufacturing sector. increased from 12 per cent of all registered manufacturing
• Multiplicity of Labour Laws: Currently, there are 44 workers in 1999 to over 25 per cent in 2010. The informal
labour laws under the purview of Central Government and workers are paid almost 20 times less wages as compared
more than 100 under State Governments. This not only to formal workers and lack social security benefits.
leads to significant increase in the compliance costs for the • Obstacle to Human Capital Formation: The industries
firms and also gives scope for corruption and harassment. play crucial role in skill development. However, as stated
• Poor Coverage of workers: The labour laws cover only before, labour laws discourage firms from employing a
around 8% of the workforce presently employed in the large number of permanent workers and steer them
formal sector leading to the exclusion of the remaining towards employing more casual or contract workers. The
92% of the informal workforce. The informal workers face firms do not invest in upgrading the skills of the informal
significant challenges in terms of poor wages, working workers leading to lack of human capital formation.
environment and lack of social security benefits. • Reduce the Global Competitiveness: The Labour
• Problem of Missing Middle: The Manufacturing sector is intensive industries in India such as Textile and Leather
basically dominated by a large number of small have remained mainly informal in nature due to labour
enterprises and a relatively less number of large scale policies. The Economic survey 2017-18 has highlighted that
manufacturing enterprises. There is almost near absence in response to increase in the labour costs in China, the
of mid-sized firms, which can be attributed to out-dated textile and leather industries from smaller economies such
labour laws. The labour law imposes compliance costs on as Bangladesh and Vietnam have got immensely
the mid-sized and large firms and incentives the small benefitted. This has been possible due to flexible and pro-
employment labour policies in such countries.
16
INCLUSIVE GROWTH
STEPS TAKEN BY THE GOVERNMENT Diploma holder and Certificate in 10+2 vocational stream
• Rationalisation of Labour Laws: The Second National to develop skilled manpower. During the past few decades,
Commission on Labour has recommended that the the performance of Apprenticeship Training Scheme (ATS)
existing Labour Laws should be broadly grouped into four was not in line with the growth of the economy of India. It
or five Labour Codes on functional basis. Accordingly, the was found that a large number of training facilities
Ministry has taken steps for drafting four Labour Codes on available in the industry going unutilized depriving
Wages, Industrial Relations, Social Security & Welfare and unemployed youth to avail the benefits of the ATS.
Occupation Safety, Health and Working Conditions • Based on these inputs the Apprenticeship Act, 1961 was
respectively, by simplifying, amalgamating and amended. The definition of worker has been broadened
rationalizing the relevant provisions of the existing Central and the method of determining the number of apprentices
Labour Laws. to be appointed has been amended. These amendments
• Shram Suvidha Portal: The Ministry of Labour & would ensure that employers engage a larger number of
Employment has developed a unified Web Portal ‘Shram apprentices. The amendment also made provision for
Suvidha Portal’, to bring transparency and accountability in setting up a portal leading to electronic management of
enforcement of labour laws and ease complexity of records, contracts and returns. The motive behind these
compliance. amendments was to ensure that employers engage a
• Maternity Benefit (Amendment) Act, 2017: Increased larger number of apprentices and to encourage employers
paid maternity leave from 12 weeks to 26 weeks and has to comply with the provisions of the Apprentices Act.
benefited 18 Lakh women employees. • National Apprenticeship Promotion Scheme: The main
• Industrial Employment (Standing Orders) Act: The objective of the scheme is to promote apprenticeship
Ministry of Labour and Employment has included the training and to increase the engagement of apprentices
category of 'Fixed Term Employment Workman' for all from present 2.3 lakh to 50 lakh cumulatively by 2020. As
sectors in the Industrial Employment (Standing Orders) per the scheme, Government of India will share 25% of
Act, 1946. The objective of Fixed Term Employment on one prescribed stipend subject to a maximum of Rs. 1500 per
hand is to provide flexibility to the employers in order to month per apprentice with the employers.
meet the challenges of globalization, new practices and SUGGESTIONS
methods of doing businesses while on the other, this Some of the suggestions given by NITI AAYOG with respect to
would be beneficial for workers as it gives the 'FTE Employment and Labour Reforms are as given below:
Workman' the same statutory benefits as that of regular
• Enhance skills and apprenticeships: The Labour Market
workers in a proportionate manner. This would also
Information System (LMIS) should be made functional
substantially decrease exploitation of contract workers as
urgently. Ensure the wider use of apprenticeship
the employer would directly hire the worker without any
programmes by all enterprises. This may require an
mediator in the form of contract for a fixed term.
enhancement of the stipend amount paid by the
• Pradhan Mantri Rojgar Protsahan Yojana (PMRPY): The
government for sharing the costs of apprenticeships with
Government of India is paying full employer's contribution
employers.
(EPF and EPS both) with effect from 1st April, 2018 for a
• Labour law reforms: Complete the codification of labour
period of three years to the new employees as well as to
laws at the earliest. Simplify and modify labour laws
the existing beneficiaries for their remaining period of
applicable to the formal sector to introduce an optimum
three years.
combination of flexibility and security. Make the
AMENDMENTS TO THE APPRENTICESHIP ACT, 1961 compliance of working conditions regulations more
• The Apprentices Act, 1961 was enacted with the objective effective and transparent.
of regulating the programme of training of apprentices in • Ease industrial relations to encourage formalization:
the industry by utilising the facilities available therein for Increase severance pay, in line with global best practices.
imparting on-the-job training. The Act makes it obligatory Overhaul the labour dispute resolution system to resolve
for employers to engage apprentices in designated trades disputes quickly, efficiently, fairly and at low cost.
to impart apprenticeship training on the job in industry to Strengthen labour courts/tribunals for timely dispute
school leavers and ITI pass outs, Graduates engineer, resolution and set a time frame for different disputes.
17
INCLUSIVE GROWTH
• Wages: Make compliance with the national floor level experience, and abilities of employees all have economic
minimum wage mandatory. Expand the Minimum Wages value for employers and for the economy as a whole.
Act, 1948, to cover all jobs. Enforce the payment of wages • Human capital is important because it is perceived to
through cheque or Aadhaar-enabled payments for all. increase productivity and thus profitability.
• Working conditions and social security: Enact a • Converting human beings through education and training
comprehensive occupational health and safety legislation into human resources is human capital formation.
based on risk assessment, employer-worker co-operation, SOURCES OF HUMAN CAPITAL FORMATION
and effective educational, remedial and sanctioning.
One of the most important sources of Human Capital
Workers housing on site will help to improve global
Formation is investment done in education. There are many
competitiveness of Indian industry, along with enhancing
other sources like on-the-job training, investment in health,
workers’ welfare. Ensure compulsory registration of all
information and migration are the other sources of the
establishments to ensure better monitoring of
human capital formation. The sources are:
occupational safety as well as recreation and sanitation
facilities. Enhance transparency in the labour inspection EXPENDITURE ON EDUCATION
system by allowing online complaints and putting in place • The most effective way of enhancing and enlarging the
a standardized and clear mechanism productive workforce in the country is the expenditure
WAY FORWARD done on strengthening the education system. The
objective of nation and individuals behind investment in
• To capitalize on its demographic dividend, India must
create well-paying, high productivity jobs. Further, a education
significant number of workers, currently employed in ο To increase the future income.
agriculture, will move out in search of jobs in other areas. ο Creating manpower and generating their technical skills,
This will be in addition to the new entrants to the labour which are well suited for improving labour productivity
force as a result of population growth. and thus resulting in sustainable rapid economic
• By some estimates, the Indian economy will need to growth.
generate nearly 70 lakh jobs annually to absorb the net ο Controlling population growth rate which can be done
addition to the workforce. Taking into account the shift of by bringing down the birth rate. This results in more
labour force from low productivity employment, 80-90 resources available per person.
lakhs new jobs will be needed in the coming years. ο Education can be floated to others, resulting in social
• In this regard, there is urgent need to focus on bringing benefit.
about the necessary labour reforms. EXPENDITURE ON HEALTH
Another important source of human capital formation is
Health. A worker who is not well will certainly affect the
►HUMAN CAPITAL INDEX
productivity. Various forms of health expenditures are,
WHAT IS HUMAN CAPITAL? making available clean and safe drinking water, preventive
• Human capital consists of the knowledge, skills, and health and curative medicines etc.
that people accumulate throughout their lives, enabling MIGRATION
them to realize their potential as productive members of
People migrate from their native place to another place to
society.
find better jobs in order to gain the advantage of location and
• Human capital is an intangible asset or quality not
earn higher salaries. Migration from a rural area to urban
listed on a company's balance sheet. It can be classified
area is prime most. Rural areas don’t have sectors to provide
as the economic value of a worker's experience and skills.
good employment, so people migrate, whereas technically
This includes assets like education, training, intelligence,
qualified professionals migrate from one country to another.
skills, health, and other things employers value such as
ON-THE-JOB TRAINING
loyalty and punctuality.
• The concept of human capital recognizes that not all To enhance labour productivity many organizations provide
labor is equal. But employers can improve the quality of on-the-job training. This is another source of human capital
that capital by investing in employees—the education, which sometimes becomes very costly. Firms incur huge
18
INCLUSIVE GROWTH
expenditure on giving on-the-job training. Various forms can The HCI in India for females is marginally better than that
be like, training under a skilled supervisor, off-campus for males.Further, there has been marked improvement in
training or in-house training. the HCI components in India over the last five years.
EXPENDITURE ON INFORMATION • Probability of Survival to Age 5: 96 out of 100 children
born in India survive to age 5.
Information related to the labour market and other markets
• Expected Years of School: In India, a child who starts
like education, health can be attained by paying to acquire
school at age 4 can expect to complete 10.2 years of
information. For example, information regarding salaries is
school by her 18th birthday.
available for different markets.
• Harmonized Test Scores: Students in India score 355 on a
HUMAN CAPITAL INDEX 2019 scale where 625 represents advanced attainment and 300
• The World Bank has released a Human Capital Index (HCI) represents minimum attainment.
as part of the World Development Report 2019. • Learning-adjusted Years of School: Factoring in what
• Broader theme of the World Development Report (WDR), children actually learn, expected years of school is only 5.8
2019 is “The Changing Nature of Work”. years.
• The HCP programme is claimed to be a program of • Adult Survival Rate: Across India, 83 per cent of 15-year
advocacy, measurement, and analytical work to raise olds will survive until age 60.
awareness and increase demand for interventions to build • Healthy Growth (Not Stunted Rate): 62 out of 100
human capital. children are not stunted. 38 out of 100 children are
• The HCI has three components: stunted, and so at risk of cognitive and physical limitations
(i) Survival, as measured by under-5 mortality rates; that can last a lifetime
• Gender Differences: In India, HCI for girls is marginally
(ii) Expected years of Quality-Adjusted School which
higher than for boys.
combines information on the quantity and quality of
education (quality is measured by harmonizing test GOVERNMENT OF INDIA HAS REJECTED THE INDEX
scores from major international student achievement • The government seems to be in denial of India’s poor living
testing programs and quantity from number of years of conditions and has rejected the findings of the World
school that a child can expect to obtain by age 18 given Bank’s Human Capital Index (HCI). HCI has ranked India
the prevailing pattern of enrolment rates across grades on 115th position out of 154 countries. The HCI index
in respective countries); and values are to measure youth mortality, schooling and
(iii) Health environment using two proxies of (a) adult health system in a country.
survival rates and (b) the rate of stunting for children under • India ranks lower than neighbouring countries like Nepal,
age 5. Sri Lanka, Myanmar and Bangladesh in the index.
WORLD BANKS'S HUMAN UNDPHUMAN The reasons are:

CAPITAL INDEX DEVELOPMENT INDEX • There are major methodological weaknesses, besides
HCI uses survival rates and HDI uses life expectancy as substantial data gaps. For instance, for the schooling
stunting rate as measure of measure of health
parameter, though quantity is assessed using enrolment
health
rates reported by UNESCO, quality is gauged using
HCI uses quality-adjusted HDI uses years of schooling as
harmonised test scores from major international student
learning as measure of measure of education
education achievement testing programmes.
HCI excludes per capita HDI includes per capita income • The HCI score for India does not reflect the key
income initiatives that are being taken for developing human
HCI excludes income HDI includes income capital in the country. The Samagra Shiksha Abhiyan has
component component been launched to focus on access and quality of education
KEY OBSERVATIONS RELATED TO INDIA for the benefit of 197 million school children. Through
• Human Capital Index: A child born in India today will be the Ayushman Bharat Programme, India has now
only 44 per cent as productive when she grows up as she launched the world’s largest Health Insurance initiative
could be if she enjoyed complete education and full health. providing 500 million citizens with adequate health
19
INCLUSIVE GROWTH
coverage, and transforming 150,000 Health Centres into promised by the Right to Education Act 2009. If the
Wellness Centres to provide comprehensive primary quality of education improves, the productivity of
healthcare services. Sanitation coverage has expanded the citizens will naturally improve which will
from 38% in 2014 to 83% in 2018 under the Swachh reduce poverty and increase GDP growth.
Bharat Mission. This has been made possible through the • There has been criticism regarding the
construction of over 72 million toilets and simultaneous methodology followed by the World Bank in
societal reforms driven through strong political will. calculating the HCI. Its change of stance from the past
The Pradhan Mantri Ujjwala Yojana has reduced drudgery is also noticeable. In the past, the World Bank kept
and improved the health of about 38 million women by emphasising on infrastructure building to reduce
providing them with LPG connection to replace firewood poverty. Now its focus has turned to prodding
and coke-based cooking stoves. In pursuing with the nations to have higher expenditure on health and
agenda of financial inclusion, the Pradhan Mantri Jandhan education. Its emphasis on education to merely
Yojana has provided access to formal banking services to increase productivity and earning potential of
over 328 million persons. The share of account individuals is not the only aim of education, according
ownership among rural adults has more than doubled to critics. The UN’s Sustainable Development Goals
from 33% in 2011 to 79% in 2017, significantly bridging for example take a better view and the emphasis is on
the rural-urban gap. Financial inclusion and the world committing to producing more inclusive,
the Aadhaar identification system has enabled India to equitable quality of education for all. The HCI
make direct cash transfer of about US$ 64 billion to calculations are also different from Amartya Sen’s
citizens, thus improving governance and social protection. approach which aims at not so much on enhancing
WHY RANKING IS LOW? human capital but enhancing human capabilities
which means the individuals’ autonomy to use his or
• The potential of India’s citizens is low when measured
her skills to achieve the lives they have reasons to
in terms of productivity and earnings because India
value.
has dismal record on hunger, nutrition and quality
of education. According to the global Hunger Index, • According to some critics, the HCI has reduced
India is at 103th position out of 119 countries. In workers to commodities and education has been
2017, India had the highest number of malnutrition reduced to an input for economic prosperity. They
cases and India has 14 out of 15 most polluted cities argue that merely churning out workers for capitalist
in the world. In 2018, it is reported that there have production is not the purpose of education.
been 2 million premature deaths in India due to Collectively, education around the world can achieve a
pollution. India had the highest number of TB more just, peaceful, and sustainable world
incidences and largest number of multidrug resistant development. Thus quality of education should be
TB in 2016. based on research, evidence and dialogue.
• Since HCI places so much importance on quality of • Regarding the health outcome in India, the scheme of
education, we have a gloomy picture in India. Ayushman Bharat aims high and guarantees health
According to 2011 census, 14 percent of men aged 25 insurance to 500 million people. The outcome of the
to 34 years hadn’t studied beyond class 10 and 11.5 scheme is not known yet, but hopefully it will improve
per cent hadn’t gone beyond class 12. Only 14.6 per the dire straits which India’s public healthcare system
cent were graduates. For women, the data is worse, 10 currently is in. Primary healthcare requires more
percent stopped studying after class 10, 8 per cent attention to increase the nutritional intake of
after class 12 and 11 per cent were graduates. children as well the preventive healthcare against
common diseases of children that are responsible for
• According to the annual status of education report
their premature deaths. Unfortunately, the scheme’s
for 2017, 25 per cent of rural students between the
emphasis is on secondary health care in hospitals.
ages of 14 to 18 years could not read basic text
fluently in their own language. On an average, 50 per • India should take the HCI poor ranking as a warning
cent students struggled to divide 3 digits by 1 rather than an insult because unless all individuals
digit. The expected years of school is only 5.8 years have a decent education and adequate healthcare, the
in India rather than 8 compulsory years of education nation will suffer on account of low productivity and
20
INCLUSIVE GROWTH
slow economic growth. Unless there is improvement in unemployment when AI and digital economy come
in the quality of education, there is bound to be a rise in a big way to India.
SPICE APPROACH
The HCI uses survival rates and stunting as measure of health, and quality-adjusted learning as
measure of education instead of life expectancy and years of schooling used in UNDP HDI.
Social dimension The HCI in India for females is marginally better than that for males – makes females as better
Human Capital compared to males. This delineates the economic basis for urgent need to complete
gender parity.
The government seems to be in denial of India’s poor living conditions and has rejected the
Political/Legal findings of the World Bank’s Human Capital Index (HCI).
Dimension Instead, government should have reflected on the findings and took policy measures to improve its
ranking.
World Bank’s HCI and UNDP’s HDI provides an institutional mechanism of comparing human
Institutional
development across the nations and adopt best practices to make human development globally
dimension
inclusive.
HCI exposes our cultural bias against female population and highlights their importance as a more
Cultural dimension
productive human capital.
HCI is a broad indicator of human productivity - A child born in India today will be only 44 per
Economic dimension cent as productive when she grows up as she could be if she enjoyed complete education and full
health.
►SOCIAL IMPACT BONDS increase the learning outcomes and literacy rate in a
village within a stipulated time.
WHY IN NEWS?
• If the NGO fails to achieve the target, then the government
Recently, the World Bank, UN Women and SIDBI came agency would not be held liable for the payment of the
together to launch new social impact bonds exclusively for investment incurred by the NGO.
women, known as Women’s Livelihood Bonds. The Bonds MECHANISM OF IMPACT BONDS
would focus on women empowerment by promoting
• There are 3 key actors involved in impact bonds- investor,
entrepreneurial activities among the women.
outcome funder and a service provider.
The Impact bonds have become an innovative and outcome • An investor provides upfront capital to a service
oriented method of financing social projects related to provider, who then delivers services to a population in
Education, Health etc. These bonds are capable of making need. Upon the achievement of pre-determined indicators,
optimum and efficient use of finances with focus on ensuring the outcome funder will repay the investor their initial
success of social welfare programmes. capital, plus a return. For example, United States Agency
WHAT ARE IMPACT BONDS? for International Development (USAID) has launched
• Form of contractual agreement between the Investors the Utkrisht Impact Bond to reduce maternal and neo-
and implementation agency wherein the investors agree natal deaths in Rajasthan. Under this mechanism,
to pay the money to the implementation agency only if it is private entities would provide up-front financing to the
able to achieve the pre-determined empirically verifiable implementation agency. If the pre-determined targets with
social indicators. For example, a government agency may respect to reduction in maternal and neo-natal deaths are
promise to pay money to an NGO only if it is able to met, USAID would act as outcome funder and repay back
21
INCLUSIVE GROWTH
the money to the private entities along with additional actions for greater achievement of human wellbeing, while
returns leaving no one behind – by 2030. They are a part of
WHAT ARE THE BENEFITS OF IMPACT BONDS? Transforming our world: the 2030 Agenda for Sustainable
Development, which was adopted by 193 Member states
• Focus on Outcomes: The Impact bonds place a greater
at the historic UNGA Summit in September 2015, and
emphasis on the achieving the targets which is likely to
came into effect on January 1, 2016.
ensure greater success of the social welfare programmes.
• These goals are universal, integrated, holistic and
• Innovative design and Implementation: In case of
transformative.
failure of the project, the onus falls on the private
investors. Hence, it has in-built accountability mechanism 5PS OF SDGS
which would lead to development of innovative strategies People: End poverty and hunger, in all their forms and
for the implementation of social welfare programmes. dimensions, and to ensure that all human beings can fulfil
• Incentivize Collaboration: The impact bonds foster their potential in dignity and equality and in a healthy
collaborative approach between the Government, Private environment.
Sector and NGOs. It brings the strength of each of these Planet: Protect the planet from degradation, including
entities onto a single platform to ensure the success of the through sustainable consumption and production,
social interventions. sustainably managing its natural resources and taking urgent
WAY FORWARD action on climate change, so that it can support the needs of
The impact bonds hold a great deal of promise in funding the present and future generations.
social interventions that have the potential to save Prosperity: All human beings can enjoy prosperous and
government money and ensure the success of the social fulfilling lives and that economic, social and technological
welfare programmes. It is in this regard, the Government progress occurs in harmony with nature.
must create conducive conditions in form of strong legal and
Peace: Foster peaceful, just and inclusive societies which are
administrative structure for the development of impact
free from fear and violence. There can be no sustainable
Bonds in India.
development without peace and no peace without
sustainable development.
►SUSTAINABLE DEVELOPMENT Partnership: Mobilize the means required to implement this

Agenda through a revitalised Global Partnership for
GOALS Sustainable Development, based on a spirit of strengthened
ABOUT SDGS global solidarity, focussed in particular on the needs of the
• The SDGs are a bold universal set of 17 Goals and 169 poorest and most vulnerable and with the participation of all
targets to help organise and streamline development countries, all stakeholders and all people.
SUSTAINABLE DEVELOPMENT MILLENNIUM DEVELOPMENT

GOALS GOALS
1. The SDGs aim at elimination of deep rooted problems. MDGs were aimed at reducing the problems.
2. Universal in their mandate as they cover both developed and Only covered Developing countries, developed
developing countries countries were expected to give assistance.
3. SDGs have been arrived after a long consultative and bottom up MDGs were created through a top down process.
process.
4.. SDGs are more comprehensive in nature addressing the MDGs had limited orientation.
multidimensional aspects.
22
INCLUSIVE GROWTH
5. SDGs focus on quality and quantity (for example in Education) MDGs was more quantity focused.
6. SDGs aim at sustainable development and first onus of funding lies Development aid was visualised to fund MDGs
on country to improve their own tax revenues. which did not materialise.
7. 139 monitorable targets Limited number of monitorable targets
8. Gives importance to climate issues and biodiversity Did not take up climate and biodiversity issues.
9. Peace has been taken up as an agenda in SDG which is essential for this aspect as missing,
SDG 1: NO POVERTY 1. Economic growth and resultant employment creation

a. Fiscal consolidation
• End Poverty in all its forms everywhere
• Ending poverty in all its forms everywhere implies focusing b. Ease of doing business
on complete eradication of extreme poverty (currently c. Accelerated infrastructure development
measured as people living on less than $1.25 a day) as well
d. Liberalisation of FDI
as paying attention to other determinants that influence
poverty such as socio-economic, cultural, political and e. Closure of sick units in public sector and Insolvency and
environmental factors. Bankruptcy Code
CURRENT SITUATION f. Reforms in the Taxation by GST and easier compliance

to direct taxes.
CURRENT TARGET
INDICATORS g. Focus on Skill development and Apprenticeship
STATUS (2030)
2. Tackling chronic poverty by various programs
21.92%
Population below poverty line 10.95% a. MGNREGA, NRLM, National Social Assistance Program,
(2011-12)
PM Jeevan Jyoti Beema Yojana, PM Jeevan Suraksha
Percentage of households with at Beema Yojana, Ayushman Bharat
least one member under a health 28.7% 100% b. PM Awas Yojana, National Food Security Mission,
insurance or health scheme Mission Antyodaya, Poshan Abhiyan
Persons provided employment as c. PM Ujjawala Yojana, PM Jan Dhan Yojana

a percentage of persons
100%
demanding employment under
MGNREGA SDG -2: ZERO HUNGER
• End Hunger, Achieve Food Security and Improved
Number of homeless households 0%
Nutrition and Promote sustainable Agriculture
per 100,00 households
• Eliminating hunger is fundamental to ensuring human
INDIA’S STRATEGY development. This goal aims to end all forms of hunger
Poverty eradication requires pursuing dual objectives of and malnutrition by 2030, making sure all people-
pulling people out of poverty and sustaining poverty escapes. especially children – have access to sufficient and
While social assistance programs and schemes that provide nutritious food all year round. It seeks to end all forms of
basic needs help in achieving the first objective, inclusive malnutrition, double agricultural productivity and ensure
economic growth and skill development provide sustainable food production systems.
opportunities for achieving the second objective. • Food security is influenced by a number of factors,
including those that determine food availability –domestic
The government has thus devised a twin pronged strategy to
food production and the capacity to import food, as well as
end poverty:
the determinants of food access, utilisation and
23
INCLUSIVE GROWTH
vulnerability. India has surpluses of wheat and rice stocks, • National Food Security Act, has provisions for Targeted
however improving access, utilisation and reducing Public Distribution System which aims to cover about 66%
vulnerability remain a significant challenge. of the population of the country. Anyodaya Anna Yojana
aims to target poorest families with subsidised food.
CURRENT TARGET
INDICATORS • Integrated Child Development Scheme and Mid Day
STATUS (2030)
Meal Scheme aim to capture children before school and
Children aged under five in India 38.4% 21.03% children in primary education schools with subsidised
are stunted food. PM Matru Vandana Yojana provides Rs 6000 to
pregnant and lactating mothers for availing better facilities
Annual agricultural productivity 2509 kg per 5018.44
for their delivery.
of wheat, rice and coarse cereals hectare
• Several Agriculture related schemes and programs
% of pregnant women aged 50% 23.57% have been conceptualised to boost agriculture production.
between 15 and 49 are anaemic National Mission on Agricultural Extension and Technology
in India enables delivery of appropriate technologies for farmers.
National Mission on sustainable agriculture, National Food
One rural household covered 1 1.29 Security Mission, RKVY-Raftaar etc have been initiated to
under PDS for every low income boost output.
rural household
INDIA’S STRATEGY SDG – 3: GOOD HEALTH AND WELL

• To end hunger and malnutrition by 2030, ensuring access
BEING
to quality food to all to their nutritional needs for a healthy
life is required. Ending hunger and malnutrition demands Ensure healthy lives and promote well-being for all at all
resilient food production systems and sustainable ages.
agricultural practices. Further, ensuring equitable access to This goal aims to ensure that people enjoy a level of health
nutritious food by all, improving sanitation and hygiene, that enables them to lead a socially and economically
and reducing vulnerability to shocks and disasters. productive life. It aims to end preventable deaths across all
• Despite the gains in reducing poverty rate, India is saddled age from communicable and non-communicable diseases
with high levels of malnutrition, anaemia, stunting and and illness caused by air, water, and soil pollution and
wasting. According to NFHS-4, almost half of pregnant contamination. It also aims to achieve universal health
Indian women aged between 15 to 49 are anaemic, and coverage, including financial risk protection, access to quality
more than one-third of women have a low body mass essential health care services and access to safe, effective,
index. Among children younger than 5, 38.4% have low quality and affordable essential medicines. It also calls for
height-for-age, 21% have low weight-for-age. Food security renewed focus on mental health issues.
and nutrition pose a challenge in India because of a
INDIA’S STRATEGY
number of factors such as inadequate access to food,
structural inequalities (gender, caste, social groups), lack of India has been actively working to cover every aspect of this
water and sanitation, micronutrient deficiencies and Goal and strengthen health sector in the country.
illiteracy. • National Health Mission covering two-submissions –
INITIATIVES National Rural Health Mission and National Urban Health
Mission aims to provide universal access to health care by
• National Nutrition Strategy aims to accelerate the
strengthening systems, institutions and human resource
decline of malnutrition in India. National nutrition mission
capabilities.
monitors growth of children, as well as checks the
• AYUSHMAN BHARAT is a national health protection
pilferage of food rations provided at Anganwadi Centres.
scheme which aims to provide coverage of upto Rs 5 lakhs
• POSHAN ABHIYAAN aims to reduce stunting, under-
rupees per family per year for secondary and tertiary care
nutrition, anaemia and low birthweight babies through
hospitalisation, covering more than 10 crore families.
synergy and convergence among different programs,
better monitoring and improved community mobilisation.
24
INCLUSIVE GROWTH
• Mission Indradhanush aims to increase full immunisation educational opportunities for all. It seeks to see
coverage in India to at least 90% children by December education as a continuum.
2018. ο There has been an effort to enhance the use of digital
technology in education through smart classrooms,
For non-communicable diseases: digital boards and direct to Home channels. Initiatives
ο Revised National Tuberculosis Control Program aims like Shala Kosh, Shagun, Shaala Sarthi, Operation
to improve the success rate of treatment among Digital Board have been started.
sensitive TB cases.
CURRENT TARGET
ο National Leprosy Eradication Program aims to INDICATORS
STATUS (2030)
reduce leprosy cases
Children enrolled into school at
ο Integrated disease Surveillance Program aims to 75.83% 100
elementary and secondary level
monitor disease trends and to detect and respond to
outbreaks in early rising phase. Average marks scored on learning 67.89%
54.69% and
ο Swachh Bharat Abhiyaan which aims to increase outcome for students in Class 5 and
44.58%
waste management and sanitation cover will also have and Class 8 respectively 57.17%
positive rub-off on health outcomes.
% of schools teachers in India
81.15% 100
who are professionally qualified
SDG – 4: QUALITY EDUCATION % of elementary and secondary

Ensure inclusive and equitable quality education and schools with Pupil teacher ratio 100
promote lifelong learning opportunities for all less than equal to 30
• Education is the foundation of any society on which

dreams of economic growth and development are built. Its
role is not only limited to boosting economic growth by SDG 5: GENDER EQUALITY
enhancing skills and opening up opportunities for Achieve Gender Equality and empower all women and
sustainable livelihoods, but also to enable people to lead a girls
life of dignity.
Gender equality is a fundamental human right and is a
• This Goal aims to ensure inclusive, equitable and quality
prerequisite for sustainable development. This Goal aims to
education for all, including technical and vocational
achieve gender equality by ending all forms of discrimination,
training by providing lifelong learning opportunities, so as
violence and harmful practices, including trafficking and
to achieve substantial adult literacy and numeracy. It also
sexual exploitation against women and girls. It calls for
aims to build and upgrade education facilities that are
valuing women’s unpaid care and domestic work. It also calls
child, disability and gender sensitive and ensure that all
for full and effective participation and equal opportunities for
learners acquire knowledge and skills needed to promote
leadership at all levels of decision making in political,
economic and public life for women.
INDIA’S STRATEGY
STATUS OF GENDER EQUALITY IN INDIA
• Education is a fundamental right (Article 21A) that
• 8.7% of seats in State Legislative Assemblies are held by
empowers people and ensures that they are able to lead a
women
productive life in a globalising world.
• One in three women have experienced spousal violence
ο Enactment of RTE Act
• 898 females are born for every 1000 males
ο Samagra Shiksha Abhiyaan which has been • 54% of women aged 15-49 are using modern methods of
introduced by subsuming three existing schemes – family planning in India
Sarva Shiksha Abhiyaan, Rashtriya Madhyamik Shiksha • Earning of females is 70% of that of males
Abhiyaan (RMSA) and Teacher Education (TE). It aims to • 32% Women Labour Force Participation Rate
improve effectiveness of schools and providing equal
25
INCLUSIVE GROWTH
India aims to empower all women to live dignified lives, water-use efficiency across all sectors and supporting and
contributing as equal partners in the growth and strengthening the participation of local communities in
development of the country, in an environment free from improving water and sanitation management.
violence and discrimination. Women and girls in India STATUS
experience e inequalities in access to healthcare, education,
• 32% of the districts in the country are open defecation free
nutrition, employment and asset ownership. Decision making
• 82.72% of rural households have Individual Household
at home and in public sphere is another area where women
toilets
lag behind. This is reflected in indicators such as child (0-6)
sex ratio which was 919 per 1000 males in 2011, declining • 71.8% of rural population in India has access to safe and
from 927 in 2001. Women continue to lag behind in adequate drinking water
education as is reflected in literacy rate for women being • 62% of the net available groundwater in India s withdrawn
65%, compared to 82% percent for males in 2011. annually
• 37.58% of Sewage Treatment capacity of Urban India
Concerted efforts are being made towards eliminating gender
inequality by focusing on education of the girl child, providing Access to safe drinking water and sanitation is one of the
access to health care facilities to girls and women, and most pressing challenges in the country and is being
ensuring access to livelihood opportunities. The participation addressed by the government on a priority basis. According
of women in Panchayati Raj Institutions is having a positive to Census 2011, 85.5% of population had access to safe
impact on decision making opportunities for women in public drinking water whereas only 30.8% of the households in rural
sphere. areas had toilet facilities.
India’s commitment towards undertaking reforms to ensure While striving to ensure full access to water for all, robust
gender equality is reflected in number of legislations enacted efforts are being taken to optimise water resource
for ensuring equal opportunities and dignity of life for endowments in the country. An integrated, balanced
women, namely, Protection of Women from Domestic approach to managing water resources towards effective
Violence Act, 2005, Sexual Harassment of Women at water governance needs to be taken. The allocation of water
Workplace (Prevention, Prohibition and Redressal) Act, 2013, among various uses needs to be carefully planned to ensure
Prohibition of Child Marriage Act, 2006, Medical Termination sustainability. Research and development efforts need to be
of Pregnancy Act, 1971, and the Equal Remuneration Act, targeted at improving water use efficiency as fresh water
1976. becomes a scarce resource.
Targeted national level schemes and programmes, such as INITIATIVES

the Beti Bachao, Beti Padhao campaign, Sukanya Samridhi • National Rural Drinking Water Program aims to provide
Yojana, MUDRA Yojana and Pradhan Mantri Ujjwala Yojana every rural household with adequate safe water for
have been launched for attaining the targets of Goal 5. drinking, cooking and other basic domestic needs on a
Besides these, there are a number of State level schemes as sustainable basis, with a minimum water quality.
well, aimed at providing welfare, support and building • National Water Quality Sub-Mission aims to eliminate
capacity of women and girls. water quality issues related to excessive Arsenic and
Flouride in the country by 2021.
• Namami Ganga is an integrated conservation mission
SDG - 6: CLEAN WATER AND related to water management to accomplish the multiple
SANITATION objectives of effective abatement of pollution,
conservation and rejuvenation of river Ganga.
Ensure availability and sustainable management of
• Swachh Bharat Mission- Rural and Urban is a cleanliness
water and sanitation for all.
mission of GOI which ensures access to sanitation and
Water is life. Not only is water essential for survival, it is aims to make the whole country Open Defection Free by
critical for agriculture, industrial use and domestic purposes. 2019.
Availability of clean water is heavily dependent on
appropriate water management. This Goals aims to improve
water quality by reducing pollution, substantially increasing
26
INCLUSIVE GROWTH
SDG 7: AFFORDABLE AND CLEAN • PAHAL and Ujjawala yojana aims to provide access to clean
cooking LPG cylinders to households and provide the
ENERGY subsidy directly in the bank accounts.
Ensure access to affordable, reliable, sustainable and • National Program for Energy Efficient Appliances aims at
modern energy for all improving energy efficiency. UJALA provided access to
Energy has been recognised as necessary pre-requisite for energy efficient LED bulbs to households.
development of societies and for them to flourish. Access to • International solar Alliance has been fostered by India to
energy enables people to augment their income and improve promote solar energy across the globe.
their productivity, enhancing their access to healthcare, water
and education and improving their overall well-being. This
SDG 8: DECENT WORK AND
Goal aims to ensure universal access to affordable, reliable
and modern energy services by the year 2030. ECONOMIC GROWTH
STATUS This Goals aims to achieve higher levels of economic
• 43.8% households in India use clean cooking fuels such as productivity through diversification and technological
electricity, LPG/natural gas and biogas upgradation and also to promote development-oriented
policies that support decent job creation, entrepreneurship
• 95% of households in India have access to electricity
and creativity and innovation. It also seeks to protect labour
• Renewable energy constitutes 17.51% of total installed
rights and promote safe and secure working environments
generating capacity of electricity in India.
for all workers.
India has taken the Goal of ensuring access to affordable,
STATUS
reliable, sustainable and modern energy for all as a
prerequisite for its socio-economic development. Energy • 6.5% GDP growth rate in India in FY 2017-18
policies of India have over the years aimed to raise per capita • 16.84 bank atms available in the country per 1,00,000
energy (specifically electricity) consumption. Access to clean population
energy is a precondition for India to meet its double digit • 64 persons unemployed per 1000 population
economic growth target. • 99.99% of households in the country have bank accounts.
Nearly 200 million Indians are without access to electricity, A stable macroeconomic environment is a precursor to
about 264 million still dependent on solid bio-mass for growth. India has demonstrated a resolve to achieve fiscal
cooking. Thus, India has a long way to go in securing its consolidation, complemented with aggressive measures for
energy security objective. Considering India’s rapid economic improving the business and skill ecosystem, and continues to
growth, rise in per capita consumption and increase in the make progress with slew of policy reforms and initiatives. The
coverage of villages with GDP grew at 6.5% in FY 17-18 and continues to see an
INITIATIVES upward trend.
• National Solar Mission aims to develop 1 lakh MW of grid Stable macro-economic indicators, structural reforms,
connected solar power by 2022. improving business ecosystem, thrust on infrastructure
• Green Energy Corridor has been constructed in the development, and liberal FDI regime.
country to improve inter-State transmission to evacuate India has been recording the highest growth rate amongst
approximately 20,000 MW of large scale renewable power. BRICS economies. The transformational impact on the Indian
• Off-grid and Decentralised Solar PV Applications program economy is World Bank’s Ease of Doing Business Rankings
aims to promote off-grip applications of solar photovoltaic where India has jumped from 100th rank in 2017 to 77th
systems for meeting lighting and electricity requirements rank in 2018. India is the only nation to have made it to the
• National biogas and Manure Management Program aims list of top 10 improvers for the second consecutive year .
to provide fuel for cooking purposes through family type India rose five spots over a year to secure the 58th spot in the
biogas plants. 2018 Global Competitiveness Index . India climbed one spot,
• Saubhagya Yojana aims to give access to basic electricity to 8th rank in the 2017 AT Kearney FDI Confidence Index,
connections to each household. As of October 2018, 95% because of simplified and transparent business environment.
of the households have been electrified under the scheme.
27
INCLUSIVE GROWTH
Government initiatives like Mudra bank, Stand up India, Make INITIATIVES

In India, Start up India, PM Employment Generation Program, • Make in India aims at attracting foreign and domestic
focus on MSME, PM Jan Dhan Yojana among others are all investments so as to develop the country as a global hub
directed towards promoting and encouraging for manufacturing, innovation and design.
entrepreneurship, creativity and innovation, and inclusive • Pradhan Mantri Gram Sadak Yojna, Bharatmala for Roads
business.
• Sagarmala for coastal development
• Digital India Program with its various components aims to
promote egovernance, electronics manufacturing and
SDG 9: INDUSTRY, INNOVATION AND
improved access to internet services. Aadhaar project
INFRASTRUCTURE which aims to provide a unique identification numbert to
This goal aims at building quality, reliable and resilient every resident is one of the components of Digital India.
infrastructure. It further aims at promoting increased
resource-use efficiency and greater adoption of clean and
SDG 10: REDUCED INEQUALITIES
environmentally sound technologies and industrial
processes, to support economic development and human Reduce inequality within and among countries.
well-being. Investment is an important pillar of this Goal. This Goals calls for progressively reducing not only income
INDIA’S STRATEGY inequalities but also inequalities of outcome by ensuring
access to equal opportunities and promoting social,
 Current Status
economic and political inclusion of all, irrespective of age, sex,
• 47.38% of rural habitations are connected with all weather disability, race, ethnicity, religion or other status relevant
roads within a society. It also aims to enhance representation and
• For every 100 persons 33 are internet subsicribers and 83 voice for developing countries in decision making in
have mobile connection international institutions.
• 42.43% of Gram Panchayats covered under BharatNet
INDIA’S STRATEGY
Infrastructure is a critical determinant of economic growth as
Inequality takes on many forms in a large and diverse country
it has a direct bearing on investment, manufacturing sector,
like India. There are inequalities in income and consumption;
logistics and productivity. It is equally important for social
structural inequalities which take the form of inequalities
sectors – investment in appropriate infrastructure is critical
based on gender, religion, caste and social groups as well as
for positive outcomes in education and health. It is of vital
regional inequalities, all of which manifest in inequalities of
importance for promoting inclusive development and poverty
opportunities and access.
reduction. India aims to build resilient infrastructure, achieve
sustainable industrialisation and promote scientific India has a number of legislations and programmes for
innovation and research. empowerment and socio-economic development of women
and different social groups. There are several programs in
India is taking forward an unprecedented reform agenda to
place which aim to provide equal opportunity in education to
trigger manufacturing, spur industrialization, promote
girls from vulnerable sections of the society.
investment and foster innovation. Major structural reforms
such as GST implementation, Ease of Doing Business Reforms INEQUALITY IN INDIA
and introduction of Insolvency and Bankruptcy Code have • In urban India, 10% of the richest households spend 1.41
been rolled out. Focus on digital revolution, Internet times the poorest 40% of the households on monthly
Penetration and Financial Inclusion are contributing to fueling consumption
growth and investment. Flagship initiatives like Make in India, • In rural India, 10% of the households spend 0.92 times the
Stand Up India, Start up India and Skill India have been bottom 40% of the households on monthly consumption
launched and are playing an important role in augmenting • 77.67% of funds allocated towards Scheduled Castes
the collective growth impact. These reforms are fast creating population utilized
a highly conducive ecosystem accelerating the growth of • 82.98% of fund allocated towards STs utilized.
innovation, creativity, entrepreneurship and business within a
fast growing formal economy.
28
INCLUSIVE GROWTH
SCHEMES BY INDIA • Schemes by GOI to address this situation:

• Pradhan Mantri Jan Dhan Yojana for attaining financial • PM Awas Yojana seeks to address housing requirements of
inclusion of all by providing universal access to banking the urban poor, including slum dwellers.
and other financial services. • AMRUT aims to provide basic services and amenities
• PM Employment Generation Program aims at generating (Water supply, sewerage, urban transport) in cities to
continuous and sustainable employment opportunities in improve quality of life, especially of the poor and
rural and urban areas. vulnerable.
• MGNREGA provides a legal guarantee for 100 days in every • Smart Cities Mission aims at improving the ease of living in
financial year to adult members of any rural households. urban areas. The Strategic components of area-based
• Skill Development programs such as Deen Dayal development in the Smart Cities Mission are city
Upadhayaya Grameen Kaushalya Yojana, Apprenticeship improvement (retrofitting), city renewal (redevelopment)
Promotion and Kaushal Vikas Yojana aim to provide and city extension (Greenfield development) as well as
employment relevant skills to promote sustainable applying of smart solutions covering larger parts of the
livelihoods. city.
• Stand up India Scheme and Start up India to promote • MRTS and Metro Projects to provide sustainable urban
entrepreneurship and innovation. transportation in large cities.
• Reservation policy in education and government • Shyama Prasad Mukherjee Rurban Mission aims to
employment in favour of SC, ST, OBC and EBC. development of rural clusters and generate urban like
• Progressive Taxation policy. facilities in these areas of protourbanisation.
• Swachh Bharat Mission Urban to promote waste
management and sanitation in the cities.
SDG 11: SUSTAINABLE CITIES AND
COMMUNITIES
SDG 12: SUSTAINABLE
This Goals aims to promote inclusive and sustainable
urbanisation by providing access to safe and affordable
CONSUMPTION AND PRODUCTION
housing, public transport, basic services and green public This goal emphasises on doing more with less thereby
spaces through improved urban planning and management. ensuring that the needs of the present generation are
It also aims to reduce the adverse per capita environmental fulfilled without compromising the needs of the future
impact of cities, and also the number of deaths and direct generation. This Goal emphasises on promoting resource
economic losses caused by disasters. efficiency, green economies and sustainable infrastructure. It
INDIA’S STRATEGY also focuses on reducing degradation and pollution, and
minimising waste.
India is a fast urbanizing country and is witnessing a steady
increase in migration from rural areas to urban centers. This It calls for environmentally sound management of chemicals
poses stress on the already overburdened infrastructure of and all wastes throughout their life cycle, efficient use of
the cities, such as housing, and services related to natural resources, as well as ensuring spread of information
transportation, provision of clean water and sewage and awareness on sustainable practices and lifestyles.
treatment. It is therefore essential to promote inclusive and According to the UN, should the global population reach 9.6
sustainable urbanization as well develop capacity for bn by 2050, the equivalent of almost three planets will be
participatory, integrated and sustainable human settlement required to provide the natural resources needed to sustain
planning and management. current lifestyles.
CURRENT SITUATION INDIA’S STRATEGY
• 73.58% of the wards are collecting 100% of the waste India, being the second most populous country in the world,
through door to door collection across India is home to about 17.5 percent of the world population with a
• 3.2% houses completed under PMAY meager 2.4 percent of the world’s area. This makes it
• 5.41% urban households live in slums neessary to have a comprehensive policy framework aimed
• 24.8% of the total waste generated in India gets treated. at achieving resource efficiency, reduction in waste and
29
INCLUSIVE GROWTH
pollutant activities, and adoption of technologies focusing on which are vulnerable to climate change. This is manifested
renewable resources. in floods, droughts as well as the risk from tsunamis and
cyclones experienced in coastal areas.
To encourage sustainable practices requires cultural and
• India is vulnerable to climate induced risks, it was one of
attitudinal shifts supported by national policies. GOI’s policies
the 3 countries most hit by disasters in 2015 with
like National Policy on Biofuels aims to achieve sustainable
economic losses amounting to $3.30 billion.
consumption and production.
• India has developed its national action plan on climate
National Policy on Biofuels aims to accelerate use of biofuels change which is an example of Government’s commitment
as a substitute to fossil fuels for transportation and other to building adaptive capacity to climate related hazards. It
stationary applications as well. This is envisaged to contribute has 8 sub-missions.
towards building energy security, mitigating climate change, • National Air Quality Monitoring Program: CPCB is
as well as creating new employment opportunities, while association with State Pollution Control Boards monitor air
leading to environmentally sustainable development. quality across the country under it. The NAMP network
comprises of 680 monitoring stations located in 300
cities/towns, covering 29 states and 6 UTs.
SDG 13: CLIMATE ACTION • India has ratified the Paris Climate Deal and in the INDC
This goal aims to integrate climate change measures into submitted to it volunteered for:
national policies and strategies, and further aims to plan and ο India has pledged to cut emissions intensity of its GDP
promote mechanisms for raising capacity for effective climate by 33-35% by 2030 from 2005 levels.
change – related planning and management. ο Install 40% of its total electricity capacity from non-fossil
Nations across the world are experiencing effects of climate fuel based energy sources
change. Global warming is a concern with 2016 being the 3rd ο India plans to create an additional carbon sink of 2.5 to
consecutive year in which temperatures were more than 1 3 biliion tonnes through additional forests by 2030.
degree Celsius above late 19th century levels. Thus, having a
detrimental effect on crop productivity. Absolute sea levels
are rising faster since 1993 than the long term trend. SDG 14: LIFE BELOW WATER
Greenhouse gas emissions continue to rise, and are now
This Goal commits countries to conserve and sustainably use
more than 50% higher than their 1990 level. It is estimated
oceans, seas and marine resources. It focuses on preventing
that the annual average losses from tsunamis, tropical
marine pollution, ending illegal and destructive fishing
cyclones and flooding amount to hundreds of billions of
practices, and sustainably managing and protecting marine
dollars, requiring an investment of $6 billion in disaster risk
and coastal ecosystems while increasing scientific knowledge,
management alone.
research and transfer of marine technology to improve
A comprehensive strategy is required to combat the effects of marine health.
climate change. Efforts at the national level for adopting
Over three billion people worldwide depend on marine and
green technologies, promoting use of clean and modern
coastal ecosystems for their livelihood. Sustainable use of
source of energy advocating for behaviour change for
oceans is indispensable for habitation on earth, given the fact
sustainable use of resources have to be complimented by
that oceans cover three quarters of the earth’s surface,
international cooperation on climate change since the causes
contain 97% of the earth’s water, and represent 99% of the
and effects of climate change transcend national boundaries.
living space on the planet by volume.
The UNFCCC provides technical expertise and assists in the
Marine ecosystems play a huge role in maintaining healthy
analysis and review of climate change information and in the
life cycles on land. Oceans absorb about 30% of the carbon
implementation of Kyoto mechanism. The Green Climate
dioxide produced by humans and serve as the world’s largest
Fund aims to jointly mobilise $100 bn annually by 2020, has
source of protein. Economically, the market value of marine
emerged as a viable source of long term climate finance
and coastal resources and industries is estimated at $3
internationally.
trillion per year or about 5% of global GDP. However, reckless
INDIA’S STRATEGY exploitation of ocean resources and irresponsible human
• India has great geographic diversity, and a variety of activities have caused almost 40% of world’s oceans to be
climate regimes and regional and local weather conditions,
30
INCLUSIVE GROWTH
heavily affected, including depleted fisheries, ocean environment. India has also ratified numerous international
acidification and loss of coastal habitats. conventions related to the use of oceans and their resources,
INDIA’S STRATEGY including UNCLOS.
Maritime Sector in India has been the backbone of the An online mechanism for predicting the movement of oil
country’s trade and has grown manifold over the years. To spills, the Online Oil Spill Advisory system, was launched in
harness India’s 7500 km long coastline, 14,500 km of 2015. In addition, the revised National Oil Spill disaster
potentially navigable waterways and strategic location on key Contingency Plan, 2015 reflects the important national
international maritime trade routes, GOI is laying emphasis regulations as well as the current international norms.
on promoting Blue Economy through ambitious projects like Further, levels of marine pollution are being monitored by
the Sagarmala, which aim to promote port-led development the government at various locations along the country’s
and sustainable development of coastal communities coastline through the Coastal Ocean Monitoring and
through skill development and livelihood generation Prediction System. India is also setting up a Marine
activities, fisheries development, coastal tourism etc. Observation system along the Coast to gain a better
National Plan for Conservation of Aquatic Eco-systems, understanding of coastal processes and monitor water
launched in 2013 aims for holistic conservation, restoration, quality.
and sustainable use of resources and lakes and wetlands,
adopting an integrated and multidisciplinary approach.
SDG 15: LIFE OF LAND
Project Sagarmala is a part of National Perspective Plan for
the comprehensive development of India’s coastline and Protect, restore and promote sustainable use of terrestrial
maritime sector. The project has 4 broad objectives: ecosystem, sustainably manage forests, combat
desertification, and halt and reverse land degradation and
- Modernising port infrastructure, enhancing their capacity and
halt biodiversity loss.
adding new ports
This Goal aims to protect, restore and promote sustainable
- Improving port connectivity through rail corridors, freight
use of terrestrial ecosystems, sustainably manage forests,
friendly expressways and inland waterways
combat desertification, and halt and reverse land
- Developing port-proximate industrial clusters and Coastal degradation, while also integrating ecosystem and
Economic Zones to reduce logistics cost and time of EXIM and biodiversity into national and local planning, development
domestic cargo processes, poverty reduction strategies and national
- Promoting sustainable development of coastal communities accounts. It also seeks to promote fair and equitable sharing
through skill development and livelihood generation of benefits arising from the utilisation of genetic resources,
activities, fisheries development, coastal tourism etc. promote appropriate access to such resources and prevent
poaching and trafficking of flora and fauna.
India has a long history of mangrove forest management. GOI
supports research and development activities with an INDIA’S STRATEGY
emphasis on mangrove biodiversity. There has been a net • India’s current forest cover stands at 21.54% of the
increase of 112 sq km in the mangrove cover of the country geographic area.
as compared to the previous assessment. In Gujarat, more • Extent of water bodies with forests has increased by
than 15,000 hectares of mangroves have been planted 18.24% between 2005 and 2015.
through active participation of local communities under the • 20% increase in population of wild elephants in India
Integrated Coastal Zone Management project. India is a part • 6,778 sq km of increased forest cover nationally between
of the regional initiative Mangroves for Future being 2015 and 2017
coordinated by the UNDP and IUCN.
Land that provides habitat to more than 80 percent of all
India has 25 Marine Protected Areas in the peninsular region terrestrial species of animals, plants and insects, is an
and 106 islands, collectively covering approximately 10,000 sq essential and irreplaceable resource of the world. However,
km of the country’s geographical areas. Four major coral unsustainable developmental activities like deforestation and
reefs have also been identified in the country for intensive desertification pose a threat to the ecosystem and affect the
conservation and management. lives of millions of people. Millions of people in India depend
Various national and sub-national legislations are in place for on land resources for their livelihood. Therefore, India aims
the management and protection of the coastal and marine to integrate ecosystem and biodiversity values into local
31
INCLUSIVE GROWTH
planning, development processes and poverty reduction This goal focuses on reducing all forms of violence, and
strategies. promoting the rule of law at the national and international
India’s progress on this Goal is important globally, since the levels to ensure equal access to justice for all. It not only aims
country is home to 8 percent of the world’s biodiversity, to find enduring solutions to conflict and insecurity but also
including numerous species that are unique to the country. aims to end abuse, exploitation, trafficking, corruption and
India’s global leadership on biodiversity is reflected in the bribery, develop effective, accountable and transparent
pivotal role it played in facilitating the implementation of the institutions and ensure inclusive and representative decision
Nagoya protocol – one of the global Aichi Biodiversity Targets. making at all levels.
The Nagoya Protocol on Access to Genetic Resources and Fair INDIA’S STRATEGY
and Equitable Sharing of Benefits Arising from their India is one of the largest democracies of the world with
Utilisation, translates and gives practical effect to the equity principles of justice, liberty and equality enshrined in the
provisions of the Convention on Biological Diversity. Constitution of country. There is a strong network of
GOI has framed National Environmental Policy, 2006 and institutions at the national and State level that are
National Agroforestry Policy, 2014 aiming to mainstream transparent and effective.
environmental concerns in all development activities and STATISTICS
address the problems faced by agroforestry sector.
• 24 cognisable crimes against children for one lakh
Green Highways Policy, 2015 aims to promote greening of population
National Highway corridors across the country. • 2.4 murders for every 1 lakh population
National Afforestation Program targets development of forest • 90% of India’s population is covered with Aadhaar that
resources with the involvement of people, with a focus on provides universal legal identity
sustainability and improvement in livelihoods of the forest- • 13 courts per 10 lakh population
fringe communities and especially the poor. • 34 corruption cases reported in 2015-16 per 1 Crore
Integrated Development of Wildlife Habitats Program which population
includes Project Tiger and Project Elephant focuses on • 88.3% of total births get registered.
capacity building of staff, wildlife research and evaluation, Government has launched Aadhaar project and RTI Act, 2005
anti-poaching activities, wildlife veterinary care, addressing which are key steps to strengthen national institutions for
man-animal conflicts and promoting eco-tourism. effective and non-discriminatory public service delivery and
The program on Conservation of Natural Resources and Eco- to empower citizens with access to information.
systems, through its different sub-programs aims at Legal framework for protection against child abuse has been
conserving biosphere reserves, natural resources and the made more stringent. Free legal aid to vulnerable sections of
ecosystems of the country. the society is provided through legal aid societies. With
regard to inclusive and participatory decision making, the
73rd and 74th Constitutional Amendment Acts have ushered
SDG 16 PEACE, JUSTICE AND in democracy at the grassroots levels by strengthening local
STRONG INSTITUTIONS governance.
Promote peaceful and inclusive societies for sustainable Legal framework for protection against child abuse has been
development, provide access to justice for all and build made more stringent. Free legal aid to vulnerable sections of
effective, accountable and inclusive institutions at all levels. the society is provided through legal aid societies. With
regard to inclusive and participatory decision making, the
Peace, security, effective governance based on rule of law
73rd and 74th Constitutional Amendment Acts have ushered
and upholding principles of equality, human rights and justice
in democracy at the grassroots levels by strengthening local
are prerequisites for sustainable development. Cycles of
governance.
conflict, violence, crime and exploitation undermine and
reverse development gains.
32
section 2
B ANKING AND
F INANCE

BANKING AND FINANCE
►RBI’S AUTONOMY: RIFT BETWEEN Setting up of Independent Payment Regulatory Board:

The Board for Regulation and Supervision of Payment and
RBI AND GOVERNMENT Settlement Systems (BPSS) under the RBI regulates the
WHY IN NEWS? payment and settlement system. The Government has
proposed to set up independent Payment Regulatory Body
The RBI and Government were recently involved in a tussle
(PRB) outside the purview of RBI. The RBI believes that the
over a number of issues wherein concerns were raised that
Government is trying to clip its wings through such a move
the autonomy of the RBI was jeopardised by the Government.
and hence it is opposed to the setting up of independent
POINTS OF FRICTION
Payment Regulatory Body.
Regulation of PSBs: The RBI has limited powers to regulate
Relationship between RBI and Government: The
the Public sector Banks (PSBs) and is not empowered to take
Government had recently threatened to invoke Section 7 of
certain actions against them such as replacement of
the RBI act, which empowers it to issue directions to the RBI
management and Board, license revocation, and resolution
in public interest. The RBI was of the opinion that section 7
actions such as mergers and sales. Accordingly, RBI has
hurts the independence and autonomy of the RBI.
suggested that banking regulation act, 1949 should be
Relationship between RBI Board and Management:
amended to enable the RBI to exercise all the powers
According to the interpretation of the RBI act, both the
currently exercised over private sector banks to PSB as well.
Central Board and RBI Governor enjoy concurrent powers in
Transfer of Surplus Reserve: The total asset of the RBI in
almost all the matters related to superintendence and
2017-18 was Rs 36 lakh crores. The Government believes that
direction of RBI leading to overlapping jurisdiction. Moreover,
the reserves with the RBI is quite high and accordingly has
some of the members of the central board are nominated by
been demanding the RBI to transfer at least one-third of its
the Government from various fields including the private
reserve assets in order to enable it to infuse more capital into
sector. This can create a conflict of interest as the decisions
PSBs to meet the BASEL III guidelines. However, RBI has been
taken by the RBI could directly affect their interest as well.
opposing it on the grounds that it needs sufficient amount of
HOW TO IMPROVE THE INDEPENDENCE AND AUTONOMY
reserves to tide over unforeseen circumstances in future.
OF THE RBI?
Easing Prompt Corrective Action Framework (PCA): The
Security of Tenure: The RBI Governor enjoys a minimum
Government has been arguing that placement of some of the
security of tenure of 5 years. Generally, the Governors in
Public Sector Banks under the PCA framework has led to
India are appointed for a period of 3 years and then given
decrease in the credit flow in the economy, particularly the
extension for another 2 years. Providing the RBI Governor
MSMEs and hence it must be relaxed. However, the RBI has
with a minimum tenure of 5 years would enhance the RBI’s
argued that any slackening in the PCA framework would lead
Independence and at the same time enable the Governor to
to worsening of the NPA
take a long term perspective of the economy in the
Dilution of the BASEL III Norms: The RBI has prescribed
formulation of the policies.
overall capital requirements of 9 percent of risk weighted
Harmonious Relationship: In order to maintain harmonious
assets, with the common equity tier 1 capital of 5.5 percent as
relationship between the RBI Governor and the Board, there
against 8 percent and 4.5 percent, respectively, required
is a need to infuse professionalism and integrity into the
under the Basel III norms. In order to meet the higher capital
Board by nominating experts who do not succumb to political
requirements laid down by the RBI, the Indian government
pressure.
would be required to infuse more capital into PSBs. Since the
government is financially constrained, it has been asking the Framework for Adequacy of Reserves: There is need to
RBI to dilute its stringent norms. establish a framework that deals with extent and adequacy of
RBI’s reserves and also lay down norms for the transfer of
Tackling the liquidity crunch of the NBFCs: The
dividend to the Government. The Recommendations of Bimal
government has been asking the RBI to open a separate
Jalan Committee on Economic Capital Framework should be
liquidity window for the NBFCs, which are facing liquidity
able to sort out this issue.
crunch post IL&FS Crisis. However, the RBI believes that
NBFCs have to explore other options available to them before Section 7 of RBI Act: The Government has to realise that
approaching the RBI for the loans. Section 7 is an enabling provision and has been provided
34
RAU’S IAS FOCUS SPECIAL EDITIONS | PRELIMS COMPASS (C3 CURATION) for CSE 2019
BANKING AND FINANCE
under the act only to deal with exceptional circumstances. It functioned with a great sense of responsibility by not
should not be used in routine matters and even the threat of succumbing to the regular political pressure. Looking at
invoking Section 7 would have negative ramifications on the India’s development needs and uncertainties in the global
Indian Economy. economy, we need a strong, independent, efficient and
WAY FORWARD apolitical central bank which can shape policies to enable
India to have sustained growth momentum and reduce
The RBI can be considered as among the few institutions in
external vulnerabilities.
the country that has maintained credibility and integrity and
SPICE APPROACH
Social dimension •
• Section 7 of the RBI Act should be used only under exceptional circumstances.
Political/Legal • Non-partisan, apolitical and expert members should be appointed to the RBI Board.
Dimension • Provide minimum security of tenure of 5 years to RBI Governor. The Banking Regulation Act,1949
should be amended to empower the RBI to take actions against the PSBs.
• Looking at the multi-dimensional role played by the RBI, ideally it should enjoy more autonomy and
independence as compared to other government agencies.
Institutional • The RBI should enjoy autonomy in three aspects- Personnel, Policy Formulation and Financial
dimension aspects.
• Usually the decisions of the government are short-sighted and based on politics rather than sound
economic principles. Hence, the Government must desist from giving directions to the RBI.
• The framework of Good Governance focusses on promoting the culture of Institutional autonomy
free from political pressures.
• The relationship between the RBI and Government should be based upon the spirit of cooperation
Cultural dimension
and mutual trust.
• The Government must promote the culture of carrying out deliberations and discussions in order
to sort out the issues amicably.
• There is a need for strong, independent, efficient and apolitical central bank which can shape
policies to enable India to have sustained growth momentum and reduce external vulnerabilities.
Economic • There is a urgent need to lay down Economic capital framework at the earliest to ensure adequacy
dimension of RBI’s Reserves.
• RBI’s Deputy Governor Viral Acharya has stated that Governments that do not respect central bank
independence will sooner or later incur the wrath of financial markets (“Kiss of Death”).
►MERGER OF BANKS Fragmented Banking Structure in India: Indian banking

sector is highly fragmented, especially in comparison with
WHY IN NEWS?
other key economies. Additionally, most of the PSBs in India
The government has recently decided to merge 3 Public are competing within themselves; most of them have same
Sector Banks- Dena Bank, Vijaya bank and Bank of Baroda. business models and compete in the same segments as well
The merger of 3 banks will be the First-ever three-way as same geographies. Thus, there is a huge scope of
consolidation of banks in India, with a combined business of consolidation in this sector.
Rs. 14.82 lakh crore, making it India’s Third Largest Bank.
Build capacity to meet credit demand: India needs to have
NEED FOR CONSOLIDATION OF BANKS global sized banks that can support the investment needs of
economy and sustain economic growth. The Consolidation of
Public Sector Banks into 4 or 5 banks would create larger
35
BANKING AND FINANCE
banks with capacity to fund larger size projects of economic and such institutions are "too big to fail". Further, in event of
importance. any such crisis in future, the onus would lie on the
Need for larger capital base to manage NPAs: The Public government to bail out the institutions, thus posing a moral
Sector Banks (PSBs) which form approximately 72% of the hazard.
Indian banking system are among the most affected by the Human Resource Integration: Many employees would fear
high non-performing asset (NPA) problem. The consolidation job loss and disparities in the form of regional allegiances,
of PSBs would lead to a larger capital base to manage the benefits, reduced promotional avenues, new culture, etc.
NPAs. Affect Financial Inclusion: Consolidation may lead to
Merger of weak Bank with the strong bank: The merger of shutting down of overlapping branches of the entities being
Dena Bank (Weak Bank) with the Vijaya Bank and Bank of merged.
Baroda (strong banks) would lead to net NPA ratio at 5.71% Technological challenges: Various banks are currently
which is significantly better than average NPAs of PSBs. operating on different technology platforms.
Significant cost benefits from synergies: Larger Adverse Impact on Big banks: Forced mergers of the
distribution network of the amalgamated bank will reduce weaker Bank with stronger banks would adversely affect the
operating and distribution costs with benefits for its operations of the strong banks.
customers and their subsidiaries. For example, Dena Bank’s
Customer Retention: SBI’s recent merger with its associate
strength in MSME will further augment the strength of the
banks saw customers of associate banks opting to move their
other two banks. Similarly, Global network strength of Bank
business to rival lenders as result of a lack of comfort in
of Baroda can be leveraged to enable customers of Dena
banking with the larger parent. The merged entity from the
Bank and Vijaya Bank to have global access.
latest proposal will likely face a challenge in retaining
RISKS AND CHALLENGES OF BANK MERGERS customers particularly that of Vijaya Bank, which is dominant
Systemic Risk: The 2008 crisis highlighted that presence of in south India.
large financial institutions pose systemic risk to the economy
SPICE APPROACH
• Ensure that the rationalisation of Branches do not lead to decrease in the Financial Inclusion.
• Need to come out with innovative methods for the benefit of the people living in rural and
Social dimension unbanked areas.
• Take into confidence the employees of the merged entity and engage with the Bank Unions to
ensure smooth transition.
• Merger of the banks should be driven primarily by synergies, efficiency, cost saving and
economies of scale rather than political considerations
• Merger of the Banks push the problems below the carpet as the fundamental challenges related
Political/Legal
to governance of PSBs are not addressed.
Dimension • Need to implement the recommendations of PJ Nayak Committee to strengthen the governance
of the Public Sector Banks.
• Avoid Political interference in working of PSBs and provide more autonomy.
• Merger of Banks solves the problem associated with the Fragmented Banking Structure.
• Address the problem of NPAs to avoid banks becoming weak in future.
Institutional • Ensure that merged entity should be able to absorb the shock within a reasonable period of time
dimension and capitalize on the new strength and reap the benefits in the medium to long term
• Need to set up Banking Investment Company (BIC) to take forward the agenda of governance
reforms in PSB.
36
BANKIN
NG AND FIN
NANCE
• Need to ha ndle the diffe

erences in the working cultu
ure of the enttities to be meerged.
Cultural dime
ension • Need to h handle the a
associated ch
hallenges related to Tech
hnological an
nd Human R
Resource
Integration .
• Consolidati on of Banks b
bring about synergies in th
he operating and
a distributi on costs with
h benefits
for its custo
omers and the
eir subsidiarie
es
• Merger of Banks builds the capacitty to meet higher
h credit needs of th
he rapidly de
eveloping
Economy.
Eco
onomic dim
mension
• Consolidati on of Banks w
would lead to increase in th
he global pressence of Indiaan Banks.
• The larger ccapital base o
of the merged entity reduce
es the NPAs.
• Significant ccost benefits due to merge
ers.
• Address the
e systemic rissk that may arrise due to "to
oo big to fail" banks.
b
►ISSUES IN
I SMALL FINANC
CE BANK
KS
AN
ND PAYM
MENT BANKS
The
e World Bankk has identified financial Inclusion as one of
the
e enablers fo
or achieving sustainable developmentt goals
(SD
DGs). Access to financial services playys a critical rrole in
enssuring inclusivve growth an
nd in helping government deliver
serrvices to their people.
Hence to prom mote financiial inclusion,, governmennt has
intrroduced Small Finance Ban
nks and Paym
ments Banks.
ABOUT SMALL FINANCE
F BAN
NKS
Thee objectives of
o setting up ofo small finan
nce banks willl be to
further financial inclusion by:
HOW
H IT WILL CHANGE CURRENT FINAN
NCIAL SYSTEM?
• Provision of savings
s vehicle
es, and
• Supply of credit
c to sm
mall business units, small and • The move of giving licenses to paym ment banks a
and small
marginal farmmers, micro and small inndustries and
d other financial ba
anks will be the major sstep towards pushing
unorganised sector entitie
es, through h
high technolo
ogy-low financial in
nclusion in th
he country.
cost operations. • The main target for pa ayment bankks and small finance
banks will be small businessess and low w-income
ABOUT PAYMEN
NT BANKS
household d by providin
ng them finaancial services at low
• Payment ban nk is a type of niche nonn-full service
e bank, transaction
n cost.
which
w can reeceive deposits and provid de remittancces but
• It is uneconomical for banks to ope en branches in every
cannot lend money. The main
m target ccustomers forr them
village, buut with mobile phoness which havve wider
will
w be low-income housseholds, sma all businessees and
penetrationn can provid de low-cost platform fo or taking
migrant laborrers.
banking services to everry citizen. It w
will include peo
ople who
• The
T concep
pt of paymment bankss was give
en by mainly tran
nsact in cash to
t take their ffirst step into
o banking
NachiketMor committee
e. system and d also accelerate India’s j ourney as a cashless
economy.
• Cost of ban nking will come down du e to competittion from
payment banks and small banks. Cu urrently, priva
ate banks
like ICICI, HDFC, Axis, etc. are ma king huge profits by
collecting funds
f at loweer costs from
m savings acccounts &
current acccounts (CASA deposits acccount for 40% % of bank
deposits) and lending it to small borrrowers at high
her rates.
37
RAU’S IAS FOCUS SPEC
CIAL EDITION
NS | PRELIMS COMPASS (C3 CURATION
N) for CSE 20019
BANKING AND FINANCE
But payment banks and small finance banks get big chunk • MFIs/NBFCs will have to undergo massive organizational
from this by providing higher interest rate on deposits and changes requiring comprehensive and efficient change
giving credit (small finance banks only) at lower rates. This management processes;
will increase competition and lower-income group and • Small banks are geographically concentrated and hence
small businesses will be benefitted the most are more vulnerable to systemic risk (weather, crop prices,
• Payment banks will mainly have government as a and regional economic performance) as compared to large
borrower, there is very less chances of defaults. banks. This could lead to persistent governance problems
Government is also get benefitted as a borrower, as and owing to the higher exposure to risk, they have to
payment banks will expand access to cheap funds. As have to pay a higher rate to their depositors which in turn,
payment banks can only invest in short-term government might create the need to make riskier loans resulting in a
bonds, government can borrow more at cheap rates. vicious cycle of rising non-performing assets.
• Payment bank will reduce dependency on cash and will • The challenge for SFBs would be to control NPAs as an
increase m-commerce, as mobile wallets will be used as unfavourable monsoon would have an adverse impact on
payment option. It will also transform our subsidy and farm loans. Similarly, any slowdown in the industrial sector
social welfare schemes. With the troika of Aadhaar card, will impact the small and medium-sized enterprises
Jan Dhan Yojana and payment banks will enable (SMEs), which will face liquidity crunch.
government to provide direct subsidy. ABOUT INDIA POSTS PAYMENT BANK
HOW IT WILL AFFECT COMMERCIAL BANKS? India Post Payments Bank (IPPB) was setup under the
• The customer base of commercial banks might reduce Department of Posts, Ministry of Communication with 100%
due to shift of savings account money into payment bank equity owned by Government of India with the main goal to
account. So low cost deposits of banks might reduce promote financial inclusion.
drastically. Due to such a shift commercial banks’ regular
ADVANTAGES OF IPPB OVER TRADITIONAL BANKS
fee incomes like – cash transfers, cheques withdrawals, fee
• The Post offices in India have much wider reach due to
for making demand drafts or ATM transactions, etc. might
its vast network of 1.55 lakh post offices as compared to
reduce.
just 48,000 rural bank branches.
• Currently, commercial banks have to park 21.5% of their
• With IPPB, banking at doorstep would no longer remain a
deposits as Statutory Liquidity Ratio (SLR). This gives the
mere slogan, but it would soon become reality. This would
government ready market for borrowings but it
greatly advantage the senior citizens, women and
encourages lazy banking. But as payment banks will
differently abled.
have to invest 75% of their deposits in G-sec, it can also
• The government's proposal of transferring subsidies and
reduce Statutory Liquidity Ratio (SLR) burden on
other benefits through IPPB would lead to transparency,
commercial banks.
remove corruption and leakages and contributes to a less-
CHALLENGES FACED BY SMALL FINANCE BANKS AND
cash economy.
PAYMENT BANKS
• Provides customers with the ability to transact without
• Poor acceptance of banks among the masses. As of 2017, cash through digital channels and enable small
37 per cent of the Indian adult population remain excluded businesses to accept digital payments.
from the formal financial system; 21 per cent of those
CHALLENGES
included do not actively use their bank accounts.
• MFIs/NBFCs will have to bear the incremental cost of • A considerable amount of investment and manpower to
train the IPPB service providers, i.e. the postmen, is
infrastructure, human resources, and organizational
required.
transformation;
• A high service fee on every transaction (Rs. 15-35) might
• SFBs will have to compete with established public sector
make users averse to using IPPB services.
and regional rural banks;
• The revenue model of IPPB as opposed to other banks –
• SFBs will have to make rapid progress in developing their
it is solely based on charging fees on transactions (There is
ability to attract and manage savings for their liabilities;
no customer onboarding fee and no minimum balance
requirement). The bank also does not directly provide any
38
BANKING AND FINANCE
loans (unlike other banks) and therefore, making revenues demands, the IPPB will have to depend on its current
for IPPB might be difficult and questionable. Hence model and to make any change in their way of working /
challenge is whether it will be able to earn profits to policies would require training from scratch along with
survive as a standalone business entity. huge investments.
• Already established competition – The IPPB has a very • However, another important challenge needs to be
strong network when it comes to manpower but, there is overcome is the lack of internet and mobile services
also a high level of competition from private players like literacy among the rural population. Proper
Fino, Airtel Payments Bank, etc. While these private implementation of BharatNet will solve the problem.
institutions can easily and quickly adapt to customer
SPICE APPROACH
• Access to financial services plays a critical role in ensuring inclusive growth and in helping
government deliver services to their people. SFI and Payment banks are vital for financial inclusion.
• PSL Norms for SFI’s will augment social development as 75% of its Adjusted Net Bank Credit (ANBC)
Social dimension should be advanced to the priority sector as categorized by RBI.
• Small banks can undertake financial services like distribution of mutual fund units, insurance
products, pension products – this will help financial products to penetrate lower strata of the
society.
• Liberalising some norms will make SFI’s and payment banks more viable. For example, Currently,
Payment banks have to invest 75% of its demand deposits in Government securities (G-sec) and
Political/Legal
Treasury bills.
Dimension • Creating a safe and robust digital financial infrastructure need to be undertaken for making digital
financial regime secure and sustainable.
Institutional RBI being the regulatory body to Small finance Banks and Payment banks, should also look into
dimension creating positive regulatory regime to make their business processes viable and sustainable.
Small Finance Banks and payment banks will induce a culture of saving especially among low income
Cultural dimension
households.
• High technology-low cost solution to the issue of financial inclusion.
Economic • Payment bank will reduce dependency on cash and will increase m-commerce.
dimension • Small Finance Banks and Payment Banks will extend loans to MSMEs and SMEs, bringing them
under the ambit of the financial system.
►NPA PROBLEM growth was strong, and previous infrastructure projects such
as power plants had been completed on time and within
CONTEXT budget. It is at such times that banks did not follow diligence
According to the RBI's financial stability Report, the NPAs of in extending fresh loans anticipating future economic
Banks has increased to 11.2% (Rs 10.3 Lakh crores) in 2018 as growth.
compared to 9.3% in 2017. The NPAs of the Public sector Slow-Growth: The financial crisis of 2008 led to slower
Banks stood at 14.6%. In this regard, let us understand the economic growth which in turn affected the profits of the
reasons for the increase in NPAs, how it impacts economy companies and reduced their ability to pay back the loans on
and steps to be taken to reduce NPAs. time.
REASONS FOR INCREASE IN NPAS External Factors: To counter the aftermath of the financial
Over-optimism of Banking Sector: A larger number of bad crisis and declining growth, major central banks globally
loans originated in the period 2006-2008 when economic adopted the easy money policy which also resulted in easy
39
BANKING AND FINANCE
liquidity in emerging markets such as India. This Priority Sector Lending: The lending by the Banks to
phenomenon pushed up asset prices and led to inflation priority sectors such as Agriculture and MSMEs has also
Regulatory and Policy Risks: The past few years in India saw contributed to NPAs.
a volatile regulatory framework which built stress in certain Credit Culture: The announcement of farm loan waivers by
industries. Some examples include Mining ban in certain the Central Government and various state governments has
southern Indian states, Decision to cancel and re-auction the affected the credit culture in India.
telecom airwaves etc. This caused significant financial and Lack of Integrated database on Credit Information:
operating stress in companies engaged in the mining, Presently, the credit related information is captured by
telecom and infrastructure sectors which had a cascading multiple agencies without proper coordination. Further, the
effect on overall investments in the Indian economy. RBI's proposal to create Public Credit Registry faces legal
Industry Specific Risks: There are industry-specific reasons challenges.
that cause a rise in NPA levels in India. Sectors which are IMPACT OF HIGHER NPAS
seeing increased stress are aviation, textile and telecom
Higher NPA ratio trembles the confidence of investors,
among others.
depositors, lenders etc. It also causes poor recycling of funds,
The higher NPAs in aviation sector could be attributed to high which in turn will have deleterious effect on the deployment
cost of aviation turbine fuel which accounts for 45% of total of credit. The non-recovery of loans effects not only further
operating costs, as compared to the global average of 30%. availability of credit but also financial soundness of the
Similarly, Increasing competition and consequently irrational banks.
pricing behaviour among telecom players has led to higher Profitability: NPAs put detrimental impact on the
stress levels. profitability as banks stop to earn income on one hand and
Poor Credit Appraisal System: The Banks have not attract higher provisioning compared to standard assets on
developed sufficient capability to undertake credit appraisal the other hand. On an average, banks are providing around
before giving loans. 25% to 30% additional provision on incremental NPAs which
Diversion of Loans: The poor end-use monitoring system of has direct bearing on the profitability of the banks.
the Banks has led to diversion of funds by the companies for Asset (Credit) contraction: The increased NPAs put pressure
other wasteful purposes. on recycling of funds and reduces the ability of banks for
Wilful Defaulters: There has been increase in the number of lending more and thus results in lesser interest income. It
wilful defaulters, who have failed to repay back the loans contracts the money stock which may lead to economic
inspite of having the capability to do so. This can be slowdown.
attributed to lack of proper mechanism to deal with wilful Liability Management: In the light of high NPAs, Banks tend
defaulters. to lower the interest rates on deposits on one hand and likely
Red-Tapism: Delays in government approvals led to increase to levy higher interest rates on advances. This may become
in the number of stalled projects. hurdle in smooth financial intermediation process and
hampers banks’ business as well as economic growth.
Lack of Policy foresight: Delay in formulation of Insolvency
and bankruptcy code for faster resolution of NPAs. Capital Adequacy: As per Basel norms, banks are required
to maintain adequate capital on risk-weighted assets. Every
Frauds: The system has been ineffective in bringing even a
increase in NPA level adds to risk weighted assets which
single high profile fraudster to book. It was only after the NPA
requires the banks to shore up their capital base further. In
crisis, the RBI set up a fraud monitoring cell to coordinate the
case of PSBs, it may put additional burden on the
early reporting of fraud cases to the investigative agencies.
Government for recapitalisation of PSBs.
Ineffective Recovery Tribunal : There has been undue delay
Shareholders’ confidence: The increased NPA level is likely
in the resolution of cases before the debt recovery tribunals
to have adverse impact on the bank business as well as
leading to higher NPAs.
profitability thereby the shareholders do not receive a market
Political Interference in working of PSBs: The NPAs are return on their capital and sometimes it may erode their
mainly concentrated in the Public Sector Banks which could value of investments.
be linked to their poor governance and political interference.
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BANKING AND FINANCE
Public confidence: Credibility of banking system is also Insolvency and Bankruptcy Code, 2016 (IBC) has been
affected greatly due to higher level NPAs because it shakes enacted to create a unified framework for resolving
the confidence of general public in the soundness of the insolvency and bankruptcy matters.
banking system. The Banking Regulation Act, 1949 has been amended to
Thus, the increased incidence of NPAs not only affects the provide for authorisation to RBI to issue directions to banks
performance of the banks but also affect the economy as a to initiate the insolvency resolution process under IBC.
whole. In a nutshell, the high incidence of NPA has cascading The Securitisation and Reconstruction of Financial Assets
impact on all important financial ratios of the banks viz., Net and Enforcement of Security Interest Act, 2002 has been
Interest Margin, Return on Assets, Profitability, Dividend amended to make it more effective with provision for three
Payout, Provision coverage ratio, Credit contraction etc., months imprisonment in case the borrower does not provide
which may likely to erode the value of all stakeholders asset details and for the lender to get possession of
including Shareholders, Depositors, Borrowers, Employees mortgaged property within 30 days.
and public at large.
Six new Debts Recovery Tribunals have been established to
 WHAT HAS BEEN DONE TO ADDRESS THE PROBLEM OF expedite recovery.
GROWING NPAS?
Indradhanush Mission: Reforming the Governance of PSBs
STEPS TAKEN BY RBI and infuse more capital into PSBs.
Loss Recognition: The RBI has mandated the banks to carry Project Sashakt: It has been adopted on the basis of
out Asset Quality Review (AQR) in order to know the true recommendations of Sunil Mehta Committee, which provided
status of their Balance Sheets and prevent them from ever for 5-pronged strategy to deal with the problem of NPAs.
greening of Loans.
The strategy includes:
Prompt Corrective Action (PCA): The RBI monitors the
SME Resolution Approach (SRA) : Bad loans of up to Rs 50
financial health of the Banks through various parameters
crore will be managed by a focused vertical to be set up at
such as NPA, Capital Adequacy etc in order to ensure their
the bank level itself, which will ensure the loan is resolved
soundness and prevent them from further losses.
within 90 days.
Identification of Incipient Stress: The RBI has mandated
Bank Led Approach: Under this approach, financial
the Banks to identify the incipient stress in their loans by
institutions will enter into an inter-creditor agreement to
classifying Special Mention Account (SMA) into 3 different
authorise the lead bank to implement a resolution plan in
categories so as to enable the Banks to take corrective action
180 days. In case the lead bank is unable to complete the
before classifying them as NPAs.
resolution process within 180 days, the asset would go to
Simplification of Resolution of Bad Loans: The RBI has NCLT.
replaced multiple schemes such as Strategic Debt
For bad loans of Rs 50-500 crore, banks will enter into an
Restructuring (SDR), Sustainable Structuring of Stressed
inter-creditor agreement, authorizing the lead bank to
Assets (S4A), 5/25 Scheme etc with comprehensive Prudential
implement a resolution plan within 180 days, which includes
Framework for resolution of stressed assets. (To be discussed
appointing turnaround specialists. If the lead bank does not
later).
complete the process in time, the asset would be referred to
Collection of Credit Information: The RBI has set up Central the National Company Law Tribunal (NCLT).
Repository of Information on Large Credits (CRILC) on all
Asset Management Company (AMC)/Alternative
borrowers having an aggregate exposure of Rs 5 crore and
Investment Fund (AIF) led resolution approach to deal
above. It was created for early recognition of financial
with NPA cases of more than Rs 500 crore. Alternative
distress, enabling prompt action for resolution and fair
Investment Fund will raise resources from banks and
recovery for lenders and as part of a framework for
institutional investors so that it can bid for the insolvent
revitalising distressed assets in the economy.
assets under insolvency and bankruptcy.
STEPS TAKEN BY GOVERNMENT
National Company Law Tribunal (NCLT)/IBC approach for
assets larger than Rs 500 crore already before the NCLT and
any other assets whose resolution is still pending.
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BANKING AND FINANCE
Asset-trading platform for both performing and non- delays in regulatory clearances which were beyond their
performing assets. control.
DETAILS ABOUT RBI'S FEBRUARY 12 CIRCULAR • In this regard, even the Indian Banks Association (IBA) had
In order to strengthen the framework for the resolution of sought relaxation in the RBI's norms for infrastructure and
stressed assets, the RBI had issued a circular on Feb 12, 2018. power companies.
However, the Supreme Court has recently stuck down this WHY DID THE SC DECLARE THE CIRCULAR AS ULTRA-VIRES?
circular. • The Supreme Court took recourse to two sections of the
WHAT WAS THE RBI'S FEBRUARY CIRCULAR? Banking Regulation Act, 1949 to declare the circular as ultra-
• It introduced a new framework to deal with the problem of vires. The Section 35A talks about general powers of RBI to
NPAs. Under the new framework, the RBI discontinued issue directions to banking companies, Section 35AA gives
programmes for banks to restructure their defaulted loans power to the Central Government to authorize RBI to direct
such as corporate debt restructuring (CDR), sustainable any bank to initiate insolvency process in respect of a default.
structuring of stressed assets (S4A), strategic debt • The RBI sought to sustain the circular by tracing its source to
restructuring (SDR) and made the Insolvency and the general powers under Section 35A, instead of Section
Bankruptcy Code as the main tool to deal with defaulters. 35AA, which is inserted as per 2017 amendment. The RBI had
• The framework made it mandatory for banks to identify argued that since no authorization from Central Government
signs of incipient stress in loan accounts and classify is needed to exercise powers under Section 35A, the circular
stressed assets as Special Mention Account (SMA), was valid, argued the RBI.
immediately on default. Even a single day's default would • On the other hand, the SC ruled that after the insertion of
require reporting to the RBI and implementation of Section 35AA in 2017 with a specific condition of
Resolution Plan. authorization from central government, recourse cannot be
• Furthermore, lenders were asked to finalise a resolution made to general powers under Section 35A for issuing
plan in case of a default on large accounts of Rs 2,000 directions to take insolvency action in respect of bad debts.
crore and above within 180 days, failing which insolvency
• Apart from that, the general application of Circular to all
proceedings would be invoked against the defaulter under
debts above Rs. 2000 crores was challenged by petitioners as
the Insolvency and Bankruptcy Board.
it failed to draw a distinction between various forms of
RATIONALE FOR INTRODUCING FEBRUARY CIRCULAR "stressed assets" from different industrial sectors.
• Earlier the Banks had resorted to “ever greening” of bad • They further contended that the circular failed to distinguish
loans in order to keep their NPAs at the lower level. between genuine and wilful defaulters. The Court held that
• Further, the schemes introduced by RBI such as corporate reference to IBC under Section 35AA can be made only on a
debt restructuring (CDR), sustainable structuring of case to case basis, and that there cannot be a blanket
stressed assets (S4A) etc were quite lenient and most of direction to that effect.
the times, the resolution plans were not finalised on time
PRUDENTIAL FRAMEWORK FOR THE RESOLUTION OF
leading to undue delays in recovering bad loans.
STRESSED ASSETS
• The circular was intended to identify the stress levels in
the banks at an earlier stage and immediately take In response to the SC's Judgement, the RBI has recently come
necessary steps for their resolution. out with Prudential Framework for the Resolution of Stressed
Assets to replace the earlier Feb 12 Circular.
WHY WAS THE CIRCULAR CHALLENGED BEFORE THE
SUPREME COURT? Changes from the old norms:
• Several companies from the power sector and shipping

NEW PRUDENTIAL FRAME-
sector had argued that the RBI's circular was based on 12 FEBRUARY 2018
WORK FOR RESOLUTION OF
"One-Size-fits-all" approach. CIRCULAR
STRESSED ASSETS
• These companies were facing problems that were beyond
their control and hence it was extremely difficult for them
to implement the resolution plan .For example, the power 1. Banks had to refer Lenders given the choice to
producers had argued that they faced shortage of fuel and borrower to NCLT if it initiate legal proceedings for
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BANKING AND FINANCE
(PARA) to handle the problem of the NPAs. In this regard, let

failed to resolve the insolvency or recovery
us understand various aspects of the Bad Bank.
account within 180
days WHAT IS A BAD BANK?
A bad Bank is an specialised bank which would take over the
2. Applicable only to Applicable for banks, small bad assets of the Banks leading to the improvement in the
banks finance banks as well as NBFCs Balance sheets of the Banks and reduce their exposure to the
NPAs. The Bad Bank would purchase NPAs from banks and
3. Default of even one Lenders given 30 days to start then work them out, either by converting debt to equity and
day had to be working on resolution plan selling the stakes in auctions or by granting debt reduction.
reported and acted from day of default HOW WOULD THE PARA BE FUNDED?
upon • The PARA would be funded mainly through 3 modes:
• Government's borrowings through issuance of securities.
4. Agreement of all Inter-Creditor Agreement
• Encourage Private sector funding in PARA through
lenders was required regime where agreement of
issuance of equity shares.
on the resolution plan 75% by debt value and 60%
• Transfer of surplus reserves from the RBI to Government.
lenders by number is needed
ARGUMENTS FOR BAD BANK
BENEFITS • International Experience: Bad bank has been
• Lender will get a breather from the one-day default norm experimented in several countries especially after the
• Lenders get a 30 day review period to frame a resolution financial crisis of 2008-09.It has witnessed some success in
strategy Sweden, Spain and few other countries.
• Lenders have to submit a weekly report to the RBI on • Reduce the Burden on Banks: It will help relieve the
defaults by borrowers with exposure of Rs 5 crore and banks of their NPAs and expedite ways for the corporate
above borrowers to settle their debts.
• Wider Applicability as it applies to small finance banks and • Improve the Investment Rate: Once the financial viability
NBFCs as well of the over-indebted enterprises is restored, they will be
able to focus on their operations, rather than their
• Will lead to improvement in credit culture
finances leading to increase in investment.
• Promoting a strong and resilient financial system in India
• Solves Coordination Problems: The Banks face severe
• Unlock capital to be lent to other enterprises.
coordination problems, since large borrowers have taken
• Solves the problem of exit in the Indian economy
loans from multiple banks. Hence bad bank could solve
CHALLENGES the coordination problem, since debts would be
• Difficult for banks to finalise an inter-creditor agreement centralised in one agency.
and resolution plan within 30 days. • Financial Non-viability of Borrowers: Cash flows in the
• Additional Provisions for banks may not be much of a large stressed companies have been deteriorating over the
disincentive as most accounts are close to 100% of past few years, to the point where debt reductions of more
outstanding debt values. than 50 percent will often be needed to restore viability.
• The process under Insolvency and Bankruptcy Code is not The only alternative would be to convert debt to equity,
being followed. take over the companies, and then sell them at a loss.
• Default of NBFCs is not given clear provisions. • Failure of Private ARCs: Private Asset Reconstruction
Companies (ARCs) haven’t proved successful in resolving
bad debts. International experience shows that a
 IS BAD BANK THE SOLUTION?
professionally run central agency with government backing
IDEA OF BAD BANK can overcome the difficulties that have impeded progress.
The Economic Survey 2017 has proposed to set up Bad Bank
in the form of Public Sector Asset Rehabilitation Agency
43
BANKING AND FINANCE
ARGUMENTS AGAINST BAD BANK replaced the earlier base rate regime to provide
Pricing of NPAs: If the NPAs are sold at higher prices to transparency in the transmission of monetary policy
PARA, the PARA itself would fail. Similar, if NPAs are sold at decisions.
lower prices, the Banks would be required to take higher WHAT IS EXTERNAL BENCHMARKING OF LOANS?
haircuts. Under the new mechanism, the banks will have to link their
Lack of Specialised Skills: Post transfer of assets, the bad lending rates with an external benchmark instead of
bank will need to recruit personnel specialised in taking MCLR. The RBI has given these options to banks: RBI repo
strategic decisions related to restructuring of loans. There is a rate, the 91-day T-bill yield; the 182-day T-bill yield; or any
dearth of such qualified professionals in India. other benchmark market interest rate produced by the
Moral Hazard: Creates a moral hazard as tax payers money Financial Benchmarks India Pvt. Ltd. One of these
would be used to bail out the inefficient Banks. The benchmarks will be used to decide the lending rate by the
guarantee of takeover of NPAs may prevent the Banks from Banks.
exercising due caution before giving loans. HOW IS EXTERNAL BENCHMARKING OF LOANS AN
Difficult to manage: From an investor perspective, bad IMPROVEMENT OVER MCLR?
banks with heterogeneous assets will be more complex to Since the MCLR is an internal benchmark, there is lack of
manage. transparency in the way the lending rate is calculated by the
International Experience: International Experience such in Banks.
Sweden suggests that the idea of Bad Bank works best in The MCLR regime has led to lack of required transmission of
case of NPAs in small value housing loans. However, in case policy rates. Home loan borrowers who have taken loans on a
of India, the NPAs are present across multiple sectors such as floating rate basis, suffer an immediate increase when
Mining, Infrastructure, Power, Telecommunication etc. interest rates are hiked by the RBI but do not get much relief
Does not address the core problem: Setting up of PARA when interest rates go down. Thus, when the RBI cuts repo
does not address the core problems which led to increase in rate there is no guarantee a borrower will get the benefit of
NPAs in first place. the rate cut or that it will be transmitted down to him.
Capital Needed: The Government would find it difficult to HOW WILL EXTERNAL BENCHMARKING HELP?
mobilise the resources needed for setting up PARA • Firstly, It will help in better transmission of policy rate
cuts which means an RBI rate cut will immediately reach
the borrower against the current system in which internal
►EXTERNAL BENCHMARKING OF benchmark is not influenced solely by the policy rate cut
LOANS but depends on a variety of factors.
• Second, it will make the system more transparent since
CONTEXT
every borrower will know the interest rate and the profit
In order to improve the monetary policy transmission in margin decided by the bank. It will help borrowers
India, the RBI has proposed to introduce External compare loans offered by different banks and then decide
Benchmarking of Loans to replace the Marginal Cost of accordingly.
Lending Rate (MCLR). However, its adoption has been
CHALLENGES TO THE ADOPTION OF EXTERNAL
opposed by the Banks on account of number of reasons.
BENCHMARKING
WHAT IS MCLR? • The external benchmarking of Loans would work if the
The MCLR refers to the minimum interest rate of a bank Banks are dependant more on the loans from the RBI
below which it cannot lend. It is an internal benchmark or (through Repo) as compared to the deposits. This would
reference rate for the bank to fix interest rates on different enable the Banks to link their lending rates to the Repo
categories of loans. The MCLR depends on various factors rate. However, presently, the Banks are majorly dependant
such as repo rate, fixed deposit rates, source of funds and on their deposits for lending loans. This would make it
savings rate. The price of loan comprises the MCLR and the difficult for the banks to adopt external benchmarking of
bank's profit margin. All loans given by the Banks from April Loans.
1, 2016 are linked to MCLR. The MCLR-based regime had
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BANKING AND FINANCE
• The adoption of external benchmarking of loans would demand of the bonds and commercial papers of the NBFCs
lead to increase in the volatility of lending rates (due to among the financial entities.
frequent changes in Repo rate) Earlier the NBFCs were able to roll-over their debt (take loans
to repay back previous loans). However, this vicious cycle has
made it difficult for the NBFCs to fulfil their debt obligations.
►CRISIS IN NBFCs
Lack of Integrated Regulation: Presently, the NBFC Sector is
The NBFC sector in India is roiled by a series of defaults by regulated by multiple regulators such as RBI, IRDA, SEBI,
the Infrastructure Leasing & Financial Services (IL&FS) group National Housing Bank etc due to which the it makes it
of companies. The NBFC's crisis has also been called as difficult for a single regulator (such as RBI) to have the
India's "Lehman Moment" since it can have “contagion complete picture of the finances of the NBFCs.
impact” on the entire Indian Economy due to the exposure of
HOW THE NBFC CRISIS WOULD AFFECT THE ECONOMY?
IL&FS to various banks and financial Institutions.
Banking Sector: The present crisis would have adverse
WHAT IS THE PROBLEM WITH THE NBFC SECTOR?
impact on the banking sector, which is already facing high
• A large number of NBFCs have defaulted in payment
NPAs. This would lead to increase in the provisioning amount
obligations of bank loans, commercial paper and inter
of the bank and hence decrease in the credit creation and
corporate deposits. Consequent to defaults, credit rating
lower profits of the Banks.
agencies have downgraded the ratings of the financial
instruments issued by the NBFCs. Infrastructure Financing: Further, NBFCs such as IL&FS
have provided finance for major infrastructure projects such
• A large number of banks and Mutual Fund companies
as Chenani-Nashri Tunnel. Thus, going forward, the NBFC
have lent their money to the NBFCs and hence the default
crisis would have adverse impact on infrastructure financing
on the repayment of loans would have adverse impact on
in India.
the entire financial sector leading to “Contagion impact”.
WHAT ARE THE REASONS FOR THE NBFC CRISIS? Loans to the MSMEs: The NBFCs have emerged as a major
source of financing for number of sectors such as MSMEs.
Asset-Liability Mismatch: The NBFCs such as IL&FS depend
Hence, the present crisis would affect the credit creation and
on short term loans (through issuance of Commercial Paper)
hence the associated investment expenditure and
to lend money for infrastructure projects. The gestation
employment creation.
period of such infrastructure projects is around 10-15 years.
This leads to Asset – Liability Mismatch. Equity Market: The on-going crisis has triggered the sell-off
of the shares of the NBFCs leading to rapid fall in the share
Increase in the rates of Interest: The short-term interest
prices of the NBFCs such as IL&FS, DHFL etc.
rate of the commercial papers has increased sharply in the
recent times leading to increase in the cost of borrowing for Debt market: The default by the NBFCs has led to shortage
the NBFCs. of liquidity in the economy. This is making it difficult for other
companies from raising money from the debt market.
Complex Structure: Most of the NBFCs have complex
business structure spanning multiple sectors which makes it Mutual Fund Companies: Most of the Mutual Fund
extremely difficult to audit their accounts and regulate them Companies who had invested in the financial instruments of
efficiently. For example, IL&FS has 27 direct subsidiaries and the defaulting NBFCs have been adversely impacted wherein
159 indirect subsidiaries. they are unable to pay back the investors’ money.
Delays and Cost over runs in Infrastructure projects: The Credibility of Credit Rating Agencies: Most of the Credit
Infrastructure projects in India face various constraints such rating agencies failed to correctly predict the default by the
as delay in land acquisition, environmental clearances, cost NBFCs. It was only upon the default, the credit ratings were
escalation etc. This is has in turn adversely affected IL&FS as downgraded to “Junk Category”. This has severely affected
well. the credibility of rating agencies.
Vicious Circle: The Banks have been reluctant to lend loans HOW TO PREVENT SUCH CRISIS IN FUTURE?
to the NBFCs after the default by the bigger NBFCs such as Integrated Monitoring of NBFCs: The present crisis would
IL&FS. On similar lines, there has been drastic fall in the have not arisen had we put in place institutions that monitor
and regulate systemic risks such as a systemic-risk regulator.
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BANKING AND FINANCE
In this context, the Financial Sector Legislative Reform are required to furnish credit information to CRILC on all their
Commission (2012) had recommended to create Financial borrowers having aggregate exposure of Rs.5 crores and
Data and Management Centre to collect data across the above
sectors and monitor systemic risk. Besides, there are private Credit Bureaus (CBs), including
•
Strengthening Credit Ratings: include Credit Information Bureau (India) Limited (CIBIL),
The Credit rating agencies must take into account financial Equifax, Experian, and CRIF Highmark.
position of the NBFCs before rating their financial • Further, in the loan approval process, apart from pure credit
instruments. Further, they must also provide the rationale for history, other ancillary information is also critically important
their credit ratings. to ascertain total indebtedness of a borrower. For example,
Addressing Asset- Liability Mismatch (ALM): The NBFCs ancillary information like corporate balance sheet
need to maintain sufficient amount of liquidity to avoid ALM. information, tax information, utility bill payments
In this regard, the recent RBI’s guidelines on extending information, information of legal proceedings etc.
Liquidity Coverage Ratio (LCR) to NBFCs is a step in the right • Thus, ancillary credit information may not get reported
direction. currently as part of the credit information repository and
Reducing over-exposure to NBFCs: There is a need to hence many a times, lenders are dependent upon the
ensure that the Banks and Mutual Fund companies are not borrower for providing key information.
over-exposed to the NBFCs in term of their loan portfolios.
BENEFITS OF THE ENVISAGED PCR
• With a low credit-to-GDP ratio of a modest 55.7 per
►PUBLIC CREDIT REGISTRY
cent, the country is still under-penetrated financially and
WHY IS IT IN NEWS? the proposed PCR can help the system move towards
RBI Deputy Governor Viral Acharya has stated that the more equitable and timely access to credit, especially to
Reserve Bank of India Act, 1934, may need to be amended to the underserved segments, and thus democratise and
facilitate the setting of a public credit registry (PCR). The formalise the credit flow.
decision of the RBI to set up Public Credit registry is based on • Reduce the reporting burden on the credit institutions.
recommendations of High Level Task Force headed by • It can result in effective removal of information
Yeshwant M Deosthalee. asymmetry. This would address the issue of ‘adverse
BACKGROUND selection’ in credit market leading to fair pricing of loans.
• Credit information is essentially detailed information on • Improve the Ease of Doing Business. "Ease of Credit"- One
borrowers’ past loan performance and is very important of the 10 parameters in World Bank's "Ease of Doing
for the development of an efficient credit market. Business Index".
• In the absence of detailed and complete credit data, • Help in effective supervision and help lenders to take
lenders cannot distinguish good borrowers and bad timely corrective steps.
borrowers. CHALLENGES IN SETTING UP PCR
• This leads to a sub-optimum credit market, where lenders LEGAL CHALLENGES
provide loans at higher interest rates to low risk borrowers
Under the RBI act 1934, the RBI can regulate only Financial
and loans at lower interest rate to high risk borrowers.
Institutions. Since PCR cannot be labelled as Financial
• This phenomenon is known as ‘adverse selection’.
Institution, the RBI would not be able to regulate Public Credit
PROBLEMS WITH CREDIT INFORMATION IN INDIA Registry. Hence, RBI act 1934 has to be suitably amended.
• At present, credit information is spread over multiple ISSUES RELATED TO DATA PRIVACY
agencies. Information on borrowings from banks, NBFCs,
Individual’s consent is fundamental to data processing
market, ECBs, FCCBs, Masala Bonds, inter-corporate
practices in a digital economy. It is essential that users
borrowings are not available in a single repository.
provide consent to an entity sharing data (the data provider)
• For Instance, RBI had set up the Central Repository of before they share data with an entity requesting access (the
Information on Large Credits (CRILC) in 2014-15. All the banks data consumer).
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BANKING AND FINANCE
The key challenge is to ensure that the data is accessible only ►CREDIT RATING AGENCIES
to the data consumer, only for stipulated period of time and
only for a stipulated purpose, as consented to by the user. WHY IN NEWS?
WAY FORWARD The Credit rating agencies in India have come under
immense criticism due to their failure to predict the credit
• The access to PCR data must adhere to the strictest
defaults of the NBFCs such as IL&FS.
measures of privacy and protection to sensitive
information. DIFFERENT BUSINESS MODELS OF CREDIT RATING
• Any information gathered from the PCR may be used for AGENCIES- ADVANTAGES AND DISADVANTAGES
the authorized purpose only and not for any other The different models of Credit rating agencies are based
commercial purpose. upon “Who Pays to get the Credit rating of an instrument
issued by the company?”
REGULATOR PAYS
ISSUER PAY MODEL INVESTOR PAYS MODEL
MODEL
Under this Model, the Issuer i.e. the Under this Model, the investor is required to Under this model, the money is
company pays the money to the Credit pay the money to the CRA in order to know the paid by the regulator in the
rating agencies (CRAs) in order to get credit credit rating. country in order to get the credit
rating for the instruments issued by it. rating.
This is presently followed in India
ADVANTAGES ADVANTAGES ADVANTAGES

• Ratings are available to the entire • Avoid the serious conflict of interest It eliminates the conflict of
market free of charge and will highly aid • Enable the investors to get the credit rating interest as seen in both Issuer
the small investors. based on the true and actual financial Pay Model and Investor Pay
• It gives the rating agencies access to condition of the company. Model.
high-quality information that enhances DISADVANTAGES DISADVANTAGES
the quality of analysis.
• Ratings would be available only to those • The problem with this model
DISADVANTAGES investors who can pay for them and takes lies in the choosing the CRA
• Leads to serious conflict of interest since ratings out of the public domain and thus and payment to be fixed.
the CRAs are paid by the company to get affects the small investors. • The CRA chosen by the
the rating. The CRAs may inflate the • The company may not always share all the regulator may not be able to
rating to satisfy the company. necessary information with the CRAs which provide the best credit rating.
• May lead to ‘Rating Shopping’ which then can have an adverse impact on the Further, if the regulator pays
refers to the situations where an issuer quality of the ratings. less amount of money to the
approaches different rating agencies for • It can pose serious conflict of interest CRA, the CRA may find it
the ratings and then choose to publish involving the investors themselves. If difficult to continue with its
the most favourable ratings to disclose it investors are the payees, they can influence business and could have an
to the public via media while concealing CRAs to give lower-than-warranted ratings to adverse impact on the quality
the lower ratings. help them negotiate higher interest rates. of the ratings issued.
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BANKING AND FINANCE
SEBI'S NEW FRAMEWORK FOR THE CRAS • Accommodative stance means RBI may reduce the policy
• The CRAs would now be required to provide their rationale rates to increase the money supply in the economy.
for the rating. • Under this stance, policy rates normally decrease.
• The Disclosure of probability of default by the companies • Usually, this policy is adopted when there is slowdown in
has been made mandatory for all the CRAs. the economy.
• The CRAs have also been asked to disclose all the sensitive B. Neutral Stance
factors (such as financial performance, sector specific
• Neutral stance means the RBI would have the flexibility to
concerns) which could possibly trigger changes in credit
either increase or decrease the policy rates by taking into
• ratings. account the macroeconomic conditions.
• In order to improve the transparency in the ratings, the • Under this stance, key policy rates would move in either
CRAs have been asked to disclosure all the liquidity related direction.
parameters such as access to credit, liquidity
• Usually, this policy is adopted when the inflation rate is
Coverage ratio, adequacy of cash flows for servicing maturing stable.
debt obligation etc.
C. Calibrated Tightening
• The adequacy of the liquidity is to be denoted in terms of
• Calibrated Tightening stance means the RBI would either
standard terminologies such as Superior, Adequate,
keep the rates constant or increase the rates.
Stretched and Poor.
• Under this stance, key policy rates either remain
• The CRAs must publish information on their performance
unchanged or increase. Decrease in policy rates is ruled
in the rating of debt instruments compares with a
out.
benchmark created by SEBI.
• Usually, this policy is adopted when there are concerns of
BENEFITS OF THE NEW FRAMEWORK higher rate of inflation.
• Align ratings methodologies with the global best practices. INFLATION TARGETING
• Improve the credit rating system by forcing the CRAs to
Inflation targeting is a monetary policy strategy used by
undertake sufficient analysis before rating any instrument.
Central Banks for maintaining price level at a certain level or
• Enable the investors to take right decisions in order to
within a range.
reduce their risk.
Rationale behind the inflation targeting: Inflation targeting
• Enhance the accountability of the CRAs and improve the
brings in more predictability and transparency in deciding
transparency in the ratings.
monetary policy. If the central banks could ensure price
• Standardized definitions related to liquidity position of the
stability, households and companies can plan ahead,
companies would address the problem of ambiguity.
negotiating wages on the basis of expecting low and stable
inflation.
►INFLATION TARGETING IN INDIA Various advanced economies including United States, Canada
and Australia have been using inflation targeting as a strategy
Monetary Policy aims at controlling the money supply in the
in their monetary policy framework.
Economy. Through this policy, the RBI influences the banks to
increase or decrease the rate of interest on deposits and To meet this end government has signed a Monetary Policy
loans so as to control the inflation. Framework.
The RBI implements the monetary policy through open ABOUT MONETARY POLICY FRAMEWORK
market operations, bank rate policy, reserve system, As per terms of the agreement, the objective of monetary
credit control policy,moral persuasion and through many policy framework would be primarily to maintain price
other instruments. Using any of these instruments will lead to stability, while keeping in mind the objective of growth. The
changes in the interest rate, or the money supply in the monetary policy framework would be operated by the RBI.
economy. RBI would aim to contain consumer price inflation within 6
DIFFERENT MONETARY POLICY STANCES OF THE RBI percent by January 2016 and within 4 percent with a band of
(+/-) 2 percent for all subsequent years.
A. Accommodative Stance
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BANKING AND FINANCE
The central bank would be seen as failing to meet the targets, • Second, even if all committee members have identical
if retail inflation is more than 6 per cent for three consecutive information, they need not reach the same (individual)
quarters from 2015-16 and less than 2 per cent for three conclusion. This is because committee members typically
consecutive quarters from 2016-17. If this happens, RBI will have different skills, different backgrounds, different
have to explain the reason for its failure to meet as well as abilities to process data, and to extract useful information.
give a timeframe within which it will achieve it. RBI will • Third, if information may contain errors, a committee can
publish the operating targets as well as operating procedure pool signals and reduce uncertainty.
for the monetary policy though which the target for the • Fourth, committees provide an ‘insurance’ against extreme
monetary policy will be achieved. The RBI will also be preferences.
required to bring a document every six months to explain the
URJIT PATEL COMMITTEE TO STRENGTHEN THE MONETARY
sources of inflation and forecast for inflation for next 6-18
POLICY FRAMEWORK
months.
RECOMMENDATIONS:
RBI has been using headline CPI (Combined) inflation as
• CPI (combined) should be used as the nominal anchor for
the nominal anchor for monetary policy stance from April
a flexible inflation targeting (FIT) framework. The choice of
2014 onwards.
CPI as nominal anchor was mainly on account of the fact
It is announced by the Monetary Policy Committee (MPC) that the CPI closely reflects cost of living and has larger
which has been set up based on Urjit Patel committee influences on inflationary expectations than other
recommendations. anchors.
The Monetary Policy Committee has six members. • Target rate of inflation should be 4 per cent with a
• Three of the members are from the RBI while the other tolerance band of 2 per cent to be achieved in a two-year
three members are appointed by the government. time frame.
• Members from the RBI are the Governor who is the • Administered prices and interest rates should be
chairman of the MPC, a Deputy Governor and one officer eliminated as they act as impediments to monetary policy
of the RBI. transmission and achievement of price stability.
• The government members are appointed by the Centre on DRAWBACKS

the recommendations of a search-cum-selection Generally, inflation targeting has certain drawbacks as
committee which is headed by the Cabinet Secretary. follows-
WHY COMMITTEE SYSTEM INTRODUCED? • The government loses its credibility if it is unable to
The central bank is independent in its use of instruments, i.e. restrict the inflation in the predefined target range. This
effectively shielded from outside pressure. As it is impossible leads to a loss of faith in the government by the public
to foresee all contingencies, the central bank retains a degree which makes it imperative to achieve the decided target
of discretion. The central bank’s success will depend on the levels.
quality of its decisions. • The interest rates are raised to keep the inflation targeting
BENEFITS OF COMMITTEE SYSTEM in a limit. However, if we follow a policy inflation targeting
method it can lead to a high-interest rate thus hurting
• First, if every member of a committee exerts effort to
investment.
become informed, committees can gather more
• Another drawback of flexible inflation targeting is the
information than individual decision-makers. Better
central bank, like RBI, can lose control over the exchange
information can lead to better decisions.
rate to some extent.
SPICE APPROACH
• High Inflation adversely affects those who have no hedges against it and this includes all the
poorer sections of the community.
Social dimension
• The objective of monetary policy is to maintain price stability so as to protect ordinary citizens
from the bouts of inflation.
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BANKING AND FINANCE
• Half of the members of MPC are appointed by the government, thus populist policy measures of
government like Farm loan waivers, widespread subsidies or even UBI weigh heavily on inflation
targeting.
Political/Legal • Political stability is crucial for economic growth and price stability; thus, a stable political regime is
Dimension a desired prerequisite.
• The Preamble in the RBI Act, as amended by the Finance Act, 2016, now provides that the primary
objective of the monetary policy is to maintain price stability, while keeping in mind the objective
of growth, and to meet the challenge of an increasingly complex economy.
• The inflation targeting regime has been institutionalised in form of MPC, which has been provided
statutory backing as well (by amending RBI Act).
Institutional
• Under sub-section (1) of section 45ZA of the RBI Act, the Central Government, in consultation
dimension
with the RBI, determines the inflation target in terms of the Consumer Price Index (CPI), once in
every five years.
• High inflation hurts the savings of people and discourages the saving culture in the country.
Cultural dimension • Inflation targeting can potentially result in regulating consumption, thus policymakers can use the
inflation targeting tool to discourage the use and throw culture.
• Inflation is both a cause and consequence of demand supply dynamics and various driving
mechanisms of inflation, i.e. cost-push inflation, demand-pull inflation, increase in the money
Economic supply of an economy and a decrease in the demand for money are intricately related to overall
dimension economic health of the nation
• Clearly, inflation targeting tool can be used to regulate the stimulate the demand supply dynamics
depending upon the impending situation.
►DATA LOCALISATION in a system only in India. This data should include the full
end-to-end transaction details carried out in India.
CONTEXT
• The System providers were required to ensure compliance
The RBI's push for data localisation in India recently became of data localisation within a period of six months and file
the digital battleground of power wars between RBI and compliance report with the RBI by October 15, 2018.
payment industry. A large number of Global payment
• The main rationale behind the RBI Circular was to ensure
companies such as MasterCard and Visa are reluctant to
better monitoring of payment systems and to have
comply with the RBI's guidelines for data localisation.
unfettered supervisory access to data stored with these
MEANING OF DATA LOCALISATION system providers and other entities in the payment
• Storage of data on any device that is physically present ecosystem.
within the borders of a specific country where the data • It is to be noted that these guidelines of the RBI are in
gets generated. addition to draft data protection bill proposed by Justice B
N Srikrishna Committee on data privacy.
• Needed to protect consumer’s privacy and safeguard
• The draft bill deals with the larger issue of storing,
country's national and economic interests. India is now in
processing and utilisation of consumer data by internet
a select group of countries which are moving towards a
companies and online service providers. However, the
comprehensive data protection regime.
global payment companies such as Google, Amazon etc
BACKGROUND
raised concerns against the RBI Circular stating that it
• On April 6, 2018 RBI had issued a circular asking the impedes free flow of digital data across the countries and
payment system providers to ensure that the entire data would significantly raise their costs in storing data locally.
relating to payment systems operated by them are stored
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BANKING AND FINANCE
 DEBATE RELATED TO DATA LOCALISATION
CONCERNS RELATED TO DATA

NEED FOR DATA LOCALISATION
LOCALISATION
ENFORCEMENT INCREASE IN COMPLIANCE COST

• Data Localisation would boost law enforcement efforts to access • Data Localisation may impose a substantial economic
information required for the detection of crime as well as in burden on domestic enterprises that provide goods
gathering evidence for prosecution. and services with the help of foreign infrastructure
• This is because it is easier for law enforcement agencies to access such as cloud computing.
information within their jurisdiction as compared to awaiting • Large foreign companies may be willing and able to
responses to requests made to foreign entities which store data invest in new servers within the territory where they
abroad. want to operate.
REDUCING VULNERABILITIES • However, the costs of creating or renting such newly
built infrastructure may be high for a number of small
• A large amount of data is transmitted from one country to the
and medium-sized businesses (including domestic
other via undersea cables. Further, the location of almost every
ones) that would otherwise have been able to afford
undersea cable in the world is publicly available, which increases
cheaper foreign cloud service providers.
the risk of vulnerability of the internet and cross-border transfer
of data. MONOPOLISATION OF DATA
• Thus data critical to Indian national interest should be processed • Data Localisation would require huge investment in
in India as this would minimise the vulnerability of relying solely creation of digital infrastructure which can be done
on undersea cables. only for large MNCs.
BUILDING AN ARTIFICIAL INTELLIGENCE (AI) ECOSYSTEM • However, the small and medium sized businesses
would have to be dependent upon the infrastructure
• The growth of AI is heavily dependent on harnessing data, which
set up these global MNCs in India. Thus, data
underscores the need for data localisation policy that would
localisation may lead to data monopolisation by the
ensure the processing of data within the country using local
MNCs.
infrastructure built for that purpose.
• This is because currently most of the personal data of Indian CYBER THREAT
citizens, such as the data collected by internet giants such as Forcing the companies to store data locally deprives them
Facebook and Google are largely stored abroad. of the option of distributing information across servers in
• The economic benefits of data include higher foreign direct multiple locations, making it more vulnerable to cyber
investment in digital infrastructure and boost to the creation of threats.
digital infrastructure and digital industry through enhanced ISSUES RELATED TO PRIVACY
connectivity and presence of skilled professionals.
• It is to be noted that data localisation may not be able
PREVENTING FOREIGN SURVEILLANCE to completely eliminate cyber-attacks.
• It has been argued that requirements of storing data within • Even when, data is stored locally, it is prone to cyber-
territorial borders may be useful in boosting data security by attacks leading to data breach and loss of privacy.
safeguarding the privacy and security of personal information
against non-governmental actors.
• Largely, major information intermediaries such as Facebook,
Google, Amazon, Uber, etc. are headquartered in the US.
Consequently, a significant portion of the data collected by some
of these entities is stored in the US and in other countries
thereby increasing the scope of foreign surveillance.
• If data is exclusively processed in India, it will potentially cut off
foreign surveillance of large amounts of such data.
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BANKING AND FINANCE
INTERNATIONAL PRACTICE RELATED TO DATA ►PAYMENT REGULATORY BOARD

LOCALISATION
CONTEXT
• The condition of exclusive data storage makes India’s data
localisation laws among the strictest in the world. Experts Recently the RBI and Government were involved in rift over
say that it brings India on par with countries like Russia the formation of Independent Payment Regulatory Board. In
and China. this regard, let us examine this debate.
• Even in countries like Russia and China, specific data can BACKGROUND
be transferred but only after storing it onshore first. The • The Payment and Settlement system act, 2007 (PSSA) was
RBI has not specified any such allowances till date. enacted to regulate and supervise the payment systems in
• Some countries also mandate data localisation for specific India. This Act authorized the RBI to constitute a
sectors — such as Australia for health records and Canada Committee from its Central Board known as the Board for
for public service providers. Similarly, EU’s GDPR allows Regulation and Supervision of Payment and Settlement
data controllers and processors to transfer data outside Systems (BPSS) as highest policy making body on payment
the EU if they fulfil certain conditions. systems in the country.
WAY FORWARD • The BPSS is empowered for authorizing, prescribing
policies and setting standards for regulating and
• Data localisation should not be made applicable to all
supervising all the payment and settlement systems in the
sectors. Any move to restrict all cross-border data flows
country.
and making it mandatory to store all personal data within
a country, could be counterproductive as it could become • Over a period of time, a large number of Fintech
a trade barrier. companies such as Amazon Paypal, PayU, MasterCard,
Visa, Mobikwik, Oxigen Services etc have made a foray into
• It could also break up the Internet if every country in the
payments sector in India by providing platform for the
world insists on keeping data within its territory. For
transfer of money.
example, India’s Business Processing industry could be
adversely affected if US applies data localisation rules • In this aspect, Watal Committee on Digital Payments
across the board. In this context, India should be careful in was constituted in 2016 to suggest measures necessary to
imposing data localisation across all sectors as proposed promote the digital payment system in the Country. The
by the Srikrishna Committee. Committee specifically recommended for setting up
Payment Regulatory Board (PRB) within the overall
• There is no justification in insisting on data localisation in
structure of RBI and to replace the existing PSS Act with a
areas like e-commerce and cloud computing. But there
new law.
may be a case for adopting data localisation in few
sensitive sectors like financial services. India could learn • Accordingly, the Finance Minister in his Budget speech in
from countries like Australia and Canada where data 2017 announced for the Creation of a PRB in the RBI by
localisation rules are applied only to specific sectors like replacing the BPSS and called for a comprehensive review
healthcare, telecom and finance. of the PSSA, 2007.
• In November 2017, Inter-Ministerial Committee headed by
Secretary (Economic Affairs) was set up to undertake
comprehensive review of PSS Act 2007.
 DEBATE RELATED TO CREATION OF INDEPENDENT PAYMENT REGULATORY BOARD
RECOMMENDATIONS OF INTER-
RBI’S VIEW POINTS
MINISTERIAL COMMITTEE
There should be independent Payment Regulatory Body (PRB) The Payments Regulatory Board (PRB) must remain with the
outside the purview of RBI. Reserve Bank.
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BANKING AND FINANCE
Rationale: Rationale:
• Due to advancement in ICT, it is no longer necessary to be a • In India, the payment system is bank-dominated and
bank to provide payment solutions. In the recent times, a hence regulation of the banks and payment system by the
large number of non-bank fintech companies such as RBI provides synergy and inspires public confidence in
PayPal, Google, Watsapp etc have entered the payment the payment instruments and ensure holistic benefits.
industry. • Further, there is impact of Monetary Policy of the RBI on
• Accordingly, the regulatory design needs to evolve to keep payment and settlement systems and vice versa. Hence,
pace with the emerging scenario. A more inclusive regulatory this calls for regulation of payment systems to be with the
design is likely to further promote competition and as a RBI.
result help improve access, safety and convenience related to • Also, there is an underlying bank account for payment
payments and help reduce transaction costs. systems which is under the purview of banking system
• The approach of RBI has already been to regulate non-banks regulation vested with the RBI.
in payments lightly. This has enabled them to emerge as • There has been no evidence of any inefficiency in payment
significant players in a relatively short time frame. systems of India. The digital payments have made good
• This growth now needs to be nurtured so that banks have and steady progress. Given this, there need not be any
competitive pressure to innovate and non-banks have an change in a well-functioning system.
equal opportunity to compete.
COORDINATION MECHANISM PROVIDED BY INTER necessary regulatory duties. So it makes better sense to
MINISTERIAL COMMITTEE have the RBI take charge of the rapidly growing payments
• The RBI has highlighted that formation of Independent industry.
Payments Regulatory Board (PRB) would lead to • However, the RBI’s demand for the centralization of
coordination problem with respect to formulation of regulatory powers also brings with it the need for
monetary policy and regulation of payments. To address exercising a greater degree of responsibility.
these concerns, the Inter ministerial Committee has • As the country is facing increasing risks to the stability of
suggested for a mechanism. the financial system, both the government and the RBI
• RBI would have significant representation on the Payments must look to work together to tackle these risks instead of
Regulatory Board (PRB). Further, RBI would be vested with battling over regulatory powers.
the powers to make a reference to the PRB to consider any
matter, which in the opinion of the RBI would be important
in the context of the monetary policy.
►INSOLVENCY AND BANKRUPTCY
• Similarly, PRB shall make a reference to RBI when it CODE, 2016 - AN APPRAISAL
proposes to make any regulation against a designated INTRODUCTION
payment system and the RBI can give its opinion in this
It was introduced to consolidate and amend the laws relating
regard.
to reorganisation and insolvency resolution of corporate
• If PRB disagrees with the opinion of RBI, and RBI does not
persons, partnership firms and individuals in a time bound
agree with the reasons given by the PRB, the RBI can also
manner for maximisation of value of assets of such persons,
make a reference to the Central Government.
to promote entrepreneurship, availability of credit and
WAY FORWARD balance the interests of all the stakeholders including
• There seems to be overlapping between the current alteration in the order of priority of payment of Government
regulatory powers of the RBI and the proposed dues.
independent regulatory body. A unified regulator can help It also established the Insolvency and Bankruptcy Board of
in lowering the compliance costs of the payments industry India which is a key pillar of the ecosystem responsible for
and enable easier implementation of rules. the implementation of the Code. It is a unique regulator -
• Further, there is the real risk that a new regulator may not regulates the profession as well as process. It has regulatory
be able to match the expertise of the RBI in carrying out oversight over Insolvency Professionals, Insolvency
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BANKING AND FINANCE
Professional Agencies, Insolvency Professional Entities and information will include records of debt, liabilities and
Information Utilities. It writes and enforces rules for defaults.
processes, namely, corporate insolvency resolution, • Adjudicating authorities: The proceedings of the
corporate liquidation, individual insolvency resolution and resolution process will be adjudicated by the National
individual bankruptcy under the Code. Companies Law Tribunal (NCLT), for companies; and the
SITUATION BEFORE THE CODE Debt Recovery Tribunal (DRT), for individuals. The duties of
the authorities will include approval to initiate the
Sick Industrial Companies Act provided the framework.
resolution process, appoint the insolvency professional,
However, it failed to thrive with resolutions taking more than
and approve the final decision of creditors.
5 years. The Code seeks to repeal the Presidency Towns
• Insolvency and Bankruptcy Board: The Board will regulate
Insolvency Act, 1909 and Provincial Insolvency Act, 1920. In
insolvency professionals, insolvency professional agencies
addition, it seeks to amend 11 laws, including the Companies
and information utilities set up under the Code. The Board
Act, 2013, Recovery of Debts Due to Banks and Financial
will consist of representatives of Reserve Bank of India,
Institutions Act, 1993 and Sick Industrial Companies (Special
and the Ministries of Finance, Corporate Affairs and Law.
Provisions) Repeal Act, 2003, among others.
 What is the procedure to resolve insolvency in the
BASICS ABOUT INSOLVENCY AND BANKRUPTCY CODE,
Code?
2016
The Code proposes the following steps to resolve insolvency:
 What does the current Code aim to do?
• Initiation: When a default occurs, the resolution process
The 2016 Code applies to companies and individuals. It
may be initiated by the debtor or creditor. The insolvency
provides for a time-bound process to resolve
professional administers the process. The professional
insolvency. When a default in repayment occurs, creditors
provides financial information of the debtor from the
gain control over debtor’s assets and must take decisions to
information utilities to the creditor and manage the
resolve insolvency within a 180-day period which can be
debtor’s assets. This process lasts for 180 days and any
extended by 90 days if 75% of the financial creditors agree.
legal action against the debtor is prohibited during this
To ensure an uninterrupted resolution process, the Code also
period.
provides immunity to debtors from resolution claims of
• Decision to resolve insolvency: A committee consisting of
creditors during this period. The Code also consolidates
the financial creditors who lent money to the debtor will
provisions of the current legislative framework to form a
be formed by the insolvency professional. The creditors
common forum for debtors and creditors of all classes to
committee will take a decision regarding the future of the
resolve insolvency.
outstanding debt owed to them. They may choose to
 Who facilitates the insolvency resolution under the revive the debt owed to them by changing the repayment
Code? schedule, or sell (liquidate) the assets of the debtor to
The Code creates various institutions to facilitate resolution repay the debts owed to them. If a decision is not taken in
of insolvency. These are as follows: 180 days, the debtor’s assets go into liquidation.
• Insolvency Professionals: A specialised cadre of licensed • Liquidation: If the debtor goes into liquidation, an
professionals is proposed to be created. These insolvency professional administers the liquidation
professionals will administer the resolution process, process. Proceeds from the sale of the debtor’s assets are
manage the assets of the debtor, and provide information distributed in the following order of precedence: i)
for creditors to assist them in decision making. insolvency resolution costs, including the remuneration to
• Insolvency Professional Agencies: The insolvency the insolvency professional, ii) secured creditors, whose
professionals will be registered with insolvency loans are backed by collateral, dues to workers, other
professional agencies. The agencies conduct examinations employees, iii) unsecured creditors, iv) dues to
to certify the insolvency professionals and enforce a code government, v) priority shareholders and vi) equity
of conduct for their performance. shareholders.
• Information Utilities: Creditors will report financial OBJECTIVES OF A COLLECTIVE INSOLVENCY RESOLUTION
information of the debt owed to them by the debtor. Such REGIME
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BANKING AND FINANCE
• Time bound resolution of insolvency • NCLT and NCLAT: The strength of NCLT has been below
• Systematic resolution of insolvency its mandated strength. This has led to reduced number of
• Maximisation of value for all stakeholders NCLT benches. NCLT and NCLAT should be manned by
judges who have capacity and understanding of dealing
APPRAISAL OF TWO YEARS OF INSOLVENCY AND
with complex commercial cases.
BANKRUPTCY CODE EXPERIENCE
• Lack of robust response from market players and led to
• Timelines set by the code are being reasonably met with low recoveries. Increased participation and enthusiasm
minor transgressions. among private sector for assets under IBC process will
• Absolute recovery rates for financial creditors are higher increase recoveries for banks.
than the number that was ascribed to India in 2015. • Lack of clarity surrounding the classification of creditors
POSITIVES OUTCOMES OF INSOLVENCY AND BANKRUPTCY and the ranking of their claims is a cause of concern. For
CODE instance, there is limited clarity on how secured financial
• It has introduced a marked shift in credit culture both in creditors are to be treated as compared to unsecured
the borrowers and lenders as well as other stakeholders. financial creditors.
• The resolution plans have yielded about 200% of • Role of Operational Creditors and decision making inside
liquidation value for creditors. They are realising on an Committee of Creditors (COC): Operational creditors are
average 43% of their claims through resolution plans not allowed to be part of COC and vote in its decision
under a process which takes on average 300 days and making except when there is no financial creditor
entails a cost on average of 0.5%, a giant leap from the pertaining to the corporate debtor. However, this second
previous regime which yielded a recovery of 25% for order treatment to operation creditors will lead to
creditors through a process which took about 5+ years and operational creditors getting very cautious in lending to
entailed a cost of 9%. corporates. If one type of credit is given preferential
treatment, the other type of credit will disappear from
• The most important outcome is that the code has
redefined the debtor-creditor relationship, leading to market. This will be against the objective of promoting
significant behavioural changes resulting in substantial availability of credit.
recoveries for creditors outside the Code. • The issue of cross-border insolvency, individual
• The fear of losing control of their firms has forced insolvency and group insolvency remains to be resolved.
promoters to improving performance of their firms with A law on these needs to be drafted soon.
improved allocation of resources. • Very Wide Definition of ‘Related Party’: An amendment to
• The World Bank’s Ease of Doing Business measures the IBC code introduced Section 29A under the IBC, 2016
which bars entities with no real link with the failed
‘Resolving Insolvency’ as one of the parameters for it.
business put up for sale from bidding.. Bankers and
ISSUES/CHALLENGES WITH THE RESOLUTION PROCESS
financial institutions holding shares in businesses coming
UNDER IBC JUDICIAL INTERPRETATION
up for bankruptcy proceedings have been vociferous in
• Role of the regulator: IBC is new law, thus it was faced seeking a change in the section as otherwise they are
with certain problems which needed radical reforms in its defined as part-owners and hence are unable to bid for
incipient stage. There was lack of awareness and the these assets.
ecosystem need for resolution needed to be developed • Application of the IBC to MSME sector: Currently MSMEs
from ground zero. IBBI had to be manned with people, are treated as normal operational creditors are
procedures set and precedents created, this took more guaranteed only the liquidation value of the company.
time and still continuing. However, according to MSME Act, MSMEs are guaranteed
• Insolvency resolution Professionals take control of a principal amount along with interest for delayed payment
stressed company after it is admitted under the of more than 45 days from the delivery of goods and
bankruptcy process. The number and capacity of services, at three times the bank rate(nearly 19%). Thus,
Insolvency professionals determines value maximisation there is a need for special dispensation under the code for
and effective resolution, however, they have inadequate MSME sector.
skills, their numbers are also low as compared to those
required.
55
BANKING AND FINANCE
WAY FORWARD • The definition of ‘related party’ under IBC needs to be

• Use of Technology: To remove information assymetries, amended to make it more rational considering the
automation of various repetitive processes etc should be economic needs of our economy.
done. CONCLUSION
• Capacity of Insolvency Professionals and their integrity The long term success of the code is to create a climate of
needs to be up to the mark. effective resolution and channelize the energies of creative
• Continued professional education and capacity building of destruction in the economy. Failing of firms is something that
insolvency professionals. is natural because of competition and innovation, however,
• Ecosystem of valuers, insolvency professionals, the way these failures are handled has seen big improvement
information utilities need to be further strengthened. due to IBC 2016.
• Appointment, training and number of benches of NCLT
and NCLAT should be rationalised.
• Recommendations of the Project Sashakt such as inter-
creditor agreements, and a transparent market based
resolution with a focus on asset turnaround to job
protection and creation.
56
Section 3
B UDGETING,
T AXATION AND
P LANNING

BUDGETING, TAXATION AND PLANNING
►FISCAL COUNCIL IN INDIA • Advise the Government on the formulation of Budget.

• Monitor Government's fiscal performance to FRBM Targets
WHY IN NEWS?
• Ensure greater accountability of the Government to the
The Chairman of the 15th Finance Commission, NK Singh has Parliament.
recently recommended setting up of institutional mechanism • Act as counterpart to the Monetary Policy Committee
like a ‘Fiscal Council’ to fill major institutional gap in India's
• Address the problem of Off Budget Financing.
Fiscal System.
WHAT SHOULD BE THE ROLE OF FISCAL COUNCIL IN
WHAT IS FISCAL COUNCIL?
INDIA?
• A fiscal council is an independent and non-partisan agency
• Fiscal Data Coordinator: As a fiscal data coordinator, the
which is set up to publicly assesses the government’s fiscal
Fiscal Council should have the responsibility of compiling
performance against its stated objectives.
and collating centre, state, and local government fiscal
• Fiscal Councils can serve both ex ante and ex post data and provide individual and consolidated fiscal
functions. Some of the functions that can be performed accounts of the governments in India on a timely basis and
by Fiscal Council include: make such data accessible to governments and public.
• Producing independent forecasts related to GDP growth, • Fiscal Data Analyst: It should utilize the compiled fiscal
tax buoyancy, inflation rate data to provide valuable insights into the underlying fiscal
• Review the government’s forecasts and assumptions trends and highlight their policy significance.
related to tax collections, Fiscal Deficit, GDP Growth etc • Fiscal Consolidation Path Monitor: The central as well as
(an ex ante function) state governments follow their respective fiscal
• Monitoring governments’ fiscal performance including consolidation paths according to targets set under their
adherence to fiscal rules (an ex post function) FRBM Acts. The Fiscal Council should monitor the
INTERNATIONAL EXPERIENCE WITH FISCAL COUNCIL compliance of these targets by the Central and State
Governments. It should highlight deviations in the targets
• International experience suggests that fiscal councils can
by publishing quarterly and annual reports.
improve fiscal outcomes and accuracy related to
government's forecasts related to fiscal parameters. • Fiscal Policy Advisor: Fiscal Council should provide
guidance to the central and state governments on
• Example: United Kingdom(Office of Budget Responsibility ),
appropriate fiscal policy interventions aimed at improving
USA (Congressional Budget Office )
growth and macro-stabilization outcomes.
COMMITTEES RELATED TO FISCAL COUNCIL
• FRBM Review committee headed by N.K Singh and D.K.
Srivastava Committee on Fiscal Statistics have proposed to ►FISCAL FEDERALISM
set up independent Fiscal Council in India. CONTEXT
• The N.K Singh Review committee recommended that Fiscal
Recently, leading Indian Economist, Vijay Kelkar has
Council should be an autonomous body, under the aegis
highlighted certain problems in the fiscal federalism
of the Ministry of Finance (Department of Economic
architecture in India. In his paper, "Towards India's New Fiscal
Affairs).
Federalism", he has argued for strengthening Fiscal
• It proposed that Fiscal Council should comprise a
Federalism in India wherein he has highlighted the need to
Chairperson and two Members to be appointed by the
empower NITI Aayog to transfer funds to the states so as to
Central Government. The persons to be appointed ought
promote balanced regional development. On the other hand,
to have significant experience in public finance, economics
the RBI Governor has recently pitched for granting
or public affairs.
permanent status to the Finance Commission under Art 280.
NEED FOR FISCAL COUNCIL IN INDIA
UNDERSTANDING FISCAL FEDERALISM
• Promotes coordination among multiple agencies involved
The Fiscal federalism is economic counterpart of Political
in collection of the fiscal data.
Federalism. The Fiscal Federalism essentially consists of 2
• Produce Independent forecasts related to various
aspects:
parameters such as GDP, Tax collection, Deficits etc.
58
ASSIGNMENT OF FUNCTIONS TO DIFFERENT LEVELS OF • This has become even more critical in the post GST
GOVERNMENTS scenario. In other words, there has to be continuity and
It is provided under the VII Schedule of the Indian change between Finance Commissions.
Constitution by allocating the subjects- Union List, State List • Thus, there is a need to give permanent status to the
and Concurrent List. This allocation of subjects is based on Finance Commission. The Commission can function as a
the Principle of Subsidiary i.e. the subjects are allocated to leaner entity in the intervening period till the next Finance
that level of government where it can be performed in the Commission is set up in a full-fledged manner. During the
most efficient manner. (For Example- Defence has been intervening period, it can also address issues arising from
allocated to Union whereas agriculture has been allocated to implementation of the recommendations of the Finance
State Government) Commission.
ALLOCATION OF FINANCIAL POWERS NEED TO STRENGTHEN NITI AAYOG
It is done through the allocation of taxes to Union and States Vijay Kelkar is of opinion that the present mechanism of
based on the principle of subsidiary. (For example- Income setting up of Finance Commission every 5 years is working
tax has been allocated to Union whereas property tax has perfectly fine. However, there is a need to strengthen fiscal
been allocated to States). Federalism by empowering the NITI Aayog with transfer of
finances.
NEED FOR FINANCE COMMISSION UNDER ART 280
RATIONALE
• The financial power allocated to the states is not
commensurate with the functions allocated to them. This • The Planning Commission was involved with transfer of
leads to vertical imbalances in the finances of the Union finances to the states which to a certain extent were able
and States. Similarly, there are differences in the financial to reduce the regional imbalances existing among the
capacity of the individual state governments which arises different states in India. However, the Planning
due to different levels of development. This can be Commission was replaced by NITI Aayog, which acts more
considered to be horizontal imbalances among the like a think tank without the power of transferring
different states in India. finances.
• Accordingly, Article 280 mandates setting up of a Finance • Two problems have arisen with respect to this. Firstly,
Commission in order to address the vertical and horizontal India’s Fiscal Federalism stands only on one pillar, viz.,
imbalances in the finances. Union Finance Commission. This is a serious weakness of
our present Fiscal Federalism and needs to be quickly
NEED TO HAVE PERMANENT FINANCE COMMISSION
corrected.
• Over a period of time, Finance Commissions have adopted • Secondly, India has been experiencing the process of
different approaches with regard to principles of tax “Conditional Convergence” amongst the different States
devolution, grants to be given to states and fiscal wherein the poorer states have been growing more rapidly
consolidation issues. than richer states leading to reduction in income
• Even though, there has to be a framework for fresh and inequality. Such conditional convergence has been
innovative thinking by every Finance Commission; at possible on account of transfer of finances by the Planning
another level, there is a need to ensure broad consistency Commission.
between Finance Commissions so that there is some • Thus, there is a strong analytical case for strengthening the
degree of certainty in the flow of funds to the states. role of NITI Aayog with powers of allocating finances to
• (For example, 14th Finance Commission has provided for states.
tax devolution of 42% as compared to 32% provided by • In order to make the new NITI Aayog more effective, it is
13th Finance Commission. Further, the 14th Finance essential to ensure that the institution is at the “High
Commission has added the parameters of Area under Table” of decision making of the Government. This means
Forests and Demographic Change (2011 census) for the the Vice Chairman of the new NITI Aayog will need to be a
horizontal tax devolution. The fiscal discipline parameter permanent invitee of the Cabinet Committee on Economic
used by 13th Finance Commission has been done away Affairs. Thus, the new NITI Aayog will make available to
with by 14th Finance commission.) the highest level of policy making the knowledge-based
59
advice and provide the national and long term perspective department is lower than the FMV estimated by the angel
on the policy proposals. investors. This lower value of FMV has led to IT notices
Probable Question for Mains: being slapped on some of the start-up companies to pay
the Angel Tax.
Q. There is a need to grant permanent status to Finance HOW THE CONTROVERSY WOULD IMPACT THE START-UPS?
Commission under Article 280 in order to strengthen fiscal
• The start-up eco-system in India is nascent and fragile.
federalism in India. Discuss.
Such notices hurt investment sentiments and keep the
Q. The replacement of Planning Commission with NITI investors away. Hundreds of start-ups have received
notices from IT authorities asking them to pay taxes on the
Aayog has led to institutional gap in the architecture of Fiscal
angel funding raised by them.
Federalism in India. In this regard, do you think there is a
need to empower NITI Aayog to transfer finances to the • Under such a scenario, there are apprehensions that many
states? Substantiate. start-up companies would shut down fearing the payment
of extra taxes.
GOVERNMENT'S MOVE TO SIMPLIFY ANGEL TAX
►ANGEL TAX CONTROVERSY In response to the recent controversy, the Government has
CONTEXT come out with notification to ease the burden on the Start-
The "Angel Tax" had assumed significance in recent times as ups.
several start-ups and angel investors had raised concerns DEFINITION OF START UP
over notices received from income tax authorities over the The definition of Start-ups has been expanded. Now an entity
payment of "Angel Tax". This had adversely affected the start- will be considered as a Start-up up to a period of ten years
up ecosystem in India which nurtures innovation and from the date of incorporation and registration in place of the
entrepreneurship. earlier duration of 7 years. Similarly, an entity will continue to
WHAT IS ANGEL TAX? be recognised as a Start-up, if its turnover for any of the
• Angel tax is the tax levied on funds raised by Indian start- financial years since incorporation and registration has not
ups through issue of shares to Indian residents. It is exceeded Rs. 100 crore in place of Rs. 25 crore earlier.
imposed at 30.9 % tax of the funding received by startups CRITERIA FOR AVAILING TAX CONCESSION
from an external investor. However, it is to be noted that • Currently, start-ups avail tax concession only if total
this tax is levied when startups receive funding at a investment does not exceed Rs 10 crore. The new rules
valuation higher than its ‘fair market value’. It is counted as have increased the investment limit to Rs 25 crore for
income to the company and is taxed. availing income tax concessions by start-ups.
• Angel tax was introduced in 2012, with the purpose of • Further, investments by listed companies with a net worth
keeping money laundering in check. of Rs 100 crore or turnover of Rs 250 crore into an eligible
PROBLEMS WITH THE ANGEL TAX CALCULATION start-up shall be exempt from the Income Tax even if the
• The Angel Tax is calculated when the Startups receive investment is beyond the Rs 25 crore limit.
funding which is higher than its "fair Market Value". WAY FORWARD
However, it becomes extremely difficult for the tax Angel investors in countries such as US and China are offered
authorities to ascertain the "Fair Market value" of the tax benefits. But in India, the start-up ecosystem is stifled by
startup companies. Start-ups have little revenues or profits making it difficult for enterprises to receive funding in the
and their valuation is based on the potential of the idea, initial years. The angel investor ecosystem needs to be strong
the background and competence of the founding team, and vibrant to support the development of the start-up
etc. and is usually negotiated between the founders and economy.
the angel investors.
• However, the IT Department uses traditional methods to
calculate the Fair Market Value (FMV) of the Company and
in most of the cases, the FMV calculated by the IT
60
Probable Question for Mains: production of goods and services, rather they are mainly
set up for tax evasion and money laundering.
Q. There is a need to provide a strong and vibrant • Hence, ideally, the shell companies should not be taken
ecosystem to nurture and promote Start-ups in India. into account for GDP Estimation in India. On account of
Examine this statement in the context of recent Angel Tax this, concerns were raised that the presence of such shell
Controversy. companies in the MCA-21 database was actually inflating
the GDP Estimates in India.
• Though it may not be possible to show how much
►REFORMS IN INDIAN STATISTICAL difference it would make to the GDP level and growth rate,
SYSTEM but it can clearly be argued that the GDP estimates in India
may be inflated.
CONTEXT
Arguments given by the government
Niti Aayog has stressed on the revamp and modernisation of
the Indian statistical system so that real-time data is captured • The out-of-coverage enterprises are simply those
and used for policy analysis. Recently following issues have enterprises that are not engaged in service sector.
emerged in calculation of data. However, these enterprises are engaged in some
economic activity, possibly in the manufacturing sector for
THEME 1: RECENT CONTROVERSY IN GDP CALCULATION
instance.
The Ministry of Statistics and Programme Implementation
• Hence, accordingly, these enterprises were categorised as
has changed the process and base year for calculation of GDP
out-of-coverage enterprises for carrying out the survey of
in 2015
service sector enterprises.
Changes made are: • However, since these firms are engaged in some or other
• In 2015 the base year for calculating GDP was changed economic activity (other than services sector), they need to
from financial year 2004-05 to financial year 2011-12. be taken into account for estimating the GDP of the
• The new series with the base year 2011-12 repealed GDP country. In other words, the GDP estimates must take into
at factor price and replaced it with internationally accepted account these out-of-coverage firms. However, the critics
Gross Value Added (GVA) at basic prices for the estimation have argued that if such firms are involved in other
of the national income. economic activities, why they have been categorised under
• In the earlier 2004-05 series, the Private Corporate Sector Services Sector in the MCA-21 database.
was covered using the RBI Study on Company Finances, • Further, the government has stated that the remaining
wherein GDP estimates were compiled on the basis of 17% of the firms are either closed or nontraceable
financial results of around 2500 companies. In the new enterprises. However, with continuous evolution of the
series, the CSO is using the MCA-21 database maintained MCA database, the proportion of closed and non-traceable
by the Ministry of Corporate Affairs to estimate the enterprises has been falling. Thus the extent of
contribution of Private corporate sector to the GDP. overestimation of GDP in all likelihood is marginal.
• Lastly, the government has argued that present MCA-21
Controversy
database is much wider and comprehensive as compared
• Recently, the NSSO came out with a new report titled as to the earlier database of the RBI used for GDP estimation.
"Technical Report of Services Sector Enterprises in India". Because of this, the government has claimed that the new
This report has highlighted a major lacuna in the MCA-21 GDP better captures the economy’s value addition,
database which is presently used for GDP estimation. especially of smaller enterprises and services activities.
• It has highlighted that almost 38% of the firms in the MCA-
THEME 2: MERGER OF NSSO AND CSO
21 database were either out-of-coverage companies (21%),
closed or non-traceable (17%). Recently, the Ministry of Statistics and Programme
• It is being stated that most of these out-of-coverage, implementation (MoSPI) passed an order to merge the
closed or non-traceable companies could be Shell Central Statistics Office (CSO) and National Sample Survey
Companies. The Shell companies do not involve in the Office (NSSO) into the National Statistical Office (NSO).
61
BACKGROUND Government had stalled the release of this report, even

• In 2000, a committee headed by former RBI governor C. though its release was authorised by NSC.
Rangarajan suggested the establishment of two bodies- • Subsequently, it led to the resignation of two members of
National Statistical Office (NSO) by merging CSO and NSC. The critics have argued that the Government is
NSSO and National Statistical Commission (NSC). undermining the NSC by keeping the NSO outside its
• It had recommended that NSO should function ‘as the purview. This raises serious questions about the
executive wing of the Government in the field of statistics independence of the process through which official survey
and act according to the policies and priorities, laid down data is collected and published.
by the National Statistical Commission. WAY FORWARD
• Subsequently, the National Statistical Commission was set The NSSO surveys command wide respect among academics,
up as a non-statutory body and it was entrusted with the State governments and non-governmental organizations.
responsibility of acting as a Nodal and empowered body Hence there is a need to ensure the credibility of the Indian
for all core statistical activities of the country. It was also statistical system by ensuring that the surveys of the NSO do
given the supervisory powers over the NSSO. not need the prior approval of the Ministry of Statistics and
• However, the proposal of setting up National Statistical Programme Implementation. The NSO needs to work
Office (NSO) was not taken into consideration then. independently and remain outside political influence. This
RATIONALE FOR THE MERGER can be done by bringing the NSO under the NSC and re-
establishing the NSC in the form of statutory body through an
• Both CSO and NSSO work under the Ministry of Statistics
act passed by the Parliament. Further, the NSO needs to have
and Programme Implementation (MoSPI).Both have
sufficient budgetary allocation and adequate number of
similar roles but focus on different metrics.
trained field staff in order to improve the quality of the
• Some of the Important Surveys/Indices published by CSO
surveys.
includeGDP Growth Estimates, Consumer Price Index (CPI),
Index of Industrial Production (IIP) and Annual Survey of
Industries (ASI).
►REFORMING PUBLIC SECTOR BANKS
• On the other hand, the NSSO carries out periodic surveys
related to consumption expenditure, employment, land Public Sector Banks (PSBs) are the mainstay of the Indian
holdings, rural savings, Investment etc. The NSSO and the banking industry, along with economic and financial motives,
CSO were functioning independently. PSBs play a critical role in socio-economic development of the
nation, as can be seen thorough below points –
• In this regard, merger of CSO and NSSO would eliminate
duplication, activate synergies and result in efficiency. • PSBs and PSB-sponsored Regional Rural Banks (RRBs) have
dominant market presence and constitute 78 percent of
WHAT ARE THE CONCERNS RELATED TO MERGER OF CSO
the bank network of Scheduled Commercial Banks (SCBs).
AND NSSO?
In rural locations, this share is higher at 87 percent.
• The order says NSSO and CSO are to be merged into NSO.
• PSBs and RRBs play a critical role in priority sector lending
The secretary of the MoSPI would head NSO and he would
and account for 74 percent of outstanding credit to
be assisted by three director generals. However, the order
Small and Marginal Farmers, 65 percent of outstanding
does not explicitly states that the NSO would work under
credit to Micro and Small Enterprises and 95 percent of
the purview of National Statistical Commission.
education loans.
• In this regard, critics have argued that the NSC would not
• By the end of FY18, PSBs accounted for 70 percent of
able to exercise independent oversight mechanism over
outstanding credit to agriculture and allied activities.
the functioning of NSO.
• PSBs are also key providers of long-term credit (more
• It is to be noted that both NSSO and NSC were in news
than 5-year term) with a share of 73 percent of
recently due to the controversy related to Periodic Labour
outstanding credit.
Force Survey(PLFS) Report. This report had stated that the
• Given these linkages, PSBs are critical in unlocking
unemployment rate in India has increased to 6.1% which is
investment needed for development of the Indian
considered to be the highest in the last 45 years. The
economy. However, over the last decade, Public Sector
62
Banks (PSBs) witnessed excessive build-up of stress in 4. Until the BIC is formed, a temporary body called the Bank
their loan portfolio. Boards Bureau (BBB) will be formed to do the functions
WHY NPA ISSUE RESURGED IN RECENT TIMES of the BIC. Once BIC is formed, the BBB will be dissolved.
• Much of the stress remained hidden in the form of 5. The BBB will advise on appointments to the board, banks’
Standard Restructured Assets (SRA) as a result of RBI chairman and other executive directors.
guidelines issued in January 2009, granting special The 4D Reforms of PSBs
regulatory treatment for classifying restructured accounts
The four Ds include: De-regulation (addressing the statutory
as standard accounts under certain conditions.
liquidity ratio (SLR) and priority sector lending (PSL)),
• The issue of NPA have re-emerged in recent times,
Differentiation (within the public sector banks in relation to
especially after 2015 when the government started to
recapitalisation, shrinking balance sheets, and ownership),
implement a comprehensive 4R’s strategy of Recognising
Diversification (of source of funding within and outside
NPAs transparently, Resolution and recovery,
banking), and Disinterring (by improving exit mechanisms).
Recapitalising PSBs and Reforms in the financial ecosystem
The Survey pointed out that the banking system was afflicted
and PSBs. The first three R’s are aimed at cleaning the
by “double financial repression” which reduced returns to
balance sheets of banks.
savers and banks, and misallocated capital to investors - On
RECENT RECOMMENDATIONS FOR PSB REFORMS
the liabilities side, high inflation lowered real rates of return
• The P J Nayak Committee or officially the Committee to on deposits and a sharp reduction in households’ financial
Review Governance of Boards of Banks in India, was set savings. On the assets side, statutory liquidity ratio (SLR) and
up by the Reserve Bank of India (RBI) to review the priority sector lending (PSL) requirements had depressed
governance of the board of banks in India in 2014. Main returns to bank assets.
recommendations of PJ Nayak Committee Report -
• The Economic Survey 2014-15 has proposed a 4-D
1. Repeal the Bank Nationalisation Act (1970, 1980), the SBI prescription to the Indian banking sector, which is hobbled
Act and the SBI Subsidiaries Act. This is because these acts by policy constraints, which create double financial
require the government to have above 50% share in the repression, and, by structural factors, impede competition.
banks. • As a part of the reforms, in January 2018, the Government
2. After the above acts are repealed, the government should and PSBs jointly committed to and launched a common
set up a Bank Investment Company (BIC) as a holding PSB Reforms Agenda for Enhanced Access & Service
company or a core investment company. Excellence (EASE), comprising 30 Action Points across six
3. The government to transfer its share in the banks to this themes
BIC. Thus, the BIC would become the parent holding These six themes are –
company of all these national banks, which would become 1. Customer Responsiveness,
subsidiaries. As a result of this, all the PSBs (public sector
2. Responsible Banking,
banks) would become ‘limited’ banks. BIC will be
autonomous and have the power to appoint the Board of 3. Credit Off-take,
Directors and make other policy decisions. 4. Udyami-Mitra for MSMEs,
5. Deepening Financial Inclusion and Digitalisation and,
6. Developing Personnel for Brand PSB
63
BUDGETING
G, TAXATIO
ON AND PLA
ANNING
INIITIATIVES TAK
KEN BY GOVE
ERNMENT FO
OR PSB REFOR
RMS Resolution
R and recovery, Recapitalising
R PSBs and Re
eforms in
The
e reforms inittiatives aim to
o address keyy areas in PSBs viz., the financial ecosystem
e and
d PSBs.
gov
vernance, prudential
p lending, ri sk manage ement, 1. NPAs reco ognised tran nsparently - As a result of AQR
tec
chnology-driv ven checks and conttrols and S SMART (Asset quality review), su
ubsequent traansparent reccognition
ban
nking — as wellw as trans sparency and d accountability in of stressedd assets as NPA by PSB Bs and withd drawal of
the
e wider financcial ecosystem
m. forbearance in asset classification o of restructure
ed loans,
Govvernment maajor Initiativess have remai ned within th
he 4R’s SRAs of PSBBs decreased from the peaak of ₹3.93 la akh crore
stra
ategy dimenssions - of Recognising
R N
NPAs transpa arently, (7.0 percen
nt of gross advvances) by thhe end of FY15 to 0.34
lakh crore (0.5%
( of grosss advances). O
Over the same period,
64
RAU’S IAS
S FOCUS SPEECIAL EDITION
NS | MAINS COMPASS
C (C
C3 CURATION
N) for CSE 20 19
BUDGETING
G, TAXATIO
ON AND PLA
ANNING
gross
g NPAs ofo PSBs increeased from 5
5.0 percent tto 13.7 6.
6 Amalgama ating similarr banks to harness be enefit of
percent of gro
oss advances. scale and synergy
s - A th
hree-way amaalgamation off Bank of
2. Reducing strress in bank k loan portffolios - Resolutions Baroda, Vijaya Bank and d Dena Bankk has been no otified in
under the Insolvency & Bankruptccy Code (IBC C) and April 2019, which will create
c India’ss second larg
gest PSB.
reduced slipppages, GNPA As in global ooperations of PSBs Further, acquisition of majority
m stakee in IDBI Bank Ltd. by
have declinedd from ₹8.96 lakh crore byy the end of F
FY18 to LIC enable ed harnessin ng of synerggies between n India’s
₹8.64
₹ lakh cro
ore by the end of Q3FY19. Further, refoorms in largest insu
urer and IDBI Bank Ltd.
the
t insolvenccy and bankrruptcy frame ework and re ecovery 7.
7 Governmen nt initiatives towards imp
proving clean credit
processes within PSBs area leading tto large-scalee NPA culture –
resolution and recovery. • Deregistraation of inopperative (sheell) companie es - 2.26
3. Recapitalisattion – The Govern ment annoounced lakh inopeerative (“shell”) companiess were identtified for
Indradhanussh plan in August
A 2015 to infuse ₹
₹70,000 deregistration and theirr bank accounnts frozen byy the end
crore
c over four
f financial years. The results of AAQR in of FY18. The
T process has continueed in FY19 with the
December 20 015 revealed higher than n anticipated NPAs, freezing off bank accounts of an additional 1.12 lakh
necessitating further anno
ouncement b by the Goverrnment companies.
of
o recapitalissation amou unting to ₹2 2,11,000 croore in • National Finance Reporting Authority (NFRA)
October
O 2017, including the
t remainingg outlay of ₹
₹18,139 operationa alised: NFRA was operatio onalised in F
FY19 with
crore
c under Indradhanush h plan and m obilisation off about multiple objectives including monittoring and e enforcing
₹58,000
₹ croree from marketts by PSBs. Th
he envisaged capital compliance e with accounnting standard
ds and overseeeing the
infusion has since been enhanced byy ₹41,000 crrore in quality of service
s of the compliance p
professionalss, such as
January
J 2019.. Chartered Accountants
A and
a auditors
The
T Governmment has inffused nearly ₹2.5 lakh crrore in • Strengthen ning PSB go overnance a and increasinng their
PSBs, from FY15
F until Fe
ebruary 20199. Since FY15 5, PSBs independe ence – Appoin ntment of CM MDs of PSBs by Bank
have mobilise ed nearly ₹66,000 crore byy raising fresh equity Boards Burreau (BBB), Biifurcation of tthe CMD position into
capital
c and th
hrough monettisation of no n-core assetss. Thus, those of non-executive
n e Chairman (NEC) and M Managing
total
t recapittalisation of ₹3.14 lakh crore has been Director (M
MD) & CEO
completed
c in PSBs from FY15 until Feb bruary 2019 and the
remaining coommitted amo ount will take
e the sum to
o ₹3.19
lakh crore by the end of FY
Y19.
4. Initiatives fo or SMART Ba anking - The e Governmen nt also
took
t multiplee steps to usher SMART ba nking, includiing the
creation
c nfrastructure supporting d
of in digital bankin
ng and
payments, last-mile accesss to banking g services (foor e.g.,
online
o inter- operable
o BCss / Bank Mitra
as, UPI, AePS, e-KYC,
e-Sign,
e al locker), roll-out of Jan--Dhan – Aadhaar –
digita
Mobile (JAM) trinity, enabling Direct Beenefit Transfe ers and
enabling
e indu
ustry-wide diggital platformss for digital le
ending,
viz.,
v psbloan
nsin59minute es.com, TReD DS platform m and
UdyamiMitra..com.
5. Performance of banks underu Promp pt and Corrrective
Action
A (PCA)) framework - Focused ap pproach adop pted by
PCA banks to o deleverage e their balannce sheet, immprove
lending prac ctices and expedite
e reccovery. Due to the
improved fina ancial and operational perfformance, thrree out
WAY
W FORWAR
RD
of
o eleven ban nks are out of
o the ambit of PCA restrrictions
effective
e Febrruary 2019. Initiating nexxt-generation
n reforms -– The current focus on
NPA
N recognitiion and reco
overy will shiift towards d
deploying
65
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C3 CURATION
N) for CSE 20 19
early warning systems to identify and prevent future NPAs office processes. PSBs could leverage these trends to not only
and strengthening NPA management systems and processes. replicate the industry best practices but also introduce
PSBs needs to actively leverage markets for capital raising to innovative solutions relevant to their customer base.
fuel future credit growth. Going forward, PSBs also needs to strengthen their HR
The banking industry is facing disruptive impact of trends in policies and systems to increase level of specialisation and
digital and big data analytics. Globally, banks are leveraging continue strengthening governance framework to make
rapid developments in digital technology to bring innovations boards more effective.
in customer service, business decision making and back-
SPICE APPROACH
• PSBs play a critical role in socio-economic development of the nation
Social dimension • Public sector banks (PSBs) have been in the forefront of mobilizing resources from far flung rural
areas as well as extending banking services in the remotest parts of the country.
• Bringing transparency and accountability in the larger financial system e.g. identifying and
deregistering shell companies.
Political/Legal
• Measures for deterring willful defaulters, and bringing back emmigrated hostile defaulters to
Dimension face the law.
• Keeping banking reforms at par with current surge in digitization and artificial intelligence.
• Resolution under the Insolvency & Bankruptcy Code (IBC) and reduced slippages.
Institutional
• Enabling banks to access better quality independent data including data from GST database for
dimension
better risk management.
• PSB reforms will help in spreading financial inclusion and promoting saving culture among
Cultural dimension
masses.
• Significant recapitalisation has been initiated by the Government to strengthen the capital base
of PSBs
Economic dimension • The Government has infused nearly ₹2.5 lakh crore in PSBs, from FY15 until February 2019.
Since FY15, PSBs have mobilised nearly ₹66,000 crore by raising fresh equity capital and through
monetisation of non-core assets.
►GST: ISSUES IN IMPLEMENTATION • As the GST system requires a coordinated action between
the Center and the States, any changes to the GST system
The new GST system was implemented on 1st of July 2017 to
are brought through the GST Council comprising of the
replace a number of central and state taxes on the same base
finance ministers of all the State government and the
with a country-wide common framework. As each State levied
Central government.
its own VAT, the tax system was fragmented with different
rates being applied for similar sales of goods. • Policy Framework: The GST system is based on a system
of multiple rates to various categories of sales (0%, 5%,
BRIEF OUTLINE OF THE GST SYSTEM
12%, 18%, 28% and additionally 0.25% for precious stones
• Legal Framework: The legal regime of GST includes four and 3% for gold). On all within-State sales, the GST rate is
Central laws (the Central Goods and Services Tax (CGST) applied on a common base by the Centre and States, with
Act, Integrated Goods and Services Tax (IGST) Act, the each levying half of the rate as applicable to the sale, the
Union Territories Goods and Services Tax (UTGST) Act and relevant nearly identical laws being applied being the CGST
the Goods and Services (Compensation to States) Act along Act and the relevant SGST Act. In the case of sales where
with twenty-four state laws, the relevant State Goods and the buyer and seller are in different States or in the case of
Services Tax (SGST) Act. exports, the entire rate is applied on the sale and the
relevant law applied is the IGST Act.
66
• Tax Administrative Framework: The administration of on luxury Goods would enable

the GST is done in parallel by the Central and the State GST the Government to tax the
administrations with the powers to audit and administer richer in order to provide
shared. To support the administration of the taxpayers, a welfare for the poor.
common nation-wide IT backbone called the GST
Network (GSTN) has been put in place through which all The fundamental idea of Single rate is horizontally
tax returns are required to be filed. The GSTN would also GST was to have a equitable but vertically
aid in the selection of taxpayers for audit through a risk- simplified single slab ta inequitable as rich and poor
based selection mechanism and would support the other structure to achieve the are put to the same burden of
main tax administration functions of the Central and State notion of “One Nation tax.
Tax Administrations. One Tax”
ISSUES IN GST IMPLEMENTATION AND FUNCTIONING - Prime Minister expressed the view that milk and Mercedes
cannot attract the same rate and earlier Finance Minister had
ISSUES IN COLLECTING TAXES ON SALES
said that chappals cannot attract the same rate of duty as an
1. Issues arise due the multiple rates and classification. For
air conditioner. The reason why the major economies have
example, it has been reported just in the case of the
applied multiple rates to their GST/VAT (apart from the zero
business of selling paper, pamphlets are taxed at 5%,
rate) is that multiple rates offer a great opportunity to fit the
letterheads at 12%, files at 18% and hardbound registers
GST/ VAT to various social and political ends.
at 28%. This multiple layering of taxes defeats the basic
idea of “One nation One tax”. ISSUES IN PREPARING THE TAX RETURNS
2. In the case of businesses with total sales above Rupees 75 1. This arises due to the onerous information requirements
million, four-digit HSN code is required to be reported for in the tax form including the transaction level data of all
each sale and in the case of imports and exports, 8-digit sales, requirement to match the purchases data as well as
HSN Code is required to report all sales. This creates detailed information on the HSN code for goods and
difficulties for businesses some of whom are risk averse Service Accounting Code (SAC) for Services for each sale to
and charge at the highest rate applicable to avoid arrive at the correct rate to apply. Further, the tax return
problems during audit. also requires details of all inter-state B2C sales of value
above certain amount.
2. All this information requirement in a format requires the
 SINGLE RATE GST – PROS AND CONS
services of an accountant as well as the software to
prepare them. For businesses not used to such detailed
PROS CONS
data collection as part of their business the cost of
Single rates are there in Majority of countries which compliance increases considerably over the previous
Japan (8%); Australia have GST, have it with multiple years.
(10%), Singapore (7%), rates and exemptions. Even ISSUES IN UPLOADING OF TAX RETURNS
Denmark (25%) and some those who have a single rate
1. Tax returns are required to be filed every month requiring
African countries. have exemptions.
the need for additional accounting support.
GST is not to be seen in 2. The additional cost on accountants especially for SMEs are
Multiple GST rates isolation but in combination, non-trivial.
complicates the GST that is, as a part of a total tax ISSUE RELATED TO ANTI-PROFITEERING FRAMEWORK
structure and increases structure along with (i) cess on
The authority needs to have clear guidelines on determining
the compliance cost. luxuries and demerit goods, (ii)
profiteering especially when it has got an extension, not only
income tax and (iii) expenditure
because of a significant number of pending cases but also in
policy, including subsidy policy
view of possible rate rationalisation and expansion of the
like price support for crop and
GST in future.
farm loan waiver.
Other multiple issues related to GST - Other problems that
Imposition of higher GST rates are bubbling up to the surface such as lack of adequate bank
67
credit for small businesses, interest rates and cash flow additional tax being paid, the additional cost of compliance
problems as the input credit system requires that some for preparing and filing tax returns and the blockage of
amount of working capital is blocked until it is adjusted on. working capital, marginal businesses are likely to close thus
Another factor is the impact of higher tax compliance under having a real economic impact which could spread down the
the new GST on informal businesses whose margin was value chain.
entirely the tax they were not paying. When one includes the
SPICE APPROACH
• Taxation affect every strata of society, thus the rationalistion and reforms in taxation regime
Social dimension brings greater benefit to the society at large.
• Revenue augmentation due to GST will provide more funds for social welfare.
Political/Legal • Policy issues related to implementation of GST like rate rationalisation, anti-profiteering or
Dimension refunds need to be addressed by center and states through GST council platform
Institutional • GST council

dimension • GST Network
Common GST across the states have become yet another feature of “Unity in diversity” of our
Cultural dimension
country.
• The GST brought a common policy and administrative framework for indirect taxation
across the entire country and eliminated the cascading effect of various taxes earlier.
Economic
• It has broadened the tax base and rationalized the tax structure compared to earlier regime.
dimension
• Revenue augmentation - The total gross GST revenue collected in the month of April, 2019 is Rs
1,13,865 crore with a healthy YoY growth of 16.05%.
68
SECTION 4
A GRICULTURE AND
A LLIED
S ECTOR

AGRICULTURE AN D ALLIED SE
ECTOR
►PM-AASH
HA
The
e Centre has announced enhanced
e cro
op price support for
oilsseeds, pulses,, wheat & pad
ddy, through the Pradhan Mantri
Ann
nadata Aay Sa
anrakshan Ab
bhiyan.
Hereby discussiing the rationale behind the approacch and

salient features of the scheme.
WH
HY NEEDED?
Exccept for paddy

y, wheat, and select cash ccrops where there is
dire
ect procurem e industry, government--driven
ment by the
pro
ocurement is almost nil in crops such a
as oilseeds, w
with the BENEFITS
B OF THE SCHEME
ES
ressult that the MSPs
M remain only
o on pape r. Increasing MSP is • Address the current loopholes in the MSP P which
e important t hat farmers should
nott adequate and it is more encourage the farmers to
t grow moree intensive crops such
as Rice.
gett full benefit of
o the announ
nced MSP. He
ence the PM-A
AASHA
• Encourage the farmers to grow less water intensive crops
sch
heme tries to address the gaps
g in the M
MSP system an
nd give
such as Oilsseeds and Pulses.
bettter returns to
o farmers. • Compensattes the farme ers for the d decline in the
e market
WH
HAT IS MSP? price. (Price
e Deficiency payment
p systeem).
• Reduces thet Burden on the G Government for the
• Minimum Su
upport Price (MSP) is a form of m
market
procurement and storrage of food d grains lea
ading to
intervention by the Go
overnment o f India to insure increase in the savings. (PDPS
( Schemee)
agricultural
a producers against any sharp
p fall in farm prices. • Enhance th
he geographiccal reach as w
well as coverage of the
crops unde
er the MSP.
• The
T minimum support prices are a
announced b
by the
• Increase in
n the farmers’ income an
nd help in alleviating
Cabinet Com
mmittee on Economic
E Afffairs (CCEA) at the
agrarian disstress.
beginning of the sowing season
s ertain crops on the
for ce
CHALLENGES
C
basis of the recommend
dations of th
he Commissio
on for
• Need for Transparenc
T y: Experiencee of Madhya Pradesh
Agricultural
A C
Costs and Prices (CACP). which implemented the e PDPS underr Bhavantar B Bhugtaan
• Minimum sup
pport prices are currentlyy announced for 24 Yojana reveealed that the traders plo
otted with eaach other
commodities. and depresssed the pricees at mandis.. They forced
d farmers
to sell at lower prices and pocketeed the comp pensation
Fla
aws in the pre
esent MSP Re
egime:
from the goovernment
• Actual
A procurrement being restricted to a few crops ssuch as • No State apart from MP P has readied d the IT infrasstructure
paddy and wheat despiite announcem
ments for 2
20-plus needed to implement thet cash paym ment scheme e. If fully
crops. and strictly
y implemente ed, the pricee deficiency payment
scheme forr all crops ma
ay result in a h
huge financiaal burden
• Skewed cropp
ping pattern in favour of rrice and wheat as a
on the goveernment.
result of this. • Regarding thet private stockist schemee, it will probably take
Soil degradation
n and suscepttibility of crop
ps to pest as a result States and private players abo out six mo onths to
comprehen nd and participate and govvernment offficials are
of this monoculture, leading to higher usage of ch
hemical
realistically
y not expecting any takers iin the currentt season.
ferttilisers and pe
esticides
• FCI and NA AFED aim to procure
p 44 la kh tonnes off oilseeds
and pulse es under th he new sch heme. However, the
governmen nt’s bandwidtth to tackle procurementt on this
scale for crops other tha
an wheat and rice is limited
d.
70
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C3 CURATION
N) for CSE 20 19
AGRICULTURE AND ALLIED SECTOR
• Artificial MSPs not aligned to the market have the major harmony with the procuring agencies, all concerted efforts
pitfall of creating demand-supply mismatches and that are being taken towards making a robust and efficient
resultant market distortions. procurement mechanism will fail to bring about a paradigm
WAY FORWARD: shift in farmers’ income.
To conclude, there is lack of coordination of State Further procurement process has to be strengthened by
governments with procuring agencies which has resulted in various means as any hike in MSP will not proportionately
poor procurement of kharif and rabi pulses and oilseeds in benefit farmers.
many growing States. Unless State governments work in
SPICE APPROACH
Making MSP regime more diversifies and effective will help in providing security to the farmers and
Social dimension
augment their income.
Political/Legal PM-AASHA being an umbrella Scheme with three sub-schemes i.e. Price Support Scheme (PSS),
Price Deficiency Payment Scheme (PDPS) and pilot of Private Procurement & Stockist Scheme
Dimension (PDPS), needs wider support of state governments across different political affiliations.
The minimum support prices are announced by the Cabinet Committee on Economic Affairs (CCEA)
Institutional
at the beginning of the sowing season for certain crops on the basis of the recommendations of the
dimension
Commission for Agricultural Costs and Prices (CACP).
PM-AASHA will help transcend the currently dominant Mono or Bi-crop culture towards a diversified
Cultural dimension
crop regime.
• AASHA scheme aims to address the gaps in the MSP system and facilitate better returns to
farmers.
• Price Support Scheme (PSS) promises to provide assured price for farmers and protect them
Economic dimension
from making distress sale during bumper harvest
• Similarly, Price Deficiency Payment Scheme (PDPS) promises to hedge price risks wherein
farmers will be compensated for distress sale at prices below MSP.
►DRAFT CONTRACT FARMING ACT access to market, better use groups because they have
of resources and better lower average costs and are
Contract farming can be defined as agricultural production
management of technology. more reliable suppliers in
carried out according to an agreement between a buyer and
terms of quality and quantity
farmers, which establishes conditions for the production and
marketing of a farm product or products. Typically, the Contract farming benefits Most contract farming
farmer agrees to provide agreed quantities of a specific rural employment by schemes occur only in the
agricultural product. In turn, the buyer commits to purchase providing additional regions where, commercial
the product and, in some cases, to support production employment opportunities agriculture is already
through, for example, the supply of farm inputs, land through processing. established and offering
preparation and the provision of technical advice. reliable infrastructure and
 POSITIVE AND NEGATIVE IMPACTS OF CONTRACT access to markets.
FARMING Contract farming helps in Due to unequal power in terms
improving farmer's of bargaining, negotiating, or
POSITIVE IMPACTS NEGATIVE IMPACTS
production through the contract enforcement
Contract farming increases ) Agri- businesses corporations provision of appropriate contracts between
the income of participating mostly prefer to deal the technology and through the agribusiness firms and farmers
farmers due to improved contracts with large farmer creation of structured, tend to be unfair and lead to
71
efficient farming operations. exploitation, charges to these APMCs to undertake contract

farming. Further, the draft Model Act provides for
Agribusiness firms enable Some times contract farming
establishing a state-level Contract Farming (Promotion and
the farmers to reduce their may act as catalyst for gender
Facilitation) Authority to ensure implementation of the
price risk through conflict within the household
draft Model Act.
predetermined prices, due to the condition that the
• Functions of the Authority include (i) levying and collecting
production risk through agreement is usually through
facilitation fees, (ii) disposing appeals related to disputes
provision of technology, man though women do the
under the draft Model Act, and (iii) publicising contract
extension services and bulk of the farm work.
farming. Further, the sale and purchase of contracted
diversifiation of farm
produce is out of the ambit of regulation of the respective
activities.
state/UT Agricultural Marketing Act.
WHAT IS THE EXISTING REGULATORY STRUCTURE? b) Registration and agreement recording
• Currently, contract farming requires registration with the • The Committee of State Ministers on Agricultural
Agricultural Produce Marketing Committee (APMC) in few Reforms recommended that a instead of a APMC, district-
states. This means that contractual agreements are level authorities can be set-up for registration of contract
recorded with the APMCs which can also resolve disputes farming agreements. Further, any registering authority
arising out of these contracts. Further, market fees and should verify the details such as the financial status of the
levies are paid to the APMC to undertake contract buyer.
farming. • Under the draft Model Act, every agreement should be
• The Model APMC Act, 2003 provided for contract farming registered with a Registering and Agreement Recording
and was released to the states for them to use this as Committee, which will be set up consisting of officials from
reference while enacting their respective laws. departments such as agriculture, animal husbandry,
• Consequently, 20 states have amended their APMC Acts to marketing, and rural development. Such a Committee can
provide for contract farming, while Punjab has a separate be set up at the district, taluka or block levels.
law on contract farming. However, only 14 states notified
c) Disputes between the producer and the buyer
rules related to contract farming, as of October 2016.
• The Ministry of Agriculture and Farmers Welfare observed
WHAT ARE THE ISSUES WITH THE CURRENT STRUCTURE,
certain risks related to upholding the contract farming
AND HOW DOES THE DRAFT MODEL ACT SEEK TO agreement. For example, producers may sell their
ADDRESS THEM? produce to a buyer other than the one with whom they
Over the years, expert bodies have identified issues related hold a contract.
to the implementation of contract farming. These include: • On the other side, a buyer may fail to buy products at the
a) Role of Agricultural Produce Marketing Committees/ agreed prices or in the agreed quantities, or arbitrarily
Marketing Boards downgrade produce quality.
• The Committee of State Ministers on Agricultural Reforms
• The NITI Aayog observed that market fees and other levies
recommended that dispute redressal mechanism should
are paid to the APMC for contract framing when no
be at block, district or regional-level state authorities and
services such as market facilities and infrastructure are
not with an APMC.
rendered by them.
• Under the draft Model Act, in case of disputes between a
• In this context, the Committee of State Ministers on
producer and a buyer, they can: (i) reach a mutually
Agricultural Reforms recommended that contract farming
acceptable solution through negotiation or conciliation, (ii)
should be out of the ambit of APMCs. Instead, an
refer the dispute to a dispute settlement officer
independent regulatory authority must be brought in to
designated by the state government, and (iii) appeal to the
disengage contract farming stakeholders from the existing
Contract Farming (Promotion and Facilitation) Authority (to
APMCs.
be established in each state) in case they are not satisfied
• In this regard, as per the draft Model Act, contract farming
by the decision of the dispute settlement officer.
will be outside the ambit of the state APMCs. This implies
that buyers need not pay market fee and commission
72
d) Stockholdings limits on contracted produce ownership of farmers' land to companies hence protecting
• Stockholding limits are imposed through control orders as the interest of farmers.
per the Essential Commodities Act, 1955. Such provisions • Better flow of raw material- Bypassing mandis or APMCs
of stockholding limits can be restrictive and discourage will better ensure smooth flow of raw material to industry.
buyers to enter into contracts. • Investment-the model act will encourage the private
• It was recommended that the buyers can be exempted sector to take progressive steps in terms of investments
from stock limits up to six months of their requirement in and the broader use of technology in the sector, both of
the interest of trade. which will lead to greater productivity and efficiency,
• Under the draft Model Act, limits of stockholding of leading to increased farmer incomes and food security at
agricultural produce will not be applicable on produce large.
purchased under contract farming. • Organised activity- Model act would make farming a
more organised activity and help improve quality and
OTHER RECOMMENDATIONS
quantity of production.
• While contract farming seeks to provide alternative • Better coordination-The model act prescribes for a
marketing channels and better price realisation to farmers, contract farming facilitation group at the village or
several other marketing reforms have been suggested by Panchayat level to coordinate all arrangements between
experts in this regard. the companies and the farmers.
• These include: (i) allowing direct sale of produce by
Demerits of Model Act
farmers, (ii) removing fruits and vegetables out of the
ambit of APMCs, and (iii) setting-up of farmer-consumer • Reduced choice of market access- The proposed Act
markets, (iv) electronic trading, and (v) joining electronic may restrict farmers’ choice to go to the market.
National Agricultural Market for the sale of produce. • Duplication- Experts are arguing that a separate legal
structure is not required for contract farming as the
MERITS OF MODEL ACT
provisions of the Indian Contract Act are sufficient to cover
• Integration- The proposed act aims to integrate farmers
the necessary requirements
with agro-industries to ensure better price realisation for
• Tilt towards corporate- The provision of allowing
their produce.
companies to buy produce at lower than contracted prices
• Farmer’s interest- The model act seeks to ensure that
citing inferior quality can affect the interest of farmers.
farmers and buyers abide by pre-agreed price and
This is an unequal arrangement where companies will
quantity to protect farmers from post-harvest market
have more say in determining the price of the product.
unpredictability. Further, the act bars the transfer of
SPICE APPROACH
• The draft Model Act, provides a better dispute resolution procedure in case of disputes between a
producer and a buyer. This is important for social harmony.
Social dimension
• The act bars the transfer of ownership of farmers' land to companies hence protecting the interest
of farmers.
• Structural weaknesses of agriculture in the form of small holding size and fragmentation, apart
from production uncertainties and market unpredictability.
Political/Legal • These weaknesses can be addressed through policy measures like -Model Agricultural Produce
and Livestock Marketing (Promotion & Facilitation) Act, 2017; electronic National Agriculture
Dimension Market (eNAM); New market architecture (integration of retail markets-GrAMs, Regulated
wholesale markets and export markets); incentivising FPOs by offering exemption under IT Act;
Operation Green (marketing models for onion, potato & tomato)
• The Committee of State Ministers on Agricultural Reforms recommended that instead of APMC,
Institutional
district-level authorities can be set-up for registration of contract farming agreements.
dimension
• The model act prescribes for a contract farming facilitation group at the village or Panchayat
73
level.
Cultural dimension The act might distort the traditional arrangement of farmers selling their products in local markets.
• The act aims to integrate farmers with agro-industries to ensure better price realisation for their
Economic produce.
dimension • The model act will encourage the private sector to take progressive steps in terms of investments
and the broader use of technology in the farming sector.
►ALLIED SECTOR AS SOURCE OF those who do not. Rearing of animals is a part of the
Indian culture.
ECONOMIC PROSPERITY
o Agriculture: The farmers, depend upon bullocks for
Agriculture and allied sector including horticulture,
ploughing, carting and transport of both inputs and
floriculture, sericulture, livestock, bee keeping, forestry &
outputs.
logging, fishery etc. play a strategic role in the process of
o Dung: In rural areas dung is used for several purposes
economic development of developing countries like India.
which include fuel (Dung cakes), fertilizers (farm yard
The importance of agriculture and allied sector is brought out
manure), and plastering materials (poor man’s cement)
by the fact that as per Census 2011, of the 313 million
workers in the country, 166 million (56.6%) were engaged in CATTLE AND DAIRY DEVELOPMENT IN INDIA:
these activities. Presently, India is not only self-sufficient in CHALLENGES AND STRATEGIES
food grains but also exports agricultural commodities. India • Prioritization of breed: There is a need to prioritize based
is among the 15 leading exporters of agricultural products in on availability of cattle breeds as per their economic
the world. importance which will be helpful for selecting economically
ANIMAL HUSBANDRY AND DAIRY important breeds in order to develop the dairies. To
sustain the improved productivity of crossbreds and to
• Animal husbandry output constitutes about 30 percent of
minimize the decline in reproductive performance, there is
the country’s agricultural output.
a need to develop the sustainable breeding strategy.
• The fisheries sector contribute 1.0 per cent of the total
• Shortage of Male Germplasm/Breeding Bulls: The dairy
GDP cost and 5.08 per cent of GDP at factor cost from
stakeholders are not able to select the breeds which are
agriculture, forestry and fishing in the year 2014-15.
adaptable in a particular region due to non-availability of
Livestock sector provide regular employment to 11 million
make Germplasm of climate resilient breeds. There is a
in principal status and 9 million in subsidiary status.
huge deficit of frozen semen doses of different breeds to
Women constitute 70 per cent of the labour force in
cover the breedable population in the country. There is a
livestock sector as against 35 per cent in crop farming.
need to identify more high genetic merit bulls and to
• The livestock serve the farmers in different ways:
establish more ‘Bull Mother Farms’ of various breeds to
o Income: Livestock is a source of subsidiary income for ensure availability of superior quality male Germplasm by
many families in India especially the resource poor who 2022 in the country.
maintain few heads of animals. • The Department of Animal Husbandry & Dairying,
o Employment: The land less and less land people Ministry of Agriculture & Farmers’ Welfare, Govt. of
depend upon livestock for utilizing their labour during India has reoriented/launched the schemes like
lean agricultural season. National Programme for Bovine Breeding, National Project
for Dairy Development, Rashtriya, Gokul Mission, National
o Food: The livestock products such as milk, meat and
Mission on Bovine Productivity Central Cattle Development
eggs are an important source of animal protein to the
Organization. Assisted reproductive Techniques (ARTs):
members of the livestock owners.
The DADF, MoAFW, Gol has initiated the massive
o Social Security: The animals offer social security to the programme on assisted reproductive techniques (ARTs)
owners and status in the society. The families especially like adoption of Multiple Ovulation and Embryo Transfer
the landless which own animals are better placed than (MOET) technology.
74
• Sex semen Technology: The adoption of sex semen • Total poultry feed production of the country stands at 22
technology in cattle will bring the significant change in million tonnes. The Indian poultry sector is valued at INR 1
dairy development in the country. The DADF, MoAFW, Gol lakh cr or USD 15.38 bn.
has initiated the sex semen scheme which will not only CHALLENGES
help to increase the annual genetic gain for the traits by
• Poor infrastructure for export is hindering the export of
increasing selection differential, intensity of selection and
poultry products.
reducing the generation interval for also reduce the huge
• Competition from international players on opening up
burden of non-productive males in the country.
duty-free imports, lifting of trade barriers.
• Acute Shortage of feeds and fodders: At present, there is
• Increasing propaganda and demonstrations by
an acute shortage of feeds and fodders in the country. The
organizations on promoting vegetarianism and Animal
DADF, MoAFW, Gol has launched National Livestock
rights.
Mission (NLM) to cover all the activities required to ensure
• Occurrence of Salmonella and other diseases in poultry
quantitative and qualitative improvement in livestock
meat.
production systems and capacity building of all
stakeholders. • Many countries are dumping their poultry products i.e.
exporting eggs at prices lower than production cost.
• Reproductive Problems: High producing cows suffer
• Many countries are protecting their poultry industry from
more reproductive problems including fertility as milk
production is antagonistically related to fertility. foreign competition by protective measures like restricting
imports, keeping egg prices at lower level etc.
• Skilled Human Resource Development: The dairy
development in any country demands the service of skilled • Stiff competition from Sri Lanka, Pakistan, Brazil and
France, all these countries provide subsidies, export
human resources. Therefore, it is of utmost importance to
incentives to exporters, and keep their price low.
develop well trained, competent and dedicated human
resources. • High Maize & Soya price fluctuation leading to availability
• Development of Dairy Entrepreneurs: More initiatives issues of poultry feed at reasonable prices.
are needed to motivate the dairy stakeholders to become • Small farms, losing out on economies of scale and
start-up/dairy entrepreneurs in India. The DADF, MoAFW, biosecurity.
Gol has initiated Dairy Entrepreneurship Development • Lack or undefined standards leading to impending
Scheme for strengthening the dairy development and cheaper imports.
creating more opportunity for the up-coming dairy • Avian influenza and other emerging/re-emerging diseases
stakeholders. Recommendations
• Strengthening Dairy Development Extension
• Processing need to be encouraged as presently only 6% of
Programmes: The dairy development in India demands a
the poultry products is processed. Block/ District level cold
networking of various extension activities as the milk
storage needs to be established and cold chain needs to
procurement is based on different milk shed areas where,
be developed.
the dairy stakeholders are the custodian of different
• Encourage brand development for certain indigenous
breeds of indigenous and crossbred cattle.
poultry like Kadaknath or other birds with some specific
attributes.
 POULTRY SECTOR • Intensify education and awareness about nutritive value of
eggs and poultry through various platforms like World Egg
• India today is the one of the world's largest producer of
Day etc.
eggs and broiler meat.
• Intensify skill development in the poultry sector and
• The data of the year 2017 states that the egg production
reduce the gap required.
in India is 75 billion and the broiler production is 4.2
• Develop Marketing Intelligence domestically and
million tonnes per annum.
internationally in collaboration with ICAR and other
• Approx. 75 percent of egg production is contributed by
Department/ agencies.
commercial poultry farms, remaining comes from
• Facilitate Industry- Academia partnership so as to enable
household/backyard poultry.
transfer of technology at the grassroots level.
75
CENTRALLY SPONSORED SCHEME FOR ESTABLISHING • High-value species such as tuna cannot be caught by
POULTRY ESTATES AND MOTHER UNITS FOR RURAL fishermen who use these vessels. This means that while
BACKYARD POULTRY the near-shore coastal waters are highly overfished, the
The objective of the scheme will be to establish two poultry high-value fish stock proliferates in the deep seas.
estates, either layer or broiler depending on the demand, to • The fisheries sector is in its nascent stage; the fiscal
Encourage small & marginal farmers, educated & and policy support not well developed; significant cost
unemployed youth, women, socially & economically disadvantages on account of import dependence of raw
backward section of the society to take up activities of poultry materials which negates the low labour cost advantages
sector in a compact area by providing required infrastructure too.
and related Facilities. Achieve economies of scale by adopting WAY FORWARD
cluster approach, better resource sharing etc. • Harnessing the resources related to the fisheries
sector will bring immense benefits to fishing communities.
• The new National Policy on Marine Fisheries talks of
 FISHERIES SECTOR
introducing deep-sea fishing vessels and assisting fishing
• Fish production has increased from 0.75 million tonnes in communities to convert their vessels and gears for the
1950-51 to 8.4 million tonnes during 2017-18. This resulted waters beyond.
in an unparalleled average annual growth rate of over 4.5 • The policy envisages intensive fish farming through
per cent over the years which has placed the country at increased stocking of seed, better feed quality and
the forefront of global fish production, only after China. diversification of species. Innovative practices such as
• Besides meeting the domestic on fishing and related recirculatory aquaculture system aim to realize the goal of
activities for their livelihood, Fishery sector also earns more crop per drop. As a result, the productivity of
foreign exchange to the tune of US$ 3.34 billion (2017-18) freshwater fish farms has gone up.
from export of fish and fisheries products. • More area should be brought under fish farming. The
• India is also an important country that produces fish government has invested in hatcheries to meet the ever-
through aquaculture in the world. India is home to more increasing demand for good quality fish seed. The
than 10 per cent of the global fish diversity. expansion of aquaculture can increase this demand
• As the second largest country in aquaculture production, exponentially. Future policies must prioritize seed
the share of inland fisheries and aquaculture has gone up production in order to attain self-sufficiency in the sector.
from 46 per cent in the 1980s to over 85 percent in recent • The introduction of cage culture in reservoirs and other
years in total fish production. open water bodies can also increase the output. This
ISSUES new practice gives freedom to fishermen from the risk of
traversing dangerous rivers and restricted reservoirs.
• India’s fisheries sector faces the challenge of
sustainability. The Food and Agriculture Organisation’s • Government should fill the large infrastructure gaps in
State of World Fisheries and Aquaculture reports note that fisheries sector in the country through developing
nearly 90% of the marine fish stocks have either been infrastructure projects such as fishing harbours/ fish
fully-exploited, or over-fished or depleted to an extent that landing centres, fish seed farms, fish feed mills/plants,
recovery may not be biologically possible. setting up of disease diagnostic and aquatic quarantine
facilities, creation of cold chain infrastructure facilities such
• The productivity is low — in terms of per fisher, per boat
as ice plants, cold storage, fish transport facilities, fish
and per farm. In Norway, a fisherman/farmer
processing units, fish markets, etc.
catches/produces 250 kg per day while the Indian average
is four to five kg.  Regular stocking of reservoirs and other water bodies
• Marine capture fishery comprises largely of small can be done to increase in fish catch. Open sea cage
fishermen who operate traditional boats — either non- culture is at a pilot stage and the initial trials have given
motorised vessels or boats with a basic outboard promising results. This may prove another game changer.
motor. These vessels cannot operate beyond nearshore • There should be an increased investment for the Blue
waters. Revolution to supplement the fisheries sector.
76
• The new fisheries department is expected to give  APICULTURE SECTOR

undivided attention to creating and strengthening
Beekeeping or Apiculture is an art and science of rearing and
infrastructure facilities in marine and inland fisheries and
managing honey bees in a box called “beehive” for
give a boost to aquaculture and post-harvest activities.
production of honey and other products like beeswax,
• Comprehensive fisheries education and research
propolis, bee venom etc.
should be promoted.
• The country should be producing more than 15 million INCREASED INCOME OF FARMERS FROM BEEKEEPING
tonnes of fish by the end of 2019. It should be on its way • Benefit through increased crop production: Honeybees
to becoming a hub for sustainable fish production. as well as other Pollinators play a direct role in increasing
There is a need to be cautious of falling prey to the productivity of certain crops. But awareness among the
temptation of introducing large-scale industrial fishing. The cultivators is very less for which awareness camps and
policies framed by the new department should aim at field demonstration on yield improvement through
enhancing productivity, better returns, and increased enhanced pollination are required.
incomes. • Benefit through increased honey production: Skill
development and strengthening of existing beekeepers is
BLUE REVOLUTION
very important for increasing the productivity of honey.
The Blue Revolution, launched by the central government, They should be trained on the following aspects of
focuses on creating an enabling environment for integrated beekeeping, viz., scientific colony management,
and holistic development and management of fisheries for development of quality nucleus stock
the socio-economic development of the fishers and fish • Better price of honey through ensuring its quality: To
farmers. get a remunerative price for products, Quality of honey
The scheme has the following components: determines the price. In addition to honey, efforts should
• National Fisheries Development Board (NFDB) and its be made for marketing of other apiary products, like
activities. propolis, bee venom, queen rearing & supply, renting of
bee boxes for pollination to orchard owners etc.
• Development of Inland Fisheries and Aquaculture.
• Development of Marine Fisheries, Infrastructure and Post- INITIATIVES/PROGRAMMES OF MINISTRY OF
Harvest Operations. AGRICULTURE & FARMERS WELFARE & OTHERS
• Strengthening of Database & Geographical Information • Beekeeping has been included as an activity for promoting
System of the Fisheries Sector. cross pollination of Horticultural Crops under National
• Institutional Arrangement for Fisheries Sector. Horticulture Mission
• Monitoring, Control, and Surveillance (MCS) and other • State Departments of Horticulture/Agriculture in the field.
need-based Interventions. Khadi and Village Industries Commission, Ministry of
• National Scheme on Welfare of Fishermen. Micro, Small and Medium Enterprises, State Khadi Board
etc. are also implementing beekeeping schemes.
The scheme aims to enhance the fish production from 107.95
lakh tonnes in 2015-16 to about 150 lakh tonnes by the end • National Bee Board aims at overall development of
of the financial year 2019-20. beekeeping by promoting scientific beekeeping in the
country to increase the productivity of crops through
It is also expected to augment the export earnings with a
pollination support and production of honey and other
focus on increased benefit flow to the fishers and fish
beehive products to increase the income of
farmers to attain the target of doubling their income.
farmers/beekeepers.
The government has launched Mission Fingerling to achieve
the Blue Revolution.
 SERICULTURE
The government has identified 20 States based on their
potential and other relevant factors to strengthen the Fish Sericulture or silk production is the breeding and
Seed infrastructure in the country. management of silk worms for the commercial production of
silk. Sericulture is an important industry in Japan, China,
The program will facilitate the establishment of hatcheries
India, Italy, France and Spain.
and Fingerling rearing pond to ensure fish production.
77
BENEFITS • Cultivation of these crops is labour intensive and as such,

• Employment generation is one of the major potentials of they generate lot of employment opportunities for the
Sericulture and Silk Industry in India. The farm and non- rural population.
farm activity of this sector creates sixty lakh man days of • Cultivation of horticultural crops plays a vital role in the
employment every year mostly in rural sector. prosperity of a nation and is directly linked with the health
• The industry helps to create egalitarian distribution of and happiness of the people.
income as it transfers greater share of its wealth from high • Fruits and vegetables are not only used for domestic
end urban customers to poor artisan classes. consumption and processing into various products
(Pickles, preserves sauces, jam, jelly squashes, etc.), but
CHALLENGES FACED BY SERICULTURE SECTOR IN INDIA
also substantial quantities are exported in fresh and
• Lack of knowledge, the farmers are less aware of the
processed form, bringing much- needed foreign exchange
improved scientific farming techniques.
for the country.
• Non availability of raw materials also affects silk
CHALLENGES
production.
• Crop failure especially in the cultivation of mulberry. • The lack of good planting material like seeds and
technologies hinders the production of this sector. For
• There is the possibility of silk production to be affected by
example in India the average mango production is 3-4
pest and diseases.
tonnes per acre as against 8-10 tonnes per acre in
• Health risk especially for the sericulture farmers and the
developed countries.
people who manage silkworm shed.
• As most of the horticultural products are perishable the
• Unavailability of government loans and subsidies also
lack of suitable post harvest technologies and value
discourage silk production.
addition facilities at the grass root level deicentivize the
• Decreasing demand from major consuming markets.
farming community to take horticulture as primary
• Rising prices of raw silk yarn/fabrics.
profession.
• Increased competition from blended silk (i.e. synthetic and
• Lack of regulated markets and multiplicity of
polyester).
intermediaries in marketing makes the price higher in the
• Changing fashion trends especially in Europe and US consumer end lower in the production end.
markets.
• Improper knowledge about the climate and irrigation
facilities makes the production to fluctuate.
 HORTICULTURE SECTOR RECOMMENDATIONS
• The total horticulture production of the country is • Provision of quality planting material to the growers will
estimated to be 306.8 Million Tonnes during 2017-18 help in raising the yields. More produce will come with
which is 2.05% higher than the previous year and 8.5% more income for farmers and farmers will be motivated to
higher than the past 5 years’ average production. grow more of these crops ultimately reducing the pressure
from the cereal crops.
BENEFITS OF HORTICULTURE
• Expansion of fruits and vegetables processing industry
• Horticulture forms an integral part of food, nutritional
with backward linkages with farmers can help in value
security and poverty alleviation, and also an essential
addition and waste reduction.
ingredient of economic security.
• The financial interventions of the government like price
• The importance of horticulture can be substantiated by its
stabilisation fund will eliminate the unexpected shocks in
benefits like high export value, high yield per unit area,
the market.
high returns per unit area, efficient utilization of
• The national agricultural market which provides the
wasteland, provision of raw materials for allied industries,
farmers better prices for the crops must be strengthened
better use of undulating lands, and stabilization of
and the perishables must be denotified to get high and
women’s empowerment by providing employment
remunerative prices.
opportunities through fruit and vegetable processing,
• Drought prone and climate resilient plants must be
floriculture industry, seed production, mushroom
developed and supplied to the farmers so that it will help
cultivation, nursery business, etc.
to overcome the climate change and give good yields.
78
• The private sectors must be encouraged to set up more • Insurance against weather risks like hail storms and other
cold chain storages and post harvest facilities on modern natural calamities which result in fruit drop must be
scientific lines to eliminate distress sales. compensated with suitable subsidy and MSP should be
extended to the horticultural crops.
 GOVERNMENT SCHEMES
NAME OF SCHEME PURPOSE DETAILS

• To provide irrigation facilities to each farmer. To train them for efficient water
Pradhan Maniri Provide relief to
usage and its conservation.
Krishi Sinchayee the farmers due to
• Make them aware about modern irrigation technologies. Encourage
Yojana poor monsoon
investment In Irrigation, water conservation and management sector.
Farmers are encouraged to adopt bio-farming by forming clusters of 50 farmers

with a total land of 50acres. Every farmer is provided Rs. 20000 per acre for a
Paramparagat Krishi Promote bio-farm-
span of three years. This amount can be utilized for purchase of bio-seeds, other
Vikas Yoa Ja tag
agricultural activities like harvesting, transportation and marketing of agricultural
produce.
Provide the Soil Health Card provides the information about nutrient status and fertility of the
Soil Health Card
nutrient status and soli which can help the farmers to decide the type of fertilizer and its amount to
Scheme
fertility of the soil be added.
In this scheme the crop of the farmers are insured from natural calamities for
to provide relief to
very small premium of 1.5- 2% of the amount claimed. Rest of the premium is
the farmers
Pradhan Maniri Fasal deposited by the government. Under this scheme, remote sensing, smart phone
inflicted with the
Bima Yojna and drone are used for expeditious assessment of crop damage and quick claim
loss of crop
settlement. Even provision has been made to cover the losses in harvesting
damage
aftermath scenario
e-NAM is unified national trading portal for agricultural products developed by

National Agriculture To provide a elec-
making a network of existing Agricultural Products Marketing Committee (APMC).
tronic platform for
Market The purpose of the NAM is to transport the agricultural product from one market
marketing of agri-
(e NAM) to another In a smooth way, to save the producers from a number of market
cultural products
duties and to provide agricultural product to the consumers on a fair price
To improve means
of livelihood, accel- The scheme aims to provide villagers with methodology of scientific farming, use
India Emergence
erate rural of technology in agriculture and rural development, engagement of scientific
Campaign through
development and experts for knowledge sharing, spreading awareness and training villagers for use
village emergence strengthen of sophisticated equipment and technologies.
Panchayati Ra)
CRITICAL ANALYSIS OF GOBAR DHAN SCHEME at creating new rural livelihood opportunities and enhancing
The Galvanizing Organic Bio-Agro Resources Dhan (GOBAR- income for farmers and other rural people.
DHAN) scheme has been announced. The scheme aims to BENEFITS
positively impact village cleanliness and generate wealth and • New Biogas plants with new and better technology will
energy from cattle and organic waste. The scheme also aims come up to make the process more efficient
79
• Facilitate regular power supply to rural homes CHALLENGES

• Lead to cleaner villages • Aggregation of cattle waste and maintaining a regular
• Generate an alternate source of income for the farmers supply to plant operators becomes imperative.
• Creation of opportunities for income and employment • The Biogas plants that were constructed was not able to
generation for other groups involved Improve fertility of keep up, both in terms of production as well as speed,
the soil and thereby enhance productivity of crops leading to inefficiencies and losses.
• Prevent diseases in the animals of the country • The Biogas plants that are being planned to be
• Mainstreaming women in development activities of the constructed should have better technology which sustains,
village - collecting and packaging the ‘gobardhan’ for up scales and is widely accepted by farmers and women in
transportation rural areas.
• Reduction of pressure induced by waste on the • Adequate training should be provided to the workers.
environment as the emission of methane from the cow • India is dealing with a deficient fodder for our cattle.
dung will be processed and will lead to a reduction in Fodder production for the cattle need to be enhanced
Carbon Footprint. • Farm Mechanization may pose challenges to the
population of the cattle as the machines will replace the
cattle. This might lead to ignorance on the part of the
cattle’s master.
SPICE APPROACH
• Allied activities are critical for social security of population dependent on agriculture.
• Allied activities including livestocks rearing, beekeeping, fisheries etc are key for nutritional
security.
Social dimension
• Livestock sector provide regular employment to 11 million in principal status and 9 million in
subsidiary status. Women constitute 70 per cent of the labour force in livestock sector as against
35 per cent in crop farming.
• Various schemes exist for enhancing efficiency of the allied sector, but these need to continuously
Political/Legal reoriented and updated by policymakers.
Dimension • Priority focus area should be - Capacity building including infrastructure creation, creating robust
supply chain networks and creating market linkages to allied products etc.
• Allied activities are spread across various departments and ministries, thus along with specific
Institutional
schemes and individual efforts, a common platform must be created for harmonised and
dimension
cumulative value addition in the sector.
Cultural dimension •
• India is among the 15 leading exporters of agricultural products in the world, and significant
potential for improvement exists.
Economic • Allied activities not only de-risk the agriculture but also increases the income of farmers and
dimension even-out the seasonal gaps in their incomes.
• Livestock are natural capital and act as an insurance against income shocks due to crop failure
and natural calamities.
80
►BLUE ECONOMY complexity of maritime trade as they face challenges in

terms of congestion, new information technology and
The Blue Economy encompasses a wide range of economic
equipment, improvement of port infrastructure and
activities pertaining to sustainable development of resources
professional services.
and assets in the oceans, related rivers, water bodies and
coastal regions – in a manner that ensures equity, inclusion, • In this regard, regional cooperation is important for
innovation and modern technology. unlocking the bottlenecks to ports development and
maritime economy expansion in the Indian Ocean so as to
The Blue Economy is determined to initiate appropriate
enhance blue growth through economic cooperation and
programs for: the sustainable harnessing of ocean resources;
trade relations between Member States.
research and development; developing relevant sectors of
oceanography; stock assessment of marine resources; D. Offshore Hydrocarbons & Seabed Minerals
introducing marine aquaculture, deep sea/long line fishing • With the decreasing inland mineral deposits and
and biotechnology; and human resource development; increasing industrial demands, much attention is being
among others. focused on mineral exploration and mining of the seabed.
PRIORITY PILLARS IN THE BLUE ECONOMY The seabed contains minerals that represent a rapidly
developing opportunity for economic development in both
A. Fisheries and Aquaculture
the Exclusive Economic Zones of coastal nations and
• Fisheries, which is a vital oceanic resource forms the core beyond the limits of national jurisdiction.
of the Blue Economy, as one of the main resources of the
• Seabed exploration in the Indian Ocean has already
Indian Ocean which provide food to hundreds of millions
started, but the major constraints in the commercialization
of people and greatly contribute to the livelihoods of
of these resources lie in the fact that Member States have
coastal communities. It plays an important role in ensuring
limited data on the resources their exclusive economic
food security, poverty alleviation and also has a huge
zone (EEZ) possesses, lack capacity for exploration, mining
potential for business opportunities.
and processing of these minerals. Therefore, improved
• To meet the increasing public demand in seafood information is needed to assess the potential across the
products, natural fisheries resources are being over- region.
exploited and threatened. Therefore, the urgent need to
E. Maritime Biotechnology
find a balance between population need and
environmental health has provided impetus to the • New methodologies will help in: selective breeding of
promotion of sustainable fishing and aquaculture. species; increasing sustainability of production; and
enhancing animal welfare, including adjustments in food
B. Renewable Ocean Energy
supply, preventive therapeutic measures, and use of zero-
• With the rise in the population, the demand for energy is waste recirculation systems. Aquaculture products will also
increasing. Ocean energy can provide additional incentives be improved to gain optimal nutritional properties for
in renewable to decrease the burden on fossil fuels. human health.
• The ocean offers vast potential for renewable "blue • Another strategic area of marine biotechnology is related
energy" from wind, wave, tidal, thermal and biomass to the development of renewable energy products and
sources. It should be harnessed in sustainable manner. processes, for example through the use of marine algae.
C. Seaports and Shipping • In addition, the marine environment is a largely untapped
• The seaport and maritime transport sector is one of the source of novel compounds that could be potentially used
important priority sectors under the Blue Economy as novel drugs, health, nutraceuticals and personal care
products; Blue Biotechnology could be further involved in
• In spite of the continuous rise of maritime transport and
addressing key environmental issues, such as in bio-
shipping transactions in the region, uneven distribution of
sensing technologies to allow in situ marine monitoring, in
trade exists among the countries, where only a handful are
bioremediation and in developing cost-effective and non-
benefiting economically from maritime exchanges and
toxic antifouling technologies.
transportation. Some Member States unfortunately are
struggling to keep pace with the rapid development and
81
F. Marine tourism • Further there are many opportunities to utilize the India’s
• Marine tourism, with its related marine activities (including 7500 Kilometre coastline and inland waterways to promote
cruise tourism), is a growing industry employment. tourism.
However, these activities, if not managed sustainably, CHALLENGES TO DEVELOPMENT OF BLUE ECONOMY IN
could develop a parasitic relationship with the INDIA
environment, leading to destruction and degradation of • Major constraints to port-led development are as follows:
marine habitats and environment, loss of biodiversity, high logistics cost, long lead-times and poor linkages
marine pollution and over-exploitation of resources. between industrial and logistics infrastructure,
• This necessitates actions for environmental protection in incompatibility amongst stakeholders, inadequate and
order to prevent any irreversible impacts (for example poor port capacity. Added to these waterways
sedimentation over coral organisms by sheer human transportation has been under-utilized even though it is a
physical impact, beach erosion, and mangrove clearance) cheaper way of transportation than roads and railways.
that may arise from marine tourism industry. • To facilitate the vision to bring in “blue revolution” a
BLUE ECONOMY AND INDIA central plan called as Integrated Development and
Management of Fisheries has been formulated. Moreover,
The Indian Ocean Region is abundant with resources,
another Integrated National Fisheries Action Plan of 2016
particularly in the sectors of fisheries, aquaculture, ocean
aims at connecting 15 million beneficiaries for livelihood
energy, sea-bed mining and minerals, and provides
opportunities through various interventions. National
tremendous economic opportunities to develop marine
Policy on Marine Fisheries of 2017 seeks a holistic plan to
tourism and shipping activities. Polymetallic nodules and
bring in sustainable development, socio-economic
polymetallic massive sulphides are the two mineral resources
upliftment of fishing communities, principle of subsidiarity,
of commercial interest to developers in the Indian Ocean.
partnership, inter-generational equity, gender justice and
India had received exclusive rights for the exploration
precautionary approach. However, these plans and
polymetallic nodules in 1987, in the Central Indian Ocean
policies are in their nascent stage and India has been
Basin. Since then, it has explored four million square miles
under-utilising its marine resources until now.
and established two mine sites. Thus a strong impetus on
Research and Development, and Innovation in the areas of • Other challenges facing Blue Economy are unsustainable
Ocean Energy, Marine Biology and Biotechnology must be fishing practices and outdated methods, physical
provided for the nation to achieve significant market shares alteration and destruction of coastal habitats and
in these sectors. landscapes by constructing factories which do not use
pollution control mechanisms, marine pollution, impacts
INITIATIVES TAKEN BY THE GOVERNMENT
of coastal storms, unfair trade and under-utilised water
• The Sagarmala project, launched by the Ministry of transportation system.
Shipping, is the strategic initiative for port-led
• The destruction of maritime ecosystems, pollution or
development through the extensive use of IT enabled
climate change, as well as poverty or maritime insecurity
services for modernisation of ports. It tackles the issue of
caused by terrorism or piracy. Pollution of the oceans
underutilized ports by focussing on port modernization,
results in physical and ecological changes and/or damages
efficient evacuation, and coastal economic development.
and impacts health of marine species. Pollutions have
• Under the Make in India program of the Government,
impact on humans by causing health problems (linked to
shipbuilding industry got impetus. This industry has a high bathing or consumption of sea food), economics losses
multiplier effect on investment and can accelerate
(living resources inappropriate for consumption,
industrial growth along with its large number of associated
decreasing benefits linked to tourism, increasing of the
industries. costs linked to health problems, coastal management,
• For utilizing Inland Waterways, inland water transport have social problems).
been developed which will help in utilizing the inland • Further India still has no institute to teach blue economy
waterways for commerce and passenger traffic, and to
as a discipline. "Marine economics or blue economics as a
promote tourism.
stream does not have strong theoretical foundation in
82
India, and it is studied as a sub-section of environment including IIT Madras, Kharagpur, NIT Calicut, and NIT
economics. Lack of research and development Suratkal.
expenditure in this domain has refrained students to The Indian Ocean region needs a sustainable and inclusive
master the subject. framework for international partnerships. Countries in the
• Blue economy as a concept is not much explored in India region need to not only coordinate and manage the growing
because there are no specialised courses. Civil/ security challenges in the region but also realize the
Mechanical/ Marine/ Naval Architect students can orient substantial economic potential the Indian Ocean area
themselves towards ocean energy, which is one of the presents
various verticals of blue economy. Master's programmes in
Ocean Engineering are also available at various institutes
SPICE APPROACH
‘Sustainable Blue Economy’ as a marine-based economy that provides social and economic benefits
for current and future generations, restores, protects and maintains the diversity, productivity and
Social dimension
resilience of marine ecosystems, and is based on clean technologies, renewable energy, and
circular material flows.
Political/Legal
Dimension
• Government has approved Ocean Services, Technology, Observations, Resources Modelling and
Science (O-SMART)” The services rendered under the O-SMART will provide economic benefits to
a number of user communities in the coastal and ocean sectors, namely, fisheries, offshore
industry, coastal states, Defence, Shipping, Ports etc.
Institutional
• This will help in reducing the search time for fishermen resulting savings in the fuel cost.
dimension
• Implementation of O-SMART will help in addressing issues relating to Sustainable Development
Goal-14, which aims to conserve use of oceans, marine resources for sustainable development.
• This scheme (O-SMART) also provide necessary scientific and technological background required
for implementation of various aspects of Blue Economy.
• Globally, the Blue Economy has an asset base of over $24 trillion. It is said to generate at least
$2.5 trillion each year from the combination of fishing and aquaculture, shipping, tourism, and
other activities.
• Coastal tourism alone is one of the fastest-growing marine based economic activity worldwide,
estimated at £6bn to coral reef nations alone.
Economic dimension • Water bodies such as the oceans, seas, rivers, lakes, marshes, and bays collectively hosts about
2.2 million plants species, diverse wildlife and other life-forms that represents over 50% of life on
earth! These are the resources from where food, medicines and livelihoods that drive socio-
economic development globally.
• The annual “Gross Marine Product – GMP” of the Western Indian Ocean region ( – equivalent to a
country’s annual gross domestic product (GDP) – is at least USD20.8 billion.
83
►PRADHAN MANTRI FASAL BIMA • This is not feasible as most state governments have either
legally banned or imposed restrictions on agricultural land
YOJANA: CRITICAL ANALYSIS leasing.
In a bid to protect farmers against losses occurred because of
Mixed cropping and crop diversification discouraged
frequency changes in weather patterns, the Pradhan Mantri
A limited number of crops are notified by states under
Fasal BimaYojna (PMFBY) was launched in 2016.
PMFBY. Only these crops can avail of insurance. This can act
ABOUT PRADHAN MANTRI FASAL BIMA YOJANA
as an impediment to crop diversification
• It provides insurance coverage and financial support to the
Poor awareness about PMFBY
farmers in the event of failure of any of the notified crop
Based on a recent survey, only 30% of the farmers are aware
as a result of natural calamities, pests & diseases.
about PMFBY and its benefits.
• Premium to be Paid by Farmers: Kharif Crops : 2%, Rabi
Inadequate and delayed claim payment to farmers
Crops : 1.5%, Commercial and Horticultural Crops: 5%
As on May 2018, just 5% of the claims made for crop losses
• Balance premium will be paid by the Government to
have been paid on time. Many insurance companies cited
provide full insured amount to the farmers against crop
delay in receiving the state and Central government subsidies
loss on account of natural calamities. The subsidy is
as the main reason for delay in reimbursing claims
divided equally between the State and Central
government. Very high actuarial premium rates
• The scheme covers loanee farmers (those who have Insurance companies have charged much higher actuarial
availed of institutional loans), non-loanee farmers (those premium rates in some states and regions. For example,
who avail of insurance cover on a voluntary basis), farmer activists allege that in Madhya Pradesh premium rates
sharecroppers and tenant farmers (those who farm on of up to 40 per cent, in Rajasthan up to 80 per cent
rented land). PMFBY is compulsory for loanee farmers. Loopholes in assessment of crop loss
PROBLEMS AND CHALLENGES • A proper assessment of crop loss is the foundation of a
Negligible coverage of sharecropper and tenant fair and just crop insurance scheme. To ensure this, States
farmers have to conduct requisite number of crop cutting
experiments (CCEs).
• PMFBY has failed to include sharecropper and tenant
farmers in the scheme. The primary reason is that to avail • PMFBY encourages the use of satellite, remote sensing
of insurance, farmers needs papers or certification to technology and drones to improve the speed and
prove that they are farming as tenants or sharecroppers. reliability of the CCEs. Unfortunately, most of the states
have been unable to carry out the crop cutting
experiments in a reliable and fool proof manner.
SPICE APPROACH
PMFBY aims to provide a comprehensive insurance cover against failure of the crop thus helping in
Social dimension
stabilising the income of the farmers. It will help in decreasing rural indebtness.
Political/Legal
Dimension
The Scheme shall be implemented through a multi-agency framework by selected insurance

companies under the overall guidance & control of the Department of Agriculture, Cooperation &
Institutional Farmers Welfare (DAC&FW), Ministry of Agriculture & Farmers Welfare (MoA&FW), Government of
dimension India (GOI) and the concerned State in co-ordination with various other agencies; viz Financial
Institutions like Commercial Banks, Co-operative Banks, Regional Rural Banks and their regulatory
bodies, Government Departments viz. Agriculture, Co-operation, Horticulture, Statistics, Revenue,
84
Information/Science & Technology, Panchayati Raj etc.
Cultural dimension
It promotes innovative and modern agricultural practices and encourages farmers to use them and
Economic
ensures flow of credit to the Agriculture sector to promote crop diversification and food security for
dimension
the nation
►FARMER PRODUCER COMPANIES of the respective State), Farmer Producer Company (Under
Companies Act, 2013) or Societies (under Society Registration
(FPCS) Act, 1860).
The Indian Agriculture is basically dominated by small and
Third, it works for the benefit of the farmers and deals with
marginal farmers. Around 85% of the agricultural
various business activities related to agriculture such as
landholdings are smaller than 2 hectares which points
procurement of agricultural inputs, marketing of agricultural
towards lower economies of scale and hence lower
commodities etc.
productivity. The small and marginal farmers are extremely
Fourth, a certain part of the profits of the organisation is
vulnerable to agrarian distress as evident in number of
shared among the farmers and rest of the funds is used for
suicides among such farmers.
business expansion of the organisation.
A variety of approaches have emerged in response to the
HOW ARE FARMER PRODUCER COMPANIES (FPCS)
problems faced by the small and marginal farmers such as
DIFFERENT FROM COOPERATIVES?
Contract farming, Promotion of Agricultural Cooperatives etc.
However, these approaches have failed to provide desired First, the FPC is a hybrid between a cooperative and a private
success. limited company. It combines cooperative values of mutual
benefit and a professional style of functioning.
In this regard, collectivization of these small and marginal
farmers into producer organisations could emerge as one of Second, the cooperatives are registered under the
the most effective ways to alleviate the present agrarian Cooperative Societies Act and hence Registrar of
distress. Cooperatives and the Government hold veto power over the
decisions of the cooperative society. This gives scope for
WHAT IS FARMERS PRODUCER ORGANISATION (FPO)?
political interference by the Government leading to
A Producer Organisation (PO) is a legal entity formed by
bureaucratic delays and inefficiencies. On the other hand, the
primary producers such as farmers, milk producers,
FPCs are registered under the Companies Act and only those
fishermen, weavers, rural artisans, craftsmen etc. It can be in
members having transactions with the company can vote.
the form of Producer Company, a cooperative society or any
Thus, the FPCs rule out political interference and it leads to
other legal form which provides for sharing of
efficient management of the company.
profits/benefits among the members.
Third, the FPCs allow registered and non-registered groups
The Indian Government constituted a High Powered
such as self-help groups (SHGs) to become members in a
Committee under the leadership of Yogendra Alagh. On the
FPC. This enabling provision is a distinct improvement over
basis of recommendations of this committee, the
the cooperatives, which allows only individual producers to
government amended the Companies Act, 1956 in 2012-13 to
be members.
provide for "Producer Companies" in India.
Fourth, the FPCs allow only those people who are engaged in
Let us understand some of the essential features of Farmer
an activity connected with or related to primary produce to
Producer Organisations (FPOs).
be enrolled as members of FPC. This ensures that outsiders
First, it is formed by a group of farmers who act as do not capture the control of the company.
shareholders in the organisation.
Fifth, the FPCs can appoint professionals to its Board of
Second, it is a registered legal entity in the form of Directors. This enables the small and marginal farmers to
Cooperatives, Famer Producer companies (FPCs) or Societies, avail professional management inputs and at the same time
registered as Cooperatives (under Cooperative Societies Act retain control of the FPC.
85
Finally, unlike the cooperatives, FPCs have stronger Corpus) under the NABARD in 2014-15 for building of 2000
regulation which demands regular disclosure and reporting. Farmer Producer Organizations (FPOs) in the country. The
This empowers the farmers to demand operational and fiscal aim of the PRODUCE Fund is to promote new FPOs and
discipline and thus promote greater accountability of the support their initial financial requirements, to make them
FPCs. credit worthy, commercially vibrant and sustainable
HOW FPCS BENEFIT SMALL AND MARGINAL FARMERS? business enterprise of farmers.
• The main aim of FPC is to ensure better income for the CHALLENGES AND ISSUES IN BUILDING ROBUST FPCS
producers through an organization of their own. Small and • Lack of Professional Management of FPCs: The FPCs
marginal farmers do not have the volume individually have been allowed to appoint professional experts to the
(both inputs and produce) to get the benefit of economies Board of directors in order to efficiently manage their
of scale. Besides, in agricultural marketing, there is a long operations. However, such trained manpower is presently
chain of intermediaries/middlemen leading to the situation not available in the rural areas to manage FPO business
where the producer receives only a small part of the value professionally.
that the ultimate consumer pays. • Poor Financial Resources: FPCs are mostly owned by
• Through collectivisation of small and marginal farmers and Small and Marginal Farmers with poor resource base and
aggregation of their produce, the FPCs can avail the hence they are not financially strong enough to support
benefit of economies of scale. They will also have better the members. This reduces the ability of the FPCs to cater
bargaining power with respect to the bulk buyers of to the needs of the farmers such as access to inputs and
produce and bulk suppliers of inputs. market.
• Further, FPCs enable sharingof services such as knowledge • Inadequate Access to credit” Lack of access to affordable
input, production supervision, storage, transportation, etc credit is one of the major constraints of the FPCs. It has
and hence reduce the transaction costs for the small and been observed that banks and financial institutions tend to
marginal farmers. They also create opportunities for refuse to lend to FPCs due to disaggregated land holdings
farmers to get more involved in value addition activities and lack of collateral. Further, the credit guarantee cover
such as input supply, credit, processing, marketing and being offered by SFAC for collateral free lending is
distribution. available only to Producer Companies having minimum
• Thus, the FPCs create an interface between the farmer and 500 shareholders. Hence, the small sized FPCs are unable
global market, provide access to capital for farmers, to access this benefit. Due to this, a large number of small
manage risk for farmers through diversification and thus sized FPCs have failed to take off.
promote economic democracy at the grass root level. Thus, as discussed, the FPCs can indeed emerge as game
INITIATIVES FOR THE PROMOTION OF FPOS IN INDIA changer in order to alleviate the present agrarian distress.
However, the Government and all the stakeholders need to
• The SFAC is the nodal agency at the national level for the
create a right ecosystem in order to nurture and develop the
creation of FPOs. The SFAC operates a Credit Guarantee
FPCs.
Fund to mitigate credit risks of financial institutions which
lend to the FPCs without collateral. This helps the FPCs to
access credit from financial institutions for establishing ►FARM LOAN WAIVER: CRITICAL
and operating businesses. Further, SFAC also provides
matching equity grant up to Rs. 10 lakh to double the
ANALYSIS
share capital of FPCs. The rural India is presently staring at agrarian distress due to
decline in the farm incomes. To address the agrarian distress,
• NABARD also provides financial support to the FPOs
some of the state governments have resorted to farm loan
through two dedicated funds. It has created “Producers
waivers to alleviate the rural distress.
Organization Development Fund (PODF)” in 2011, to
support the FPOs through credit facilitation, capacity Newly elected governments in Madhya Pradesh, Chhattisgarh
building and market linkage support. Further, the and Rajasthan have all announced loan waivers. It may cost
Government of India has set up PRODUCE Fund the state exchequers more than Rs 50,000 crore.
(Producers’ Organization Development and Upliftment
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Similarly, in 2016-17, India faced a cumulative loan waiver of circumstances, loan waivers do not address the core
Rs 3.1 lakh crore which was around 2.6% of the country’s problems of the Indian agriculture. The waivers can be
gross domestic product (GDP). A waiver of this scale could considered as Band-Aid for the current agriculture
have paid for 16 times the rural roads budget or increased inefficiency and do not address a deeper malaise gripping
India’s irrigation potential by 55%. India’s agrarian economy.
Hereby discussing the concept of farm loan waiver and issues • Do not benefit the Small and Marginal Farmers:
associated with it. Unfortunately, the loan waivers do not benefit the small
WHAT CONSTITUTES THE FARM LOANS? and marginal farmers (with less than 2 hectares of
landholding size) as only 15% of these farmers have access
Farm loans may be crop loans or investment loans taken to
to institutional credit (formal credit). This is because the
buy equipment. Both farmers and banks reap a good harvest
loan waiver schemes typically cater to farmers who have
when all is well. But when there is a poor monsoon or natural
availed formal loans.
calamity, farmers may be unable to repay loans. The rural
distress in such situations often prompts States or the Centre • Credit Culture in the Economy: Farm loan waivers can
to offer relief — reduction or complete waiver of loans. have an adverse impact on the credit culture in the
country as even those farmers who have the capacity to
Essentially, the Centre or States take over the liability of
repay back the loans would default on the anticipation that
farmers and repay the banks.
the loans would be waived off by the government. Such
POSITIVE IMPACT willful defaults by the farmers are likely to disrupt the
As Agriculture in India has been facing many issues — functioning of the entire credit system.
fragmented land holding, depleting water table levels, The loan waivers have led to a rise in the non-performing
deteriorating soil quality, rising input costs, low productivity, assets (NPAs) of banks. According to the recent study, the
add to this vagaries of the monsoon. Output prices may not agricultural loans account for around 40% of the NPAs of
be remunerative. Farmers are often forced to borrow to the Public Sector Banks.
manage expenses. Also, many small farmers not eligible for
• Decrease in Capital Investment in Agriculture: To
bank credit borrow at exorbitant interest rates from private
address the present structural problems of the Indian
sources.
agriculture, there is need for greater amount of capital
investment such as irrigation, marketing infrastructure etc.
Hence loan waiver provides: The Banking sector has to play a critical role to help
improve the capital Investment. However, the World Bank
• loan waiver will give a short-term relief to farmers by
has highlighted that it may not happen. This is because
reducing their liability and they can be freed from the cycle
banks would anticipate future default on the loans taken
of debt trap.
by the farmers and hence would channelize lesser amount
• The loan waiver entails greater investment, consumption of credit to agriculture in order to cut down on their losses.
or positive labour market outcomes in areas where debt Hence, rather than solving the present agrarian distress,
relief led to a significant reduction of household debt. the loan waivers could actually aggravate the problem in
Loan waivers provide some relief to farmers in such the future.
situations, but there are debates about the long-term • Impact on the Finances: The loan waivers can adversely
effectiveness of the measure. affect the finances of the centre and the states. According
PROBLEMS WITH THE FARM LOAN WAIVER to the recent report published by Bank of America Merill
Lynch (BofAML), the loan waivers can cost 2% of India's
• Do not address the structural Problems: Agriculture in
GDP in 2019.
India has been facing many issues such as poor marketing
infrastructure, fragmented land holding, depleting water The money presently used by the government for the loan
table levels, deteriorating soil quality, rising input costs, waivers could instead be used for addressing the
low productivity etc. Due to these problems, the farmers investment needs of the agriculture such as irrigation
are unable to get remunerative prices for their agriculture canals, rain water harvesting projects, marketing
produce leading to rural distress. Under such infrastructure, cold chain storage etc. Credit, be it from
87
formal or informal sources, plays an indispensable role in producers. If agricultural insurance moves in tandem to cover
the lives of agricultural households. Efforts should be the risks of farmer’s life and crops, such distortions could be
made towards financial inclusion of agricultural contained.
households, particularly of marginal and small farmers. Second, pressure on land can be evened out if value addition
The government should devise other options to address initiatives are simultaneously financed.
agrarian issues rather than resorting to economically STEPS NEEDED
irrational, inefficient and socially inequitable instrument like
• Strengthen the input deliver system such as Seeds,
loan waiver.
fertilisers, agro-chemicals.
GLOBAL EXAMPLES
• Rapidly expand irrigation facilities
There are three successful farmer benefit programmes in
• Infuse technology and revive the extension mechanism
vogue in the US since 2002: Annual Direct Payments; counter-
cyclical payments if market prices are below the statutorily • Invest in rural infrastructure, this would cover approach
determined target prices (MSP); and loan deficiency roads to marketing yards (mandis), improvement in the
payments or marketing loans that provide interim financing APMC markets, warehouses, cold chains and so on.
and additional income support if market prices fall below the • Use mobile phones to deliver weather, price and market
statutorily determined prices. information to growers.
These programmes provide a safety net to protect farmers • Build capacity among farmers to withstand market
from falling prices and raise farm income level but could raise volatility.
land prices and concentrate on benefits to certain crops and
SPICE APPROACH
• Due to climate change or continuous fall in rainfall or because of loss, many farmers are force to
flee from agriculture to find better career elsewhere, which could lead drop in agricultural yields.
So in order to avoid such situations, farm loan waiver acts as a good initiative to attract and retain
the farmers.
Social dimension
• However, it benefits only those farmers who have taken loans from institutional sources. Last
NSSO survey of 2013 showed 52% of agriculture households were indebted but only 60% of those
had taken loans from institutional sources. This means, only 31% agriculture households (60% of
52% indebted households) are likely to benefit from loan waiver.
Political/Legal
In India Farm Loan waiver is used as a political gimmick and a tool of populism.
Dimension
• Lacunas pointed by CAG

• CAG audit revealed lapses and errors. It included fake claims, an inclusion of ineligible
beneficiaries, huge reimbursement from a lending institution without proper verification. Many
occasions, the farmers entitled to receive the benefits were not included in the list of beneficiaries
Institutional by the lending institutions. Many farmers tend to use the loans for non-agricultural purposes.
dimension Besides, loan application receipts or acknowledgements from farmers weren’t properly
maintained. Lending institutions like banks were responsible for implementing the scheme and
also monitoring of their own work – which is a clear case of conflict of interest. No nodal agencies
where appointed for the monitoring the work. Debt waiver/relief certificates were not issued in
many cases for eligible beneficiaries.
It installed belief among farmers believed that they could default with freedom, leading to defaults of
Cultural dimension
such a high scale that it took the banks several years to recover from its impact.
88
• The loan waivers can adversely affect the finances of the centre and the states. According to the
Economic recent report published by Bank of America Merill Lynch (BofAML), the loan waivers can cost 2% of
dimension India's GDP in 2019.
• Further the greater the bad loans, the lesser the cash that banks will have for lending.
►AGRICULTURE CREDIT AND ISSUES Initiatives taken by Government to improve agriculture credit
RELATED TO IT The Government has increased accessibility of credit for

farmers with a record credit target of Rs 10 lakh crore. It has
Agriculture credit is an important prerequisite for agricultural
also taken several measures to increase institutional credit
growth. Agricultural policies have been reviewed from time to
flow and to bring more and more farmers including small and
time to provide adequate and timely availability of finance to
marginal farmers within the institutional credit fold. Some of
this sector.
these measures are detailed below:
The institutional credit to the farm sector is set to exceed the
• Interest Subvention Scheme- Under the Interest
target of Rs 10 trillion for the current year, yet agrarian distress
Subvention Scheme (ISS), Short Term Crop loans upto Rs.3
and farmers’ dependence on moneylenders are showing no signs
lakh are extended to farmers at a subvented interest rate
of easing in the country. Hereby discussing the concept of
of 7 per cent per annum for a period up to one year. In
agriculture credit and issues related to it.
case of prompt repayment, the farmers can avail a prompt
Agricultural Credit is the amount of investment funds made repayment incentive of 3 per cent per annum and thus the
available for agricultural production from resources outside effective rate of interest on such loans is only 4 per cent.
the farm sector.
• Priority Sector Lending Guidelines- which mandate all
Rural credit system assumes importance because for most of Domestic Scheduled Commercial Banks to earmark 18 per
the Indian rural families, savings are inadequate to finance cent of their Adjusted Net Bank Credit (ANBC) for lending
farming and other economic activities. This coupled with the to Agriculture.
lack of simultaneity between income realization and
• Kisan Credit Card - aimed at providing adequate and
expenditure and lumpiness of agricultural capital
timely credit support from the banking system under a
investments.
single window to the farmers for their cultivation and
In India a multi-agency approach comprising co-operative other needs. All the banks have been advised to
banks, scheduled commercial banks and regional rural banks implement the scheme.
(RRBs) has been followed to allow credit to agricultural sector.
• Joint Liability Groups - To bring small, marginal, tenant
TYPES OF AGRICULTURE CREDIT: farmers, oral lessees, etc. taking up farm activities, off-
The agriculture credit can be classified on the basis of: farm activities and non-farm activities, into the fold of
institutional credit, Joint Liability Groups (JLGs) have been
(a) Short-Term: It refers to the loans required for meeting
promoted by banks.
the short-term requirements of the cultivators. These loans
are generally for a period not exceeding and repaid after the • Relief measures during natural calamities – these
harvest. For example loans required for the purchase of include, restructuring/rescheduling of existing crop loans
fertilizers, HYV seed, for meeting expense on religious or and term loans, extending fresh loans, relaxed security
social ceremonies etc. and margin norms, moratorium, etc.
(b) Medium-Term: These loans are for a period up to 5 CONCERNS WITH AGRICULTURE CREDIT IN INDIA
years. These are the financial requirements to make • Nearly 40% of rural credit demand is still met by the
improvements on land, buying cattle or agricultural informal sector, including commission agents and
equipments, digging up of canals etc. moneylenders, as there is huge dependency of farmers for
(c) Long-Term: These loans are for a period of more than 5 short term or long term credit.
years and are generally required to buy additional land or • Interest subvention by the government has resulted in
tractor or making permanent improvements on land. cheaper bank credit. However, it is not reaching the small
89
and marginal farmers due to poor targeting and large- ►AGRICULTURAL EXPORT POLICY
scale diversion to other destinations.
INTRODUCTION
• Roughly about half of the total farm credit is disbursed
Indian agriculture continues to be the backbone of our
between January and March. But this is when farmers’ loan
society and it provides livelihood to nearly 58 per cent of our
requirements are the least with Rabi sowing already over
population. Hence, continuous innovation and efforts is an
and Kharif planting being months away.
imperative for Indian agriculture.
• There is a problem of considerable delays in the
Agri Export Policy aims at reinvigorating the entire value
processing of loan applications and collaterals. Thus
chain from export oriented farm production and processing
farmers shy away from institutional financing and increase
to transportation, infrastructure and market access and to
their dependency upon non-institutional sources.
make India a global power in agriculture and raise farmer’s
• Frequent farm loan waivers have marred the loan income.
repayment culture in rural areas. This has forced banks to
STATUS OF AGRICULTURE TRADE IN INDIA
provide loans to agri-related enterprises rather than to the
more risk-prone farmer. • Indian agricultural exports grew at a whopping 9%
compared to China (8%), Brazil (5.4%) and US (5.1%)
• Failure of cooperative banks due to the political
between 2007 and 2016.
interference in the day to day functioning of banks and
non-banking background of many CEOs of such banks. • During this period, exports of coffee, cereals, horticultural
produce doubled; while exports of meat, fish, processed
• The rural credit structure is based on multi-agency credit
products grew between three to five times.
system whereby there exist numerous organizations
providing similar kind of financial services. There is a lack • India’s export basket is a diversified mix led by marine
of coordination in the system and the commercial viability products (US$ 5.8 Bn), meat (US$ 4 Bn) and rice (US$ 6 Bn)
is adversely affected in this scenario. which together constitute 52% of its total agri exports.
STEPS NEEDED OBJECTIVES OF THE DRAFT AGRICULTURAL EXPORT

POLICY
• Recapitalisation and better regulatory regime are required
to revamp cooperative banks in rural India. Apart from • To double agricultural exports from present Rs.US$ 30+
that, there is a need of capacity building; human resource Billion to Rs.US$ 60+ Billion by 2022 and reach US$ 100
development and institutional restructuring of cooperative Billion in the next few years thereafter, with a stable trade
banks are required in order to revamp cooperative credit policy regime.
structure in India. • To diversify our export basket, destinations and boost high
• Measures need to take to enhance their debt paying value and value added agricultural exports including focus
capacity by increasing public expenditure on social on perishables.
infrastructure (like education, availability of drinking water, • To promote novel, indigenous, organic, ethnic, traditional
health facilities), physical infrastructure (like roads, power) and non-traditional Agri products exports.
and economic infrastructure like (irrigation, modern
• To provide an institutional mechanism for pursuing
agricultural techniques).
market access, tackling barriers and deal with sanitary and
• RRBs should be given more autonomy and flexibility in phyto-sanitary issues.
planning and lending policies so that their comparative
• To strive to double India’s share in world agri exports by
advantage in rural lending is restored.
integrating with global value chain at the earliest.
• Financial Discipline is needed, rather than the providing
• Enable farmers to get benefit of export opportunities in
the farm loan waiver. It acts as moral hazard. Credit
overseas market.
counseling, awareness and financial education regarding
the benefits of institutional financing are important for the
effective expansion of financial services in rural areas.
90
 ELEMENTS OF AGRICULTURE EXPORT POLICY States often see no formal role for themselves in the nation’s
agricultural exports. Thus recommendations are:
The recommendations in the Agriculture Export Policy are:
• Identification of a nodal State Department / Agency for
STRATEGIC POLICY MEASURES
promotion of agriculture export.
1. Need for stable policy regime
• Inclusion on agricultural exports in the State Export Policy
• Providing a policy assurance that the processed
• Infrastructure and Logistics to facilitate agricultural
agricultural products will not be brought under export
exports
restriction.
• Institutional Mechanism at State level and cluster level to
• Reforms in APMC Act and streamlining of Mandi fee
support exports
• Liberalising Land Leasing norms
• Encourage the industry bodies/associations to play a more
2. Infrastructure and Logistics Support pro-active role
Robust infrastructure and logistics support involves the • Greater involvement of industry in R&D
following aspects—
OPERATIONAL POLICY MEASURES
• Pre-harvest and post harvest handling facilities
1. Focus on Clusters
• Storage and distribution
Exporting horticultural products requires significant volumes
• Processing facilities of high quality produce of the same variety with standard
• Roads and world class exit points at ports to facilitate swift parameters matching import demands. Export oriented
trade cluster development across States will be key to ensuring
• Efficient and time-sensitive handling to perishable and surplus produce with standard physical and quality
extremely vital agricultural commodities parameters which meet export demands. Thus it requires:
• Ports are a vehicle for economic development and • Identify suitable production clusters
international trade. • Conduct farmer registrations
• Digitization of land records
The focus therefore shall be to: • Promote Farmer Producer Organizations (FPO)
• Identify major ports where current/projected bulk and 2. Promoting Value-Added Exports
container agri traffic. It is proposed that the agricultural export policy must focus
• Demands infrastructure and modernization initiatives. on promotion of value added, indigenous and tribal products.
Port development - dedicated perishable berths, It can be improved by:
agricultural jetties, Railway Reefer • Development of organic export Zones/organic Food park
• Wagons with better Hinterland Connectivity are critical to a with an integrated approach.
smooth and cost effective supply chain. Identify the • Marketing and branding of organic products.
challenges of operationalizing existing defunct
• Develop uniform quality and packaging standards for
infrastructure at ports
organic and ethnic products
• Such as the Centre for Perishable Cargo (CPC) and
• Promotion of R&D activities for new product Development
requirement of new CPCs and other infrastructure at the
for the upcoming markets
port of exit.
3. Infrastructure and Logistics to support agricultural
3. Greater involvement of State Governments in
exports
agriculture exports
The Infrastructure proposed to support agri exports from the
Each state invariably has its own set of priorities, socio-
Focus States includes:
economic & political realities and agricultural nuances which
they strive to align with the nation’s overarching goals. • Packhouse: Will help increase marketable surplus by
However “trade and commerce” are in the Union list and assuring quality through grading & primary processing of
produce.
91
• Processing infrastructure: Value addition to raw produce 24.39 crore households in the country, 17.9 million
will help ensure consistent quality, longer shelf life, and households live in villages and are mostly dependent on
better price realization. agriculture.
• Cold storage: It will increase the shelf life of produce by WHY DOUBLE FARMERS' INCOME?
providing a constant low temperature environment and Past strategy for development of the agriculture sector in
will increase marketable surplus for exports. India has focused primarily on raising agricultural output and
4. Steps for Ease of Doing Business improving food security. This strategy involved (a) an increase
• Digitization of land records, geo-mapping of lands, in productivity through better technology and varieties, and
registration of farmers and farm producer organizations increased use of quality seed, fertiliser, irrigation and agro
(FPOs) is critical to implementation of a smooth chemicals; (b) incentive structure in the form of remunerative
agricultural export policy. The central government has prices for some crops and subsidies on farm inputs; (c) public
been working with the States to conduct widespread investments in and for agriculture; and (d) facilitating
campaigns to formalize tenancy, register land records and institutions.
carry out satellite mapping of lands while linking these The strategy paid dividends as the country was able to
details to farmer AADHAR cards. address severe food shortage but the strategy did not
• Exporters reveal that lengthy and cumbersome explicitly recognise the need to raise farmers' income and did
documentation and operational procedures at ports are a not mention any direct measure to promote farmers' welfare.
constant challenge. They have often recommended The net result has been that farmers' income remained low,
implementing 24 x 7 single window clearances of which is evident from the incidence of poverty among farm
perishables imports and exports. households.
• The role of FSSAI, EIC, plant and animal quarantine and To meet this end the committee on doubling farmers’
different Commodity Boards in setting standards, income (DFI), headed by Ashok Dalwai, the CEO of Rainfed
enforcing such standards and a robust accreditation and Area Authority, was set up which acted as an ‘empowered
certification arrangement to identify export worthy body’ to coordinate with different ministries as well as among
establishments will be facilitating further exports. various departments within the agriculture ministry.
According to the report of committee, the average annual
income of the farmer at the national level is estimated at Rs.
WAY FORWARD
96,703 at the base year 2015-16, which is an extrapolation of
To double the agriculture exports, a stable export-import the NSSO’s 2012-13 estimates. The targeted annual income of
policy regime is important, to win the confidence of overseas a farmer at national level should be Rs.1,72,694 (at 2015-16
buyers. Infrastructure facilities and process related constant prices) or Rs.2,42,998 at current prices in 2022-23.
complications must be eased down to attract private
Seven-point strategy by PM for ‘Doubling Farmers’
investments.
Income
Moreover, all the existing sub-schemes, policy measures and
1. Special focus on irrigation with the aim of “Per Drop More
e-Governance initiatives must be subsumed under this
Crop”
umbrella export policy, classifying them under its key
elements, in order to bring out a more holistic, quantifiable 2. Provision of quality seeds and nutrients based on soil
approach. health of each field.
3. Large investments in Warehousing and Cold Chains to
prevent post-harvest crop losses.
►COMMITTEE ON DOUBLING
4. Promotion of value addition through food processing.
FARMERS INCOME
5. Creation of a National Agriculture Market.
Agriculture is very important for Indian economy and society
6. Introduction of a new crop insurance scheme- ‘PM
both. It is the means of livelihood for half of the population, if
FasalBimaYojna’ to mitigate risks at an affordable cost.
we also count in the ancillary activities. According to the
Socio- Economics and Caste Census, SECC in 2011, out of
92
7. Promotion of ancillary activities like poultry, beekeeping, mandated to generate resources as raw materials to feed
and fisheries and support industrial enterprises – chemicals,
RECOMMENDATIONS OF THE COMMITTEE construction, energy, fibre, food, medicinal, etc. Such
incorporation will provide greater elasticity to the markets
1. The one-India market concept may benefit from placing
now circumscribed by consumption as food and fodder.
agricultural marketing under the Concurrent List (in the
Seventh Schedule of the Constitution). While cultivation is 5. The production system may be re-prioritised by adopting
limited to the land and area of farming operations, a market-led crop geometry and product matrix guided by
marketing has no boundaries and needs to operate on a nutrition yielding, job creating and income generating
pan-India level to meet demand across the country. crop and sector diversification. The following shift in
focus/emphasis is suggested: (i) from major cereals
2. Pursue adoption of NITI Aayog’s Model Land Leasing Act
(paddy & wheat) to nutri-cereals (ii) from only foodgrains
by all the states and UTs in a time bound manner. A high
(cereals + pulses) to fruits, vegetables and flowers (iii)
percentage of cultivable land that now is rendered futile
from carbohydrates only to proteins (pulses) (iv) from only
on account of both current and permanent fallows will
floral/vegetative proteins to floral + faunal/animal based
come into much needed use for operational efficiency at
proteins (eggs, milk, meat and fish) (v) from field crops
both input and output management stages. Hence,
only to horticulture + dairy + livestock + fisheries, etc. (vi)
promote:
from only farm activities to farm + on-and-off farm
• Farmers’ groups – VPOs & FPOs (societies, cooperatives & activities (primary + secondary agriculture). (vii) promotion
companies); CIGs (Commodity Interest Groups); Farmers’ of Secondary Agriculture (as defined by the Committee), is
Federations, and the like. critical to impart vertical elasticity to the land, which is
• Contract farming and services. In this regard: otherwise horizontally inelastic.
o ensure that the right, title and interest (RTI) of the 6. Amongst the inputs, water may be treated as the
landowner in his property is not−compromised in any way ‘determining factor’ of production. Hence, highest priority
may be assigned to water management:
o pursue with the states to adopt Model Contract Farming
and Services Act, 2018. • Creation of additional sources of water – an addition of 8
to 9 million hectares under irrigation (AIBP, MGNREGA
o draft and release Model Contract Farming and Services
etc.) by 2022-23
Rules.
• Efficient use of water – 2 to 2.5 million hectares under
3. Enable farm owners to transit from the status of
micro-irrigation per year
cultivators to farm managers by outsourcing all possible
farm operations, so as to achieve both resource use • Saving on ground water and its sustainability through
efficiency and effective outcome, besides realising recharge
reduced cost of cultivation. This entails encouraging a • Crop alignment based on ‘path of least resistance’. It
system of professional service providers (including the implies in promoting agro-climate based
Original Equipment Manufacturers – OEMs) who will take cropping/production system, the best option need not be
over responsibility for one or more of cultivation services the one chosen.
such as pest management, irrigation management and
• It can be an option that is more acceptable to the farmers.
harvest management etc.
7. Focus on productivity gains to enhance the needed gross
Such an engagement will also bring in precision farming or
output at the farmers’ end by adopting the following
smart agriculture even in small & marginal farms, where
approach:
investment capacity of these farmers is low. The scope for
deployment of new technologies like GPS, Drones, GNCC • Bridge the yawning gaps that exist vis-a-vis the techno-
(Global Navigation Satellite System) etc. both resource use economic potential of different crops.
and output come to be more controlled and accurate. o One single intervention with total focus and diligent
4. Redefine the mandate of agriculture so as to expand its monitoring should be SEED
horizon beyond the currently predominant deliverables –
food and nutrition security. Agriculture should also be
93
o Ensure SRR (seed replacement rate) and VRR (varietal 9. However efficient the marketing system may be, the
replacement rate) as per recommended package of farmers will not be able to capture the optimal value from
practice. their produce unless they are facilitated to
• Aim to maximise yield/acre per annum and not per avoid/overcome distress sale. Hence, as a part of post-
season. Adopt a cropping pattern, which facilitates a production strategy, the highest attention should be given
higher cropping intensity to result in maximum possible to warehousing (both cold and dry), negotiable
cumulative tonnage/acre/year. warehouse receipts and NWR linked post-harvest loans at
interest subvention.
• In the strategy for drought proofing of NICRA identified
151 districts, water-budget based crop alignment should 10. Recognize that agriculture is globally one of the riskiest of
be the core intervention. professions and is vulnerable to risks and uncertainties at
all three of its major stages, namely, pre-production,
8. As a basis to income led growth of agriculture and
production and post-production.
farmers’ welfare, all policies and strategies must adopt
‘Fork to Farm’ approach, reversing the ‘Farm to Fork’ • Replicate Meteorological Advisory Services across the
approach now accepted generally. Towards this: country; on the lines of the technology platform adopted
in Karnataka. The impact study of this initiative in
• Adopt monetisation of produce as the basis for
Karnataka has shown that income losses linked to natural
maximising the value capture for the farmers.
calamities reduce, if the farmers are offered advisories
• Maximise monetisation possibilities by upgrading and based on weather forecast.
harmonising the agri-logistics (storage & transportation),
• Coverage of farming under Pradhan Mantri FasalBima
agro-processing and marketing.
Yojana (PMFBY) should become a norm.
• Adopt new market architecture comprising GrAMs,
• Livestock insurance scheme needs to be restructured to
alternate Wholesale markets (APMCs - in private & public
cover both death and permanent damages; and made
sectors) and Export market. The target in respect of
more farmer-friendly on the lines of PMFBY.
market architecture by 2022 should be – at least 5000
GrAMs to be established; all states and UTs to adopt • Adopt an institutional mechanism for price & demand
Model APLM Act, 2017 and Model APLM Rules; a forecasting.
minimum of 1500 APMCs/other wholesale markets on 11. Extension system in the country be revitalized and
boarded onto online platforms including eNAM; agri- reinvigorated by optimally blending manpower and ICT.
export of US$ 100 billion. The partners should include government agencies, NGOs,
• Promote Agricultural Value System (AVS) as a link between private agencies and farmers themselves.
farms and markets.

SPICE APPROACH
• According to the Socio- Economics and Caste Census, SECC in 2011, out of 24.39 crore households
Social dimension in the country, 17.9 million households live in villages and are mostly dependent on agriculture.
• Doubling farmers income would effectively raise bottom 50% out of poverty line.
Dalwai panel recommended that agricultural marketingshould be brought under the Concurrent
Political/Legal List (in the Seventh Schedule of the Constitution) as cultivation is limited to the land and area of
Dimension farming operations, marketing has no boundaries and needs to operate on a pan-India level to meet
demand across the country.
• Creation of a National Agriculture Market to eliminate the middle man and facilitate best price to
Institutional
farmers.
dimension
• Distributed network of SHC, Provision of quality seeds and nutrients based on soil health of each
94
field through various extension services.
• Committee recommended greater private sector participation in agriculture, agri-marketing and

Cultural dimension
logistics will help in breaking the notion of agriculture being a rural activity.
• Resource optimisation by focusing on irrigation with the aim of “Per Drop More Crop”.
• Large investments in Warehousing and Cold Chains to prevent post-harvest crop losses.
Economic • Value addition in existing stock through food processing/packaging etc.will reap better returns to
dimension the farmers.
• Promotion of ancillary activities like poultry, beekeeping, and fisheries to help augment farmers
income.
►CRITICAL ANALYSIS OF PM-KISAN Legislative Assemblies/ State Legislative Councils,former

and present Mayors of Municipal Corporations, former
SCHEME and present Chairpersons of District Panchayats.
The Government with a view to augment the income of the
• All serving or retired officers and employees of Central/
Small and Marginal farmers has approved a Central Sector
State Government Ministries /Offices/Departments and its
Scheme, namely, “Pradhan Mantri KIsanSAmman Nidhi (PM-
field units Central or State PSEs and Attached offices
KISAN)”in the current financial year.
/Autonomous Institutions under Government as well as
OBJECTIVES regular employees of the Local Bodies (Excluding Multi
The scheme aims to supplement the financial needs of the Tasking Staff /Class IV/Group D employees)
farmers in procuring various inputs to ensure proper crop • All superannuated/retired pensioners whose monthly
health and appropriate yields, commensurate with the pension is Rs.10,000/-or more (Excluding Multi Tasking Staff
anticipated farm income. / Class IV/Group D employees) of above category
BENEFITS UNDER THE SCHEME • All Persons who paid Income Tax in last assessment year
All land holding eligible farmer families (subject to the • Professionals like Doctors, Engineers, Lawyers, Chartered
prevalent exclusion criteria) are to avail of the benefits of Accountants, and Architects registered with Professional
Rs.6000 per annum per family payable in three equal bodies and carrying out profession by undertaking
installments, every four months. practices.
The Scheme is expected to cover around 2 crore more STATE SCHEMES
farmers, increasing the coverage of PM-KISAN to around 14.5
• Under the RythuBandhu scheme, the Telangana
crore beneficiaries, with an estimated expenditure by Central
government provides an income support of Rs 8,000 per
Government of Rs. 87,217.50 crores for year 2019-20.
year to its 5.83 million farmers. The state government had
Earlier, under the scheme, financial benefit has been decided to pay Rs 4,000 each for Kharif and Rabi cropping
provided to all Small and Marginal landholder farmer families seasons.
with total cultivable holding upto 2 hectares.
• The Odisha government has started a similar scheme
The following categories of beneficiaries of higher economic with a twist — it has decided to provide an income support
status shall not be eligible for benefit under the scheme: of Rs 10,000 per family for both tenant farmers as well as
• All Institutional Land holders. landholders for five cropping seasons between 2018-19
and 2021-22.
• Farmer families in which one or more of its members
belong to following categories • The West Bengal government plans to give Rs 5,000 per
acre before the two sowing seasons in a year to its
• Former and present holders of constitutional posts
farmers.
• Former and present Ministers/ State Ministers and
PROPOSED BENEFITS
former/present Members of LokSabha/ RajyaSabha/ State
95
• There is a need for providing structured income support to • The PM-KISAN scheme may accentuate the present
the poor landholder farmer families in the country for structural problem of fragmentation of land holdings in
procuring inputs such as seeds, fertilizers, equipment, Indian Agriculture.
labour expenses. Such support will help in avoiding • For instance, Farming households holding larger land
indebtedness as well and falling into the clutches of money parcels will try to split holdings to try to qualify for the
lenders. benefits under the scheme.
• The farmer can use this additional income for productive c) Absence of land records
purposes, like purchasing insurance, better quality of
• The success of PM-KISAN depends on reliable digital land
inputs, children’s education, repaying existing loans,
records. However, according to the government data, only
storage of produce until market prices are favourable etc.
15 states in India have achieved more than 95%
This, in conjunction with subsidies provided by various
digitization of land records.
other schemes of the State could have a multiplier effect
on its economic benefits. PM KISAN vs MGNREGA
PROBLEMS WITH PM-KISAN • It is to be noted that PM-KISAN is a targeted cash transfer

programme while MGNREGA is a universal programme.
a) Not Capable to Address Structural Problems of Indian
Any rural household willing to do manual work is eligible
Agriculture
under the MGNREGA Act.
• The main problem with PM-KISAN is that it is populist
• A month of MGNREGA earnings for a household is more
rather than reformist. The present agrarian distress in the
than a year’s income support through PM KISAN anywhere
agriculture sector is attributed to structural problems of
in the country. For example, if two members of a
such as fragmentation of land holdings, higher
household in Jharkhand work under MGNREGA for 30
dependence on monsoonal rainfall, poor marketing
days, they would earn Rs.10,000 and a household of two in
infrastructure (APMCs) etc.
Haryana would earn Rs.16,000 in 30 days.
• Hence, in this regard, it can be argued that PM-KISAN
• Universal schemes are less prone to corruption than
would not be able to provide a long-term sustainable
targeted schemes. In targeted programmes, it is very
solution for the agrarian distress.
common to have errors of exclusion, i.e., genuine
b) Encourages Fragmentation of Landholdings beneficiaries get left out. Such errors go unrecorded and
people continue to be left out.
SPICE APPROACH
• PM-KISAN is a targeted cash transfer Programmewhere financial benefit has been provided to all
Small and Marginal landholder farmer families with total cultivable holding upto 2 hectares
• Marginal farmer can use this additional income for productive purposes, like purchasing
Social dimension insurance, better quality of inputs, children’s education, repaying existing loans, storage of
produce until market prices are favourable etc.
• Such support will help in avoiding indebtedness as well and falling into the clutches of money
lenders.
• PM-KISAN scheme is more populist than reformist as the scheme in itself is not capable of
addressingstructural problems of agriculture such as fragmentation of land holdings, higher
Political/Legal
dependence on monsoonal rainfall, poor marketing infrastructure (APMCs) etc.
Dimension
• Along with income support, policymakers must take initiatives to address the core issues of
agriculturefind long term sustainable solution for the agrarian distress.
• The PM-KISAN scheme may accentuate the present structural problem of fragmentation of land
Institutional
holdings in Indian Agriculture, e.g. Farming households holding larger land parcels will try to split
96
dimension holdings to try to qualify for the benefits under the scheme.
• The success of PM-KISAN depends on reliable digital land records. However, according to the
government data, only 15 states in India have achieved more than 95% digitization of land records.
• Being a minimum income scheme, PM-KISHAN will discourage the culture informal lending and will
Cultural dimension reduce rural indebtedness
• The scheme will prevent farmers falling into the clutches of money lenders.
• The Scheme is expected to cover around 2 crore more farmers, increasing the coverage of PM-
KISAN to around 14.5 crore beneficiaries, with an estimated expenditure by Central Government of
Economic
Rs. 87,217.50 crores for year. 2019-20
dimension
• Even though the financial implication for government is large, farmers get a petty sum of Rs
500/Month.
►NATIONAL BIOFUEL POLICY • Farmers are at a risk of not getting appropriate price for
their produce during the surplus production phase. Taking
India’s emerging economy has a growing demand for energy.
this into account, the Policy allows use of surplus food
In 2040, India is expected to account for 15% of the world’s oil
grains for production of ethanol for blending with petrol
demand. Facing the decline of global fossil fuel resources and
with the approval of National Biofuel Coordination
the risk of climate change, the Indian government and energy
Committee.
industry are considering the long-term expansion of biofuel
production in order to increase energy security In order to • With a thrust on Advanced Biofuels, the Policy indicates a
promote biofuels in the country. viability gap funding scheme for 2G ethanol Bio refineries
of Rs.5000 crore in 6 years in addition to additional tax
Hence the Union Cabinet has approved National Policy on
incentives, higher purchase price as compared to 1G
Biofuels – 2018. The policy expands the scope of raw material
biofuels.
for ethanol production, thereby aims to reduce dependency
on crude oil and at the same time enhance the income of • The Policy encourages setting up of supply chain
farmers, besides promoting a cleaner environment and mechanisms for biodiesel production from non-edible
providing health benefits. oilseeds, Used Cooking Oil, short gestation crops.
SALIENT FEATURES OF THE POLICY • Roles and responsibilities of all the concerned
Ministries/Departments with respect to biofuels has been
• The Policy categorises biofuels as "Basic Biofuels" viz. First
captured in the Policy document to synergise efforts.
Generation (1G) bioethanol & biodiesel and "Advanced
Biofuels" - Second Generation (2G) ethanol, Municipal Solid EXPECTED BENEFITS
Waste (MSW) to drop-in fuels, Third Generation (3G) • Reduce Import Dependency: One crore litre of ethanol
biofuels, bio-CNG etc. to enable extension of appropriate saves Rs.28 crore of forex at current rates. The ethanol
financial and fiscal incentives under each category. supply year 2017-18 is likely to see a supply of around 150
Drop-in fuels are those renewable fuels which can be crore litres of ethanol which will result in savings of over
blended with petroleum products, such as gasoline, and Rs.4000 crore of forex.
utilized in the current infrastructure of pumps, pipelines • Cleaner Environment: One crore litre of ethanol saves
and other existing equipment. around 20,000 ton of CO2 emissions. For the ethanol
• The Policy expands the scope of raw material for ethanol supply year 2017-18, there will be lesser emissions of
production by allowing use of Sugarcane Juice, Sugar CO2 to the tune of 30 lakh ton. By reducing crop burning &
containing materials like Sugar Beet, Sweet Sorghum, conversion of agricultural residues/wastes to biofuels
Starch containing materials like Corn, Cassava, Damaged there will be further reduction in Green House Gas
food grains like wheat, broken rice, Rotten Potatoes, unfit emissions.
for human consumption for ethanol production.
97
• Health benefits: Prolonged reuse of Cooking Oil for land (especially when no land supply response is assumed),
preparing food, particularly in deep-frying is a potential whereas cropland, managed forest, and natural grassland
health hazard and can lead to many diseases. Used show little net change. One approach to counteracting the
Cooking Oil is a potential feedstock for biodiesel and its growing scarcity of arable land would be to bring abandoned
use for making biodiesel will prevent diversion of used agricultural land back into production.
cooking oil in the food industry. It is often said that biofuel production should focus on
• MSW Management: It is estimated that, annually 62 MMT degraded or marginal lands, yet degraded lands are ill suited
of Municipal Solid Waste gets generated in India. There are for agriculture by definition, typically lacking water and
technologies available which can convert waste/plastic, nutrients. Some crops, such as jatropha, are promoted as
MSW to drop in fuels. One ton of such waste has the feedstocks that can withstand droughts, but yields are low in
potential to provide around 20% of drop in fuels. areas of low rainfall, and each potential feedstock presents
• Infrastructural Investment in Rural Areas: It is known constraints in soils, water supply, and temperature.
estimated that, one 100klpd bio refinery will require The balance has to be maintained for the management of
around Rs.800 crore capital investment. At present Oil food security.
Marketing Companies are in the process of setting up CONCLUSION
twelve 2G bio refineries with an investment of around
The Centre hopes the new policy will benefit farmers, who
Rs.10,000 crore. Further addition of 2G bio refineries
will be able to sell various types of agricultural waste to
across the Country will spur infrastructural investment in
industry at remunerative prices. But given the technology
the rural areas.
available, a large chunk of the biofuel will have to come from
• Employment Generation: One 100klpd 2G bio refinery the sugar sector for now. Therefore, pricing is the key. The
can contribute 1200 jobs in Plant Operations, Village Level government estimates that ethanol supply of around 150
Entrepreneurs and Supply Chain Management. crore litres in 2017-18 could save foreign exchange worth
• Additional Income to Farmers: By adopting 2G over Rs. 4,000 crore. The production of biofuels from
technologies, agricultural residues/waste which otherwise agricultural waste, it is hoped, will also help curb atmospheric
are burnt by the farmers can be converted to ethanol and pollution by giving farmers an incentive not to burn it, as is
can fetch a price for these waste if a market is developed happening in large parts of northern India.
for the same. Also, farmers are at a risk of not getting But policy should not get ahead of technological and financial
appropriate price for their produce during the surplus feasibility — and options should be realistically laid out for
production phase. Thus conversion of surplus grains and farmers. There is also a need for caution in using surplus
agricultural biomass can help in price stabilization. foodgrain to produce ethanol. And while removing the
BIOFUELS AND AGRICULTURE shackles on raw material supply can have definite benefits, it
Global population growth as well as rising per capita cannot make a significant difference to biofuel production as
consumption of developing countries can be expected to long as the supply-chain infrastructure that is required to
increase demand for land for food supply in the future. While deliver biofuels to the final consumer remains inadequate. To
some of this demand may be met with improved crop yields address this issue, the new policy envisages investment to
per unit area, which has been increasing at about 1.5% in the tune of Rs. 5,000 crore in building bio-refineries and
recent decades for staple crops, this would only increase offering other incentives over the next few years. The
production by 40% by 2030, requiring a conservatively government should also take steps to remove policy barriers
estimated 500 Mha more land to be brought into cultivation that have discouraged private investment in building supply
in order to meet the additional demand for food chains. Until that happens, India’s huge biofuel potential will
alone. Where will the land for additional biofuel production continue to remain largely untapped.
come from? Hence the expansion of biofuel cultivation will
occur largely at the expense of natural forest and pasture


98
SPICE APPROACH
• Health benefits - 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.
• Further, by reducing crop burning and conversion of agricultural residues/wastes to biofuels
Social dimension
there will be a further reduction in Green House Gas emissions.
• Employment generation - One 100klpd 2G bio refinery can contribute 1200 jobs in plant
operations, Village Level Entrepreneurs and Supply Chain Management.
• National and international level collaborations to adopt best practices, knowhow and expertise
Political/Legal for mainstreaming biofuel use.
Dimension • Investment in Research and innovation deciding the blending proportion (fossil fuel and Bio-fuels)
and for optimizing the performance.
• Inter-ministerial coordination needs to be instituted well as NBF augers well with the ongoing
initiatives of the Government such as Make in India, Swachh Bharat Abhiyan, Skill
Institutional Development and offers great opportunity to integrate with the ambitious targets of doubling of
dimension Farmers Income, Import Reduction, Employment Generation, Waste to Wealth Creation etc.
• Role of National Biofuel Coordination Committee in deciding on issues such as food security
vs production of biofuels (Agricultural lands and surplus crop products to be used for bio-fuels)
Behavioural changes to adopt the idea of reuse (eg domestic waste oil) and recycle (eg. surplus
Cultural dimension
agricultural products), by masses.
• The policy will entail more supply of ethanol which will reduce the pressure for importing crude
oil resulting in saving of forex in the country.
Economic dimension
• E.g. Ethanol supply of around 150 crore liters in 2017-18 alone have saved foreign exchange
worth over Rs. 4,000 crores.
►AGRICULTURE MARKETING exporter of agricultural products. However, the post-

production activities of Indian agriculture have not kept pace
CONTEXT
with the production related activities. The quantities of
It is being said that poor marketing infrastructure in India is marketable surplus have multiplied by almost 10 times
one of the biggest hurdles before farmers for realising during the last 50 years. However, the agriculture marketing
optimum prices on their agricultural produce. Hence, let us infrastructure continues to remain out-dated.
understand the importance of Agricultural Marketing in India,
UNDERSTANDING THE ROLE OF AGRICULTURAL
its weakness and what should be done in order to address
MARKETING
these challenges.
Agriculture marketing in India has a much broader
AGRICULTURE AS AN ENTERPRISE
connotation and basically includes all activities in the
Essentially, the Indian agriculture can be seen to be consisting procurement of farm inputs by the farmers as well as the
of two distinct components- Production and Post-Production movement of agricultural produce from farm land to the end-
activities. The Production activity refers to the cultivation of consumers, industries and traders. This covers broad range
the agricultural crops while the post-production refers to the of activities which include storage, physical handling,
marketing related activities. With respect to agricultural transportation, primary processing, grading and packaging,
production, the Indian agriculture has made rapid strides sale of agri-commodities etc.
since Independence. India has not only become self-sufficient
Firstly, an efficient and well-connected agricultural marketing
in terms of food production, but it has also emerged as a net
enables the farmers to buy agricultural inputs such as
99
fertilisers, seeds etc at affordable prices. This becomes quite regulated by the respective APMCs in India. Apart from
important since the agricultural input costs have been that, there are thousands of Rural Markets or Grameen
increasing over a period of time. Secondly, it provides signals Haats. Hence, due to this fragmented marketing
to the farmers with respect to planning for sowing of crops. infrastructure, the agricultural commodities pass through
Thirdly, an integrated domestic marketing system would multiple middlemen and traders who are operating in the
considerably reduce the price variations in the agricultural APMCs. This leads to escalation in the cost of prices and
commodities across India. This would enable the farmers to prevents the farmers from getting remunerative prices.
sell their produce anywhere in India and get best prices. Ideally, the farmers should be allowed to sell their produce
Fourthly, a High level Expert Committee constituted by anywhere throughout India based on prices which they
Ministry of Agriculture has estimated that 25 to 30 % of fruit get. This can significantly improve their bargaining position
and vegetables and 8 to 10 % of food grains are wasted and enable them to earn more incomes. Hence, the
annually due to lack of post-harvest technology and non- present fragmented marketing infrastructure goes against
existence of integrated transport, storage and marketing the interest of both farmers as well as consumers. In this
facilities, etc. Thus, an efficient marketing infrastructure regard, there is a need to develop integrated domestic
would enable the farmers to reduce their post-harvest losses market by removing all the existing agricultural trade
and improve their incomes. related barriers.
Lastly, there is lot of scope for India to boost its export of • Lack of Access to APMCs: Adequate number of markets
agricultural commodities. However, India has failed to make should be set up closer to agricultural fields so that the
optimum use of this opportunity. In this regard, the farmers have access to APMCs. This also leads to decrease
agricultural marketing policies can act as an enabler for in transportation costs for the farmers and cut down post-
boosting agri-exports. harvest losses. Accordingly, the National Commission for
Farmers had recommended that each APMC should serve
PROBLEMS WITH AGRICULTURE MARKETING
a market area of around 80sq.km and it should be
The Agricultural Marketing continues to face multi-faceted available to farmers within a radius of 5km.However, an
challenges. When India adopted LPG reforms in 1991, it was average APMC in India serves an area of around 450
expected that the agricultural marketing would also be sq.km, which denotes poor access of the farmers to the
liberalised. However, the government failed to bring out APMCs. On account of this, the farmers are forced to sell
reforms in the agricultural marketing in tune with the their produce at lower prices outside the APMCs.
changed environment.
• Against the Interests of Small and Marginal Farmers:
• Regulation of markets: Under the present APMC Act, only Almost 85% of the farmers in India are small and marginal.
the State Governments are permitted to set up markets. These farmers with lower marketable surplus find it
The Act requires that farm produce be sold only at difficult to aggregate their produce and sell it in the APMCs
regulated markets through registered intermediaries. through auction. Hence, these farmers resort to sell their
Further, the Essential Commodities Act allows central and produce to local agents and traders at much lower prices.
state governments to place restrictions on the storage and
• Poor Infrastructure of the APMCs: Even though the
movement of commodities deemed essential by
APMCs earn regular revenue through the imposition of
governments. Such kind of regulations has stifled the
Mandi tax, the infrastructure in the APMCs such as
private sector investment in the agricultural marketing
Godowns, Cold chain infrastructure etc continue to remain
infrastructure. Such restrictions also create artificial
quite poor. This leads to improper storage and
barriers and unnecessarily hinder free flow of agricultural
consequently higher post-harvest losses. Further, most of
commodities in India. Thus, the focus of the government
the APMCs have not able to set up electronic auction
has so far been on regulating rather than facilitating
platforms which are quite important for offering
agricultural trade. Rather than facilitating options for the
remunerative prices to the farmers.
farmers to sell their produce, it constraints their selling
options. • Imposition of Multiple Fees in APMCs: The APMCs
charge market fee for the buyers as well as licensing fee
• Fragmented Agricultural Marketing: There are about
from the traders. Apart from that, they also charge
2500 regulated APMCs and around 5000 sub-market yards
licensing fee from other agents such as warehousing
100
agents and loading agents. These multiple fees are • National Agricultural Market (e-NAM): In order to
estimated to be around 15% of the value of the agricultural integrate agriculture markets throughout India, the
produce in some of the states. These charges imposed Government has set up National Agriculture Market (NAM)
have a cascading effect on the prices of the commodities in 2016. It is a pan-India electronic trading (e-trading)
which adversely affect the end consumers. portal which seeks to network the existing APMCs through
• Higher Post-harvest Losses: According to the recent a virtual platform to create a unified national market for
study, the total estimated loss in India is around Rs 92,000 agricultural commodities. The e-NAM platform promotes
crores. The higher post-harvest losses could be attributed better marketing opportunities for the farmers to sell their
to fragmented market, lack of access to proper storage, produce through online, competitive and transparent price
poor handling and transportation etc. discovery system and online payment facility.
Initially, trade on e-NAM started inside the individual e-
NAM mandi, with farmers and traders of that mandi. After
INITIATIVES TAKEN BY THE GOVERNMENT SO FAR
persuasive efforts by the Central Government, inter-mandi
In order to address these problems associated with the trade on e-NAM platform started within the State. Now,
agriculture marketing, the government has taken a number Inter State trade of agricultural produce is gathering pace.
of initiatives. Let us understand about these initiatives and Recently, the first Inter State transaction in tomatoes has
whether these initiatives have been able to address the been carried out between the APMCs located in Uttar
present structural problems. Pradesh and Uttarakhand. Further, Rajasthan has become
• Model APMC Act: The Model APMC Act provides for the the first State to start inter-State trade with more than one
freedom to the farmers to sell their produce outside the State, establishing trade link with Gujarat, Maharashtra
APMCs to the exporters, processors and end-consumers. It and Madhya Pradesh through e-NAM. The Volume of inter-
permits private sector entities to establish new markets for State trade is also picking up as farmers and traders are
agricultural produce in any area. It seeks to do away with gaining confidence in the system.
multiple levies and instead impose a single levy of market However, the e-NAM portal stills face multiple challenges.
fee on the sale of notified agricultural commodities in any To implement the e-NAM, every state has to first amend its
market area. Similarly, it does away with the need for APMC Act to make a provision for electronic auction as a
multiple licensing requirements for the traders and has mode of price discovery, allow a single licence across the
instead proposed licensing of market functionaries which State and have market fees levied at a single point.
would allow them to operate in multiple markets. However, most of the states have failed to carry out these
However, most of the states have not fully completed all amendments and thus the e-NAM portal has been unable
the provisions of the Model APMC Act. Further, it is being to provide benefits to all the farmers across India.
said that the provisions of the Model APMC Act would not Further, recently a high-powered panel of experts on
lead to creation of a national or state level common "Integration of Commodity Spot and Derivatives market"
market for agricultural commodities. This is because the has highlighted a number of problems with e-NAM. In
model APMC Act states that even when buyers are buying order to ensure the success of e-NAM, the APMCs have to
the agricultural produce outside APMC area, they are still set up necessary infrastructure such as labs and internet
required to pay APMC charges. This acts as a barrier for connectivity. The labs are necessary to ascertain the
the creation of integrated domestic market in India. quality of agricultural produce to be put on auction
However, some states such as Karnataka have been at platform. However, the APMCs have failed to set up the
forefront of ushering in marketing reforms. The labs for grading of the commodities .Similarly, the panel
Government of Karnataka has set up unified agricultural has found out that online auction of commodities on
marketing platform in association with NCDEX Spot eNAM platform is not taking place. Rather, the data of
Exchange. It provides an electronic trading portal that manual trading is being recorded into the system after the
allows farmers to have access to a larger market and get auction is done offline.
the best prices from traders located anywhere in the Accordingly, these issues related to e-NAM have to be
country. addressed by the concerned state governments at the
earliest so as to make this online platform more effective.
101
• Contract Farming : The contract farming faces multiple GrAMs, electronically linked to e-NAM and exempted from
issues and challenges. Most of the state governments have regulations of Agricultural Produce Marketing Committee
failed to provide for contract farming in their APMC Act. (APMCs), will provide farmers facility to make direct sale to
Due to this, most of the time, such an agreement is more consumers and bulk purchasers.
of informal agreement between farmers and MNCs. We Further, Agriculture is a state subject. Therefore, the success
have to recognise that the contract farming will not be of the policies and programmes of the Government of India
successful unless it is legally protected. Further, it has been depends on how effectively they are adopted and
observed that in order to cut their transaction costs, the implemented by the state governments. Some of the states
MNCs prefer farmers who own huge land rather than have been quite progressive in implementing various
small and marginal farmers. Hence, the contract farming reforms. On the other hands, many states have lagged
has not benefitted the major chunk of farming community. behind leading to inter-state income disparities. Hence, in
• Farmer producer organisations (FPOs): The banks are order to incentivise the states to undertake the agriculture
usually reluctant to grant loans to the FPOs as they do not marketing reforms, the central Government has come out
have assets of their own to serve as collaterals. various indices to measure the progress on marketing
Consequently, the FPOs rely on loans from NBFCs to raise Reforms. For Instance, NITI Aayog has launched Agricultural
working capital at very high interest rates. Further, the Marketing and Farm Friendly Reforms. On similar lines, the
facility of cheap bank loans through interest subvention Ministry of Agriculture has launched the Ease of Doing Agri-
offered to individual farmers is denied to the FPOs. They Business Index.
also face resistance in operating at the APMCs because of FURTHER REFORMS NEEDED
the resistance offered by the licensed traders. These issues
The European Union, consisting of multiple countries, has
need to be addressed at the earliest to enable the FPOs to
been able to set up Common Market for all products by
perform to their full potential for the benefit of the
eliminating all forms of trade barriers. In this regard, India
farmers.
would also be able to reap benefits by setting up a "Single
• PM-AASHA: It is expected that proper implementation of Market". One of the major impacts of removing the inter
PM-AASHA scheme would prevent distress sale of State barriers would be the realisation of better prices by the
commodities by the farmers and enable the government Indian farmers as supply chain between the producer and the
to fulfil its stated objective of doubling the farmers' income consumer would be reasonably streamlined. This would also
by the end of 2022.However, the success of this scheme benefit the consumers.
depends on its proper implementation and the ability of
Agricultural marketing is a State subject. However, a number
the government to put in a fail proof mechanism for the
of major policy decisions impacting the sector are taken by
benefit the farmers. For instance, the Madhya Pradesh had
the Central Government. This includes the several Central
implemented Price Deficiency Payment Scheme (PDPS)
Government schemes/ programmes and policies including
under the Bhavantar Bhugtan Yojana. Some of the studies
laying down of Minimum Support Price for selected
highlighted that the traders deliberately depressed the
agriculture products. Further, the Indian Constitution
prices at the mandi level for their benefit. They forced the
guarantees to every citizen freedom of trade, business or
farmers to sell their produce at lower prices and pocketed
profession, but the State Legislatures are empowered to
the compensation amount from the government. Similarly,
impose reasonable restriction in public interest. However, in
the private sector agencies have concerns with respect to
practice this freedom guaranteed by the Constitution has
delayed payments from the government under the Private
been somewhat restricted by several states.
Procurement & Stockist Scheme (PPSS).
Hence, in this regard, the National Commission on Farmers
• Gramin Rural Markets: The Budget 2018-19 proposed to
(NCF) headed by M.S. Swaminathan had recommended
set up Gramin Agricultural Markets (GrAMs) in order to
creation of a single integrated market for farmers. The
enable the farmers to sell their agricultural produce
Commission also recommended that agricultural marketing
without any restrictions which they presently encounter in
be placed under the Concurrent List. Even the Committee on
the APMCs. The government has declared its intent to
Doubling Farmers’ Income (DFI) had argued for placing
develop and upgrade existing 22,000 rural haats (village
agricultural marketing under the Concurrent List.
markets) into Gramin Agricultural Markets (GrAMs). These
102
The states must amend their APMC Acts so as to facilitate

internal trade and provide the necessary ecosystem to
ensure fair and remunerative prices to the farmers. There is a
need to promote new models of marketing such as Contract
Farming, Commodity Exchanges, private wholesale markets,
farmer producer organisations, agricultural cooperatives etc.
WAY FORWARD
The marketing system needs to address the challenges of
high post-harvest and storages losses, high marketing costs,
inadequate market/procurement centers and efficient
storage and distribution of produce across the country. The
domestic agricultural market in India needs to be integrated
with the foreign markets to ensure optimum benefits for the
farmers. The agricultural production has to keep pace with
the population growth, consumers’ preference and demand
in the domestic and international markets by adoption of
appropriate policies of market-led production.
In order to improve agriculture marketing infrastructure,
there is a need for fundamental change in our perception
towards Indian Agriculture. We need to view agriculture as an
enterprise and farmer as an entrepreneur. This perception
would mean that the success of Indian agriculture would
depend upon our ability to link the entrepreneur (farmer)
with the markets and ensure maximum productivity of the
enterprise.
103
SECTION 5
L AND
R EFORMS

LAND REFORMS
►MODEL LAND LEASING ACT originally enacted but also on the landowner and
implementation of public policy.
At the time of independence, India inherited a feudal agrarian
• Legal ban or restrictions on land leasing have led to
structure in which land rights were concentrated in the hands
concealed tenancy in almost all parts of the country.
of a few landlords / zamindars, while actual cultivators/v
Informal tenants are most insecure, as they either have
tenants did not have any right or security of tenure.
short duration oral leases or get rotated from plot to plot
After independence, therefore, almost all state governments each year. This de-motivates them to invest in agricultural
passed land reform laws, for, (i) abolition of intermediaries, land improvement.
(ii) abolition or regulation of tenancy and, (iii) imposition of
• Informal tenants do not have access to institutional credit,
ceilings on land holdings and redistribution of ceiling surplus
insurance and other support services, which affect
land. The main objective was to create conditions for an
productivity of land cultivated by them.
agrarian economy with high levels of efficiency and equity
(Second five year plan). However, the objective of post- • Due to legal restrictions, many land owners prefer to keep
independence land reform for creating an agrarian economy their lands fallow due to the fear of losing land right if they
with high levels of efficiency and equity has been achieved lease out. Keeping the land fallow results in
only partially. underutilization of land and loss of agricultural output.
Hereby analyzing the status and scope of Land Leasing in • Therefore, the introduction of transparent land leasing
India. laws that allow the potential tenant or sharecropper to
engage in written contracts with the landowner is a win-
LAND LEASING IN INDIA
win reform.
• A farmland lease is an arrangement where a farmer who
SALIENT FEATURES OF MODEL LAND LEASING ACT
does not own enough suitable land to raise crops leases
farmable land from someone else. Landlords that own The Model Land Lease Act, 2016 prepared and approved by
large plots of farmable land often lease their plots to the NITI Aayog offers an appropriate template for the states
tenants when they have no interest in farming the land and UTs to draft their own piece of legislations, in
themselves. consonance with the local requirements and adopt an
enabling Act.
• Many large states including Telengana, Bihar, Karnataka,
Madhya Pradesh and Uttar Pradesh ban land leasing with MAIN FEATURES OF ACT
exceptions granted to landowners among widows, minors, • Legalise land leasing to promote agricultural efficiency,
disabled and defence personnel. Kerala has for long equity and power reduction. This will also help in much
banned tenancy, permitting only recently self-help groups needed productivity improvement in agriculture as well as
to lease land. Some states including Punjab, Haryana, occupational mobility of the people and rapid rural
Gujarat, Maharashtra and Assam do not ban leasing but change.
the tenant acquires a right to purchase the leased land
• This is very important step for land reforms through which
from the owner after a specified period of tenancy. This
needs of landlord as well as lease holder have been taken
provision too has the effect of making tenancy agreements
care.
oral, leaving the tenant vulnerable.
• Through this act, the landlord can legally lease the land
• Only the states of Andhra Pradesh, Tamil Nadu, Rajasthan
with mutual consent for agriculture and allied activities. In
and West Bengal have liberal tenancy laws with the last
this act, it has been taken care that in any circumstances
one limiting tenancy to sharecroppers.
the leased holders' claim on land will not be valid.
• A large number of states among them Rajasthan and Tamil
• Lease holder may receive institutional loan, insurance and
Nadu, which otherwise have liberal tenancy laws, do not
disaster relief so that he may invest more and more in
recognize sharecroppers as tenants. The original intent of
agriculture.
the restrictive tenancy laws no longer holds any relevance.
• Allow automatic resumption of land after the agreed lease
• Today, these restrictions have detrimental effects on not
period without requiring any minimum area of land to be
only the tenant for whose protection the laws were
left with the tenant even after termination of tenancy, as
laws of some states require.
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LAND REFORMS
• Incentivise tenants to make investment in land • Simultaneous liberalization of land use laws will also open
improvement and also entitle them to get back the unused up an alternative avenue to the provision of land for
value of investment at the time of termination of tenancy. industrialization that is fully within the state’s jurisdiction
• In order to resolve the dispute between the landlord and and allows the landowner to retain ownership of her land.
lease holder, the provision of “Special Land Tribunal” has • A potential hurdle to the land leasing reform laws is that
been made in the Civil Court. landowners may fear that a future populist government
BENEFITS AND CHALLENGES may use the written tenancy contracts as the basis of
transfer of land to the tenant and therefore would oppose
• The introduction of transparent land leasing laws that
the reform.
allow the potential tenant or sharecropper to engage in
written contracts with the landowner is a win-win reform. • State governments must seriously consider revisiting their
The tenant will have an incentive to make investment in leasing (and land use) laws to determine if they could bring
improvement of land, landowner will be able to lease land about these simple but powerful changes to enhance
without fear of losing it to the tenant and the government productivity and welfare all around.
will be able to implement its policies efficiently.
SPICE APPROACH
• Even after several phases of land reforms, the cultivators/ tenants continue to suffer because of
Social dimension poor and vague land leasing laws.
• The act will provide occupational mobility of the people in rapidly changing rural demography.
• The act will bring uniformity among states with respect to tenancy/land leasing laws. A large
number of states (eg.Rajasthan and Tamil Nadu), which otherwise have liberal tenancy laws, do
Political/Legal
not recognize sharecroppers as tenants.
Dimension
• A transparent land leasing laws that allow the potential tenant or sharecropper to engage in
written contracts with the landowner is a win-win reform for tenants and land owners alike.
Institutional • The Model Land Lease Act, 2016 prepared by the NITI Aayog, will bring uniformity in land
dimension leasing policies across the states.
Cultural dimension It will promote the idea of investment in land improvement, by tenants and land-owners.
• Informal tenants do not have access to institutional credit, insurance and other support services,
which affect productivity of land cultivated by them.
Economic dimension • Legalised land leasing will promote agricultural efficiency, equity and input reduction.
• Necessary infrastructure for enforcing the statute like digitisation of land records etc. needs to be
created.
►LAND RECORDS MANAGEMENT IN been noted that people with extensive rights to land are
better off than the landless, due to better access to markets
INDIA and other economic opportunities that come with land rights.
Land as an asset is unique because it is immovable, its value However the system of land record management is poor in
depends on its location, and with growing population, its India. Hereby discussing the reasons for it and steps needed.
demand keeps increasing, while its supply is limited. Access
to land (or land rights) has a wide-ranging impact on
livelihoods, industrial, economic, and social growth. It has
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LAND REFORMS
LAND RECORDS IN INDIA registration, several property divisions are not recorded,
• Land records consist of various types of information and hence, do not correctly reflect who is in possession of
(property maps, sale deeds) and are maintained across the property. This often leads to litigation related to
different departments at the district or village level. These rightful owner among heirs.
departments work in silos, and the data across  Poor maintenance of land records
departments is not updated properly. Hence, • Historically, land registration, and the maintenance of
discrepancies are often noted in land records. In the past, records has been done manually. Documents are usually
surveys to update land records have not been undertaken kept with the Revenue Department and are not easily
or completed, and maps have not been used to establish accessible to the public. This makes it difficult and
actual property boundaries on the ground. Therefore, in cumbersome to access land related data when trying to
several records, the property documents do not match the engage in a property sale. An individual has to go back
position on the ground. several years of documents, including manual records, to
• Poor land records also affect future property transactions. find any ownership claims on a piece of property.
It becomes difficult and cumbersome to access land  Multiple entities deal with land registration and
records when data is spread across departments and has records
not been updated. One has to go back several years of
• Land records are a combination of three types of data
documents, including manual records, to find any
records: (i) textual (RoR), (ii) spatial (maps), and (iii)
ownership claims on a piece of property. Such a process is
transaction details (sale deeds). Three different state
inefficient and causes time delays.
departments are responsible for each of this data on land
WHY LAND RECORDS ARE POOR IN INDIA? records. In the presence of multiple agencies responsible
 Land titles are presumptive for registration and maintenance of records, it is difficult to
• The current system of land records was inherited from the ensure that survey maps, textual data, and registration
pre-independence days (zamindari system), and has not records match with each other and are updated. In
changed much since then. These land records provided, in addition, citizens have to approach several agencies to get
addition to other details, information on who is in complete information on land records.
possession of land, and not who the owner is.  Reforms undertaken to improve the system of land
• This has resulted in a system, where ownership is records
established based on who is in current possession of the • In order to improve the quality of land records, and make
land. Such possession is determined through a sequence them more accessible, the central government
of past transactions of the land or property in question. implemented the National Land Records Modernization
The transfer of land or property between a buyer and Programme (now Digital India Land Records
seller is recorded through a sale deed, which needs to be Modernization Programme). It seeks to achieve complete
registered according to the current legal framework. computerisation of the property registration process and
Therefore, such registration of land refers to the digitisation of all land records.
registration of the transaction, and not the land title. Such • Other steps include: (i) amending laws across centre and
registration does not guarantee the title by the states, (ii) administrative changes at the state level that
government. This implies that even bonafide property streamline the collection and maintenance of land data,
transactions may not always guarantee ownership as an and (iii) ensuring that all data is regularly updated and
earlier transfer of the title could be challenged. easily accessible (on a digital platform).
 Registration of property is not mandatory for all • To address issues with land records, a move towards
transactions conclusive titling has been proposed. In a conclusive titling
• Under the Registration Act, 1908, registration of property is system, the government provides guaranteed titles, and
not mandatory for all transactions. These include compensation in case of any ownership disputes.
acquisition of land by the government, court decrees, land Achieving this will require shifting to a system of registered
orders, heirship partitions, and property that is leased for property titles (as opposed to sale deeds) as the primary
less than one year. Since heirship partitions do not require evidence of ownership, and having clear and updated land
107
LAND REFORMS
records. However, adopting a conclusive system of titling (v) development of core Geospatial Information System (GIS)
will require undertaking several measures. All existing land and capacity building.
records will have to be updated to ensure that they are • NLRMP (now DILRMP) intends to eventually move from the
free of any encumbrances. Information on land records, existing system of presumptive titles to conclusive and
which is currently spread across multiple departments, will state guaranteed titles. The conclusive title system is based
have to be consolidated. Further, several changes in on four basic principles: A single window system for land
existing laws that govern registration and transfer of land, records which will provide for the maintenance and
and institutional changes in maintenance of land records updating of textual records, maps, survey and settlement
will also have to be done. operations and registration of immovable property.
The major components of NLRMP/DILRMP are the following: • The cadastral records reflect all the significant and factual
(i) computerisation of all existing land records including details of the property titles.
mutations (or transfers); • The record of title is a true depiction of the ownership
(ii) digitization of maps, and integration of textual and spatial status, mutation is automatic following registration, and
data; the reference to past records is not necessary.
(iii) (survey/ re-survey, and updating of all survey and • Title insurance, which means that the government
settlement records including creation of original cadastral guarantees the title for its correctness, and will
records (record of the area, ownership and value of land) compensate the title holder against losses arising due to
wherever necessary; defects in the title.
(iv) computerisation of registration and its integration with
the land records maintenance system; and
SPICE APPROACH
• Land being a scarce and limited resource, its efficient management is critical for the empowerment
of lower strata of society.
Social dimension
• DILRMP will streamline complex land records and will help in reducing land disputes and increase
social harmony.
• Moving towards a conclusive titling system, where the government provides guaranteed titles,
and compensation in case of any ownership disputes.
Political/Legal
• Effective implementation of National Land Records Modernization Programme (now Digital India
Dimension
Land Records Modernization Programme) by integrating and developing the Geospatial
Information System (GIS) into DILRMP.
• Land records consist of various types of information (property maps, sale deeds) and are
maintained across different departments at the district or village level. These departments work in
Institutional
silos, and the data across departments is not updated properly.
dimension
• Therefore, a common access and digitised land records platform is vital for success of any land
reform measures.
Land titles are presumptive in nature, where ownership is established based on who is in current
Cultural dimension
possession of the land. DILRMP will change this notion.
Economic Clear and transparent land titles along with model land leasing act will promote investment in land
dimension including foreign direct investments
108
LAND REFORMS
►LAND DEVELOPMENT BANKS IN • Financing priority areas like water-shed development in

rainfed areas and wastelands development including
INDIA afforestation.
A land development bank is a quasi-commercial type of bank ISSUES IN FUNCTIONING OF LAND DEVELOPMENT BANKS
that provides services such as accepting deposits, making
• Loans given by them are predominantly for discharging of
business loans, and offering basic investment products. The main
prior debts and not for purpose connected with land
objective of the LDB is to promote the development of
improvements.
land, agriculture and increase the agricultural production. The
LDB provides long-term finance to members directly through its • They are not able to raise sufficient funds although their
branches. debentures are guaranteed by the State Governments.
Hereby discussing the concept, benefits and challenges related to • There is no co-ordination between the activities of State
it. Co-operative Bank and Land Development Bank.
STRUCTURE OF THE LAND DEVELOPMENT BANKS • On account of red-tapism, there are the usual delays up to
more than a year in granting loans.
These Banks have two-tier structure:
• They give loans only up to 50 per cent of the value of the
• Primary Land Development Banks (PLDB): These banks
land mortgaged. Thus, a very high margin is kept.
were originally organized to cover one or a few taluks in
the district. At present they are eligible to cover one • They adopt complicated procedures which ultimately force
development block. All land owners are eligible to become the illiterate farmers to resort to moneylenders to meet
members and borrow funds by mortgaging their land. The their financial requirements.
principal borrower is enrolled as “A‟ class member and • Inadequacy of trained personnel.
others who have interest in the mortgaged property are
• Mounting overdues in most of the LDBs have crippled the
admitted as „B‟ class members.
structure badly, in recent years. Overdues have caused
• Central Land Development Bank (CLDB): These innumerable financial problems besides limiting the
members of the CLDBs are the PLDBs and a few individual capacity of LDBs to lend and operate as viable units.
promoters. It grants long-term loans to agriculturists
RECOMMENDATIONS
through the PLDBs and branches of CLDBs. It raises funds
through floating debentures, which are guaranteed by the • Public Land Bank (PLB) at the panchayat level should be
State Government. When PLDB obtains loan from the set up. This would regulate and rationalise land demand
CLDB, it assigns the mortgage deeds obtained from the and supply. The PLB would take ‘deposits’ of land from
borrowers to the CLDB. The CLDB floats debentures and landowners wanting to lease out their land, with the surety
raises funds against the security of these properties. The that they could withdraw their deposit when they wanted.
NABARD and LIC subscribe for the debentures in large The deposit could be for one season, one year, or three
amounts and the former also extends refinance assistance years and more. On deposit the farmers would get a small
to LDBs. payment as incentive, the amount varying by the period of
deposit (analogous to a current account, savings account,
FUNCTIONS
and fixed account in a financial bank). The incentive
• It finances farm mechanisation, horticulture and plantation amount could be calibrated to a percentage of the
and land development and improvement. prevailing average land rent in the panchayat. The
• They are financing other non-land based activities like landowner would receive an additional fee when the land
dairy, poultry, sheep and goat, fishery, bio-gas and bullock is leased out.
carts since last few years. • The PLB would lease out the land under its command to
• They are providing rural housing by financing farmers in specially designated categories of disadvantaged farmers,
some states under refinance support of the National such as marginal farmers, women, dalits, and tribals,
Housing Bank. whether leasing as individuals or in groups. These lessees
would get a guaranteed lease, fixed after assessing land
quality, and in a consolidated plot where possible.
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LAND REFORMS
Institutional finance and other support could also be gets leased out; (iii) development of the land in terms of
provided. soil conservation and so on, via MGNREGA or other means.
• There can be several incentives for farmers to deposit their (iv) government guarantee to protect the owner, with
land in the PLB: (i) a minimum rent from the PLB even for owners being free to withdraw their land from the Bank
fallow land; (ii) an additional ‘topping up’ rent for land that with due notice.
SPICE APPROACH
• Land being a scarce and limited resource, its efficient management is critical for the
empowerment of lower strata of society.
Social dimension
• Land development provide long term loans to the farmers which help in financing farm
mechanisation, horticulture and plantation, land development, dairy, fisheries, etc.
• The Reserve Bank of India had appointed a Committee on Co-operative Land Development Banks,
under the chairmanship of Shri K.M. Das in 1973 to examine the working of land development
banks.
• The Committee submitted its Report in December 1974 and made a number of
Political/Legal recommendations, such as: (1) there should be an integration of the short-term and long-term
Dimension credit structures. (2) concrete efforts should be made to recover overdues, (3) lending operations
of LDBs should be diversified by linking them with specific and other rural developmental
programmes, (4) there should be strengthening of the technical and managerial staff.
• No adequate steps have been taken by the state governments to implement these
recommendations.
• These Banks have two-tier structure

a) Primary Land Development Bank at district level with branches at taluka level.
Institutional b) State Land Development Bank. All primary Land Development Banks are federated into Central
dimension Land Development Bank at the State Level. In some States, there is “ Unitary structure” wherein,
there is only one State Land Development Bank at the state level operating through its branches
and sub-branches at district and below levels.
Cultural Dimension
• The long-term finance required by the agriculturists for the purchase of agricultural machinery
and for effecting permanent improvements on land cannot be provided by commercial banks and
co-operative banks for the reason that these institutions obtain most of their funds in the shape
Economic
of short-term deposits.
dimension
• However, LDBs provide long-term credit to agriculturists at moderate rates of interest and
providing for the repayment of loans in easy annual or semiannual installments spread over a
number of years.
110
SECTION-6
FOOD
SECURITY AND
PDS
FOOD SECURITY AND PDS
►PUBLIC DISTRIBUTION SYSTEM- Leakages in PDS: Leakages refer to food grains not reaching
intended beneficiaries. Leakages may be of three types: (i)
REFORMS pilferage during transportation of food grains, (ii) diversion at
INTRODUCTION fair price shops to non-beneficiaries, and (iii) exclusion of
entitled beneficiaries from the list. Expert studies have shown
The TPDS provides subsidized grain through a network of
that PDS suffers from nearly 61% error of exclusion and 25%
more than 5 lakh fair price shops (FPSs) across the country
inclusion of beneficiaries
targeting around 800 million people. The Scheme is one of
the largest social security schemes accounting for around 1% In February 2017, the Ministry made it mandatory for
of India's GDP. beneficiaries under NFSA to use Aadhaar as proof of
identification for receiving food grains. Through this, the
In 2013, the scope and mandate of the TPDS expanded
government aims to remove bogus ration cards, check
significantly through passage of the National Food Security
leakages and ensure better delivery of food grains.
Act (NFSA). The NFSA combines entitlements from three core
programs: the TPDS, which targets food-insecure households; MOVEMENT
the Mid-Day Meal Scheme, a school-based feeding program • Absence of truck tracking system leading to delayed
targeting children ages 6–14 years; and Integrated Child delivery, diversions, siphoning etc.
Development Services, a supplementary feeding program
• Non-standard transportation rates
targeting children between 6 months and 6 years and
pregnant and lactating women. The NFSA entitles 50 percent • Cartel formation by transporters
of the urban population and 75 percent of the rural • Late submission of demand drafts/cash by FPS for lifting
population to receive food benefits under the TPDS, which is leads to sub optimal route planning
the largest of these programs
STORAGE AND QUALITY CONTROL
ROLE OF CENTRE-STATE IN PDS
• Non-availability of stock positions in few states leads to
CENTRE inappropriate allocation and excess stock build up at
• Responsible for procuring or buying food grains, such as intermediary storage points
wheat and rice, from farmers at a minimum support price. • Poor quality of packaging leads to loss of food grains
It also allocates the grains to each state on the basis of a
• Extensive use of hooks leads to spillage
formula. Within the total number of poor in each state,
state governments are responsible for identifying eligible • Insufficient godown capacity of intermediate storage
households. points result in multiple shipments
• The centre transports the grains to the central depots in • Temperature fluctuations due to weather leads to
each state. After that, each state government is variations in weight of food grains
responsible for delivering the allocated food grains from • Loss of food grains due to infestation
these depots to each ration shop. The ration shop is the
• Manpower shortage leads to delay in dispatches and non-
end point at which beneficiaries buy their food grains
compliance to policies
entitlement.
• As of 2016-17, the total storage capacity in the country is
ISSUES/CHALLENGES IN PDS
788 lakh tonnes, of which 354 lakh tonnes is with the Food
ALLOCATION Corporation of India and 424 lakh tonnes is with the state
• Non – availability / delay of utilization information to the agencies.
Centre from States. • The CAG in its performance audit found that the available
• Non - availability / delay of closing balance details and storage capacity in states was inadequate for the allocated
updated card status at State level from the districts, block quantity of food grains.
and FPS levels. LICENSING AND REGULATION
• Inaccurate data reporting by FPS • Inadequate monitoring leading to diversion of stock
• Longer time taken for allocation cycle • Selection of inappropriate dealer leading to malpractices
112
• Lack of standard selection procedure and guidelines • He suggested two-phase strategy to use IT to improve the
GRIEVANCE REDRESSAL PDS network and provide direct subsidy to poor, besides
checking pilferage in the process.
• Absence of response and monitoring mechanism because
of which, higher authorities are unaware of number and • Nilekani Committee suggested providing the following
status of grievances registered and thus grievances are not choices to the people to avail PDS.
getting resolved on time • Entitlement choice: choice to the beneficiaries in
• Lack of integration between various complaint and receiving their entitlements in kind (food/kerosene) or
registration channels leads to multiple actions at different cash.
levels • Location choice: choice of the location from which the
• Recommendations of different panels beneficiary can get his/her entitlement from.
• Nandan Nilekani Recommendations • Commodities Choice: Choice to the beneficiaries of the

commodities to suit their taste
 TECHNOLOGY-BASED REFORMS TO TPDS UNDERTAKEN BY SOME STATES
TYPE OF STATES IMPLEMENTING

BENEFITS OF REFORM
REFORM REFORMS
• Allows for online entry and verification of beneficiary data Andhra Pradesh. Chhatbsgarh.
Digitisation of
• Online storing of monthly entitlement of beneficiaries, number of Tamil Nadu, Madhya Pradesh.
ration cards
dependants, offtake of food grains by beneficiaries from FPS, etc. Kamataka. Gujarat, etc.
• Computenses FPS allocation, declaration of stock balance, web-based

Computensed Chhattisgarh. Delhi. Madhya
truck chafians. etc.
allocation to FPS Pradesh, Tamil Nadu, etc.
• Allows for quick and efficient trackinq of transactions
• Secure electronic devices used to store beneficiary data

Issue of smart
• Stores data such as name, address, biometrics, BPUAPL category and Haryana. Andhra Pradesh,
cards in place of
monthly entitlement of beneficiaries and family members Orissa, etc.
ration cards
• Prevents counterfeiting
Use of Global Positioning System (GPS) technology to track movement of

Use of GPS Chhattisgarh, Tamil Nadu
trucks carryinq feed qrams from state depots to FPS
Allows monitoring by citizens so they can register their mobile numbers

SMS based Chhattisgarh, Uttar Pradesh.
and send / receive SMS alerts during dispatch and arrival of TPDS
monitoring Tamil Nadu
commodities
Use of web-based Publicises grievance redressal machinery, such as toll free number for
Chhattisgarh
citizens' portal call centres to reqister complaints or suggestions
SHANTA KUMAR COMMITTEE of beneficiaries online for anyone to verify, and have not
• Need for End to End Computerisation: Given that set up vigilance committees to check pilferage from PDS.
leakages in PDS range from 40 to 50 percent, Government • Reducing the Coverage: Reduce the current coverage of
should defer implementation of NFSA in states that have 67% of the population under NFSA to 40% (comfortably
not done end to end computerization; have not put the list cover BPL families and some even above that)
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• Increasing the Food grains: The amount of food grains • Storage, movement and Transport of Food Grains: FCI
should be increased to 7kg/person from the present 5kg should outsource its stocking operations to various
grain per person. agencies such as Central Warehousing Corporation, State
• Pricing: Antyodaya households can be given grains at Rs Warehousing Corporation to bring down costs of storage.
3/2/1/kg for the time being, but pricing for priority Covered and plinth (CAP) storage should be gradually
households must be linked to MSP, say 50 percent of MSP phased out. The Movement of grains needs to be gradually
containerized to reduce transit losses.
• Timely Allocation: Targeted beneficiaries should be given
6 months ration immediately after the procurement • Buffer Stocks: During the last five years, on an average,
season ends. This will save the consumers from various buffer stocks with FCI have been more than double the
hassles of monthly arrivals at FPS and also save on the buffer stocking norms costing the nation thousands of
storage costs of agencies. crores of rupees loss without any worthwhile purpose
being served. The underlying reasons for this situation are
• Cash Transfers: Gradual introduction of cash transfers in
many, starting with export bans to open ended
PDS, starting with large cities with more than 1 million
procurement with distortions. There has to be a
population; extending it to grain surplus states, and then
comprehensive liquidation policy which gives sufficient
giving option to deficit states to opt for cash or physical
amount of flexibility to FCI to either export or sell the
grain distribution. This would lead to saving of Rs 30,000
surplus stocks in the market.
crores.
 PDS VS. CASH TRANSFERS - A COMPARISON
Advantages and disadvantages of PDS and other delivery mechanisms
MECHANISM ADVANTAGES DISADVANTAGES
• Low offtake of food grains from each

• Insulates beneficiaries from inflation and price
household
volatility
• High leakage and diversion of subsidised food
PDS • Ensures entitlement is used for food grains only
grain
• Well-developed network of FPS ensures access to
• Adulteration of food grain
food grains even in remote areas
• Lack of viability of FPS due to low margins
• Cash in the hands of poor increases their choices

• Cash may relieve financial constraints faced by the • Cash can be used to buy non-food items
poor, make it possible to form thrift societies and • May expose recipients to price volatility and
Cash transfers access credit inflation
• Administrative costs of cash transfer programmes • There is poor access to banks and post offices
may be significantly lesser than that of other schemes in some areas
• Potential for making electronic transfer
• Household is given the freedom to choose where it

• Food coupons are not indexed for inflation;
buys food
may expose recipients to inflation
• Increases incentive for competitive prices and assured
Food coupons • Difficult to administer; there have known to be
quality of food grains among PDS stores
delays in issuing food coupons and
• Ration shops get full price for food grains from the
reimbursing shops
poor, no incentive to turn the poor away
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SPICE APPROACH
• Production does not automatically guarantee consumption. PDS provides food at affordable rate
to the beneficiaries.
• At present total 23.4 crore ration cards are covered under NFSA comprising 21.2 crore PHH ration
cards and 2.2 crore AAY ration cards.
• The Act also has a special focus on the nutritional support to women and children. Besides meal
Social dimension to pregnant women and lactating mothers during pregnancy and six months after the child birth,
such women will also be entitled to receive maternity benefit of not less than Rs. 6,000.
• Children upto 14 years of age will be entitled to nutritious meals as per the prescribed nutritional
standards.
• In case of non-supply of entitled foodgrains or meals, the beneficiaries will receive food security
allowance.
PDS is governed by following laws:

• TPDS is administered under the Public Distribution System (Control) Order 2001, notified under
the Essential Commodities Act, 1955 (ECA). It regulates prices, cultivation and distribution of
Political/Legal essential commodities.
Dimension • “Right to food” is essential to the right to life hence depicted through Article 21 of the Constitution
through PUCL vs. Union of India, 2001.
• The National Food Security Act gives statutory backing to the TPDS. This legislation marks a shift
in the right to food as a legal right rather than a general entitlement.
• The centre procures food grains from farmers at a minimum support price (MSP) and sells it to
states at central issue prices.
• It is responsible for transporting the grains to godowns in each state. States bear the
Institutional
responsibility of transporting food grains from these godowns to each fair price shop (ration
dimension
shop).
• The Food Corporation of India (FCI) is the nodal agency at the centre that is responsible for
transporting food grains to the state godowns.
Cultural dimension Establish Right to equality and Right to life to all irrespective of caste and religion.
The AoA is the Agreement on Agriculture which was framed two decades agriculture. This
agreement did allowed market distorted subsidies up to a level of 10% of the total production. But,
Economic
since the last two decades the subsidies have also increased and due to the implementation of the
dimension
Food and Security Act, 2013 India apprehends that it would breach the 10 percent mark. Hence India
has signed Peace Clause for the special safeguard.
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SECTION-7
INFRASTRUCTURE
AND INVESTMENT
MODELS
INFRASTRUCTURE AND INVESTIMENT MODEL
►ROAD TRANSPORT being recorded daily. In 2013, India had an accident

death rate of 18.9 for every 100,000 people, higher than
The road sector in India accounts for the largest share in the other many other South Asian countries.
movement of both passengers and freight and this is
d) Cost escalation for roads: Delays in acquiring land can
reflected in the jump in the total number of registered
affect project costs as the average cost of land has
vehicles which was 58. 9 million in 2001-2 to 182.4 million in
escalated from Rs. 0.80 crore per hectare during 2012-13
2012-12. However, the major problems identified in urban
to Rs. 3.20 crore per hectare during 2017-18.
areas is a) access to the public transport and b) quality of
public transport. Moreover, in urban areas, the increasing WAY FORWARD
use of personal vehicular transport leads to road congestion, a) Increase connectivity by expanding the road network
longer journey times and higher levels of air and noise through four projects:
pollution.
• Bharatmala Parijojana Phase-1 which will complete 24,800
Niti AAYOG in its paper “Strategy for New India @ 75 has km by 2021-22.
highlighted following objectives by 2022-23:
• Special Accelerated Road Development Program for the
a) Increase connectivity by expanding the road network North-Eastern region which will improve 4099 km of road
• Achieve the Bharatmala Phase-I target by completing in the region.
24,800 km by 2021-22, including 2,000 km of coastal and • North East Road Network Connectivity Project Phase 1 to
port connectivity roads. improve infrastructure in Meghalaya and Mizoram and to
• Complete Phase I of the Pradhan Mantri Gram Sadak enhance connectivity with inter-state roads and
Yojana (PMGSY) with quality monitoring at every stage. international borders.
• Double the length of national highways (NHs) to 2 lakh • Chardhaam Mahamarg Vikas Pariyojana
km by 2022-23 from the existing 1.22 lakh km. Apart from these government will work to improve the
• Widen single/intermediate lane (SL/IL) NHs and reduce implementation capacity of the states and Union
the length of SL/IL NHs to less than 10 per cent of total Territories through institutional strengthening and
length by 2022-23 from the present 26.46 percent. training, establishment of a dedicated Metropolitan Urban
Transport Authority by 2022-23 in cities which have a
b) Improve the regulatory framework for roads to achieve
population of million plus.
better compliance, seamless connectivity, road safety and
quality. b) Improve road maintenance and safety is targeted by
adopting maintenance management system (MMS),
c) As a signatory to the Brasilia Declaration, reduce the
imposing heavy penalties on contractors for poor quality
number of road accidents and fatalities by 50 per cent by
of operation and maintenance and making changes in the
2020.
Motor Vehicle (Amendment) Bill 2016 to constitute a
CONSTRAINTS National Safety Board to enforce road safety rules.
a) Capacity of existing highways: The existing length of the c) Streamlining land acquisition will be ensured through
NH network is 1.22 lakh km, which is 2.2 per cent of the Bhoomi Rashi web portal, which is integrated with the
country’s total road network of 56.03 lakh km. National Ministry of Finance’s Public Financial Management System
and state highways are already overstrained, carrying (PFMS), is fully functional by March 2019. Sensitize
more than 65 per cent of the road traffic. National stakeholders to iron out details of land acquisitions like
highways carry 40 per cent of India’s total road traffic. determining market value, deciding a compensation
b) Maintenance of existing infrastructure: The annual amount, disbursement of compensation, etc., as detailed
outlay earmarked for maintenance and repair of in the 2017 guidelines issued by Ministry of Road
national highway stretches is only about 40 per cent of Transport and Highway.
the funds required. This is one of the main reasons for d) Skill development is another key area where we need to
the inability to take up timely maintenance interventions. work by starting vocational courses on road construction
c) Accidents and safety concerns: Road safety is a major in it is, training the commercial vehicle drivers through
issue in the country with nearly 400 road related deaths collaboration with original equipment manufacturers. The
117
Ministry has targeted to train around 2.5 lakh people by OBJECTIVES

2019. By 2022-23, India should have a rail network that is not only
e) Increased emphasis on research and development by efficient, reliable and safe, but is also cost-effective and
earmarking 0.1% of ministry’s budget for R&D, establishing a accessible, both with respect to the movement of people and
transport data centre at the national level for applied goods.
research on roads, developing new construction material, This requires achieving the following objectives:
enhancing R&D on IT enabled traffic management systems
• Augment the capacity of existing railway infrastructure.
etc.
• Increase the speed of infrastructure creation from the
f) Increase the capacity and reach of public transport is
present 7 km/day to 19 km/day by 2022-23.1
the need of the hour and the government is the process to
transform State Road Transport Undertakings. Government is • Achieve “100 per cent”2 electrification of broad gauge track
also ensuring steps to ensure last mile connectivity for by 2022-23 from the 40 per cent level in 2016-17.
people. • Increase the average speed of freight and mail/express
Bharatmala Pariyojana is a new umbrella program for the trains to 50 km/hr (from about 24 km/hr in 2016-17) and
highways sector that focuses on optimizing efficiency of 80 km/hr (from about 60 km/hr), respectively.
freight and passenger movement across the country by • Improve the safety of the railways, achieving zero fatalities
bridging critical infrastructure gaps through effective from the 2016-17 level of 238 fatalities and reducing the
interventions like development of Economic Corridors, Inter number of accidents from the 73 recorded in 2017-18.4
Corridors and Feeder Routes, National Corridor Efficiency
• Enhance service delivery, achieving 95 per cent on-time
Improvement, Border and International connectivity roads,
arrivals by 2022-23.5
Coastal and Port connectivity roads and Green-field
expressways. • By 2022-23, the railways should have a freight load of 1.9
billion tonnes and an improved modal share of 40 per cent
Highlights:
of freight movement from the current level of 33 per
a) Improvement in efficiency of existing corridors through cent.6
development of Multimodal Logistics Parks and
• Increase the share of non-fare revenues in total revenue to
elimination of choke point
20 per cent.
b) Enhance focus on improving connectivity in North East
CONSTRAINTS
and leveraging synergies with Inland Waterways
1. Congested networks: Over-stretched infrastructure with
c) Emphasis on use of technology & scientific planning for
60 per cent plus routes being more than 100 per cent
Project Preparation and Asset Monitoring
utilized, leading to a reduction in average speed of
d) Delegation of powers to expedite project delivery - Phase passenger and freight trains.
I to complete by 2022
2. Organizational structure: Delays in decision making,
e) Improving connectivity in the North East inadequate market orientation and long project approval
durations lead to slow turnover times and delays in the
implementation of railways projects.
►RAILWAYS 3. Internal generation of resources: Negligible non-fare
Indian Railways is the fourth largest railway network in the revenues and high freight tariffs have led to a sub-optimal
world in terms of route kilometers. As on 31 March 2011, it freight share. The lower relative cost of transporting
has a total route length of 64,460 km of which 21,034 km is freight by road has led to a decline in the share of the
electrified. The total track length is 1,13,994 km of which railways. Low and static prices for the passenger segment
1,02,680 km is broad gauge, 8,561 km is meter gauge and have also contributed to low internal generation of
2,753 km is narrow gauge. Considering the requirements of resources.
the economy and size of the country, the expansion of the 4. Safety and poor quality of service delivery: There have
railway network has been inadequate. been a number of accidents and safety issues in the IR in
recent years. Poor cleanliness of trains and stations, delays
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in train departures/arrivals, quality of food and difficulties ο Protect consumer interests, promote competition,
in booking tickets are key issues. efficiency and economy and ensure a fair deal to
5. Efficiency of terminals: Poor terminal facilities lengthen stakeholders and customers.
loading and unloading times. Eighty per cent of railway ο Help attract investment, promote efficient resource
loads come from terminals. The functioning of terminals allocation, benchmark service standards and enforce
needs to be strengthened to improve rail freight. standards.
6. Economies of scale: The lack of scale economies ο Put in place measures to absorb new technologies and
especially impact management quality and system develop human resources.
accountability. ο Provide a framework for non-discriminatory open access
WAY FORWARD to the dedicated freight corridors
Better utilization of existing infrastructure to address
congestion: Prioritize ongoing projects to improve capacity
utilization. We need to maintain and upgrade the existing ►PORTS & SHIPPING AND INLAND
network to ensure that supply keeps up with demand. Ensure WATERWAYS
that the dedicated freight corridors (DFCs) and the Mumbai-
Ahmedabad High Speed Rail (MAHSR) are completed on India has a coastline spanning about 7,500 km, forming one
schedule. of the biggest peninsulas in the world. Around 90 per cent of
India’s external trade by volume and 70 per cent by value are
Ease organizational rigidity through structural reforms:
handled by ports. Twelve major ports and 205 non-major
Consider opening up the ownership and operations of freight
ports operate on India’s coast. Yet, roads and railways
terminals and ownership of locomotives and rolling stock to
continue to be the dominant mode for cargo movement.
the private sector under a transparent, neutral (nonrailway)
Despite being the most cost-effective and efficient mode,
and fair regulatory mechanism. Separate suburban
water transport accounted for 6 per cent of freight transport
passenger transport from the rest of the network and put a
in India in 2016-17.
light rail network in place in all major urban areas under local
governments. The total cargo handling capacity at major and nonmajor
ports stands at 2161.85 MMT5 as on March was 52.44 per
Rationalize fare structures and subsidies, and monetize
cent. During 2016-17, the total cargo throughput through
assets to generate revenues: Revisit IR’s pricing model to
major and non-major ports was 1133.69 MMT.
make the passenger and freight segments sustainable.
Freight tariffs should be competitive with the cost of road The Ministry of Shipping’s Sagarmala programme focuses on
transportation. Expedite the process of establishing the Rail modernizing and developing ports, enhancing port
Development Authority (RDA), already approved by the connectivity, supporting coastal communities and stimulating
government. Apart from this, monetization land resources port-linked industrialization (Figure 16.2). Sagarmala aims to
and increase retail revenue from railway station. reduce the logistics costs for foreign and domestic trade,
leading to an overall cost savings of INR 35,000 to INR 40,000
Enhance safety of trains to reduce accidents and
crore annually by 2025. It also aims to double the share of
modernize stations: The government has created the
water transportation in the modal mix.
Rashtriya Rail Sanraksha Kosh (RRSK) in 2017-18 to address
critical safety related issues. Eliminate level crossings and The government has set up the Sagarmala Development
cattle crossings and fence railway tracks in areas with high Company Limited (SDCL) to provide funding support to
levels of activity to prevent accidents. special purpose vehicles (SPVs) set up to implement projects
and the Indian Port Rail Corporation Limited (IPRCL) to
Set up an independent regulator for the Indian Railways:
undertake portrail connectivity projects under Sagarmala.
The government has already approved the formation of the
RDA, an independent regulator for IR in February, 2018. The INLAND WATERWAYS
regulator’s functions will include the following: Inland Water Transport (IWT) carries less than 2 per cent of
ο Take decisions regarding price regulation and India’s organized freight traffic and negligible passenger
enhancement of non-fare revenue. traffic. The annual freight volumes carried on inland
waterways using National Waterways (NW-1, NW-2, and NW-
119
3) and Goa Waterways was 21.91 MMT in 2016-17. this may present a barrier to inland navigation, as the
Additionally, Maharashtra Waterways alone transported regulations may not take into account safety
more than 33.29 MMT. considerations.
CONSTRAINTS WAY FORWARD
1. Modal mix: Roads (54 per cent) continue to be the 1. Open up India’s dredging market: At present, the
dominant mode of transporting cargo, followed by rail (33 Dredging Corporation of India (DCI) and a limited set of
per cent). Transportation of cargo through waterways – private vendors serve the Indian dredging market, limiting
shipping and inland water – accounts for a minuscule competition. Foreign players will be attracted to the
modal share (6 per cent) despite it being the most cost market if the government takes measures such as
effective and efficient mode. consolidating dredging contracts across cohorts of ports
2. Draught levels: Most Indian container handling ports lack and withdrawing, at least temporarily, the right to first
the capability to handle large container vessels due to refusal given to Indian vendors.
inadequate depth; a minimum draft depth of 18 metres is 2. Expedite the implementation of Sagarmala: Faster
needed to enable mother vessels to dock at ports. With completion of various projects under Sagarmala, especially
international trade leaning towards the more economically those aimed at improving port connectivity, setting up
viable mother vessels, shallow draft adversely affects a coastal economic zones (CEZs) and establishing new ports.
port’s potential to become a hub port. The setting up of a single window facility for cargo
3. Connectivity to ports: Weak hinterland connectivity clearance and putting in place fully mechanized cargo
between production centres and gateway ports often leads handling infrastructure will be critical to increase
to higher costs and delays because of sub-optimal mode throughput.
choices. 3. Enhance last mile connectivity to inland waterways:
4. Transhipment port: A large percentage of containers in IWT should be integrated to multimodal/ intermodal
India are currently transhipped through other ports, such connectivity. Inland terminals with proper road and/or rail
as Colombo (just south of India), Singapore (East), connectivity and seamless transfer of goods from one
Dubaiand Salalah (West) due to the absence of a mode to the other are important for an efficient logistics
transhipment port in the country. This has led to additional supply chain.
costs and delays due to the feeder voyage from India to 4. Facilitate access to capital for inland vessels: Financing
the hub port. for inland vessels could be made part of priority sector
5. Charges by the shipping lines: The business practices of lending by banks. Categorizing inland vessels as
shipping lines have played a key role in the present infrastructure equipment will further ease access to capital
negative perception of sea transport. A long pending issues for a sector where capital investments and
concern has been the high rate and multiplicity of charges operational costs are high.
imposed by shipping lines. 5. Address technical and regulatory constraints in inland
6. Capital for inland vessels: At present, the cost of capital waterways to ease movement of inland vessels: CCEA,
is very high and makes IWT freight uncompetitive. It is chaired by the Hon’ble Prime Minister approved the
difficult to attract capital for building inland vessels as it is implementation of the Jal Marg Vikas project (JMVP) to
a significant investment. augment the capacity of National Waterway-1 (NW-1) with
technical assistance and investment support from the
7. Technical issues in inland waterways: The varying and
World Bank at a cost of INR 5369.18 crore. We must ensure
limited depths due to the meandering and braiding of
that the project is completed by March 2023.6
alluvial rivers and the erosion of their banks causing
excessive siltation, lack of cargo earmarked for IWT, non-
mechanized navigation lock systems and insufficient
unloading facility at terminals hinder the use of IWT by
shippers.
8. Regulatory issues for inland waterways: States’ Ferries
Acts from various years govern cross ferry movement and
120
 WATERWAYS IN INDIA
SL.
NATIONAL WATERWAY NO. LENGTH (KM) LOCATION (S)
NO.
National Waterway-1: Ganga-Bhagirathi-Hooghly River System (Haldia - Uttar Pradesh, Bihar,

1. 1620
Allahabad) Jharkhand, West Bengal
2. National Waterway 2:Brahmaputra River (Dhubri - Sadiya) 891 Assam
National Waterway 3:West Coast Canal (Kottapuram - Kollam),

3. 205 Kerala
Champakara and Udyogmandal Canals
National Waterway 4
4. 82 Andhra Pradesh
(Phase-I : Vijaywada to Muktyala)
National Waterways in Maharashtra 45

i) National Waterway 10 (AMBA RIVER) Maharashtra
5.
ii) National Waterway 85 (REVADANDA CREEK - KUNDALIKA RIVER 31
SYSTEM)
National Waterways in Goa 17
i) NW-27-Cumberjua – confluence with Zuari to confluence with Mandovi

river (17 km) 41
6.
ii) NW 68 – Mandovi– Usgaon Bridge to Arabian Sea (41 km)
iii) NW 111 – Zuari– Sanvordem Bridge to Marmugao Port (50 km). 50
Goa
NW – 9: Alappuzha – Kottayam – Athirampuzha Canal Boat Jetty,

7. 38 Kerala
Alappuzha to Athirampuzha (38 km) in Kerala.
8. NW-100: TAPI RIVER 173 Gujarat
West Bengal
(through Indo-
9. NW-97: Sunderbans Waterways 201
Bangladesh Protocol
Route)
►MODEL BIT It is to be noted that in 2016, the Indian Government decided

to replace the Bilateral Investment Treaties with the Model
CONTEXT BIT.
The recent decline in the FDI inflows into India has been WHAT IS BILATERAL INVESTMENT TREATY?
attributed to unilateral termination of Bilateral Investment
Bilateral investment Treaties (BITs) are agreements between
Treaties by India with more than 60 countries.
two countries for the reciprocal promotion and protection of
121
investments in each other's territories by individuals and been replaced by Enterprise based definition under the
companies situated in either State. BITs encourage foreign model BIT. Asset based definition considers every kind of
investors to invest in a State and there by contributing asset – both movable and immovable including the IPRs as
towards overall developments and advancements of the investment and gives protection under treaties. Moving away
economy. from an asset-based approach to an enterprise-based
Some of the important features of the BITs are: approach aims at narrowing the scope of investments to be
protected and thus seeks to reduce the number of BIT claims
• Fair and Equitable Treatment (FET): Mandates States to
that can be brought against India.
have a stable and predictable legal framework regulating
investments which meets the reasonable expectations of • Exclusion of MFN treatment: In recent years, some
the investors. foreign investors have sued India arguing that they have to
get the same beneficial treatment given to companies
• Full Protection and Security (FPS): Mandates States to
from other countries. Accordingly, India has dropped MFN
provide full protection and safety to foreign investments.
Clause from the Model BIT.
• National Treatment: The foreign investors should be
• Conditions for initiating arbitrations at international
treated at par with the domestic investors.
arbitrations: The Model BIT stipulate that the aggrieved
• Most Favourable Nation Treatment (MFN): Concession investor should use all local remedies as well as
extended to foreign investor of a particular country would negotiations and consultations before initiating
be extended to foreign investors of other countries. arbitrations against the host State. Investor can use
• Expropriation (Taking over property): Bars the state outside remedies only five years after resorting to all
from expropriating the foreign investments except under domestic arrangements.
exceptional circumstances. • Corporate Social Responsibility: The Model BIT
• Repatriation of Investment and Returns: Mandates the mandates foreign investors to voluntarily adopt
states to provide unrestricted power to the foreign internationally recognized standards of corporate social
investors to repatriate their investments and returns. responsibility.
• Investor State Dispute Resolution (ISDS): Foreign CONCERNS RAISED WITH RESPECT TO MODEL BIT
investors can directly initiate arbitration proceeding The unilateral termination of BITs by India has led to
against a State without approaching its own government. decrease in FDI Inflows into India. Apart from that, since such
To handle such a dispute, an ad-hoc tribunal may be set up treaties work on reciprocal basis, the Indian investors in other
in accordance with the Arbitration rules of the United countries do not have the option to sue the foreign
Nations Commission on International Trade Law. governments.
REASON FOR TERMINATION OF BITS WAY FORWARD
The BITs signed by India gave extensive protection to the The Indian BITs should strike a balance between the interests
foreign investment with scant regard for state's interests of foreign investors and those of the state. A well-balanced
based on the neoliberal model. For example, a number of BIT framework coupled with transparency, clarity and
foreign corporations slapped ISDS notices against India consistency in the domestic regulations would enable India to
challenging a wide array of regulatory measures such as the attract more FDI inflows.
imposition of retrospective taxes (Vodafone case),
cancellation of spectrum licences and revocation of telecom
licenses. ►SPECIAL ECONOMIC ZONES IN INDIA
These ISDS cases against India led to a fundamental rethink WHAT ARE SPECIAL ECONOMIC ZONES?
and review of BITs in India leading to the adoption of Model
• SEZs is a geographical area that has economic laws
BIT in 2016.
different for a country’s general economic laws. They are
IMPORTANT PROVISIONS OF MODEL BIT delineated duty-free enclaves and shall be deemed to be
Enterprise based definition of investment: The asset foreign territory for the purpose of trade, duties and
based definition of the investment under the earlier BITs has tariffs.
122
• India enacted The Special Economic Zones, 2005 Act which SEZ EXPERIENCE IN OTHER COUNTRIES:
provided for the establishment, development and China: Focussd on enabling a limited number of zones, large
management of the SEZs for the promotion of exports. size to achieve agglomeration benefits and maintained long-
• The SEZ law also provides for establishment of term focus on these zones
International Financial Services Centre and Free Trade and RECOMMENDATIONS OF BABA KALYANI COMMITTEE:
Warehousing Zones.
The committee advocated for a strategic shift in purpose and
• GIFT city in Gujarat has been established under this law. principles of the SEZs in India with the objective of moving
ENVISAGED PURPOSE FOR CREATION OF SEZS: from islands of exports to catalysts of economic and
• Generation of additional economic activity employment growth.
• Promotion of exports of goods and services • Framework shift from export growth to broad-based
Employment and Economic Growth (Employment and
• Promotion of investment from domestic and foreign
Economic Enclaves-3Es).
sources
• Formulation of separate rules and procedures for
• Creation of employment opportunities
manufacturing and service SEZs.
• Development of infrastructure facilities
• Shift from supply driven to demand driven approach for
• Provide globally competitive and hassle free environment 3Es development to improve efficiency of investment-
for companies engaged in exports for goods and services based on certain industries, current level of existing
BENEFITS TO SEZS INCLUDE: inventory in the region.
• Tax holidays • Enabling framework for Ease of Doing Business (EoDB) in

3Es in sync with State EoDB initiatives. One integrated
• Exemption from import duties
online portal for new investments, operational
• Single window clearance for central and state approvals requirements and exits related matters.
EVALUATION OF SEZS IN INDIA: • Enhance competitiveness by enabling ecosystem
• Though SEZs were envisaged to promote manufacturing development by funding high speed multi modal
led exports, however, SEZs policy has been leveraged well connectivity, business services and utility infrastructure.
by companies in the Services sector. Manufacturing sector Critical to provide support to create high quality
has been unable to replicate similar export led growth. infrastructure either within or linked to the zones eg. High
Speed Rail, Express roadways, Passenger/Cargo airports,
• Regional disparity
shipping ports, warehouses etc.
• Value of exports from SEZs have been rising
• Promote integrated industrial and urban development-
• Investments in SEZs have also been rising though its rate walk to work zones, States and center to coordinate on the
of growth has been decelerating frame work development to bring linkages between all
CHALLENGES TO SEZS: initiatives.
• Some provisions of SEZ law not operationalised • Broad-banding definition of services/allowing multiple
• Complexity in undertaking domestic and international services to come together.
business through same units impacting viability of SEZs for • Unified regulator for IFSC.
manufacturing • Utilizing Multi Services SEZ IFSC for all the inbound and out
• Uncertainty in government policies ex. Withdrawal of bound investment of the country.
Minimum Alternate Tax and Dividend Distribution tax • Flexibility of long term lease for developers and tenants.
exemptions, announcement of sunset date etc.
• Facility of sub-contracting for customers outside 3Es/SEZs
• Multiple regulatory stakeholders (Direct tax, indirect tax, without any restriction or cap at any level.
exchange controls, State Governments and SEZ
• Export duty should not be levied on goods supplied to
authorities) need not necessarily aligned at all times
developers and used in manufacture of goods exported.
• Procedural delays and infrastructural bottlenecks
123
• Flexibility in usage of NPA by developers and sale space to ►PUBLIC-PRIVATE PARTNERSHIP –

investors/ units.
CONCEPT AND ISSUES
• Infrastructure status to improve access to finance and
enable long term borrowing. WHAT IS PPP?
• Promote MSME participation in 3Es and enable A PPP is conceptualized as a contractual agreement between
manufacturing enabling service players to locate in 3E. one or more governments/public agencies and one or more
private sector or nonprofit partners for the purpose of
• Dispute resolution through arbitration and commercial
supporting the delivery of public services or financing,
courts.
designing, building, operating and/or maintaining a certain
project for the public good. These types of partnerships are
usually developed with the implicit and explicit objectives of
leveraging additional financing resources and expertise,
which otherwise might not have been available for public
purposes through traditional procurement practices.
 DIFFERENT FORMATS OF PPP
SCHEMES MODALITIES
BuiId-own-operate (BOO) Build-develop-operate The private sector designs, builds, owns, develops, operates and manages
(BDO) Design-construct-manage-finance (DCMF) an asset with no obligation to transfer ownership to the government
These are variants of design-build-finance-operate (DBFO) schemes
Buy-build-operate (BBO) Lease-develop-ope rate The private sector buys or leases an existing asset from the Government,
(LDO) Wrap-around addition (WAA) renovates, modernises, and/ or expands it. and then operates the asset,
again with no obligation to transfer ownership back to the Government.
Build-operate-transfer (BOT) Build-own-operate- The private sector designs and builds an asset, operates it, and then
transfer (BOOT) Build-rent-own-transfer (BROT) transfers it to the Government when the operating contract ends, or at
Bui Id-lease-ope rate-transfer (BLOT) Build- some other pre-specified time. The private partner may subsequently rent
transfer-operate (BTO) or lease the asset from the Government.
BENEFITS OF PPP • The constant budget cuts have significantly weakened and
reduced governmental capacity to address public needs.
• Leveraging private sector expertise and technical
This is especially true for high cost projects. Within this
innovation – A PPP arrangement provides the public sector
context, PPPs can act as useful and effective avenues for
with the opportunity to take advantage of private sector
continuing to provide high quality public services, in spite
expertise and technical developments.
of decreasing capacities.
• Decreasing cost of procurement by increasing
• Reduced politicization of decision-making
opportunities for production efficiencies and increasing
possibility of economies of scale • PPPs (mostly the more complex types such as DBOM or
DBFOM) place a significant amount of responsibility on the
• PPPs represent innovative financing mechanisms. They
private or nonprofit partners beyond the completion of the
allow the public sector to postpone payments or leverage
construction or delivery of a certain project. Sharing the
future revenues for purposes of fulfilling present day
responsibility for a given project reduces the pressures
demands.
imposed on the public agency while simultaneously acting
as a quality control mechanism.
124
INFRA
ASTRUCTUR
RE AND INVEESTIMENT M
MODEL
CHALLENGES RELATED TO PPP

P • Many stepss have been ta aken so far to
o address capacity and
Chaallenges acro
oss the PPP liffecycle can b
be broadly cla
assified procedural challenges in the imp plementation of PPP
into
o: projects. Th
hese steps incclude developpment of PPP approval
mechanism m, creation of autonomouss bodies, laun nching of
a) Financing Issues:
capacity buuilding prograams and pub blishing of gu
uidelines,
• PPP projects in the transport sector a are facing finnancing toolkits and
d MCAs.
issues, inclu
uding aggressive bidding g, underpriciing of
• Despite the
ese efforts, PP PP projects in
n India face chhallenges
projects, and funding consstraints (debt and equity).
such as lack
k of efficient project
p prepaaration activitiies, delay
• Project spon nsors in PPP P projects d epends huge ely on in land acquisition, delayys in obtainin
ng requisite a approvals
commercial
c b
banks for financing the d debt portion of the and clearannces, and poo or project mon nitoring activities.
project. Thesse banks hav ve reached ttheir correspo onding
c Policy, reg
c) gulatory and institutiona l gaps
exposure
e lim
mits for the seector and run n with high leevel of
non-performiing assets (NP PAs) in the seector. Therefoore, the • Due to thee long-term nature
n of PPP P contracts, uuncertain
infrastructuree sector, in pa
articular the trransport sector, has market con nditions, lackk of capacity at both govvernment
been facing fiinancing consstraints of lateely. and privatee player levelss, etc. disputees are bound d to arise
during the life cycle of PPP
P projects. A
Absence of re egulators
• Project delay ys and aggre essive biddingg have resullted in
or multipliccity of regulators results in
n many of these issues
poor recove ery from th he projects, thereby m making
and disputes being unrresolved, lead ding to litigattions and
companies
c o
over leverage
ed. This limitts their capacity to
cases. Thiss in turn lea ads to delayys or cancellation of
raise funds from
f externall sources and
d to take anyy more
projects and results in cost
c escalationn, thereby ma aking the
new projects.. This festers twin balance sheet probleem and
projects unviable.
results in inte
er-twined ecoonomic issuess of over leveeraged
and
a distresse ed corporate and
a NPA encu umbered banks. It is • Some coun ntries have a legal framew work for PPPPs in the
estimated
e that around 40 0 % of the ccorporate deb bt was form of PPP act/law/policy. A compreehensive National PPP
owed
o by commpanies, man ny of them inn the infrastrructure act/policy which
w should
d clearly speell out the obbjectives,
(especially
( po
ower generatio on) and metaals sectors. scope and implementin ng principles of the PPP program
envisaged by the Gove ernment is reequired to im mpart an
• Delays in exxecution of projects
p lead
d to equity ggetting
authoritativ
ve framework to imp lementing e executive
trapped
t in on
ngoing projeccts, thus not being available for
agencies ass well as to legislative andd regulatory agencies
newer projectts.
charged witth oversight responsibilitie
r es.
b) Capacity and
d procedurall challenges :
125
RAU’S IAS
NS | MAINS COMPASS
C (C
C3 CURATION
N) for CSE 20 19
INITIATIVES TAKEN BY THE GOVERNMENT • With decreased risk on private builders and increased
• Viability Gap Funding (VGF) denotes a grant to support incentives for early road construction, it creates
infrastructure projects that are economically justified but comfortable base to lure investors to carry on the EPC
fall short of financial viability. work.
• IIFCL is a wholly-owned Government of India company to  The Hybrid Annuity Model (HAM)
provide long-term financial assistance to viable • HAM is a mix of BOT Annuity and EPC models. As per the
infrastructure projects through the Scheme for Financing design, the government will contribute to 40% of the
Viable Infrastructure Projects through a Special Purpose project cost in the first five years through annual payments
Vehicle called India Infrastructure Finance Company Ltd (annuity). The remaining payment will be made on the
(IIFCL). basis of the assets created and the performance of the
• RBI introduced NBFCs (Infrastructure Finance developer. Here, hybrid annuity means the first 40%
Companies (IFCs)) to provide credit facilities to projects. payment is made as fixed amount in five equal
installments whereas the remaining 60% is paid as variable
• Rupee denominated bonds or masala bonds were
annuity amount after the completion of the project
launched to eliminate foreign exchange risk.
depending upon the value of assets created.
• National Infrastructure Investment Fund (NIIF) has
• There is no toll right for the developer. Under HAM,
been created to rescue ailing projects and provide a
Revenue collection would be the responsibility of the
stimulus to PPP financing
National Highways Authority of India (NHAI).
• Infrastructure Investment Trusts (InvITs) would act as
• Advantage of HAM is that it gives enough liquidity to the
an enabling vehicle for refinancing stressed assets
developer and the financial risk is shared by the
The Government needs to undertake more concerted efforts government. While the private partner continues to bear
to revive the credibility of PPP framework and build capacity the construction and maintenance risks as in the case of
within various public institutions for PPP implementation. BOT (toll) model, he is required only to partly bear the
These may include implementation of some of the key financing risk.
recommendations of the Kelkar Committee Report including
 Swiss Challenge Method
setting-up of national level PPP institution, a dedicated PPP
tribunal, and a formal framework for post award contract • Swiss challenge method is a new process of giving
renegotiation. Undertaking these measures shall send strong contracts...Any person with credentials can submit a
signal to the market about the commitment level of the development proposal to the government. That proposal
nation to overall PPP framework. Further it is imperative for will be made online and a second person can give
the Government to push PPP pilot projects in newer sectors, suggestions to improve and beat that proposal.
along with formulation of newer or revision of existing Model • It cuts red tape and shortens timelines, and promotes
Concession Agreements (MCAs),to ensure replicability. enterprise by rewarding the private sector for its ideas.
OTHER INVESTMENT MODELS IN INFRASTRUCTURE The private sector brings innovation, technology and
uniqueness to a project, and an element of competition
EPC MODEL: Engineering, Procurement and
can be introduced by modifying the Challenge.
Construction.
• However, the biggest concerns are the lack of
• Under this model, the cost is completely borne by the
transparency and competition while dealing with
government. Government invites bids for engineering
unsolicited proposals. Governments need to have a strong
knowledge from the private players. Procurement of raw
legal and regulatory framework to award projects under
material and construction costs are met by the
the Swiss Challenge method. It can potentially foster crony
government. The private sector’s participation is minimum
capitalism, and allow companies space to employ dubious
and is limited to the provision of engineering expertise.
means to bag projects.
• Government takes care of clearances, acquiring land and
estimating the traffic a very huge exercise that had to be
done by private parties earlier.
126
►DIGITAL INFRASTRUCTURE:  Most digital content is in English. However, a KPMG

report suggested that 9 out of every 10 new internet
PROSPECTS, ISSUES AND users in India over the next 5 years are likely to be
CHALLENGES Indian Language users.
INTRODUCTION ο Availability of e-services
Digital infrastructure and services are increasingly emerging  A large number of e-services are not available on the
as key enablers and critical determinants of a country's digital platform and there is wide variation across
growth and well-being. states in the availability of citizen e-services.
Currently, citizens have to physically visit government
Need for investment in digital infrastructure and connectivity:
offices to access most government-to-citizen (G2C)
• Studies have shown that India grows by 1.08% for every services, as municipalities and other government
10% increase in internet subscribers. bodies have been slow to digitize their processes.
• Addresses National security concerns as increasingly ο Cyber Security
electronics and digital networks are being used in defence
 The regulatory framework for cyber security is
and other critical infrastructure. There has been concern
inadequate.
that tags and patches have been installed by Chinese
mobile phone manufactures which relay critical data to  Hacking and denial-of-service attacks have led to
their home country. disruption of services, both in the government and
the private sector – banks and governments
• Data is the new oil for next phase of economic growth.
increasingly face security breaches.
• The import of electronics goods was about $53 billion in
REASONS FOR LACK OF WELL-DEVELOPED DOMESTIC
2017-18 with demand of electronics products expected to
ELECTRONICS INDUSTRY
increase to $400 bn by 2025. Thus, not developing
domestic electronics manufacturing industry can adversely • Lack of adequate infrastructure
affect balance of trade for India. • Underdeveloped domestic supply chains and logistics
• Access to internet has been driven by mobile networks in • High cost of finance
India. The expansion of broadband connectivity has not as
• Inadequate availability of quality power
per expectation
• Inadequate components manufacturing base
• Digital divide:
• Limited design capabilities and focus on R&D by the
ο Broadband Connectivity:
industry
 Internet access is plagued by issues related to quality
• Inadequacies in skill development
and reliability, outages, call drops and weak signals.
• Signing of FTA and ITA-1 by India which have zero rated
 Current definition of broadband of 512 kbps is
imports of electronics components imports in India.
inadequate and not in line with the expected rise in
demand in future. • After the National Policy on Electronics, 2012 domestic
electronics manufacturing got a fillip in recent years due to
 Existing networks have been strained by limited
Phased manufacturing plan. But the level of value addition
spectrum availability and usage, affecting
has been limited due to lack of manufacturing of core
provisioning of quality services.
components and lack of domestic chipset fabrication
ο Digital access and literacy facilities.
 Significant portion of our population does not have STEPS BY GOVERNMENT
access to devices such as laptops, computers,
• GOI attaches high priority to electronics hardware
smartphones etc.
manufacturing and it is one the important pillars of Make
 Digital literacy in India is estimated to be less than in India and Digital India program. A New National Policy
10% of the population. on Electronics has been notified which aims to make India
ο Content in Indian languages as a global hub for Electronics System Design and
127
Manufacturing by encouraging and driving capabilities in • A network Common Service Centres have amounting to
the country for developing core components, including about 2,50,000 operational at the gram panchayat level
chipsets, and creating an enabling environment for the which aim to deliver government services to last mile.
industry to compete globally. WAY FORWARD
• Government has come out with National Digital • Improving Access:
Communication Policy which has the following objectives
ο Provide Universal broadband connectivity at 50Mbps to
ο Broadband for all
every citizen
ο Creating 4 million additional jobs in Digital ο Provide 1 Gbps connectivity to all Gram Panchayats of
Communications sector India by 2020 and 10 Gbps by 2022
ο Enhancing contribution of the digital communication
ο Enable100 Mbps broadband on demand to all key
sector to 8% of India's GDP from 6% in 2017. development institutions;including all educational
ο Propelling India to Top 50 Nations in the ICT institutions d. Enable fixed line broadband access to
Development Index of ITU from 134 in 2017. 50% of households
ο Enhancing India's contribution to Global Value Chains ο Achieve ‘unique mobile subscriber density’ of 55 by
ο Ensuring Digital Sovereignty 2020 and 65 by 2022

ο Enabledeployment of public Wi-Fi Hotspots; to reach 5
The policy has three Missions
million by 2020 and 10 million by 2022
1. Connect India: Creating Robust Digital Communications
ο Ensure connectivity to all uncovered areas
Infrastructure
To promote Broadband for all as a tool for socio-economic • Innovation in Digital Sector
development, while ensuring service quality and ο Attracting investments of $100 billion in the Digital
environmental sustainability. Communications Sector
2. Propel India: Enabling Next Generation Technologies and ο Increase India's contribution in Global Value Chains
Services through Investments, Innovation and IPR ο Creation of Innovation led Start-ups in Digital
Generation Communications Sector
To harness the power of emerging digital technologies, ο Development of Standard Essential Patents (SEPs) in the
including 5G, AI, IoT, Cloud and Big Data to enable field of digital communication technologies
provision of future ready products and services; and to
ο Train/ Re-skill 1 Million manpower for building New Age
catalyse the fourth industrial revolution (Industry 4.0) by
Skills
promoting Investments, Innovation and IPR.
ο Expand IoT ecosystem to 5 Billion connected devices
3. Secure India: Ensuring Sovereignty, Safety and Security of
Digital Communications ο Acceleratetransition to Industry 4.0
To secure the interests of citizens and safeguard the digital • Quality of Service
sovereignty of India with a focus on ensuring individual Adequate availability of spectrum is critical to ensure
autonomy and choice, data ownership, privacy and service quality. Efficient spectrum allocation in large
security; while recognizing data as a crucial economic continuous blocks should be explored. We should explore
resource. migration to new technologies which would resolve some
• Government has rolled out Aadhaar Project giving digital of the bandwidth challenges.
identity to over a billion. The Aadhaar infrastructure can be • Access and digital literacy
utilised for provisioning of various services such as
Digital literacy needs special focus at the school/college
financial inclusion, Direct benefit transfer etc.
levels. The National Digital Literacy Mission should focus
• Bharatnet project has been rolled out. However, its roll out on introducing digital literacy at the primary school level in
has been slower than anticipated. all government schools for basic content and in higher
classes and colleges for advanced content. Multiplier
128
effects of this mission will be realised when these ο Provide fiscal incentives and support for export-led
students in turn educate their family members. Higher growth, including significantly enhancing economies of
digital literacy will also increase the adoption of computer scale in electronics manufacturing.
hardware across the country. ο Provide policy support and special package of incentives
• Content in Indian Languages for highly capital intensive projects.
ο State governments should pay special attention to ο Drive indigenization in the microchips used by strategic
creating content, particularly those relating to and critical infrastructure sectors viz., defence, space,
government e-services, in Indian regional languages. atomic Energy, telecommunications, broadcasting,
ο Centre, States and researchers need focused aviation, power, etc., through design and production of
collaboration to promote Natural Language Processing such microchips.
for making all government's online services available in ο Encourage and incentivize Transfer of Technology (ToT)
all 22 official languages. Focus could be laid on the for core technologies.
automatic translation of content into regional languages ο Develop core competencies in all the sub-sectors of
from Hindi or English. Case studies like those of the electronics, including inter-alia electronic components,
European Union, which had similar problems in making sub-assemblies and semiconductors,
content available in the languages of member countries, telecommunication and broadcasting equipment, IT
should be explored to identify models that can hardware, medical electronics, defence and strategic
potentially be adopted. electronics, automotive electronics, industrial
• Availability of e-services electronics, consumer electronics, etc., and fabless chip
ο Individual ministries and states have to play a pivotal design.
role in ensuring that all their services are available and • Cyber Security
easily accessible by citizens over digital platforms. ο MeitY will need to evolve a comprehensive cyber
Digital platforms, that enable real-time data updates, security framework for data security, safe digital
would increase accountability, and facilitate monitoring, transactions and complaint redressal. The National e-
quality checks and timely intervention by the higher governance Division of MeitY should periodically audit
administrative authorities. Procurement of such digital compliance of e-services offered by state governments.
platforms could be standardized by the central It should bring out a performance report of e-services
government based on an analysis of successful case with a view to improve service delivery.
studies in India. This would ensure expedited
ο Sectoral CERTs should be made operational at the
implementation across the country. As mentioned
earliest.
earlier, ministries/states should also ensure that the
services are reliable, safe and available in regional ο Promotion of Data Localisation and a comprehensive
languages as well as in Hindi/English. data protection regime based on recommendations of B
N Srikrishna Committee should be implemented.
• Boosting domestic manufacturing of Electronics and
other Digital Components: ο Principles of Net neutrality should be upheld and
aligned with service requirements.
ο Ease of Doing Business for electronics manufacturing
ο Security standards and testing for devices and networks
ο Developing and Mandating Standards
should be mandated and periodically updated.
ο Industry led R&D and Innovation in all sub-sector of
CONCLUSION
electronics
Digital Infrastructure is the bedrock on which the vision of
ο Provide incentives and support for significantly
digitally empowered Digital India can be realised. This needs
enhancing availability of skilled manpower, including re-
to be given focussed attention for a transparent, empowered
skilling, in the ESDM sector.
and secure India of 21st Century.
129
SECTION-8
INDUSTRIAL
POLICY AND
LIBERALISATION
INDUSTRIAL POLICY AND LIBERALISATION
►MANUFACTURING POLICY AND Drawing lessons from this experience is essential when
trying for comparable success in manufacturing.
ISSUES
POSITIVE GOVERNMENT INTERVENTIONS IN IT/ITES
Inspite of having all the necessary ingredients, the
manufacturing sector has failed to take-off in India. • The government spent public money in creating high-
Manufacturing is an engine of economic growth because it speed internet connectivity of global standards with the US
offers economies of scale, provides employment for the IT software parks. This was done years ahead of
opportunities, and generates forward and backward linkages telecom modernization in India. This enabled seamless
that create positive spillover effects in the economy. integration of the Indian IT industry into the US market.
We need to replicate our success of IT sector in the • The government then brought trade in services into the
manufacturing sector and also learn lessons from East Asian regulatory framework of imports and exports. It allowed
neighbours such as Singapore and Malaysia. Such an the IT industry to import duty-free both hardware and
outcome would be feasible through the adoption of new software and also gave it all the incentives that were being
Manufacturing Policy. provided to exporters of goods.
 Economist Nicholas Kaldor theorised manufacturing as • This enabled the nascent IT industry to get integrated in
the engine of growth and stipulated that there exists a the dynamic US market without any disadvantage,
close relationship between the growth of manufacturing especially in terms of hardware and software costs.
output and the GDP of a country. • In addition, the IT industry was able to function under the
GROWTH OF MANUFACTURING SECTOR IN EAST ASIA Shops and Establishment Act. It was, therefore, not
subject to the over 40 laws relating to labour and the
The East Asian Economies such as Malaysia, Singapore, and
onerous regulatory burden.
Thailand etc have been able to grow at a phenomenal rate in
the past and pull out a large number of people out of • Further, the IT sector had the benefit of low-cost high-
poverty. The growth model of these countries emphasized on value human capital created by the investments made a
promotion of manufacturing sector and boosting of exports. generation earlier in higher scientific and technical
In the recent times, even China has been able to sustain high education. Without all these, the IT success story would
growth momentum because of export-led manufacturing not have occurred.
sector and has now emerged as "Global Manufacturing WHAT SHOULD BE THE BROAD CONTOURS OF NEW
Hub". INDUSTRIAL POLICY?
GROWTH OF IT/ITES IN INDIA Facilitative Investment by Government: Unlike the IT
• Unlike Manufacturing, the services sector has been able to sector, the private sector needs huge amount of land and
growth at much higher rate since 1991 and presently investment in case of Manufacturing. The Government
accounts for around 60% of GDP. Among the services cannot expect the entire funding to be borne solely by the
sector, IT/ITES has been able to sustain the high growth private sector for the large scale projects. The Government
rates in India. needs to play facilitative role and provide for complementary
financing of such large scale financially viable projects.
• One of the widely-held myths about the extraordinary
growth achieved by the IT sector in India has been that this Subsidies for Skilling Workers: There is a need to provide
was possible as the sector remained outside the higher government subsidies on industrial training to various
government's intervention. However, in reality, it is to be training institutes and colleges. The East Asian Economies
noted that the IT sector prospered due to positive were able to attract huge amount of FDI into manufacturing
government intervention and support in the initial stages.
131
sector through sustained investment in human capital • Targeted action to boost labor intensive sectors
formation and India needs to replicate this strategy India needs to generate jobs that are formal and productive,
Nurturing Industry Leaders: China has been able to nurture provide bang-for-buck in terms of jobs created relative to
and promote its domestic firms through various incentives investment, have the potential for broader social
such as tax breaks and reduced compliance burden. On transformation, and can generate exports and growth. The
account of such sustained government support, these apparel and leather and footwear sectors meet many or all of
companies have now grown into global conglomerates (Haier, these criteria and hence are eminently suitable candidates
Lenovo, Huawei etc). for targeting.
India needs to learn from the Chinese model and promote WAY FORWARD
domestic firms. • The manufacturing sector of India has the potential to
Address the problem of “Missing Middle”: Multiple labour reach US$ 1 trillion by 2025 and India is expected to rank
laws and regulations related to labour protection that restrict amongst the top three growth economies and
the ability of firms to hire and fire at will has led to the manufacturing destination of the world by the year 2020.
problem of “Missing Middle” in Manufacturing sector. The The implementation of the Goods and Services Tax (GST)
Government must focus on bringing about labour reforms at has make India a common market with a GDP of US$ 2.5
the earliest. trillion along with a population of 1.32 billion people, which
NORMAL VS NEO-NORMAL CYCLE OF EMPLOYMENT will be a big draw for investors.
As the economy grows, it creates jobs thus helping incomes • With impetus on developing industrial corridors and smart
to rise which people then spend, pushing up growth further cities, the government aims to ensure holistic
which, in turn, creates more jobs. This virtuous cycle keeps development of the nation. The corridors would further
lifting people out of poverty and helps in transforming an assist in integrating, monitoring and developing a
emerging economy into a developed one. This cycle is the conducive environment for the industrial development
‘normal’ and should have ideally helped India derive the and will promote advance practices in manufacturing.
much talked-about demographic dividend.
But what we are experiencing today is the neo-normal. The ►COAL SECTOR
economy is growing but fewer jobs are created. The large
• Coal is the most important and abundant fossil fuel in
number of people entering the job market face an uncertain
India. It accounts for 55% of the country's energy needs.
future and the so-called demographic dividend threatens to
Driven by the rising population, expanding economy and a
turn into a demographic liability.
quest for improved quality of life, energy usage in India is
BEATING THE JOBLESS GROWTH – MANUFACTURING
expected to rise.
HOLDS THE KEY
• Considering the limited reserve potentiality of petroleum &
Creating jobs is India’s central challenge and natural policy
natural gas, eco-conservation restriction on hydel project
response to such challenges are -
and geo-political perception of nuclear power, coal will
• Generating rapid economic growth continue to occupy centre-stage of India's energy scenario.
• Nurturing an enabling environment for investment The All India production of coal was 730.354 million tonnes
in 2018-19 (Provisional) with a positive growth of 7.9%.
132
IN
NDUSTRIAL POLICY
P AND
D LIBERALISA
ATION
DEMAND AND SUPPLY

S OF COAL • Coking Co oal shall re
emain indisspensable fo
or steel
dia is the third largest co
Ind oal producer in the world. The production.
ann
nual coal production in India is around d 730 MT. Ho owever, REASONS
R FOR
R COAL SHOR
RTAGES
duee to the grow
wing needs of the rapidly e xpanding eco onomy, • Delay in the Clearances: Coal min ning in the co
ountry is
the
e annual demand for coal has
h increased d to around 900 MT. regulated at
a several levvels with thee central gove
ernment,
Hence, the shorrtage of coal in India is me et through im
mports. state goverrnments and various locall agencies invvolved in
Thu
us in spite off having, worrld's third larrgest coal resserves, supervising
g the industry
Ind
dia imports ab
bout 25% of its domestic co oal needs
• Poor Efficiency of Coall Extraction: Technology adoption
CO
ONTINUED RE
ELEVANCE OF
F COAL FOR IN
NDIA by the coaal sector in India is quitee limited. Ind
dian coal
Acccording to thee Integrated Energy
E Policy,, even under a least mining secctor is still beset with rrelatively smmall scale
coa
al usage scen nario, coal will supply morre than 40% of the mining with
h limited mechanization.
primary comme ercial energy even in 203 31-32. This ccan be • Captive Co oal Mines: TheT objective of allocating
g captive
attrributed to the
e following rea
asons: coal blockss was to rapiidly increase coal producction and
• High Coal Resserves reduce electricity tariffss. However, the governm ment has
• Growing
G Dem
mand for Electtricity failed to ensure thatt developmeent of these e blocks
progressedd satisfactorily
y.
• High expecteed growth in end-use sect or such as ce
ement,
Iron and steel Industry • Evacuation
n Infrastruc
cture bottlen
neck: Presently, the
transport infrastructure
i e is finding it difficult to
o supply
• Coal
C Based power
p plantss would still be necessaryy even
sufficient coal stocks to power plantts. Around 85 5% of the
after
a the Gove
ernment's pu
ush for renewaable energy
coal is pressently transpo
orted throughh railways annd due to
133
RAU’S IAS
NS | MAINS COMPASS
C (C
C3 CURATION
N) for CSE 20 19
structural bottlenecks such as lack of railway lines, • The Cabinet Committee on Economic Affairs (CCEA) has
congestion, poor handling etc, there is inefficiency in the approved a new coal linkage policy to ensure adequate
transportation of coal. supply of the fuel to power plants through reverse auction.
• Higher Land acquisition costs: The coal Industry has The new policy will help in ensuring fuel supplies to the
been arguing that acquisition of land has become too power plants in an organised manner.
cumbersome after the passage of Land acquisition act, • Ministry of Coal has developed Online Coal Clearances
2013 leading to delays and increase in the project costs System to provide a single window access to its investors
making them unviable. to submit online applications for all the permissions /
GOVERNMENT INITIATIVES FOR THE COAL SECTOR clearances and approvals granted by Ministry of Coal.
• In April 2018, The Ministry of Coal has launched UTTAM • Coal Allocation Monitoring System (CAMS) is developed to
(Unlocking Transparency by Third Party Assessment of monitor the allocation of coal by CIL to States, States to
Mined Coal) Application for coal quality monitoring. The SNA and SNA to such consumers in a transparent manner.
app aims to ensure transparency and efficiency in coal • Opening up of commercial coal mining for Indian and
quality monitoring process and bring coal governance foreign companies in the private sector.
closer to people.
SPICE APPROACH
• The human and social impacts resulting from coal mining in India have been significant. Most of
the tenancy land acquired for mining in the country has been through the application of the Land
Acquisition Act of 1894 or the Coal Bearing Areas (Acquisition and Development) Act of 1957,
which has led to a large pool of involuntarily displaced persons.
Social dimension
• Local communities surrounding the projects, even if not displaced, can suffer from local
environmental impacts of the mining activities, including water scarcity and pollution, air
pollution with human health and agricultural impacts, and deforestation with concomitant loss of
livelihoods.
Political/Legal • The Coal sector in India is regulated by various acts such as The Coal Mines (Special Provisions)
Act, 2015; The Coal Mines (Conservation and Development) Act, 1974; The Coal Grading Board
Dimension (Repeal) Act, 1959.
• First, government and public sector institutions dominate the coal sector. The Ministry of Coal
determines policies and provides guidelines for all matters regarding exploration, production,
supply, distribution and sale-price of coal and lignite.
Institutional
• The Ministry is in administrative control of major coal producing companies including CIL, SCCL,
dimension
and NLC. The Ministry also is in administrative control of the Coal Controller’s Organization, which
grants permission for opening new seams/mines, collects and publishes data on the coal sector,
collects excise duties, and monitors progress in captive mining.
Cultural dimension
• Due to underpricing of coal, the sector has become unattractive for serious investors. Energy
Economic
subsidies over years have been a major burden for the economy.
dimension
• Rising demand for energy will lead to an increase in coal imports.
134
►MSME SECTOR • Cheap labour and minimum overhead: In large scale

organizations, one of the key challenges is to retain the
Micro- Small and Medium Enterprises (MSMEs) are small
human resource through an effective human resource
sized entities, defined in terms of their size of investment.
management professional manager. But in case of an
They are contributing significantly to output, employment
MSME, the requirement of labor is less, and it does not
export etc. in the economy. They perform a critical role in the
need a highly skilled labourer. Hence, the indirect
economy by providing employment to a large number of
expenses incurred by the owner is also low.
unskilled and semi-skilled people, contributing to exports,
raising manufacturing sector production and extending • Simple management structure for enterprises: With
support to bigger industries by supplying raw material, basic limited resources available within the control of the owner,
goods, finished parts and components, etc. decision-making becomes easy and efficient. As in case of
a large corporation wherein a specialist is required for
BENEFITS AND SIGNIFICANCE OF MSME SECTOR
every departmental functioning because of complex
• Creates large scale employment: MSME has played a organizational structure, a small enterprise does not need
prominent role in the development of the country in terms to hire an external specialist for its management.
of creating employment opportunities-MSME has
• Strengthens “Make in India” initiative: Post the
employed more than 50 million people, scaling
inception of ‘Make in India’, the process of incorporating a
manufacturing capabilities, curtailing regional disparities,
new business has been made easy. Since the MSME is the
balancing the distribution of wealth, and contributing to
backbone in making this dream a possibility, the
the GDP-MSME sector forms 8% of GDP.
government has directed the financial institution to lend
• Requires small scale investment: The advantage of this more credit to enterprises in MSME sector.
sector is it requires less investment, thus creating
HOW TO LEVERAGE MSME SECTOR FOR INCLUSIVE
employment on a large scale, and reducing the
GROWTH?
employment and underemployment problems.
• The apparent innovative capacity of MSMEs around the
• Contributes to growth of other sectors: The
world for boosting economic growth and development at
contribution of MSME to other sectors has been
regional, national and global levels cannot be
immensely instrumental. It is the biggest employer after
overemphasized.
agriculture sector, despite the fact that agriculture sector’s
contribution to GDP is less than MSME. While it contributes • The Indian MSME sector offers maximum opportunities for
about 45% to manufacturing sector, and perhaps 40% to both self-employment and wage-employment outside the
Exports, it forms the highest share of Employment sector agricultural sector and contributes in constructing an
in India, contributing around 69% to it. inclusive and sustainable society in numerous ways
through making of non-farm livelihood at meager cost,
• Economic stability in terms of growth and leverage
balanced regional development, gender and social
exports: Exports sector in India constitutes about 40% of
balance, environmentally sustainable development etc.
contribution from MSME alone. Looking at the kind of
contribution of MSME to manufacturing, exports and • As MSMEs are usually labour-intensive, they have the
employment, other sectors are also benefitting from ability to create more jobs to furnish to a fresh
MSME. MNCs today are buying semi-finished and auxiliary demographic country like India. Further, in view of the on-
products from small enterprises, for example, buying of going implications of climate change, it is necessary that
clutches, and brakes by automobile companies. It helps the MSME sector is prepared to engage millions who may
create a linkage between MSME and big companies. be rendered unemployed in the agriculture sector.
135
PREVIOUS CLASSIFICATION –
CLASSIFICATION OF NEW CLASSIFICATION (ANNUAL
CEILING ON INVESTMENT IN
THE MSME TURNOVER)
PLANT AND MACHINERY (IN RS)
Micro Not exceeding Rs 5 crores Below 25 lakhs
Small Between Rs 5 crores to Rs 75 crores 25 lakhs to 5 crores
Medium Rs 75 to Rs 250 crores 5 crores to 10 crores
KEY SUPPORT INITIATIVES FOR MSME SECTOR All public sector undertakings of the Union Government must
• Dedicated digital platform to enable MSMEs to secure in now compulsorily be a part of Government e Marketplace
principle approval of loans between ₹10 lakh and ₹1 crore (GeM). He said they should also get all their vendors
in just 59 minutes. After the approval in principle of the registered on GeM.
application, the loan amount will be disbursed in 7-8 CHALLENGES FACING THE MSME SECTOR
working days. • Poor availability of loan finance
• A 2% interest subvention for all GST registered MSMEs, • Low levels of technology
on fresh or incremental loans. For exporters who receive
• Inadequate physical and economic infrastructure
loans in the pre-shipment and post-shipment period, there
will be an increase in interest rebate from 3% to 5%. • Low accessibility to information and knowledge
• All companies with a turnover more than Rs. 500 crores, • Lack of capital
must now compulsorily be brought on the Trade • Competition faced in foreign markets
Receivables e-Discounting System (TReDS).
• Inadequate intellectual property protection
• Public sector companies have now been asked to
• Multiplicity of labour laws and complicated procedures
compulsorily procure 25%, instead of 20% of their total
associated with compliance of such laws
purchases, from MSMEs.
• Out of the 25% procurement mandated from MSMEs, 3%
must now be reserved for women entrepreneurs.
SPICE APPROACH
• MSMEs play an important role in providing employment in rural areas.
Social dimension • MSMEs fulfil the wider objective of creating self-reliance amongst people and building up a strong
rural community spirit.
• MSMEs are governed by the MSMED Act, 2006.
Political/Legal • Though the primary responsibility of promotion and development of MSMEs is of the State
Governments, the center has passed the MSMED Act in 2006 to empower the sector and also has
Dimension
formed a Ministry (Ministry of MSMEs). This Act defines the three tier of micro, small and medium
enterprises and sets investment limits.
• Various statutory bodies are working under the aegis of MSME ministry. These include:
Institutional • Khadi Village Industries Commission to organise training of people in khadi and village industries;
dimension provide raw materials to khadi industries; promote sale and marketing of khadi products; and
encourage R&D in khadi industry.
136
• Coir Board for promotion of overall development of coir industry and improvement of living
conditions of workers engaged in this industry.
• National Small Industries Corporation is a government of India enterprise to promote, aid and
foster the growth of MSMEs.
• Mahatma Gandhi Institute for Rural Industrialisation to accelerate rural industrialisation; attract
professionals to Gram Swaraj; empower traditional artisans; and promote R&D for alternative
technology using local resources.
• National Institute for MSMEs to enable enterprise creation; capacity building for enterprise
growth; creation, development and dissemination of enterprise knowledge; development studies
for policy formulation; and empowering the under-privileged through enterprise creation.
Cultural dimension
• The MSME share to the total Gross Domestic Product (GDP) is about 37% and they also contribute
to 43% of exports based on the data maintained by Ministry of Commerce.
Economic • MSMEs contribute 6.11 per cent of manufacturing GDP and 24.6 per cent of services GDP.
dimension • They also account for 16 per cent of bank lending. Around 8 per cent of credit to manufacturing
micro and small enterprises and 13 per cent to medium enterprises are estimated to be gross
NPAs.
►SUGAR INDUSTRY SUGAR PRODUCTION IN INDIA

India is the second largest producer of sugar in the world
IMPORTANCE OF SUGAR INDUSTRY
after Brazil. Within India, Uttar Pradesh, Maharashtra and
• The Sugar industry is the second largest agro-based Karnataka are the three largest producers. The Sugar
industry in India. India is also the second largest producer production in India has increased from 24 million tonnes in
of sugar after Brazil. The Sugar Industry is crucial for the 2015-16 to 32 million tonnes in 2017-18 and is expected to
socio-economic development of India due to its forward touch 35 million tonnes in 2018-19.
and backward linkages with agriculture. Apart from
PROBLEMS FACING THE SUGAR INDUSTRY
creating a lot of employment opportunities, the Indian
sugar mills have been instrumental in bringing about rural • The main reason for the present problems of the sugar
transformation. Industry can be attributed to mismatch between Demand
and supply of Sugar. While, the Production of Sugar has
• However, the sugar Industry in India is going through
continued to increase, however its demand has declined in
troubled times. It is grappling with serious concerns
the last 2 years.
related to low domestic prices of sugar, low international
prices of sugar, various policies controlling the • For example, in 2016-17, domestic sugar production was
procurement and pricing of raw material and finished lower than the demand. This led to increase in the sugar
product. prices in the domestic market and India had to import
sugar in order to plug the demand-supply gap.
• Due to these problems, the sugar Industry is facing the
Subsequently, the area under the sugarcane increased
growing problem of NPAs and a large number of sugar
leading to dramatic increase in sugar production in 2017-
mills are turning into sick units. This has led to payment
18.
crisis wherein the sugar mills have not been able to pay
the FRP (fair and Remunerative Prices) to the sugarcane • In 2017-18, the situation got reversed and the production
farmers. The Sugar Industry is presently staring at cane of the sugar outpaced the demand leading to decrease in
arrears of more than 20,000 crores. Hence, it is being said the sugar prices in the domestic market.
that the poor financial position of the sugar mills would
aggravate the present agrarian distress.
137
• The Production of sugar increased to around 35 Million • Increased custom duty on import of sugar from 50% to
tonnes in 2018-19, but the demand has remained stagnant 100% to check any import in the country.
at around 25 million tonnes. • Withdrew custom duty on export of sugar to encourage
• The decrease in the domestic and global demand for sugar sugar industry to start exploring possibility of export of
can be linked to emergence of alternative sweeteners sugar.
replacing sugar and increasing health consciousness • Allocated mill-wise Minimum Indicative Export Quotas
among the people. (MIEQ) of sugar for export during Sugar Season 2017-18.
• This mismatch between demand and supply of sugar in • Notified Sugar Price (Control) Order, 2018 directing that no
the domestic market has led to the present sugar crisis. producer of sugar shall sell white/refined sugar at a rate
Hence, the lower profit margin of the sugar mills has made below Rs. 29/kg
it difficult for them to pay money to the sugarcane
• Created buffer stock of 30LMT of sugar to be maintained
farmers.
by sugar mills for one year.
SUGARCANE PRICING POLICY
• In order to augment ethanol production capacity and
It aims to ensure fair price to cane growers, adequate returns thereby also allow divergence of sugarcane for production
to industry & supply of sugar to consumers at reasonable of ethanol, the government has decided to provide loans
prices. It is governed by provisions of Sugarcane (Control) to the sugar mills for setting up distilleries. It will help the
Order, 1966 issued under Essential Commodities Act (ECA), industry diversify and reduce risk. For example, Brazil has
1955. used almost 60 per cent of its cane to produce ethanol as
INDIA HAS DUAL SUGARCANE PRICING global sugar prices were lower.
• Fair & Remunerative Price (FRP) announced by central WAY FORWARD
government after approval of Cabinet Committee of • The sugarcane crisis is likely to intensify in the future. This
Economic Affairs (CCEA), on basis of recommendations of crisis is capable of causing immense distress among
Commission for Agricultural Costs & Prices (CACP). sugarcane farmers.
• State Advised Price (SAP) declared by the state • The Government intervention in the sugar sector should
governments, usually higher than the FRP. strike a balance between the needs of the farmer, the
• To arrest the downslide in sugar prices and to ameliorate industry and the consumer.
the liquidity position of sugar mills, the Govt. has increased • While the consumers demand for better quality and
import duty on sugar, imposed stock holding limits on reduced prices of sugar, the sugar Industry demands for
sugar mills for two months, fixed Minimum Indicative higher profits and adequate availability of sugarcane at
Export Quotas (MIEQ) and removed customs duty on lower prices. However, the farmers demand higher prices
export of sugar. for sugarcane. Hence, the future course of actions by the
GOVERNMENT INITIATIVES FOR SUGAR INDUSTRY government must not be constrained by political
• In order to help sugar mills to clear cane dues of farmers, compulsions. Rather, it should be based on sound
the Government has decided to provide financial economics.
assistance to the sugar mills.

SPICE APPROACH
Sugar industry has a strong impact on rural livelihood including sugarcane farmers and workers
Social dimension
directly employed in sugar mills.
• Sugarcane prices in India are controlled by the Central as well as State Governments. However,
Political/Legal the sugar prices are determined by the market forces of demand and supply. Thus, even though,
Dimension the sugar prices in the domestic market has decreased, but the sugarcane prices fixed by the
government has continued to increase.
138
• Rangarajan committee (2012) has proposed decontrol of sugar industry and linking sugarcane
prices with market price of sugar. The Committee also recommended that states should not
declare State Advised Price (SAP) since it imposes an additional cost on mills. It suggested
determining cane prices according to scientifically sound and economically fair principles.
Institutional
dimension
Cultural dimension
• The cost of sugar production in India is one of the highest in the world.
• This is due to high sugarcane cost, uneconomic production process, inefficient technology and
high taxes exercised by the state and the central governments.
• The Government imposes export and import restrictions on sugar without a clear cut policy.
Economic dimension • When the sugar stock increases the government imposes import restrictions by increasing import
duty and when the sugar stocks depletes the government imposes export restriction by
increasing export duty.
• The decision by the government leads to price mismatch between demand and the supply and
creates confusion in the market.
►POWER SECTOR AND UDAY SCHEME erstwhile Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY)
scheme for village electrification and providing electricity
India is world’s third largest producer and fourth largest distribution infrastructure in the rural areas has been
consumer of electricity. Being a strategic commodity, subsumed in the DDUGJY scheme. Rural Electrification
electricity/power lays foundation for other sectors like Corporation is the Nodal Agency for implementation of
manufacturing and Industries. Electricity production in India DDUGJY.
reached 108.90 Billion Units (BU) in April 2019.
The deadline for the government’s rural electrification
Power generation capacity has surged over the years, but the programme to achieve its objective was May 2018. However,
issue of power outages remains a major concern. According it was achieved before the deadline on April 28, with the
to the ‘The Global Competitiveness Report 2016-17’ electrification of Leisang village in Manipur.
released by World Economic Forum, India ranks 88th
position out of 138 countries in terms of the quality of
electricity supplied.  UDAY SCHEME
Efforts towards 100 per cent village electrification, 24x7 SALIENT FEATURES OF THE SCHEME
power supply and clean energy cannot be successful without
• States should take over 75% of the DISCOM debt - 50% in
improving the performance of the electricity distribution
2015-16 and 25% in 2016-17. The governments will then
companies (DISCOM).
issue ‘UDAY bonds’ to banks and other financial
Power outages also adversely affect national priorities like institutions to raise money to pay off the banks.
‘Make in India’ and ‘Digital India’. In addition, default on bank
• The remaining 25 per cent of the discom debt will be dealt
loans by financially stressed DISCOMs tends to seriously
within one of the two ways
impact the banking sector and the economy at large.
1. Conversion into lower interest rate loans by the lending
Government Initiatives for turning around power sector
banks
and achieving electricity for all –
2. Funded by money raised through discom bonds backed
Deendayal Upadhyaya Gram Jyoti Yojana for rural
by State guarantee.
electrification – The scheme was launched on 25th July
2015 with the aim of 247 power supply to rural areas. The
139
• In return for the bailout, the discoms have been given reducing Aggregate Technical and Commercial Losses
target dates (2017 to 2019) by which they will have to meet (AT&C) from 26% in 2015 to 15% in 2019. They were also
efficiency parameters such as reduction in power lost required to implement regular tariff hikes of 5-6% per
through transmission, theft and faulty metering, installing annum. However, the DISCOMs have failed to initiate
smart meters etc. structural reforms due to which they are unable to meet
NOTE: The UDAY Bonds cannot be included as G-Secs under the targets set under the UDAY Scheme.
the mandatory SLR requirements. The Borrowings of the • For instance, AT&C losses has reduced by only 4% by
state through the issuance of UDAY Bonds would not be December 2018 from pre-UDAY levels and the average
considered as part of Fiscal Deficit of the state. tariff increase was hardly around 3% per annum.
 The global energy watchdog International Energy Agency • On account of this, the Aggregate external debt of
(IEA) has called India's electrification of every village the DISCOMs is set to increase to pre-Ujwal Discom Assurance
greatest success story of 2018. In its latest report, World Yojana (UDAY) levels of Rs 2.6 lakh crore by the end of this
Energy Outlook 2018, the IEA has called India a "star financial year.
performer" in terms of achieving the big milestone of the
providing power to each village. "One of the greatest
 SAUBHAGYA SCHEME
success stories in access to energy in 2018 was India
completing the electrification of all of its villages," said the Pradhan Mantri Sahaj Bijli Har Ghar Yojana –“Saubhagya”
IEA. On April 28, 2018, Government confirmed that India was launched on 25th September, 2017 to ensure
had achieved its goal ahead of schedule. "This is one of the electrification of all willing households in the country in rural
greatest achievements in the history of energy," said the as well as urban areas.
IEA. The objective of the ‘Saubhagya’ is to provide energy access
to all by last mile connectivity and electricity connections to
PERFORMANCE ASSESSMENT – UDAY SCHEME all remaining un-electrified households in rural as well as
1. After the introduction of UDAY the states have made urban areas to achieve universal household electrification in
significant effort to reduce AT&C losses and National the country.
average (all UDAY states) of AT&C loss has come down to HOW SAUBHAGYA SCHEME IS DIFFERENT FROM ‘24X7
20.2 per cent in FY 2017 from 21.1 per cent in FY 2016. POWER FOR ALL’
2. After the introduction of UDAY, the primary focus has been 24x7 Power for All’ is a joint initiative with the states covering
given on billing and collection efficiency of DISCOMs. As all segments of power sector i.e. Power generation,
per Ministry of Power, at all India level, billing efficiency transmission and distribution, energy efficiency, health of
has been increased by 2 per cent from 81 per cent in 2015- Discom etc. to finalise State/UT specific roadmap and action
16 to 83 per cent in 2016-17. plan to ensure 24x7 power for all in consultation with
3. State power distribution companies have started reporting States/UTs. The Power for All documents contain details of
handsome savings and improvements in operational various interventions required across the value chain of
efficiency under the UDAY. DISCOMs of states have power sector.
achieved an estimated savings of Rs.11,989 crore till Providing connectivity to all households is a prerequisite to
December, 2016. ensure 24x7 power supply. Saubhagya is a schematic support
4. Apart from the above developments, many states have to address the issue of energy access.
shown improvement in terms of electricity access to Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY)
unconnected households, distribution of LEDs under envisage creation of basic electricity infrastructure in villages
UJALA, feeder metering and distribution transmission (DT) / habitations, strengthening & augmentation of existing
metering both in rural and urban area after the infrastructure, metering of existing feeders / distribution
introduction of UDAY. transformers / consumers to improve quality and reliability of
PROBLEMS WITH THE SCHEME power supply in rural areas. Similarly, in urban areas,
Integrated Power Development Scheme (IPDS) provides
• As per the MoU signed under the UDAY Scheme, the
for creation of necessary infrastructure to provide electricity
discoms were required to initiate structural reforms by
140
access but some households are not yet connected mainly on ►AVIATION SECTOR
account of their economic condition as they are not capable
of paying the initial connection charges. Therefore, The Economic foundation of a country can be strengthened
Soubhagya has been launched to plug such gaps and by bringing in modernisation in its transport system in which
comprehensively address the issues of entry barrier, last air transport plays a decisive role. Due to its inter-linkages
mile connectivity and release of electricity connections to all with other sectors in the economy, the air transportation can
un-electrified households in rural and urban areas. bring with it tremendous direct and indirect benefits to the
POWER SECTOR ISSUES: AT A GLANCE economies in which it operates.
1. As the gap between the average cost of supply (ACS) and An efficient national civil aviation infrastructure and efficiently
average revenue realized (ARR) persists due to high
run airlines have the potential of bringing down transport
aggregate technical and commercial (AT&C) losses,
costs, promoting commerce, expanding culture and
distribution companies (discom’s) use load shedding to
communications, and ultimately drawing people together.
minimize losses.
2. Old inefficient plants continue to operate whereas more The Indian civil aviation industry has come a long way since
efficient plants are underutilized. its introduction in 1912. The civil aviation industry in India has
3. Although legally independent, Regulatory Commissions are emerged as one of the fastest growing industries in the
unable to fully regulate discoms and fix rational tariffs. country during the last three years. India is currently
4. Unmetered power supply to agriculture provides no considered the third largest domestic civil aviation market in
incentive to farmers to use electricity efficiently. the world. However, the industry is facing multi-faceted
5. There is a lot of hidden demand because of unreliable challenges because of which concerns have been raised over
supply and load shedding. the future growth prospects of the Industry.
6. State power utilities are not able to invest in system GROWTH OF CIVIL AVIATION INDUSTRY
improvements due to their poor financial health.
• According to the Directorate General of Civil Aviation,
7. High industrial/commercial tariff and the cross-subsidy India’s air passenger traffic has grown by at least 16%
regime have affected the competitiveness of the industrial
annually over the past decade. In 2000-01, it stood at a 14
and commercial sectors.
million passengers which has now increased to 140 million
WAY FORWARD passengers in 2017.
UDAY is a shining example of the utilization of the best
• Further, India is set to become 3rd largest aviation market
principles of cooperative and competitive federalism and has
by 2020
been evolved through discussions at the highest levels with
multiple States. Adopting UDAY is optional for States, but • Until 2013, Airport Authority of India (AAI) was the only
provides the fastest, most efficient and financially most major player involved in developing and upgrading
feasible way for providing 24X7 Power for All. It has been airports in India. Post liberalization, private sector
operationalized through a tri-partite agreement amongst
participation in the sector has been increasing.
the Ministry of Power, State Government and the
DISCOM. • Further, the aviation market in India has seen the entry of
Distribution Companies (DISCOMs) are the major concern large number of private sector carriers, which now account
area in the power sector. While the Ujwal DISCOM for the major share of passenger traffic in India.
Assurance Yojana (UDAY) aims to iron out operational • According to data released by the Department of Industrial
inefficiencies and financial stress for these companies,
Policy and Promotion (DIPP), FDI inflows in India’s air
private partnership needs to be encouraged
transport sector (including air freight) reached US$ 1,600
simultaneously. The inter-ministerial Task Force on PPP in the
Distribution of Electricity has recommended a framework for million between April 2000 and June 2018.
PPP projects. This framework needs to be adopted by states
with Central Government providing VGF.
141
 GROWTH DRIVERS OF AVIATION INDUSTRY • The industry’s operational cost component is dominated
by the cost of the ATF where in it accounts for almost 45%
DEMAND SIDE
SUPPLY SIDE FACTORS of the operational expenses.
FACTORS
• A 10% increase in fuel price would push up costs by at
• Increase in per-capita • Entry of low-cost air transport least 4%, thus affecting the financial health of an airline
Income due to business.
• Increased FDI inflows
Economic Growth 3. Congestion:
• Favorable Government
• Increase in Domestic policies such as UDAN • Presently capacity limitations are there at many airports
and Foreign travelers Scheme and Nabh Nirman like Delhi and Mumbai airports. Overcrowding leads to a
• Increase in Scheme. huge wastage of fuel.
International Trade • Growing private sector • It is estimated that if a flight hang around in the sky for an
• Increase in tourism participation through the PPP additional half an hour due to delay in allocation of landing
route. slot, it can consume between 25 to 30 percent extra fuel
thereby increasing the operational cost of the airline.
• India’s aviation industry is
expected to witness Rs 1 lakh 4. High Airport (aeronautical) Charges:
crore worth of investments in • The airport charges payable at the International airports
the next five years. are higher than those payable at the airports nominated
• India plans to increase the as Domestic airports or domestic flights leading to higher
number of airports to 250 by operational costs of aviation companies.
2030 to cater to growing • Charges levied at airports in India, which include parking
demand and landing charges, are said to be among the highest in
CONSTRAINTS FACED BY THE AVIATION INDUSTRY the world.
The Indian Aviation Industry is facing multiple challenges due 5. Shortage of trained Employee:
to which the aggregate loss of the aviation sector is expected There is a shortage of trained and skilled manpower in the
to reach Rs 3,600 crore in 2018-19 up from around Rs 2,500 aviation sector as a result of which there is cut-throat
crore in 2017-18. competition for employees which, in turn, is driving wages
1. Government Intervention to unsustainable levels. Moreover, the industry is unable
to retain talented employees.
• Government intervention for aviation industry is higher
compared to any other industry. The Indian aviation 6. Regional connectivity:
Industry is very competitive, but the industry is burdened • With a population that is only 25 per cent of that in India,
with over regulation. the US has over 19,000 commercial airports as compared
• The high regulations in aviation are mostly concerned with with around 500 in India.
international routes. The flying rights over another • To provide regional connectivity is one of the biggest
country’s territory do not lie in the hands of the airline challenges facing the aviation sector in India. The lack of
company; rather it depends on the political relation and airports is hampering the growth of regional connectivity.
bilateral treaty between two or more countries. 7. Declining yields:
2. Rising Fuel Prices: As more players are attracted towards Aviation industry
• Aviation Turbine Fuel (ATF) prices in India are higher than because of increasing growth prospects it will lead to more
the global market due to higher domestic taxes. competition. All this has resulted in lower returns for all
• The Centre charges 14% excise duty on ATF. The states operators.
levy their own sales tax that can go as high as 29% leading 8. Gaps in infrastructure:
to higher cost of ATF. Airport and air traffic control (ATC) infrastructure is
insufficient to support growth. Though some work has
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bene started on that front but it will take years for the 3. INCREASE REGIONAL CONNECTIVITY: To increase the
result to be visible. level of penetration by civil aviation amongst the Indian
GOVERNMENTS INITIATIVE FOR THE AVIATION SECTOR population, there is a need to build several hundred
more airports in the country specially to connect remote
1. National Civil Aviation Policy 2016:
and not easily accessible areas of the country.
• This is the first time since independence that an integrated
4. AIR CARGO INDUSTRY: Currently bulk of domestic air
Civil Aviation Policy has been brought out. The centre-piece
cargo is carried in the cargo hold of passenger aircraft.
of the policy is to make regional air connectivity a reality.
There is a need to develop air cargo hubs, improve cargo
• The policy aims to take flying to the masses by making it storage and handling facilities at airports through quicker
affordable and convenient, establish an integrated eco- screening employing advanced technologies, automated
system which will lead to significant growth of the civil handling and reduced paperwork. There is also the need
aviation sector. to promote dedicated air cargo airlines particularly to
• The policy is very comprehensive, covering 22 areas of the exploit the economic potential of the North East regions
Civil Aviation sector. of the country
2. UDAN (“Ude Desh Ka Aam Naagrik” ) Scheme 5. PRIVATISATION OF AIR INDIA: Operating the
perpetually loss-making national carrier Air India at
• It is the Government’s initiative to make air travel to India’s
enormous cost to the taxpayer does not appear to be a
tier II and tier III cities affordable to the people.
sustainable arrangement in the long run. It is about time
• The idea is to put smaller cities and remote regions on the the government confronts this issue squarely and take
aviation map, by getting domestic airlines to ply more some hard and possibly unpalatable decisions pertaining
regional routes. Under the scheme, the Government offers to the privatisation of the Air India.
incentives to airlines to flag off new flights to neglected
6. REGULATORY FRAMEWORK FOR BUSINESS AND
smaller cities and towns.
GENERAL AVIATION: Currently, the regulations
3. Nabh Nirman Scheme governing Business and general aviation are the same
• This scheme envisages expanding airport capacity more that apply to the airline industry. In view of the vastly
than five times to handle a billion trips a year. differing paradigms, business and general aviation
aircraft must be governed a separate regulatory
• It constitutes investments to be made in airport upgrade
framework to enable this segment of the industry to
by both the private sector and the state-owned Airports
operate with greater efficiency and make a meaningful
Authority of India (AAI) in the due course of time.
contribution to the national economy.
POSSIBLE REFORMS FOR THE SECTOR
7. FLYING TRAINING: Create infrastructure and involve
1. REGULATORY REFORMS: Introduce a system of manning competent professionals to provide quality training for
in the regulatory agencies by experts from the industry aviation professionals both in the fixed- and rotary-wing
and not by generalists or bureaucrats alone. Improve the aircraft regimes
regulatory regime by reducing Civil Aviation
8. DUTY ON IMPORT OF AIRCRAFT: At present, duty
Regulations/Circulars to seamless, mutually exclusive
imposed on import of aircraft, especially those for
documents, easily navigable and easily comprehensible.
private use, is exorbitant. This duty structure on import
2. LOW-COST AIRPORTS: In order to keep operating costs of aircraft needs to be reviewed in totality and
low, there is a need to build low-cost airports as also low- restructured to revitalize the aviation industry
cost terminals at the metros and the other large airports.
9. COORDINATION WITH MILITARY AVIATION: Better
The requirement is to have a large number of no-frills
coordination with military aviation in the country in the
airports to keep operating costs low. Operating costs can
area of air space and air traffic management will facilitate
also be lowered through the introduction of new
better utilisation of air space permitting more direct
technology for passenger and baggage handling as also
routings resulting in improved fuel economy and time
for reducing the high cost of security provided by the
saved.
Bureau of Civil Aviation Security.
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10. INDUCTION OF FUEL-EFFICIENT AIRCRAFT: The airline • Between Apr-Oct 2018, exports of cotton raw including
industry must periodically upgrade their fleet with waste, cotton yarn, cotton fabrics and cotton made-
aircraft of higher levels of fuel-efficiency. This will ensure ups grew by 26.01 per cent year-on-year to US$ 6,893.05
operational efficiency, improved economy as well as million from US$ 5,470.20 million during the same period
higher levels of air safety last year.
11. UNMANNED AERIAL VEHICLE: The unmanned aerial CHALLENGES
vehicles (UAVs) are destined to play a major role in the • The Indian textile industry is highly fragmented and is
aviation industry in the future. Introduce appropriate being dominated by the unorganized sector and small and
regulatory framework to ensure safe integration of UAV medium industries. The changing government policies at
traffic in civil air space the state and central government levels are posing major
WAY FORWARD challenges to the textile industry.
India’s status as the fastest growing aviation market in the • The tax structure GST (Goods and Service Tax) make the
world creates tremendous opportunities. Further, the various garments expensive.
policy initiatives taken by the government such as "UDAN', • Another important threat is raising interest rates and labor
"NABH NIRMAN" etc would make air travel more affordable, wages and workers’ salaries.
inclusive and bring about balanced Regional development.
• There is higher level of attrition in the garment industry.
However, the government has to take note of the various
problems faced by the Aviation Industry and must take • The Indian textile industry has poor accesses to latest
corrective steps in order to create a conducive ecosystem for technology thus fail to meet global standards in the highly
the overall growth and development of the sector. competitive export market.
• There is fierce competition from China, Bangladesh and Sri
Lanka in the low price garment market. In the global
►TEXTILE INDUSTRY market tariff and non-tariff barriers coupled with quota is
posing major challenge to the Indian textile Industry.
India’s textiles sector is one of the oldest industries in Indian
economy dating back several centuries. India’s overall textile • The environmental and social issues like child labor and
exports during FY 2017-18 stood at US$ 39.2 billion. personal safety norms are also some of the challenges for
the textile industry in India.
The Indian textiles industry is extremely varied, with the
hand-spun and hand-woven textiles sectors at one end of the • Yarn attracts 5% GST and the machinery to manufacture
spectrum, while the capital intensive sophisticated mills yarn attracts 18%. This is uneven. Yarn manufacturers will
sector at the other end of the spectrum. The decentralised be left with a huge input credit which they won’t be able to
power looms/ hosiery and knitting sector form the largest utilise. There is no provision under GST to get such
component of the textiles sector. accumulated credit as refund for capital goods. This will
contribute to dead investment for the textile industry over
DATA
several years.
• India’s textiles industry contributed seven per cent of the
• A foreign manufacturing company is now permitted to set
industry output (in value terms) of India in 2017-18.
up a unit without any investment from the domestic
• It contributed two per cent to the GDP of India and market, bring in 100% of their share, and repatriate profit
employs more than 45 million people in 2017-18. to their countries. This has made the domestic textile
• The sector contributed 15 per cent to the export earnings machinery manufacturing companies to compete in an
of India in 2017-18. In 2017-18, unfavourable environment.
• India’s cotton production was 34.86 million bales of 170 GOVERNMENT INITIATIVES
Kgs. each The Indian government has come up with a number of export
• Between Apr-Oct 2018, total textile and clothing exports promotion policies for the textiles sector. It has also allowed
stood at Rs 1.52 trillion (US$ 21.95 billion). 100 per cent FDI in the Indian textiles sector under the
automatic route.
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• The Textile Ministry of India earmarked Rs 690 crore (US$ handicrafts and handloom villages will be linked up with
106.58 million) for setting up 21 readymade garment tourism, and traditional handloom weaver/handicraft
manufacturing units in seven states for development and artisan villages will be promoted as tourist destinations.
modernisation of Indian Textile Sector. • Scheme for Capacity Building in Textile Sector: In order
• The Directorate General of Foreign Trade (DGFT) has to ensure steady supply of skilled manpower in the labour-
revised rates for incentives under the Merchandise intensive textile sector, the Union Cabinet approved a Rs
Exports from India Scheme (MEIS) for two subsectors of 1,300-crore outlay for skilling and up-skilling an estimated
Textiles Industry – Readymade garments and Made ups – 10 lakh people in the entire value chain of the sector,
from 2 per cent to 4 per cent. including spinning and weaving. The scheme will provide
• As of August 2018, the Government of India has increased demand-driven, placement-oriented skilling programme to
the basic custom duty to 20 per cent from 10 per cent on incentivise the efforts of the industry in creating jobs in the
501 textile products, to boost Make in India and organised textile and related sectors.
indigenous production. WAY FORWARD
• The Government of India announced a Special Package to • Government needs to move away from export-specific
boost exports by US$ 31 billion, create one crore job subsidy, which violates WTO norms, to focus on regional
opportunity and attract investments worth Rs 80,000 crore and cluster subsidies, technology upgradation and skill
(US$ 11.93 billion) during 2018-2020. As of August 2018 it development subsidies, which benefit all the producers. In
generated additional investments worth Rs 25,345 crore India, cotton and manmade fibers (MMF) have differential
(US$ 3.78 billion) and exports worth Rs 57.28 billion (US$ tax treatment, here fiber neutrality will give a boost to the
854.42 million). industry.
• The Government of India has taken several measures • India has abundant supply of labor, flexibility in labor laws
including Amended Technology Up-gradation Fund and adequate skilling will give a big boost to the textiles
Scheme (A-TUFS), scheme is estimated to create industry. For instance, women should be allowed to work
employment for 35 lakh people and enable investments in all three shifts, after taking into account adequate
worth Rs 95,000 crore (US$ 14.17 billion) by 2022. safeguard measures.
• Setting up integrated textile parks: To assist small and • Technology upgradation schemes will help Indian players
medium entrepreneurs in the textile industry to clusterize to increase both their productivity and competitiveness.
investments in textile parks by providing financial support • In addition, the government needs to carefully evaluate
for world class infrastructure in the parks. the various trade agreement opportunities Bangladesh
• Handlooms may be promoted with a focus on developing and Vietnam benefit from favorable access to some of the
high-end niche products by linking it with contemporary big apparel markets.
fashion. Further, e-marketing initiatives will be pursued in • The government also needs to re-look at fiber neutrality
order to cut down intermediaries and increase wage and evaluate various trade agreement opportunities, while
earnings of weavers. This would make handlooms domestically focusing more on technology upgradation
attractive to younger generations as well. Promotion of and skill development.
SPICE APPROACH
The textile and Leather Industries have the propensity to employ large number of women in India.
Considering the fact that the LFPR of the women is lower, focusing on these industries would give a
Social dimension
fillip for the job creation for the Job.In the long term, it is expected to improve the status of women
and bring about social transformation.
Political/Legal National Textile Policy, 2000

Dimension • Facilitate the Textile Industry to attain and sustain a pre-eminent global standing in the
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manufacture and export of clothing;

• Equip the Industry to withstand pressures of import penetration and maintain a dominant
presence in the domestic market;
• Liberalise controls and regulations so that the different segments of the textile industry are
enabled to perform in a greater competitive environment;
• Enable the industry to build world class state-of-the-art manufacturing capabilities in conformity
with environmental standards, and for this purpose to encourage both Foreign Direct Investment
as well as research and development in the sector;
• Develop a strong multi-fibre base with thrust of product upgradation and diversification;
• Sustain and strengthen the traditional knowledge, skills and capabilities of our weavers and
craftspeople;
Institutional
dimension
Cultural dimension
• The Textile and Leather Industries are considered to be labour intensive industries which have
the capability to provide a large number of Jobs. For example, with similar amount of investment
in Steel Industry and Textile Industry, the Textile Industry can create 240 times more jobs than
Economic
steel Industry.
dimension
• India’s textiles industry contributed seven per cent of the industry output (in value terms) of India
in 2017-18.It contributed two per cent to the GDP of India and employs more than 45 million
people in 2017-18.The sector contributed 15 per cent to the export earnings of India in 2017-18.
►ELECTRIC MOBILITY WHY THE NEED TO PUSH FOR ELECTRIC VEHICLES?

• Climatic change and raising pollution levels: According
Historically, mobility and fossil fuels have been inextricably
to a recent study by WHO, India is home to 14 out of 20
linked with electric vehicles being successful only in a few
most polluted cities in the world. India has committed to
niche markets. However, many compelling factors are now
cutting its GHG emissions intensity by 33% to 35% percent
pushing electric mobility to enter the mass market.
below 2005 levels by 2030.
The key objectives of the EV policy are:
• Advances in renewable energy and battery technology:
1. Reduce primary oil consumption in transportation. Lower cost of clean, low-carbon energy with higher energy
2. Facilitate customer adoption of electric and clean energy densities, faster charging and long-lasting batteries.
vehicles. • Rapid urbanization: India is frontrunner in recent wave of
3. Encourage cutting edge technology in India through rapid urbanisation. Electric vehicles (EVs) can improve
adoption, adaptation, and research and development. pollution scenario in cities by reducing local concentrations
of pollutants in cities.
4. Improve transportation used by the common man for
personal and goods transportation. • Data capture and analysis - Mobility has undergone a
digital revolution. This has created possibility of a greater
5. Reduce pollution in cities.
utilization of existing transportation assets to move
6. Create EV manufacturing capacity that is of global scale towards electric mobility.
and competitiveness.
• Energy security: EV’s will facilitate lower reliance on fossil
7. Facilitate employment growth in a sunrise sector fuel imports and geopolitical dynamics.
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NITTI Aayog in itts recent repo

ort has said that making India’s 3.9
3 lakh crorre (approxim mately 60 bi llion USD) b by 2030.
passsenger mobility shared, electric,
e and connected can cut However,
H Elecctric push can
n achieve this target only through a
its energy demmand by 64% and carbon emissions by y 37%. holistic
h and system-appro
s oach to mobi lity.
At current
c pricess, this would imply a net sa
avings of roug
ghly Rs
GO
OVERNMENT INITIATIVES charging in
nfrastructure etc., but alsso stresses u
upon the
After the successful completioon of FAME In st
ndia Phage 1 ((31 indigenizattion of the en
ntire EV value chain.
Maarch 2019, Fasster Adoption and Manufaccturing of Elecctric • Incentives to Original Equipment M Manufacturerss (OEMs)
hicles in India (FAME India Phage II) is b
Veh being implem
mented to invest in
n setting up a charging ne etwork. Under FAME-
er the period of 3 years fro
ove om 2019-20 too 2021-22. 2 scheme, withdrawal of subsidiess on EVs ussing lead
FAM
ME India II fo
ocus areas – acid batteeries & low-speed electricc two-wheelers would
further poppularize efficie
ent EVs in Ind ia.
• Electrification
n of the publicc & shared tra
ansport
• Realistic goals
g – FAME Phase 2 hass been introd duced to
• Local manufa
acturing
achieve the
e target of mo
ore than 30%% electric vehhicles by
• Establishmen
nt of charging infrastructure
e 2030, in co
omparison to the earlier taarget of 100%
% EVs by
SIG
GNIFICANCE OF
O PHASE II OF
O THE SCHEM
ME 2030.
• Builds over the

t Phase 1 of the schemme (which beegan in • Policy push through other
o missionn/schemes – besides
2015
2 & has been
b extende
ed till March 2019) with g
greater National Ellectric Mobilitty Mission P lan, other m
missions /
focus
f on demmand-creatio
on schemes which will prov
vide impetus tto the electricc mobility
are -
• More holistiic approach as it not o only touchess upon
critical
c techn
nical issues such
s as batte
ery cost & efficiency,
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1. Smart Cities Mission and Atal Mission for Rejuvenation and charger takes around six hours to charge an EV, DC
Urban Transformation (AMRUT) – Poised to push Non- chargers are faster and take around 40 minutes to one
Motorised Transport on a large scale hour to fully charge a vehicle.
2. Green Urban Transport Scheme (GUTS) 2. Lack of a stable policy for EV production: Profit
3. National Mission on Transformative Mobility and Battery determination becomes uncertain considering the high
Storage capital costs and the uncertainty in policies related to EV
production. This discourages investment in the industry.
 GLOBAL MOBILITY SUMMIT
3. Raw material dependence - India does not have enough
Organized by NITI Aayog in September 2018, Prime Minister
lithium/cobalt reserves for manufacturing lithium-ion
had outlined the vision for the future of mobility in India
batteries. This could lead to a substantial change in the
based on 7C’s which are Common, Connected, Convenient,
country’s energy security priorities, with securing lithium
Congestion-free, Charged, Clean and Cutting-edge
supplies, a key raw material for EV batteries, becoming as
mobility.
important as buying oil and gas fields overseas.
CHALLENGES
4. Lack of skilled manpower and expertise: EVs have higher
1. Poor infrastructural support: Charging infrastructure, servicing costs and higher levels of skills is needed for
Storage units, Grid connectivity etc. are still at very nascent servicing. India lacks the dedicated training courses for
stage. Another issue is whether to go for AC (alternating such skill development.
current) or DC (direct current) chargers. While an AC
SPICE APPROACH
• Electric mobility will bring an improvement in overall energy usage and generation thereby having
Social dimension a positive effect on environment and society as a whole.
• With less air pollution from cars, air quality will improve which will lead to improved health.
Political/Legal Holistic policy approach along with convergence of efforts to achieve the shared, electric, and
Dimension connected mobilty.
• Policies such as NEMMP and FAME scheme are being implemented by Ministry of Heavy
Industries and Public Enterprises.
• Government plans to incentivize buyers while purchasing these hybrid and electric vehicles by
providing monetary support. Department of Heavy Industry, M/o HI&PE has finalized the details
of the scheme including the monetary support for various hybrid and electric vehicles (incentive
Institutional
per vehicle-technology segment).
dimension
• The incentive shall be administered through an efficient and effective electronic
mechanism/portal for incentive disbursement.
• Under this mechanism the manufacturer will reduce the purchase price of a hybrid and electric
vehicle at the time of selling to the buyer, and the same will be reimbursed to them by the
Government.
Cultural dimension
• India is one of the largest producers of motor vehicles and the sector is estimated to provide
Economic direct and indirect employment to 3 crore people and it is estimated to grow further.
dimension • EVs have the potential to disrupt the mobility ecosystem, and, if implemented well, could have a
positive impact on the economy as well as the urban environment.
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• The reduction of fossil fuel emissions through the use of EVs will also help prevent economic
damage due to climate change.
• However, increase in use of EVs will reduce the demand for oil and adversely affect the oil and
petroleum sector.
►NATIONAL STRATEGY FOR c) Trithi Robotics uses drone technology to allow farmers to
monitor crops in real time and provide precise analysis of
ARTIFICIAL INTELLIGENCE their soil.
WHAT IS ARTIFICIAL INTELLIGENCE? d) SatSure, a startup with roots in India, uses ML techniques
AI refers to the ability of machines to perform cognitive tasks to assess images of farms and predict economic value of
like thinking, perceiving, learning, problem solving and their future yield.
decision making. Initially conceived as a technology that could EXAMPLE OF APPLICATION OF AI IN SMART CITIES AND
mimic human intelligence. INFRASTRUCTURE
EXAMPLE OF USAGE OF AI IN AGRICULTURE Applications of AI in Smart cities development are:
• The Government of India has recently prioritised Doubling a) Public facilities such as parks and other spaces
Farmers’ Income as a National Agenda; putting contribute substantially to a city’s liveability. Use of AI to
considerable focus on supply chain perspectives in monitor patronage and accordingly control associated
agriculture and market development in addition to systems such as pavement lighting, park maintenance
productivity augmentation. Degradation of land, reduction and other operational conditions could lead to cost
in soil fertility, increased dependence on inorganic savings while also improving safety and accessibility.
fertilizers for higher production, rapidly dropping water
b) AI can be used in water saving applications optimising
tables and emerging pest resistance are some of the
domestic water utilisation for different human activities
several manifestations of India’s unsustainable agricultural
etc.
practices.
c) AI can provide solutions for crowd management and can
• The sector also suffers from poor resource utilisation, with
help in averting city-scale challenges such as managing
the production quantum and productivity still being quite
mega footfall events, emergency and disasters.
low. On the market side, non-existent functional end-to-
end agriculture value chains have caused the price d) AI technology could provide safety through smart
realisation for farmers to remain low. Access to, and timely command centres with sophisticated surveillance
availability of services, across agricultural value chain at systems that could keep checks on people’s movement,
the farmers’ end thus becomes a challenge. potential crime incidents, and general security of the
residents.
APPLICATIONS OF AI
e) Cyber-attacks seem to pose a great threat to our
a) Soil health monitoring and restoration
institutions and public systems, today. AI technologies
b) Crop health monitoring and providing real time action possess the capability to detect vulnerabilities and take
advisories to farmers remedial measures to minimise exposure of secure
c) Increasing efficiency of farm mechanization online platforms containing highly sensitive data from
being targeted by unscrupulous social elements.
EXAMPLES
CHALLENGES
a) Intello Labs, for example, uses image-recognition software
to monitor crops and predict farm yields. The challenges are concentrated across common themes of:
b) Aibono uses agridata science and AI to provide solutions • Lack of enabling data ecosystems
to stabilise crop yields. • Low intensity of AI research - i. Core research in
fundamental technologies ii. Transforming core research
into market applications
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• Inadequate availability of AI expertise, manpower and previous revolution and leading to more advanced forms
skilling opportunities of production.
• High resource cost and low awareness for adopting AI in • The fourth industrial revolution, a term coined by Klaus
business processes Schwab, founder and executive chairman of the World
• Unclear privacy, security and ethical regulations Economic Forum.
• Unattractive Intellectual Property regime to incentivise • The Fourth Industrial Revolution is a way of describing the
research and adoption of AI blurring of boundaries between the physical, digital, and
biological worlds. It’s a fusion of advances in artificial
These challenges, while by no means exhaustive, if addressed
intelligence (AI), robotics, the Internet of Things (IoT), 3D
in an expeditious manner through concerted collaborative
printing, genetic engineering, quantum computing, and
efforts by relevant stakeholders, with government playing a
other technologies. Think GPS systems that suggest the
leading role, could lead to fundamental building blocks that
fastest route to a destination, voice-activated virtual
form the core to India’s march towards leadership in AI.
assistants such as Apple’s Siri, personalized Netflix
RECOMMENDATIONS recommendations, and Facebook’s ability to recognize
• In order for India to ride the AI innovation wave, a robust your face and tag you in a friend’s photo.
intellectual property framework is required. Despite a IMPACT ON JOB AND EMPLOYMENT
number of government initiatives in strengthening the IP
• The global labour market is increasingly adopting new
regime, challenges remain, especially in respect of
technology. New technology makes it easier for companies
applying stringent and narrowly focused patent laws to AI
to automate routine tasks and could disrupt the
applications – given the unique nature of AI solution
balance between job responsibilities completed by
development. The importance of data to development of
humans and those completed by machines and
useful models is one such example. To tackle these issues,
algorithms. With smart technology becoming more
establishment of IP facilitation centers to help bridge the
mainstream, we need to consider the impact using this
gap between practitioners and AI developers, and
new technology will have on our society and workforce.
adequate training of IP granting authorities, judiciary and
Artificial intelligence can also be a disruptive force,
tribunals is suggested.
dislocating people from jobs and surfacing questions
• Achieving the goal of #AIforAll requires long term and about the relationship between humans and machines.
engaged institutional collaboration between all the
• The artificial intelligence revolution is going to transform
stakeholders including the citizens. However, while playing
many jobs—and spawn new kinds of jobs that drive
the primary role in ensuring that this collaborative strategy
economic growth. Workers can spend more time on
succeeds, the government needs to be mindful of not
creative, collaborative, and complex problem-solving tasks
crowding out the private sector. Role of the government
that machine automation isn’t well suited to handle.
thus needs to be one of a facilitator, an active promoter
and wherever required, of an owner. • However, workers with less education and fewer skills are
at a disadvantage as the Fourth Industrial Revolution
progresses. Businesses and governments need to adapt to
►FOURTH INDUSTRIAL REVOLUTION the changing nature of work by focusing on training
people for the jobs of tomorrow. Talent development,
INTRODUCTION
lifelong learning, and career reinvention are going to be
• The first industrial revolution changed our lives and critical to the future workforce.
economy from an agrarian and handicraft economy to one
• A recent study released by McKinsey Global Institute
dominated by industry and machine manufacturing. Oil
reports that roughly one-fifth of the global workforce will
and electricity facilitated mass production in the second
be impacted by the adoption of AI and automation, with
industrial revolution. In the third industrial revolution,
the most significant impact in developed nations like the
information technology was used to automate production.
UK, German and US. By 2022, 50% of companies believe
Although each industrial revolution is often considered a
that automation will decrease their numbers of full-time
separate event, together they can be better understood as
a series of events building upon innovations of the
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staff and by
b 2030, ro
obots will rreplace 800 million workers acrross the world
d.
According g to “2017 Deloitte Globbal Human Capital Organizzations can no longer conssider their wo
orkforces
Trends,” the
t problem is not simply o
one of “reskillling” or to be only
o the employees on theeir balance sheets, but
planning new and
d better careers. Innstead, must innclude freela
ancers, gig ecconomy work kers and
organizattions must look
l at lead
dership, structures, crowdss. These on- and
a off balan
nce-sheet worrkers are
y and the overall employee
diversity, technology being augmented with mach hines and ssoftware.
experiencce in new and exciting w ways. Robotics, AI, Together, these trends will resuult in the reddesign of
sensors and cogniitive compu uting have gone almost every job, as
a well as a new way of thinking
mainstrea am, along with
w the ope en-talent ecoonomy. about workforce
w anning and t he nature off work.26
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This requires adopting a human capital management cooperation with industry and research institutions.
approach for Industry 4.0. Additionally, skilling and reskilling schedules would be
IS INDIA PREPARED FOR INDUSTRY 4.0? worked out to match the requirements of the industry
within and also abroad. In order to meet the emerging
• Industry 4.0 is expected to transform manufacturing in
requirement, the objectives of the Mission should include
India by bringing operational efficiencies to manufacturing
reskilling of those workers whose skills are becoming
industries like automotive, electrical and electronics. The
redundant.
major area of focus shall be the technological
advancement across various industries. IIOT (Industrial • For jobs requiring newer skills, manpower planning would
Internet of Things), 3DP (3 dimensional printing) 3D ensure the ready availability of workers. Towards this end,
sensors, social software, augmented reality, location the Mission should be required to establish closer links
awareness are considered to usher in the next era of between industry and skill development agencies and also
smart production. These automation technologies academic institutions. The Mission should also be required
collectively are moving the manufacturing industry to develop technology forecasting systems to monitor new
towards the next phase of technological advancement. technologies on the horizon and derive mechanisms to
become pioneers in taking advantage of emerging
• Major Indian states are taking initiatives to adapt to
technologies and innovations. Such a mission should
Industry 4.0. Andhra Pradesh has taken an initiative to
be mandated to adapt the technologies and
capitalise on the IoT potential in the country. The state
innovations of presently disadvantaged areas and
government has approved the first-of-its-kind IoT policy
segments.
with an aim to turn the state into an IoT hub by 2020 and
tap close to 10 per cent market share in the country. The • The Mission should identity technologies and innovations
Indian government has created Green Energy Corridors to that can be adapted to in order to improve sanitation,
bring in more renewable energies, to make smart grids agricultural productivity and water management.
that will support the variable input of renewable energies • The task before the Mission should be such that it would
and create storage. India has committed over US$ 1 bn in require a continuous, coordinated approach of a host of
this initiative and has started projects in many states, such diverse stakeholders in order to succeed with a strong
as Andhra Pradesh, Rajasthan, Tamil Nadu, Gujarat, and political mandate and financial and administrative
Himachal Pradesh. India’s first smart factory, moving from autonomy.
automation to autonomy, where machines speak with
each other, is being set up in Bengaluru
• Various Indian companies are increasing their focus and
►THE INVESTMENT CLIMATE IN INDIA
partnering with other companies for developing new IoT India’s investment has been much below potential over the
and M2M solutions, the Digital India initiative from the last few years. From a peak of 24 per cent in the last quarter
Government of India is expected to enhance the focus on of 2009-10 financial year, the rate of growth of gross fixed
IoT in tackling the domestic challenges. capital formation languishes around zero. Stalling of
WHAT NEEDS TO BE DONE? “projects,” a term synonymous with large economic
undertakings in infrastructure, manufacturing, mining, power,
• India cannot afford to miss opportunities awaiting to be
etc., is widely accepted to be a leading reason behind this
availed of during the ongoing Fourth Industrial Revolution.
decline.
It would have to enable itself by bringing on board
academic institutions, research establishments, industry SECTORS HAVING MORE STALLED PROJECTS
and entrepreneurs who work in coordination and • Sector with large a number (and total worth) of stalled
harmony and continuously realign themselves in the projects in both public and private sectors is electricity.
ever changing environment driven by fewer innovations Further manufacturing, mining and electricity, in that
and technologies. order, have had the highest stalling rates in the last few
• There is need for a Mission to propel India towards the quarters among all sectors.
Fourth Industrial Revolution. The Mission should be • Air transport, roads and shipping are the other big
tasked to design appropriate academic curricula in close contributors in infrastructure, and steel, cements,
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garments,
g and food processsing are the largest contriibutors recent
r years. But in India, unlike in Japaan and in the e US, the
within
w the maanufacturing sector.
s problem
p has some unique e features and d hence is a "balance
• Private projeccts are held up overwhelm
mingly due to mmarket sheet
s syndromme with India an characteri stics." In Japa an, there
conditions
c a
and non-reggulatory facttors wherea as the was
w a balance e sheet probleem after the rreal estate an nd equity
government
g projects are stalled due tto lack of re
equired boom
b of the late 1980s. Similarly, in the US therre was a
clearances.
c balance
b sheet problem afte er the global ffinancial crisiss.
• On
O the flipsside, governm
ment projectts were the most However,
H therre is somethin
ng fundamen
ntally Indian about this
severely
s affe
ected by “p
policy paralyysis” of regu
ulatory phenomenon.
p .
clearances.
c • First, the debt overha ang of the corporate ssector is
accompanie ed by a relatiively high gro
owth of aroun
nd 6 to 7
per cent.
• Second, it has
h been acco ompanied by high inflation
n (instead
of the price
e deflation in the
t Japanese example).
• Third, the public
p sector is exposed to
o corporate riisk in the
form of pu ublic private partnershipss, and lendingg by the
public secto
or banks.
• Fourth, unlike many otther countriees with high debt to
equity ratio
os currently, India’s debt is almost ex xclusively
financed by y public sectoor banks. Th is has transla
ated into
high and rissing non-perfforming assets
ts for these ba
anks.
Hence
H to sum
mmarize - a steep decline in gross fixe ed capital
formation,
f a large volu ume of pro ojects in suuspended
animation,
a worryingly hig gh number o of stressed a
assets in
BA
ALANCE SHEET
T SYNDROME
E WITH INDIA
AN banks’
b balancce sheets an nd a highly leveraged ccorporate
CHARACTERISTIICS sector-
s suggeests that Indian firms face a classic debt
overhang
o prooblem in th he aftermath h of a debtt fuelled
• The
T debt to equity
e ratio of
o nonfinanciaal corporates in the
investment bubble,
b tran
nslating into o a balance sheet
BSE 500 acrosss time and in n comparisonn to other cou
untries.
syndrome
s with Indian charaacteristics.
Debt to equity is a mea asure of fina
ancial leveragge that
indicates the proportion of o debt and equity used by the POLICY
P LESSO
ONS
company
c to finance
f its asssets. Howeve
er, data showws that • India needss to tread the path of invesstment-driven
n growth.
the
t debt to equity
e for Indian non-finan ncial corporattes has Highly leveraged corporrate balance ssheets, and a banking
been rising att a fairly alarmming rate. system und der severe stress suggestt that this w will prove
• To
T some exte ent high leveels of debt mmay be justifie ed if a challenging
g. Against thiss backdrop, ppublic investm
ment may
company
c ha
as sufficient earnings to o pay the in nterest need to be augmented d to recreatee an environ nment to
component
c o outstanding
of g debt. This a
ability of a company crowd-in prrivate sector investment.
to
t pay the in nterest on itss outstandingg debt is mea asured • The biggestt lesson from stalled projeccts and the asssociated
using the Interest Coverage Ratio (ICR R). ICR is techhnically credit aided infrastructu
ure bubble iss that perha aps more
defined
d as the
t ratio of a companyy’s earnings before than a run up problem (over exubeerant and missdirected
interest and taxes (EBIT)) of one perriod to its in nterest private investment), we face a clean-up problem
expenses
e oveer the same period.
p An ICRR below 1 the erefore (bankruptcyy laws, assset restructu uring, etc.). Creative
indicates a low EBIT rela ative to inte rest expense es and solutions are
a necessary for distriibuting pain equally
highlights serious weakne esses in the company’s b balance amongst thhe stakeholders from past d deals gone soour.
sheet.
s
• An idea to fix the clean--up problem iis setting up of a high
Thee balance she
eet problem of
o rising debt aand losses occcurred powered Inndependent Renegotiation n Committee e. In the
in many other countries
c esp
pecially in advvanced counttries in presence of
o a market and a regulato
ory failure, peerhaps a
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creative step would be to involve external experts for a Separating these responsibilities provide an incentive to
quick and independent resolution of the problems. increase profits by cutting corners during construction.
RESTRUCTURING THE FRAMEWORK FOR PUBLIC-PRIVATE Suggestions to let the public sector build assets and have
PARTNERSHIPS the private sector maintain and operate them ignore this
linkage.
Many infrastructure projects are today financially stressed,
accounting for almost a third of stressed assets in banks. • Second, risk should only be transferred to those who can
New projects cannot attract sponsors, as in recent NHAI bids, manage it. In a highway or a railway project, it is not
and banks are unwilling to lend. Given its riskiness, pension sensible to transfer usage risk since it is outside the
and insurance funds have sensibly limited their exposure to control of the operator. But, it can be done in telecom
these projects. This current state of the public private projects and for individual port terminals that compete
partnership (PPP) model is due to poorly designed with each other, where demand can respond to tariff and
frameworks, which need restructuring. quality.
FLAWS: • Third, financing structures should be able to attract

pension and insurance funds, which are a natural funding
• Existing contracts focus more on fiscal benefits than on
source for long-term infrastructure projects.
efficient service provision.
• Revival of private interest and bank lending needs existing
• It neglects principles allocating risk to the entity best able
contracts to be restructured, with burden sharing among
to manage it. Instead, unmanageable risks, e.g., traffic risk
different stakeholders. Lenders may have extended credit
in highways, even though largely unaffected by their
without necessary due diligence, assuming that projects
actions, are transferred to concessionaires.
were implicitly guaranteed.
• The default revenue stream is directly collected user
charges. Where this is deemed insufficient, bidders can ask
for a viability grant, typically disbursed during
►WTO REFORMS
construction. This structure leaves the government with no
leverage in the case of non-performance, with few India has recently hosted the second mini-ministerial meet of
contractual remedies short of termination. the World Trade Organisation (WTO). It was a kind of
preparatory meeting to set a common agenda at the 12th
• Fourth, there are no ex-ante structures for renegotiation. If
Ministerial Conference, scheduled for June 2020 at Astana,
a bureaucrat restructures a project, there are no rewards;
Kazakhstan. The 11th Ministerial Conference (Buenos Aires,
instead it may lead to investigation for graft. Failed
December 2017) collapsed despite efforts by 164 WTO
projects lead neither to penalties nor investigation. With
members to evolve a consensus on several issues. In this
such asymmetric incentives, bureaucrats naturally avoid
regard, this mini-ministerial meet in New Delhi assumed
renegotiation.
significance since it enabled members to negotiate all such
• Finally, contracts are over-dependent on market wisdom, issues in a convergent manner.
e.g., bidders in ultra-mega power projects (UMPP) could
WTO APPELLATE BODY DISPUTE SETTLEMENT ISSUE
index tariff bids to both fuel prices and exchange rates, but
almost all chose very limited indexation. When fuel prices  About Appellate body
rose and the rupee fell, these bids became unviable. To The Appellate Body of the WTO was set up in 1995 and is a
enforce market discipline and penalise reckless bidding, standing committee of 7 members. It presides over appeals
these projects should have been allowed to fail. against judgments passed in trade-related disputes brought
NEEDED MODIFICATIONS by WTO members. Countries involved in a dispute can
approach the Appellate body if they feel the report of the
• It is better to continue combining construction and
panel set up to examine the issue needs to be reviewed on
maintenance responsibilities to incentivise building quality.
points of law. The Appellate Body can uphold, modify, or
In many projects, especially highways, maintenance costs
reverse the legal findings of the panel that heard the dispute.
depend significantly on construction quality. If a single
entity is responsible for both construction and
maintenance, it takes lifecycle costs into account.
154
 The issue • Also, the overall weakening of WTO framework could have
Over the period of time the nature of the trade disputes is the effect of undoing over two decades of efforts to avoid
increasingly getting technical, yet despite this the WTO protectionism in global trade.
currently faces shortage of members. The United States of • This is a major concern currently, because trade tensions
America is largely held responsible for this. It has such as between the US and China and the US and India,
systematically blocked the appointment of new Appellate are on the rise.
Body members (judges) and has also stalled the WAY FORWARD
reappointments of some members who have completed their
• New appointments to the Appellate Body are usually made
four-year tenures.
by a consensus of WTO members.
The reason is that the U.S. believes WTO is biased against it,
• But there is also a provision for voting where a consensus
and is thus blocking appointments. If the trend continues ,
is not possible.
the appellate mechanism will be destroyed as two of the
three members will complete their tenures in December, • The group of 17 least developed and developing countries
2019, leaving the body with just one member. Notably, at have committed to working together to end the current
least 3 people are required to preside over an appeal. impasse.
If new members are not appointed to replace the two retiring • This group, which includes India, can submit or support a
ones, the body will cease to be function. proposal to the above effect, helping to get new members
on the Appellate Body by a majority vote.
IMPLICATIONS AND CONCERN
OTHER ISSUES UNDER WTO NEGOTIATIONS
• The body can become defunct in absence of required
members and consequently, countries locked in 1. Plurilateral Vs Multilateral agreements:
international trade disputes will be left with no forum for • Since the multilateral agreements are consensus driven,
recourse. normally the trade negotiations under multilateral
• India has so far been a direct participant in 54 disputes, framework tend to be slow paced and lead to unnecessary
and has been involved in 158 as a third party. Further, in delay. However, the good aspect about the multilateral
February 2019, the appellate body said it would be unable agreements is that they take into account the special
to staff an appeal in a dispute between Japan and India. needs and interests of poor and developing countries.
• This was over certain safeguard measures that India had • In this regard, the debate has arisen between the
imposed on imports of iron and steel products. The panel developed and developing countries with respect to the
had found that India had acted “inconsistently” with some nature of trade negotiations under the WTO.
WTO agreements. • The developed countries have put forward four plurilateral
• India had notified the Dispute Settlement Body of its agreements in the areas of e-commerce, investment
decision to appeal certain issues of law and legal facilitation, MSME and gender. However, developing
interpretations. But it has so far been unable to review at countries led by India have staunchly opposed the
least 10 appeals that have been filed since July 2018. plurilateral agreement and instead pushed forward for the
continuation of multilateral framework under WTO.
• The larger concern with the issue is that if the body is
declared non-functional, countries may be compelled to 2. Agreement of fishery subsidy
implement rulings by the panel despite concerns with it. • The WTO member countries are presently negotiating a
• If a country refuses to comply with the panel's order, it will multilateral treaty of Fishery Subsidies. This agreement
run the risk of facing arbitration proceedings initiated by seeks to prohibit certain forms of fisheries subsidies that
the other party. contribute to overcapacity and overfishing.
• This does not bode well for India which is facing a rising • Some of the developed countries such as USA have been
number of dispute cases, especially on agricultural insisting that larger developing countries like India and
products. China should not continue to get special and differential
treatment.
155
• However, India has argued that special and differential not directly from Flipkart. Example: Naaptol, eBay, Shopclues
treatment should be built into the fisheries subsidies etc.
agreement.  Inventory Model
3. Agreement on E-Commerce Inventory led models are those shopping websites where
• The developed countries led by USA have been pushing online buyers choose from among products owned by the
forward for a comprehensive agreement on E-Commerce online shopping company or shopping website take care of
under the ambit of WTO. the whole process end-to-end, starting with product
• As part of this agreement, the developed countries have purchase, warehousing and ending with product dispatch.
put forward a number of proposals which include tackling Example: Jabong, Yepme etc
barriers that prevent cross-border sales; addressing GROWTH DRIVERS FOR E-COMMERCE INDUSTRY
forced data localization requirements and permanently • Increase in Internet and smart phone penetration
banning customs duties on electronic transmissions,
• Rapid Urbanisation
among others.
• Young Demographic Profile
• India has clearly stated that it is against any binding rules
in e-commerce. • Government’s favourable policies such as FDI Policies,
Digital India, Start-up India etc
4. Permanent solution to public stock holding
• Rise in Digital Literacy
• India has been demanding a permanent solution on Public
stockholding in order to implement National Food • Discounts offered by E-commerce Companies.
Security Act. At the Bali ministerial conference in • Higher Convenience of the consumers
December 2013, India secured a “peace clause".
• Cashless Transactions
• Under it, if India breaches the 10% limit on subsidy
CHALLENGES
under AoA, other member countries will not take legal
action under the WTO dispute settlement mechanism. • Infrastructure is an essential part of e-commerce business
Further, in 2014, India forced developed countries to clarify and the Internet is an essential tool for ecommerce
that the peace clause will continue indefinitely until a infrastructure. However, the traders of various part of
permanent solution is found. India faces poor e-commerce infrastructure, though the
penetration rate is 60% in urban areas and 20.26% in rural
areas. The growth rate of penetration is increasing day by
►E-COMMERCE SECTOR day. But the logistics and supply chain infrastructure and
financial infrastructure are not up to mark for conducting
WHAT IS ECOMMERCE?
e-commerce business in India.
E-commerce is the activity of buying or selling of products on
• Cybersecurity is a vital tool for maintaining trust in the
online services or over the Internet. Electronic commerce
ecommerce business. But cyberlaw is not up to mark in
draws on technologies such as mobile commerce, electronic
India, it needs reform and makes law according to the
funds transfer, supply chain management, Internet
types of offense for its proper implementation. The cyber
marketing, online transaction processing etc.
law should be standard so that individual property rights,
MODELS OF E-COMMERCE the privacy of data and content, data protection should be
 Market Place Model Inventory Model reserved with its commercial and criminal areas of law.
Marketplace model is based on zero inventory model. The e- • The privacy and information of buyer and trader should be
commerce marketplace becomes a digital platform for secure for maintaining a trustworthy business relation.
consumers and merchants without warehousing the Because sometimes data may be used by the criminal
products. Marketplaces offer shipment, delivery and payment groups for hacking customer and trader’s money which
help to merchants by tying up with some selected logistics decrease the trust of e-commerce business. Lack of privacy
companies and financial institutions. For example, when an and security is a big challenge for e-commerce business in
individual is purchasing a product from Flipkart, he/she will India.
be actually buying it from a registered seller in Flipkart and
156
• Digital illiteracy is a top requirement for adopting • Online Payment: It mandates listing of option to pay via
ecommerce. But in India, the digital literacy rate is not RuPay card on e-commerce sites
satisfactory which creates a barrier for smooth • Greater Control to Indian Promoters: Amend
development of e-commerce in India. Companies act to allow Indian Promoters to have control
• E-commerce business in one province is not enough to despite small shareholding in the E-Commerce companies.
deliver their product to other areas because of carrying • Unified Regulating Authority: The draft policy seeks to
cost, time and other related risks. So, localization is set up Regulatory authority for the E-Commerce
necessary to deliver the product timely which can companies.
stimulate the e-commerce business easily. But
BENEFITS
unfortunately, it is not up to the mark in India. Internet
based e-commerce has besides, great advantages, posed • A comprehensive law may address issues related to
many threats because of its being what is popularly called competition, regulation, data privacy, taxation and
faceless and borderless. technical aspects such as localisation of servers and
technology transfer.
• India buyers demographics are such that they want to
touch and feel the product before buying it to be assured • It will help in creating a level playing field between E-
of its looks and quality. However, online booking and commerce companies and Brick-and Mortar stores. The
ticketing business in India grew as it didn't suffer from deep discounts offered by the E-commerce companies
these constraints but e-commerce platforms selling have adversely profit margins of small kirana stores.
apparels, jewelry, cosmetics, and accessories are still CONCERNS
struggling with these challenges faced by the e-commerce
• Government’s idea of regulating discounts would hamper
industry.
the growth of the Industry. Further, it will adversely impact
To regulate and to meet the challenges, government of India the interests of the online customers.
has announced E-Commerce Policy.
• Government’s proposal of opening up FDI in Inventory
E-COMMERCE POLICY Model up to 49% requires a majority Indian Partner who
• Regulations on Discounts: It suggests a ‘sunset period’ can invest up to 51% seems difficult to achieve.
for every discount and offer, beyond which no e- • Increase in the costs due to proposed norms for storing
commerce portal can be allowed to provide discounts. and processing data locally.
• Sanctity of User Data: Data generated by users in India NEW E-COMMERCE GUIDELINES
from various sources to be stored exclusively in India.
The Ministry of Commerce and Industry has come out with
Government would have access to data stored in India for
guidelines in order to provide clarity on FDI policy on e-
national security and public policy objectives. Direct and
commerce sector.
indirect tax incentives as well as according infrastructure
status to data centres to encourage domestic data storage. WHAT DO THE GUIDELINES STATE?
• MSMEs: To encouarage micro, small and medium • 100% FDI under automatic route is permitted in
enterprises, the policy allows them to follow inventory- marketplace model of e-commerce.¬However, FDI is not
based models for selling locally produced goods through permitted in inventory based model of e-commerce.
an online platform. 49% FDI may be allowed in Inventory • E-commerce entity providing a marketplace will not
based models to promote MSMEs. exercise ownership or control¬over the inventory i.e.
• Taxation: The relevant GST provisions would be modified goods purported to be sold. Such an ownership or control
in order to create a level-playing field between online and over the inventory will render the business into inventory
offline delivery of goods and services for the purpose of based model. Inventory of a vendor will be deemed to be
GST. controlled by e-commerce marketplace entity if more than
25% of purchases of such vendor are from the
• Promotion of Competition: More powers to the
marketplace entity or its group companies.
Competition Commission of India in case of mergers and
acquisitions. • E-commerce marketplace entity will not force any seller to
sell any product¬exclusively on its platform only.
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• E-commerce marketplace entity will be required to ffurnish ►REAL

► ESTATE
E SECTOR:
S FINANC
CING
a certificate along with report of sttatutory audiitor to
Reserve Bank k of India, confirming co
ompliance of above
MECHAN
M ISMS
guidelines,
g by
y 30th of Se eptember of every year ffor the The
T Real Estatte and constru uction busineess inherentlyy requires
preceding finaancial year. the investmen nt of capital on
o a large scaale. In India (e
especially
HO
OW WILL THE NEW GUIDEL
LINES IMPAC
CT THE E- in Tier-I cities such as Delhii and Mumba i), this is maggnified on
CO
OMMERCE COMPANIES? account
a of the scarcity and d high cost o
of land. All opperations
related
r to the field of th he Real Estaate business such as
• The
T new chaanges will haave a significcant impact o on the
purchase
p of la
and, paymentt of premium m on land, dutties to be
business model of e-com mmerce comp panies, as m most of
paid
p to the e statutory bodies, co ost of consstruction,
them
t source goods from m sellers who o are related d party
rehabilitation
r of old occu upants etc. rrequire heavyy capital
entities.
e
investment.
For examplee, Flipkart India Private Lim
mited is enga aged in
wholesale
w trading/ disttribution of books, m mobiles, TRADITIONAL
T L FUNDING AVENUES
A PRIO
OR TO RERA::
computers
c an
nd related acccessories wh hile Flipkart In
nternet Prior
P to the Re
eal Estate (Re
egulation an nd Development) Act,
Private Limited is engage
ed in e-comm merce marke
etplace 2016
2 he usual pra ctice for the builders
coming into force, th
business under the brand name Flipkarrt.com. and
a developerrs to raise inittial capital waas:
• Thus,
T Flipkartt Internet Priv
vate Limited ssells goods so
ourced 1. Various priv
vate investorss advancing mmoney to the
e builders
from
f Flipkarrt India Private Limited. As per the e new and develo
opers and the ereby bookingg multiple units in the
guidelines,
g Flipkart Interneet Private Lim
mited will no longer proposed project
p at a prrice way below
w the ongoing market
be able to sell goods sourcced from relatted party entities rates.
HO
OW ARE CONS SUMERS AND
D SMALL RETA
AILERS LIKEL
LY TO 2.
2 The builderrs and develoopers launchin ng various prre-launch
BE IMPACTED? offers and various schemes such aas the 20:80 scheme
Con nsumers may y no longer enjoy the dee p discounts o offered (20% payment made at thet time of bo ooking and 800% at the
by retailers thatt have a closse association n with marke etplace time of posssession) wheereby the con nsumers / puurchasers
enttities. The abbsence of larg ge retailers w
will, however, bring used to get sale units allotted
a in thee proposed pproject in
reliief to small retailers
r selling on these platforms. T Traders consideration for the pay
yment advan ced by them.
run
nning traditional brick-and d-mortar store es, who now find it
diffficult to comp
pete with the large e-comm merce retailers with
deeep pockets, coould gain.
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However, due to frequent project delays and malpractices by new assets. As 70% of India’s built environment needs to be
certain developers, the consumer faith in such pre- developed, innovative financial instruments.
construction and under construction projects was dwindling. SEBI GUIDELINES FOR REITS
Developers used to accept bookings for projects without the
• All the REITs should be registered with the SEBI and they
possession of proper sanctioned plans and compliances in
should be listed on the stock exchanges.
order.
• The minimum value of the assets owned by REITs should
Availability of adequate liquidity is an important input
be Rs 500 crores.
required for efficient development of the real estate sector. It
is envisaged that over USD 2 trillion needs to be invested to • The minimum offer size of the REIT should be Rs 250
achieve the government’s vision of ‘Housing for all by 2022’. crores.
To achieve this feat, an overhaul of the current funding • The minimum investment by an investor should be Rs 2
mechanism will likely be required. lakhs i.e. an investor cannot invest less than Rs 2 lakh.
The liquidity situation in India has become a grave challenge • Minimum 80% of the pooled money of the REITs should
complicated by multiple factors – be invested in rent generating and completed properties
• The large equity inflow witnessed between 2006 and 2008 while the balance 20% can be invested in under
has completely dried up, construction projects, equity shares of real estate
companies, G-Secs etc.
• investments by households have strengthened but and
Government support continues to remain weak. • 90% of the profits generated by REITs should be
distributed among the investors in the form of dividend.
• Institutional lenders (banks and housing finance
companies) have demonstrated a strong growth, but it has BENEFITS OF REITS
largely filled the gap created by the exit of low equity  Benefits to retail investors
capital inflow.
• The Small retail investors would be able to invest in real
Strong measures are urgently required to drive households’ estate properties and earn dividend without any hassles.
savings, opening up institutional lending and attracting equity
• The investors are allowed to trade their investments on
capital, along with major structural reforms to drive the real
the stock exchanges facilitating easier entry and exit
estate sector and economic growth.
• Diversification of investment and commensurate reduction
REAL ESTATE INVESTMENT TRUST
in the risk.
REITs came as an innovative financial instrument channelising
 Benefits to real estate sector
households’ saving in physical assets.
• Boost to financing of real estate projects.
A mutual fund company pools in money from the retail
investors and invests that money in the financial market in • Funding of stalled projects
the form of shares, bonds, debentures etc. The profit earned • Increase in the number of real estate projects that would
from such investments is in turn distributed among the cater to increased demand
investors. A Real Estate investment Trust is similar to Mutual
BENEFITS TO THE ECONOMY
fund. However, it invests the pooled money of the investors
in the real estate projects such as commercial office spaces, • Development of Primary and Secondary Market
residential apartments etc. The money earned from such • Improvement in the transparency and disclosure by real
investments is in turn distributed among the investors in the estate companies
form of dividend. They are mutual fund like instruments • Decrease in the dependency of the real estate companies
wherein several investors pool in funds with real estate as the on the banks for their funding requirements and
underlying asset class. Minimum investment limit in REITs for consequent increase in bank loans for other critical
India is Rs 2 lakhs. They are regulated by SEBI. Projects being sectors.
developed by REITs should be registered under RERA.
• Direct and indirect employment opportunities.
However, REITs are allowed to invest in assets which have
POSITIVE STEPS TAKEN BY THE GOVERNMENT TO BOOST
existing rental yield. They do not facilitate development of
THE REAL ESTATE SECTOR
159
• The government has announced certain amendments in and institutional investors are now looking at Indian real
the taxation and regulatory features. estate with renewed interest.
• RERA is streamlining the real estate, ensuring that the • With the advent of the first REIT in early 2019, investors
buyer gets full value for his money. could look forward for great opportunities.
• The central and various state governments are announcing CHALLENGES FACED BY THE REAL ESTATE SECTOR
single window approvals. • Bureaucratic delays
• GST and the approval by SEBI for the Real Estate • High GST rates on real estate
Investment Trust (REIT) has led to greater transparency,
• Difficulty in raising funds

SPICE APPROACH
Social dimension Real estate sector is a source of employment for a large number of underprivileged people.
• Real Estate (Regulation & Development) (RERA) Act 2016

• Creation of Real Estate Regulatory Authority by the States/UTs, consisting of a Chairperson and at
least two full time members with experience in urban planning, law and commerce etc
• Mandatory registration of all residential projects with RERA.
Political/Legal • Creation of Real Estate Appellate Tribunals to hear appeals (time-bound) against RERA.
Dimension • Promoter has to maintain a 'separate account' for every project undertaken.
• Promoter has to deliver projects in a time bound manner and if promoter fails to give possession
of the property then the money received for that property has to be returned to the buyer.
• Protection to buyers in terms of quality of construction and provision of services for 5 years from
the date of possession.
Institutional
RERA -Real estate regulatory Authority.
dimension
Cultural dimension
The Indian real estate sector is expected to contribute 13 percent to the country's gross domestic
Economic product (GDP) by 2025, according to the 'Indian Real Estate and Construction: Consolidating for
dimension growth' report by National Real Estate Development Council (NAREDCO) and Asia Pacific Real Estate
Association (APREA).
160
SECTION-9
FOOD
PROCESSING
IDUSTRIES
FOOD PROCESSING INDUSTRIES
►FOOD PROCESSING SECTOR IN • Increasing investments

ο Investments, including FDI, would rise with
INDIA: OPPORTUNITIES AND
strengthening demand and supply fundamentals
CHALLENGES
ο Launch of infrastructure development schemes to
CONTEXT: increase investments in food processing infrastructure
Food processing is a technique of manufacturing and • Policy support
preserving food substances in an effective manner with a
ο Sops to private sector participation; 100 per cent FDI
view to enhance their shelf life; improve quality as well as
under automatic route.
make them functionally more useful.
ο Promoting rationalisation of tariff and duties relating to
Food processing sector is a sunrise sector in India. It provides
food processing sector.
many positives prospects as well as face many challenges.
Hereby discussing the prospect of this sector in India, Setting up of National Mission on Food Processing
challenges faced and steps needed. SCHEME OF MEGA FOOD PARK
DATA • The Scheme of Mega Food Park aims at providing a
• India is the world’s second–largest producer of fruits and mechanism to link agricultural production to the market by
vegetables. bringing together farmers, processors and retailers so as
to ensure maximizing value addition, minimizing wastage,
• India has second largest production of marine products,
increasing farmers income and creating employment
and meat and poultry
opportunities particularly in rural sector.
• India is the single largest producer of milk in the world,
• The Mega Food Park Scheme is based on “Cluster”
with the production estimated at 137.7 MT.
approach and envisages creation of state of art support
• India has the largest livestock population across the globe infrastructure in a well-defined agri / horticultural zone for
which is equal to 512 million, including 119 million milch setting up of modern food processing units in the
(in-milk and dry) animals, 135 million goats and 65 million industrial plots provided in the park with well-established
sheep. supply chain.
• The segment contributes about 25 per cent to the • Mega food park typically consist of supply chain
country’s farm Gross Domestic Product (GDP). infrastructure including collection centers, primary
PROSPECTS OF FOOD PROCESSING IN INDIA processing centers, central processing centers, cold chain
and around 25-30 fully developed plots for entrepreneurs
• Strong demand growth
to set up food processing units.
ο Demand for processed food rising with growing
CHALLENGES AND STEPS NEEDED
disposable income, urbanisation, young population and
nuclear families A. Losses high among perishables such as fruits and
vegetables
ο Household consumption set to double by 2020
• Crop losses ranged between 7-16% among fruits and
ο Changing lifestyle and increasing expenditure on health
around 5% among cereals in 2015.
and nutritional foods
• Perishables such as fruits and vegetables are more prone
• Food processing hub
to losses as compared to cereals. Such crop losses can
ο India benefits from a large agriculture sector, abundant occur during operations such as harvesting, thrashing,
livestock, and cost competitiveness grading, drying, packaging, transportation, and storage
ο Investment opportunities to arise in agriculture, food depending upon the commodity.
infrastructure, and contract farming • The Standing Committee on Agriculture (2017) stated that
ο Diverse agro-climatic conditions encourage cultivation such wastage can be reduced with adequate food
of different crops processing facilities.
162
B. Inadequate food processing infrastructure export hubs. This includes creation of adjoining facilities
• As previously discussed, perishables such as fruits and for loading and unloading, and distribution to road
vegetables are more prone to damages as compared to transport.
cereals. Due to inadequate processing facilities in close
proximity, farmers may be unable to hold their E. Mega Food Parks
produce for a long time. Hence, they may be forced to sell
• The Mega Food Parks scheme was launched in 2008. It
their produce soon after harvest, irrespective of the
seeks to facilitate setting up of food processing units.
prevailing market situations.
• As of March 2018, out of the 42 projects approved, 10 were
• Expert committees have recommended that agri-logistics
operational.
such as cold chain infrastructure and market linkages
should be strengthened. • The Standing Committee on Agriculture noted certain
reasons for delay in implementation of projects under the
C. Cold chain infrastructure:
scheme. These include: (i) difficulty in getting loans from
• Cold chain infrastructure includes processing units, cold banks for the project, (ii) delay in obtaining clearances
storages, and refrigerated vans. Cold storage needs to be from the state governments and agencies for roads,
coupled with logistical support to facilitate smooth transfer power, and water at the project site, (iii) lack of special
of harvested value from farms to distant locations. incentives for setting up food processing units in Mega
• While there are sufficient cold storages, there are wide Food Parks, and (iv) unwillingness of the co-promoters in
gaps in the availability of other associated contributing their share of equity.
infrastructure. This implies that even though almost 90% • Further, the Standing Committee stated that as the
(32 million tonnes) of cold storage capacity is available, scheme requires a minimum area of 50 acres, it does not
only 15% of the required refrigerated transport to promote smaller or individual food processing and
exists. Further, the shortfall in the availability of preservation units. It recommended that smaller agro-
infrastructure necessary for safe handling of farm processing clusters near production areas must be
produce, like pack-houses and ripening chambers, is over promoted.
90%.
• The Committee on Doubling Farmers
• To minimise post-harvest losses, the Standing Committee Income recommended establishment of processing and
(2017) recommended that a country-wide integrated cold value addition units at strategic places. This includes rural
chain infrastructure network at block and district levels or production areas for pulses, millets, fruits, vegetables,
should be created. It further recommended that a Cold dairy, fisheries, and poultry in public private-partnership
Chain Coordination and Monitoring Committee should be mode.
constituted at the district-level.
Role of E-commerce in improving supply chain
• The Standing Committee also recommended that management
farmers need to be trained in value addition activities such
E-commerce helps in:
as sorting, grading, and pre-cooling harvested produce
through facilities such as freezers and ripening chambers. 1. Reducing the distribution and transactions costs.
D. Transport Facilities 2. Increasing the speed of product development.
• Currently, majority of food grains and certain quantities of 3. Providing more information for buyers and sellers.
tea, potato, and onion are transported through railways. 4. Increasing the options of customer and their access to
• The Committee on Doubling Farmers Income had suppliers.
recommended that railways needs to upgrade its logistics 5. Reducing the time intervals.
to facilitate the transport of fresh produce directly to
163
SPICE APPROACH
• Availability, affordability, quality and safety and consumer awareness are the four pillars supporting
an improvement in India’s nutrition future. Issues in each of these areas have been contributing to
the various nutritional challenges India currently faces.
• Food processing sector can play a key role in providing high quality, safe foods for end-
consumption, providing a fillip to the agriculture industry and attracting capital, thus helping the
vulnerable sections.
Social dimension
• Thus besides its core role of increasing shelf life of food, preserving food nutrients in the supply
chain and providing fortified products targeted at micronutrient deficiencies, it needs to provide
benefits to other areas in the value chain by providing farm extension services, improving price
realization for the farmers by reducing intermediaries and strengthening supply chain through its
forward and backward linkages. In other words the food processing industry needs to be
“Agriculture Plus”.
Political/Legal The Ministry of Food Processing Industries has a clear goal of attaining these objectives by facilitating
and acting as a catalyst to attract quality investments from within India and abroad into this sector
Dimension with the aim of making food processing a national initiative.
• PM Kisan SAMPADA Yojana has been launched which is a comprehensive package which 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
Institutional
country but also help in providing better returns to farmers and is a big step towards doubling of
dimension
farmers income, creating huge employment opportunities especially in the rural areas, reducing
wastage of agricultural produce, increasing the processing level and enhancing the export of the
processed foods.
• Increasing literacy, rapid urbanization and rising per capita income resulting in rapid growth and
changes in demand patterns. This is creating great opportunities for exploring the large hidden
markets.
• Indian consumers are rapidly changing their eating habits. Trends indicate a sharp increase in on-
Cultural dimension
thego eating, snacking in between meals, switching to healthier eating alternatives, pre-cooked
ready to eat meals and increasing consumption of organic foods. This has led to a host of new
opportunities in the consumer foods market for both domestic and international companies to
build a stake in this fastgrowing processed food market.
• The contribution of the food processing industry to India’s GDP through manufacturing has been
more than 8% in FY17.
• The Indian food and retail industry was valued at USD 258 billion in the year 2015 and is expected
to grow to USD 482 billion by 2020.
Economic
• The unorganized sector which accounts for almost 40% of the market has been able to generate
dimension
employment at the grassroot; the organized sector has been able to attract and generate the
remaining 60% of investments in the country.
• Food processing sector helps in creating jobs for rural poor, and thus reduce the burden on
agricultural sector for creation of their livelihood.
164

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In essence, MAINS EXAMINATION is more about a combination of

The Mains Compass booklets are designed to meet two objectives:

How to use this book? Economic Political

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 THE DEBATE SURROUNDING UBI 10 ►NPA PROBLEM 39

►RURAL INDEBTEDNESS 12 ►EXTERNAL BENCHMARKING OF LOANS 44

►EMPLOYMENT RELATED CHALLENGES AND LABOUR REFORMS ►CRISIS IN NBFCs 45

SDG – 4: QUALITY EDUCATION 25

SDG 5: GENDER EQUALITY 25

SDG - 6: CLEAN WATER AND SANITATION 26

SDG 7: AFFORDABLE AND CLEAN ENERGY 27

SDG 8: DECENT WORK AND ECONOMIC GROWTH 27

SDG 9: INDUSTRY, INNOVATION AND INFRASTRUCTURE 28

SDG 10: REDUCED INEQUALITIES 28

SDG 11: SUSTAINABLE CITIES AND COMMUNITIES 29 57

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►GST: ISSUES IN IMPLEMENTATION 66

►DRAFT CONTRACT FARMING ACT 71

►ALLIED SECTOR AS SOURCE OF ECONOMIC PROSPERITY 74

►COMMITTEE ON DOUBLING FARMERS INCOME 92

►CRITICAL ANALYSIS OF PM-KISAN SCHEME 95

►NATIONAL BIOFUEL POLICY 97

104 ►COAL SECTOR 132

►MSME SECTOR 135

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 SAUBHAGYA SCHEME 140

►AVIATION SECTOR 141

►TEXTILE INDUSTRY 144

►ELECTRIC MOBILITY 146

►NATIONAL STRATEGY FOR ARTIFICIAL INTELLIGENCE 149

►E-COMMERCE SECTOR 156

►REAL ESTATE SECTOR: FINANCING MECHANISMS 158

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SYLLABUS & PREVIOUS YEAR QUESTIONS AND THEME MAP

Syllabus (Economic Development)

Previous Year Questions and Theme Map

THEME- INCLUSIVE GROWTH

With a consideration towards the strategy of • Universal Basic Income

SYLLABUS & PREVIOUS YEAR QUESTIONS AND THEME MAP

2015 The nature of economic growth in India in • Informalisation of Indian

What are the salient features of ‘inclusive growth’?

Among several factors for India’s potential growth,

“Success of ‘Make in India’ programme depends

Pradhan Mantri Jan-Dhan Yojana (PMJDY) is • Problems with UDAY Scheme

What are ‘Smart Cities? Examine their relevance

SYLLABUS & PREVIOUS YEAR QUESTIONS AND THEME MAP

Resources Planning Commission in India? Challenges

THEME- BUDGETING AND TAXATION

2015 In what way could replacement of price subsidy

2016 Women empowerment in India needs gender

2017 One of the intended objectives of Union Budget

SYLLABUS & PREVIOUS YEAR QUESTIONS AND THEME MAP

Taxation 2018 Comment on the important changes introduced in • Angel Tax

THEME- AGRICULTURE AND ALLIED SECTORS

Given the vulnerability of Indian agriculture to • National Biofuels Policy- Impact on

How has the emphasis on certain crops brought

Assess the role of National Horticulture Mission

Sikkim is the first ‘Organic State’ in India. What are

2013 subsidies given to farmers at the national and Alternatives

SYLLABUS & PREVIOUS YEAR QUESTIONS AND THEME MAP

finances? How can technology be used to better

How do subsidies affect the cropping pattern, crop