Post on 08-Mar-2020
1 GS Paper 3_1 Answer Key
GENERAL STUDIES
PAPER – 3_1
INDIAN ECONOMY AND DEVELOPMENT
Q1. What is the advanced pricing agreement? How will it bring down Tax
litigations?
(150 words, 10 marks)
Approach:
Briefly Explain what is APAs.
Then highlight in short how Transfer pricing issues results in litigations.
Discuss how APAs have been successful in bringing down
litigations.
Advance Pricing Agreement (APA)
Advance Pricing Agreement (APA) is an
agreement, in which the taxpayer enters into
an upfront agreement with the tax
administration regarding the arm’s length
price of its international transactions with related parties. The international transactions
are complex and involve more than one
country. The sole objective of the APA is to
bring tax certainty in international
transactions and overcome the issues due to transfer pricing between related parties.By
related parties, we mean to say that one party
is a holding, subsidiary or an associate
company of another party.
Transfer Pricing and Litigations The Indian tax administration has been
proactive in the past few years in its attempts
at reducing tax litigation. The major source of
disputes in direct taxes is transfer-pricing
(TP). Transfer-pricing litigation clogs up appellate channels and takes much more
time to resolve since, in many cases, the
appellate tax tribunals restore the disputed
issue back to the transfer pricing officer as a
number of facts and nitty-gritty need further
re-examination. This starts another chain of appeals, further delaying an already fraught
process. This leads to wastage of resources
and time.
APAs and Reduction in Litigations Transfer-pricing disputes need a targeted
approach in order to reduce the onerous
litigations which impact the ease of doing
business in India. The Government has
introduced the Advance Pricing Agreement
(APA) Scheme in 2012. The introduction and efficient implementation of the scheme has
been a successful initiative in preempting transfer-pricing litigation. The tax
administration has entered into several
bilateral APAs since then, of which the bulk
(70) have been signed last year and in the
current year.
Provides Certainty: The efficient implementation of the APA programme
in recent years has helped corporates
attain certainty regarding their
related-party transactions for up to
five years in the future with an option to roll it back to cover four earlier
years.
Adjudication Bases on agreed principles: Tax tribunals have also
started adjudicating taxpayers’
pending transfer-pricing litigation
based on the agreed principles embodied in the APA even though the
APA may not cover the period in
question.
Saves Resources: Every APA agreement represents tax certainty for
a taxpayer and avoidance of resources spent on litigation by both the
taxpayer and the tax administration.
These resources can be further used
to enhance/improve the tax structure.
Gains from the Negotiation process: The learning’s from the APA
negotiation exercises can be used to preempt disputes in other cases also.
While the individual details of an APA
remain confidential, guidance from
the tax administration by using the
principles and methodology from APAs
signed with taxpayers can be a quick and efficient way to preempt litigation
on major transfer-pricing issues.
Transfer-pricing is a fact-intensive exercise
and guidance issued by the tax administration can help nip many potential
disputes in the bud. APAs lowers complaints
and litigation costs. APAs gives certainty to
taxpayers, reduce disputes, enhance tax
revenues and make the country an attractive
destination for foreign investments.
Q2. Ujjwala Yojana is not just an energy
achievement but also social and economic
achievement.” Discuss.
2 GS Paper 3_1 Answer Key
(150 words, 10 marks)
Approach:
Write one or two lines about the scheme.
There are three keywords in the question ‘Energy achievement’, ‘Social achievement’ and ‘Economic
achievement’. So try to link all three
with the scheme.
In conclusion, try to summarize your answer or give the way forward or
suggestions to further improve the
scheme.
Pradhan Mantri Ujjwala Yojana (PMUY) aims
to safeguard the health of women & children
by providing them with a clean cooking fuel –
LPG so that they don’t have to compromise
their health in smoky kitchens or wander in unsafe areas collecting firewood.
Ujjwala Yojana and Energy Achievement
Before the launch of Ujjwala Yojana, India
was home to more than 24 Crore households out of which about 10 Crore households were
deprived of LPG as cooking fuel and have to
rely on firewood, coal, dung – cakes etc. as
the primary source of cooking. But since the
launch of the scheme almost more than 7
crore LPG connections have been distributed. PMUY has played a significant role in the
increase, of LPG penetration in rural areas. It
has provided them with a cheap and reliable
source of energy which was earlier not
available.
Ujjwala Yojana and Social Achievement
The smoke from burning such fuels causes
alarming household pollution and adversely
affects the health of Women & children
causing several respiratory diseases/ disorders. As per a WHO report, smoke
inhaled by women from unclean fuel is
equivalent to burning 400 cigarettes in an
hour. In addition, women and children have
to go through the drudgery of collecting firewood. So LPG is helping to provide a clean
environment to women of rural areas by
providing them with a clean source of energy.
Ujjwala Yojana and Economic Achievement
PMUY is likely to result in an additional employment of around 1 Lakh and provide
the business opportunity of at least Rs.
10,000 Cr. over the next 3 Years to the Indian
Industry. Launch of this scheme will also
provide a great boost to the ‘Make in India’ campaign as all the manufacturers of
cylinders, gas stoves, regulators, and gas
hose are domestic. Also in rural areas, the time taken to collect the firewood is saved
and hence women can utilize that time to
more productive work.
Till now the scheme has been able to achieve its target but we should also keep in mind
that its objectives are also met. For this, a
number of initiatives can be taken like the
government can subsidize the gas cylinders of
households taking benefit under the scheme,
also proper awareness should be spread about using the benefits of using LPG gas etc.
Q3. Given the challenging phase in
infrastructure financing in the country
today, infrastructure Investment Trusts (InvITs) are supposed to provide a suitable
structure for financing and refinancing of
infrastructure projects in the country.
Substantiate.
(150 words, 10 marks)
Approach:
Give a brief introduction about infrastructure Investment Trusts
(InvITs).
What are the important Types of InviTs
Write how How InvITs can facilitate investment in the infrastructure sector.
Infrastructure Investment Trusts (InvITs) are
mutual fund like institutions that enable
investments into the infrastructure sector by pooling small sums of money from a
multitude of individual investors for directly
investing in infrastructure so as to return a
portion of the income (after deducting
expenditures) to unitholders of InvITs, who
pooled in money.
InvITs can invest in infrastructure projects,
either directly or through a special purpose
vehicle (SPV).
InvITs are regulated by the securities market regulator in India- Securities and Exchange
Board of India (SEBI).
The objective of InvIT is to facilitate
investment in the infrastructure sector in
India.
Types of InviTs
Two types of InvITs have been allowed, one
which is allowed to invest mainly in completed and revenue-generating
infrastructure projects and other which has
3 GS Paper 3_1 Answer Key
the flexibility to invest in completed/under-construction projects. While the former has to
undertake a public offer of its units, the latter
has to opt for a private placement of its units.
Both the structures are required to be listed.
How InvITs can facilitate investment in
the infrastructure sector:
Several existing infrastructure projects which
are under development in India are delayed
and ‘stressed’ on account of varied reasons including increasing debt finance costs, lack
of/locked up equity of private investors in
projects which precludes them from
undertaking new projects, lack of
international finance flowing to Indian infrastructure projects, project
implementation delays caused by various
factors like global economic slowdown, cost
overruns, inability of concessionaire to meet
funding requirements on time, etc.
InvITs, as an investment vehicle, may aid:
Providing wider and long-term refinance for existing infrastructure
projects.
Freeing up of current developer’s capital for reinvestment into new
infrastructure projects.
refinancing/takeout of existing high-cost debt with long-term low-cost capital and help banks free up/reduce
loan exposure, and thereby help them
create headroom for new funding
requirements.
There are several infrastructure companies
whose funds are locked up in
completed/substantially completed
infrastructure projects which can otherwise
be used for furthering infrastructure
development in the country.
InvITs may be an enabling vehicle for
refinancing stressed assets as well as creating
an investment option which may otherwise
not be possible for smaller investors.
InvITs may help in attracting international
finance into Indian infrastructure sector.
InvITs will enable the investors to hold a
diversified portfolio of infrastructure assets.
InvITs are also proposed to bring higher
standards of governance into infrastructure
development and management and
distribution of income from assets so as to attract investor interest.
Given the challenging phase of infrastructure in the country today, InvITs are proposed to
provide a suitable structure for financing and
refinancing of infrastructure projects in the
country.
Q4. The projected population and age-
structure over the next 2 decades has
several implications for policy. Discuss.
(150 words, 10 marks)
Approach:
Start by giving facts related to India’s projected population and age
structure over the next few years. If
you don’t know any fact, Highlight in
general about India’s demography.
Address the main question; highlight various implications for policy due to
this projections. Explain them.
Your conclusion should include the way forward like how we can deal with
the changing situation effectively.
Make sure your conclusion is positive.
India is set to witness a sharp slowdown in
population growth in the next two decades.
Although the country as a whole will enjoy
the “demographic dividend” phase, some
states will start transitioning to an ageing
society by the 2030s. It will surprise many readers to learn that population in the 0-19
age bracket has already peaked due to sharp
declines in total fertility rates (TFR) across the
country. As a result, the national TFR is
expected to be below replacement level by 2021 (adjusted for the skewed gender ratio, it
may already be there).
The projected population and age-structure
over the next two decades has several
implications for policy, inter-alia for the (i) provision of health care, (ii) provision of old-
age care, (iii) provision of school facilities, (iv)
access to retirement related financial
services, (v) public pension funding, (vi)
income tax revenues, (vii) labour force and labour participation rates, and (viii)
retirement age.
Implications for Working-Age Population
Changes in the size of working-age population plays a key role in determining the size of
labour force and direction of inter-state
labour migration. The evolution of working-
age population, moreover, will vary across
states. The size of working-age population will start to decline in 11 out of the 22 major
states during 2031-41, including in the
4 GS Paper 3_1 Answer Key
southern states, Punjab, Maharashtra, West Bengal and Himachal Pradesh. On the other
hand, working-age population will continue to
rise through 2041 in states lagging behind in
the demographic transition, particularly
Bihar, Uttar Pradesh, Madhya Pradesh and Rajasthan. In principle, the latter states with
rising working-age population could meet the
labour deficit in many of the former ageing
states.
POLICY IMPLICATIONS OF AGEING
Elementary Schools
Overall, the number of school-going children
in India will decline by 18.4 per cent between 2021 and 2041. This will have very important
social and economic consequences.In light of
the projected decline in elementary school-
going children, the number of schools per
capita will rise significantly in India. The time
may soon come in many states to consolidate/merge elementary schools in
order to keep them viable. Note that this is
not about reducing investment in elementary
education, but an argument for shifting policy
emphasis from quantity towards quality and efficiency of education.
Health Care Facilities
Even at current levels, rising population over
the next two decades (even with slowing
population growth rates) will sharply reduce the per capita availability of hospital beds in
India across all major states. Hence, there is
a straightforward case for expanding medical
facilities in the states. For states in the
advanced stage of demographic transition, however, will have to adapt towards greater
provision of geriatric care. A major problem
with planning for the provision of medical
facilities is the paucity of specific data,
especially on private hospitals.
Retirement Age
Given that life expectancy for both males and
females in India is likely to continue rising,
increasing the retirement age for both men
and women going forward could be considered in line with the experience of other
countries. This will be key to the viability of
pension systems and would also help
increase female labour force participation in
the older age-groups.
India has entered the next stage of
demographic transition with population
growth set to slow markedly in the next two
decades along with a significant increase in
the share of working age population (the so-
called “demographic dividend” phase). In light of continued urbanization, improvements in
health care, increase in female education,
and other socio-economic drivers of
demographic change, policy makers need to
prepare for ageing from today itself. This will need investments in health care as well as a
plan for increasing the retirement age in a
phased manner.
Q5. What is a Circular Economy? Highlight
the Need for Circular Economy. (150 words, 10 marks)
Approach:
Give a brief introduction Circular Economy Write about the need for a Circular Economy
Provide Conclusion
The circular economy is an economic system,
which involves sharing, leasing, reusing,
repairing, refurbishing and recycling existing materials and products as long as possible. In
this way, the life cycle of products is
extended.
Looking beyond the current take-make-waste extractive industrial model, a circular
economy aims to redefine growth, focusing on
positive society-wide benefits
It draws its inspiration from the bio-
geophysical world, where the nutrients that are metabolized by life processes are
generated from other living systems after
their death and ensures that the earth
remains a stable, self-contained ecosystem.
It is based on three principles:
Design out waste and pollution
Keep products and materials in use
Regenerate natural systems
Need for a Circular Economy
Rise in Population: Higher demand for goods and services to leading to
depletion of reserves
The supply of crucial raw materials is limited.
The robust economic growth coupled with rising household incomes, rising consumerism causing increased
pressure on natural resources such as
land, forests, air, water, and
ecosystems.
India’s Import dependence: Our country’s dependence on imports for accessing critical resources like rare
earth minerals etc. due to shrinking
reserves, technical constraints etc.
5 GS Paper 3_1 Answer Key
Managing of waste: The traditional linear economy approach results in massive waste generation at all stages
of a product life cycle right from
resource extraction, processing, value
addition, consumption to end of life
stage.
Extracting and using raw materials has a major impact on the
environment. It also increases energy
consumption and CO2 emissions.
However, a smarter use of raw
materials can lower CO2 emissions.
Benefits of a Circular Economy
Increased Potential for Economic Growth: The United Nations
Conference for Trade and
Development (UNCTAD) says that
India could create as much as $200+
billion in additional economic value by 2030, rising to $600+ billion by 2050,
by adopting circular principles across
only three areas: cities and
construction, food and agriculture,
and mobility and vehicle manufacturing.
It will increase productivity.
Employment Growth: Circular economy has the potential to generate
1.4 crore jobs in the next 5-7 years &
create lakhs of new entrepreneurs-
NITI Aayog CEO
optimal resource use, energy savings and low GHGs emissions
Reduced Negative Externalities
Consumers will also be provided with more durable and innovative products
that will increase the quality of life
and save them money in the long
term.
Therefore, an urgent need for gradually decoupling economic activity from the
consumption of finite resources, and
designing waste out of the system.
Underpinned by a transition to renewable
energy sources, the circular model builds economic, natural, and social capital.
Resource circularity is the need of the hour to
implement the circular economy.
Q6. For robust economic growth
infrastructure sector growth through Public Private Partnership (PPP) is
necessary. In this context, write the
challenges faced by PPP projects and
recommendations on revisiting &
revitalising the PPP Model of
Infrastructure. (150 words, 10 marks)
Approach:
In introduction write about Public Private Partnership
Write risk is inherent in all PPP projects.
Write recommendations on revisiting & revitalising the PPP Model of
Infrastructure
Provide conclusion Public Private Partnerships (PPPs) in
infrastructure refers to the provision of a
public asset and service by a private partner
who has been conceded the right (the
“Concession”) for the purpose, for a specified period of time, on the basis of market
determined revenue streams that allow for
commercial return on investment.
PPPs in infrastructure represent a valuable
instrument to speed up infrastructure development in India. This speeding up is
urgently required for India to grow rapidly
and generate a demographic dividend for
itself and also to tap into the large pool of
pension and institutional funds from ageing populations in the developed countries.
India offers today the world’s largest market
for PPPs. It has accumulated a wealth of
experience in getting to this premiere
position. As the PPP market in infrastructure matures in India, new challenges and
opportunities have emerged and will continue
to emerge.
Periodic review of PPPs, as in the present Committee's remit, are a must to help
address issues before they become endemic
and to mainstream innovations and foster
new ones that improve the successful delivery
of PPP projects.
India’s success in deploying PPPs as an
important instrument for creating
infrastructure in India will depend on a
change in attitude and in the mind-set of all
authorities dealing with PPPs, including public agencies partnering with the private
sector, government departments supervising
PPPs, and auditing and legislative institutions
providing oversight of PPP’s.
Risk is inherent in all PPP projects as in any other infrastructure projects. The main types
of risks include:
Construction risk (mainly delays in construction)
Technology risk (arises when the technology is not a proven one)
6 GS Paper 3_1 Answer Key
Environmental risk
Commercial risk (lower than expected demand for services produced by the project)
Operating risk (inefficiency in operation leading to higher operating
cost)
Legal risk (change in law)
Regulatory risk (change in regulatory regimes)
Political risk (change in government policy)
Force majeure (risks due to unpredictable natural and man-made events such as earthquakes, floods,
civil war, etc.)
Dr.Kelkar committee recommendations on
revisiting & revitalising the PPP Model of
Infrastructure:
Contracts need to focus more on service delivery instead of fiscal
benefits
Better identification and allocation of risks between stakeholders
Prudent utilization of viability gap funds where user charges cannot
guarantee a robust revenue stream.
Improved fiscal reporting practices and careful monitoring of performance
An Infrastructure PPP Project Review Committee (“IPRC”) may be
constituted to evaluate and send its
recommendations in a time-bound
manner upon a reference being made
of “Actionable Stress” in any
Infrastructure Project developed in PPP mode beyond a notified threshold
value.
An Infrastructure PPP Adjudication Tribunal (“IPAT”) chaired by a Judicial
Member (former Judge SC/Chief
Justice HC) with a Technical and/or a Financial member, where benches will
be constituted by the Chairperson as
per the needs of the matter in
question
Unsolicited Proposals (“Swiss Challenge”) to be discouraged to avoid
information asymmetries and lack of transparency.
Amend the Prevention of Corruption Act, 1988 to distinguish between
genuine errors in decision-making and
acts of corruption
Build up capacity in all stakeholders, including regulators, authorities,
consultants, financing agencies, developer.
Set up an institution for invigorating private investments in infrastructure, providing guidance for a national PPP
policy and developments in PPP,
developing a mechanism to capture
and collate data for decision making,
undertaking capacity building activities.
An institutionalized mechanism like the National Facilitation Committee
(NFC) to ensure time bound resolution
of issues including getting timely
clearances/approvals during the
implementation of projects for the smooth running of such projects.
Restrict the number of banks in a consortium and banks to build up
their own risk assessment/appraisal
capabilities
Checklist of items listed as a guide for lenders. RBI may provide guidelines to
lenders on encashment of bank guarantees.
The monetisation of viable projects that have stable revenue flows after
Engineering, Procurement and
Construction (EPC) delivery should be
considered
Ministry of Finance to allow banks
and financial institutions to issue Zero Coupon Bonds which will also help to
achieve a soft landing for user charges
in the infrastructure sector
Improved fiscal reporting practices and careful monitoring of
performance.
Independent sector regulator.
Given the need for robust economic growth
and the experience India has already
gathered in managing PPPs, the government
must move the PPP model to the next level of
maturity and sophistication. PPPs have the potential to deliver infrastructure projects
both faster and better. Building on India’s
years of experience with PPPs, there is a need
to iron out the difficulties in the performance
of PPP at every stage of the contract. A successful and growing stream of PPPs in
infrastructure will go a long way in
accelerating the country’s development
process.
Q7. Employment elasticity represents a convenient way of summarising the
employment intensity of growth or
sensitivity of employment to output
growth. Elaborate.
(150 words, 10 marks)
7 GS Paper 3_1 Answer Key
Approach:
Write definition of Employment elasticity.
Write its significance in understanding employment scenarios in an economy
or sector.
Employment elasticity is a measure of the percentage change in employment associated
with a 1 % point change in economic growth.
The employment elasticity indicates the
ability of an economy to generate employment
opportunities for its population as per cent of its growth (development) process.
An employment elasticity of 1 denotes that
employment grows at the same rate as
economic growth. Elasticity of 0 denotes that employment does not grow at all, regardless
of economic growth. Negative employment
elasticity denotes that employment shrinks as
the economy grows.
This is crucial as it is commonly believed that economic growth alone will increase
employment.
Employment elasticity measurement
generally faces two sets of criticisms:
(1) the relationship between employment and
output need not be unidirectional and
(2) the notion of employment elasticity is valid
for a given state of technology, wage rate and
policies.
The negative employment elasticity in
agriculture indicates movement of people out
of agriculture to other sectors where wage
rates are higher. This migration of surplus
workers to other sectors for productive and gainful employment is necessary for inclusive
growth. However, the negative employment
elasticity in manufacturing sector was a
cause of concern particularly when the sector
has shown positive growth in output.
Employment elasticity represents a
convenient way of summarising the
employment intensity of growth or sensitivity
of employment to output growth. It is also
commonly used to track sectoral potential for generating employment and in forecasting
future growth in employment.
Q8. Discuss how the proposed
amendments to the Securities and Exchange Board of India Act, 1992 will
affect its autonomy.
(150 Words, 10 marks)
Approach:
Give a brief introduction about the recently proposed amendments to the
SEBI act
Write about Concerns related to the recent move and whether they affect
the autonomy of SEBI
Provide a conclusion based on the
arguments provided.
The Securities and Exchange Board of India
was established on April 12, 1992, in
accordance with the provisions of the
Securities and Exchange Board of India Act, 1992.
It protects the interests of investors in
securities and to promote the development of,
and to regulate the securities market and for
matters connected therewith or incidental thereto.
Their activities are overseen by the
government, though they are supposed to be
autonomous - meaning the government will not interfere in their daily functioning or in
the rules and guidelines they formulate for
market participants. But there is a regular
interface between the government and the
regulators over several issues.
Recently, As part of the Finance Bill
introduced in Parliament, the Centre had
proposed amendments to the Securities and
Exchange Board of India Act, 1992 that were
seen as affecting SEBI’s financial autonomy. To be specific, the amendments required that
after 25% of its surplus cash in any year is
transferred to its reserve fund, SEBI will have
to transfer the remaining 75% to the
government.
The proposal is not something not practised globally. “The Securities Exchange
Commission, the capital market regulator of
the US, also transfers its surplus to the
government.
But the capital markets regulator feels that
the proposal would result in compromising its
“autonomy and its ability to function
effectively” towards the progress and
development of the Indian securities market.
Concerns related with the recent move:
The quantum of funds that the government is likely to receive from
SEBI will make much of a difference
to the government’s overall fiscal
situation. So it alleged that the amendment to the SEBI Act seems to
8 GS Paper 3_1 Answer Key
be clearly motivated by the desire to increase control over the regulator
rather than by financial
considerations.
Also, the recent amendments require SEBI to seek approval from the
government to go ahead with its capital expenditure plans.
A regulatory agency that is at the government’s mercy to run its
financial and administrative
operations cannot be expected to be
independent.
Lack of financial autonomy can affect SEBI’s plans to improve the quality of its operations by investing in new
technologies and other requirements
to upgrade market infrastructure.
This can affect the health of India’s
financial markets in the long run.
The employees’ association of the SEBI criticised proposal as “regressive” especially since the SEBI
did not have any mandate to raise
revenue for the government.
Since inception, SEBI is also subjected to CAG audit and so far, not
a single instance of financial imprudence has been observed by
CAG. Accordingly, the involvement of
the government in capital expenditure
approval, in addition to the process of
board approval, will not add any
benefit to institutional efficiency, but rather slow down decision-making
and would be contrary to the principle
of minimum government and
maximum governance”.
In the larger picture, this is not the first time
that the government at the Centre has gone
after independent agencies. The Reserve Bank
of India and the National Sample Survey
Office have come under pressure in recent
months, and the latest move on SEBI adds to this worrisome trend of independent agencies
being subordinated by the government. The
Centre perhaps believes it can do a better job
of regulating the economy by consolidating all
existing powers under the Finance Ministry.
But such centralisation of powers will be risky. Regulatory agencies such as SEBI need
to be given full powers over their assets and
be made accountable to Parliament. Stripping
them of their powers by subsuming them
under the wings of the government will affect their credibility.
Q9. In the spirit of the Constitution of India, data should be “of the people, by the
people, for the people.” Discuss.
(150 words, 10 marks)
Approach:
Try to define what is data and what is meant
by data “of the people, by the people, for the
people.” in very short.
Then go in detail and explain each of the key word and link it with data.
Data as a general concept refers to the fact
that some existing information or knowledge
is represented or coded in some form suitable for better usage or processing. Recent
Economic Survey, that ‘data’ should be made
a ‘public good’ as data is of the people,
created by the people and should be utilized
for the people.
Data: Of the People
As people shift their day-to-day activities
online, they leave digital footprints of these
activities. Put differently, people produce data about themselves and store this data on
public and private servers, every day, of their
own accord. As people increasingly use
digital services, data is being generated at an
unprecedented scale. Concurrent with this
data explosion, the marginal cost of data has declined exponentially and the marginal
benefit to society of using this data is higher
than ever.
Data: By The People
It basically involves the ‘consent clause’ and
the ‘privacy clause’. The data system should
involve predominantly data that people share
with Government bodies (or private bodies)
with fully informed consent or is data that is legally sanctioned to be collected by the
state/private bodies for an explicit purpose
such as tax collection, or delivering welfare or
better customer experience. Also people
should always have the option to opt-out of divulging data to the government, where
possible and in case of the private body
whenever they want to.
Data: For The People
Being able to retrieve authentic data and documents instantly, governments can
improve targeting in welfare schemes and
subsidies by reducing both inclusion and
exclusion errors. Governments already hold a
rich repository of data about citizens.
9 GS Paper 3_1 Answer Key
Utilising the information embedded in these distinct datasets would inter alia enable the
government to enhance ease of living for
citizens, enable the truly evidence-based
policy, improve targeting in welfare schemes,
uncover unmet needs, integrate fragmented markets, bring greater accountability in
public services, generate greater citizen
participation in governance, etc. For example,
cross-verification of the income tax return
with the GST return can highlight possible
tax evasion.
Going forward, the data and information
highway must be viewed as equally important
infrastructure as the physical highways.
Such a stance can help India leapfrog to utilise the benefits of technological advances
for the welfare of its people. In the spirit of
the Constitution of India, data “of the people,
by the people, for the people” must, therefore,
become the mantra for the government.
Q10. Economic policy certainty is critical
because both domestic and foreign
investment is strongly deterred by
increases in domestic economic policy
uncertainty. In this context, suggest some steps to reduce domestic economic policy
uncertainty.
(150 words, 10 marks)
Approach:
Try to start by highlighting why policy certainty is important for an economy.
Address the main question; suggest some measures which can improve
Economic policy certainty.
Economic Certainty is crucial for both
domestic and foreign investment. While economic uncertainty stemming from
uncontrollable factors remains beyond the
control of policymakers, they can control
economic policy uncertainty.
Following are the measures that can promote
Economic policy certainty:
Make it Predictable: top-level policymakers must ensure that their
policy actions are predictable, provide
forward guidance on the stance of policy, maintain broad consistency in
actual policy with the forward
guidance, and reduce
ambiguity/arbitrariness in policy
implementation. To ensure predictability, the horizon over which
policies will not be changed must be
mandatorily specified so that investor can be provided the assurance about
future policy certainty. While this will
generate some constraints in policy
making, such voluntary tying of
policymakers’ hands is undertaken in several cases including the Fiscal
Responsibility and Budget
Management Act, the Monetary Policy
Framework of the Reserve Bank of
India. A similar constraint placed on
ensuring no changes in policy for a specified horizon would go a long way
to ensuring policy certainty.
Track the trends effectively: Following the adage that “what gets measured
gets acted upon”, economic policy
uncertainty index must become an important index that policymakers at
the highest level monitor on a
quarterly basis. Government must
encourage construction of economic
policy uncertainty sub-indices to
capture economic policy uncertainty stemming from fiscal policy, tax
policy, monetary policy, trade policy,
and banking policy. Tracking these
sub-indices would enable monitoring
and control over economic policy uncertainty.
Quality assurance of processes in policymaking: It reflects the adage of
“Document what you do, but more
critically do what you document!”
must be implemented in the
government. The actual implementation of policy occurs at the
lower levels, where ambiguity gets
created and exacerbates economic
policy uncertainty. As organizations in
the private sector compete and seek
the highest level of quality certifications, Government
departments must be mandated to
similarly seek quality certifications.
This process of certification will
require training of personnel in following quality assurance processes
and will significantly reduce economic
policy uncertainty.
Include Stakeholders: Before deciding the policy, the government should talk
to each and every stakeholder and
listen to their concerns and suggestions. The government should
try to formulate the policy keeping the
feedbacks of the stakeholders in mind.
As it will help in avoiding conflicts
later.
10 GS Paper 3_1 Answer Key
India has secularly decreased domestic economic policy uncertainty since 2012 and
has been exceptional in reducing this
uncertainty since 2015 amidst a global
environment of increases in the same.
However, policymakers still need to double down on reducing domestic economic policy
uncertainty.
Q11. Logistics costs have been one of the
biggest stumbling blocks for the Indian
economy. In this context, how draft national logistics policy 2018 and
implementation of GST will help in
reducing logistics costs and provide
stimulus to the growth of the logistics
sector. (250 words, 15 marks)
Approach:
Give a brief introduction about the Logistics Sector.
Write about challenges in the Logistics sector
Write how logistics policy and GST will help in this regard
Provide Conclusion based on arguments provided.
The presence of a robust logistics-related
infrastructure and an effective logistics
management system facilitates seamless movement of goods from the point of origin to
that of consumption, and aids an economy’s
movement to prosperity.
Logistics Sector at a Glance:
The Indian logistics sector is on a big growth
tide.
According to the domestic rating agency ICRA, the Indian logistics
sector is expected to grow at a rate of
8-10% over the medium term.
The logistics industry of India is currently estimated to be around
US$215 billion.
The last few years have seen significant development for this
industry which is reflected in the
global rankings. According to the
Global Ranking of the World Bank’s 2016 Logistics Performance Index,
India jumped to 35th rank in 2016
from 54th rank in 2014 in terms of
overall logistics performance. In 2018,
India stood at 44th rank.
In 2017, the logistics sector absorbed
22 million people. Employment is
expected to surge to 40 million by 2020.
Experts predict that the logistics sector can be the largest job creator
by 2022.
Some key challenges:
The Indian logistics industry is highly fragmented and unorganized, with the
organized players accounting for
approximately 10% of the total market
share.
The high cost of logistics – impacting competitiveness in domestic & global
market
Unfavourable modal mix (Roadways 60%, Railways 30%) and inefficient
fleet mix.
Under-developed material handling infrastructure and fragmented
warehousing.
High dwell time and lack of seamless movement of goods across modes.
The most serious challenge faced by the logistics industry today is insufficient integration of transport
networks, information technology, and
warehousing and distribution
facilities.
Regulations exist at a number of different tiers, is imposed by national,
regional and local authorities. The regulations differ from city to city,
hindering the creation of national
networks.
Some of the key objectives Draft National Logistics the policy:
The aim is to reduce the logistics cost from the present 14% of GDP to less
than 10% by 2022.
A National Logistics Portal is being developed which will be a single-
window online marketplace for trade and will connect business, create
opportunities and bring together
various ministries, departments and
the private sector. Stakeholders like
traders, manufacturers, logistics
service providers, infrastructure providers, financial services,
Government departments and groups
and associations will all be on one
platform.
A data and analytics centre for monitoring key logistics metrics
A centre of excellence to drive
innovation
11 GS Paper 3_1 Answer Key
An Integrated National Logistics Action Plan for all logistics related development.
Further, the policy envisages to create employment opportunities for 10
Million -15 Million people and also
focus on enhancing skills in the
sector, while trying to improve India’s ranking in the Logistics Performance
Index to between 25 to 30.
It also aims to promote inter-regional trade on e-commerce platforms.
GST a game-changer reform for logistics
sector:
GST has replaced at least 7 indirect tax heads and has eliminated the need
for warehouse hubs across States.
The GST regime is certain to expedite faster conversion of informal logistics
setups to formal ones.
Speed up freight movement at interstate borders due to dismantling of check posts and the reduction in
truck turnaround time following GST
is a major stimulus to logistics
growth, leading to at least 12-15%
reduction in the turnaround time of
trucks.
Pre-GST, the Indian logistics sector was struggling to add value to
customers, compared to global peers.
Indian firms were seen as labour
contractors or mere transporters,
which denied them the benefits of being a part of the supply chain. But
the equation has changed now.
Post GST, there is a marked improvement in the use of technology
and digitisation by logistics players,
third party logistics(3PL) players can
become real ‘differentiators’ as they embrace technology to enhance
visibility of load carried, turn-around
time, vehicle utilisation, improvement
in loading/unloading time by
removing congestion at the docks, and the like.
Other initiatives taken by the government:
A new Logistics Division has been set up in the Department of Commerce to
coordinate integrated development of
the sector by way of policy changes, improvement in existing procedures,
identification of bottlenecks and gaps,
and the introduction of technology-
based interventions.
Multi-Modal Logistics Parks Policy (MMLPs) are a key policy initiative of
the Government of India to improve the country’s logistics sector. This
initiative will lower freight costs,
reduce vehicular pollution and
congestion and cut warehouse costs to
promote domestic and global trade.
Logistics Portal: A National Logistics Portal is being developed in phases to
serve as a transactional e-marketplace
by connecting buyers, logistics service
providers and relevant government
agencies. This portal will be the single
window marketplace to link all stakeholders.
Logistics Data Bank: As a part of the India-Japan bilateral cooperation, a
Logistics Data Bank Project has been
commissioned to track containers on
a ‘near-real-time’ basis. RFID tags are placed on every container coming out
of the ports to track the container’s
movement.
The Government has launched many flagship programmes like the
Bharatmala Yojana, the Sagarmala
Yojana and the Dedicated Freight Corridors. The objective of these
programmes is to develop
infrastructure to meet the growing
demand for logistics in the country
and to make a modal shift on more
cost-effective modes of transport.
111 waterways have been identified for development.
Infrastructure status has been given to select logistics activities like
warehousing, cold chains, Multimodal
logistics parks and slurry pipelines.
A subsidy is provided to develop cold chains and packhouses.
The commitment of GoI (Government of India)
towards an integrated development of the
logistics sector through policy amendments,
infrastructural development, tax reforms and
technology adoption will certainly deliver desirable results. It will enhance our trade
competitiveness, create jobs, shoot up
country’s performance in global rankings and
pave the way for India to become a logistics
hub. Such measures will also contribute to
the creation of a New India by 2022.
Q12. The solution to the problem of
Unemployment in India lies in the careful
development of the MSME sector. Suggest
some long-term solutions for the economic and financial sustainability of the MSME
sector.
(250 words, 15 marks)
12 GS Paper 3_1 Answer Key
Approach:
How the development of MSME will lead to employment generation.
Identify the problems in the MSME sector and also highlight the solution
(long term as asked in the question).
Try to highlight the recent initiatives taken by the government.
Medium, Small and Micro Enterprises:
Manufacturing Sector
Enterprises Investment in plant
& machinery
Micro Enterprises Does not exceed
twenty-five lakh
rupees
Small Enterprises More than twenty-five lakh rupees but does
not exceed five crore
rupees
Medium Enterprises More than five crore
rupees but does not
exceed ten crore rupees
Service Sector
Enterprises Investment in
equipment
Micro Enterprises Does not exceed ten
lakh rupees:
Small Enterprises More than ten lakh
rupees but does not exceed two crore
rupees
Medium Enterprises More than two crore
rupees but does not
exceed five crore
rupees
(Note: Also recently The Union Cabinet has approved change in the basis of classifying
Micro, Small and Medium enterprises from
‘investment in plant & machinery/equipment’
to ‘annual turnover’)
MSME AND EMPLOYMENT
MSME sector contributes significantly in the economic and social
development of the country by
fostering entrepreneurship and
generating largest employment
opportunities at comparatively lower capital cost, next only to agriculture.
As per the National Sample Survey (NSS) 73rd round conducted during
the period 2015-16, MSME sector has
been creating 11.10 crore jobs (360.41
lakh in Manufacturing, 387.18 lakh in Trade and 362.82 lakh in Other
Services and 0.07 lakh in Non-captive
Electricity Generation and
Transmission) in the rural and urban
areas across the country.
KEY ISSUES OF MSME SECTOR
Most of the problems are controllable while
rests are uncontrollable. The MSME`S
problems are as follows:-
1. Lack of credit from banks
2. Competition from multinational companies
3. Poor infrastructure
4. Unavailability of raw material and other inputs
5. Lack of advanced technology
6. Lack of distribution of marketing channels
7. Lack of training and skill development
program
8. Complex labour laws and red-tape 9. Government Policies
SUGGESTIONS FOR IMPROVEMENT
According to our study and the annual
reports of MSME’S, we strongly recommend the following suggestions for
the growth and development of the
MSMEs in India:
1. Mutual Supply of Technologies: While each
MSME has its areas of strengths and weaknesses, therefore, it would be mutually
valuable if already developed technologies
made available to each other. A
comprehensive list of all sorts of technologies
should be prepared and made available accordingly to the MSMEs requiring it.
2. Constitution of a Panel of Consultants: For
the purpose of technological advancement
and guidance a panel of experts and
consultants should be prepared, who can help the region for effectively transfer the
available technologies.
3. Determination of Technological Needs:
There should be a detailed survey to assess the technical and financial needs of the
MSME. So, the proper arrangement could be
made to the needs of the MSME’S. Recently
Government announced that 20 technology
centres, along with extension centres across
the country will be developed by The Ministry of Micro, Small and Medium Enterprises
(MSME) in another 3-5 years.
4. Training and development, awareness
programs: The currently running programs
13 GS Paper 3_1 Answer Key
are not so sufficient. One of the important reasons for slow intake in the utilization of
schemes is the lack of knowledge about
schemes and their likely benefits. There is a
need to develop a better communication
strategy and use age media tools.
5. Sufficient availability of credit: there must
be the availability of credit according to the
requirement at a cheaper rate.
6. Relaxation in labour laws and red tape: There should be relaxation in complex labor
laws to avoid the inconvenience in
compliance. There should not be uniform
labour laws for each MSME. Every effort must
do to avoid unnecessary red tape.
7. Proper research and development: There
should proper research and development in
respect of the innovative method of
production and service rendering. The
innovative products will provide cheaper products and the MSME’S will be able to cope
up with the situation.
CONCLUSION
MSME’s provide job and employment and ultimately self-dependency. In a country like
India, only self-dependence is the way, which
can be a cure for the devaluation of Indian
Rupees. Therefore, MSME’s can be a boon
and a hope for the Indian economy in the
near future. The MSME’s are very helpful to remove the regional imbalances if it is
established in the underdeveloped areas.
The future of the MSME sector in India is
bright and it will grow the economy.
Q13. Until the IL&FS crisis, NBFCs had
proved to be a strong base for the
provision of credit for industry in India. In
light of this statement, Discuss the role of
NBFCs in India.
(250 words, 15 marks)
Approach:
Define NBFC.
Highlight the significance of NBFCs in Indian economy.
Also highlight the various issues involved.
Conclude by providing some suggestion in short.
NBFCs
A Non-Banking Financial Company (NBFC) is
a company registered under the Companies
Act, 1956 engaged in the business of loans and advances, acquisition of
shares/stocks/bonds/debentures/securities issued by Government or local authority or
other marketable securities of a like nature,
leasing, hire-purchase, insurance business,
chit business but does not include any
institution whose principal business is that of agriculture activity, industrial activity,
purchase or sale of any goods (other than
securities) or providing any services and
sale/purchase/construction of immovable
property. A non-banking institution which is
a company and has principal business of receiving deposits under any scheme or
arrangement in one lump sum or in
instalments by way of contributions or in any
other manner is also a non-banking financial
company (Residuary Non-banking Company).
Role of NBFCs in India
NBFCs are known as India’s shadow banking
sector, a big source of credit to the country’s
small and medium enterprises, realtors, homebuyers and consumers. NBFCs (Non
Banking Financial Companies) play an
important role in promoting inclusive growth
in the country, by catering to the diverse
financial needs of bank excluded customers.
1. Greater Employment Opportunities and
Standard of Living
NBFCs help in creating more jobs in the
country by promoting SMEs and private
industries through lending them loans. This increase in new businesses consequently
raises the demand for manpower and creates
employment. Furthermore, the Purchasing
Power Parity (PPP) of people rises and so does
their standard of living. Retail and MSME segments have been key growth areas for
NBFCs, with total credit outstanding of INR
7.5 trillion as on FY18.
2. Strengthening of Financial Market
The financial market relies heavily on Non-banking financial institutions for raising
capital. The start-ups and small-sized
businesses are dependent on funds offered by
NBFCs and also in order to maintain
liquidity. For effective functioning and balance in the financial market, NBFCs play a
significant role.
3. Supplying long-term credits
Unlike the regular banks, NBFCs extend
long-term credits to infrastructure, commerce and trade companies. They also allow
industries to participate in equity. NBFCs
have seen a significant increase in their share
of total new disbursals at the cost of public
sector banks. This is witnessed in the form of
14 GS Paper 3_1 Answer Key
their share in the total credit market going up from 13% in 2015 to 16% in 2017.
4. Mobilisation of Funds
Non-banking financial companies help in
rotation of resources, asset distribution and regulation of income to shape the economic
development. They enable converting saving
into investments and thus helps in the
mobilisation of funds/resources in the
economy.
5. Growth of National Income
As NBFCs aim to build capital for several
industries – private and otherwise – they aid
in accumulating a capital stock for the
country. This directly adds on to the national income and results in the progression of
Gross Domestic Product (GDP).
However, despite making rapid progress and
capturing market share from commercial
banks, their growing size and interconnectedness also raise concerns on
financial stability especially after the IL&FS
crisis. The emergence of new-age digital
lenders has further intensified the
competition for NBFCs in the market. There are various issues involved with the NBFCs,
the key issue being taking up of significant
credit risk and lack of effective monitoring
and management of portfolio performance.
Gaps in the underwriting model: The decline in asset quality for select NBFCs has stemmed from cases
where underwriters are inexperienced,
or with limited understanding of the
local situation and dynamics that
drive the demand for credit.
Misalignment in product offerings
with customer needs: Small NBFCs, in an effort to capture share, have
expanded into new geographic
locations and diversified their product
portfolio. This has resulted in
aggressive investment, increased cost of acquisition and operations.
Asset-liability mismatch: Several NBFCs recently faced with a liquidity
crunch, liabilities maturing and
coming up for payment faster than
loans in the same tenure. With
dynamic short-term rates, such lenders risk resorting to the increased
cost of funds to meet the shortfall,
denting profitability. Additionally, this
has also made it difficult for these
NBFCs to raise capital for expansion in the market.
The default of a systemically important NBFC, has thrust corporate governance for
the sector into the spotlight. The Government
and regulators should take major steps to
improve accountability and liquidity of the
NBFC sector as the role of NBFCs is critical and their presence in a country would only
boost the economy in the right direction.
Q14. What principles should guide
governments taxation policy?. Suggest
some measures to improve India’s tax-GDP ratio.
(250 words, 15 marks)
Approach:
In introduction write about principles that should guide governments
taxation policy
Write reasons and Measures to improve India’s tax-GDP ratio
Provide a conclusion based on the arguments provided.
Three broad principles that should guide tax policy:
First, it should be such that it raises the requisite revenue while minimizing
evasion and distortion in the
economy, thereby eliminating the
generation of black expanding the tax base and supporting investments
through predictable and stable tax
policy.
Second, it should exhibit horizontal equity in the sense that individuals
with equal income are taxed equally.
Finally, it should exhibit progressivity
in the sense that those with higher incomes are taxed at higher rates.
The tax-to-GDP ratio has not been impressive
for India. Ideally, with an increase in GDP,
the tax collection should also increase. If the economy is growing and business is doing
well, naturally, profits will be better and
therefore taxes should also be higher.
In India’s case while the overall tax-to-GDP
(Centre and State) increased from 17.45 per cent in FY08 to 17.82 per cent in FY17, the
GDP and per capita income has doubled
during this period. Interestingly, India’s rate
of growth of tax revenues was not in sync
with its GDP growth in the post-reforms period.
South Africa’s tax-GDP figures are much
better despite its lower GDP per capita and
GDP in absolute terms compared with India
15 GS Paper 3_1 Answer Key
since 1991. However, the overall tax-to-GDP as it stands for India it is 17.82 per cent and
South Africa it is 27.11 per cent.
India must aim to double its tax-to-GDP ratio
to achieve the OECD average of about 34 per cent. The tax-to-GDP for some of the other
emerging market economies like Namibia,
Mozambique, and Chile are higher than India
. In fact the tax-to-GDP of neighbouring Nepal
is also an impressive 21.3 per cent.
Measures to improve India’s tax-GDP ratio:
Direct tax:
Corporate tax. The corporate tax regime requires
rationalisation and simplification. Although
the statutory rate of corporate tax is high, the
collection rate is low because of an array of
tax exemptions.
The high marginal tax rate in India, hurts equity investment.
The exemptions are not given based on
predetermined rules. This creates uncertainty
for investors and also creates opportunities
for corruption, rent seeking and tax evasion. Significant sectoral differences: The tax
system is not equitable horizontally since the
differential in effective tax rate across sectors
is very high.
In the next three years, we should eliminate
various corporate tax exemptions. This should be accompanied by a reduction in the
corporate tax rate from 34% to 25%
(including surcharges and cesses) for all
companies..
Personal income taxes.
A key limitation of personal income tax
regime is the small tax base. It is also not
desirable in terms of developing a healthy
economy since tax payment is an essential
aspect of the relationship between the government and its citizens. Therefore, we
should endeavour to bring a large number of
citizens into the direct tax net even if their tax
liabilities are minimal.
The following reforms address the current
situation:
The tax slabs corresponding to the lowest tax rate should be expanded to
ensure that the tax liability of lower
income individuals does not increase
suddenly with the growth in their nominal incomes.
We should aggressively move the economy towards greater
formalisation, which will lead to
greater number of individuals filing tax returns.
This includes moving towards digital payments and away from cash.
Arresting tax evasion when non-agricultural income is declared as
agricultural income. All agricultural
income is exempted from income tax. While the provision is meant to protect
farmers, non-agricultural entities
sometimes use it to evade taxes by
declaring agriculture as the source of
their income. In order to mitigate the
generation of black money, the loopholes need to be plugged.
Indirect Taxes
Goods and Services Tax. The GST is a substantial reform of the
existing indirect tax regime. The steps needed
(i) A well-functioning GST council.
(ii) Advocacy and outreach programme to help
the stakeholders (especially new taxpayers)
adjust to the new system; (iii) A robust tax administration system by the
Union and the state governments; and
(iv) A well-functioning GSTN system.
(v). we should move gradually towards fewer
number and lower level of rates. Since the
GST system will expand the tax base, we should be able to lower the tax rates without
loss of revenue.
Custom duty
Rationalise custom duties and tariffs. We need to improve procedures for custom
clearances. This will reduce transaction costs
and improve the ease of doing business.
Duty exemption should be given to exporter
upon declaration with enforcement done
through ex post random checks. Under the current system, delays in drawbacks are
endemic and administrative procedures so
burdensome that many exporters simply
forgo the exemption.
Stamp duty on property registrations
State governments levy stamp duties and fees
on property registrations at the time of
purchase. A high rate creates the incentives
for the buyer of property to declare a lower
value and pay a part of the payment in black. Black money thus flows massively into real
estate. Therefore, the states may consider
reducing the stamp duty inclusive of property
registration fee.
Improving the Tax Administration System
and Minimizing Tax Litigation
16 GS Paper 3_1 Answer Key
Pending tax litigations cost the taxpayers and the government in terms of resources
including delays in the collection of revenue.
The following steps should be taken
Reduce the scope for interpretation of tax
laws. In this regard, the Easwar Committee has offered detailed recommendations, which
should be implemented.
Dispute resolution strategy, as recommended
by the Tax Administration Reform
Commission (TARC), need to create a
separate disputes management vertical, which is separate from the tax collection
functions.
The dispute resolution mechanisms need to
be modernised through alternative dispute
resolution mechanisms, including arbitration and conciliation.
Performance assessment of tax officials.
We need to enhance the tax boards
capabilities to utilise the available
information and modern ICT tools to ensure
tax compliance. A low tax-to-GDP ratio is detrimental to
effective governance and delivery of public
services. A larger tax base, achieved through
tax reforms, can also allow reduced across-
the-board tax rates, thereby supporting investment, expanding output and enhancing
economic growth.
Q15. Recently we have seen a decrease in
the level of NPAs. What are the various
steps taken by the Government and Central Bank to address the issue which
led to the decrease in NPAs?
(250 words, 15 marks)
Approach:
Define what is NPA and mention one or two fact related to the first
statement of the question if you know.
Highlight the various steps taken by the Government and Central Bank
during previous few years and in
present.
In conclusion, try to give the way forward.
Non-performing asset (NPA) is a loan or
advance for which the principal or interest
payment remained overdue for a period of 90
days or more. In case of Agriculture/Farm Loans, the NPA varies for short duration crop
(interest not paid for 2 crop seasons) and long
duration crops (interest not paid for 1 Crop
season).
According to Economic survey 2018-19, the
performance of the banking sector (domestic
operations), and Public Sector Banks in particular, improved in 2018-19.
The Gross NonPerforming Advances (GNPA)
ratio of Scheduled Commercial Banks (SCBs)
decreased from 11.5 % to 10.1 % between March 2018 and December 2018 while for
PSBs it declined from 15.5 % to 13.9 %.
Steps Taken By The Government And
Central Bank
The measures taken to resolve and prevent
NPAs can broadly be classified into two kinds
– first, regulatory means of resolving NPAs
per various laws (like the Insolvency and
Bankruptcy Code), and second, remedial measures for banks prescribed and regulated
by the RBI for internal restructuring of
stressed assets. To resolve the problem of
NPAs Government followed the strategy of
4Rs (as mentioned in 2016 economic survey):
1. The first R, Recognition: through Asset
Quality Reviews and Joint Lenders’ Forum
banks have recognised a growing number of
loans as non-performing.
Banks are now required to acquire Legal Entity Identifier (LEI) number from the
borrower and report it to Central Repository
of Information on Large Credit.
2. The second R, Reform: Reforms in banks
and financial ecosystem to ensure a responsible and clean system. Various steps
were taken to reform banks like:
Mission Indradhanush, 2015: It provided for Comprehensive
framework for transforming the PSBs.
Under the PSB Reforms Agenda, PSBs have created Stressed Asset
Management Verticals to focus
attention on recovery and entrusted
monitoring of loan accounts of above
Rs. 250 crore to specialised
monitoring agencies.
Fugitive Economic Offenders Act, 2018: It has been enacted to deter
economic offenders from evading the
process of Indian law by remaining
outside the jurisdiction of Indian
courts.
Prompt Corrective Action (PCA): is a framework under which banks with weak financial metrics are put under
watch by the RBI. The PCA framework
deems banks as risky if they slip
below certain norms on three
parameters — capital ratios, asset quality and profitability.
17 GS Paper 3_1 Answer Key
The consolidation of Banks is also seen as a way out of the NPA issue through the “strong” banks absorbing
the strain on the books of weaker
banks. Eg: Merger of Dena and Vijay
Bank with Bank of Baroda.
3. The third R, recapitalised: Government of
India announced recapitalization of PSBs to
the tune of Rs. 2.11 lakh crore in October
2017, through infusion of capital by the
Government and raising of capital by banks
from the markets
4. The fourth R, Resolution: The Insolvency
and Bankruptcy Code (IBC) was enacted in
May 2016 to provide a time-bound 180-day
recovery process for insolvent accounts (where the borrowers are unable to pay their
dues).
In line with the enactment of the IBC, the
RBI, substituted all the specific pre-existing
guidelines with a simplified, generic, time-bound framework for the resolution of
stressed assets.In the revised framework, the
RBI put in place a strict deadline of 180 days
during which a resolution plan must be
implemented, failing which stressed assets must be referred to the NCLT under IBC
within 15 days. The framework also
introduced a provision for monitoring of one-
day defaults, where incipient stress is
identified and flagged immediately when
repayments are overdue by a day.
( Also recently, The Supreme Court quashed
the stringent RBI circular which mandated
banks to recognise even one-day defaults and
finding a resolution within 180 days failing which the account in question has to be sent
to bankruptcy courts if it is Rs 2,000 crore
and above.)
The RBI guidelines from time to time have
laid a firm pathway for improving overall robustness to manage NPAs. Banks would
need to adopt and implement the measures in
true spirit and substance and not just in
“form” to further improve the situation
otherwise the problem will keep on coming back.
Q16. Credit Rating Agencies has come
under criticism after the IL&FS crisis as it
is believed that they failed to pick up the
signals of a liquidity crunch. In light of IL&FS crisis, Highlight the various issues
involved with Credit Rating Framework in
India.
(250 words, 15 marks)
Approach:
Highlight what are CRAs and why they are in news.
Highlight various issues involved with them.
Conclude by giving a way forward as how we can strengthen CRAs.
As per the Regulations, CRA is defined as “a
body corporate which is engaged in, or
proposes to be engaged in the business of
rating of securities offered by way of public or
rights issue”. All the credit agencies need to be registered with SEBI in order to operate in
India. SEBI (Credit Rating Agencies)
Regulations, 1999 provide for a disclosure-
based regulatory regime, where the agencies
are required to disclose their rating criteria,
methodology, default recognition policy, and guidelines on dealing with conflict of interest.
Rating agencies have come under pressure
after they failed to raise timely red flags
ahead of debt defaults by Infrastructure Leasing and Financial Services Ltd (IL&FS)
until after a subsidiary defaulted on some of
its debt last year. Following are the issues
involved with Credit Rating Framework in
India:
Conflict of interest: CRAs follow the 'issuer pays model', under which the
entity issuing the financial instrument
pays the agency upfront to rate the
underlying securities. However, such
payment arrangement may lead to a 'conflict of interest' and could result in
compromising the quality of
analysis.Another example of conflict of
interest is non-rating services such as
risk consulting, funds research and
advisory services given to issuers for which ratings have been provided.
Rating shopping: It is the practice of an issuer choosing the rating agency
that will either assign the highest
rating or that has the most lax criteria
for achieving a desired rating. Hence,
the system does not permit publishing a rating without the issuer’s consent.
Less competition: Credit-rating market in India is oligopolistic, with high
barriers to entry. Lack of competition
in the market enables CRAs to have
longer, well- established relationships with the issuers which can hamper
their independence.
Poor Rating Quality: Often ratings are provided on limited information. For
18 GS Paper 3_1 Answer Key
e.g. If the issuer decides not to answer some determinant questions, the
rating may be principally based on
public information. Many rating
agencies don’t have enough manpower
which often leads to poor quality.
Multiple Regulators: Other than SEBI, there are certain other regulatory
agencies, such as the Reserve Bank of
India (RBI), Insurance Regulatory and
Development Authority, and Pension
Fund Regulatory and Development
Authority, which also regulate certain aspects of credit rating agencies under
their respective sectoral jurisdiction.
The role of CRAs in an economy like India
can’t be neglected as they help investors, customers etc. to get an overall idea of the
strength and stability of an organization and
enable them to make informed decisions. To
Strengthen the Credit Rating Framework in
India, Government and SEBI should ensure
more accountability of the CRAs and should review the regulations and suitably modify
them to ensure greater objectivity,
transparency and credibility in the whole
credit rating framework.
Q17. The global economic environment is
muddled by increasing trade protectionism
and slowing down of global output. It poses
both challenges and opportunities for the
Indian economy. Comment.
(250 words, 15 marks)
Approach:
Give a brief introduction about protectionism and slowing down of
global output
Write about both challenges and opportunities for the Indian economy
Provide Conclusion based on arguments provided.
In the context of world trade, protectionism is
the economic policy of restraining trade
between countries through methods such as tariffs and not-tariff barriers, restrictive
quotas, and a variety of other government
regulations. WTO rules allow countries to use
methods of protectionism but in a limited
manner and in specific cases. In recent times,
there is a rising tide of protectionism across the world, with possibilities of even a trade
war. The protectionist measures are
indicative of a slide form globalisation and
free trade. Protectionism is now going to be a
major threat facing the world trade and
development, especially for emerging economies.
Increasing Trade Protectionism and
Slowing down of Global Output:
The World Economic Outlook (WEO) in its
April 2019 issue has projected growth in
world output at 3.3 % in 2019, down from 3.6
% in 2018. Due to:
i. Heightened US-China trade tensions
ii. Advanced countries persist with their accommodative monetary policy stance
leading to escalated portfolio investment into
emerging market economies making their
currencies stronger and imports cheaper.
iii. Crude oil prices increase
The World Trade Organisation(WTO) -World
trade growth has slowed down to 3 per cent
in 2018, much below the growth rate of 4.6
per cent in 2017, following the introduction of
new and retaliatory tariff measures, heightened US-China trade tensions weaker
global economic growth and volatility in
financial markets.
Challenges for the Indian economy
Stressful trade relations- a shift to protectionism would further
strengthen trade imbalances
especially for developing and
underdeveloped countries.
The dispute has upset global financial markets including stocks, currencies and the global trade of commodities.
In the long term, this can lead to
financial market instability leading to
corporate vulnerability as global trade
and growth decline. For India, already
burdened with the twin balance sheet problem, this will add to its woes.
Protectionism measure can impact India’s export growth momentum and
lead to an increased trade deficit.
India’s exports shrank for the first
time in nine months in June as global trade tension hit shipments and the
country braced for the impact of the
US withdrawing some benefits.
One major concern is the risk that trade tensions could spiral into
currency wars, making the dollar-
denominated debt more difficult to service.
The curbs on H1B visa and scrapping of the Australian "457" programme
will adversely affect the Indian IT
sector, which sends thousands of
19 GS Paper 3_1 Answer Key
working professionals to these nations.
The US has withdrawn trade benefits for India under its Generalized System
of Preferences; imposed tariffs on steel
and aluminium and filed several cases
against India at the World Trade Organization (WTO)
Protectionist policies lead to a slow erosion of the global rules-based
trading system which requires signing
bilateral FTAs with individual
countries/trade blocs.
Opportunities for the Indian economy
The United Nations said in a report that India is among the few economies
that stand to benefit from the trade
tensions between the world's top two
economies i.e. USA and China.
The US manufacturers are setting up their bases in India, in addition to
already existent bases in China. This
will provide them with an alternative
source for export of their products to
deal with such trade wars like situations. For India, this will be
beneficial as it would create more jobs
for us.
With this increased tariffs on Chinese products by the US, the Indian
producers will get an opportunity to
fill this generated gap and penetrate into the US market. This will increase
their trade and profit.
With both US and China embroiled in a trade war and uncertainty regarding
Brexit, India becomes the sole major
emerging market economy which has
skilled cheap labour, required infrastructure and positive
demographic dividend for attracting
investment which is fleeing these
markets due to lack of market-
stability.
Opportunities to increase exports of textile, agriculture, leather products
and also diversify market reach
focusing on African countries.
Developing nations can be induced to form multilateral associations among
themselves, India can take lead in this
regard.
The head of the WTO has said that global free
trade is facing its worst crisis due to the
protectionist nature of this US-China trade
war. For India, to take advantage of this
Global Trade War, we need structural and economic reforms focusing on improving ease
of doing business, skill development, improving supply chains, lower logistics costs
and trade facilitation, diversify export basket,
the comprehensive overlook at import tariffs,
investment policy.
Q18. In India, the existing yield levels of a
majority of crops remain much lower than
the world average. In this context, how
modernizing agriculture can increase
productivity and thereby help in achieving
the goal of doubling farmer’s income by 2022.
(250 words, 15 marks)
Approach:
In introduction write about existing yield levels and agricultural
productivity
Write Reasons for low productivity
Write how agriculture modernisation can be achieved.
Provide an optimistic conclusion about agriculture future based on
arguments provided.
Agricultural productivity is measured as the
ratio of agricultural outputs to agricultural
inputs. Major indicator of productivity is
output per hectare which remains much
lower than the world average.
Crop production in the country is dominated
by cultivation of paddy in Kharif and wheat in
Rabi seasons. If we compare yields of rice,
wheat and horticultural crops with other
countries- I. India exhibits low yields in rice when
compared to other countries but not in
wheat. Rice yield in India is just 55% of rice
yield in China. The average yield of rice in
India is much lower than other major rice-
producing countries like Bangladesh, Indonesia and Vietnam.
Ii. It may seem surprising but India edges out
the United States in yield per hectare in
wheat. China is the major producer of wheat
that has far higher productivity than India. France, Germany and the United Kingdom
exhibit super-high productivity in wheat but
their contributions to the world output are
significantly smaller than those of India and
China.
Iii. India is fairly placed in terms of contribution to global production of potato
and banana but there also the level of
productivity is less as compared to many
countries. In the potato productivity in India
is less than half of the productivity of the USA, Germany and the Netherlands while the
20 GS Paper 3_1 Answer Key
yield of banana in Indonesia is 1.5 times higher than that of India.
Iv. The same goes for other crops including
oilseeds, fruits and vegetables as well as
activities such as animal husbandry, fisheries
and poultry.
The second broad productivity concern
relates to regional variation. It is also evident
that while Punjab and Haryana exhibit high
productivity nationally, states such as
Madhya Pradesh, Rajasthan, Maharashtra, Chhattisgarh, Odisha, and Karnataka suffer
from quite low yields per hectare. The scope
for improved productivity in these latter
regions is substantial
Reasons for low productivity:
Include low and faulty input uses
The predominant causes are low irrigation: Close to 53% of the cropped
area is water-stressed. Rainwater
management practices and services are resource-starved. This limits a
farmer’s capacity to undertake
multiple cropping and leads to
inefficient utilization of land
resources. The dominance of inefficient
production practices, such as flood
irrigation, at the farm level.
Use of low-quality seeds
Low and inefficient fertilizer usage and also quality concerns of fertilizers,
higher dependence on imports.
Electricity supply issues On average, farmers do not realize
remunerative prices due to the limited reach
of the minimum support prices (MSP) and an
agricultural marketing system that delivers
only a small fraction of the final price to the
actual farmers. Both production and marketing suffer due to the absence of
adequate capital.
Structural issues: The farm size of the
majority of the household has declined to
unviable levels. Small and marginal farmers with less than two hectares of land account
for 86.2% of all farmers in India. Given the
predominance of small and marginal farmers
in Indian agriculture, affordability becomes a
significant constraint on technology adoption
by farmers. Relief measures in the event of natural
disasters are inadequate and suffer from
procedural inefficiencies and delays. Also, low
crop insurance penetration is the reason for
concern.
Poor access to modern technology and no real technological breakthrough in recent times.
Low adoption of improved technology, and
knowledge deficit about improved agricultural
practices.
Inefficient extension delivery systems have led
to the presence of large yield gaps
A huge gap exists between the demand for
and supply of skills in agriculture, hindering
diversification, adoption of precision agriculture and on-farm post-harvest value
addition.
Agricultural research in the country is
constrained by resource inadequacy, regulations and intellectual property rights
(IPR).
Modernising Agriculture:
Productivity and efficiency
Increase area under irrigation: Irrigation coverage, focus should be on
increasing coverage through micro-
irrigation. Investment subsidies for
micro-irrigation: Rather than power
and water subsidies, investment subsidies for micro-irrigation can be
provided through the DBT model.
“Per drop more crop” initiative under
which drip/sprinkler irrigation is
being encouraged for optimal
utilization of water.
Increase the adoption of hybrid and improved seeds:
o Dynamic seed development
plans are required. These may
be based on the crop-wise area
(each season separately), seed
rate per hectare used, desired/targeted seed
replacement rate and crop-
wise seed requirement. Crop
wise requirement should be
worked out based on historical trends, the introduction of new
varieties and replacement of
poor yielding varieties.
o States should aim to increase
the seed replacement rate
(SRR) to 33 per cent for self-pollinated crops and 50 per
cent for cross-pollinated crops
in alternating years.
o Strengthen seed testing
facilities o Uniform national procedure for
seed licensing
21 GS Paper 3_1 Answer Key
Efficient fertilizer usage: Strengthen the Soil Health Card scheme
o Reorient fertilizer subsidy
policy: The current lopsided
fertilizer subsidy policy needs
to bring secondary and
micronutrients on the same nutrient-based subsidy (NBS)
platform as phosphorus (P)
and potash (K).
Regulate pesticide use
Strengthening extension systems:
The synergy between Agriculture Technology Management Agency
(ATMA) and Krishi Vigyan Kendras
(KVKs):
o The ATMA programme needs to
be reoriented to include
bottom-up planning at the district and block levels to
develop Strategic Research
Extension Plans (SREP).
Subject matter specialists at
KVKs should orient their research to the block action
plans developed by ATMA.
o Public Private Partnership in
KVKs: The guiding principles
of ATMA provide for the
promotion of PPP in extension delivery. With each KVK in
possession of approximately 50
acres of land, KVKs should
incubate private sector
initiatives in extension delivery.
Market-led extension: Give priority to extension services that disseminate
information to farmers regarding (i)
crop selection (ii) demand for and
supply of crop production, (iii)
expected price of the commodity and (iv) availability of infrastructure
facilities for storage, transport and
marketing of produce. Value-added
extension: Prioritise value-added
extension services to enable a reduction in postharvest losses by
converting raw agricultural produce to
processed products. This allows for
increased price realization and
contributes towards increasing
farmers’ income.
Diversification: promotion of high-value
crops (HVCs) and livestock
Establish regional production belts
Use of hybrid technology in vegetables: Shift to using hybrid varieties for vegetables. At present,
10% of the cropped area under
vegetables is under hybrids. Shifting
to hybrids has the potential to
increase yields by 1.5 to 3 times and provide a significant increase in
income.
Rootstocks for production of fruits: Rootstock technology has shown the
capacity to double production and be
resilient to climate stress. Measures
should be taken to standardize and promote the usage of rootstocks to
produce fruits.
Smart horticulture: There have been pockets of success spread throughout
the country, using techniques such as
high-density plantation, protected
cultivation and organic production
Strengthen the market for organic products, spices, exotic crops.
Breed indigenous cattle with exotic breeds
Promote and develop bull mother farms: Employing multiple ovulation
and embryo transfer technologies,
these farms can significantly enhance
milk productivity through the supply of cattle with enhanced milk potential
to farmers. Village level procurement
systems: Installing of bulk milk
chillers and facilities for high-value
conversion of milk are needed to promote dairy in states.
The convergence of schemes in the fisheries sector: Integrate the Blue
Revolution scheme with MGNREGA
Marketing and Postharvest mechanism
Launch of eNAM initiative to provide farmers with an electronic online
trading platform.
Cold storage and warehousing on scientific line
Improved supply chains and logistics in agriculture to avoid wastages
A buoyant agricultural ecosystem where any surplus which cannot be
absorbed by the domestic market must be of such quality and variety
that it may be channelled through
exports. Agricultural trade may indeed
play a key role in this direction.
While measures that have been outlined are
essential to increase productivity, for
rejuvenation of agriculture as well as
22 GS Paper 3_1 Answer Key
achieving the goal of doubling farmers income by 2022.
Q19. India’s sovereign external debt to
GDP (gross domestic product) is among the
lowest globally at less than 5 per cent. Discuss in this context, whether India’s
sovereign bond announcement in Budget
2019 a boon or bane?
(250 words, 15 marks)
Approach:
Mention in brief, what is sovereign bond?
To answer whether it is a boon or bane, try to bring in notice various
pros and cons of sovereign bond.
Make sure you deal with them in India’s perspective.
Since no one is sure whether they will be successful or not, try to keep your
conclusion balanced.
Sovereign bonds are fixed debt instruments
issued by the government ,either in domestic or foreign currencies, which is like raising a
loan in the international market. Sovereign
Bonds have an interest outlay in the form of
coupon payments where the principle amount
is paid at maturity.
In India, the government has only issued
sovereign bonds in local currency in the
domestic market. Foreign portfolio investors
have evinced interest in Indian government
bonds traded locally in recent years, as the real interest rate on Indian bonds is attractive
compared to other developed countries. But
currency stability is vital for such investors,
as they take the currency risk investing in
rupee-denominated government bonds. This
is where a foreign sovereign bond makes a big difference. A government bond issued in
foreign currency (mostly in US dollars) shifts
the currency risk from investor to issuer (in
this case, the government).
Sovereign Bonds: A Boon?
Higher foreign inflows: The issue of international sovereign bonds will
have several long-term implications. It
may facilitate the inclusion of India’s
government bonds in the global debt indices. India’s representation in
global debt market indices is small
compared to other emerging markets.
This may lead to higher foreign inflows
into India.
Free up domestic savings: They free up domestic savings to be channelled into productive private investments.
They establish a benchmark that
helps price discovery for other
corporates tapping overseas credit
markets.
Rate of interest is low outside: India is among the few major countries
globally to have never issued a
sovereign bond. These sovereign
issuances should be useful. They
draw in foreign savings at a good rate
for the country. With an advantage of lower interest rates abroad, the
domestic market can be left for the
private issuers.
Discipline the government: foreign markets will discipline the government
with integration in the global bonds
market when Fiscal Responsibility and Budget Management (FRBM) rules are
in place.
Inclusion in global benchmarks would also improve the attractiveness of
rupee-denominated sovereign bonds.
Sovereign Bonds: A Bane?
Expose the economy to risks: Dollar-denominated bonds are more sensitive
to global interest rates. Global shocks,
as seen in the 2013 taper tantrums,
can lead to heightened selling pressure on Indian bonds. Also
Borrowing in foreign currencies may
expose the economy to risks as the
rupee's depreciation or current
account deficit cannot be contained in the long run.
Rising fiscal costs: The idea right now is being pushed to make up for tax
revenue shortfalls but the intention of
a long term borrowing is associated
with growth led by investment and not
short term needs. Therefore, a long time horizon cannot ensure or hedge
against exchange rate risks, which
increase the burden in repayment at
the time of maturity.
The impact of forex: Borrowing in international markets can reduce
interest rates, but any change in foreign exchange (forex) can turn
expensive. Countries like Mexico,
Indonesia, Brazil and Russia have
experienced massive pressure from
international investors to repay debt.
Original sin: It means a country
cannot raise funds in its own currency in a foreign market, but has to borrow
23 GS Paper 3_1 Answer Key
in dollars or euros. Moreover, as the US dollar is the resolve currency, it
affects the market with greater
implications.
Although the step would integrate the Indian economy in global markets, it is debated that
there is high risk involved. While the move is
expected to ease the burden on Indian
institutions, there are economies that have
seen a bitter past in the global bond market.
It remains to be seen whether history will be created or repeated in future.
Q20. With increasing incomes and
changing food preferences, food processing
industry is going to be one of the main industries of the country in the future.
Comment.
(250 words, 15 marks)
Approach:
Give a brief introduction about the food processing industry and write
current status and future prospects of
Industry.
Write about the demand & Supply dynamics and how it can be one of the
main industries of the country in the
future.
Provide an optimistic conclusion about the industry's future.
With a population of nearly 1.3 Billion and a
rapidly growing middle class spending a high
proportion of their disposable income on food, the Indian food and retail sectors are poised
to witness tremendous growth in the coming
years.
Current status:
Food Processing Sector has also emerged as an important segment of the Indian economy
in terms of its contribution to GDP,
employment and investment. The sector
constitutes as much as 8.71 % and 10.04 %
of GVAin Manufacturing and Agriculture sector respectively in 2015-16 at 2011-12
prices.
Future prospects:
Increasing per capita income, growing urbanization, changing lifestyles, rising
participation of women in the workforce, and
above all, rapid globalisation has provided a
fillip to the growth of this sector.
As per a recent projection, total consumption of the food and beverage segment in India is
expected to increase to US$1.14 trillion by 2025.
This sector is highly labour intensive per unit
of capital (Annual Report of Ministry of Food
processing Industry). So provide employment form millions in upcoming years.
Demand & Supply Dynamics:
The composition of food production and demand is undergoing change.
Increasing awareness about nutrition,
affluence of working population and access to information have led to an
increase in the use of health
supplements, nutraceuticals, organic
food as well as other high value
products.
All these factors have led to a paradigm shift in the demand for
processed foods and composition of
food processing sector. This will
impact not only food processing
industry but also other related
segments such as machinery manufacturers, cold chain, logistics
operators, retailers and, most
importantly, the farmers.
India’s geographical location gives it a unique advantage, having convenient
connectivity to Europe, the Middle East and Africa (amongst others) from
the western coast and Japan,
Singapore, Thailand, Malaysia, Korea,
Australia and New Zealand (amongst
others) from the eastern coast.
On the supply side,the agro climatic advantage and diversity of climatic zones makes India a home to a variety
of fruits and vegetables, spices,
24 GS Paper 3_1 Answer Key
cereals, marine produce, plantation crops and ingredients which are
relished all over the world.
Challenges:
The production advantages are huge, however, the level of processing for perishables continues to be very
minuscule at around 10 per cent and
even lower for fruits and vegetables
(~2 %).
On the other hand, the level of wastage of Agriculture produce is very
high and is estimated at over US$ 15 Bn annually.
Infrastructure and supply chain constraints
These three factors pose both challenges and
opportunities. Challenge to the Government
in terms of creating an ecosystem and
enabling environment for investors to invest
in food processing sector; and, on the other hand, an opportunity for investors to benefit
from what the sector has to offer.
Steps taken by Government;
FDI up to 100%, under the automatic route is allowed in food processing
industries. Further, 100% FDI under
Government route for retail trading,
including through e-commerce, is
permitted in respect of food products
manufactured and/or produced in India.
Investors’ Portal - Nivesh Bandhu which brings together all relevant
information related to food processing,
thus enabling investors to take
informed decisions.
Lower GST for the raw and processed product; around 80% of food products are covered in lower tax slab of 0%,
5% and 12%.
Provision of profit linked tax holiday under section 80 IB and investment-
linked deduction under Section 35 AD
of Income Tax Act, 1961.
Classifying loan to food & agro-based
processing units and Cold Chain under agriculture activities for Priority
Sector Lending.
Cold Chain and Food Parks covered under Harmonised Master List of
Infrastructure Sub-sector
Setting up of a Special Fund of Rs. 2000 crore in National Bank for Agriculture and Rural Development
(NABARD) to provide affordable credit
for designated Food Parks and agro-
processing units.
Creating modern infrastructure for supporting the growth of the food
processing sector through the implementation of the Schemes of
Mega Food Parks, Integrated Cold
Chain and Value Addition
Infrastructure, and Setting up /
Modernization of Abattoirs
Another important initiative has been the introduction of one umbrella scheme – the Pradhan Mantri Kisan
SAMPADA Yojana (PMKSY) PMKSY is
a comprehensive package of support
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 country but
also help in providing better returns to
farmers and is a big step towards increasing 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 processed
foods.
Sustainable growth of food processing sector
would require full participation of all
stakeholders and equitable distribution of the benefits accruing to the sector. Among all the
stakeholders, the farmers remain the key but
most vulnerable participants. It is declared
policy of the government to double farmers’
income by 2022. Strengthen farmer-industry connect is the key to achieve both the
objectives. Given the huge production base of
agri-produces, incentives offered by the
25 GS Paper 3_1 Answer Key
government to promote food processing sector and its unique locational advantage, India
has all the potential to become the food
factory of the world.