CONTENTS

SYLLABUS 01 ►CRITICAL ANALYSIS OF VARIOUS GOVERNMENT INITIATIVES

25
PREVIOUS YEAR QUESTIONS AND THEME MAP 02 ►REPORT OF SC APPOINTED COMMITTEE ON FARM LAWS
25

Section-1 ►NATIONAL AGRICULTURAL MARKET (E-NAM) 27

►PM-AASHA SCHEME 28

Agriculture and Allied Sector ►MINIMUM SUPPORT PRICE (MSP) REGIME 29

►LEGALIZATION OF MSP 30

11 ►AGRARIAN CRISIS IN GREEN REVOLUTION STATES 30

►PREVIOUS YEAR QUESTIONS 11 ►INVERSE FORK-TO-FARM STRATEGY 31

►ENHANCING INPUT USE EFFICIENCY IN AGRICULTURE 13 ►AGRICULTURE VALUE CHAIN AND RURAL INFRASTRUCTURE
32
►LAND 13
ALLIED SECTOR 32
►WATER 14
►FISHERIES- BLUE REVOLUTION 33
►MICRO-IRRIGATION- INITIATIVES, CHALLENGES AND WAY
►BEEKEEPING/ SWEET REVOLUTION 33
FORWARD 15
►SERICULTURE 34
►SUBSIDIES VS. PUBLIC INVESTMENT 15
►ANIMAL HUSBANDRY AND DAIRY 35
►AGRICULTURAL CREDIT 16
►POULTRY SECTOR 35
►SOIL 17

►MECHANISATION OF INDIAN AGRICULTURE 18 IMPORTANT TOPICS 36

►SECONDARY AGRICULTURE 36
►YIELD GAPS AND TOTAL FACTOR PRODUCTIVITY IN
AGRICULTURE 18 ►GAP APPROACH IN AGRICULTURE 36

►AGRICULTURAL DIVERSIFICATION- NEED FOR RAINBOW ►DEFINITION OF FARMER 37

REVOLUTION 19 ►AGRICULTURAL EXPORTS 37
►NUTRI-CEREALS/ MILLETS 19 ►ANALYSIS OF BAN ON WHEAT EXPORTS 38
►PULSES 20 ►ZERO BUDGET NATURAL FARMING 39
►OILSEEDS 21 ►FARMER PRODUCER ORGANIZATIONS (FPOS)- GAME
►HORTICULTURE SECTOR- NEED FOR GOLDEN REVOLUTION CHANGER TO ALLEVIATE AGRARIAN DISTRESS 40
22 CRITICAL ANALYSIS OF AGRICULTURAL SCHEMES 41
►HORTICULTURE PLUS 23 ►PM-KISAN 41
►COMBATING VOLATILITY IN TOP CROPS 23 ►AGRICULTURE INSURANCE: PMFBY 41
►AGRICULTURE MARKETING- THE KEY TO ALLEVIATE ►PM-KUSUM SCHEME 43
AGRARIAN DISTRESS 24
►DRYLAND FARMING/ RAINFED AGRICULTURE-
►AGRICULTURAL MARKETING 24 CONSTRAINTS AND STRATEGIES 43

►ROLE OF E-TECHNOLOGY IN AGRICULTURE 44

ii
 ►ROLE OF AGRITECH 44
60
►AGRICULTURAL EXTENSION 45
►PREVIOUS YEAR QUESTIONS 60
►CONSERVATION AGRICULTURE 46

►ORGANIC FARMING- STATUS, INITIATIVES, CHALLENGES ►INCLUSIVE GROWTH IN INDIA 61

AND WAY FORWARD 46 ►OXFAM’S “INEQUALITY KILLS” REPORT 62
►CRITIQUE OF FARM LOAN WAIVERS 48 ►SILVER ECONOMY: MEANING, SCOPE AND SIGNIFICANCE

►SYSTEM OF RICE INTENSIFICATION 48 62

►FEMINISATION OF INDIAN AGRICULTURE 48 ►POVERTY LINE ESTIMATES IN INDIA 63

►PURPLE REVOLUTION 49 ►GDP GROWTH VS INCOME INEQUALITY: WHAT SHOULD

INDIA DO? 65
►SAFFRON CULTIVATION IN INDIA 50
►CRITICAL ANALYSIS OF SUBSIDY REGIME IN INDIA 65

►NEED FOR URBAN WAGE EMPLOYMENT PROGRAM 66

Section-2 ►UNIVERSAL BASIC INCOME 67

Public Distribution System ►REAPING THE DEMOGRAPHIC TRANSITION IN INDIA 69

►NEED FOR INCLUSIVE MIGRATION POLICY IN INDIA 69

51 ►GIG ECONOMY- PROSPECTS AND CHALLENGES 70

►DECODING THE ECONOMIC SLOWDOWN IN INDIA 71

►PREVIOUS YEAR QUESTIONS 51
►ETHICAL WEALTH CREATION IN INDIA 72
►VARIOUS ISSUES IN PUBLIC DISTRIBUTION SYSTEM (PDS) 52
►INTEGRATION OF BEHAVIORAL ECONOMICS INTO PUBLIC
►FOOD SUBSIDY BILL: CONSTRAINTS AND STRATEGIES 53 POLICIES 72
►FLAWS IN THE OPEN-ENDED PROCUREMENT POLICY 54 ►DATA OF THE PEOPLE, BY THE PEOPLE, FOR THE PEOPLE 73

►INDIA'S PERFORMANCE ON SDGS 73

Section-3 ►FINANCIAL INCLUSION 73

►TOURISM SECTOR 74
Land Reforms in India ►NEED FOR BOOSTING INNOVATION IN INDIA 75

►UNIVERSAL HEALTH COVERAGE IN INDIA- CONSTRAINTS

55 AND STRATEGIES 75

►LEVERAGING STRUCTURAL TRANSFORMATION IN RURAL

►PREVIOUS YEAR QUESTIONS 55
INDIA 77
►LAND REFORMS IN INDIA 56
►MIDDLE INCOME TRAP: LATE CONVERGER STALL 78
►REORGANISATION OF AGRICULTURE 56
►INDICATIVE PLANNING- BENEFITS AND CHALLENGES 78
►2ND GENERATION LAND REFORMS 57
►DEBT SUSTAINABILITY IN INDIA: NEED FOR
►LAND RECORDS MANAGEMENT IN INDIA 58
COUNTERCYCLICAL FISCAL POLICY 79
►LAND DEVELOPMENT BANKS IN INDIA 58

Section-5
Section-4
Banking and Finance
Inclusive Growth and
80
Development ►MONETARY POLICY TRANSMISSION & EXTERNAL
BENCHMARKING OF RATES 80

►TWIN BALANCE SHEET PROBLEM: WHAT, WHY AND HOW OF

iii
 NPAS? 81 ►TENSIONS IN FISCAL FEDERALISM 112
►BAD BANK- PROS AND CONS 83 ►PERFORMANCE ANALYSIS OF GOODS AND SERVICES TAX
►ASSET RECONSTRUCTION COMPANIES (ARCS) 85 (GST) 112

►NABFID- DEVELOPMENT BANK IN INDIA: OPPORTUNITIES ►SC RULING ON GST COUNCIL 113
AND CHALLENGES 85 ►UNDERSTANDING THE CONTROVERSY OVER GST
COMPENSATION MECHANISM 114
►DIRECT MONETIZATION OF GOVERNMENT'S DEFICIT 86
►ANTI-PROFITEERING MECHANISM AND CONSTRAINTS 115
►PRIVATIZATION OF PUBLIC SECTOR BANKS (PSBS) 87
►LIMITS ON FISCAL DEFICIT- A CONSTRAINT ON BOOSTING
►MERGER OF BANKS 89
ECONOMIC GROWTH? 115
►FINANCIAL FRAGILITY IN NBFCS 89
►DISINVESTMENT POLICY IN INDIA- PRIVATISATION AND
►REGULATION OF COOPERATIVE BANKS 91 WEALTH CREATION 116

►CENTRAL BANK DIGITAL CURRENCY 92 ►EQUALISATION LEVY 117

►CHALLENGES ASSOCIATED WITH INFLATION TARGETING 92 ►CONCERNS OVER DIGITAL TAXATION 118

►DEVELOPING CORPORATE BOND MARKET IN INDIA 93 ►DISASTER RISK INSURANCE FINANCING 119

►IMPACT BONDS 95 ►RETROSPECTIVE AMENDMENT TO TAXATION 119

►DEVELOPMENT OF GREEN BONDS IN INDIA 95 ►PUBLIC FINANCIAL MANAGEMENT SYSTEM (PFMS) 120

► APPRAISAL OF INSOLVENCY AND BANKRUPTCY CODE 95

►SOCIAL STOCK EXCHANGES 97

►ESG INVESTMENT 97
Section-7
►CORPORATES AS BANKS: PROS, CONS AND WAY
FORWARD 98
Industrial Policy and LPG
►FINTECH SECTOR- OPPORTUNITIES, CHALLENGES AND
STRATEGIES 99 122
►DIGITAL BANKS IN INDIA 100 ►PREVIOUS YEAR QUESTIONS 122
►MICROFINANCE SECTOR- OPPORTUNITIES AND ►FAILURE OF MANUFACTURING SECTOR- REASONS AND
CHALLENGES 101 SUGGESTIONS 123

►ANALYSIS OF THE PLI SCHEME 124

Section-6 ►ANALYSIS OF SPECIAL ECONOMIC ZONES (SEZS) 126

►ISSUES WITH MSME SECTOR 127

Budgeting and Taxation ►DEFENCE MANUFACTURING- INITIATIVES, PROSPECTS

AND CHALLENGES 130

103 ►ENSURING SELF-RELIANCE IN PHARMACEUTICAL

INDUSTRY 131

►PREVIOUS YEAR QUESTIONS 103 ►ELECTRONICS MANUFACTURING- INITIATIVES,

CHALLENGES AND WAY FORWARD 131
►BASICS OF GOVERNMENT’S BUDGETING 104
►MANUFACTURING OF MEDICAL DEVICES 132
►GENDER BUDGETING 104
►NEED FOR SOLAR MANUFACTURING STRATEGY 133
►15TH FINANCE COMMISSION 105
►TELECOMMUNICATION SECTOR- STATUS,
►OECD TAX PROPOSALS & IMPLICATIONS FOR INDIA 106
OPPORTUNITIES AND CHALLENGES 133
►CAN CAPITAL EXPENDITURE BOOST ECONOMY? 108
►SHIP BREAKING INDUSTRY IN INDIA 134
►CONCERNS WITH OFF-BUDGET FINANCING 110
►PM MITRA SCHEME 135
►FISCAL COUNCIL IN INDIA 110
►ENTREPRENEURSHIP AND WEALTH CREATION AT GROSS
►STRENGTHENING FISCAL FEDERALISM 111 ROOTS 136

iv
 ►PRO-BUSINESS VS PRO-CRONY POLICIES 136 ►BREAKDOWN IN WTO DISPUTE SETTLEMENT MECHANISM
159

►AGREEMENT ON AGRICULTURE 160

Section-8 ►MORATORIUM ON CUSTOMS DUTIES ON E-COMMERCE
160
Employment, Skills and ►IMF QUOTA REFORMS 161

Labour Reforms ►DATA LOCALISATION 162

►INTERNATIONAL LABOUR ORGANIZATION (ILO) 162

137 ►MODEL BILATERAL INVESTMENT TREATY 163

►CAPITAL ACCOUNT CONVERTIBILITY 164

►PREVIOUS YEAR QUESTIONS 137
►PATENT BOX REGIME 165
►JOBLESS GROWTH IN INDIA 138
►IPR WAIVER ON TRIPS AGREEMENT- PROS AND CONS
►ANALYSIS OF LABOUR CODES 139 165

►DECLINE IN FEMALE LABOUR FORCE PARTICIPATION ►BREAKING UP THE BIG TECH COMPANIES 166
RATE (LFPR) 143
►NEED FOR MADE IN INDIA APPSTORE 167
►SKILLING INDIA: PROSPECTS, CHALLENGES AND WAY
FORWARD 144

►APPRENTICESHIP TRAINING PROGRAM 146 Section-10

►ENTREPRENEURSHIP DEVELOPMENT IN INDIA 146
Infrastructure and
Section-9 Investment
External Sector 168
148 ►PREVIOUS YEAR QUESTIONS 168

►INFRASTRUCTURE SECTOR- CONSTRAINTS AND

►EXPORT-LED MODEL OF DEVELOPMENT- NEED, CHALLENGES/ NATIONAL INFRASTRUCTURE PIPELINE 169
CONSTRAINTS AND WAY FORWARD 148 ►NATIONAL MONETISATION PIPELINE- BENEFITS,
►EXPORT-LED MODELS OF BANGLADESH AND VIETNAM: CHALLENGES AND STRATEGIES NEEDED 170
LESSONS FOR INDIA 150 ►GATI SHAKTI MASTER PLAN: BENEFITS AND
► ANALYSIS OF AATMA NIRBHAR BHARAT 151 CHALLENGES 172

►DECOUPLING INDIAN ECONOMY FROM CHINA- AATMA ►NATIONAL LAND MONETIZATION CORPORATION 174
NIRBHAR BHARAT 151
►ROAD SECTOR 175
►CRITICAL ANALYSIS OF VOCAL FOR LOCAL CAMPAIGN
►RAILWAYS 176
152
►PPP MODEL IN INDIAN RAILWAYS 177
►INDIA’S EXPERIENCE WITH FTAS- BENEFITS,
CHALLENGES AND WAY FORWARD 153 ►CIVIL AVIATION 178

►DECODING INDIA'S REFUSAL FOR JOINING RCEP 154 ►PORTS & SHIPPING AND INLAND WATERWAYS 179

►GLOBAL VALUE CHAINS: A TOOL FOR STRUCTURAL ►WAREHOUSING IN INDIA- STATUS AND CHALLENGES 180
TRANSFORMATION OF ECONOMY 155
►ENERGY SECTOR 180
►ANALYSIS OF 1991 LPG REFORMS 157
►ENERGY POVERTY IN INDIA 180
►WTO REFORMS 158
►DISCOMS: PRESENT STATUS, CHALLENGES AND
►CONTROVERSY OVER INFORMATION TECHNOLOGY STRATEGIES 181
AGREEMENT (ITA) 159

v
 ►PERFORMANCE ANALYSIS OF PRADHAN MANTRI ►ANALYSIS OF PPP 192
UJJWALA YOJANA (PMUY) 182
►PPP IN HEALTHCARE 195
►COAL SECTOR REFORMS 183
►HAM MODEL OF PPP 195
►MAJOR CONSTRAINTS IN THE ENERGY SECTOR 184
►SWISS CHALLENGE METHOD 196
►PERFORMANCE ANALYSIS OF UDAY SCHEME 185

►PROGRESS REPORT OF RENEWABLE ENERGY 185

►DIGITAL INFRASTRUCTURE- PROSPECTS &

Section-11
CONSTRAINTS 186

►LOGISTICS SECTOR- CONSTRAINTS AND CHALLENGES Food Processing Industries

188

►ELECTRIC MOBILITY 189 197

►BATTERY SWAPPING POLICY 190
►PREVIOUS YEAR QUESTIONS 197
►STRATEGIC & MINERALS 191
►FOOD PROCESSING SECTOR 198
►NATIONAL MINERALS POLICY 2019 191

vi
• Indian Economy and issues relating to planning, mobilization of resources, growth, development and

employment.

• Inclusive growth and issues arising from it.

• Government Budgeting.

• Major crops-cropping patterns in various parts of the country, - different types of irrigation and irrigation

systems storage, transport and marketing of agricultural produce and issues and related constraints; e-

technology in the aid of farmers.

• Issues related to direct and indirect farm subsidies and minimum support prices; Public Distribution System

objectives, functioning, limitations, revamping; issues of buffer stocks and food security; Technology missions;

economics of animal-rearing.

• Food processing and related industries in India- scope’ and significance, location, upstream and downstream

requirements, supply chain management.

• Land reforms in India.

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

• Infrastructure: Energy, Ports, Roads, Airports, Railways etc.

• Investment models.

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 THEME- INCLUSIVE GROWTH
SUB- THEME YEAR QUESTION IMPORTANT THEMES 2022
With a consideration towards the strategy of
inclusive growth, the new companies bill, 2013
has indirectly made CSR a mandatory obligation.
2013 Discuss the challenges expected in its
implementation in right earnest. Also discuss
other provisions in the bill and their implications.
Capitalism has guided the world economy to
unprecedented prosperity. However, it often
encourages short-sightedness and contributes to
wide disparities between the rich and the poor.
In this light, would it be correct to believe and
adopt capitalism driving inclusive growth in
2014 India? Discuss.

While we found India’s demographic dividend, we • Inclusive Growth: Meaning,

ignore the dropping rates of employability. What Importance, Challenges and
are we missing while doing so? Where will the Strategies needed
jobs that India desperately needs come from? • Jobless Growth in India-
Explain. Reasons and Solutions
• Reaping Demographic
The nature of economic growth in India in
Dividend
described as jobless growth. Do you agree with
Inclusive 2015 • Gig Economy: Prospects and
this view? Give arguments in favour of your
Growth answer. Challenges
• Financial Inclusion: Constraints
Comment on the challenges for inclusive growth
and Challenges
which include careless and useless manpower in
2016 • Need for boosting Innovation
the Indian context. Suggest measures to be taken
for facing these challenges. • Poverty Line Estimates
• Informalisation of Indian
What are the salient features of ‘inclusive
Workforce
growth’? Has India been experiencing such a
• India’s performance on SDGs
growth process? Analyze and suggest measures
for inclusive growth.

Account for the failure of manufacturing sector in

achieving the goal of labour-intensive exports
rather than capital-intensive exports. Suggest
2017 measures for more labour-intensive rather than
capital-intensive exports.

Among several factors for India’s potential

growth, savings rate is the most effective one. Do
you agree? What are the other factors available
for growth potential?

Do you agree with the view that steady GDP

2019
growth and low inflation have left the Indian

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 PREVIOUS YEARS QUESTIONS & THEME
economy in good shape? Give reasons in support
of your arguments.

It is argued that the strategy of inclusive growth

is intended to meet the objectives of
inclusiveness and sustainability together.
Comment on this statement.

Explain intra-generational and inter-generational

issues of equity from the perspective of inclusive
growth and sustainable development.

Define potential GDP and explain its

determinants. What are the factors that have
been inhibiting India from realising its potential
2020
GDP?

Explain the meaning of investment in an

economy in terms of capital formation. Discuss
the factors to be considered while designing a
concession agreement between a public entity
and a private entity.

Explain the difference between computing

methodology of India’s Gross Domestic Product
(GDP) before the year 2015 and after the year
2021 2015.
Do you agree that the Indian economy has
recently experienced V- shaped recovery? Give
reasons in support of your answer
“Success of ‘Make in India’ programme depends
on the success of ‘Skill India’ programme and
radical labour reforms.” Discuss with logical
arguments.

Craze for gold in Indians have led to a surge in

2015
import of gold in recent years and put pressure
on balance of payments and external value of
rupee. In view of this, examine the merits of Gold
Monetization Scheme.

Pradhan Mantri Jan-Dhan Yojana (PMJDY) is

necessary for bringing unbanked to the • Important Government
Government institutional finance fold. Do you agree with this schemes in news such as
Schemes for financial inclusion of the poorer section of the PMFBY, FAME, PLI, Ujjwala
Indian society? Give arguments to justify your Yojana etc.
opinion.
2016
What are ‘Smart Cities? Examine their relevance
for urban development in India. Will it increase
rural-urban differences? Give arguments for
Smart Villages’ in the light of PURA and RURBAN
Mission.
• Bad Bank in India

Planning and • National Land Monetisation

How are the principles followed by the NITI
Corporation
Mobilisation of 2018 Aayog different from those followed by the
• NaBFID Bank
Resources erstwhile Planning Commission in India?
• Corporate Bond Market in
India

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 PREVIOUS YEARS QUESTIONS & THEME
• Reforms in governance of PSBs
•

THEME- BUDGETING AND TAXATION

SUB- THEME YEAR QUESTION THEMES 2022

2013 What are the reasons for introduction of • Gender Budgeting

Fiscal responsibility and Budget Management • Public Financial Management
(FRBM) act, 2003? Discuss critically its salient
System (PFMS)
features and their effectiveness.
• Off Budget Financing- Concerns and
What is meaning of the term tax- Challenges, CAG’s
expenditure? Taking housing sector as an
Recommendations
example, discuss how it influences budgetary
policies of the government. • Fiscal Council in India – Need and
Benefits.
Budgeting
2015 In what way could replacement of price • Strengthening Fiscal Federalism
subsidy with Direct Benefit Transfer (DBT)
• Disinvestment Policy in India
change the scenario of subsidies in India?
Discuss. • Finance Commission
Recommendations
2016 Women empowerment in India needs
gender budgeting. What are the
requirements and status of gender
budgeting in the Indian context?

2017 One of the intended objectives of Union

Budget 2017-18 is to ‘transform, energize
and clean India’. Analyse the measures
proposed in the Budget 2017-18 to achieve
the objective.

2019 The public expenditure management is a

challenge to the government of India in the
context of budget making during the post-
liberalization period. Clarify it.

2021 Distinguish between Capital Budget and

Revenue Budget. Explain the components of
both these Budgets

2018 Comment on the important changes • OECD’s BEPS Proposals on Global

introduced in respect of the Long-term Minimum Tax
Capital Gains Tax (LCGT) and Dividend
• Retrospective Amendment of
Distribution Tax (DDT) in the Union Budget
for 2018-2019. Taxation
• Challenges in the implementation of
2019 Enumerate the indirect taxes which have
GST
Taxation been subsumed in the Goods and Services
Tax (GST) in India. Also, comment on the • Equalisation levy
revenue implications of the GST introduced
in India since July 2017.

2020 Explain the rationale behind the Goods and

Services Tax (Compensation to States) Act of
2017. How was COVID-19 impacted the GST
compensation fund and created new federal

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 PREVIOUS YEARS QUESTIONS & THEME
tensions?

THEME- AGRICULTURE AND ALLIED SECTORS

SUB- THEME YEAR QUESTION IMPORTANT THEMES 2022

Given the vulnerability of Indian agriculture • Reducing Water use through

2016 to vagaries of nature, discuss the need for changes in Cropping Pattern
crop insurance and bring out the salient
• Zero Budget Natural Farming
features of the Pradhan Mantri Fasal Bima
Yojana (PMFBY) • Agricultural Diversification
• Millets/Nutri-cereals
What is allelopathy? Discuss its role in major
• Pulses
cropping systems of irrigated agriculture.
• Oilseeds
Cropping 2017 What are the major reasons for declining rice • Horticulture Sector- Golden
Pattern and wheat yield in the cropping system? How Revolution
crop diversification is helpful to stabilize the
yield of the crop in the system?

How has the emphasis on certain crops

2018 brought about changes in cropping patterns
in recent past? Elaborate the emphasis on
millets production and consumption.

Assess the role of National Horticulture

Mission (NHM) in boosting the production,
productivity and income of horticulture
farms. How far has it succeeded in increasing
the income of farmers?

Sikkim is the first ‘Organic State’ in India.

What are the ecological and non-economical
benefits of Organic State?

How far is Integrated Farming System (IFS)

2019
helpful in sustaining agricultural production?

What are the major factors responsible for

making rice-wheat system a success? In spite
2020
of the success how has this system become
bane in India?

What are the present challenges before crop

diversification? How do emerging
2021
technologies provide an opportunity for crop
diversification?

What are the different types of agriculture • Farm loan waivers- Problems
2013 subsidies given to farmers at the national and Alternatives
and state levels? Critically analyze the
• Agricultural Credit- Issues and
agriculture subsidy regime with the
reference to the distortions created by it. Challenges
• Doubling farmers’ income- Dalwai
“In the villages itself no form of credit
Subsidies and Panel Recommendations
organisation will be suitable except the
MSP 2014 cooperative society.” – All Indian rural credit

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 PREVIOUS YEARS QUESTIONS & THEME
survey. Discuss this statement in the
background of agriculture finance in India.
What constrain and challenges do financial
institutions supplying agricultural finances?
How can technology be used to better reach
and serve rural clients?

How do subsidies affect the cropping

2017 pattern, crop diversity and economy of
farmers? What is the significance of crop
insurance, minimum support price and food
processing for small and marginal farmers?

2018 What do you mean by Minimum Support

Price (MSP)? How will MSP rescue the
farmers from the low income trap?

Irrigation 2016 What is water-use efficiency? Describe the

role of micro-irrigation in increasing the
water-use efficiency.

2019 Elaborate the impact of National Watershed

Project in increasing agricultural production
from water-stressed areas.

2020 Suggest measures to improve water storage

and irrigation system to make its judicious
use under depleting scenario.

2021 How and to what extent would micro-

irrigation help in solving India’s water crisis?
Technology 2015 How can the ‘Digital India’ programme help
missions farmers to improve farm productivity and
income? What steps has the Government
taken in this regard?
Economics of 2013 India needs to strengthen measures to • Allied Sectors of Agriculture-
animal rearing promote the pink revolution in food industry Livestock rearing, Dairy farming,
for better nutrition and health. Critically
Horticulture etc.- Opportunities and
elucidate the statement.
Challenges
2015 Livestock rearing has a big potential for • Sericulture- Opportunities and
providing non-farm employment and income
Challenges
in rural areas. Discuss suggesting suitable
measures to promote this sector in India • Need to Boost Secondary
Agriculture

Marketing of 2014 There is also a point of view that agriculture • Agricultural Marketing Reforms-
agricultural produce market committees (APMCs) set up Launch of Ease of doing Agri-
produce under the state acts have not only impeded
Business and E-NAM
the development of agriculture but also have
been the cause of food inflation in India. • Agricultural Export Policy- Prospects,
Critically examine. Challenges and Way forward

2015 In view of the declining average size of land • Farmer producer companies-
holdings in India which has made agriculture Prospects, Challenges and
non-viable for a majority of farmers, Suggestions
should contract farming and land leasing

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 PREVIOUS YEARS QUESTIONS & THEME
be promoted in agriculture? Critically • National Agricultural Market (e-
evaluate the pros and cons. NAM): Benefits and Challenges
2020 What are the main constraints in transport • PM-AASHA Scheme: Challenges and
and marketing of agricultural produce in
Concerns
India?
• MSP Regime: Flaws/ Limitations and
Way Forward

THEME- FOOD PROCESSING INDUSTRIES

SUB- THEME YEAR QUESTION IMPORTANT THEMES 2020
Food 2015 What are the impediments in marketing and Food Processing Industries- Growth
Processing supply chain management in industry in India? Drivers, Opportunities and
Industries Can e-commerce help in overcoming these Challenges
bottlenecks?

2017 What are the reasons for poor acceptance of cost-

effective small processing unit? How the food
processing unit will be helpful to uplift the socio-
economic status of poor farmers?

2018 Examine the role of supermarkets in supply chain

management of fruits, vegetables and food items.
How do they eliminate number of intermediaries?

2020 What are the challenges and opportunities of food

processing sector in the country? How can income
of the farmers be substantially increased by
encouraging food processing?

THEME- FOOD SECURITY AND PDS

SUB- THEME YEAR QUESTION IMPORTANT THEMES 2020

2013 Food security bill is expected to eliminate hunger • PDS Reforms- Nilekani Panel
and malnutrition in India. Critically discuss various • Increase in Food Subsidy Bill
Food apprehensions in its effective implementation
• Flaws in the Open-Ended
Security along with the concerns it has generated in WTO
Procurement Policy
2017 Explain various types of revolutions, took place in
Agriculture after Independence in India. How have
these revolutions helped in poverty alleviation and
food security in India?

2019 What are the reformative steps taken by the

government to make food grain distribution system
more effective?

2021 What are the salient features of the National Food

Security Act, 2013? How has the Food Security Bill
helped in eliminating hunger and malnutrition in
India?

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 PREVIOUS YEARS QUESTIONS & THEME

THEME- LAND REFORMS

SUB- THEME YEAR QUESTION IMPORTANT THEMES 2022

Establish the relationship between land reform, • Land Reforms- Rationale,

2013 agriculture productivity and elimination of Progress and Challenges
poverty in Indian Economy. Discussion the
• Land Leasing in Agriculture
Land Reforms difficulty in designing and implementation of the
agriculture friendly land reforms in India. • Tenancy in Indian Agriculture

Discuss the role of land reforms in agricultural

2016 development. Identify the factors that were
responsible for the success of land reforms in
India.

2021 How did land reforms in some parts of the country

help to improve the socio-economic conditions of
marginal and small farmers?

THEME- INDUSTRIAL POLICY AND ECONOMIC LIBERALISATION

SUB- THEME YEAR QUESTION IMPORTANT THEMES 2022

Discuss the impact of FDI entry into multi-trade

retail sector on supply chain management in
commodity trade pattern of the economy. • FAILURE OF MANUFACTURING
SECTOR- REASONS AND
2013 Though India allowed foreign direct investment STRATEGIES NEEDED
(FDI) in what is called multi brand retail through • MSMEs- Prospects, Challenges
joint venture route in September 2012, the FDI and Way Forward
even after a year has not picket up. Discuss the • Defence Manufacturing-
reasons. Initiatives, Prospects and
Challenges
Foreign direct investment in the defence sector is • Ensuring Self-Reliance in
now said to be liberalised. What influence this is Pharmaceutical Industry
expected to have on Indian defence and economy • Electronics Manufacturing-
in the short and long run? Initiatives, Challenges and Way
forward
Normally countries shift from agriculture to
• Manufacturing of Medical
industry and then later to services, but India
Devices
2014 shifted directly from agriculture to services. What
• Need for Solar Manufacturing
are the reasons for the huge growth of services
Strategy
vis-a-vis industry in the country? Can India become
• JOBLESS GROWTH IN INDIA-
Industrial a developed country without a strong industrial
REASONS AND STRATEGIES
Policy base?
NEEDED
There is a clear acknowledgement that Special • Labour Reforms in India- Critical
Economic Zones (SEZs) are a tool of industrial Analysis of the 4 labour Codes
development, manufacturing and exports. • Decline in Female Labour Force
Recognizing this potential, the whole Participation rate (LFPR)
2015 • Skilling India: Prospects,
instrumentality of SEZs requires augmentation.
Discuss the issues plaguing the success of SEZs challenges and Way forward
with respect to taxation, governing laws and • Apprenticeship Training
administration. Program
• Entrepreneurship Development
“Industrial growth rate has lagged behind in the in India
2017 overall growth of Gross-Domestic-Product (GDP) in
the post-reform period” Give reasons. How far the

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 PREVIOUS YEARS QUESTIONS & THEME
recent changes in Industrial Policy are capable of
increasing the industrial growth rate?

Examine the impact of liberalization on companies • Export-led Model of

2013 owned by Indian. Are they competing with the Development- Need, Constraints
MNCs satisfactorily? and way Forward
• India’s Experience with FTAs-
Benefits, Challenges and Way
Forward
• DECODING INDIA'S REFUSAL
Economic FOR JOINING RCEP
Liberalisation How has globalization led to the reduction of • Global Value Chains: A Tool for
employment in the formal sector of the Indian Structural Transformation of
2016
economy? Is increased informalization detrimental Economy
to the development of the country? • Foreign Sovereign Bonds
• International Labour
Organization (ILO)
• Model Bilateral Investment
Treaty

• WTO Reforms
• IMF QUOTA REFORMS
• DATA LOCALISATION- PROS AND
How would the recent phenomena of
International CONS
protectionism and currency manipulations in
2018 • Decoupling Indian Economy
Trade world trade affect macroeconomic stability of
from China- Aatma Nirbhar
India?
Bharat
• Critical Analysis of Vocal for
Local Campaign

THEME- INFRASTRUCTURE AND INVESTMENT

SUB- THEME YEAR QUESTION IMPORTANT THEMES 2022

Adaptation of PPP model for infrastructure • National Infrastructure Pipeline

development of the country has not been free
2013 (NIP)
from criticism. Critically discuss the pros and cons
of the model. • National Monetisation Pipeline
(NMP)
Explain how private public partnership
• Logistics Sector- Constraints and
agreements, in longer gestation infrastructure
PPP Model/ projects, can transfer unsuitable liabilities to the Challenges
2014
Infrastructure future. What arrangements need to be put in place • PPP - Need, Models, Constraints
to ensure that successive generations’ capacities and Way Forward
are not compromised?
• PPP In Healthcare
Examine the developments of Airports in India • HAM Model of PPP
through Joint Ventures under Public-Private • Performance Analysis of Special
2017
Partnership (PPP) model. What are the challenges
Economic Zones (SEZs) in India
faced by the authorities in this regard?

“Investment in infrastructure is essential for more

2021 rapid and inclusive economic growth. ” Discuss in
the light of India’s experience

National urban transport policy emphasizes on • Infrastructure Sector-

Transport 2014 moving people instead of moving vehicles. Discuss
Constraints and Challenges/
critically the success of various strategies of the

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 PREVIOUS YEARS QUESTIONS & THEME
government in this regard. National Infrastructure Pipeline
• Road Sector: Constraints and
Strategies
• Railways: Constraints and
Strategies; PPP In Indian
Railways
• Civil Aviation
• Ports & Shipping and Inland
Waterways
• Electric Mobility- Is India Ready
for Electric Vehicles?

Access to affordable, reliable, sustainable and • Renewable Energy- Challenges

modern energy is the sine qua non to achieve and opportunities
Sustainable Development Goals (SDGs). Comment
• National Minerals Policy 2019
on the progress made in India in this regard.
2018 • Energy Poverty in India
With growing energy needs should India keep on • Coal Sector Reforms
expanding its nuclear energy programme? Discuss
• Major Constraints in the Energy
the facts and fears associated with nuclear energy.
Sector
Energy • Performance Analysis of UDAY
Scheme
• Performance Analysis of
Describe the benefits of deriving electric energy
from sunlight in contrast to the conventional Pradhan Mantri Ujjwala Yojana
2020
energy generation. What are the initiatives offered (PMUY)
by our government for this purpose? • Progress Report of Renewable
Energy- Constraints and
Challenges

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Section-1
GRICULTURE AND
ALLIED SECTOR

SUB- THEME YEAR QUESTION

Given the vulnerability of Indian agriculture to vagaries of nature, discuss the need
for crop insurance and bring out the salient features of the Pradhan Mantri Fasal
Bima Yojana (PMFBY)
2016
What is allelopathy? Discuss its role in major cropping systems of irrigated
agriculture.

What are the major reasons for declining rice and wheat yield in the cropping
2017 system? How crop diversification is helpful to stabilize the yield of the crop in the
system?

How has the emphasis on certain crops brought about changes in cropping patterns
Cropping
in recent past? Elaborate the emphasis on millets production and consumption.
Pattern

Assess the role of National Horticulture Mission (NHM) in boosting the production,
2018 productivity and income of horticulture farms. How far has it succeeded in increasing
the income of farmers?

Sikkim is the first ‘Organic State’ in India. What are the ecological and non-economic
benefits of Organic State?

How far is Integrated Farming System (IFS) helpful in sustaining agricultural

2019
production?

2020 What are the major factors responsible for making rice-wheat system a success? In

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 AGRICULTURE AND ALLIED SECTOR
spite of the success how has this system become bane in India?

What are the present challenges before crop diversification? How do emerging
2021
technologies provide an opportunity for crop diversification?

What are the different types of agriculture subsidies given to farmers at the national
2013 and state levels? Critically analyze the agriculture subsidy regime with the reference
to the distortions created by it.

“In the villages itself no form of credit organisation will be suitable except the
cooperative society.” – All Indian rural credit survey. Discuss this statement in the
background of agriculture finance in India. What constrain and challenges do
2014 financial institutions supplying agricultural finances? How can technology be used to
better reach and serve rural clients?

Subsidies and How do subsidies affect the cropping pattern, crop diversity and economy of
MSP 2017 farmers? What is the significance of crop insurance, minimum support price and food
processing for small and marginal farmers?

What do you mean by Minimum Support Price (MSP)? How will MSP rescue the
2018
farmers from the low-income trap?

What is water-use efficiency? Describe the role of micro-irrigation in increasing the

2016
water-use efficiency.

Elaborate the impact of National Watershed Project in increasing agricultural

2019
Irrigation production from water-stressed areas.

Suggest measures to improve water storage and irrigation system to make its
2020
judicious use under depleting scenario.

2021 How and to what extent would micro-irrigation help in solving India’s water crisis?

Technology How can the ‘Digital India’ programme help farmers to improve farm productivity and
2015
missions income? What steps has the Government taken in this regard?

India needs to strengthen measures to promote the pink revolution in food industry
2013
for better nutrition and health. Critically elucidate the statement.
Economics of
animal rearing
Livestock rearing has a big potential for providing non-farm employment and income
2015
in rural areas. Discuss suggesting suitable measures to promote this sector in India

There is also a point of view that agriculture produce market committees (APMCs) set
2014 up under the state acts have not only impeded the development of agriculture but
also have been the cause of food inflation in India. Critically examine.
Marketing of
agricultural In view of the declining average size of land holdings in India which has made
produce 2015 agriculture non-viable for a majority of farmers, should contract farming and land
leasing be promoted in agriculture? Critically evaluate the pros and cons.
2020 What are the main constraints in transport and marketing of agricultural produce in
India?

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 AGRICULTURE AND ALLIED SECTOR
TENANCY IN AGRICULTURAL LAND
►ENHANCING INPUT USE
Concept of Tenancy Land Leasing enables the farmers to
EFFICIENCY IN lease out their agricultural lands to other farmers,
landless, sharecroppers, tenants leading to agricultural
AGRICULTURE efficiency, equity, and power reduction.
According to Dalwai Panel, to double farmers’ income, Background The land leasing has been an integral part
agriculture should be treated as an enterprise with focus of Land reforms in India. The land Reforms after India's
on 3 aspects- Reducing Input costs, Enhancing Independence focussed on (i) abolition of
Productivity and higher prices. Agricultural inputs need intermediaries, (ii) abolition or regulation of tenancy and
to be efficiently utilized to fulfill dual objectives- (iii) imposition of ceilings on land holdings and
Increased income and Sustainable agriculture. redistribution of ceiling surplus land. However, the main
objective to achieve high levels of efficiency and equity
has been achieved only partially.
Present Status Most state governments have either
legally banned or imposed restrictions on agricultural
land leasing. Restrictive clauses in the tenancy laws of
various states include period of lease, regulation of rent,
conditions for termination of lease, conferment of
ownership rights on tenants etc.
Case for Legalisation of Land Tenancy Restrictive land
leasing laws have proved to be anti-growth and anti-
poor on account of following reasons:
• Informal and Oral Tenancy – Tenants do not have
access to institutional credit, insurance etc. and are
prone to exploitation.
• Oral and informal tenancy discourages the tenants
►LAND from making investment in land improvement.
ISSUES Net sown area is around 141 mha as against • Reduced the occupational mobility of many
total geographical area of 328 mha. However, the small landowners who have interest and ability to take up
and marginal farmers accounting for 83% of farmers employment outside agriculture and yet are forced to
own 48% of agricultural land. The average size of stay in agriculture due to the fear of losing land if they
landholding has consistently reduced to 1.15 ha in 2011. lease out and migrate.
This highlights the high level of fragmentation in the
• Many landowners prefer to keep the land fallow due
landholdings leading to multiple problems as shown
to the fear of losing land rights if they lease out. This
below:
leads to underutilisation of land. The lifting of ban or
restrictions on leasing will result in better utilization
of the available land and labour and increased farm
output.
• Higher Equity and Economic justice as the land
leasing enables the poor to have access to land and
improve their income levels.
• NITI Aayog has pointed out that “Lease farming is an
economic necessity and not a symbol of feudalism, as
it was thought before”. Earlier, Ban or restrictions on
leasing were imposed to prevent exploitation of
tenants. But now the situation has changed. The rural
poor have become politically more powerful through
panchayat raj institutions. A formal tenancy
relationship would not be exploitative, rather it would

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 AGRICULTURE AND ALLIED SECTOR
improve their bargaining power and enable them to get out of poverty trap.

WHAT MUST BE DONE? irrigation potential utilized (IPU) due to- inadequate
• Incentivise states to adopt Model Agricultural Land maintenance of canal system, lack of participatory
Lease Act, 2016. management, changing land use pattern, deviation

• Modernisation of land records to facilitate land from the designated cropping pattern, soil
leasing degradation and delay in command area
development.
• Promotion of Contract farming by organising tenant
farmers into Farmer Producer Organisations (FPOs) • Improper crop & cropping system: High proportion of
cultivated area under water guzzling crops like rice,
• Presently, Tenants are not covered under various
Government schemes such as PM-KISAN. Hence, sugarcane etc. India is net water exporting country as
states should have a digital database of tenants that it exports more water intensive crops like rice, wheat
can be used to extend benefits under various etc. and it import less water intensive crops like
schemes and programmes. pulses (Eco Survey 2015-16).

• Set up of Land Banks at Village level. • Imbalanced use of ground water: The Easement Act,
1882, provides every landowner with the right to
collect and dispose all water under the land and on
►WATER
the surface. This means that the owner can dig wells
PRESENT STATUS Agriculture accounts for more than and extract water based on his discretion.
80% of water consumption, out of which share of
Additionally, landowners are not legally liable for any
groundwater is quite high (60%). 52% of area is rain-fed
damage caused to water resources because of over-
wherein yield is almost 3 times lower.
extraction.
NEED FOR ENHANCED WATER-USE EFFICIENCY IN
• Free power available to farmers has also led to over-
AGRICULTURE According to NITI Aayog's Composite
exploitation.
Water Management Index (CMWI) report, India is facing
worst water crisis in its history. By end of 2030, demand • Water logging & soil salinity due to over-use of
for drinking water will outstrip the supply. Almost 2.4 surface water.
lakh people die every year due to lack of access to safe HOW TO ADDRESS THESE PROBLEMS?
and clean drinking water. Water crisis could potentially
• Enhancing water efficiency in Irrigated areas: Reduce
lead to economic loss of around 6% of GDP.
the difference between IPC and IPU through Proper
PROBLEMS IN CURRENT WATER MANAGEMENT maintenance of canals, Formation of water user
• Substantial area under rainfed: About 72 million associations, Rationalization of water tariffs, Changes
hectares (Mha) of net sown area (52%) is still in cropping pattern, micro-irrigation
completely dependent on rainfall. Rain-fed agriculture
• Enhancing water efficiency in rain-fed areas:
is 3 times less productive.
Rainwater harvesting- Check Dams, Convergence
• Regional imbalance: Temporal and spatial variations between MGNREGA and water conservation, Desilting
in rainfall and water availability in the country. of ponds and water bodies. Conservation agriculture-
• Sub-optimal utilization of created facilities: Wide gap Artificial and Natural Mulching, Zero Tillage
between irrigation potential created (IPC) and
• Optimum Utilization of Ground water:

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 AGRICULTURE AND ALLIED SECTOR
o Adoption of Model Bill to Control and regulate the lead to 40% Water Savings, 45% increase in productivity
Extraction of Groundwater- Setting up of and 50% increase in income.
Groundwater Regulating Authority, Compulsory GOVERNMENT INITIATIVES
registration of bore well-owners, Compulsory
• Pradhan Mantri Krishi Sinchayee Yojana (PMKSY):
permission for sinking a new borewell, Restrictions
o Har Khet Ko Paani: Providing end-to-end solutions
on the depth of borewells etc.
in Irrigation supply chain.
o Replication of Andhra Pradesh Farmer Managed
Groundwater Systems (APFAMGS) - Joint o Per Drop More Crop: Promotion of Drip Irrigation
and Sprinkler Irrigation.
Management of Aquifers, Induce behavioral
change, Self-Regulation of groundwater extraction. • Micro-Irrigation Fund (MIF):
o Rationalization of power subsidies; Separation of o Managed by NABARD with corpus of Rs 5000 crore.
feeder lines. o States can avail the fund to in order to subsidise
• Promotion of Micro-Irrigation techniques such as drip the farmers for adoption of micro-irrigation
and sprinkler irrigation. techniques

►MICRO-IRRIGATION- INITIATIVES,
CHALLENGES AND WAY FORWARD
Micro irrigation (MI) systems (sprinkler, drip) promote
precision farming by making water available to root zone
of crops. MI holds immense potential in addressing dual
challenges - Sustainability and Declining Income Levels.
MI has multi-faceted benefits- Efficient deployment of
inputs such as water, electricity, fertilizers, labour, higher
crop productivity, better quality of produce etc. resulting
in increased income. According to Dalwai Panel, MI can
Micro-Irrigation in India
Challenges Strategies

Area under Micro-irrigation has remained at 10 Mha against • Implement recommendations of Dalwai panel such
the potential of 70 Mha on account of following reasons: as increase in annual coverage by 2.5 Mha, making
• Highly subsidized canal water and electricity Ml compulsory agenda in all forms of irrigation -
flow, lift. Ponds etc.
• High initial capital and fragmented land holdings
• Lower subsidy (55%) for marginal farmers under PMKSY for • Educate farmers on highlighting benefits of Micro-
irrigation.
the adoption of Micro-irrigation.
• No Major role of Banks in providing credit • Certain states in India have made usage of micro
irrigation systems mandatory for water guzzling
• No after-sale services such as removal of clogging in pipes
crops such as sugarcane. This initiative could also be
• Frequent power outages taken up at the national level with the inclusion of
• Dismantling of Ml structure after every crop damages the other water guzzling crops.
equipment
• Special scheme to provide loans to small and
• Mainly concentrated in Western and Southern India marginal farmers for the adoption of Micro-
• Used only for few selected crops Irrigation

investment in marketing infrastructure, Cold chain

►SUBSIDIES vs. PUBLIC
infrastructure, R&D for improved Seed varieties,
INVESTMENT technologies etc., financial support to SHGs, Promotion
Public Investment in agriculture refers to long term of mechanization etc.
investment in agriculture that benefits all farmers
Present Status: Firstly, the total Investment in Agriculture
(inclusive), environmentally sustainable, address the
is only around 15% of agricultural GDP. This is much
structural problems of agriculture and enhances income
lower as compared to Gross Investment rate of 30% of
of farmers. Examples include expansion of irrigation,
India's GDP. Secondly, out of total investment of 15% of

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 AGRICULTURE AND ALLIED SECTOR
agricultural GDP, the share of Government Investment is
only around 3%, the rest 12% investment comes from
farmers and private sector.
Problems: The Government expenditure on agricultural
subsidies such as MSP, water, power, fertilizers, loan
waivers etc. is as high as 8.2% of Agri-GDP. These
Subsidies are not inclusive (Mainly benefit rich farmers),
not environmentally sustainable (Excessive water
consumption, imbalanced fertilizer consumption, soil
degradation etc.), create distortions ( Free power- Huge
loss to DISCOMs; MSP- artificial scarcity of food grains,
higher focus on cultivation of water-intensive crops, lack
of diversification etc.) and do not address the structural
problems of Indian agriculture.
What should be done? Rationalize Agricultural subsidies,
Targeting of subsidies through DBT.

PROBLEMS IN AGRICULTURAL CREDIT

►AGRICULTURAL CREDIT
• Lower Share of Long-term Credit: Long term
Importance: Meet credit needs of poor marginal
farmers; Prevents debt trap; improves access to Investment loans (35%) and short-term crop loans
agricultural inputs; enhances investment in agriculture; (65%). While crop loans meet the seasonal production
enhances productivity through adoption of new credit demand of the farmer, investment loans
technologies/ mechanisation etc.; roughly every 1 per contribute to capital formation in agriculture and
cent increase in agricultural credit produces 0.3 per cent sustain production eventually. The higher share of
increase in agricultural GDP.
crop loans is on account of two reasons- (a) interest
STEPS FOR PROMOTION OF AGRICULTURAL CREDIT subvention available only on short term crop loans (b)
• Nationalisation of Banks, setting up of Regional Rural Inability of farmers to provide collateral for long term
Banks and NABARD high value investment loans.
• Priority sector lending requirements.
• Share of Small and Marginal Farmers: only 60% of
• KISAN Credit card scheme loans due to poor land records and fragmented land
• Setting up of Rural Infrastructure development Fund holdings.
(RIDF) with NABARD for funding of rural infrastructure
• Regional imbalances: Higher share of southern region
projects
• Rising NPAs of Banks: Low Credit creation
• Ground Level Credit (GLC) policy: Under this policy,
Government announces GLC targets for agriculture • Coercive action for repayment leading to increase in
and allied sector in the Union budget every year farmer suicide cases.
which banks are required to achieve during the
• Problems with Priority sector lending: Predominance
financial year.
of large value loans which highlights share benefit for
• interest subvention scheme (ISS) for short term crop
richer farmers; concentration of agricultural loans in
loans
urban areas; March rush etc.
• On-lending wherein the banks can sanction loans to
HOW TO ADDRESS THESE PROBLEMS?
NBFCs and HFCs, who then would lend these loans to
the sectors categorized as Priority sector. • Set up Credit Guarantee fund trust on the lines of
fund set up for MSMEs. This fund should guarantee
Present Status: 20% growth rate in agriculture credit in
repayment of the loans taken by farmers for long
the last decade; Percentage of farmer households
term Investment loans.
indebted: 52%; Average loan amount: Rs 47,000; Share
• Strict adherence to PSL guidelines: Out of 18% loans
of Institutional Credit: 60%.
earmarked for agriculture, 10% of the loans should be

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 AGRICULTURE AND ALLIED SECTOR
given to small and marginal farmers according to RBI. Integrated nutrient management: Denotes the practice
A sub-limit for loans to tenant and landless farmers of using one or more sources of plant nutrients along
needs to be introduced. with fertilizers.
• Digitization of land records to make it easier for Need to promote INM- (i) Demand-supply mismatch in
farmers to access institutional credit. availability of chemical fertilisers leading to their higher
• Saturation drives for KCC Scheme imports; (ii) Both chemical fertilizers and the organic
sources needed; and (iii) growing environmental
• Mobilization of farmers into FPOs
concerns over chemical fertilisers.
• Special focus on unbanked regions to correct regional
Advantages of INM: (i) restoration of soil fertility (ii)
disparity
Addressing nutrient deficiencies; (iii) enhancing use
• Technology driven portal for the banks to facilitate efficiency of nutrients and other inputs; and (iv)
ease of credit to the farmers on the lines of
improving farm income.
PSBLoansIn59 minutes to MSMEs.
MAJOR INGREDIENTS OF INM

►SOIL • Organic manures like farmyard manure (FYM),

composts, poultry manure, bio-gas slurry etc. are
PROBLEMS WITH INDIAN SOILS
useful inputs for maintaining soil fertility and
According to TERI, almost 30% land is degraded in India ensuring yield stability.
leading to loss of 2.5% of GDP. • Inclusion of legumes pigeon pea, black gram, green
• Imbalanced Use of Fertilisers: Fertilizer consumption gram and soybean as inter-crops would help in fixing
is grossly imbalanced, and skewed towards N. With atmospheric nitrogen and enhances soil fertility.
implementation of nutrient-based subsidy (NBS) by • Crop residues and farm wastes
keeping urea (Source of N) out of ambit of NBS, P and
• Bio-fertilizers such as different types of microbial
K fertilizers became costlier leading to their decreased
inoculants such N-fixers (Rhizobium, Azotobacter,
consumption and higher consumption of Urea. As a
Azospirillum)
result, fertilizer consumption ratio (N:P:K) widened
• Municipal wastes and industrial by-products such as
from 4:3:1 (2009-10) to 7:3:1 (2015-16).
Press-mud (by-product of sugar industry). It contains
• Such fertilizer practices obviously result in soil
high amounts of CaCO3 and, therefore, can be used
degradation and pollution of groundwater, air and
as an ameliorant in acid soils.
soil through nitrate leaching, denitrification losses etc.
• Management of problem soils- Application of lime in
• Acidification, Salinization, Alkalization and Acidic Soils, Use of Gypsum in Saline and Alkaline
Waterlogging soils, application of micro-nutrients etc.
• Changes in soil organic matter under intensive Establishment of additional Soil Testing Laboratories
cropping (STLs) through PPP Mode.
• Decline in Soil Physical Conditions: Excessive tillage, Creation of a dedicated service cadre for soil health
use of heavy machinery, removal of crop residues and monitoring
low organic matter. Poor status of soil structure, Increase in periodicity for renewal of Soil Health Cards
water holding capacity, aeration, etc. not only cause a (SHCs) from 2 years to 3 years would reduce burden on
decline in availability of nutrients and soil microbial Soil Testing Laboratories (STLs) and enable them to carry
activities, but also decrease crop productivity. out more testing.
• Poor & incomplete fertilizer prescription: Sub-optimal Promoting balanced utilisation of Chemical fertilisers by
and incomplete fertilizer prescriptions offered by the carrying out reforms in the fertiliser policies.
Soil testing laboratories.
HOW TO ADDRESS THESE PROBLEMS? ►MECHANISATION OF INDIAN
Soil Health Card (SHC) Scheme aims at issuing SHC to AGRICULTURE
each one of 120 million farm holdings at 2-year interval Even though agriculture sector contributes only 16% of
on a continuing basis. This needs to be complemented GVA, it accounts for almost 45.7% of India's workforce.
by other steps as shown below: This shows high level of disguised unemployment and

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 AGRICULTURE AND ALLIED SECTOR
inefficient utilisation of Indian workforce. This needs to and Wheat crops having the largest extent of
be countered through skilling of rural youths and mechanization)
promotion of agricultural mechanisation. CHALLENGES WITH ADOPTION OF AGRICULTURAL
NEED FOR AGRICULTURAL MECHANIZATION MECHANIZATION
• The agricultural mechanization can reduce the Dominance of Fragmented landholdings: The average
increasing labour costs in the rural areas. It can landholding size has reduced to 1.23 ha. 83% of the
enable the farmers to grow a greater number of crops farmers in India are small and marginal and they own
in a single year due to reduction in the harvesting around 40% of the agricultural land.
time. Capital Intensive: The agricultural machinery such as
• There has been feminization of Indian agriculture with tractors, harvesters etc. are quite costly and hence
women farmers accounting for almost 1/3 of the total unaffordable to the vast section of Indian society.
farmers. Mechanization would help address the GOVERNMENT INITIATIVES
needs of women farmers.
Sub-Mission on Agricultural Mechanization (2014):
• According to the Dalwai Committee, the adoption of Assistance to the Farmers for procurement of
agricultural mechanization would reduce the input agricultural machineries; Custom Hiring Centres;
costs by 25%, enhance the productivity by 20% and Demonstration of Newly Developed Agricultural/
increase the incomes of the farmers by 25-30%. Horticultural Equipment.
PRESENT STATUS OF MECHANISATION Promotion of Agricultural Mechanisation for in-situ
• Farm Mechanization in India: 40-25%; Even though Management of Crop residue: Implemented in Punjab,
India is the largest producer of tractors, a significant Haryana, UP and NCT of Delhi; Setting of Custom hiring
share of production is exported. centres; Financial Assistance to the farmers for buying
• Farm Mechanization in other countries: USA (95%); environment friendly agricultural machinery.
Brazil (75%); China (57%). FARMS (Farms Machinery Solutions) Mobile App:
• Regional Disparities: Northern India has higher levels Facilitates the farmers to hire agricultural machineries
of mechanization compared to other regions. (Rice and tools.

►YIELD GAPS & TOTAL FACTOR Firstly, between the best scientific practices and the best
field practices, and second, between the best field
PRODUCTIVITY IN AGRICULTURE
practices to the average farmer practices. These yield
Present Status: There exists large scale yield gaps in the gaps exist in almost all crops such as Rice, Wheat, Pulses,
Indian Agriculture. This yield gap exists at two levels — Maize, Sugarcane etc. For example, only 2 per cent of

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 AGRICULTURE AND ALLIED SECTOR
paddy and wheat growers use hybrids. These yield gaps Nutritional security through Diversification: Presently,
can be increased by enhancing Total factor productivity. the production basket of agriculture is dominated by
Concept of Total Factor Productivity: Total Factor Rice and Wheat. However, there has been shift in
Productivity (TFP) measures the efficiency with which consumption pattern towards more protein-based foods
inputs are utilised. An increase in TFP would mean that such as Pulses, Milk, Egg, Fish, Meat etc. leading to
inputs are more efficiently utilised through innovations demand-supply mismatch and thus nutritional
and improved management techniques. An increase in insecurity. The diversification towards cultivation of
TFP is associated with higher efficiency in use of the other crops and livestock rearing would address the
available inputs, higher output and higher profits. micronutrient deficiencies, Vitamin, iron deficiencies etc.

STEPS TO INCREASE TOTAL FACTOR PRODUCTIVITY Enhancing Income levels of Farmers through
Diversification: According to Dalwai panel, expansion in
• Investment in R&D for the adoption of better
diversification by 1 ha could increase annual income of
technology
farmers by Rs 1 lakh on account of following reasons:
• Adoption of high yielding varieties of seeds
• Higher Productivity: The cereal crops occupy 42% of
• Access to micro-Irrigation techniques agricultural land but contribute only 20% of
• Focus on extension activities to empower farmers agricultural GDP. However, horticultural crops occupy
through sharing information, technology, skills, farm only 14% of agricultural land but contribute 33% of
management practices agricultural GDP.
• Balanced utilisation of fertilisers • Agricultural production would be more aligned with
• Thrust on Agricultural Mechanisation demand and hence fetch higher prices.
• Organise farmers into Farmer Producer Organisations • Increase in the cropping Intensity due to shorter crop
(FPOs) to take benefit of economies of scale. duration in comparison to Rice and wheat
• Improve post-harvesting infrastructure such as • Reduction in risks and ensure constant flow of income
collection centres, warehouses, cold chain • Optimum utilization of land
infrastructure etc. Thus, looking at these benefits, the Government has to
now focus on Rainbow revolution in order to bring about
holistic development of all sectors- horticulture, animal
►AGRICULTURAL husbandry, poultry, fisheries, food grains etc. This would
have multiple benefits- nutritional and food security,
DIVERSIFICATION- NEED income security for farmers and overall make agriculture

FOR RAINBOW more inclusive and sustainable.

REVOLUTION ►NUTRI-CEREALS/ MILLETS

The phenomenal increase in production of Food grains Millets such as Jowar, Bajra, ragi etc. are dual purpose,
after the Green Revolution has not translated into nutrient dense, hardy and low input intensive crops
commensurate increase in food security. This is evident that have potential to address malnutrition and climate
in India’s poor ranking on global indicators such as change, while promoting sustainable agriculture. In
Global Hunger Index (GHI). This can be attributed to lack India, millets are grown on about 17 million ha with
of diversification in agriculture, which has also led to annual production of 18 million tonnes and contribute
stagnation in income levels of farmers. 10 percent to the country’s food grain basket.

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 AGRICULTURE AND ALLIED SECTOR
Initiatives taken by Government to address above generation, inclusion under ICDS, MDM etc.) to ensure
problems include- National Year of Millets (2018), success of Millet Revolution.
NFSM-Coarse Cereals etc.
HEALTH BENEFITS ►PULSES
• Millets are actually three to five times more nutritious
India is the world’s largest producer of pulses with 23
than rice and wheat in terms of proteins, minerals
million tonnes from an acreage of 30 million hectares.
and vitamins. Millets are rich in B vitamins, calcium,
The country accounts for 35 per cent global area and 27
iron, potassium, magnesium, zinc, apart from being
per cent of global production. Pulses are commonly
gluten-free, and low in glycaemic index (GI). These are
grown under rainfed condition all over India (87 per cent
more suitable for people with gluten allergies or high
rainfed) during two principal seasons of the year,
blood sugar levels.
namely, kharif rainy season.
• Reduction in Cholesterol, Sugar
PRODUCTION OF PULSES
• FAO has recognised importance of Millets for meeting
Top Pulses: Top six pulses grown in India are chickpeas
SDGs- 2, 3, 12 and 13
(chana), pigeon pea (Arhar/tur dal), urad beans (urad
CLIMATE RESILIENCE
dal), mung beans (moong), lentils (masoor) and peas.
• Abiotic (drought, temperature and salinity) and Biotic
Top States: Production of pulses has largely shifted from
(pest and disease) stress tolerant
northern India to central and southern part. More than
• Integral part of Conservation agriculture 90% of total pulses production is realized in 10 states
• Climate change mitigation by carbon sequestration namely, MP, Rajasthan, UP, Karnataka, AP, Gujarat,
SUSTAINABLE PRODUCTION SYSTEM Jharkhand, CG and Telangana
• 2.5 times lesser water requirement than rice Net Importer: India accounts for 25% import of Pulses
• Natural soil conditioner due to powerful root systems across the world.

• Multi-purpose: Food, Feed, Fodder, Biofuels and Demand-Supply Mismatch: With the rising incomes and
Brewing fall in the poverty combined with greater health
• Potential to enhance income in rainfed areas consciousness, the demand for pulses has run ahead of
production.
STRATEGIES TO PROMOTE NUTRI-CEREALS
• Special Agribusiness Zones (SABZ) for millets: Focus GOVERNMENT INITIATIVES
on development of particular millets which is • National Food Security Mission (NFSM)- Pulses: Aims
popularly cultivated in the local areas. Examples: to Increase Pulses production by 3 million tonnes
sorghum in Telangana, finger millet in Karnataka, • Increase in MSP
pearl millet in Gujarat, and small millets in Madhya
• Price Support Scheme (PSS) under PM-AASHA
Pradesh. These SABZs can develop around FPOs, farm
gate level primary processing facilities, ware housing • Creation of Buffer Stock of Pulses by NAFED.
units and value-added food products. • Price Stabilisation Fund Scheme to check volatility in
• Promoting Organic Millets to cater to increased the prices.
demand of the consumers. STRATEGIES TO BOOST PULSES PRODUCTION
• Explore Trade opportunities: The export of Indian
Utilization of potential area of rice-fallow lands: About
millets has not been up to the mark as compared to
30-40 per cent of the area currently left fallow after
other cereal grains due to poor quality; farmers need
paddy harvest can be converted into productive
to be educated about quality concerns at all stages of
farmlands; Additional 3 Mha of pulses and 1 Mha of
production and harvesting.
oilseeds can be brought under cultivation through
• Federating millets farmers as Farmer Producer
"Targeting Rice Fallow areas" sub-scheme under RKVY.
Organizations (FPOs)
CHANGING CROPPING PATTERN
• Expanding the coverage of small millets under MSP.
• Diversification: Replacement of less remunerative
• Promotion of Contract farming for millets
crops with pulses.
Thus, we need to focus on supply side factors
• Promotion of inter-cropping
(incentive to farmers, high yielding crops) and demand
side factors (value addition, labelling, awareness INCREASING PRODUCTIVITY

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• Bridge the yield gap between Pulses and other cereal Production of Oilseeds: 33 MT (2019-20). The overall
crops to incentivise farmers to take up Pulses production has neither consistently increased nor
production. decreased in the last decade. It has been fluctuating and
• Redesign of NFSM-Pulses: Two categories of districts has remained around 30 MT in the last decade.
for coverage under NFSM for pulses - NFSM Pulses for Demand-Supply Mismatch of Edible Oils: Domestic
general districts and NFSM Pulses+ for districts where requirements: 25 MT; Domestic Production: 10 MT from
yield levels are lower than state/national averages. primary sources (Soybean, Groundnut, Sunflower etc.)
• Strengthening storage and processing to reduce post- and Secondary sources (Palm oil, coconut, rice bran,
harvest losses: Pulses are vulnerable to post harvest cotton seeds etc.). The remaining 60 per cent of
loss which has been estimated to be the order of 20 requirement is met through imports.
to 30 per cent due to -Traditional dal mills resulting in Of imported edible oils, share of palm oil is about 60%
low dal recovery etc. followed by soybean oil and sunflower. India has
• Bringing down duration of pulse crops through emerged as the largest importer of vegetable oils in the
Technological interventions world followed by China & USA.
Import bill: Rs 75,000 crore (2020-21). In the current
year, the import bill could go up to Rs 1 lakh crores.
►OILSEEDS
INITIATIVES TO BOOST OILSEEDS PRODUCTION:
Despite being the fifth largest oilseed crop producing
• National Food Security Mission (NFSM)-Oilseeds & Oil
country in the world, India is also one of the largest
Palm: Distribution of quality seeds, improved
importers of vegetable oils. The demand-supply gap in the
technologies, Distribution of micronutrients etc.
edible oils has necessitated huge imports accounting for 60
per cent of the country’s requirement. For this, government • Increase in the MSP on Oilseeds
has recently launched National Edible Oil Mission-Oil Palm • Guaranteed procurement through PM-AASHA
(NMEO-OP) • Targeting Rice Fallow Areas (TRFA) for cultivation of
IMPORTANT FACTS Pulses and Oilseeds. Once the Rice is harvested,
Area under Oilseeds: 27 Mha (14% of agriculture area). It residual moisture left in the soil is sufficient to grow
has remained almost stagnant (with slight variation) Pulses and Oilseeds. Introduction of Pulses and
both in terms of absolute area as well as percentage of Oilseeds in Rice fallows will not only increase
area under agriculture. production of Pulses and Oilseeds, but it will also lead
to doubling farmers income.

DETAILS ABOUT NATIONAL EDIBLE OIL MISSION-OIL PALM (NMEO-OP)

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OBJECTIVES • Increasing production through adoption of high
Increase area and Production: Increase area under Palm yielding varieties of seeds; soil and moisture
Oil cultivation from 3 lakh hectares to an additional 6.5 conservation techniques in rainfed areas; balanced
lakh hectares. Production of Crude Palm Oil (CPO) is Utilisation of fertilisers; Intercropping of Oilseeds with
expected to increase to 11.20 lakh tonnes by 2025-26. other crops; Contract farming etc.

Focus Areas: • Encourage Cooperatives and FPOs and link them to

oil processing Industries.
• Price assurance to the farmers to protect them from
volatility in the prices of Crude Palm oil • Reduce per capita consumption of edible oil and
minimize import. Campaign for healthy oil
• Assistance to the farmers for buying various inputs
consumption.
such as planting material
• Promotion of Secondary Sources (rice bran, coconut,
• Special emphasis on the North-eastern States and
cotton seed, oil palm and TBOs)
Andaman & Nicobar Islands.
• Enhancing capacity utilization of domestic processing
Funding: Centrally sponsored scheme- to be financed by
industries
both Centre and States.
• Promoting consumption of coconut as edible oil.
WAY FORWARD
STRATEGY TO PROMOTE CULTIVATION OF OILSEEDS
(Dalwai Panel Recommendations)

Increasing Palm oil Cultivation in India

Benefits Challenges
Aatma-Nirbhar in edible oils: Palm oil accounts for 60% Longer gestation period of at least 4-5 years and hence
of import of edible oils. 99% of domestic palm oil restricts income flow to the farmers during initial years.
requirements met through imports. Smaller land landholdings: small holdings of farmers with
Higher yield of edible oils: One hectare of palm oil limited resources.
cultivation gives about 4000 kg of oil as against 500kg Fluctuation in prices in the international market.
in case of sunflower. Erratic monsoon leading to shortage of water.
Lower land requirement as palm oil cultivation gives Competition with other economically viable crops such as
higher yield of edible oils in comparison to sunflower, rubber, arecanut, sugarcane, banana, coconut etc.
groundnut etc. Environmental damage: Diversion of forest land, excessive
Low maintenance costs due to low pest and disease water consumption, loss of biodiversity etc.
resistance. International Experience: IUCN: Oil palm expansion has led to
Increase in income levels of the farmers by providing deforestation, degradation of natural habitats in parts of
year-round returns. tropical Asia and Central and South America.
Boosts job creation and value addition by giving push
to Food processing Industries.

►HORTICULTURE SECTOR- NEED horticultural crops increases annual income by Rs

80,000. (Dalwai Panel)
FOR GOLDEN REVOLUTION
The horticultural sector covers six categories, namely • Ensures Nutritional security by overcoming vitamin
pomology (fruits), olericulture (vegetables), floriculture and micronutrient deficiencies
(flowers), plantation crops, spices, aromatics and herbal • Being labour intensive, generates more employment
medicines. opportunities.
IMPORTANCE • Boosts secondary agriculture by developing cottage-
• High value crops due to higher demand from based Industries.
consumers due to greater awareness of nutritional
PRESENT STATUS OF HORTICULTURE: India is the
benefits.
second largest producer of fruits and vegetables
• Higher returns per unit of land as compared to cereal
globally; second largest producer and exporter of Spices.
crops and hence beneficial for small and marginal
Occupying only about 14 per cent of agricultural land,
farmers. - Replacing 1 hectare of staple crops with

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horticulture contributes more than 33 per cent to the • Resource use efficiency or savings in cost of
agricultural GVA. production through micro-irrigation, fertigation,
adoption of mechanisation to reduce labour costs
Area: 25 Mha; Production: 300 MT; Contribution to Agri-
GDP: 33%; Productivity: 12.5 tones/ha (Food grains- 2.25 • Increase in cropping intensity by enhancing Irrigation,
tones/ha) Crop Rotation, Mixed Cropping etc.
• Diversification towards high value crops within
GOVERNMENT INITIATIVES
horticulture such as floriculture, cashew, Cocoa,
Mission for Integrated Development of Horticulture
mushrooms, spice and medicinal plant cultivation
(MIDH): High density plantations, protected cultivation,
• Improvement in the market access and marketing
micro-irrigation, quality planting material, rejuvenation
system
of senile orchards, and post-harvest management and
• Creation of near-farm occupations in post-harvest
marketing.
handling facilities
CHALLENGES IN HORTICULTURE
• Higher Capital requirements
►HORTICULTURE PLUS
• Longer sowing to harvest cycle for some of the fruits
Horticulture is considered as high value agriculture.
such as Apple, Guava etc.
However, within horticultural sector, there are specific
• Large scale prevalence of old and senile orchards crops that can be considered as “Horticulture Plus”.
impacts productivity. Majority of the orchards also These include flowers, cashew, cocoa, mushrooms,
have low planting density. spices and aromatics, etc.
• Availability of quality seed and planting material PRESENT STATUS
impacts quality of produce. Floriculture: Important agribusiness with immense
• Poor tree canopy management. potential for generating self-employment and
entrepreneurship among small and marginal farmers in
• Rainfed cultivation, with majority of the horticultural
both urban and rural areas. Though, India dominates in
cultivation having no access to irrigation.
terms of area under cultivation, yet India’s yield per
• Initial cost constraints in adoption of improved hectare is low. As a result, India’s contribution to the
technologies. global floricultural export market is very minimal.
• Facilities for post-harvest management have not kept Spices: India is largest producer, consumer and exporter
pace with production growth. of spices and spice products in the world. As the global
• Unorganised supply chain not suitably integrated for demand for the spices grow, farmers should diversify
managing perishable produce. into high-value-plus crops like saffron, cardamom,
turmeric, chillies, ginger and vanilla beans.
• Lack of appropriately trained extension services for
horticulture. Cashew and Cocoa: Cashew is grown in number of states
such as Kerala, Karnataka, Goa, Maharashtra, Tamil
STRATEGY TO BOOST HORTICULTURAL PRODUCTION
Nadu, Andhra Pradesh etc. Cashew improves the farm
• Increasing the output through higher productivity income and sustains employment for 1.5 million people
o Hybrid technology for high productivity and in the cashew farming. Cultivation of cocoa is gaining
quality- Hybrids of tomato, chilli, cucumber and momentum and is grown in states such as Tamil Nadu
muskmelon and Andhra Pradesh. India imports around 60% of the
demand for Cocoa.
o Quality planting material and seed production-
Creation, modernisation and accreditation of
nurseries ►COMBATING VOLATILITY IN TOP
o High density planting system- higher yield and net CROPS
economic returns per unit area, more efficient use Tomato, Onion and Potato (TOP) form almost 50 per
of inputs cent of the total fruits and vegetables. However, there
• Increasing the output through area expansion such as are large scale price fluctuations in these commodities
Integrated Farming system approach, Urban & Peri- which adversely affect both consumers as well as
urban Horticulture farmers.

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 AGRICULTURE AND ALLIED SECTOR
REASONS FOR VOLATILITY IN PRICES
• Unfavourable weather conditions which cause
demand-supply mismatch
• Absence of post-harvesting infrastructure such as
Collection centres, warehouses, cold chain
infrastructure etc.
• Lack of suitable transportation and marketing
infrastructure
• Black marketing and hoarding by middlemen and
traders
STEPS TO COMBAT VOLATILITY IN TOP CROPS
• Improve the supply chain infrastructure such as
collection Centres, warehouses etc.
• Build up adequate Buffer Stock close to the markets. RESTRICTIVE REGIME: Under the present APMC Act,

• Impose Stockholding Limits under Essential farm produce should be sold only at regulated markets
Commodities Act, 2020. through registered intermediaries. Further, the Essential
Commodities Act allows central and state governments
• Ban on Export of these commodities in event of large-
to place restrictions on the storage and movement of
scale price rise.
commodities deemed essential by governments.
• Organize farmers into FPOs
FRAGMENTED AGRICULTURAL MARKETING with about
2500 regulated APMCs, 5000 sub-market yards and
►AGRICULTURE thousands of Rural Markets or Grameen Haats. Hence,
due to this fragmented marketing system the
MARKETING- THE KEY TO agricultural commodities pass through multiple

ALLEVIATE AGRARIAN middlemen and traders leading to escalation in prices

and prevents farmers from getting remunerative prices.
DISTRESS LACK OF FREEDOM TO FARMERS to sell their produce
Essentially, the Indian agriculture can be considered as to whomsoever and wherever they want.
an enterprise with two distinct components- Production LACK OF ACCESS TO APMCS: An average APMC in India
and Post-Production activities. With respect to serves an area of around 450 sq.km as against the
agricultural production, India has not only become self- recommendation of 80 sq. km. given by M.S.
sufficient in terms of food production, but it has also Swaminathan Committee. On account of this, the
emerged as a net exporter of agricultural products.
farmers are forced to sell their produce at lower prices
However, the post-production activities of Indian
outside the APMCs.
agriculture have not kept pace with the production
related activities. The quantities of marketable surplus AGAINST INTERESTS OF SMALL AND MARGINAL
have multiplied by almost 10 times during the last 50 FARMERS who are forced to sell at lower prices due to
years. However, the agriculture marketing infrastructure their low marketable surplus and poor bargaining
continues to remain out-dated. power.
POOR INFRASTRUCTURE OF THE APMCs leading to
►AGRICULTURAL MARKETING improper storage and consequently higher post-harvest
losses; No electronic auction platform
Most of the State governments enacted the Agricultural
Produce Market Regulation Act (APMC Act) which IMPOSITION OF MULTIPLE FEES IN APMCs which is
authorizes the States to set up and regulate marketing. estimated to be around 15% of the value of the
Apart from that, there are more than 22,000 Rural agricultural produce; Increased prices and affect food
Markets or Grameen Haats under the control of local processing Industries
bodies, panchayats, APMCs, etc. Higher Post-harvest Losses in the range of 20-25% of
PROBLEMS WITH THE APMC REGIME produce accounting for Rs 92,000 crores loss.

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 AGRICULTURE AND ALLIED SECTOR
►CRITICAL ANALYSIS OF VARIOUS (c) warehouses (d) silos (e) price for price discovery
cold storages etc. located for one's produce. If
GOVERNMENT INITIATIVES anywhere within India. farmers sell produce
No Market fee or cess to outside APMCs, then it is
be imposed on the sale of difficult for a farmer to
agricultural produce in the have a benchmark price.
APMCS. Loss of Revenues: Various
Dispute resolution States raised the concern
mechanism to be set up in that mandi revenues will
the form of conciliation be affected due to lower
board by the sub-divisional mandi transactions in
magistrate. APMCS

OBSERVATIONS OF SC APPOINTED COMMITTEE

Flexibility to the States: State APMC Acts will continue to
govern the APMCs/regulated markets under that Act.
►REPORT OF SC APPOINTED
The Central Acts would provide alternative marketing
COMMITTEE ON FARM LAWS channels to farmers. So, a farmer would have option to
either sell the produce within APMCs regulated through
State APMC Act or in the trade area regulated under the
Central act.
Redundant APMC Regime:
• Presently, Livestock and fishery form 40 percent of
the Gross Value of Agricultural output. This sector is
outside the procurement support through MSP.
These sectors are also growing much faster than
other crops. Hence, the argument that only the
APMCs and procurement support through MSP can
1. Farmers’ Produce Trade and Commerce
offer remunerative price to farmers is flawed.
(Promotion and Facilitation) Act, 2020 (Now
Repealed) • Even for commodities that come under the purview of
MSP, only around 25-30 percent of the production is
IMPORTANT PROVISIONS CONCERNS RAISED transacted through the APMCs/regulated mandis. So,
Freedom to the farmers: Autonomy of States: already a major chunk of agricultural commodities is
This act enabled the Agriculture is a State sold outside the APMC regime.
farmers to sell their Subject and the Central • Hence, the Central act seeks to regulate the sale of
agricultural produce Acts would override State agriculture produce outside APMCs.
outside the APMCS APMC Acts.
Procurement of Rice and Wheat: Around 90 percent of
anywhere in India and Exploitative: Freedom to rice production and 70 percent of wheat production is
thus promote barrier free farmers to sell outside the
procured in Punjab and Haryana through the APMCs.
inter-state and intra-state APMCS would lead to
This has in turn led to skewed cropping pattern with
trade. This had the exploitation by private
potential to create "One more emphasis on Rice and wheat and less focus on
sector.
Nation, One Market". agricultural diversification in Punjab and Haryana.
Phasing out of MSP: With
Definition of Trade Area: Higher Mandi Charges and Cess imposed by the state
the decline of APMCs, the
The Farmers were given Governments lead to increase in prices of agricultural
procurement at MSP
freedom to sell their commodities.
would be phased out.
produce in the trade area
Absence of Price
outside APMCs. The trade 2. Farmers (Empowerment and Protection)
Discovery: The APMC
Area included (a) farm Agreement on Price Assurance and Farm Services
prices serve as a reference
gates (b) factory premises Act, 2020 (Now Repealed)

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 AGRICULTURE AND ALLIED SECTOR
POTENTIAL PROBLEMS AND
IMPORTANT PROVISIONS BENEFITS
CHALLENGES

Objective: Promote Contract Farming Streamlines the supply chain Exclusionary in Nature due to
between Farmers and other stakeholders by connecting the farmers fragmented land holdings and lower
such as agri-business firms, processors, directly with the buyers and marketable surplus of small and
wholesalers, exporters or large retailers. reduce post-harvest losses. marginal farmers; Exclude women
Contract period: Minimum period of the Enhancement of Incomes by farmers.
farming agreement shall be for one crop integrating farmers with bulk Exploitation of Farmers due to lower
season and the maximum period shall be purchasers such as exporters bargaining power; Could lead to
five years. and food processing industries development of Monopsony market
Minimum guaranteed price: The price to Access to Inputs such as Seeds, (one buyer dealing with multiple sellers
be paid for the purchase of a farming Capital, Fertilisers, technology and thus benefitting buyer).
produce may be determined and etc. Adverse Impact on Environment:
mentioned in the farming agreement Promote higher Investment by Promote Monoculture farming;
itself. providing price certainty Promote harmful agricultural practices
Registration of contracts: A State such as excessive water usage, fertilizer
Address Rural Indebtedness
Government may notify a Registration consumption; Destruction of forests
by reducing dependence of the
Authority to provide for electronic registry and wildlife etc.
farmers on moneylenders for
for that State that provides facilitative meeting their credit needs
framework for registration of farming
Boost to Food Processing by
agreements
providing access to good
Dispute resolution mechanism to be set quality raw materials and
up in the form of conciliation board by the hence provide greater fillip to
sub-divisional magistrate. the sector.

OBSERVATIONS OF SC APPOINTED COMMITTEE declared as essential under the act. The list of items
Existing legal framework: All States except Arunachal under the Act includes drugs, fertilizers, pulses and
Pradesh, Meghalaya, Uttar Pradesh, West Bengal, Delhi, edible oils, and petroleum and petroleum products. The
Chandigarh and Puducherry already have legal Central Government may add or remove a commodity
provisions for contract farming in their APMC Acts. from the schedule in consultation with the State
Punjab and Tamil Nadu have separate contract farming Governments.
Acts. Hence, the argument that the Central Act to HOW DOES IT WORK?
promote contract farming would be exploitative seems
If the Centre finds that a certain commodity is in short
flawed.
supply and its price is increasing, it can notify stock-
Success of Contract farming: Contract farming is not new
holding limits on it for a specified period. Anybody
in India and various variants exist in several sectors. For
trading or dealing in a such a commodity, be it
example, contract farming has transformed the poultry
wholesalers, retailers or even importers are prevented
sector from a mere backyard activity into a major
from stockpiling it beyond a certain quantity. This
organized commercial one with almost 80 percent
production coming from organized commercial farms. improves supplies and brings down prices.
Similar, NESTLE's contract farming with the dairy farmers HOW ESSENTIAL COMMODITIES ACT HINDERS THE
in Punjab has led to improvement in livelihood AGRICULTURAL MARKETING?
opportunities for the farmers. Fails to realize stocking is essential: The fear of bringing
3.Amendments to Essential Commodities Act (ECA), the agricultural commodities under the act has
1955 (Amendments- Repealed) prevented the traders and processors from undertaking
ESSENTIAL COMMODITIES ACT AND ITS RATIONALE: bulk procurement of agricultural commodities during
Used by the Government to regulate the production, bumper harvest season. Further, since almost all crops
supply and distribution of commodities which are are seasonal, ensuring round-the-clock supply requires
adequate build-up of stocks during the season.

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 AGRICULTURE AND ALLIED SECTOR
Poor investment in Storage infrastructure: With frequent Dispute Resolution Mechanism: Alternative mechanisms
stock limits, traders have not invested in better storage for dispute settlement, via Civil courts or arbitration
infrastructure. mechanism, may be provided to the stakeholders.
Adverse impact on Food Processing Industry since Stock High level Coordination body: Agriculture Marketing
limits curtails their operations. Council, under the chairpersonship of Union Minister of
Impact on agriculture exports: Whenever the Agriculture, with all States and UTs as members may be
Government declares an agricultural commodity as formed on lines of the GST Council to reinforce
essential, it imposes a number of restrictions on it cooperative efforts to monitor and streamline the
including ban of export of such commodities. implementation of these Acts.

Outdated Act: This act was enacted in 1955 when we Compensation Mechanism: The implementation of
used to frequently face shortage of agricultural Central Acts would lead to loss of revenues which states
commodities and hence it required Government to earn from APMCs. Hence, to compensate the states for
crackdown on black marketing and hoarding and bring their loss, a compensation mechanism on the lines of
down the prices. However, now situation has changed GST compensation mechanism may be incorporated.
completely. Now, we have surplus production of Essential Commodities Act, 1955: The Government
agricultural production. Hence, accordingly, we must should consider in favour of completely abolishing the
give the necessary freedom to the traders, aggregators ECA Act, 1955 or take steps to substantially liberalize its
and food processing industries to undertake bulk provisions.
procurement of the agricultural commodities.
Amendments to EC Act, 1955 (Repealed) ►NATIONAL AGRICULTURAL
Reduced Scope of ECA, 1955: Agricultural commodities MARKET (E-NAM)
to be outside the purview of Essential commodities Act,
Pan-India electronic trading (e-trading) portal which
1955. They would be brought out ECA only under
seeks to network the existing APMCs through a virtual
exceptional circumstances such as war, famine, extra
platform to create a unified national market for
ordinary price rise, and natural calamity of grave nature.
agricultural commodities. It is operated by Small
Stockholding Restrictions: Stockholding restrictions to be
Farmers' Agribusiness Consortium (SFAC).
based on price rise - 100 percent increase in retail price
RECENT DEVELOPMENTS IN 2020
for horticulture products or 50 percent increase in retail
price in case of non-perishable agri-products. FPO Module on e-NAM: Enables FPOs to upload pictures
of their produce directly from collection centres without
OBSERVATIONS OF SC APPOINTED COMMITTEE
the need to come to Mandis.
The Amendment attempts to balance the interests of all
Warehousing based Trading Module: Farmers can sell
stakeholders – farmers, traders, food processors,
their produce directly from warehouses registered
exporters and consumers – to enable agri-produce to under warehousing Development and Regulating
move up the value chain. As agriculture is a seasonal Authority.
activity, it is essential to store produce for the off-season
Logistics Module: Link large logistic aggregator
to ensure smoothened availability of a product at stable
platforms with traders for seamless transportation of
prices throughout the year.
Agri-produce.
BROAD RECOMMENDATIONS OF THE COMMITTEE ON Kisan rath application: Mobile application to enable
3 FARM LAWS Farmers and Traders in hiring vehicles for transportation
Need for Farm laws: A repeal of these Farm Laws would of agri-produce.
be unfair to the 'silent' majority who support the Farm Integration with other platforms: e-NAM platform has
Laws. been made interoperable with ReMS platform of Govt. of
Flexibility to States: States may be allowed some Karnataka. Such integration facilitates farmers of both
flexibility in implementation and design of the Laws, with platforms to sell their produce in other platform thereby
the prior approval of the Centre, so that the basic spirit increasing their market access.
of these Laws for promoting effective competition in Agri-Infrastructure Fund: Financing facility to Primary
agricultural markets and creation of ‘one nation, one Agricultural Cooperative Societies, Farmers Producer
market’ is not violated Organizations, Agriculture entrepreneurs, Start-ups,

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 AGRICULTURE AND ALLIED SECTOR
APMCs etc. to set up collection centres, cold chains, warehousing, assaying, grading and packaging units etc.

BENEFITS CHALLENGES WAY FORWARD

Thrust to New Farm Acts: The new farm acts Poor Penetration: Only around 1000 Conduct awareness programs
enable the farmers to sell their agricultural APMCs (14%) have been integrated among the farmers to
produce directly from the trade area- Farm with e-NAM in last 5 years. In highlight the benefits of E-
gate, warehouse, factory premises etc. Hence, particular, larger APMCs have not NAM
E-NAM would provide fillip to the been integrated. Increase Funding: Presently,
implementation of new farm acts. Lack of Political will: Some of the Government gives Rs 75 lakh
Efficient Agri-marketing regime- Single trading states have not fulfilled the criteria to each mandi for integrating
license. to join E-NAM. This is due to the fear with E-NAM. Need to provide
Single point levy of market fee, e-auction. of revenue loss due to single point higher funds to the APMCs to
levy of market fee and single trading plug the infrastructural gaps.
Benefits Farmers: Remunerative prices,
license. Deploy adequate IT staff for
reduced transaction costs, more transparency
in sale produce and prompt payment of sales Infrastructural gaps: Inadequate smooth functioning of e-NAM
proceeds infrastructure such as such as platform
electronic gate pass (entry and exit), Improve the coverage of E-
Boost FPOs: New E-NAM Trading modules such
quality assaying (QA) labs, electronic NAM in terms of integration
as FPO Module, Warehousing module
weighbridge; Underdeveloped IT with more APMCs and
would save transportation costs for the FPOs.
Infrastructure; Poor Internet Warehouses
Boost Food Processing Sector and Exports
connectivity; Lack of financial
as Processors and Exporters can directly buy inclusion among the farmers; Reduce the dependence of
the produce from farmers without any hassles the farmers on the
Farmers need cash to meet
middlemen by organising
Ensures Quality in procurement as it provides immediate expenses.
them into FPO, set up
for assaying and grading of produce. Poor participation of Farmers: collection centers at farm
Streamlines the agricultural supply chain, Around 32% of the farmers are still level and link such collection
reduces logistics cost and reduces post-harvest unaware of the E-NAM; Farmers centers with E-NAM
losses continue to sell the produce directly
Open Bank branches on the
Induces transparency and competition and to traders in the villages due to - (a) APMC premises to get instant
prevents collusion among the traders Easier Credit provided by Traders (b)
payments.
APMCs located far away from
Ensures timely payment directly to the bank
villages (c) Immediate cash payment Establishment of an Apex
accounts of the farmers Body is advocated to control
Ensures price stability and prevents inflation in Resistance by Traders and
and regulate the actives of e-
Middlemen as the online system is
Agri-Commodities. NAM
more accountable and would bring
them under the ambit of tax.

►PM-AASHA SCHEME BENEFITS OF PM-AASHA SCHEME

• Address the flaws in MSP Regime: The MSP regime
The PM-AASHA scheme aims to incentivize the farmers
has been criticized on account of poor coverage in
to produce oilseeds and pulses and to wean away the
terms of crops, farmers and geography.
farmers from the cultivation of water-intensive crops
such as Rice and Paddy. Components: • Incentives the farmers to shift from water intensive
crops such as Rice and Wheat and instead grow
Price Support Scheme (PSS): Physical procurement of
pulses and oilseeds.
pulses, oilseeds and Copra
• Self-Sufficiency in Pulses and Oilseeds and reduce
Price Deficiency Payment Scheme (PDPS): Compensate
their imports
the farmers through DBT if the market price of the
notified oilseeds falls below the MSP. • Provides for Mechanism for compensating farmers in
the form of DBT in the event of loss.
Pilot of Private procurement and stockist scheme (PPPS):
Flexibility to rope in the private sector for the physical • Reduces the burden on the Government by roping in
procurement of the oilseeds. Private sector

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 AGRICULTURE AND ALLIED SECTOR
• Offering guaranteed MSP. M.S. Swaminathan had recommended for the adoption
CHALLENGES/CONCERNS of C2 Approach for fixing the MSP. However, presently,
the MSPs are fixed at least 50% more than cost of
• Issues with the Price deficiency Payment System
production as calculated according to A2+FL approach.
(PDPS): The PDPS is based on the Bhavantar Bhugtan
Yojana implemented in the State of Madhya Pradesh. LIMITATIONS IN THE MSP REGIME
It was found out that in Madhya Pradesh, there was The MSP Policy of the Government has come under
unfair collusion between traders and farmers wherein immense criticism on account of number of reasons.
the traders asked the farmers to sell the agricultural These flaws with the MSP regime have been highlighted
produce below the MSP. The compensation amount by number of committees such
given by the Madhya Pradesh government was then as the Committee on Doubling Farmers' income which
shared between the traders and farmers. was headed by Ashok Dalwai. Some of these
• Lack of enthusiasm of the private sector to undertake fundamental flaws include:
the procurement. Promoted Cultivation of Water Intensive Crops: Even
• PM-AASHA is implemented by undertaking though, Government declares MSP for 22 crops,
procurement from the APMCs. But APMCs suffer from procurement is quite strong only for Rice and Wheat.
inherent flaws such as lack of accessibility, poor The procurement of other commodities, particularly
infrastructure, lack of warehouses etc. Pulses and Oilseeds is quite lower.
Lack of Safeguards: Present MSP regime is not geared to
►MINIMUM SUPPORT PRICE (MSP) pay compensation to the farmers when they are forced
to sell the agricultural commodities in the open market
Cabinet Committee on Economic Affairs (CCEA) notifies
below MSP.
MSP based on the recommendations of the Commission
on Agricultural Costs and Prices (CACP). These Flawed Approach: It has been stated that the fixing of
recommendations are made separately for the Kharif MSP based on A2+FL approach would lead to declaration
marketing season and the Rabi marketing season. Post of lower MSP and hence does not compensate the
harvesting, the government procures crops from farmers. Accordingly, some of the economists have
farmers at the MSP notified for that season, in order to pointed out that the MSP should be declared based on
ensure remunerative prices to farmers for their produce. the C2 Approach as recommended by Swaminathan
As of now, CACP recommends MSPs of 22 commodities, Committee.
which comprise 7 cereals (paddy, wheat, maize, Benefitted only Large Farmers: Shanta Kumar
sorghum, pearl millet, barley and ragi), 5 pulses (gram, Committee on FCI reforms has highlighted that MSP
tur, moong, urad, lentil), 7 oilseeds (groundnut, procurement has benefitted only 6% of farmers in India.
rapeseed-mustard, soyabean, sesamum, sunflower, Hence, only large farmers which higher surplus of
safflower, Niger seed), and 3 commercial crops (copra, agricultural commodities have benefitted from MSP.
cotton and raw jute). Small and marginal farmers who comprise of almost
HOW ARE THE MSPS FIXED? 83% of farming community have failed to get benefitted
from MSP regime.
The CACP considers various factors such as the cost of
cultivation and production, productivity of crops, and Undue delay: In some cases, the Government has not
market prices for the determination of MSPs. been able to declare the MSPs as per the schedule.
These delays in the announcement of the MSPs have not
Different methodologies may be used to calculate the
able to able to send the price signals to the farmers on
MSPs. These are
time.
• A2 Approach, which includes cost of inputs such as
WAY FORWARD FOR AGRICULTURAL MARKETING
seeds, fertilizer, labour.
European Union has been able to set up Common
• A2+FL Approach, which includes A2 and the implied
Market for all products by eliminating all forms of trade
cost of family labour (FL).
barriers. India would also be able to reap benefits by
• C2 Approach, which includes the implied rent on land setting up a "Single Market". Agricultural marketing is a
and interest on capital assets and A2+FL. state subject. Hence, , National Commission on Farmers
Hence, C2 approach is considered to be the most (NCF) headed by M.S. Swaminathan had recommended
comprehensive approach which can be used to calculate that agricultural marketing be placed under Concurrent
the MSP. The National Commission on Farmers led by List. Even the Committee on Doubling Farmers’ Income

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 AGRICULTURE AND ALLIED SECTOR
(DFI) had argued for placing agricultural marketing Unsustainable Food grain Management Policy: The Food
under the Concurrent List. subsidy bill has already become quite unsustainable at
around Rs 2 lakh crores. The excess procurement of
►LEGALIZATION OF MSP food grains by the FCI has led to surplus buffer stocks
The recently passed farm acts has ignited the debate leading to higher storage costs and wastages.
about Legalization of MSP. The farmer groups have been Legalization of MSP would further worsen the scenario.
demanding for the legal sanctity of the MSP to prevent Administrative Challenge: lack of government
exploitation by private sector. The Government has machinery to the procure all crops that are under the
assured the farmers that MSP would continue but it is MSP system.
not ready to provide legal status to MSP. Violation of WTO Agreement on Agriculture (AoA):
Present Status of MSP: Presently, MSP does not enjoy Legalization of MSP would further violate the limit on the
statutory recognition. This means that, there is no onus subsidies under AoA and it can be challenged by other
on the private sector to buy at MSP. Legalization of MSP countries. India's quest for Permanent solution on public
would ensure that private sector would buy stockholding could be in jeopardy.
commodities at MSP. Failure to do so would attract Promote Inequality: Only 6 per cent of farmers are able
penalty. to benefit from the MSP. Similarly, most of the Rice and
NEED FOR LEGALIZATION OF MSP Wheat are procurement from states such as Punjab,
• Enhancement in Income Levels: Even through the Haryana, MP etc. Hence, legalisation of MSP could
Government declares MSP; procurement is quite worsen socio-economic inequality and promote regional
limited to certain crops and certain regions. Most of disparity.
the farmers sell commodities below MSP in the open Environmental cost: Encourage farmers to grow more
market to the traders and middlemen. rice and wheat leading to further environmental
• Address challenges due to Farm Acts: The recent problems.
passed farm acts may lead to the exploitation of the Adverse Impact of Government's Intervention: In any
farmers, wherein companies may procure free-market economy, the price of any goods and
commodities from them below MSP. services produced in the country must be decided by
CHALLENGES AND CONCERNS market forces and not by the state. As highlighted by Eco
Survey 2019-20, Government's intervention, sometimes
Goes against Interest of Farmers:
though well intended, often ends up adversely affecting
• In the event of bumper harvest, prices of the the market. For example, the regulation of prices of
commodities would fall below MSP. During such drugs through the DPCO 2013, has led to increase in the
times, the private sector may not procure the price of a regulated pharmaceutical drug vis-à-vis that of
commodities fearing penalty. a similar drug whose price is not regulated.
• Higher procurement of Food grains by FCI  Surplus
stock  Dumping of surplus in open market 
►AGRARIAN CRISIS IN GREEN
Decrease in prices Traders would buy commodities
from FCI and not farmers. REVOLUTION STATES
• Legalization of MSP Encourage over-production of The crux in the recent farmers’ protests is over the
Rice and Wheat Environmental cost (such as Decline continuation of Rice-wheat cropping system in the Green
in Soil fertility, depletion of ground water etc.)  Revolution states. This is evident in the farmers’ demand
Decline in income levels of farmers. for guaranteed MSP for these crops. However, the
Adverse Impact on Economy: agrarian crisis in these states cannot be countered
through MSP, but through Diversification.
• Higher costs of procurement due to a statutory MSP
will increase the food prices, leading to inflation in the The Green Revolution in Punjab and Haryana has led to
economy unintended consequences in the form of -
Environmentally unsustainable Rice-Wheat cropping
• Higher prices of commodities would adversely affect
system (more than 80% of area) and decline in the
exports of agricultural commodities
annual growth rate of income levels to below 1%
Financing needs: According to some estimates, if the (National -3%). The agricultural income per hectare in
Government were to procure all the 23 crops at MSP, it Punjab is only around Rs 1.5 lakhs in comparison to
would amount to half of the Government's Budget.

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 AGRICULTURE AND ALLIED SECTOR
other states Andhra Pradesh and Tamil Nadu. This is ►INVERSE FORK-TO-FARM
clearly on account of 3 reasons- Rising input costs, lower
productivity and lower prices received by the farmers
STRATEGY
through the Rice-Wheat Cropping system. The Strategy to double income level of farmers requires
Punjab and Haryana are blessed with better irrigation three-pronged approach of - Reducing input costs,
facilities (more than 90%), higher average land holding enhancing productivity and ensuring higher prices for
size (3.62 ha), higher fertiliser consumption (212 kgs/ha) the farmers. To ensure higher prices for the farmers, the
accompanied by strong agricultural infrastructure. These Dalwai Panel has recommended that the agricultural
opportunities have to be leveraged to address the marketing should guide the flow of produce from farm-
second-generation problems caused by the Green to-fork, through the flow of information from fork-to-
Revolution and double the income level of the farmers. farm. Hence, in a way, there is a need to focus on
Inverse "Fork-to-Farm" strategy.
RECOMMENDATIONS OF MONTEK SINGH AHLUWALIA
COMMITTEE APPOINTED BY PUNJAB GOVERNMENT UNDERSTANDING FORK-TO-FARM STRATEGY

• Reduce area under Paddy and diversify towards high- To ensure higher prices for the farmers, we have so far
value crops such as fruits and vegetables (Dalwai used "Farm-to-Fork strategy" to streamline the
Panel- Increase in agri. diversification by 1 ha leads to agriculture supply chain, reduce number of
increase in income by Rs 1 lakh). intermediaries, cut down post-harvest losses and
connect farmers directly with the consumers. However,
• Special package from the Centre to compensating any
this strategy has solely focused on enhancing production
possible loss.
without understanding the prevailing demand and
• Focus on Secondary Agriculture- Boost to Food prices in the market.
Processing Industries, Employment, Forward-
For example, in spite of the fact that horticulture crops
Backward Linkages, Reduce Post-harvest losses.
such as Fruits and vegetables are in much higher
• Promote cultivation of Pulses and Oilseeds through demand and fetch higher prices, the farmers continue to
guaranteed procurement under PM-AASHA. grow water-intensive crops such as Rice, Sugarcane,
• Rationalise subsidies and divert the savings towards Wheat. The area under horticulture is hardly around
diversification and improving the supply chain 14%, even though it contributes more than 33% of
management. agricultural GDP.
The Government has to now focus on Rainbow Similarly, even today, India has remained a net importer
revolution - horticulture, animal husbandry, poultry, of Pulses and Oilseeds due to lower production. Hence,
fisheries, food grains etc. in these states. This would in a way, even though Indian Agriculture has made rapid
have multiple benefits- nutritional and food security, strides in term of production, it has not led to
income enhancement and make agriculture more commensurate increase in the income levels of the
inclusive and sustainable. farmers.

Farm-to-Fork Strategy Fork-to-Farm Strategy

Approach used Production led Approach Market led Approach

Sale of agricultural commodities in the market to

Undertake cultivation of crops based
Strategy ensure remunerative prices for
upon prevailing demand.
farmers

From farm to Market (Production related From Market to Farm (Demand related
Flow of Information
Information) Information)

Integration of demand Higher Integration. Production based

Poor Integration
with Supply upon demand.

Prices received by
May be lower Higher
Farmer

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 AGRICULTURE AND ALLIED SECTOR
Hence, Dalwai Committee has recommended adoption Irrigation: Especially micro irrigation can boost
of inverse "Fork-to-Farm" strategy to bring about a productivity and reduce unnecessary losses thereby
strategic shift from production-based push into markets increasing profit margins of farmers.
towards a demand-based pull. This approach focuses on Banking infrastructure: Ensure credit accessibility and
reverse flow of information from markets to farmers can help financial inclusion which is one of the main
would also enable the farmer to take informed decisions ways towards enhancing income.
about what to market, when to market and to whom.
Current situation: Rural India suffers from an
BENEFITS OF FORK-TO-FARM STRATEGY infrastructure deficit such as access to Irrigation, 24X7
This approach focuses on reverse flow of information Electricity, roads, rural markets, warehouses, cold chain,
from markets to farmers would also enable the farmer farm machinery hubs etc. For example, Dalwai
to take informed decisions about what to market, when Committee has highlighted that we need around 3,500
to market and to whom. markets. Similarly, lack of an adequate and efficient cold
The new strategy would benefit Indian agriculture in a chain infrastructure leads to massive post-harvest losses
multi-faceted manner: of around Rs 90,000 crores on an annual basis.

• Promote diversification of Indian Agriculture towards INITIATIVES TAKEN BY GOVERNMENT

high value crops and allied sector. Agri Infrastructure Fund: Improve the farm-gate
• Enable Agriculture to cater to shift in consumption infrastructure such as collection centres, storage, cold
pattern towards protein-based foods such as Pulses, chain infrastructure etc. This fund would provide
Egg, Fish, Meat etc. necessary funding support to APMCs, Primary
Agricultural Cooperative Societies, Farmers Producer
• Ensure higher prices for the farmers and reduce risk.
Organizations, Agriculture entrepreneurs, Start-ups, etc.
• Ensure both Food security as well as nutritional
to invest in post-harvest management infrastructure.
security.
Gramin Markets (GrAMS): Develop the existing 22,000
• Prevent Inflation in Agri commodities
Rural Periodic Markets (RPMs) into Grameen Agriculture
• Enable us to boost exports according to international Markets (GrAMs) to offer better market access to small
demand and capture newer markets. and marginal farmers.
SAMPADA Scheme: Supplement agriculture by
►AGRICULTURE VALUE CHAIN & modernising processing activities and decreasing agri-
waste.
RURAL INFRASTRUCTURE
Operation Greens: To promote Farmer Producers
Rural infrastructure is critical for stimulating the rural
Organizations (FPOs), agri-logistics, processing facilities.
economy and achieving the UN SDGs by 2030. Studies
Recently, the mandate of the scheme has been extended
reveal that a 1% increase in the stock of infrastructure is
from TOP (Tomato, Onion and Potato) to TOTAL (All
associated with a 1% increase in gross domestic product
Fruits and Vegetables).
(GDP) across countries
ROLE OF INFRASTRUCTURE IN DOUBLING FARM
INCOMES ALLIED SECTOR
Roads: Provide easy access to markets and connect
farms with industries as well as consumers which can ►FISHERIES- BLUE REVOLUTION
help farmers to realise better prices for their produce. India is the second largest producer of fish and also
Electricity: Boost agro-industries as well as food second largest aquaculture nation. It employs around 16
processing industries. million fish farmers at primary level and almost twice the
number at higher value chain. Its contribution to GDP
E-infrastructure: Provides access to Virtual Agri markets,
has increased from 0.40% in 1950-51 to 1% in 2017-18.
helping farmers to know real time pricing of crops. It can
However, only 78% of marine and 58% of inland fisheries
also be instrumental in providing early warnings,
potential is presently harnessed. In order to realize full
reducing crop losses and claiming insurance.
potential, Government has launched Blue Revolution
Cold storage facilities: Reduce post-harvest losses and
with multi-faceted objectives.
increase shelf life thereby releasing better income.

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• Restoration of natural productivity and conservation
of indigenous fisheries resources through ecosystem
restoration to boost riverine fisheries
• Address stagnation in Marine fisheries through deep
sea fishing, Mariculture, open-sea cage farming etc.
• Upgradation of fishing fleet
• Organize fishermen into FPOs and fishing village
communities into VPOs to reap economies of scale
and promote value-addition
• Address problems of seed, feed and health.
CONSTRAINTS IN THE GROWTH OF FISHERIES SECTOR
• Enhancing extension through Sagar Mitras.
Marine Capture Fisheries: Limited scope for expansion
due to overcapacities in territorial waters, inefficient • Address technical and managerial gap in shrimp
management and prevalence of traditional fishing farming through FDI
practices. Inadequate infrastructure especially fishing • Development of fisheries post-harvest infrastructure
harbours, landing centres, cold chain and distribution especially modern markets, cold storages, processing
systems, poor processing and value addition, wastage, plants etc. through PPP
traceability and certification, non-availability of skilled
• E-markets and e-trading of fish and fish products will
manpower, etc.
be encouraged and promoted
Inland Capture Fisheries: Seasonal nature of fishing
• Ecological certification of fisheries to boost exports
operations, depleted stocks in natural waters, use of
obsolete technology for harvesting coupled with low Fisheries sector has been registering highest growth
capital infusion rates in production and providing livelihood and
nutritional security in the country. Hence, it needs to be
Culture Fisheries: Lack of Species diversification, lack of
treated on par with agriculture and should be incentives/
emphasis on new forms of culture fisheries such as cold
concessions as in agriculture like financial assistance for
water fisheries, ornamental fisheries, rice-cum-fish
technological upgradation, power supply, loan facility,
culture system, waste water aquaculture; Poor physical
Insurance, marketing assistance etc.
condition of resources (specially the water quality and
quantity), lower productivity, increased incidents of
disease, low levels of investment, inadequate access to ►BEEKEEPING/ SWEET
institutional credit and high cost of credit, inadequate
REVOLUTION
infrastructure for pre-production, production, post-
harvest and processing facilities, low adoption of The scientific practice of Beekeeping (Apiculture) has the
technologies and shortage of skilled manpower in potential to promote eco-friendly and sustainable
aquaculture and extension services agriculture along with higher yields leading to increase in
Details about Pradhan Mantri Matsya Sampada Yojana: income levels of farmers. Hence, just like White
Address critical gaps in fish production and productivity, Revolution, the Sweet Revolution can act as a major tool
quality, technology, post-harvest infrastructure and to promote socio-economic development.
management, modernization and strengthening of value Beekeeping has great potential for the small and
chain, traceability, establishing a robust fisheries marginal farmers, landless labourers etc. on account of
management framework and fishers’ welfare. following reasons:
STRATEGIES TO BOOST BLUE REVOLUTION • Increases crop yields by 20-30% through cross
• Horizontal Expansion in untapped areas like Brackish pollination.
aquaculture, cold water fisheries, Pond aquaculture, • Additional source of income for paid pollination
Reservoirs, canals, ornamental fisheries, Recreational service
fisheries.
• Less capital Intensive and hence can be practiced by
• Vertical Expansion through diversification of culture poor farmers
species; Integrated farming system; rice-cum-fish
• Requires no land and can be practiced by landless
culture system; wastewater aquaculture system,
labourers
Organic aquaculture.

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 AGRICULTURE AND ALLIED SECTOR
• Other products such as bee pollen, bee-venom • Sericulture included as agriculture allied activity
costlier than honey under RKVY. This enables the sericulturists to avail the
• Nutritional Security: more than a third of the global benefits of the scheme for the entire sericulture
food basket is comprised of bee pollinated crops activities up to reeling.

• Growing demand for honey in overseas market and • Forest Conservation Act has been amended to treat
hence scope for more export earnings. non mulberry sericulture as forest-based activity
enabling the farmers to undertake Vanya silkworm
Hence, the Government has launched Honey Mission to
harness potential of Sweet Revolution. Going forward, rearing in the natural host plantation in the forests.
beekeeping should be considered as input of agriculture, • Northeast Region Textile Promotion Scheme
which could enhance efficacy of other inputs and (NERTPS): Under this scheme, 38 Sericulture projects
accordingly training should be provided to farmers. are being implemented in all North-eastern States
• Anti-dumping duty on Chinese raw silk

►SERICULTURE • Production of Bivoltine Silk: Bivoltine silk is the high-

quality mulberry silk produced in India as an import
Sericulture is cottage-based Industry which broadly
substitute silk. R&D has been focused to evolve
encompasses four independent activities- Mulberry
cultivation, silkworm rearing, silk reeling and weaving, productive bivoltine hybrids and package of practices
printing and dying. Being less Capital intensive and more for production of high quality bivoltine silk in the
labour Intensive, Sericulture can boost rural economy as country.
shown below: • MGNREGA guidelines to enable sericulture farmers to
avail assistance under the scheme.
Challenges: Decline in area under Mulberry cultivation;
Irrigation facilities are available only for 50 per cent of
mulberry area; Lower yield of Cocoon; Declining organic
carbon level with adverse effects of excessive use of
chemical fertilizers and pesticides on soil health;
Inadequate supply of quality eggs; Emergence of new
pest and pathogens; Improper rearing conditions
including mounting and post-harvest care ; Non-
availability of sufficient automatic reeling units.;
Availability of low-cost synthetic textiles; Import of

CURRENT SCENARIO OF SERICULTURE INDUSTRY IN Cheap silk from China, Vietnam etc.
INDIA STRATEGIES NEEDED
Production: India has the unique distinction of being the • Expansion of mulberry area to new districts of
only country producing all kinds of commercially traditional and non-traditional sericulture states.
exploited natural silks namely, Mulberry, Eri, Muga, Oak • Enhancing egg production capacity: 95% Chinese silk
Tasar and Tropical Tasar. However, mulberry silk is the produced from highly productive bivoltine type in
dominant one and contributes to about 70 per cent of comparison to 80% Indian silk produced from low
the country’s raw silk production. India is the second productive cross breed.
largest producer of silk in the world after China. China
• Enhancement of Automatic Reeling Capacity: Reeling
and India together account for about 98 per cent of the
of Silk through traditional devices results in large
global raw silk production.
variation in quality and uniformity making it
INITIATIVES OF GOVERNMENT
unsuitable for power looms.
• Establishment of Central Silk Board as a statutory
• Diversification of silk into other material uses & new
body.
fabrics
• Silk Samagra” an integrated scheme for development
• R&D into medicinal and other applications of
of silk industry with the following 4 components- R&D,
sericulture by-products
Seeds, Market development, Quality Certification
• Anti-dumping measures need to be maintained

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 AGRICULTURE AND ALLIED SECTOR
►ANIMAL HUSBANDRY & DAIRY NESTLE’s association with the farmers in the Punjab
for procurement of milk has been responsible for
Animal husbandry output constitutes about 30% of the
socio-economic transformation. There is a need to
country’s agricultural output. Women constitute 70% of
adopt such models across India.
the labour force in livestock sector as against 35% in
crop farming. Further, most of the livestock is
concentrated in dryland areas with small and marginal ►POULTRY SECTOR
farmers, development of animal husbandry is India is one of the world's largest producer of eggs and
considered to be more egalitarian and inclusive. broiler meat. Approx. 75% of egg production is
IMPORTANCE OF LIVESTOCK IN RURAL ECONOMY: contributed by commercial poultry farms, remaining
Source of Subsidiary Income; Nutritional Security; Social comes from household/backyard poultry. Total poultry
Security; Depend upon bullocks for ploughing, carting feed production of country stands at 22 million tonnes.
and transport of both inputs and outputs. Indian poultry sector is valued at INR 1 lakh cr or USD

CONSTRAINTS AND CHALLENGES: Shortage of feed 15.38 bn.

and fodder (only 4% of land categorized as pasture CHALLENGES
land); Frequent occurrence of deadly diseases such as • Poor infrastructure for export is hindering the export
Foot and Mouth Diseases; Underdeveloped Livestock of poultry products.
markets; Livestock extension grossly neglected; Lack of
• Competition from international players on opening
International processing Standards hindering export of up duty-free imports, lifting of trade barriers.
meat; Poor coverage of livestock insurance; Poor
• Increasing propaganda & demonstrations by
coverage of Artificial Insemination
organizations on promoting vegetarianism and
STRATEGIES NEEDED animal rights.
• Prioritization of breed: Select economically important
• Occurrence of Salmonella and other diseases in
breeds to develop the dairies. To sustain the
poultry meat.
improved productivity of crossbreds and to minimize
• Many countries are dumping their poultry products
the decline in reproductive performance, there is a
i.e., exporting eggs at prices lower than production
need to develop the sustainable breeding strategy.
cost.
• Address Shortage of Male Germplasm/Breeding Bulls
• Many countries are protecting their poultry industry
by identifying more high genetic merit bulls. Address
from foreign competition by protective measures like
Acute Shortage of feeds and fodders by effectively
restricting imports, keeping egg prices at lower level.
implementing National Livestock Mission (NLM)
• Stiff competition from Sri Lanka, Pakistan, Brazil and
• Skilled Human Resource Development to enhance
France, all these countries provide subsidies, export
extension service. Development of Dairy
incentives to exporters, and keep their price low.
Entrepreneurs by providing cheaper access to credit,
handholding support etc. • High Maize & Soya price fluctuation leading to
availability issues of poultry feed at reasonable prices.
• Strengthening Dairy Development Extension
Programs: Dairy development in India demands a • Small farms, losing out on economies of scale and
networking of various extension activities as the milk biosecurity.
procurement is based on different milk shed areas • Lack or undefined standards leading to impending
where, the dairy stakeholders are the custodian of cheaper imports.
different breeds of indigenous and crossbred cattle. • Avian influenza & other emerging diseases.
• Effective implementation of Rashtriya Gokul Mission RECOMMENDATIONS
and Rashtriya Kamdhenu Aayog for development and
• Processing needs to be encouraged as presently only
conservation of indigenous bovine breeds
6% of the poultry products is processed. Block/
• Organizing farmers into FPOs and focus on District level cold storage needs to be established and
diversification towards low-cholesterol ghee, low fat cold chain needs to be developed.
butter, flavoured milks, ice-creams etc.
• Encourage brand development for certain indigenous
• Promotion of Contract farming: Contract farming in poultry like Kadaknath or other birds with some
Poultry sector and Dairy sector have been successful specific attributes.
in some of the states such as Punjab. For example,

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 AGRICULTURE AND ALLIED SECTOR
• Intensify education and awareness about nutritive • Efficient utilisation of resources such as land and
value of eggs and poultry through various platforms labour through various activities such as honeybee
like World Egg Day etc. keeping, mushroom cultivation, backyard poultry etc.
• Intensify skill development in the poultry sector and • Contributes to agriculture by providing Inputs,
reduce the gap required. enhancing productivity and reducing post-harvest
• Develop Marketing Intelligence domestically and losses.
internationally in collaboration with ICAR and other • Develop human and capital resources to replicate
Department/ agencies. Start-up India at village level.
• Facilitate Industry- Academia partnership so as to
SUPPORT NEEDED FOR SECONDARY AGRICULTURE
enable transfer of technology at the grassroots level.
• Priority sector status for institutional credit.
• Low-cost skilling and knowledge-based exposure.
IMPORTANT TOPICS • Specialised extension services for enterprises owned
by females.
►SECONDARY AGRICULTURE
• Priority under rural electrification objectives.
According to Dalwai Panel, Secondary agriculture is
• Fast track procedures to avail benefits under ongoing
defined as cottage Industry that (a) utilises agricultural
products as raw material (b) deploys locally available central sector and centrally supported schemes.
skills to produce goods and services; and (c) can be • Geographical Indicator labels to products from village
categorised appropriately as MSME. scale secondary production.
Secondary agriculture would need to be promoted by
providing enterprise level support, which can be
undertaken by initial setting up of a Division on
Secondary Agriculture & Enterprises in all three
Departments of the Ministry of Agriculture and Farmers’
Welfare and coordinate their efforts through a
structured platform.

PHILOSOPHY BEHIND SECONDARY AGRICULTURE- ►GAP APPROACH IN

HARNESSING STRUCTURAL TRANSFORMATION IN AGRICULTURE
RURAL AREAS
According to FAO, Good Agricultural Practices (GAP) are
Share of non-farm income in rural areas has increased "practices that address environmental, economic and
from 25% in 1970s to 70% in 2015, while the share of
social sustainability for on-farm processes, and result in
employment in non-farm has increased from 23% to
safe and quality food and non-food agricultural
35%. The rural areas account for 95% of agricultural
products". It involves practices such as Zero tillage,
output, 50% of Manufacturing and 25% of services
Integrated Watershed Management, Precision farming,
sector output. The share of rural areas in manufacturing
Integrated Production and Pest Management (IPPM) etc.
output has doubled in sixty years, without an associated
increase in share in the workforce. Thus, there is the The GAP approach would enable efficient utilisation of
need to strategically promote the right kind of agricultural inputs, boost productivity and thus promote
development in manufacturing and services sectors, environmental sustainability in the following manner:
which will generate employment. Thus, there is the need Soil: Crop rotation, conservation tillage, Mulching,
to strategically promote labour-intensive cottage-based rational application of fertilizers etc.
manufacturing and services sectors to support Indian
Water: Techniques to monitor water requirements,
Agriculture, boost employment creation and transform
rainwater harvesting, aquifer management, micro-
rural areas.
irrigation etc.
BENEFITS
Animal health: Availability of pasture, promoting animal
• Holistic development of rural areas by transforming
health through vaccination and treatment of ailments.
rural areas from consumers to producers of goods.

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 AGRICULTURE AND ALLIED SECTOR
Crop Production: Choosing crops according to agro-
ecological conditions, market acceptability and
nutritional value; Crop rotation, Intercropping etc.
Reducing Post-harvest losses: By storing food products
under hygienic conditions.
Energy & waste management: Using alternative energy
sources such as solar and wind; recycling of wastes etc. PRESENT STATUS OF AGRI-EXPORTS
• Lower share of Global Exports: In spite of being one
Hence, there is a need to develop a system of auditing
of the largest producers of food grains, fruits and
and certification of GAP in India so that it contributes to
vegetables, India's share in global export of Agri-
meeting environment and social development
commodities stand at merely 2% (9th Rank).
objectives.
• Lack of Diversified Export basket: India's export
basket is basically dominated by Basmati Rice and
►DEFINITION OF FARMER Marine Products.

The Government has a vision to double the income • Low Value addition: Majority of its exports are low
value, raw or semi-processed.
levels of the farmers by the end of 2022. However, there
seems to be ambiguity as to who constitutes farmers in AGRICULTURAL EXPORTS POLICY 2018

India. • Double agricultural exports from present ~US$ 30+

Billion to ~US$ 60+ Billion by 2022 and reach US$ 100
Usually, the Government considers a farmer as a person
Billion in the next few years
who owns land and possesses a record of right (RoR)
• Diversify our export basket, destinations and boost
that offers him benefits under the Government schemes
high value- and value-added agricultural exports
and access to institutional credit.
including focus on perishables.
This definition is discriminatory and exclusionary on • Promote novel, indigenous, organic, ethnic, traditional
account of and non-traditional Agri products exports.
Exclusion error: Excludes tenants, sharecroppers, • Provide an institutional mechanism for pursuing
agricultural labourers and tribal families involved in market access, tackling barriers and deal with sanitary
shifting cultivation and collection of Minor Forest and phytosanitary issues.
produce. For instance, the PM-KISAN scheme provides • Strive to double India’s share in world Agri-exports by
income support only to the land-owning families. integrating with global value chain at the earliest.

Inclusion error: Not all landowners may be actual CONSTRAINTS AND CHALLENGES

cultivators.
Discriminatory: Since land is rarely registered in the
name of women, these women farmers (accounting for
30% of farmers) fail to get benefits.
Thus, as recommended by M.S. Swaminathan
Committee almost everyone involved in agricultural
related activity should be considered as “farmer”. Such a
broad-based definition must be in turn integrated into
the design of our agricultural policies and schemes to
ensure inclusive growth.

►AGRICULTURAL EXPORTS
The agriculture exports policy, 2018 has emphasized on
"Bake in India" i.e., a renewed focus on value addition
and on processed agricultural products. The Agricultural Exports Policy 2018 has sought to
double agricultural exports from present ~US$ 30+

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 AGRICULTURE AND ALLIED SECTOR
Billion to ~US$ 60+ Billion by 2022 and reach US$ 100 • Robust institutional mechanism to fund and support
Billion in the next few years. However, it would face implementation.
number of challenges • Funding through convergence of existing schemes,
• Supply-side: Finance Commission allocation and private sector
o Lack of stable and reliable export policy. More investment.
focus on price stabilization and food security and
not on exports. ►ANALYSIS OF BAN ON WHEAT
o Lack of Market Intelligence related to consumer
EXPORTS
preference in export markets. For example, higher
sweetness in Indian mangoes is not necessarily in Directorate General of Foreign Trade (DGFT) has issued
demand in many countries. notification to ban the export of wheat in order to
control inflation and ensure food security. While the
o Identification Challenges: Absence of state level
Government's move is expected to increase domestic
export data precludes us from identifying potential
availability of wheat, some of the economists have
export clusters within a state to provide suitable
highlighted that it would adversely affect agricultural
incentives.
exports and hurt farmers.
o Lack of aggregation of low marketable surplus due
TRENDS IN WHEAT PRODUCTION
to significant variation in terms of varieties
cultivated. Global Production

o Training and Skill Development: Unregulated Top Global Producers: China, India and Russia. These 3
chemicals usage; Inadequate post-harvest countries alone account for 40% of global wheat
management; Lack of awareness leading to production.
rejection of Indian Products in overseas market. Top Exporters: Russia (20%), USA and Canada.
o Fragmented and restrictive APMC regime DOMESTIC PRODUCTION
o Poor Infrastructure and Logistics makes Indian • Area under Wheat: Wheat accounts for second largest
products uncompetitive. percentage of area under cultivation (16%) after Rice.
o Lack of coordination among multiple agencies Stagnation in percentage of area under Wheat in the
involved in export of Agri-commodities such as last decade.
Ministry of Agriculture, Commerce Ministry, FSSAI • Production: Fluctuating trend in the last decade i.e.,
etc. increased in some years while it decreased in others.
• Demand-side: But overall, there was increase in production from 86
MT (2010-11) to 108 MT (2019-20).
o High import duties and Quota limits in export
markets • Top Wheat producing States: UP, MP and Punjab.

o Indiscriminate application of sanitary and WHY EXPORT OF WHEAT HAS BEEN BANNED?
phytosanitary measures by other countries against The Government has banned export of wheat to
Indian products. increase its domestic availability, control rising inflation
o Surge in agricultural imports after signing of FTAs and ensure food security.

RECOMMENDATIONS OF THE HIGH-LEVEL EXPERT • Lower Domestic Production: Unprecedented

GROUP (HLEG) TO BOOST EXPORTS heatwaves across the north, west and central parts of
the country, have caused substantial loss to the yield
• State-led Export Plan - Business plan for a crop value
this year. The overall production of wheat is
chain cluster. Plans should be collaboratively
estimated to reduce by 3% for the first time since
prepared with private sector players and Commodity
2015-16.
Boards.
• Impact of Russia-Ukraine War: Russia and Ukraine
• Focus on 22 crop value chains through a demand
account for around 25% of the global wheat exports.
driven approach.
The Russia-Ukraine war has led to supply chain
• Private sector should play an anchor role in driving disruptions leading to increase in global wheat prices.
outcomes and execution. The Indian exporters took advantage of higher global
• Centre should be an enabler. wheat prices leading to increase in wheat exports
• Centre should enable state-led plans from India.

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 AGRICULTURE AND ALLIED SECTOR
• Lower Procurement of wheat by Food corporation of BASIC PREMISE AND PILLARS OF ZNBF
India (FCI): The wheat procurement by FCI has ZBNF, put forward by Subhash Palekar, focusses on
reduced to 15-year low in the current marketing farming without credit (Zero Budget) and Farming with
season. The lower procurement of wheat may make it Nature without using Chemicals (Natural Farming).
difficult for us to meet our wheat requirements under
Basic Premise: Soil has all the necessary nutrients which
Public Distribution System (PDS), mid-day meals and
could be made available through the intermediation of
other welfare measures.
microorganisms; Against chemical fertilizers; low cost,
PROBLEMS WITH BAN ON WHEAT EXPORTS low level of inputs and limited reliance on externally
Lost Opportunity: Wheat exports from Russia and purchased inputs.
Ukraine went to countries such as Egypt, Indonesia, FOUR PILLARS OF ZBNF
Turkey, Nigeria, Italy and Bangladesh. The prolonged
Jivamrita/jeevamrutha: Fermented microbial culture
Russia-Ukraine conflict was an opportunity for India to
prepared using cow dung and urine to provides
tap this market to boost agricultural exports from India.
nutrients to the soil, acts as a catalytic agent to promote
Adequate Wheat Stock: Presently, India has 190 lakh the activity of microorganisms in the soil.
tonnes of wheat stocks against a buffer norm of 75 lakh
Bijamrita/beejamrutha: Protection of young roots from
tonnes. After meeting the requirement of the Public
various diseases through cow dung and urine.
Distribution System (PDS) and welfare schemes, India
would have stocks of 80 lakh tonnes of wheat in April Mulching: Conservation of soil moisture by covering top
2023, well above the minimum requirement of 75 lakh layer of the soil with dried biomass, organic manure etc.

tonnes as buffer stock. Moisture: It challenges the notion that plants need more

Adverse impact on farmers: The increase in wheat amount of water and instead focuses on conservation of
exports from India could have benefitted the Indian soil moisture and promoting less irrigation.

farmers in terms of higher prices. The situation Other important pillars are: Intercropping, Rainwater
assessment survey of 2018-19 shows that farmers’ harvesting, Revival of the soils through earthworms etc.
incomes are low, with only ₹127 a day from cultivation. Government's Initiatives to promote ZBNF: Under the
We have to think of the farmers’ families because they RKVY-RAFTAAR and Paramaparagat Krishi Vikas Yojana,
also have expenses, such as health, education and States allowed to use their funds to promote the ZBNF.
agriculture inputs. For consumers, social protection
BENEFITS
programmes can act as a support rather than a
• Reduce the input costs responsible for present
reduction in farm prices.
agrarian distress.
Adverse Impact on Agricultural Exports: The sudden ban
• Reduce the dependence of the farmers on the credit
on wheat exports has dented India's global image as a
responsible for the debt trap.
reliable exporter of agricultural commodities.
• Enhancement in the soil fertility.
WAY FORWARD
• Optimum utilization of water and reduce water
Rather than outright ban, a regulated wheat export
consumption (85%)
policy could have been more appropriate. In order to
ensure adequate wheat supply in the domestic market, • Promote diversification of the agriculture- towards
the Government should have declared bonus over and other crops and towards livestock rearing. This can
above the Minimum support price (MSP). This would also lead to reduction in the risks and enhance non-
have ensured adequate procurement accompanied by farm income.
higher prices for the farmers. • Enhance the farmers’ income in the long term.
CHALLENGES AND CONCERNS
►ZERO BUDGET NATURAL A group of agricultural experts from the Natural
FARMING Academy of agricultural sciences (NAAS) have
questioned ZBNF on multiple grounds.
The Economic Survey 2018-19 focused on adoption of
Lack of Independent and Scientific studies to validate the
‘Zero Budget Natural Farming’ (ZBNF) in order to double
claim that the yields through the ZBNF are much higher.
the farmers’ income by the end of 2022. However, some
of the critics have pointed out that the Government's Based on Unscientific Premise since it erroneously
policy of inclusion of ZBNF is unwise and imprudent. assumes that the soils have all the necessary ingredients

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 AGRICULTURE AND ALLIED SECTOR
One-Size fits all approach: In some regions of the • Create opportunities for farmers to get more involved
country, the soils are either acidic or saline and, in some in value addition activities such as input supply, credit,
regions, the fertility of the soil has reduced due to heavy processing, marketing and distribution.
metal pollution. • Provide interface between the farmer and global
Flawed Nutrient Management: The ZBNF believes that market enabling them to export commodities
plants obtain 98.5% of the nutrients from the air and the • Provide access to capital for farmers and manage risk
remaining 1.5% from the Soil. The nutrients cannot be for farmers through diversification
made available only through cow dung and urine.
• Promote economic democracy at the grass root level.
Incurs costs: Not essentially "Zero Budget" since some of
Initiatives for Promotion of FPOs: The SFAC is the nodal
the inputs need to be purchased. Agricultural inputs
agency at the national level for the creation of FPOs. The
which may have implicit cost such as the imputed value
SFAC operates a Credit Guarantee Fund to mitigate
of family labour not considered.
credit risks of financial institutions which lend to the
According to experts, replacing all farming with ZBNF FPCs without collateral. SFAC also provides matching
could decrease crop production by 50% and thus equity grant up to Rs. 10 lakhs to double the share
severely affect both food security as well as income of capital of FPCs. NABARD also provides financial support
farmers. Hence, the Government must adopt evidence- to the FPOs through two dedicated funds - “Producers
based approach and must not hastily promote ZBNF Organization Development Fund (PODF)” and PRODUCE
without multi-agroclimatic location studies, and scientific Fund (Producers’ Organization Development and
validation of long-term impact and viability of ZBNF. Upliftment Corpus) to promote new FPOs and support
their initial financial requirements.
►FARMER PRODUCER CHALLENGES AND ISSUES IN BUILDING ROBUST FPOs
ORGANIZATIONS (FPOS) - GAME In last 8-10 years, 5000 FPOs have been formed through
initiatives of SFAC (Nodal Agency), NABARD, Government
CHANGER TO ALLEVIATE
etc. without much success. Hence, to ensure success of
AGRARIAN DISTRESS new initiative, the Government needs to acknowledge
Recently, PM Modi has launched a campaign to set up present weaknesses, analyse their reasons and then
10,000 FPOs across India in the next 5 years. The FPOs take outcome-oriented actions.
can build social capital and promote economic Promote Collaborative farming: FPOs need to be formed
democracy at the grassroots level. The success of FPOs on basis of adjoining land holdings and common
may in turn lead to “Second Green Revolution” and bring produce to ensure higher economies of scale and
about rural transformation. undertake value addition.
WHAT IS FARMERS PRODUCER ORGANISATION (FPO)?
A Producer Organisation (PO) is a legal entity formed by
primary producers such as farmers, milk producers,
fishermen, weavers, rural artisans, craftsmen etc. FPO is
a type of PO where the members are farmers. The FPOs
can be registered as Cooperatives (under Cooperative
Societies Act of the respective State), Farmer Producer
Company (Under Companies Act, 2013) or Societies
(under Society Registration Act, 1860). Finances: The reluctance of Banks to give loans has to be
FPC BENEFIT SMALL AND MARGINAL FARMERS countered through enhanced credit support from
Government agencies. Further, just like cooperatives, the
• Facilitate land pooling and address problems
FPOs also must be given income tax exemption.
associated with fragmented landholdings
Handholding: Need to provide regular training and
• Reap economies of scale for buying of inputs and
business level handholding.
selling the agricultural produce
Professional Management: Can be improved by enabling
• Enable sharing of services such as knowledge input,
the Private sector to invest in FPOs. This will need
production supervision, storage, transportation, etc.
amendment of Companies Act which currently allows
and hence reduce the transaction costs
only farmers to be producer members.

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 AGRICULTURE AND ALLIED SECTOR
Market Linkages: Direct procurement by Government; ►AGRICULTURAL INSURANCE:
freight subsidy to wholesale buyers; connecting FPOs to
online platforms etc.
PMFBY
Village Producer Organisations (VPOs): The VPOs can be PRADHAN MANTRI FASAL BIMA YOJANA (PMFBY)
developed as a joint venture of FPOs such that an entire What it does? It provides insurance coverage to the
village region is developed for a predetermined set of farmers in the event of failure of any of the notified crop
agricultural produce with post-production activities. For as a result of natural calamities, pests & diseases.

example, a region having strength in producing fiber Coverage of Risks: Prevented Sowing/Planting, Yield
crops can be developed as a VPO to include small losses due to non-preventable risks, such as Drought,
handloom weavers. Dry spell, Flood, Inundation, widespread Pests and
Disease attack, post-harvest losses, localised calamities
WAY FORWARD
etc.
Promotion of FPCs should not be seen as a one-time Note: States may consider providing add-on coverage for
exercise. Though there is sufficient focus on providing crop loss due to attack by wild animals.
financial assistance to FPCs, there is limited handholding Risks not covered: Losses arising out of war and nuclear
after their formation. Government must provide for risks, malicious damage and other preventable risks
sustained and continuous support until the time the shall be excluded.
FPCs become financially viable and independent. Premium: The Premium to be paid by Farmers: Kharif
Crops: 2%, Rabi Crops: 1.5%, Commercial and
Horticultural Crops: 5%. The balance premium is paid
CRITICAL ANALYSIS OF equally by Centre and States.

AGRICULTURAL SCHEMES Coverage: Loanee farmers, non-loanee farmers,

sharecroppers and tenant farmers (those who farm on
►PM-KISAN rented land).
IMPLEMENTATION CHALLENGES IN PMFBY
PM-KISAN provides for an assured income support to
Negligible coverage of sharecropper and tenant farmers
the farmers. Under this program, all landholding farmer
due to lack of legal recognition of Land leasing.
families, having cultivable land up to 2 hectares, will be
Mixed cropping and crop diversification discouraged: A
provided direct income support at the rate of Rs. 6,000
limited number of crops are notified by states under
per year. This income support is transferred directly into
PMFBY. Only these crops can avail of insurance.
the bank accounts of beneficiary farmers, in three equal
Poor awareness about PMFBY: Only 30% of the farmers
instalments of Rs. 2,000 each.
are aware about PMFBY and its benefits.
PROBLEMS WITH PM-KISAN
Inadequate and delayed claim payment to farmers: Only
Does not address structural problems such as 5-10% of the claims made for crop losses have been paid
fragmentation of land holdings, higher dependence on on time; Many insurance companies cited delay in
monsoonal rainfall, poor marketing infrastructure receiving the state and Central government subsidies as
(APMCs) etc. and hence PM-KISAN is populist rather than the main reason for delay in reimbursing claims
reformist. Very high actuarial premium rates: Insurance companies
have charged much higher actuarial premium rates in
Exclusionary: Excludes the landless agricultural workers,
some states and regions.
tenants and sharecroppers
Loopholes in assessment of crop loss: PMFBY
Lower benefits: Benefit of Rs 6,000 per year is too low;
encourages the use of satellite, remote sensing
Odisha's Income support scheme provides for interest
technology and drones to improve the speed and
free crop loan accompanied by Life Insurance support. reliability of Cost Cutting Experiments (CCEs); most
Promote Fragmentation of Landholdings: Farming states have been unable to carry out the crop cutting
households holding larger land parcels will try to split experiments in a reliable and fool proof manner.
holdings to try to qualify for the benefits under the RECENT CHANGES INTRODUCED IN MARCH 2020
scheme. Limit on Centre's Premium: The Centre would contribute
Absence of land records may lead to exclusion of poor its share of the premium amount, provided the premium
and vulnerable categories of farmers. is up to 30% for unirrigated areas/crops and 25% for
irrigated areas/crops. If the premium is above the

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 AGRICULTURE AND ALLIED SECTOR
threshold, then the centre would not provide the the farmers can be higher than the premium which they
additional premium amount. So, in that case, the have collected. For example, if an insurance company
additional premium amount would be borne by the has collected gross premium of say, Rs 100 in entire
respective state government. district. But it may be forced to pay Rs 140 in the form of
Voluntary enrolment of farmers: Earlier, the scheme was claims due to failure of monsoon. As can be seen from
mandatory for the loanee farmers and optional for non- below, claims paid by insurance company has been
loanee farmers. The recent changes have made the higher than the premium it has collected.
enrolment under the scheme voluntary even for the
loanee farmers.
Higher share of centre's contribution in North-Eastern
States to 90:10 (earlier 50:50)
Timely payment of Insurance premium by States: States
would not to be allowed to implement the Scheme in
subsequent Seasons in case of considerable delay in
payment of premium in previous season.
IMPLICATIONS OF THE NEW CHANGES
This in turn disincentives the private insurance
Higher Subsidy burden on the States due to limit on
companies from providing insurance under PMFBY.
capping on premium contribution by Centre
Hence, the Maharashtra government roped in public
Increase in insurance premium: The move to done away sector Agriculture Insurance Corporation of India
with the compulsory enrolment of loanee farmers would Limited (AIC) to provide crop insurance in Beed district
lead to decrease in the area as well as the number of for the next three years under a unique scheme.
farmers covered under the scheme. This is expected to
HOW THIS MODEL WORKS?
lead to increase in the insurance premium under the
As per the guidelines, the insurance company will
scheme.
assume liability only up to 110 per cent of the premium
BEED MODEL OF PMFBY
collected and the rest will be paid by the State. Similarly,
Background: Beed district in Maharashtra is highly prone if claims are below 80% of the gross premium, the
to droughts wherein the farmers repeatedly face huge company would have to share a part of its profits with
losses. Hence, providing agricultural insurance in this the State government.
District is considered as highly risky for any insurance
company. The claims which they are required to pay to

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 AGRICULTURE AND ALLIED SECTOR
BENEFITS OF THIS MODEL Reducing Intra-state Disparity: Share of central financial
• Risk sharing between Insurance company and State assistance should be appropriated for small and
Government Incentivise Insurance companies to marginal farmers/Women farmers.
come forward to provide insurance Give up One Size Fits-all approach: Small and marginal
• Sharing of profits with the state Government  farmers should be given a higher capital subsidy and
Enable the State Government to build corpus which long-term loans with interest subsidies.
can later be used in subsequent years to pay Focus on Efficiency of Pumps: Solarizing grid connected
compensation to farmers pumps must include replacement of the pump with
• Capable of being replicated in other states as well more energy efficient newer age pumps.
Ensure success of PMFBY Focus on Post-harvest losses: Use solar power for post-
harvesting processes to promote local value addition
Note: There is no direct benefit to the farmers under
and enhanced income levels.
this model as the insurance premium that is required to
be paid by them is same.
►DRYLAND FARMING/ RAINFED
►PM-KUSUM SCHEME AGRICULTURE- CONSTRAINTS AND
KUSUM Scheme seeks to incentivise the farmers to set STRATEGIES
up solar powered plants in their fields so as to enable
The Rain-fed agriculture which accounts for 55% of net
them to meet their energy needs and supplement their
sown area contributes 40% of total food grain
farm incomes. The idea enables "Annadata" to become
production, supports 2/3rd of livestock, 40% of human
"Urjadata". population and influences the livelihoods of 80% of
3 COMPONENTS small and marginal farmers.
1. Setting up of 10,000 MW of Grid-Connected Solar and Rainfed agriculture is complex, diverse and risk prone. It
Other Renewable energy plants on is characterised by various problems such as low
Barren/Uncultivable land)  Sell Power to DISCOMs cropping intensity, high cost of cultivation, poor
and earn Income. adoption of modern technology, uncertainty in output,
2. Off-Grid Areas: Replacement of diesel agriculture low productivity, increasing number of suicides among
pump sets with 20 lakh Solar Agriculture Pumps farmers, lack of institutional credit, inadequate public
investment and high incidence of rural poverty,
Reduce the dependence of farmers on diesel and
meet their irrigation needs. CHALLENGES/CONCERNS IN RAIN-FED AGRICULTURE:

3. Grid-connected Areas: Replacement of diesel Large Yield Gaps: Average yield in rain-fed areas is 3
agriculture pump sets with 15 lakh Solar Agriculture times lower in comparison to irrigated areas. Farmers in
Pumps Use the generated solar power to meet the rainfed areas receive 40% less income from agriculture
irrigation needs and the excess solar power will be in comparison to those in irrigated areas.
sold to DISCOMs. Water risks: Dry spells of 2 to 4 weeks during critical crop
BENEFITS growing stages cause partial or complete crop failure.

Environmental Benefit: Saving of about 27 million tonnes Soil health risks: Shallow depth, low soil organic carbon,
multiple nutrient deficiencies etc
of CO2 emission per annum.
Low and skewed farm mechanization due to small and
Economic Benefit: Reduce financial burden on DISCOMs;
marginal holdings.
Promote Renewable Energy; Reduce import of Crude Oil
and improve Trade Deficit. Market risks: Low marketable surplus of small &
marginal farmers; lack of quality output; inadequate
Social Benefit: Supplement Farm Income; Generate Self-
storage and warehousing facilities, transport facilities
Employment; Empowerment of Farmers.
and market intelligence, distress sales due to debt
HOW TO IMPROVE THE DESIGN OF THE PROGRAMME? obligation etc.
Reducing Inter-state Disparity: Chhattisgarh and Lack of processing and value addition facilities: Heavy
Rajasthan together account for half of two lakh solar post-harvest losses at around 25-30 per cent for fruits
pumps currently deployed in the country; Target linked and vegetables are common
financial assistance to reduce the disparities.

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 AGRICULTURE AND ALLIED SECTOR
Policy bias against rainfed farming: lower public The Government has adopted number of digital
investment in rainfed agriculture and poor Government initiatives such as E-NAM, AGMARKNET, ATMA, Kisan Call
procurement of Pulses and oilseeds. Centres, Kisan Suvidha app etc. These initiatives can
STRATEGIES FOR AGRICULTURE IN RAINFED AREAS reduce the input costs, enhance productivity and
increase prices received by farmers.
More crop and income per drop of water: Adoption of
drip & sprinkler irrigation; Rainwater harvesting;
precision farming through Fertigation; Soil moisture
conservation techniques such as Mulching, zero tillage,
contour ploughing etc.
Adoption of Integrating Farming Systems (IFSs) model to
integrate crops with activities like horticulture, livestock,
fishery, apiculture etc. to reduce risk and enhance
incomes.
Commodity crop specific strategies: Rainfed areas
account for more than 85% of Millets & Pulses
production and hence need to focus on crop-specific However, adoption of digital technologies faces multi-
strategies such as improved varieties, R&D to develop faceted challenges:
climate resilient crop varieties, reducing yield gaps, Fragmented landholdings reduce the scope of
guaranteed procurement through PM-AASHA etc. technology scale up, leading to poor cost effectiveness.
Soil fertility management: Effective implementation of Poor affordability: High-priced technology is
Soil Health card; Balanced utilization of Fertilizers etc. unaffordable for small and marginal farmers.
Alternate land use system: Integration of Agro-forestry Long gestation period: Adoption and penetration of
into Rainfed areas to provide economic, social and technology is slow process.
environmental benefits- Provide fuel, fodder, timber;
Lack of enabling policy: Adoption of technologies
Reduce risk, improve soil fertility etc.
through subsidy is yet to gain momentum.
Animal husbandry: Mobilising small and marginal
Poor skill sets among the farmers make adoption of
farmers into Cooperatives on lines of AMUL Model; technologies difficult.
Market Linkages through contract farming etc.
Other reasons include poor extension, lack of access to
Expanding reach of mechanisation through custom credit, poor internet penetration etc.
hiring centers (CHCs); DBT for hiring high-cost farm
The Dalwai panel has highlighted Digital technologies as
machineries.
the key enabler for doubling Income levels of the
Rainfed areas are highly diverse and hence there is a farmers. Going forward, these constraints and
need for decentralised, location-specific approaches to challenges should be addressed at the earliest so that
make it inclusive, climate-resilient & sustainable. Agriculture sector reaps the benefits of ICT.
Disaster Preparedness: Need to build capacities of local
governments and States to deal with frequent droughts ►ROLE OF AGRITECH
in rainfed areas.
Agritech is the use of technology in agriculture,
Rainfed areas are highly diverse and hence there is a horticulture, and aquaculture with the aim of improving
need for decentralised, location-specific approaches to yield, efficiency, and profitability. Agritech can be
make it inclusive, climate-resilient & sustainable. products, services or applications derived from
agriculture that improve various input/output processes.
►ROLE OF E-TECHNOLOGY IN Examples include Mobile applications, weather
forecasts, drones, Use of ICT in agriculture etc.
AGRICULTURE
According to NASSCOM, Agritech can bring in innovation
Digital Technologies such as ICT, Artificial Intelligence, in agriculture leading to its comprehensive
Big Data, IoT etc. can play a transformative role in transformation:
modernising agriculture, make it more Industrialised
Access to Inputs: E-commerce Mobile apps provide
and usher in constructive disruption.
farmers with access to agricultural inputs at doorsteps.

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 AGRICULTURE AND ALLIED SECTOR
Farmers would also understand best input product to from moisture stressed condition to waterlogged
increase yield. Example: Bharat Rohan. conditions. Thus, it enables the farmers to take
Increased Mechanisation through Uber-like apps such as decisions on irrigation depending upon the present
Goldfarm. water status.

Access to Loans through apps such as JaiKisan. • Livestock monitoring: Animals tagged with Radio
Frequency Identification tags (RFID) can be better
Resource Maximization: IoT based platforms such as
monitored with drones.
Fasal use AI and Big data to optimally utilise water,
fertilisers etc. • Productivity: Drones can significantly alleviate labor
pressure, while enhancing the crop coverage area per
Enhancing Productivity: NITI Aayog’s pilot project on
day. This will provide significant ease of farming for
Precision Agriculture using AI for increasing crop
farmers, who can use the time saved to carry out
productivity.
other activities.
Agricultural Marketing: Apps such as Ninjacart would
streamline supply chain by connecting farmers directly
with customers. ►AGRICULTURAL EXTENSION
Keeping in mind these advantages, states such as Agricultural Extension refers to empowering farmers
Maharashtra and Karnataka have set up separate funds through sharing information, knowledge, technology,
to boost agritech sector. There is a need to upscale skills, farm management practices so as to enable them
these efforts at national level to optimally harness to realise higher incomes on a sustainable basis. It takes
agritech. through the Agricultural research Institutes, KVKs,
Agricultural Technology Management Agency (ATMA) etc.
►DRONE USE IN AGRICULTURE Agricultural extension has played a key role in the
To promote precision farming in India, Union Ministry of success of the Green Revolution. However, it has led to
Agriculture and Farmers Welfare has issued guidelines Input intensive agriculture. Hence, renewed thrust on
to make drone technology affordable in the Indian knowledge-based extension would modernize
agriculture. agriculture, make it more scientific leading to enhanced
BENEFITS OF DRONES IN INDIAN AGRICULTURE income levels.

Use of Unmanned Aerial Vehicles (UAVs) commonly IMPORTANCE OF EXTENSION

known as drones have great potential to revolutionize 1. Use of outdated and inappropriate technology is the
Indian agriculture and ensure country’s food security. main reason for low productivity of crops and
• Field and Soil Assessment: Before start of season, livestock.
data collected by drones regarding soil analysis can 2. Empowering farmers with information related to each
help in planning which crop species to be grown, stage of agricultural cycle- Pre-planting, Seeding,
pattern of planting, time of irrigation and nutrient Growing, Harvesting, Post-Harvesting and Marketing.
application. Hence, it facilitates site specific 3. Bridge two gaps- Best scientific practices and best
management practices i.e., precision farming. field practices; Best field practices and Average
• Plant establishment: Drones can simplify planting of farmer.
crops on a large scale with utmost accuracy and 4. Extension through Green Revolution has benefitted
simultaneously reduce labour costs. large farmers. Extension activities have to be more
• Precision crop spraying: Drones can scan crops on a inclusive and hence Focus on empowering the Poor
real time basis and spray precise quantity of farmers.
insecticides and pesticides as per the need. Thus, it 5. Enhancing input use efficiency through enhanced
saves time and input costs for the farmers and reduce knowledge- Soil, water, fertilizer management.
pesticide pollution.
6. Knowledge to make agriculture more climate resilient-
• Crop Monitoring: Massive scale surveillance of crops ZBNF, Conservation agriculture etc.
can provide details about development of a crop and
7. Huge gap exists between the demand for and supply
highlight production inefficiencies, enabling better
of skills in agriculture, hindering diversification,
crop management and higher productivity.
adoption of precision agriculture and on farm post-
• Irrigation management: Drones equipped with harvest value addition.
thermal sensing cameras can provide details ranging

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 AGRICULTURE AND ALLIED SECTOR
8. Providing psychological counselling to farmers to
8. Single or sole crops 8. Intercropping/relay
manage distresses
cropping
9. Entrepreneurial skills for farmers to manage small
scale agri-business. 9. Uneven field levels 9. Precision laser land
WAY FORWARD FOR AGRICULTURAL EXTENSION levelling

• Co-opting and converging multiplicity of public, CHALLENGES

private and not for profit extension services
• Difficulties in sowing and application of fertilisers and
• Agricultural extension activities to cover “off-farm and pesticides
non-farm” income generating activities which are
• Problems of pest infestation
critical for doubling farmers’ income.
IMPACT OF CONSERVATION AGRICULTURE
• Leveraging ICT to reach out to farmers will streamline
information flow, reduce load on manpower and • Economic benefits: Time saving and reduction in
provide for real time information, among other labour requirement; Reduction of costs e.g., fuel,
advantages. machinery operating costs and maintenance

• Revisiting Curriculum in Agriculture Universities: • Agronomic benefits: Increase in organic matter

content of soil, in-situ soil water conservation,
• Public Private Partnership (PPP) mode through KVKs.
improvement of soil structure, and thus rooting zone.
• Agri-business oriented extension system
• Soil Fertility: Fertiliser use efficiency, water holding
• Capacity building of extension functionaries capacity, soil aggregation, rooting environment and
nutrient retention.
►CONSERVATION AGRICULTURE • Environment and social benefits: Reduced soil
Conservation agriculture is advocated as an alternative erosion, improves water and air quality, increased
to the conventional production system. Soil disturbance biodiversity and carbon sequestration.
regulation, surface residue management and crop WAY FORWARD
rotation are the fundamentals (core pillars) of CA. • Need to create awareness about Conservation
KEY ELEMENTS OF TRANSFORMATION agriculture related strategies among farmers
• Need to develop farm machinery to facilitate
Conventional
Conservation agriculture Conservation Agriculture.
agriculture
• Integrated weed management involving chemical and
1. Cultivating land, using 1. Least interference with non-chemical methods (residue, cover crops,
science and technology natural processes varieties) is essential for success of CA systems in the
to dominate nature long run.

2. Excessive mechanical 2. No till/drastically reduced

►ORGANIC FARMING- STATUS,
tillage and soil erosion tillage (biological tillage)
INITIATIVES, CHALLENGES AND
3. Residue burning or 3. Surface retention of
WAY FORWARD
incorporation residues
OPPORTUNITIES
4. Use of ex-situ FYM/ 4. Use of in-situ organics/ • High demand for organic farming food products
composts composts which fetches higher prices for farmers.
• Healthy Foods without any pesticide and insecticide
5. Green manuring 5. Brown manuring
residue.
6. Freewheeling of farm 6. Controlled traffic • Improvement in Soil Quality due to enhanced
machinery microbial activity under organic farming
• Increased Crop Productivity and Income
7. Crop based 7. Cropping system-based
• Low Incidence of Pests due to adoption of bio-control
management management
methods.

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 AGRICULTURE AND ALLIED SECTOR
• Organic farming requires more labour input than the In 2016, Sikkim became the first State in the world to
conventional farming system and thus promote more become fully organic and other States including Tripura
employment opportunities. and Uttarakhand have set similar targets.
• Under severe drought conditions, organically ISSUES AND CHALLENGES
managed farms have frequently been shown to Even though India accounts for 30% of global organic
produce higher yields than conventionally managed producers, it accounts for only around 2.5% of the of
farms due to the higher water-holding capacity of global area under organic cultivation. Some of the
organically farmed soils. reasons for poor coverage of organic farming include:
• Indirect Benefits: Eco-tourism, protection of the Poor Awareness: Use of bio-fertilizers and bio pesticides
ecosystem, flora, fauna and increased biodiversity requires awareness. Farmers lack knowledge of compost
INITIATIVES TAKEN TO PROMOTE ORGANIC FARMING making using the modern techniques and its application.
Standards for Organic Foods: Any organic food Shortage of Biomass: Crop residues are mainly used as
manufactured, sold and marketed is regulated as per fodder and fuel. The small and marginal cultivators have
the provisions of Food Safety and Standards (Organic difficulties in getting the organic manures compared to
Food) Regulations, 2017. the chemical fertilizers.
India has adopted two Organic Certification: Inadequate Supporting Infrastructure: Poor Certification
• National Programme for Organic Production (NPOP) of Organic products; absence of market for organic
for Exports. Under the Ministry of Commerce and products; higher prices of organic products etc.
Industry. NPOP certification is facilitated by Higher Input Costs: Costs of organic inputs are higher
Agriculture Processed Food and Export Development than those of industrially produced chemical fertilizers
Authority (APEDA). and pesticides. Neem cake, vermi-compost, cow dung
• Participatory Guarantee System (PGS) for Domestic etc. which are applied as organic manure are
and Local markets. Under the Ministry of Agriculture. increasingly becoming costly making them unaffordable
Implemented by Ministry of Agriculture with National to small cultivators.
Centre for Organic Farming (NCOF) acting as its Transition period: When a farmer shifts to organic
secretariat. farming from conventional farming, yields have been
shown to have significant drop. However, yields tend to
Note: Jaivik Bharat logo for Organic Food is an identity
increase with number of years under organic
mark to distinguish organic products from non-organic
management as farmers gain experience & soil
ones.
improves.
Paramparagat Krishi Vikas Yojana (PKVY): Promotes
Lack of quality seeds supporting organic agriculture:
cluster based organic farming with Participatory
Hybrid seeds are designed to respond to fertilizers and
Guarantee System (PGS certification). Cluster formation,
chemicals.
training, certification and marketing are supported.
Inability to meet export demand: Indian organic exports
Mission Organic Value Chain Development for North-
face different constraints such as high price expectations
eastern Region (MOVCDNER): Development of certified
in relation to quality, chemical residues, time consuming
organic production in a value chain mode to link growers
and complicated paperwork etc.
with consumers. Provides support for development of
entire value chain starting from inputs, seeds, WAY FORWARD
certification and creation of facilities for collection, • Supply of sufficient nutrient through organic
aggregation, processing, marketing and brand building. management, Promotion of Green manures, vermi-
STATUS OF ORGANIC FARMING IN INDIA composting
• Promotion of strategies such as Integrated Organic
India ranks first in number of organic farmers and ninth
in terms of area under organic farming. The total area Farming Systems, Multiple Cropping and crop
under organic certification process (registered under rotation, Hedge row/alley cropping

National Programme for Organic Production) is 3.67 • Biological pest management and biological weed
million Hectare (2019-20). Among all the states, Madhya management strategies need to be promoted.
Pradesh has covered largest area under organic • Making it easier for farmers to certify their food
certification followed by Rajasthan and Maharashtra. products and market them.

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 AGRICULTURE AND ALLIED SECTOR
►CRITIQUE OF FARM LOAN ALTERNATIVES TO LOAN WAIVERS
• Enhance Public Investment to address structural
WAIVERS
problems such as irrigation canals, rainwater
In 2016-17, India faced a cumulative loan waiver of Rs harvesting projects, marketing infrastructure, cold
3.1 lakh crore, around 2.6% of GDP. A waiver of this scale chain storage etc. Such investments could have
could have paid for 16 times the rural roads budget or multiplier effect on the farmers income and would
increase India’s irrigation potential by 55%. Given the enable the government to realize its vision of
amount of money spent on loan waivers, certain valid doubling the farmers' income by 2022.
questions can be raised - Can Loan Waivers be
• Fool Proof Insurance Mechanism by plugging
considered be a panacea to address the present rural
loopholes in PM Fasal Bima Yojana (PMFBY).
distress?
• Enhancing cash support under PM-KISAN Scheme.
PROBLEMS WITH LOAN WAIVERS
• Do not address structural Problems and hence
considered as Band-Aid solution for the current
►SYSTEM OF RICE
agriculture inefficiency; Do not address a deeper INTENSIFICATION
malaise gripping India’s agrarian economy.
India has world’s largest area under Paddy cultivation
• Do not benefit Small and Marginal Farmers as only and this in turn has led to water crisis. Against this
15% of these farmers have access to institutional background, the System of Rice Intensification (SRI)
credit (formal credit). provides for an effective strategy to reduce water
• Deteriorates credit Culture: Even those farmers who consumption, increase yields, and thus ensure food
have the capacity to repay back the loans would security.
default on the anticipation of loan waivers. System of Rice Intensification (SRI) is a set of practices
• No Reduction in Farmers' suicides: According to for increasing the productivity of irrigated rice. It is a
National Crime Records Bureau (NCRB), there has low-water and labor-intensive method that makes use of
been no decrease in farmers' suicides even in those younger seedlings. SRI method was initially developed in
states where the loan waivers have been announced. the 1980s in Madagascar and later adopted in number

• Increase in NPAs due to loan waivers of countries, including India. SRI practices and concepts
have also been successfully adapted to upland rice and
• Decrease in Capital Investment in Agriculture: In
to other crops such as wheat, finger millet, and
anticipation of future losses due to loan waivers, the
sugarcane.
Banks would channelize lesser amount of credit to
COMPARISON SRI & CONVENTIONAL
agriculture. Rather than solving the present agrarian
distress, the loan waivers could actually aggravate the SRI method has number of advantages over
problem in the future. Conventional Rice management methods:
• Impact on Finances: Loan waivers in 2019 accounted
for 2% of India's GDP leading to higher Fiscal deficit
and debt burden.

Conventional Rice Management SRI Method

Seeds required 50-60 kg/ha 5 kg/ha

Transplant young seedlings to preserve growth

Transplanting Transplant older seedlings
potential

Water Management Flood Irrigation Keep only the soil moist but not flooded

Fertilizer Management Use Chemical fertilizers Use organic matter as much as possible

Pest and Disease Incidence Higher Lower

Availability of Organic Matter Less More

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 AGRICULTURE AND ALLIED SECTOR
BENEFITS OF SRI in society. Lack of ownership of land does not allow
• Decrease water consumption by almost 40% women farmers to approach banks for institutional
loans as banks usually consider land as collateral.
• Increase yields by over 30%
What must be done? Provision of credit without
• Potential to double income level of farmers by
collateral; Better access to credit, technology, and
enhancing input use efficiency and higher productivity
provision of entrepreneurship abilities; Encourage
• Can easily be adopted by Small and Marginal farmers greater participation of women in the FPOs.
who account for 83% of farmers
Declining Size of Landholdings: Majority of women
• Greater tolerance to abiotic (drought, heat waves) and
farmers fall under the small and marginal category,
biotic (pest and diseases) stresses having less than 2 ha of land. A declining size of land
• Promote environment friendly practices such as holdings may act as a deterrent due to lower net returns
Organic farming, reduce emission of methane, and technology adoption.
improvement in soil fertility etc. What must be done? Collective farming must be
• Potential to apply this method for other crops such as encouraged to make women self-reliant. Training & skills
Sugarcane, wheat, millet etc. should be imparted to women as has been done by
Although the benefits of SRI have been demonstrated some self-help groups and cooperative-based dairy
globally, the potential remains untapped. The report activities (Saras in Rajasthan and Amul in Gujarat).
"More Rice with Less Water" recommends that India Moreover, government flagship schemes such as the
should convert at least 25% of current rice cultivation to National Food Security Mission, Sub-mission on Seed
SRI. This would not only dramatically reduce the use of and Planting Material and the Rastriya Krishi Vikas
water but also improve global food security. Yojana must include women-centric strategies and
dedicated expenditure.

►FEMINISATION OF INDIAN Need for Gender Friendly Agricultural Tools: Female

cultivators and labourers perform labor-intensive tasks
AGRICULTURE (hoeing, grass cutting, weeding, picking, cotton stick
Growing feminization of Indian Agriculture: With collection, looking after livestock. Most farm machinery
growing rural to urban migration by men, there is is difficult for women to operate.
‘feminization’ of agriculture sector, with increasing What must be done? Manufacturers should be
number of women in multiple roles as cultivators, incentivized to produce better solutions. Farm
entrepreneurs, and labourers. According to Oxfam India, machinery banks and custom hiring centers promoted
women are responsible for about 60-80% of food and by many State governments can be roped in to provide
90% of dairy production, respectively. Further, the subsidized rental services to women farmers.
Agriculture Census (2010-11) shows that out of an
Lack of Access to Resources: Women generally have less
estimated 118.7 million cultivators, 30.3% were females.
access to resources and modern inputs (seeds,
STEPS TAKEN BY GOVERNMENT fertilizers, pesticides).
• Earmarking at least 30% of budget allocation for What must be done? Krishi Vigyan Kendras in every
women beneficiaries in all ongoing programs and district can be assigned an additional task to educate
development activities. and train women farmers about innovative technology
• Initiating women centric activities to ensure benefits along with extension services.
of various beneficiary-oriented programs reach them. Hence, an ‘inclusive transformative agricultural policy’
• Focusing on women self-help groups to connect them should aim at gender-specific interventions to raise
to micro-credit through capacity building activities productivity of small farm holdings, integrate women as
and to provide information and ensuring their active agents in rural transformation.
representation in different decision-making bodies.
• Ministry of Agriculture and Farmers Welfare has ►PURPLE REVOLUTION
declared 15th October as Women Farmer’s Day.
In a brief span of time, a large number of farmers in J&K
CHALLENGES FACED BY WOMEN IN AGRICULTURE have shifted from Maize to Lavender Cultivation due to
Lack of Ownership: Almost 86% of women farmers are Mission Aroma.
devoid of property right in land due to patriarchal set up

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 AGRICULTURE AND ALLIED SECTOR
ABOUT MISSION AROMA ►SAFFRON CULTIVATION IN INDIA
Year of Launch: 2017
Saffron is the most expensive spice known for its aroma
Objective: Promote cultivation of economically and colour and used for flavouring, colouring and in
important aromatic crops such as Lavender, mint, lemon medicinal and pharmaceutical industries.
grass, rosemary, wild marigold, damask rose, Indian
Cultivation: Saffron production is restricted to well-
valerian and lemongrass e
drained Karewa soils in the Union territory of Jammu &
Nodal Agency: CSIR-Central Institute of Medicinal and Kashmir. Pampore region is commonly known as Saffron
Aromatic Plants (CSIR-CIMAP), Lucknow bowl of Kashmir. Other important areas include-
NATURE OF INTERVENTION Budgam, Srinagar, and Kishtwar districts.
• Free Distribution of Aromatic plants to encourage Production: Total world production of saffron is around
cultivation 300 tons per year. Iran, India, Spain and Greece are the
• Oil Distillation facilities to extract essential oils from major saffron producing countries.
aromatic plants Productivity: Though, India occupies 2nd largest area but
• Integration of bee keeping with cultivation of aromatic produces only 7% of total world production. Countries
crops for enhancement of livelihood and additional such as Iran, Spain and Greece have much higher
income for the farmers productivity of Saffron due to technological adoption,
efficient processing.
• Value addition of Aromatic crops
PROBLEMS & CHALLENGES
• Providing support in form of awareness, training and
capacity building, entrepreneurship development • Decline in area under cultivation due to expensive
cost of cultivation
EXPECTED BENEFITS
• Demand-Supply Mismatch: Annual demand is around
• Increase in Area: Bring about 5500 ha of additional
100 tonnes, but production is only around 6-7 tonnes.
area under cultivation
• Growing imports from other countries affecting
• Higher Income of farmers: Income of the farmers
domestic cultivation
expected to increase by Rs. 30,000 to 60,000/ha/year
• Lower Yields in comparison to other countries
• Additional Employment opportunities: More than
25,000 farming families would be directly benefitted, • Difficulty in extending area under Saffron in J&K due
and additional employment opportunities would be to rapid urbanisation
created in rural India. INITIATIVES FOR SAFFRON CULTIVATION
• Higher Profits: Farmers get higher profits for • National Saffron Mission: Initially launched in 2010-11
cultivation of aromatic plants in comparison to cereal in Jammu and Kashmir. Later in 2020, it was extended
crops. For example, Lavender oil sells for at least Rs to North-eastern States of India.
10,000 per litre. • GI Tag for Kashmir Saffron
• Declaration of Pampore region in Kashmir as Globally
Important Agriculture Heritage systems (GIAHS)

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Section-2
UBLIC DISTRIBUTION
SYSTEM

SUB- THEME YEAR QUESTION

Food Security 2013 Food security bill is expected to eliminate hunger and malnutrition in India.
Critically discuss various apprehensions in its effective implementation along
with the concerns it has generated in WTO

2017 Explain various types of revolutions, took place in Agriculture after

Independence in India. How have these revolutions helped in poverty
alleviation and food security in India?

2019 What are the reformative steps taken by the government to make food grain
distribution system more effective?

2021 What are the salient features of the National Food Security Act, 2013? How has
the Food Security Bill helped in eliminating hunger and malnutrition in India?

Nodal agency which undertakes procurement and

storage of food grain is Food Corporation of India (FCI).

Distribution of food grains is primarily under National

Food Security Act, 2013 (NFSA) and other welfare

schemes of Government and is governed by the scale of

allocation and its offtake by the beneficiaries.

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 PUBLIC DISTRIBUTION SYSTEM
VARIOUS COMPONENTS OF FOOD MANAGEMENT • Strategic Reserves: To meet emergency situations.
Procurement: The cost incurred by FCI for the • Note: The norms are defined for a quarter of financial
procurement of food grains is referred to as Economic year i.e., how much buffer has to be maintained for
Cost of Food grains. It comprises of 3 components - each quarter of financial year.
Pooled cost of grains (weighted MSP of stock of food DISTRIBUTION OF FOOD GRAINS in accordance with
grains), Procurement incidentals (Labour charges, National Food Security Act 2013
Transport charges, storage cost etc.) and cost of
distribution. The States have also been encouraged to Note: The Central Issue Price is the price at which centre
undertake the procurement of food grains on their own allocates food grains to the states. It can be considered
through the Decentralised procurement scheme. It has as the price at which food grains are sold through the
been introduced to reduce the transportation and network of fair price shops. For instance, it is Rs 1/2/3
storage costs of FCI. per kg for nutricereals/wheat/rice respectively. Under
the NFSA, the CIP is Rs 200/quintal in case of wheat and
FOOD GRAIN STOCKING NORMS: It has 2 components:
Rs 300/quintal in case of rice.
• Operational Stocks: For meeting monthly
distributional requirement under TPDS and other
welfare schemes.

►VARIOUS ISSUES IN PUBLIC

DISTRIBUTION SYSTEM (PDS)

RECOMMENDATIONS OF SHANTA KUMAR (comfortably cover BPL families and some even above
COMMITTEE ON PDS REFORMS that)
• Need for End-to-End Computerisation: Given that • Increasing food grains: The amount of food grains
leakages in PDS range from 40 to 50 percent, should be increased to 7kg/person from the present
Government should defer implementation of NFSA in 5kg grain per person.
states that have not done end to end • Pricing: Antyodaya households can be given grains at
computerization; have not put the list of beneficiaries Rs 3/2/1/kg for the time being, but pricing for priority
online for anyone to verify, and have not set up households must be linked to MSP, say 50 percent of
vigilance committees to check pilferage from PDS. MSP
• Reducing Coverage: Reduce the current coverage of • Timely Allocation: Targeted beneficiaries should be
67% of the population under NFSA to 40% given 6 months ration immediately after the

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 PUBLIC DISTRIBUTION SYSTEM
procurement season ends. This will save the • Higher coverage of beneficiaries under NFSA as
consumers from various hassles of monthly arrivals compared to erstwhile TPDS
at FPS and also save on the storage costs of agencies. • Increase in MSP (Increase of one unit in real MSP
• Cash Transfers: Gradual introduction of cash leads to 0.48 unit increase in real economic cost
transfers in PDS, starting with large cities with more procurement)
than 1 million population; extending it to grain • Higher procurement of food grains as against
surplus states, and then giving option to deficit states
stocking norms (due to Open Ended procurement
to opt for cash or physical grain distribution. This
Policy)
would lead to saving of Rs 30,000 crores.
• Increase in storage cost
• Storage, movement and Transport of Food Grains: FCI
PROBLEMS WITH CENTRAL ISSUE PRICE (CIP)
should outsource its stocking operations to various
agencies such as Central Warehousing Corporation, • The CIP for NFSA beneficiaries has not been revised
State Warehousing Corporation to bring down costs from Rs 200/quintal in case of wheat and Rs
of storage. Covered and plinth (CAP) storage should 300/quintal in case of rice. These rates were fixed
be gradually phased out. The Movement of grains under the Act initially for a period of three years from
needs to be gradually containerized to reduce transit the date of commencement of the Act and thereafter
losses. were to be fixed by the Central Government from
• Buffer Stocks: During last five years, on an average, time to time, while not exceeding the minimum
buffer stocks with FCI have been more than double support price. However, it has not been revised since
the buffer stocking norms costing the nation 2013. This has resulted in widening of the gap
thousands of crores of rupees loss without any between the economic cost and CIP
worthwhile purpose being served. The underlying • Uniform CIP for BPL and APL households
reasons for this situation are many, starting with RECOMMENDATIONS TO IMPROVE PDS
export bans to open ended procurement with
• NITI Aayog: Reduce percentage of beneficiaries under
distortions. There has to be a comprehensive
NFSA in the rural (from 75% to 60%) and urban areas
liquidation policy which gives sufficient amount of
(from 50% to 40%). Accordingly, the number of
flexibility to FCI to either export or sell the surplus
beneficiaries under the NFSA will drop from 81 crores
stocks in the market.
to 71 crores. This will lead to annual reduction in the
Food subsidy bill by Rs 48,000 crores.
►FOOD SUBSIDY BILL:
• Shanta Kumar Committee:
CONSTRAINTS AND STRATEGIES o Need for End-to-End Computerization: Given that
What constitutes Food subsidy? Food subsidy comprises leakages in PDS range from 40 to 50 percent,
of (i) subsidy provided to FCI for procurement and Government should defer implementation of NFSA
distribution of wheat and rice under NFSA and other in states that have not done end to end
welfare schemes and for maintaining the strategic computerization.
reserve of food grains and (ii) subsidy provided to States o Reducing Coverage: Reduce the current coverage
for undertaking decentralized procurement. The
of 67% of the population under NFSA to 40%
acquisition and distribution costs of food grains for the
(comfortably cover BPL families and some even
central pool together constitute the economic cost.
above that)
The Food subsidy bill is calculated as the difference o Increasing Food grains: The amount of food grains
between Economic cost of Food grains and Central Issue
should be increased to 7kg/person from the
price (CIP).
present 5kg grain per person.
Increase in Food Subsidy Bill: Food subsidy bill has o Pricing: Antyodaya households can be given grains
increased from 1.2 lakh crores in 2014-15 to 1.7 lakh
at Rs 3/2/1/kg for the time being, but pricing for
crores in 2018-19. To pay food subsidy bill, Government
priority households must be linked to MSP, say 50
has been borrowing from National Small savings Fund percent of MSP
(NSSF) through issuance of special G-Secs.
o Economic Survey 2019-20: Central Issue price (CIP)
REASONS FOR INCREASE IN FOOD SUBSIDY BILL:
should be revised upwards; Coverage of the
INCREASE IN ECONOMIC COST OF FOOD GRAINS beneficiaries under NFSA should be reduced.

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 PUBLIC DISTRIBUTION SYSTEM
►FLAWS IN THE OPEN-ENDED • Protect the farmers from distress Sale: Government
must compensate the farmers for the loss by
PROCUREMENT POLICY transferring the difference amount between the MSP
Presently, Government is following open-ended and the price at which commodities have been sold.
procurement policy to offer fair and remunerative prices • Strengthen Open Market Sales Scheme: FCI sells
to farmers and prevent them from distress sale. surplus stocks of wheat and rice under Open Market
However, apart from making food grain management Sale Scheme at pre-determined prices through e-
unsustainable, this policy has neither benefitted farmers auction in the open market from time to time. This
nor agriculture. scheme has to be effectively used to dispose the
Presently, there is no limit on procurement of food surplus buffer stocks.
grains such as Rice and Wheat leading to higher • Strengthen E-NAM: Presently, only around 1000
procurement. For instance, Food grain stock of Rice and APMCs (14%) have integrated into E-NAM. There is a
Wheat (65 MT) is almost 110% more than buffer stock need to enhance penetration of E-NAM so that
requirements (30 MT). dependence of the farmers on the FCI for
IMPLICATIONS procurement reduces.
1. Higher economic cost for FCI (Rs 50,000 crores) • Encourage Decentralised Procurement: Presently,
leading to higher debt burden. under Decentralized Procurement Scheme (DCP),
2. Artificial scarcity of food grains in open market food grains are procured and distributed by the State
leading to increase in prices. Governments themselves (on behalf of FCI) under
Targeted Public Distribution System (TPDS) and other
3. Higher emphasis on procurement of water-intensive
welfare schemes of the Government of India. This
crops such as Rice and Wheat is adversely affecting
scheme enables the FCI to reduce storage and
agriculture- skewed cropping pattern, higher water
transportation costs. There is a need to encourage
usage, soil erosion, lack of diversification etc.
more states to adopt this scheme.
HOW TO ADDRESS THIS PROBLEM
• Encourage Private Sector Procurement: The
• Closed-Ended Procurement: The procurement system
Government must encourage the private sector for
has to be made closed-ended and the FCI should be
higher procurement of the agricultural commodities
allowed to procure the commodities only up to a
in order to reduce the burden on the FCI.
certain higher level over the buffer norms.

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Section-3
AND REFORMS IN
INDIA
SUB- THEME YEAR QUESTION

Establish the relationship between land reform, agriculture productivity

and elimination of poverty in Indian Economy. Discussion the difficulty in
2013
designing and implementation of the agriculture friendly land reforms in
India.
Land Reforms
Discuss the role of land reforms in agricultural development. Identify the
2016
factors that were responsible for the success of land reforms in India.

How did land reforms in some parts of the country help to improve the socio-
2021
economic conditions of marginal and small farmers?

►LAND REFORMS IN INDIA Benefits: This aspect of land reforms was relatively
successful in comparison to tenancy reforms and land
Land reform refers to an institutional measure directed
ceiling laws.
towards altering the existing pattern of ownership,
• About 2 crore tenants came into direct contact with
tenancy, leasing and management of land. the State.
The 4 Components of land reforms were (1) the abolition • More lands came under the Government's control for
of intermediaries; (2) tenancy reforms; (3) fixing ceilings distribution to landless farmers.

on land holdings; and (4) consolidation of landholdings. Problems:

ABOLITION OF INTERMEDIARIES • Government had to pay compensation to the

landowners which resulted in heavy burden on the
This involved abolition of zamindari and other state exchequer.
intermediaries and bringing the cultivators in direct
• The intermediaries were abolished in 1950s but were
contact with the Government. The abolition of allowed to retain possession of lands under their
intermediaries also involved compensation to the personal cultivation without limit being set, as the
owners of land. ceiling laws were passed only in the1960s. As a result,

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 LAND REFORMS IN INDIA
there was enough time left for the intermediaries to Rationale:
make legal or illegal transfers of land. • Economic Rationale: According to some economists,
TENANCY REFORMS small farms are more efficient than large farms since
Tenancy reforms focussed on 3 main aspects: (a) they require less capital. Further, small farms provide
Security of tenure for the tenants (b) Regulation of Rent more employment opportunities.
(c) grant of ownership rights to certain types of tenants. • Social Rationale: Promote justice, equality and
Critical Analysis of Tenancy reforms: Tenancy legislations prosperity of poor and vulnerable sections.
in India are not uniform throughout the country. Each Unit of application: In the first phase, that is, prior to
state has its own legislation. Most state governments 1972, the basis of ceiling fixation was an individual as a
have either legally banned or imposed restrictions on unit instead of a family. Since 1972, a family has been
agricultural land leasing. Restrictive clauses in the accepted as the unit of application of ceilings. The family
tenancy laws of various states include period of lease, is defined as a unit consisting of husband, wife and
regulation of rent, conditions for termination of lease, children.
conferment of ownership rights on tenants etc.
Upper limit for land holding: wide variations in the
Case for Legalisation of Land Tenancy: Restrictive land ceilings on land holdings.
leasing laws have proved to be anti-growth and anti-
Exemptions: Certain types of land were exempted from
poor on account of following reasons:
ceiling laws such as land under personal cultivation,
• Informal and Oral Tenancy – Tenants do not have plantations etc.
access to institutional credit, insurance etc. and are
CONSOLIDATION OF LAND HOLDINGS
prone to exploitation.
Consolidation of Holdings means bringing together the
• Oral and informal tenancy discourages the tenants
various small plots of land of a farmer scattered all over
from making investment in land improvement.
the village as one compact block, either through
• Reduced the occupational mobility of many purchase or exchange of land with others.
landowners who have interest and ability to take up
Advantages:
employment outside agriculture and yet are forced to
• Prevents fragmentation of land holdings
stay in agriculture due to the fear of losing land if they
lease out and migrate. • Reduces disguised unemployment

• Many landowners prefer to keep the land fallow due • Promotes higher economies of scale with respect to
to the fear of losing land rights if they lease out. This access to inputs, higher productivity and access to

leads to underutilisation of land. The lifting of ban or markets.

restrictions on leasing will result in better utilization • Improves the efficiency of farms through better
of the available land and labour and increased farm adoption of technology and mechanisation.
output. Problems and Challenges:
• Higher Equity and Economic justice as the land • Farmers are attached to their ancestral land and do
leasing enables the poor to have access to land and not want to part with it or exchange for other land.
improve their income levels.
• Fear among the farmers that they may not want
equally better quality of land in exchange.
►REORGANISATION OF • Opposition by rich landlords due to the fear of losing
AGRICULTURE control over the fertile large lands.

This involved (a) imposition of ceiling on land holdings IMPACT OF LAND REFORMS ON SMALL & MARGINAL

that an individual or family can possess (b) acquisition of FARMERS

surplus land and its distribution among the small Indian agriculture is dominated by small and marginal
farmers and landless workers (c) Consolidation of land farmers (86%) accounting for 48% of agricultural land.
holdings. These farmers are caught in vicious trap due to

IMPOSITION OF CEILING ON LAND HOLDINGS fragmented landholdings

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 LAND REFORMS IN INDIA
cultivation" was loosely defined. It enabled even those
people who supervised the land personally or
through a relative to call themselves as cultivator. The
land ceiling acts of the state governments provided
number of exemptions on the ceiling such as
Plantations and thus enabled the landowners to hold
on to the land.
• Absence of modernised land records made it difficult
for the Government to implement reforms related to
land ceiling acts and distribution of surplus land
among the landless people.
• Optional nature of laws: Most of the laws granting
ownership rights to tenants are not mandatory. They
are rather optional. The tenants have to move the
Successful Land Reforms in states such as Kerala and
government for grant of ownership rights.
West Bengal (Operation Barga) have improved socio-
economic condition of marginal and small farmers: • Lack of social consciousness among the tenants: The
small cultivators and the landless were not only
• Abolition of intermediaries has addressed historical
injustices and move towards egalitarian society. unorganised but also ignorant of legal and
constitutional process.
• Land Ceiling Acts and movements such as Bhoodan
and Gramdan have promoted equity in land • Increased Litigations: Faults and defects in laws
ownership. related to land reforms has resulted in growing
number of litigations which has dampen the spirit of
• Tenancy reforms in states such as TN, AP, WB etc.
reforms
have enabled marginal farmers to lease in/out land
leading to consolidation of land holdings, higher • Lack of Political will: Land reforms have been
occupational mobility and enhanced agricultural successful in only some of the states such as Kerala
productivity. and West Bengal (Operation Barga) due to strong

• Promotion of Cooperative farming through political will and enthusiasm.

Kudumbashree (Kerala) and Andhra Pradesh Mahila • Corruption & Bureaucratic apathy due to close nexus
Samatha Society have enabled farmers to reap between lower-level officials and Zamindars.
benefits of higher economies of scale.
• Land Records Modernization Programme has reduced ►2ND GENERATION LAND REFORMS
litigations and facilitated access to institutional credit.
Land is emerging as a key challenge in ensuring both
Land Reforms in other parts of India have not been very
inclusiveness and sustainability of growth. On one hand,
successful on account of Benami Transactions,
landless, small and marginal farmers face constraints
loopholes in Land ceiling acts, slow progress in
while there is a growing need for land to promote
Digitisation of land records etc. Hence, going forward,
Industrialisation and Urbanisation.
India should focus on Land Reforms 2.0 through transfer
of surplus government land, legalising land Leasing, NEED FOR 2G LAND REFORMS
organising farmers into FPOs etc. 1. Restrictive agricultural tenancy laws
REASONS FOR LACK OF SUCCESS OF LAND REFORMS 2. Small and highly fragmented land holdings
(COMMITTEE ON STATE AGRARIAN RELATIONS AND 3. Outdated land records leading to litigations
THE UNFINISHED TASK IN LAND REFORMS)
4. Cumbersome land acquisition laws
• Delay in enacting land laws gave enough time to the
5. High cost of land, making housing unaffordable.
landowners to escape the provision on land ceilings
through benami transactions and illegal transfer of STEPS TO ENCOMPASS BOTH ASPECTS
land to others. 1. Land Reforms for equity
• Loopholes in Legal framework: Zamindars were • Implement Model Land Leasing Act, 2016
allowed to keep the land under personal cultivation • Setting up of Land Banks at village level
without any limit. However, the term "Personal

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 LAND REFORMS IN INDIA
• Land transfers by Government to poor and marginal that is leased for less than one year. Since heirship
sections partitions do not require registration, several property
• Low interest loans for purchasing land divisions are not recorded, and hence, do not correctly
reflect who is in possession of the property. This often
• Promotion of FPOs for land consolidation
leads to litigation related to rightful owner among heirs.
2. Land Administration
Poor maintenance of land records: Historically, land
• Digitisation of land records in a user-friendly manner
registration, and the maintenance of records has been
using technology such as Blockchain, Big Data etc
done manually. Documents are usually kept with the
• Shifting from presumptive to conclusive land titling Revenue Department and are not easily accessible to the
• Divesting district collectors of Land Revenue public. This makes it difficult and cumbersome to access
Administration functions land related data when trying to engage in a property
3. Using land as resource to finance urban development: sale. An individual has to go back several years of
Tools such as land value capture, incentive zoning, town documents, including manual records, to find any
planning schemes, and land-based taxes like land value ownership claims on a piece of property.
tax, vacant land tax, land value increment tax etc. can be Multiple entities deal with land registration and records:
used to finance rapid and efficient urbanisation. In the presence of multiple agencies responsible for
4. Land Reforms for Economic Growth registration and maintenance of records, it is difficult to
• Land Banks: For geographical planning and ease of ensure that survey maps, textual data, and registration
environmental clearances, records match with each other and are updated. In
addition, citizens have to approach several agencies to
• Flexibility in land conversion rules to permit
get complete information on land records.
• Flexibility in Floor Space Index to allow for taller
REFORMS TO IMPROVE SYSTEM OF LAND RECORDS
structures to permit more efficient use of space.
Digital India Land Records Modernization Program:
• Land lying idle with sick/loss making PSUs may be
Seeks to achieve complete computerization of property
used to resolve land availability for affordable
housing, provision of land for industrial needs etc. registration process and digitization of all land records.

Hence, achievement of faster, sustainable and inclusive Proposal of Conclusive Titling: In a conclusive titling
growth depends upon the implementation of second- system, government provides guaranteed titles, and
generation land reforms. compensation in case of any ownership disputes.
Achieving this will require shifting to a system of
registered property titles (as opposed to sale deeds) as
►LAND RECORDS MANAGEMENT IN primary evidence of ownership and having clear and
INDIA updated land records. However, adopting a conclusive
POOR LAND RECORD MANAGEMENT IN INDIA system of titling will require undertaking several
measures. All existing land records will have to be
Land titles are presumptive: The current system of land
updated to ensure that they are free of any
records was inherited from the pre-independence days
encumbrances. Information on land records, which is
(zamindari system) and has not changed much since
currently spread across multiple departments, will have
then. These land records provide information on who is
to be consolidated. Further, several changes in existing
in possession of land, and not who the owner is.
laws that govern registration and transfer of land, and
Registration of land refers to the registration of the
institutional changes in maintenance of land records will
transaction, and not the land title. Such registration does
also have to be.
not guarantee the title by the government. This implies
that even bonafide property transactions may not
always guarantee ownership as an earlier transfer of the ►LAND DEVELOPMENT BANKS IN
title could be challenged.
INDIA
Registration of property is not mandatory for all
A land development bank is a quasi-commercial type of
transactions: Under Registration Act, 1908, registration
bank that provides services such as accepting deposits,
of property is not mandatory for all transactions. These
making business loans, and offering basic investment
include acquisition of land by the government, court
products. The main objective of the LDB is to promote
decrees, land orders, heirship partitions, and property
the development of land, agriculture and increase

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 LAND REFORMS IN INDIA
the agricultural production. The LDB provides long-term • They are not able to raise sufficient funds although
finance to members directly through its branches. their debentures are guaranteed by the State
STRUCTURE OF LAND DEVELOPMENT BANKS Governments.

Primary Land Development Banks (PLDB): These banks • There is no co-ordination between the activities of
were originally organized to cover one or a few taluks in State Co-operative Bank and Land Development Bank.
the district. At present they are eligible to cover one • Because of red-tapism, there are the usual delays up
development block. All landowners are eligible to to more than a year in granting loans.
become members and borrow funds by mortgaging • They give loans only up to 50 per cent of the value of
their land. the land mortgaged. Thus, a very high margin is kept.
Central Land Development Bank (CLDB): These members • They adopt complicated procedures which ultimately
of the CLDBs are the PLDBs and a few individual force the illiterate farmers to resort to moneylenders
promoters. It grants long-term loans to agriculturists to meet their financial requirements.
through the PLDBs and branches of CLDBs. It raises
RECOMMENDATIONS
funds through floating debentures, which are
guaranteed by the State Government. Public Land Bank (PLB) at the panchayat level should be
set up. This would regulate and rationalize land demand
FUNCTIONS OF LAND DEVELOPMENT BANKS
and supply. The PLB would take ‘deposits’ of land from
• finance farm mechanization, horticulture and
landowners wanting to lease out their land. The PLB
plantation and land development and improvement.
would lease out the land under its command to specially
• financing other non-land-based activities like dairy,
designated categories of disadvantaged farmers, such as
poultry, sheep and goat, fishery, biogas and bullock
marginal farmers, women, dalits, and tribals, whether
carts since last few years.
leasing as individuals or in groups.
• Financing priority areas like water-shed development
in rainfed areas and wastelands development
including afforestation.
ISSUES WITH LAND DEVELOPMENT BANKS
• Loans given by them are predominantly for
discharging of prior debts and not for purpose
connected with land improvements.

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Section-4
NCLUSIVE GROWTH AND
DEVELOPMENT

SUB- THEME YEAR QUESTION

With a consideration towards the strategy of inclusive growth, the new companies bill,
2013 has indirectly made CSR a mandatory obligation. Discuss the challenges
2013 expected in its implementation in right earnest. Also discuss other provisions in the
bill and their implications.
Capitalism has guided the world economy to unprecedented prosperity. However, it
often encourages short-sightedness and contributes to wide disparities between the
rich and the poor. In this light, would it be correct to believe and adopt capitalism
2014 driving inclusive growth in India? Discuss.
While we found India’s demographic dividend, we ignore the dropping rates of
employability. What are we missing while doing so? Where will the jobs that India
desperately needs come from? Explain.
The nature of economic growth in India in described as jobless growth. Do you agree
2015
with this view? Give arguments in favour of your answer.
Inclusive Growth Comment on the challenges for inclusive growth which include careless and useless
2016 manpower in the Indian context. Suggest measures to be taken for facing these
challenges.
What are the salient features of ‘inclusive growth’? Has India been experiencing such a
growth process? Analyze and suggest measures for inclusive growth.
Account for the failure of manufacturing sector in achieving the goal of labour-
intensive exports rather than capital-intensive exports. Suggest measures for more
2017 labour-intensive rather than capital-intensive exports.
Among several factors for India’s potential growth, savings rate is the most effective
one. Do you agree? What are the other factors available for growth potential?
Do you agree with the view that steady GDP growth and low inflation have left the
2019 Indian economy in good shape? Give reasons in support of your arguments.
It is argued that the strategy of inclusive growth is intended to meet the objectives of
inclusiveness and sustainability together. Comment on this statement.

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 INCLUSIVE GROWTH AND DEVELOPMENT
Explain intra-generational and inter-generational issues of equity from the perspective
of inclusive growth and sustainable development.
Define potential GDP and explain its determinants. What are the factors that have
2020 been inhibiting India from realising its potential GDP?
Explain the meaning of investment in an economy in terms of capital formation.
Discuss the factors to be considered while designing a concession agreement between
a public entity and a private entity.
Explain the difference between computing methodology of India’s Gross Domestic
Product (GDP) before the year 2015 and after the year 2015.
2021
Do you agree that the Indian economy has recently experienced V- shaped recovery?
Give reasons in support of your answer
“Success of ‘Make in India’ programme depends on the success of ‘Skill India’
programme and radical labour reforms.” Discuss with logical arguments.
Craze for gold in Indians have led to a surge in import of gold in recent years and put
2015
pressure on balance of payments and external value of rupee. In view of this, examine
the merits of Gold Monetization Scheme.
Pradhan Mantri Jan-Dhan Yojana (PMJDY) is necessary for bringing unbanked to the
institutional finance fold. Do you agree with this for financial inclusion of the poorer
Government section of the Indian society? Give arguments to justify your opinion.
Schemes
2016 What are ‘Smart Cities? Examine their relevance for urban development in India. Will it
increase rural-urban differences? Give arguments for Smart Villages in the light of
PURA and RURBAN Mission.
Planning and
How are the principles followed by the NITI Aayog different from those followed by the
Mobilisation of 2018
erstwhile Planning Commission in India?
Resources

►INCLUSIVE GROWTH IN INDIA Problems with Poverty Eradication Programs such as

poor identification of beneficiaries, presence of ghost
Inclusive growth is defined as “process and outcome
beneficiaries, poor allocation of finances, poor
where all groups of people have participated in growth
implementation, large scale corruption and lack of
and have benefited equitably from it” (UNDP). Inclusive
transparency and accountability. For instance, according
growth has much wider scope than welfare approach.
to the NSSO report, around 40-60% of the food grains do
Welfare approach focusses on outcomes (Income not reach the beneficiaries due to diversion of food
redistribution) through tax policies and enhanced grains and black marketing.
expenditure for welfare of poor people. However,
Employment: The higher economic growth in India has
Inclusive growth focusses on outcomes (Income
not translated into higher employment opportunities
redistribution) as well as process (creating opportunities
leading to jobless growth. According to various
through Job creation, human capital formation etc.)
estimates, the employment elasticity in India has
Hence, inclusive growth incorporates sector-specific,
remained quite low at 0.1.
people-specific, gender-specific, region-specific policies
Agricultural Development: The increase in the input
to ensure that poor people participate in the growth and
costs, decrease in the agricultural productivity
get equitably benefit from it.
accompanied by decrease in the prices received by the
India has made rapid strides in its economic growth
farmers on the agricultural produce has led to fall in the
wherein the GDP size has increased from $ 275 bn in
income levels of the farmers. According to the NSSO
1991 to $ 2.7 trillion in 2019. It is also considered to be
estimates, the average monthly income of the
the fastest growing major economies across the world.
agricultural household is around Rs 6500 whereas their
However, such a growth model has failed to promote
average monthly expenditure is around Rs 6250.
balanced, equitable and inclusive growth.
Equitable Distribution of Income: As per Credit Suisse,
REASONS FOR LACK OF BALANCED & INCLUSIVE
1% of the wealthiest in India have increased their share
GROWTH
in wealth from 40% in 201o to 60% in the last five years.

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 INCLUSIVE GROWTH AND DEVELOPMENT
Provision of basic services: India's expenditure of 3% on countries. One study estimates that the greenhouse
education is much below the target of 3%. Similarly, gases emitted by 273 Americans in 2020 will kill one
expenditure on health has remained quite lower at 1.3% person during the rest of this century through heat
as against the mandated 3%. waves alone.
Balanced Regional Development: Some of the states WAY FORWARD
such as Maharashtra, TN, Punjab etc. have made rapid Higher taxes on billionaires: All governments should
progress on account of historical, geographical and immediately tax the gains made by the super-rich during
economic factors. However, the states in the Northeast this pandemic period. This must evolve into
and Eastern India continue to have lower growth rates. implementing permanent progressive taxes on capital
Similarly, even within the states, there are certain and wealth to fundamentally and radically reduce wealth
pockets of underdeveloped regions such as Vidarbha inequality.
(Maharashtra), Saurashtra (Gujarat), Hyd-Kar region
Redirect wealth to save lives and invest in future:
(Karnataka) etc.
• Provide for universal healthcare coverage to improve
Environmental Destruction: The extreme weather events
health outcomes
such as cyclones, droughts, floods etc. would have a
much higher impact on the poor and vulnerable sections • Provide for universal social protection to provide
such as SCs, STs, Women etc. income security for all

WAY FORWARD • Rich governments must fully finance climate

adaptation
The Government has to realize that "Ease of Living" is
much wider and comprehensive as compared to "Ease Change rules and shift power in the economy and
of Doing Business". Ultimately, Gandhi's philosophy of society:
putting the last man first should be the sole guiding light • Adequate protection to workers in form of wages,
for the government's policies. social security, right to form trade unions etc.
• Addressing monopolies and limiting market
►OXFAM’S “INEQUALITY KILLS” concentration.
REPORT • Women still make up only 25.5% of parliamentarians
globally and hence need to tackle the barriers to
WHY INEQUALITY KILLS?
representation for women
Economic Violence: Extreme inequality is a form of
“economic violence”—where structural and systemic • Provide for IPR waiver on the vaccines and drugs to
policy and political choices that are skewed in favour of deal with covid-19 pandemic.
the richest and most powerful people result in direct
harm to the vast majority of ordinary people worldwide.
►SILVER ECONOMY: MEANING,
Vaccine Apartheid: A number of poor and developing
countries could not get access to vaccines leading to
SCOPE AND SIGNIFICANCE
higher deaths. So, one hand, MNC pharma companies The Silver Economy refers to system of production,
continued to make windfall profits, development of distribution and consumption of goods and services
vaccines did not benefit poor countries. aimed at utilising the purchasing potential of the ageing
Lack of access to healthcare: Healthcare of good quality populations, as well as satisfying their consumption
is a human right, but too often treated as a luxury for requirements and living essentials and healthcare
rich people. An estimated 5.6 million people die every needs.
year for lack of access to healthcare in poor countries. BENEFITS
Gender based violence: 143 million women are missing • Boost Investment and Consumption Expenditure,
worldwide due to a combination of excess female create more jobs and pursue higher GDP growth
mortality and sex-selective abortions (son preference). model.
Hunger & Malnutrition: Hunger kills over 2.1 million • Make life easier for senior citizens and enable them to
people each year at a minimum. productively contribute to economic growth.
Climate Crisis: Climate change is on account of higher
• Health Care sector: Higher focus on senior citizens will
emissions by the richest people. However, the brunt of
lead to (a) Improve health care infrastructure (b)
climate change is faced by poor and developing

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 INCLUSIVE GROWTH AND DEVELOPMENT
creation of more jobs as doctors, nurses, pharmacists 3. Economic Security
etc. • Extension of Pension to certain APL Families to be
• Financial Sector: Development of financial institutions identified through Socio-Economic Caste Census
to cater to Banking, insurance and pension. For (SECC)
example, dedicated MFIs to provide small value loans • Reskilling of Senior Citizens to enhance their
to senior citizens. employability
• Hospitality, Travel & Tourism: Development of • Promote Entrepreneurship through PSL loans for
religious tourism circuits for the senior citizens would
Senior Citizens
provide fillip to hospitality industry and benefit local
4. Incentives to the private sector which specialise in
economy.
silver economy through Tax exemptions.
• IT Sector: Development of technological tools such as
5. Imposition of Separate Cess to spend for the welfare
home automation, Smart Watches, Telemedicine,
Database Management (Ayushman Digital Bharat of Senior Citizens.
Mission), Home delivery of medicines etc. 6. Separate ministry dedicated to the elderly.
STRATEGIES TO PROMOTE SILVER ECONOMY 7. Inculcate family values of caring for parents by
1. Promoting productive ageing redesigning School Curriculum.

• Age of retirement should be increased from 60 to 65.

• Finding suitable places where old age can contribute ►POVERTY LINE ESTIMATES IN
with their experience. These careers can be teaching INDIA
in schools, acting as consultants in government
Poverty eradiation remains a major challenge in creating
departments and businesses. a just and equitable society. The first step towards
• Create awareness in people in younger age groups eradication of poverty is to estimate proportion of
about old-age planning, look after health and engage people living below the Poverty line. However, there is a
in Yoga etc to have a healthy old age life considerable debate and controversy surrounding
2. Health Security Poverty line estimation. On one hand, successive
Governments have highlighted the success of their
• Improve coverage of Health insurance schemes.
schemes and programmes in reducing the BPL
• Enhanced Government's expenditure on healthcare population. While, on the other hand, it has been
• National and regional institutes of ageing should be highlighted that Poverty line in India is too low and
set up to promote geriatric healthcare. hence India may be underestimating the BPL population.

EVOLUTION IN POVERTY LINE ESTIMATION IN INDIA

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CONTROVERSY OVER THE LATEST POVERTY LINE ESTIMATES
Presently, the proportion of people living below the Poverty line is estimated based upon the methodology
recommended by Suresh Tendulkar Committee.

Poverty Estimation based upon Suresh Tendulkar Committee

Year Poverty line (Rs) Poverty head count ratio

Rural Urban Rural Urban All-India

2004-05 Rs 446 Rs 578 41.8% 25.7% 37.2%

2011-12 Rs 816 Rs 1000 25.7% 13.7% 21.9%

CURRENT DEBATE ABOUT POVERTY LINE ESTIMATION

Controversy surrounding Poverty line estimation

Problems Counter Arguments

1. Outdated Poverty Line Basket: Poverty varies across 1. Official poverty line estimates closer to World Bank’s
time. As standard of living has improved, the poverty line estimates: World Bank has set International Poverty
basket also needs to be updated. Items which were line at $1.90 a day at 2011 international prices. 22.5%
considered as luxury have now become necessity of population live below poverty line (World Bank,
(Mobile, TV, Bank Account etc.). However, these items 2011). This is comparable to official estimates of 22%.
are not part of poverty line basket. 2. Poverty line estimation is only for statistical purposes:
2. Poverty line is too low: Poverty line of Rs 27 in rural Opposition parties highlight that decrease in BPL
areas and Rs 33 in urban areas fails to capture true population due to artificially lower poverty lines
scenario of poverty in India. Hence, India may be would lead to exclusion of the people from
underestimating BPL population. beneficiary list in government schemes and
3. Flawed Assumption: Poverty line estimation is based on programmes. But the Government believes that
flawed assumption that if people can meet their basic estimation of BPL population and identification of
food needs, they would also be able to meet non-food beneficiaries are two different things. The
requirements as well. That is why non-food identification of beneficiaries for government
requirements such as Mobile, TV etc. is not considered. schemes and programmes (such as Ayushman
We need to understand that the priority for the people is Bharat, PM Awas Yojana, PM Ujjwala Yojana etc.) is
to meet their food requirements. After meeting their not just limited to BPL population. It also includes APL
food requirements, they may not have money left for population as well. Identification of beneficiaries takes
non-food expenses. place based upon the Socio-Economic Caste Census
(SECC) and hence has no relation to Poverty line
4. No multi-dimensional view of poverty: Fails to realize
estimation.
that poverty is on account of multiple deprivations such
as education, health, housing, sanitation etc. For 3. Frequent updating of Poverty Line Basket (PLB) would
example, according to Global Multi-dimensional Poverty make it difficult to track our progress in poverty
Index (MPI 2020), 28% of India’s population is poor. This alleviation. It would also make it difficult to analyse
is much higher than our official estimates of 22%. the impact of government schemes and programmes
in eradicating poverty.

WAY FORWARD vary and likely to give rise to controversy and debate. So,

Perceptions of what defines basic human needs vary should we do away with the Poverty line altogether??

widely. Hence, views on "What should be the Poverty No, fixing a poverty line (though controversial and
line?" and "What should constitute Poverty line Basket?" debatable) has its own advantages. It helps us track our

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progress in poverty reduction as enshrined under SDG 1 does not imply that redistributive objectives are
(Ending Poverty in all its manifestations). It also helps us unimportant, but that redistribution is only feasible in a
to analyse the impact of Government schemes, policies developing economy if the size of economic pie grows.
and initiatives. In this regard, Arvind Panagariya
Taskforce on Elimination of Poverty has outlined the 4
►CRITICAL ANALYSIS OF SUBSIDY
options with respect to Poverty line.
REGIME IN INDIA
Option 1: Continue with the Tendulkar poverty line
Since 1970s, subsidies have always remained the main
Option 2: Accept the Rangarajan poverty line or higher
plank for poverty eradication in India. Government
rural and urban poverty lines
provides number of subsidies in the form of Food,
Option 3: Track progress of the bottom 30 of the
Fertiliser, Electricity, Water, MSP, railway Passenger fare
population
etc. In 2020-21, Government has spent almost Rs 6.5
Option 4: Track progress along specific components of lakh crores on subsidies in comparison to defence
poverty such as nutrition, housing, drinking water, expenditure of Rs 4.8 lakh crores. So, the question is
sanitation, electricity and connectivity. "Are subsidies best weapon for fighting poverty in
(Option 3 and 4 can be complementary to option 1 or 2 India?".
but cannot be a substitute for it). PROBLEMS WITH SUBSIDY REGIME

1. Price subsidies are often regressive: Some of the

►GDP GROWTH VS INCOME subsidies such as Electricity, Fertilisers, MSP etc. are
universal in nature and are given to all the
INEQUALITY: WHAT SHOULD INDIA
households irrespective of their socio-economic
DO? status. Being universal in nature, such subsidies
benefit the richer households more than the poor
In advanced economies, following Global Financial Crisis
households and hence considered to be regressive in
a conflict came to be seen between economic growth
nature.
and inequality, with inequality as a feature of capitalism.
As Indian economy moves towards a market-based 2. Leakages & Corruption: Inclusion and Exclusion
paradigm there is a debate on how to address this Errors; Duplicate and Ghost Beneficiaries; Presence of
conflict. (Eco Survey 2020-21) Middlemen, Poor administrative efficiency etc.
Example: 46% leakage in PDS
Advanced economic have low absolute poverty and low
growth rates, however, India has high economic growth 3. Subsidies create distortions and ultimately affect poor
rates and high level of absolute poverty. Example: Gini people:
coefficient in US (0.41) is higher than India (0.35) with
growth potential of US lower than that of India. Hence, it
is prudential for US to target inequality and India to
pursue economic growth.

IN INDIAN CONTEXT, DATA SUGGESTS:

• Unlike advanced economies, Indian economic growth

and inequality converge in terms of their effects on
socio-economic indicators.

• Economic growth has far greater impact on poverty

alleviation than inequality.

Therefore, given India’s stage of development, India

must continue to focus on economic growth to lift the
poor out of poverty by expanding the overall pie. This

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4. Adverse Impact on different sectors of Economy
Banking: Farm loan waivers can have an adverse impact
on the credit culture in the country as even those
farmers who have the capacity to repay back the loans
would default on the anticipation that the loans would
be waived off by the government. Similarly, poor
financial position of DISCOMs and Power generation
companies has led to increase in NPAs.
Power Sector: Poor financial position of DISCOMs;
Higher AT&C losses; Inability to pay money to power
generating companies; Higher NPAs of Banks
Railways: Higher Operating Ratio; Lower profits;
Decrease in capacity addition and Modernization; Higher
Logistics Cost
Public Finance: Higher expenditure on subsidies reduces
the ability of the government to spend money on
creation of assets such as Roads, Railways, ports etc.
leading to decline in overall productivity of economy
WAY FORWARD
Eliminating or phasing down subsidies is neither feasible
nor desirable unless accompanied by other forms of
support to cushion the poor and vulnerable. In this
regard, the JAM Number Trinity – Jan Dhan Yojana,
Aadhaar and Mobile numbers would be able offer this
support in a targeted and less distortive way.

►NEED FOR URBAN WAGE

EMPLOYMENT PROGRAM
AGRICULTURE The recent Covid-19 crisis has underscored the need for
Announcement of higher MSP on Rice and Wheat has Urban Wage employment programme on the lines of
encouraged cultivation of water-intensive crops and MGNREGA. Such a wage employment programme in the
prevented diversification of Indian Agriculture towards urban areas can not only restore livelihood
Pulses, Oilseeds, Fruits and Vegetables etc. It has opportunities of the urban migrants, but it can also help
impacted the poor people in the following ways: us ramp up our urban infrastructure.

• Low Income for Farmers DESIGN OF THE PROGRAMME

• Inflation in Agri-Commodities: Lower production of Legal Sanctity: This programme should have a strong
Pulses, Oilseeds, Eggs etc. lead to demand-supply legal basis in the form of a National Urban Employment
mismatch. Guarantee Act which provides a statutory right to
employment at specified wage rates and number of
• Nutritional Insecurity: Demand-supply mismatch has
days.
led to nutritional insecurity leading to micronutrient
deficiencies, vitamin, iron deficiencies etc. Coverage: Cater both to urban informal workers and
educated youths.
RAILWAYS: Cross subsidization of Passenger fares by
increasing freight charges Higher Operating Ratio • Informal workers should be guaranteed 100 days of
(98%)  Lower profits Poor service delivery to poor wage employment. These workers should be involved
people. in public works such as building and maintenance of
roads, parks etc.
SUBSIDY ON ELECTRICITY: Subsidy on Electricity-->Poor
Financial position of DISCOMs--> High AT&C losses--> • Educated youths Skill development and
Inability to provide 24X7 Electricity to poor households entrepreneurship. For example, the educated youths

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 INCLUSIVE GROWTH AND DEVELOPMENT
can get training through apprenticeship in municipal Expansion of Constitutional Rights: An employment
office, schools, hospitals. guarantee programme also strengthens the ‘Right to Life’
Nature of Work: enshrined under Article 21 of the Constitution of India.

• Public works such as construction of buildings, roads,

Restoration of urban commons like water bodies, ►UNIVERSAL BASIC INCOME
wetlands, parks etc. It is a regular fixed cash transfer payment provided by
• Engagement of apprentices in municipal offices, the government to every citizen or resident regardless of
schools, Hospitals etc. their socio-economic status to ensure that they are at
Implementation: least able to meet their basic needs. The UBI is defined
by 3 characteristics:
• Program should be implemented by Urban Local
bodies (ULBs). • Universality: Covers the entire population without
considering the socio-economic status.
• Finalisation of works should be done in a participative
manner through regular consultation with ward • Un-conditionality: It should be given without any
sabhas. conditionality.

• Mandatory social audit and public hearings • Agency: UBI should be in the form of cash transfers
without dictating the choices i.e., the recipients
• Time bound Grievance redressal mechanism
should have complete freedom to use the UBI in
RATIONALE AND BENEFITS
whatever way they deem fit.
Absence of Wage-employment Program in Urban Areas:
DEBATE SURROUNDING UBI
Swarna Jayanti Shahari Rozgar Yojana (SJSRY) launched
in 1997 has been replaced by National Urban Livelihoods FAVOUR AGAINST
Mission (NULM) in 2013. The NULM lays more emphasis
on self-employment and entrepreneurship rather than Freedom and Justice Social Cost
on wage employment. • Guarantees Right tolife • Increase in the
Boost Demand & Employment Creation: As per the PLFS under Art 21. expenditure on
2017-2018, open unemployment stands at a historic • Ensures basic human rights temptation goods such
high of 6.1 per cent, and unemployment among to the people. as Alcohol by the male
educated youth has reached 20 per cent. members.
• Acknowledgment of the
Unemployment in urban areas is higher than the unpaid work done by the • Gender disparity- Men
unemployment rate in rural areas. homemakers. are likely to exercise
Increased Urbanisation: By 2030, it is estimated that control over spending
Poverty Reduction
around 42% of India’s population would be urbanised of the UBI. This may
• Does away with “One size not always be the case
from the current 31%. Plugging deficiency in
fits all approach” of the with other in-kind
infrastructure will smoothen the process of urbanisation
Government schemes to transfers such as LPG
by promoting ease of living and facilitating economic
eradicate poverty.
activity. subsidies.
• Empowers the families to • Goes against the
Changing Demography in India: Economic survey 2018-
take their own decisions Principle of Reciprocity
19 has highlighted that the share of working of working-
based upon their needs (a
age population would increase from 50% (2011) to 59% which mandates that
better tool for poverty the rights should be
(2041), while the share of senior citizens would increase
eradication) commensurate with
from 8% (2011) to 16% (2041). The changed demography
• Does away with problem of the obligations/duties
will need the converged development of a host of
Exclusion errors in the BPL of the person.
infrastructure facilities such as housing, water sanitation
List (“wipe out every tear Political Cost
services, digital and transportation needs.
from every eye”)
Climate change & disaster resilience: Building Climate • Problem of Exit-
Reducing Income Inequality Difficult for the
Resilient infrastructure is critical for people’s well-being,
quality of life, and economic prospects. The recent • Provides security net to government to
disasters indicate that up to 66% of total public sector withstand any potential job introduce UBI by doing
losses in weather and climate related extreme events losses in future due to away with subsidies.
are related to infrastructure damage.

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growing automation. • UBI may emerge as Does not affect the Failure of Pilot UBI
• Enables the poor people to add-on rather than a incentive to work programs in some
improve their skill set replacement to the • UBI covers only the basic countries
leading to higher existing poverty needs and people would • Finland has decided
productivity. eradication schemes work to meet higher order not to extend the pilot
leading to needs (can be explained by UBI program since it
• Enhances the bargaining
inefficiencies. Maslow’s Theory of has led to increase in
power of the labour class
leading to increase in wages • Competitive populism Motivation) income inequality and
and better working in fixing UBI leading to • People work not just to decrease in the labour
environment. higher fiscal deficit. meet their financial needs force.

• Financing of UBI through Economic Cost but also to meet their social
progressive taxation would • Feasibility of UBI- and psychological needs
help in transfer of income Implementation of UBI Does not lead to increase in
from the richer class to poor would need 12.5% of Temptation goods
• Positive spillover effects GDP (based upon • Both alcohol and Tobacco
such as increased levels of Tendulkar Committee’s are inferior goods and not
entrepreneurship among poverty line estimates normal goods i.e., their
the poor families. of Rs 1190 per person demand reduces as the
per month) income level of the people
Mental health
• Exposure to market increases due to the
• Free from mental burden of
risks- Unlike food substitution effect (Law of
meeting basic needs.
subsidies that are not Demand).
• Increased personal
subject to fluctuating • The assumption that the
satisfaction and emotional market prices, the cash UBI would lead to increase
well-being leading to higher transfer’s purchasing in the temptation goods
productivity.
power may severely be goes against the empirical
• Gives choice to the people curtailed by market evidence.
and liberates citizens from fluctuations.
paternalistic and clientelistic GUIDING PRINCIPLES FOR SETTING UP UBI
• Difficult to improve
relationships with the state. tax-GDP ratio to fund The Economic Survey has highlighted the possible
Financial Inclusion UBI. approaches to implement UBI:
• UBI Transfers will Implementation De jure universality, de facto quasi universality
encourage greater usage of Lack of financial
• 1. Automatic Exclusion criteria such as ownership of
bank accounts and hence inclusion among the
movable and immovable assets to exclude the non-
improvement in financial
poor would pose a deserving people from the ambit of UBI.
inclusion. major challenge.
2. ‘Give it up’ scheme wherein those who are non-
• Increase in the customer • Poor financial deserving chose to opt out of the programme just as
base of the banks and
awareness among the in the case of LPG and are given credit for doing so.
opening of more branches people.
in rural areas. 3. Introduce a system where the list of UBI beneficiaries
Abdication of is publicly displayed; this would “name and shame”
Administrative Efficiency responsibility by the
the rich who choose to avail themselves of a UBI.
• Reduce the administrative State
burden of implementing Gradualism
• The state may abdicate
large number of its responsibility of 1. Rather than providing UBI in addition to current
overlapping schemes. providing basic schemes, UBI can be offered as choice to beneficiaries
• Adoption of JAM trinity (Jan services such as of existing programs.
Dhan, Aadhaar and mobile) Education, Health etc. 2. Provision of UBI for the women only. This would
leading to increase in upon transferring UBI reduce the expenditure on UBI by half with greater
efficiency. to the people. benefits to the families.

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3. Start with implementation of UBI only in the urban Upgradation of health facilities: With an abysmal
areas since higher financial inclusion would ensure its hospital beds per 1000 population of 0.7, India needs to
success. upgrade health care facilities particularly in the tertiary
Further, we can also think of introducing Negative sector that is linked with life-style disorders.
Income Tax (NIT) instead of UBI. Under the NIT, all the Retirement Age: Given the increase in healthy life
individuals whose annual income is below the threshold expectancy beyond 60, India should increase its
for tax liability would be able to get the monetary retirement age at least up till 65 as has been
support from the government. Hence, unlike the UBI, the contemplated by developed countries.
NIT is not universal and hence would incur fewer costs. Thus, in order to become a $5 trillion economy, India
needs to employ an inclusive approach that focuses on
►REAPING THE DEMOGRAPHIC each section of the population structure that is
witnessing a change.
TRANSITION IN INDIA
India is said to witness a rapid demographic transition in
►NEED FOR INCLUSIVE
the next 2 decades with demographic dividend expected
to peak by 2041. Coupled with the declining share of MIGRATION POLICY IN INDIA
young and increasing old age population, India will need Historically, migration of people for work and education
to reorient its socio-economic policies in accordance has been a phenomenon that has accompanied the
with the changing demography as shown below. structural transformation of economies. It has paved the
Population (Age-Group) 2011 2041 way for the release of “surplus labour” from relatively
low-productive agricultural activities to sectors enjoying
0-19 41% 25% higher productivity. In case of India, as highlighted by
20-59 51% 59% Economic Survey 2016-17, the Internal Migration has
functioned as key enabler for promoting growth and
Greater than 60 8% 16% development in India as well. However, the recent
Focus of job creation: While 60% of India is projected to economic distress caused due to COVID-19 has
be in the working age (20-59) the labour force underscored the need for comprehensive and holistic
participation today is at meagre 53%. Thus, we need to policy to cater to the migrant population.
have a sustainable long-term vision for job creation INTERNAL MIGRATION IN INDIA
which includes a 360-degree approach of generating The number of internal migrants in India was 450 million
jobs, producing job creators and empowering the labour as per the most recent 2011 census. This is an increase
force. of 45% over the 309 million recorded in 2001. This far
th
Skilling and Reskilling: Being at the cusp of 4 industrial exceeds the population growth rate of 18% across 2001-
st
revolution the 21 century jobs require skilling and 2011. Further, the Economic Survey 2016-17 has
reskilling. Thus social-economic policies targeting skill highlighted that the annual inter-state labour mobility
development should be designed such that they are in a averaged 5-6 million people between 2001 and 2011.
continuum with education that focuses on enhancement The benefits of this internal migration have enabled
of learning capabilities. India to reap demographic dividend optimally and at the
Consolidation of schools: With decline in share of young same time promote Balanced regional growth and
th,
(0-19) to about 1/4 policies targeting consolidation of development.
schools need to be promoted without affecting access.

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This acceleration in Internal migration has taken place in ►GIG ECONOMY- PROSPECTS AND
the backdrop of discouraging incentives such as domicile
provisions for working in different states, lack of CHALLENGES
portability of benefits, legal and other entitlements upon A gig economy is a free market system in which the
relocation. To sustain this Internal migration post organisations employ contractual, non-permanent
COVID-19, these policy hurdles have to be overcome. employees for short-term engagements. The Global Gig
Portability of food security benefits, healthcare, and a Economy Index report has ranked India among the top
basic social security framework for the migrant are quite 10 countries.
crucial.
Gig Economy in India: It is estimated that out of 21 lakh
POLICY RECOMMENDATIONS
jobs that will be created in the metros in 2019-20, 14
Immediate Measures lakh jobs will be created in Gig Economy. Food and e-
• Mandatory Registration for all workers under commerce companies account for the major share of job
Interstate Migrant Workers Act creation in the Gig Economy.
• Creation of Migration Support Centres (State/ District REASONS FOR THE DEVELOPMENT OF GIG ECONOMY
wise) to facilitate services like the creation of Ration
• Rapid growth of the digital communication wherein
Card, Banking, Gas Connections etc.
the workforce is highly mobile, and work can be done
• Expanding Apprenticeships in the local industries can from anywhere without any geographical barriers.
help migrants develop more skills.
• Adoption of Gig Economy reduces the operating costs
• Expanding Social Security benefits to migrant workers
of the firms since the companies would not be liable
• Skill Development Fund for Migrant Workers to pay pension and other social security benefits.
• Housing facility through affordable Rental Housing • Flexibility to the workers wherein they can switch jobs
Complexes (ARHC) for Migrant Workers under frequently and choose work which suits their area of
Pradhan Mantri Awas Yojana (PMAY) interest.
Long term Measures
• Recent slowdown in the formal employment creation
Promotion of Sustainable Migration: There is a need to has also boosted the development of Gig Economy.
provide for livelihood opportunities in the residence
CONCERNS WITH GIG ECONOMY IN INDIA
states to check distress induced migration. This can be
done through the following steps: • It leads to creation of informal sector jobs and thus
hinder the optimum utilization of demographic
• Organising traditional rural Industries into clusters to
dividend.
enable them to reap economies of scale.
• Current Indian labour laws do not explicitly consider
• Enhancing marketability of the products of these
gig workers. Acts like maternity benefit, sexual
Industries by providing them with necessary support
harassment at workplace etc are silent or unclear.
such as design for new products, improved packaging
and improvement of marketing Infrastructure. • Absence of social security benefits such as insurance,
pension, provident fund etc.
• Re-skill and Upskill the workers based upon the
existing demands • Lack of Job Security and presence of workers from
across weakens the bargaining power.
• Encourage Self-Help Groups (SHGs) in the rural areas.
• Temporary nature of transactions undermines the
Focus on Development of Tier II and Tier III Cities:
need to build long-term relationships between buyers
Presently, the Internal Migration within India is said to
and sellers
be distorted since most of the migrants migrate to
PROTECTION PROVIDED TO GIG WORKERS UNDER
metropolitan cities such as Delhi, Mumbai, Bengaluru
LABOUR CODES
etc. On one hand, this puts huge pressure on these
Labour Codes that seek to introduce Labour Reforms in
Cities to cater to the needs of the migrants. While, on
India have legally acknowledged the presence of Gig
other hand, it leads to underdevelopment of Tier II and
Workers in the economy. For example, the Code on
Tier III Cities. Hence, there is a need to promote
Social Security, 2020 provides for the registration of all
balanced Urbanisation by focussing on development of
the Gig workers. It calls upon the Central and State
Tier II and Tier III Cities which can act as countermagnets
Governments to formulate schemes to ensure social
to metropolitan cities.
security benefits such as Insurance for the Gig workers.

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It also empowers the Government to set up Social ►DECODING THE ECONOMIC
Security Funds for their benefit. The contribution to
these funds may be funded from contributions of
SLOWDOWN IN INDIA
Centre, State and aggregator platforms such as Uber, Indian Economy has registered a negative GDP growth
Zomato etc. rate of 24% in the first Quarter of 2020-21. India is also
CONCERNS/ CHALLENGES set to suffer the worst recession in the last 41 years
Lack of Labour Rights: Platform workers often have since 1979. Opinions are divided over the exact cause of
limited control over their work (for instance, in some this contraction- COVID-19 or deep-rooted structural
cases they cannot set prices, they are required to wear problems in Indian economy.
uniforms, they cannot choose the order of their tasks,
etc.). This in turn makes them prone to the exploitation
of the platform-based companies.
Greater control by Employees: It is being said that the
Gig/Platform workers enjoy higher level of freedom and
flexibility in their work. However, these advantages get
over-shadowed by their higher dependence on the
platforms. Take for instance, if a person wants to work a
cab driver or food delivery agent, he needs to own
vehicle. Since poor people do not have access to loans,
they come to be dependent on the platforms for the
loans provided by them. This in turn reduces the
flexibility associated with the Gig Economy. The Workers
would have to work according to the needs and
requirements of the Platform companies.
No Guaranteed Benefits: Industrial workers are Lockdown imposed due to the outbreak of CoVID-19 has
automatically guaranteed social security benefits such as impacted both demand and supply side simultaneously
Provident Funds, Insurance, Maternity benefits etc.
leading to twin shocks, which is quite unprecedented.
However, such benefits are not automatically extended
to Gig Workers. The Central and State Governments are However, the present contraction is not entirely on
required to come up with schemes to provide these account of COVID-19. Even in the absence of COVID-19,
benefits. So, the social security benefits for the Gig the Indian Economy would have still faced slowdown,
Workers depend upon the political will of the though not on a scale which is observed presently. The
Government. COVID-19 has actually accentuated the factors that
No Guaranteed Contribution by Aggregator Platforms: contribute to economic slowdown.
Code on Social security mandates industries employing
The Economic survey 2019-20 had highlighted that
workers above a certain threshold level to compulsorily
contribute towards social security benefits such as slowdown is because of the inability to sustain a virtuous
Provident Fund and Insurance. However, as far as Gig economic cycle. The Investment rate started declining
Workers is concerned, the language in the code does not from 2012-13 due to the poor financial position of
provide for compulsory contribution by the aggregator Banks. However, the Indian economy continued on a
platforms. Hence, it is left open to the Government higher GDP growth trajectory for the next 4 years.
whether to seek contribution from the aggregator
Ultimately, the decline in Investment led to decline in
platforms or not.
GDP growth rates from 2016-17 due to lagged effect.
No legal Rights for Gig Workers: Industrial workers are
The Consumption expenditure started declining in the
given legal rights over the various aspects of work such
first quarter of 2019-20 due to lagged effect of 2-3 years.
as Payment of Minimum wages, safe working conditions,
right to strike, right to form trade Unions etc. However, Hence, the present economic slowdown can be traced to
such rights have not been recognised in case of Gig 2012-13 when the Investment rate started declining.
workers.

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So far, the Government is withholding expenditure and • Eliminating needless government intervention such as
desisting from announcing fiscal stimulus measures in
Essential Commodities Act, Regulation of Drug Prices
order to contain Fiscal Deficit. Unprecedented times
etc.
need unprecedented measures. Hence, Government
should not unduly be worried about the Fiscal Deficit • Create Jobs by Integrating "Assemble in India" with
and instead provide fiscal stimulus measures to enhance "Make in India".
Investment, create employment opportunities, boost
• India’s banking sector is disproportionately under-
consumption and thus increase GDP growth in future.
developed given the size of its economy and hence,
there is a need to enhance efficiency of PSBs.
►ETHICAL WEALTH CREATION IN
• Promote Entrepreneurship at district level. India was
INDIA the dominant economic power globally for a major
Contemporary evidence and civilisational ethos (as part of world’s economic history on account of Ethical
reflected in Arthasastra) show that Ethical Wealth Wealth creation. Hence, India needs to learn from its
Creation through Invisible hand of market supported by
economic history to become $ 5 trillion economy.
hand of Trust can enable India to achieve vision of $ 5
trillion economy.
For more than three-fourths of known economic history, ►INTEGRATION OF BEHAVIORAL
India has been the dominant economic power globally. ECONOMICS INTO PUBLIC
During much of India’s economic dominance, the
POLICIES
economy relied on the invisible hand of the market for
wealth creation with the support of the hand of trust. Behavioural economics is a branch of economics which
Specifically, the invisible hand of markets, as reflected in seeks to understand socio-psychological factors that
openness in economic transactions, was combined with affect decision making and then uses various strategies
the hand of trust by appealing to ethical and to nudge individuals to act in a desired manner.
philosophical dimensions.
The Economic Survey 2018-19 has highlighted that
The Economic Survey 2019-20 has highlighted number integration of Behavioural economics into public policies
of strategies promote Ethical wealth creation:
can have desirable outcomes:
• Liberalised Sectors (Banking, Insurance) grow
• Default Bias: Reluctance of people to change the
significantly faster than closed sectors (Railways,
default option can be leveraged for higher enrolment
Coal). Hence, the need to liberalise sectors (including
in Insurance, Sukanya Samridhi yojana, Give-it up
privatisation of CPSEs) to unleash creative
subsidy.
destruction.
• Making it easy to Choose: Simplification of procedures
• Promote “pro-business” policies and give up “pro-
to make it easier for women to report incidences of
crony” policies that may favour specific private
harassment, file tax etc.
interests.

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 INCLUSIVE GROWTH AND DEVELOPMENT
• Emphasize social norms: Honour honest taxpayers for The year 2020 marks the fifth anniversary of adoption of
increased tax compliance, project women as role 2030 Agenda for Sustainable Development. India's
models to end gender-based discrimination etc. progress on 17 SDGs is quite critical since India accounts
• Repeated reinforcement of positive outcomes helps for 1/6 of the global population. In order to track India's
sustain good behaviour in Swachh Bharat, Jan Dhan progress on meeting SDGs, the NITI Aayog had unveiled
Yojana etc. SDG India Index in 2018.

• Address flawed mental models to emphasize gains INDIA’S PERFORMANCE ON SDG INDIA INDEX
from vaccination, breastfeeding etc. • India’s composite score has improved from 57 in 2018
• Meaningful naming of schemes such as Ayushman to 60 in 2019, thereby showing noticeable progress.
Bharat, Ujjwala, Namami Gange etc. • All three states that were in the ‘Aspirant’ category
Hence, we need to set up a dedicated unit under NITI (with score/s in the range of 0–49)—Uttar Pradesh,
Aayog to explore the unlimited possibilities of employing Bihar and Assam—have graduated to the ‘Performer’
Behavioural economics and promote socio-economic category (50–64). Thus, presently, there are no states
development. in the Aspirant category.
• Top Performing States: Kerala, HP, Andhra Pradesh,
Telangana and Tamil Nadu.
►DATA OF THE PEOPLE, BY THE
• Bottom ranked States: Bihar, Jharkhand, Arunachal
PEOPLE, FOR THE PEOPLE
Pradesh, Meghalaya and UP.
India has the second largest Internet base accounting for
• Top Performing UTs: Chandigarh, Puducherry, Dadra
12% of global users leading to generation of huge data.
and Nagar Haveli.
This is accompanied by decrease in marginal cost of data
SDG NEXUS: A NEW PARADIGM APPROACH
due to increased efficiency of Data gathering, falling
prices of data storage etc. There are linkages among the various SDGs and have
strong impacts on reinforcement of policies. In this
Economic Survey 2018-19 has highlighted that just like
regard, the ‘nexus’ approach employs the principles of
how Private sector uses the data to maximize its profits,
integrating management and governance across sectors
the Government should use the data to promote public
and scales. This demands greater co-ordination across
welfare. In a way, data should be treated as Public Good
institutions at local, national and international levels.
to promote growth and development:
EXAMPLES OF NEXUS IN SELECT SECTORS
Evidence based Policy Making through collecting,
processing and analyzing data related to Government Education and Electricity Nexus: It is observed that with
schemes to improve their outcomes. Examples include electricity, schools’ access to modern methods and
MGNREGA, RTE, National Health ID etc. techniques of teaching helps holistic development of
students and increase their attraction towards learning.
Empowering people through dissemination of data.
Globally schools with electricity outperform the non-
Examples include E-NAM, Weather-related Information,
electrified schools in terms of staff-retention, drop-outs
Digi Locker etc.
and other educational indicators. It is observed that
Ensuring Transparency and Accountability to promote States with lower literacy rates have low electricity rates
Good Governance by making available Government at the schools and vice-versa.
related documents.
Health and Energy Nexus: There is a positive relationship
Better Targeting of Welfare Programs through Aadhaar, between electricity consumption and fall in Infant
JAM Trinity, NREGASoft etc. Mortality Rate (IMR) in the country. Many health
One of the biggest constraints in harnessing Data is that improvement schemes- providing paediatric care, new-
the Information related to Citizens is scattered across born emergency services, and successful vaccination rely
numerous government bodies. Hence, there is a need to heavily on availability of electricity at the health centres.
merge these distinct datasets to optimally harness the
data for the public good.
►FINANCIAL INCLUSION
The promotion of financial inclusion is essential to
►INDIA'S PERFORMANCE ON SDGS promote economic growth and development across the
INDIA'S PROGRESS ON SUSTAINABLE DEVELOPMENT world. Access to formal finance can boost job creation,
GOALS (SDGs) reduce vulnerability to economic shocks and increase

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 INCLUSIVE GROWTH AND DEVELOPMENT
investments in human capital. Seven of the United Providing Basic Bouquet of Financial Services that
Nations Sustainable Development Goals (SDG) of 2030 include a Basic Savings Bank Deposit Account, credit, a
view financial inclusion as a key enabler for achieving micro life and non-life insurance product, a pension
sustainable development worldwide. product and a suitable investment product.
FINANCIAL INCLUSION IN INDIA Access to Livelihood and Skill Development: The new
Definition: According to Raghuram Rajan Committee on entrants into the financial inclusion must be must aware
Financial Sector reforms, Financial Inclusion refers to of the government initiatives to promote skill building
universal access to a wide range of financial services at a such as National Rural Livelihood Mission (NRLM), PM
reasonable cost. These include not only banking Kaushal Vikas Yojana (PMKVY) etc.
products but also other financial services such as Financial Literacy and Education: Financial literacy
insurance and equity product. modules with specific target audience orientation (e.g.,
Importance of Financial Inclusion: Financial Inclusion has children, young adults, women, retired employees etc.).
multiplier effect in boosting economic output, reducing These modules can be in the forms of Audio-Video/
poverty and income inequality. Financial inclusion of booklets and should be made available for
women is important to promote gender equality and understanding the product and processes involved.
women empowerment. Customer Protection and Grievance Redressal by setting
Extent of Financial Inclusion: As per census 2011, only up effective grievance redressal mechanism at different
58% of households are availing banking services in the levels.
country. However, as compared with previous census Effective Co-ordination between the key stakeholders i.e.
2001, availing of banking services increased significantly Government, the Regulators, financial service providers,
largely on account of increase in banking services in Telecom Service Regulators, Skills Training institutes etc.
rural areas. to make sure that the customers are able to use the
Causes of Financial Exclusion: Lack of Financial Literacy; services in a sustained manner.
Dominance of Bank Branches in Urban Areas; lack of
requisite documents to open Bank accounts; Lack of
►TOURISM SECTOR
awareness about Insurance products; Lack of Surplus
Income; Poor quality of services rendered. PRESENT SCENARIO OF INDIAN TOURISM

Important Measures to promote Financial Inclusion: According to the World Travel and Tourism Council, India
Nationalisation of Banks (1969 and 1980); Setting up of ranked 7th amongst 185 countries in term of travel and
Regional Rural Banks (RRBs); Priority sector lending tourism sector’s total contribution to GDP in 2017.
norms; Opening of Basic Savings Bank Accounts (BSBA); Tourism industry in the year 2017 contributed 9.4% of
PM Jan Dhan Yojana; Setting up of Payment banks and the GDP and generated 8% of the total employment in
Small Finance Banks; Launch of UPI, BHIM app etc. the country, thus making it a one of the largest
industries in service sector.
STRATEGY FOR FINANCIAL INCLUSION
The RBI believes that the Financial Inclusion depends TOURISM CAN CONTRIBUTE TO INCLUSIVE GROWTH

upon 3 parameters- Financial Inclusion policies, Financial • Potential to grow at a high rate and ensure
Literacy and Consumer trust. The Consumer confidence consequential development of the infrastructure at
and trust can be strengthened by providing for effective the tourist destinations.
Grievance redressal mechanism. Accordingly, based on • Travel and tourism sector is estimated to create 78
such a strategy, the RBI has identified certain pillars to jobs per million rupees of investment compared to 45
promote financial inclusion. jobs in the manufacturing sector for similar
STRATEGIC PILLARS FOR FINANCIAL INCLUSION investment.
Universal Access to Financial Services: Digital financial • Provides employment opportunities for both skilled
infrastructure should be set up by all the banks as well and unskilled workers.
as other non-bank entities to promote efficiency and • Tourism provides more benefits for women
transparency in the services offered to customers.
employment.

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 INCLUSIVE GROWTH AND DEVELOPMENT
• Potential to stimulate other economic factors through GDP at 0.7% has remained stagnant in the last 2
its forward and backward linkages with a host of decades.
sectors like agriculture, manufacturing, transport, • Lower Expenditure on R&D: India’s spending on R&D
hospitality, education, health, banking, etc. is well below that in major countries such as the US
GOVERNMENT INITIATIVES TO BOOST TOURISM (2.8), China (2.1), Israel (4.6) and South Korea (4.6).
Swadesh Darshan Scheme, Pilgrimage Rejuvenation and • Lower Share of Private Sector Investment: Unlike
Spiritual, Heritage Augmentation Drive (PRASHAD), developed economies, the R&D expenditure in India is
Adopt a Heritage Project, Incredible India 2.0 Campaign mainly driven by public sector.
etc. • Lower R&D investment in Health: The Public Sector
CONSTRAINTS IN TOURISM SECTOR investment in R&D is mainly driven by Defence, Space

• Entry/Exit of Tourists: Despite the introduction of an and Atomic Energy. The amount of investment in

e-visa facility, visitors find the process of applying for critical sector such as Health (R&D investment by
a visa still cumbersome. Further, awareness about the ICMR) is too low.

e-visa facility remains low. • Role of Universities in India: Universities in many

• Infrastructure & connectivity: Deficiencies in countries play a critical role in both creating the talent
infrastructure and inadequate connectivity hamper pool for research as well generating high quality

tourist visits to some heritage sites. research output. However, the Universities in India
have largely focussed only on teaching.
• Tourism segments or circuits: India has various tourist
destinations but few circuits or segments such as the RECOMMENDATIONS TO IMPROVE R&D ECOSYSTEM
Golden Triangle (Delhi-Agra-Jaipur). IN INDIA

• Promotion and marketing: Although it has been • Improve Math and Cognitive Skills at the school level.
increasing, online marketing/branding remains (Unless the foundation of Primary Education is strong,
limited, and campaigns are not coordinated. the superstructure of R&D cannot be strengthened)

• Skills: Number of trained individuals for the tourism • Encourage Investigator-led Research: Provide
and hospitality sector are a key challenge to giving necessary funding and support to the researchers to
visitors a world-class experience. take up research.

• Increase funding by Private Sector and State

Governments.
►NEED FOR BOOSTING
• Leverage scientific diaspora: There are today more
INNOVATION IN INDIA
than 100,000 people with PhDs, who were born in
PRESENT STATUS OF R&D IN INDIA: The Gross India but are now living and working outside India.
expenditure on R&D (GERD) in the country has been There is a need to attract these scientists back to
consistently increasing over the years and has nearly India.
tripled from Rs. 40,000 crores in 2007- 08 to Rs. 1.2 lakh
• Improve the culture of Research in Universities.
crores crore in 2018-19. India’s per capita R&D
expenditure has increased to PPP $ 47.2 in 2017-18 from
►UNIVERSAL HEALTH COVERAGE
PPP $ 29.2 in 2007-08.
CONCERNS WITH R&D ECOSYSTEM IN INDIA
IN INDIA- CONSTRAINTS AND
The Economic Survey 2017-18 in its chapter STRATEGIES
"Transforming Science and Technology" has highlighted Recent COVID-19 pandemic has underscored the
number of problems with R&D ecosystem in India. Some importance of healthcare system and its key linkages to
of the concerns are as highlighted below: other sectors. It has clearly highlighted that a healthcare
Stagnation in R&D expenditure as percentage of GDP: crisis can transform into an economic and social crisis.
Even though the R&D expenditure has increased in DEFINING UNIVERSAL HEALTH COVERAGE (UHC)
terms of absolute value, the R&D Expenditure as % of

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 INCLUSIVE GROWTH AND DEVELOPMENT
Lack of Accessibility: Most secondary and tertiary care
hospitals are in Tier-1 and Tier-2 Cities. Similarly, most of
the doctors are unwilling to practice in Rural areas.
Lack of Affordability: Contribution of private sector in
healthcare expenditure in India is around 80 percent
while the rest 20 percent is contributed by Public Sector.
The private sector also provides for 58 percent of the
hospitals and 81 percent of the doctors in India.
However, since the private sector hospitals work on the
profit motive and charge high fees, the private sector
hospitals do not address the needs of the poor patients.
CRITICAL ANALYSIS OF AYUSHMAN BHARAT SCHEME
Details: Ayushman Bharat seeks to provide for Universal
health coverage (UHC) by adopting two approaches (a)
Creation of 1.5 lakh Health and Wellness centres (HWCs)
and Pradhan Mantri Jan Arogya Yojana (PM-JAY). The PM-
UHC can be defined as ensuring equitable access for all JAY aims at providing a health insurance cover of Rs. 5
lakhs per family per year for secondary and tertiary care
Indian citizens quality health care which encompasses
hospitalization.
promotive, preventive, curative and rehabilitative care. It
should be based upon 4 A's - Availability, Accessibility, COVERAGE: 50 crore people who belong to bottom 40%
of India's population. Beneficiaries are identified
Affordability and Accountability. The Universal Health
through socio-economic caste census (SECC).
coverage should be provided by both Government and
ACHIEVEMENTS
Private sector. To facilitate the private sector to provide
UHC, the Government should act as an enabler and The Economic Survey 2020-21 has highlighted the
facilitator. achievements of PM-JAY by considering two important
aspects:
PROBLEMS IN ENSURING UHC IN INDIA
• PM-JAY was implemented in 2018. Hence, health
Lower Expenditure on Health: Combined expenditure of indicators measured by National Family Health
Centre and States on Health is around 1.5% of India's Surveys 4 (in 2015-16) and 5 (in 2019-20) can be
GDP, which translates into Rs 3 per person per day. It is compared to understand the impact of this scheme.
much below the target of 2.5% as set under National • Some of the states such as West Bengal, Odisha,
Health Policy, 2017. Countries such as Bhutan (2.5%) and Telangana etc. are not implementing the PM-JAY
Sri Lanka (1.6%) spend more money on health as scheme. Hence, to analyse the impact of PM-JAY
compared to us. scheme, the health outcomes in these states can be
compared with rest of India.
Low Insurance Penetration: 86% of people in rural areas
and 82% in urban areas do not have access to insurance BENEFITS
coverage. Problems- Forced to use their meagre savings, Improvement in Health Insurance: The proportion of
borrow money, or delay the treatment. Implications: households covered under health insurance increased
by 54 per cent from NFHS 4 to NFHS 5 in the states that
(a) perpetuate vicious cycle of poverty (poor people
adopted PMJAY. However, it decreased by 10 per cent in
remain poor due to higher health costs)
the states that did not adopt PMJAY.
(b) Push the above poverty line people back to BPL.
Improvement in Health Outcomes (such as IMR, MMR,
(Drives 55 million Indians into poverty, more than the
Access to Family Planning, Institutional births etc) in the
population of South Korea (51.1 million))
states that have adopted PMJAY.
Out-of-pocket expenditure on Health: In case of India,
CONCERNS AND CHALLENGES
Government spends only 35% of healthcare
• Low package rates: The government has published
expenditure, while the major chunk 65% of expenditure
the rates that insurance companies would pay
is incurred by people themselves. At the global level, the
hospitals for around 1500 procedures covered under
average out-of-pocket expenditure is hardly around
the scheme. These rates have become a sticking point
18%.

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 INCLUSIVE GROWTH AND DEVELOPMENT
for hospitals, which have criticised them as arbitrary Reducing Information Asymmetry in Private healthcare:
and low. For example, the price of Caesarean section, The Economic Survey 2020-21 has highlighted the
at Rs 9,000 for five days of hospital stay, food and problem of Information asymmetry in the private
consultation. Implications- Reduce the quality of healthcare system leading to exploitation of the patients,
healthcare or make it unviable for private hospitals. higher costs and poor-quality delivery. Hence, there is a
need to set up Information Utilities that would give
• Frauds: Under the scheme, though the card is issued
ratings to the private hospitals and doctors based upon
to the head of the family, any number of family
the quality of healthcare delivery. Such a rating
members may be enrolled to avail benefits under the
mechanism would enable the people to choose the best
programme. As such, people who do not meet the
doctors (or hospitals), reduce the information
eligibility criteria for Ayushman Bharat may either get
asymmetry and force the private healthcare system to
false poverty certificates to get a card themselves or be cost-efficient and provide high quality service
claim false relationships to people who have these delivery.
cards.
Devising Universal Health Coverage: National Health
• Politicisation of Scheme: Some of the states such as Policy 2017 seeks to progressively achieve the Universal
West Bengal, Odisha, Telangana etc. have decided not health coverage by enhancing the public health
to implement PM-JAY Scheme. expenditure to 2.5% of the GDP in a time bound
• Budget allocation for PM-JAY has stagnated at Rs manner. The Srinath Reddy Committee which submitted
its recommendations in 2010 has highlighted as to how
6,400 crore. (Needed amount- around Rs 1 lakh
the Universal Health coverage can be achieved in India.
crores on annual basis)
This can be done in the following manner:
• Low Coverage of beneficiaries
• Both Central and State Governments should increase
• Absence of Private healthcare facilities in backward public expenditures on health to at least 3% of GDP
states. by 2022. The increase in the public expenditure can
• Unethical practices by private sector wherein be possible by increasing the Tax-to-GDP ratio of the
Government.
hospitals are performing unnecessary procedures (for
example, Caesarean operation instead of normal • The Government must ensure availability of free
essential medicines by increasing public spending on
delivery)
drug procurement.
STRATEGIES TO ENSURE UNIVERSAL HEALTH
• Since the primary health care forms the foundation of
COVERAGE IN INDIA
the health care system, the Government must spend
We can learn from countries such as South Korea, at least 70% of its fund for improving the primary
Singapore, Thailand, Switzerland, Sri Lanka etc. which health care system.
have provided for universal health care. This can be
done through ►LEVERAGING STRUCTURAL
(a) Steadily increasing the public expenditure on health TRANSFORMATION IN RURAL INDIA
(b) Enhancing the capacity of the public healthcare
The Rural India is undergoing structural transformation
facilities to utilize funds efficiently. and diversification towards other sectors of the
(c) Expanding the coverage of Healthcare Insurance economy. However, this structural transformation is not
accompanied by employment creation. In fact, the rural
(d) Government acting as enabler and facilitator to
India is witnessing negative Employment growth rate
enable private sector to provide affordable
since 2004-05.
healthcare.
PRESENT STATUS OF RURAL ECONOMY
Declaration of Right to Health as Fundamental Right:
Share of Population: As per the 2011 Census, 68.8% of
Presently, the Right to health is not explicitly included
India's population and 72% of workforce resided in rural
under the Indian constitution as Fundamental right. To
areas.
ensure greater commitment of the government towards
Structural Transformation: Rural areas account for 95%
health, there is a need to include health as a
of agriculture output, 50% of manufacturing output and
constitutional and fundamental right as provided under
25% of service sector output. The factors responsible for
Brazilian constitution.

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 INCLUSIVE GROWTH AND DEVELOPMENT
growth of Rural Non-Farm Economy (RNFE) is, lower become upper-middle income country. However, this
productivity of farms, sluggish growth rate of agriculture, convergence may slow down for the late convergers
shrinking farm size, increasing cultivation cost, increased like India, particularly after the global financial crisis
wage rates in non-farm sector etc. (GFC).
Jobless Growth: Despite structural transformation, the The Economic Survey 2018-19 has highlighted four
overall employment has not even doubled. In fact, challenges:
between 2005-12, the rural India witnessed negative • Backlash against Globalisation: Early convergers like
employment growth rate of -2.8%. Japan and South Korea posted higher growth rates
Defeminisation of Rural workforce: Between 2004-05 to during their periods of convergence due to export-led
2011-12, almost 33 million workers left agriculture. Out growth. However, adoption of protectionist policies by
of which, 27 million were females (81%) and 6 million advanced economies post GFC makes convergence
were males (19%). Thus, clearly shows that contrary to a difficult for India.
common perception, a greater number of females have • Thwarted structural transformation: Development
left workforce in the rural areas. Some of the reasons for entails shifting resources from low productivity
the defeminisation include (Agriculture) to high productivity sectors
• Increased enrolment in education (Manufacturing) and from informal to formal sectors.
• Increase in household income which reduced the However, share of manufacturing sector to India’s
need for the females to work to support the GDP has remained stagnant since 1991. Similarly, 90%
household income of workers are employed as informal workers.

• lack of skill to get well paid non-farm job • Human Capital Regression: India underspends on
Education, Health etc. which in turn adversely affects
• Manufacturing jobs away from the place of the
human capital formation. This makes it difficult for us
habitation
to leverage disruptive technologies and focus on
LEVERAGING STRUCTURAL TRANSFORMATION Industrial Revolution 4.0.
THROUGH SECONDARY AGRICULTURE
• Climate-Induced stress: Successful economic
The Dalwai panel has recommended boosting Secondary
transformation takes place when resources move
Agriculture to leverage structural transformation, create from agriculture to other sectors. This is possible only
employment opportunities and boost rural economy. when agricultural productivity is higher. However,
BENEFITS productivity of agriculture has remained quite lower.
• Holistic development of rural areas by transforming Going forward, climate change would further worsen
rural areas from consumers to producers of Goods. the condition.

• Efficient utilisation of resources such as land and Indeed, India has registered higher growth rates in
labour through various activities such as honeybee recent past. But this fast growth has occurred with
keeping, mushroom cultivation, backyard poultry etc. limited transfer of labour from low productivity to high
productivity sectors. As of now India may not be faced
• Contributes to agriculture by providing Inputs,
with a “Late Converger Stall” but need to act in time to
enhancing productivity and reducing post-harvest
losses. avoid it.

• Develop human and capital resources to replicate

Start-up India at village level. ►INDICATIVE PLANNING-
BENEFITS AND CHALLENGES
►MIDDLE INCOME TRAP: LATE After registering a prolonged Hindu growth rate, India
CONVERGER STALL adopted the indicative planning process since 1991.
Wherein, government tried to set objectives and targets
• Late Convergence Stall refers to phenomenon
and private sector are encouraged to achieve them.
wherein middle-income country that hopes to grow
Over past three decades there have been a mix bag of
into high-income country fails to achieve its goal.
outcomes on indicative planning.
Instead, it gets trapped in middle income status.
BENEFITS OF INDICATIVE PLANNING
(Middle Income Trap).
Collaborative Approach: between Centre, States and
• India moved from a low income to lower middle-
Private sector.
income country in 2008 and is now attempting to

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 INCLUSIVE GROWTH AND DEVELOPMENT
Centralised targeting: This planning helps to make goals deficit to more than 9.5% of GDP and general
which are common at national needs. government debt of 70%.
Efficiency enhancement: This planning has helped to Government in the budget has called for an
rope in private sector efficiency which ultimately raised expansionary fiscal policy for sustainable long-term
productivity & GDP. growth with fiscal deficit estimated to be 6.8%. This has
Decentralisation of Plan Execution: Local units do actual raised concerns over sustainability of India’s debt.
implementation. 73rd and 74th amendment acts are REASONS FOR SUSTAINABILITY OF INDIA'S DEBT
good example. 1. For India, GDP growth rates regularly were more than
Cooperative Federalism: Best example is National interest rates. The interest rate growth differential
Infrastructure pipeline project wherein centre, state and (IRGD) is expected to remain negative for India in
private would together bring development to India. foreseeable future.
Democratic in nature: As this planning has provided 2. India's public debt to GDP has been significantly low
participation of all it suits the needs of a mixed compared to high global debt levels.
economy. 3. Public debt for India has declined since 2003 and has
LIMITATIONS OF INDICATIVE PLANNING been stable since 2011.
Non-binding: indicative planning is largely a non-binding 4. External debt is only 2.7% of GDP thus low foreign
exercise. Government cannot force or penalise private exchange risk. India has fifth largest forex reserves.
sector for target completion. 5. 70% of total public debt is with Central Government
Federal Issues: Centre and state governments have not which is desirable.
been on the same page for policy execution. 6. Public debt has long maturity profile tends to limit
May cause withdrawal of state from its social role: as rollover risk and insulates debt portfolio from interest
argued by Amartya Sen and Jean Dreze. rate volatility.
Poor accountability Mechanism: even if goods and COVID-19 pandemic has led to a demand shock. An
targets are not being met by the authorities. expansionary and countercyclical fiscal policy during this
Thus, current set up of indicative planning is fair enough time will help by:
to continue. However, a well-defined outcome 1. Multipliers of fiscal spending are disproportionately
evaluation mechanism could be set up at all levels of higher during economic crisis that economic booms
policy and planning. 2. Boost potential growth with public investment that
raises productivity. Ex. Infrastructure
►DEBT SUSTAINABILITY IN INDIA: 3. When private sector is risk averse, public investment
NEED FOR COUNTERCYCLICAL can lead to virtuous cycle of investment
Thus, India should pursue countercyclical fiscal policy
FISCAL POLICY
and take up debt in times of crisis to boost economic
COVID-19 pandemic caused unprecedented economic growth in a sustainable manner.
crisis for India resulting in decline of government
revenues as economic activity halted, however,
government expenditure had to be stepped up to
protect lives and livelihoods. This has increased fiscal

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Section-5
ANKING AND FINANCE
►MONETARY POLICY Monetary policy transmission refers to the process
through which changes in the policy rates (such as Repo)
TRANSMISSION & EXTERNAL by the RBI leads to commensurate changes in the rates
BENCHMARKING OF RATES of Interest of the Banks.

In case of India, while increase in Policy rates get • Deposits with maturity of one year and above
transmitted immediately, the rate cuts get transmitted constitute more than 50% of total deposits.
with a significant amount of lag leading to • Competition from other financial instruments such as
ineffectiveness in increasing money supply during Small savings Deposits (PPF, NSC etc.)
slowdown.
• Higher NPAs
REASONS FOR POOR MONETARY POLICY
• Opaqueness in the calculation of MCLR
TRANSMISSION
• Over reliance of Banks on Public Deposits and lower
dependency on RBI for borrowing through Repos.

Benchmark for Fixing Year of How is Interest rate

Remarks
Interest rate on Loans Adoption calculated?
Marginal Cost of Lending 2016 • Repo Rate • Internal Benchmark

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 BANKING AND FINANCE
Rate (MCLR) • Rate of Interest on New • Other factors such as Operational
Deposits. Expenses taken into consideration
• Cost of CRR and hence Opaque
• Operational Expenses • Poor Monetary Policy Transmission
External Benchmarking 2019 4 options to link rate of Interest • External Benchmark
(For Floating rate loans) on loans: Repo Rate; T-91; T- • Transparent
182 or benchmark published by • Higher Efficiency in Transmission.
FIBIL.

In order to address these problems, the RBI has asked which are seeing increased stress are aviation, textile
the Banks to link all the floating rate loans to any of the 4 and telecom among others. The higher NPAs in aviation
External benchmarks. sector could be attributed to high cost of aviation
BENEFITS turbine fuel which accounts for 45% of total operating
costs, as compared to the global average of 30%.
• Unlike MCLR, External benchmark is influenced solely
Similarly, increasing competition and consequently
by the policy rates leading to higher efficiency.
irrational pricing behaviour among telecom players has
• Greater transparency. led to higher stress levels.
• Borrowers know the profit margin fixed by various Poor Credit Appraisal System: The Banks have not
banks and hence can choose accordingly.
developed sufficient capability to undertake credit
appraisal before giving loans.
►TWIN BALANCE SHEET PROBLEM: Diversion of Loans: The poor end-use monitoring system
WHAT, WHY AND HOW OF NPAS? of the Banks has led to diversion of funds by the
companies for other wasteful purposes.
REASONS FOR INCREASE IN NPAs
Wilful Defaulters: There has been increase in the
Over-optimism of Banking Sector: A larger number of
bad loans originated in the period 2006-2008 when number of wilful defaulters, who have failed to repay

economic growth was strong, and previous back the loans in spite of having the capability to do so.
infrastructure projects such as power plants had been This can be attributed to lack of proper mechanism to
completed on time and within budget. It is at such times deal with wilful defaulters.
that banks did not follow diligence in extending fresh Red-Tapism: Delays in government approvals led to
loans anticipating future economic growth. increase in the number of stalled projects.
Slow-Growth: Financial crisis of 2008 led to slower Lack of policy foresight: Delay in formulation of
economic growth which in turn affected profits of Insolvency and bankruptcy code for faster resolution of
companies and reduced their ability to pay back loans. NPA.
External Factors: To counter the aftermath of the
Frauds: The system has been ineffective in bringing
financial crisis and declining growth, major central banks
even a single high-profile fraudster to book. It was only
globally adopted the easy money policy which also
after the NPA crisis, the RBI set up a fraud monitoring
resulted in easy liquidity in emerging markets such as
cell to coordinate the early reporting of fraud cases to
India. This phenomenon pushed up asset prices and led
the investigative agencies.
to inflation
Ineffective Recovery Tribunal: There has been undue
Regulatory and Policy Risks: Past few years in India saw a
volatile regulatory framework which built stress in delay in the resolution of cases before the debt recovery
certain industries. Some examples include Mining ban in tribunals leading to higher NPAs.
certain southern Indian states, Decision to cancel and re- Political Interference in working of PSBs: NPAs are
auction the telecom airwaves etc. This caused significant mainly concentrated in the Public Sector Banks which
financial and operating stress in companies engaged in could be linked to their poor governance and political
the mining, telecom and infrastructure sectors which interference.
had a cascading effect on overall investments in the
Priority Sector Lending: Lending by Banks to priority
Indian economy.
sectors such as Agriculture and MSMEs has also
Industry Specific Risks: There are industry-specific
contributed to NPAs.
reasons that cause a rise in NPA levels in India. Sectors

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Credit Culture: Announcement of farm loan waivers by STEPS TAKEN TO ADDRESS GROWING NPAs
the Central Government and various state governments Steps Taken by RBI
has affected the credit culture in India.
Loss Recognition: RBI has mandated the banks to carry
Lack of Integrated database on Credit Information: out Asset Quality Review (AQR) in order to know the true
Presently, credit related information is captured by status of their Balance Sheets and prevent them from
multiple agencies without proper coordination. Further, ever greening of Loans.
RBI's proposal to create Public Credit Registry faces legal
Prompt Corrective Action (PCA): RBI monitors the
challenges.
financial health of the Banks through various
IMPACT OF HIGHER NPAs parameters such as NPA, Capital Adequacy etc in order
Profitability: On an average, banks are providing around to ensure their soundness and prevent them from
25% to 30% additional provision on incremental NPAs further losses.
which has direct bearing on the profitability of the Identification of Incipient Stress: RBI has mandated the
banks. Banks to identify the incipient stress in their loans by
Asset (Credit) contraction: Increased NPAs put pressure classifying Special Mention Account (SMA) into 3
on recycling of funds and reduces ability of banks for different categories so as to enable the Banks to take
lending more and thus results in lesser interest income. corrective action before classifying them as NPAs.
It contracts money stock which may lead to economic Simplification of Resolution of Bad Loans: RBI has
slowdown. replaced multiple schemes such as Strategic Debt
Liability Management: In light of high NPAs, banks tend Restructuring (SDR), Sustainable Structuring of Stressed
to lower interest rates on deposits on one hand and Assets (S4A), 5/25 Scheme etc with comprehensive
likely to levy higher interest rates on advances. This may Prudential Framework for resolution of stressed assets.
become hurdle in smooth financial intermediation Collection of Credit Information: RBI has set up Central
process and hampers banks’ business as well as Repository of Information on Large Credits (CRILC) on all
economic growth. borrowers having an aggregate exposure of Rs 5 crore
Capital Adequacy: As per Basel norms, banks are and above. It was created for early recognition of
required to maintain adequate capital on risk-weighted financial distress, enabling prompt action for resolution
and fair recovery for lenders and as part of a framework
assets. Every increase in NPA level adds to risk weighted
for revitalising distressed assets in the economy.
assets which requires the banks to shore up their capital
base further. In case of PSBs, it may put additional STEPS TAKEN BY GOVERNMENT
burden on the Government for recapitalisation of PSBs. Insolvency and Bankruptcy Code, 2016 (IBC) has been
Shareholders’ confidence: Increased NPA level is likely to enacted to create a unified framework for resolving
insolvency and bankruptcy matters.
have adverse impact on the bank business as well as
profitability thereby the shareholders do not receive a Banking Regulation Act, 1949 has been amended to
market return on their capital and sometimes it may provide for authorisation to RBI to issue directions to
erode their value of investments. banks to initiate insolvency resolution process under
IBC.
Public confidence: Credibility of banking system is also
Securitisation and Reconstruction of Financial Assets and
affected greatly due to higher level NPAs because it
Enforcement of Security Interest Act, 2002 has been
shakes the confidence of general public in the
amended to make it more effective with provision for
soundness of the banking system.
three months imprisonment in case the borrower does
Thus, the increased incidence of NPAs not only affects not provide asset details and for the lender to get
the performance of the banks but also affect the possession of mortgaged property within 30 days.
economy as a whole. In a nutshell, the high incidence of
Six new Debts Recovery Tribunals have been established
NPA has cascading impact on all important financial
to expedite recovery.
ratios of the banks viz., Net Interest Margin, Return on
Indradhanush Mission: Reforming the Governance of
Assets, Profitability, Dividend Payout, Provision coverage
PSBs and infuse more capital into PSBs.
ratio, Credit contraction etc., which may likely to erode
Project Sashakt: It has been adopted on
the value of all stakeholders including Shareholders,
recommendations of Sunil Mehta Committee, which
Depositors, Borrowers, Employees and public at large.
provided for 5-pronged strategy to deal with NPAs.

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►BAD BANK- PROS AND CONS same, the terms "Bad Bank" and "ARC" can be used
interchangeably.
Government has announced the formation of "National
Note: Asset Reconstruction Companies are registered
Asset Reconstruction Company Limited (NARCL)" and
with RBI under the SARFAESI Act. NARCL has been
“India Debt Resolution Company Ltd. (IDRCL)" as a Bad
incorporated under the Companies Act and has applied
Bank to deal with the problem of NPAs.
to Reserve Bank of India for license as an Asset
IDEA OF BAD BANK
Reconstruction Company (ARC). Apart from NARCL, India
Global Examples: Early adopter in 1990s- US (Melon Debt Resolution Company Ltd. (IDRCL) has been set up
Bank) and Sweden (Securum). Similarly, other countries as Asset Management Company (AMC) to deal with
such as Malaysia, Finland, Belgium, Indonesia etc. have NPAs.
set up Bad Banks.
DIFFERENCE BETWEEN ARC & AMC
India: Economic Survey 2016-17 had proposed to set up
The ARC buys the Bad loans from the Banks and then
Bad Bank, which should be called as Public Asset
transfers them to the AMC. The AMC would then carry
Rehabilitation Agency (PARA). The PARA should be
out restructuring to recover the bad loans. The AMC
funded and owned by the Government of India. Such a
would be manned by professionals who have necessary
proposal was also put forward by the Indian Banks
expertise in recovering the Bad loans. For example, they
Association (IBA) recently in June 2020.
may have requisite capability to take over the
DIFFERENCE B/W BAD BANK & NATIONAL ASSET management of the company (which has defaulted),
RECONSTRUCTION COMPANY LIMITED (NARCL) revive the company, make it profitable and then sell it
The Bad Bank, initially proposed by the Economic Survey off to recover the NPAs.
2016-17 was to be set and owned by the Government. In case of India, India Debt Resolution Company Ltd.
However, NARCL has been set up by banks themselves. (IDRCL) has been set up as AMC which will manage the
So, one major difference is in nature of ownership. asset and engage market professionals and turnaround
However, since the nature of role performed by them is experts.
HOW BAD LOANS WILL BE RESOLVED THROUGH ASSET RECONSTRUCTION COMPANIES?

Step 1: ARC would buy NPAs from the Banks. The Money Step 3: ARC recovers the NPA either through Debt
is paid to the Banks in the form of Cash and Security restructuring or sale of mortgaged assets.
Receipts. 15% of money is paid in form of Cash and 85% Step 4: ARC makes the payment for the security receipts
in form of Security Receipts (SR). The SARFAESI Act after deducting its management fee.
provides for the issuance of Security Receipts. ROLE OF THE GOVERNMENT
Step 2: Decrease in NPAs on Banks' Balance Sheets--> The Government has decided to give guarantee worth Rs
Lower Provisioning--> Capital gets unlocked--> Increase 30,000 crores on the payment of security receipts by the
in Credit Creation--> Economic growth. NARCL. If the NARCL is unable to sell the bad loan, or
sold it at a loss, then the government guarantee will be

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 BANKING AND FINANCE
invoked and the difference between what the bank was worth Rs 500 crores. However, the total NPAs
supposed to get and what the NARCL was able to raise concentrated in 70 large accounts is high as 2-2.5 lakh
will be paid from the Rs 30,000 crore that has been crores. Obviously, we could have strengthened the
provided by the government. existing ARCs to solve this. But the Government believes
WHY A NEW ARC HAS BEEN PROPOSED TO BE that a new ARC without any legacy issues would be well
ESTABLISHED? equipped to handle this.

Presently, there are around 10-15 ARCs, out of which

only 3-4 ARCs are well capitalised to take over NPAs

PROS AND CONS OF BAD BANK

Bad Bank- Pros and Cons

Arguments in Favour Arguments against

Improvement in the balance Sheet of the Banks due to The Bad Bank stands ready to buy NPAs from the Banks. Hence,
decrease in the NPAs. this would discourage the Banks from exercising due caution in
lending loans (Moral Hazard)

Unlocking of the capital that was earlier locked up as According to Ex-RBI Governor Raghuram Rajan, the Setting up of
provisioning requirements. This would lead to increase in Bad Bank would merely lead to transfer of Assets from one
the credit creation. entity to another

Enable the Bank to focus on their core areas of accepting The NPAs of Banks has increased on account of number of
deposits and lending loans. The function of recovery of bad reasons such as Political interference in working of Banks,
loans gets transferred to the specialist Bad Bank. Increase in willful defaulters, poor recovery process etc. Hence,
Bad Bank does not solve the core underlying reasons which led
to increase in NPAs in the first instance. The Bad Bank is thus
considered to be superficial solution to the underlying problem
of NPAs.

Most of the NPAs are concentrated in the larger borrowers Dilemma over pricing of NPAs
who have taken loans from multiple banks. Higher pricing of Loans Loss to ARC
Presently, such Banks come together to form Committee of Lower pricing of Loans Loss to Banks
Creditors (CoC) and formulate a resolution plan to recover
the NPAs.
However, such a mechanism is presently facing problem of
coordination and delays in the recovery of NPAs. Setting up
of Bad Bank would enable the multiple Banks to transfer
their NPAs simultaneously to Bad Bank and improve their
balance sheets

Delays in recovery of NPAs by the ARCs.

WAY FORWARD Realistic valuation of NPAs: Usually, Banks recover only

Based upon the Global experiences in countries such as around 10-15% of the fully provisioned loans and
US, China, Sweden etc., we need to adopt following haircuts is as high as 85-90%. Hence, Banks should
strategies to ensure success of NARCL: transfer NPAs to NARCL at realistic value.

Well-Capitalised NARCL: Successful Bad Banks across the Time Bound Resolution of NPAs: Delays in recovery of
world were well-capitalised, which in turn enabled them NPAs would lead to delay in payment of Security
to take up on the NPAs. Hence, NARCL needs to be well- Receipts to the Banks and hence adversely affect their
capitalised to take over NPAs worth Rs 2 lakh crores. financial position.

Finite Tenure: Once it is set up, bad bank should have Professional Expertise: Because most of the private ARCs
finite tenure within which it should be able to resolve the have remained unsuccessful, the NARCL and IDRCL need
NPAs. If it continues to exist in perpetuity, it will to have highest level of professional expertise and
discourage Banks from exercising due caution in giving calibre to solve NPA mess in a time bound and efficient
loans (Moral Hazard). manner.

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Reforms in PSBs: The setting up of Bad Bank without must compile and share the list of NPAs to be sold with
focussing on reforms in PSBs would mean that the the ARCs. This would also increase predictability in the
fundamental problems that led to NPAs in first place amount and quality of stressed assets flowing into ARC
continue to remain. Hence, recommendations of P.J. sector and also improve the lenders’ recovery on these
NPAs.
Nayak Committee on setting up of Banking Investment
Bring ARCs under IBC: Under IBC, Banks are required to
Committee has to be expedited.
invite applications from different entities for the
resolution of NPAs. However, the current regulatory and
►ASSET RECONSTRUCTION legal framework does not allow the ARCs to act as
Resolution Applicants (RA) under IBC i.e., they cannot
COMPANIES (ARCS) apply for resolution of Bad loans under IBC. This is
ARC industry began with establishment of Asset although ARCs can use tools such as change in/takeover
Reconstruction Company India Limited (ARCIL) in 2003. of management, debt to equity conversion, etc). Hence,
Presently, there are around 28 ARCs which are regulations should have to be changed to enable ARCs
registered and regulated by RBI. Some of these ARCs are as Resolution applicants under IBC.
ARCL, Suraksha Asset Reconstruction, Indiabulls asset Enhanced Financing Options: RBI must permit ARCs to
reconstruction, ASREC Ltd., IndiaRF etc. As on March 31, raise finances from all regulated entities such as FPIs,
2021, the ARCs had cumulatively taken over NPAs worth Alternate Investment Funds (AIFs), NBFCs as well as
Rs 5 lakh crores. retail investors.
PROBLEMS AND CHALLENGES Liquidity and Trading of Security Receipts (SRs):
Presently, only Qualified Institutional Buyers (QIBs) such
Poor Recovery rates: Recovery rates of ARCs were as Banks, Pension fund, Insurance and Mutual fund
significantly higher in the initial years of their inception. companies are allowed to invest in Security receipts
However, in the recent years, it has dropped to just 26% (SRs) issued by ARCs. To broaden the investor base of
in 2019-20. This is significantly lower than the recovery SRs, list of eligible qualified buyers may be further
rates under IBC (45%) expanded to include High-net worth individuals (HNIs),
corporates, NBFCs/HFCs etc.
Low Percentage of NPAs with ARCs (26%) in comparison
to DRTs (33%) and IBC (31%). Remaining 10% NPAs are
under Lok Adalats. Since the introduction of IBC, the ►NABFID- DEVELOPMENT BANK IN
Banks have started preferring IBC over the DRTs due to
time-bound resolution and higher recovery rates.
INDIA: OPPORTUNITIES AND
Low Capital Base: Majority of ownership of ARCs lies in CHALLENGES
the hands of Banks and Financial Institutions. Even
Union Budget 2021-22 has proposed to set up
though, the Government has allowed 100% FDI through
automatic route, ARCs have failed to attract foreign development Bank in the form of NaBFID as financer,
capital. enabler and catalyst for the National Infrastructure
Higher Borrowings: ARCs tend to rely heavily on pipeline. NaBFID is expected to reduce pressure on
borrowings from the Banks for their funds. The poor banks, lower the cost of capital and meet investment
financial position of ARCs could have negative domino needs of $ 5 trillion economy.
effect on Banking sector.
Global Examples: China (China Development Bank), UK
Nature of Resolution: ARCs have relied more on recovery
(Green Investment Bank), Germany (KfW)
of NPAs through selling-off assets and less on revival of
business. ARCs have rarely used change or takeover of Indian Examples: NABARD (Agriculture and Rural
the management of business of the borrowers or Development), Industrial Finance Corporation of India
conversion of borrowers’ debt into equity as measures (Industrial Development), SIDBI and MUDRA (MSME
for reconstruction. Development), EXIM Bank (Trade Development),
Conflict of Interest: Considering that banks are not just National Housing Bank (Housing Infrastructure).
major shareholders of and lenders to ARCs but also
Note: IFCI was the first ever development bank that was
sellers of NPAs to ARCs, there could be circuitous
movement of funds between banks and these established in 1948. Even, ICICI and IDBI Banks were
institutions. initially set up as Development Banks but were later
RECOMMENDATIONS converted into Commercial banks based upon the
recommendations of Narasimhan Committee.
Sale of NPAs at an early stage: Delays in sale of NPAs to
ARCs not only leads to erosion in the asset value, but ASSISTANCE PROVIDED BY DEVELOPMENT BANKS
also reduces the probability of reviving genuine The Development Banks may offer the following kinds of
companies. Hence, at the start of every year, the Banks assistance to the companies:

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 BANKING AND FINANCE
• Extend long term finance at concessional rates to the (Encourage the Banks to buy Bonds issued by NaBFID
companies.  Enable NaBFID to raise money from Banks)
• Subscribe/buy the shares of the companies which are 3. Enable NaBFID to borrow money from International
involved in financing of infrastructure, industrial or Institutions such as World Bank, ADB etc.
housing projects Infuse Competition: Monopoly by NaBFID in
• Partial Credit Guarantee on the repayment of the infrastructure financing may lead to operational
bonds issued by the companies. inefficiencies; need to encourage private sector to
HOW THE SETTING UP OF NABFID WOULD BENEFIT establish Development Banks so as to infuse
INDIAN ECONOMY? competition.

Meet Investment Needs to realise $ 5 trillion by the end Enhancing Investor base: Make it easier for the pension
of 2024-25. fund companies, Insurance companies, mutual fund
companies to invest in bonds issued by NaBFID; Tax
Reduce Pressure on Commercial Banks: Banks have
incentives to the individuals upon investing in bonds
mainly relied on short-term deposits for lending to long
issued by NaBFID etc.
term infrastructural projects leading to Asset-Liability
Mismatch and higher NPAs. Hence, setting of NaBFID is indeed a welcome move.
However, in order to enable it to become a game
Lower Cost of Capital: Credit enhancement provided by
changer, we must learn from our past mistakes and
the development Banks would enable the companies to
create conducive ecosystem to ensure its success.
raise loans at lower rates of interest leading to decrease
in the cost of capital.
Reduce Foreign Currency Exposures: Presently, some of ►DIRECT MONETIZATION OF
the Infrastructural and housing finance companies GOVERNMENT'S DEFICIT
borrow loans from overseas market. The depreciation in
Direct Monetisation of Government’s deficit refers to
the value of Rupee may put additional burden on them
direct borrowing by the Government from the RBI
and exposure them to fluctuations in the exchange rate. through the issuance of G-Secs. It is undertaken during
STRATEGIES NEEDED TO ENSURE SUCCESS OF NaBFID exceptional circumstances which require higher
Government Expenditure to deal with adverse economic
India's experience with the Development Banks has so
conditions. Some of the economists have been arguing
far been a mixed bag. On one hand, some of the
for Direct Monetisation in response to GDP Contraction
development banks were embroiled in controversies
due to COVID-19. They have been arguing that Direct
(National Housing Bank was involved in Harshad Mehta Monetisation would enable the Government to provide
Scam). While on the other hand, some of the higher fiscal stimulus leading to enhanced Investment
development banks such as the one established by expenditure on productive assets, increased Job creation
Karnataka Government provided necessary funding to and economic revival. The Government need not be
Infosys company during its initial days, which in turn worried about higher Fiscal Deficit and Public Debt since
enabled Infosys to become a global giant. Hence, India RBI can print currency notes to repay debt.
has to learn from its past experiences in order to ensure RESTRICTION ON DIRECT MONETIZATION OF
the success of NaBFID. GOVERNMENT'S DEFICIT UNDER FRBM ACT

Independence and Autonomy: Ensure professionalism, 1. The Government can borrow money from RBI for
meeting its immediate and temporary cash
autonomy and effective control and audit mechanism.
requirements through the Ways and Means Advances
Otherwise, NaBFID's performance would be lacklustre
(WMA).
and similar to that of Public Sector Banks.
2. The Government cannot borrow money from RBI for
Enhance Access to Long-term Capital: Budget 2021-22 meeting its deficit. It can do so only under exceptional
has allocated only around Rs 20,000 crores, which is too circumstances.
little for our mammoth infrastructure needs. Enhanced
3. Exceptional circumstances under which Government
financing can be provided by: can borrow money from RBI for meeting its deficit
1. Long-term credit from RBI to NaBFID through Long- include- National security, Act of war, National
term Repo Operations (LTROs). calamity, collapse of agriculture, Structural reforms,
decline in real output growth of a quarter by at least
2. Declaration of Bonds issued by NaBFID as eligible
three per cent. points below its average of the
securities for meeting SLR requirements of the Banks.
previous four quarters.

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ARGUMENTS AGAINST DIRECT MONETIZATION- PRESENT STATUS OF PUBLIC SECTOR BANKS (PSBS)
CONVENTIONAL MACRO-ECONOMICS
The higher borrowings can have an adverse impact on
the economy in the following manner:
• Higher Borrowings  Increase in Fiscal Deficit and
Public Debt--> Inability of Government to repay the
higher Debt
• Higher borrowings  Increase in the Money Supply
 Higher Demand  Higher Inflation
• Higher Borrowings of Government from Banks  Less
money available for private sector to borrow from
Banks  Increase in the interest rates  Crowding
out Effect
• Increase in rate of Inflation  Central Bank increases
the policy rates  Increase in rate of interest on loans
 Decline in Investment expenditure  Slowdown in
GDP and Increase in Unemployment.
• Higher Inflation and Slowdown in GDP  Downgrade As of March 2019, PSBs had Rs 80 lakh crore in deposits
in Credit Ratings  Outflow of FPIs  Rupee and gave loans of Rs 58 lakh crore, accounting for
Depreciation Depletion of Forex Reserves. almost 70% of the market share in the Banking sector.
Hence, we need to realise that Direct Monetisation is a However, the performance of the Public Sector Banks
double-edged sword. Higher borrowings can have has been quite poor as compared to new private Banks
adverse impact in form of- Higher fiscal deficit and
(NPBs).
public debt, Higher Inflation and consequently macro-
economic instability. Further, it is not the right time to 1. PSBs account for 80% of overall NPAs of the Banking
undertake Deficit Financing on account of following sector.
reasons: 2. Slower Credit Growth of hardly around 4% in
Excess Liquidity in Economy: Banks are sitting on surplus comparison to 15-30% registered by New private
liquidity of around Rs 8 lakh crores. However, they are Banks (NPBs)
reluctant to lend due to fear of NPAs. That is why, a
3. Higher Losses of around Rs 66,000 crores. This is
major chunk of the Government's support under the
almost equal to the budgetary allocation for the
Atma Nirbhar Bharat Package is in form of Credit
Guarantee on the loans. Primary Education in India.

Poor Monetary Policy Transmission: Interest rates on the 4. Higher Banking Frauds accounting for 93% of total
loans have not reduced in spite of reduction in policy frauds.
rates. 5. Loss of Taxpayers' money: According to the Economic
The present Economic slowdown is undoubtedly Survey 2019-20, every rupee of the taxpayers' money
unprecedented and thus the Government may have to which is invested in PSBs fetches a market value of 71
use unprecedented tools such as Direct Monetization. paise. On the other hand, every rupee invested in
But, considering the risks involved, it should be used at
NPBs fetches a market value of Rs 3.70 i.e., more than
the right time and as a last resort when all other options
five times as much value as that of a rupee invested in
are tried and tested.
PSBs. This shows that the taxpayers' money is
inefficiently deployed in the public sector Banks which
►PRIVATIZATION OF PUBLIC in turn is leading to loss of both the Government as
SECTOR BANKS (PSB) well as the taxpayers.

Presently, there is a speculation that Government is 6. Lower Efficiency in the form of lower Return on
likely to designate banking as a strategic sector. This will Assets, Return on equity and indicators like capital
allow government to own a maximum of four public adequacy ratio.
sector banks (PSBs), and thus, some PSBs which have CHALLENGES OF PSBs
not been included in the already completed 1. PSBs enjoy less strategic and operating freedom
consolidation process would either be privatised or because of majority government ownership.
merged into larger PSBs.

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2. Government exercises significant control over all between 1969-1991. alleviation.
aspects of PSBs operations ranging from policies on
recruitment and pay to investments and financing Ten-fold Increase in the Proactive policies by the RBI to
and bank governance including board and top number of Rural Banks improve Financial Inclusion:
management appointments. between 1969-1980 Priority Lending, RBI’s 4:1
3. Implicit promise of bailout of bank liabilities which is formula where a bank was
an implicit cost to the taxpayer. required to open 4 rural
branches to obtain a license to
4. PSB officers are subjected to extra scrutiny by the
open an urban branch between
Central Vigilance Commission and CAG. Officers are
years 1977 and 1991 etc.
wary of taking risks in lending or in renegotiating bad
debt, due to fears of harassment under the veil of
Four-fold increase in Despite nationalization a
vigilance investigations.
Agricultural credit post significant portion of the poor
5. High operating costs Nationalisation remained unbanked till 2014.
6. Recruitment processes of PSBs hinder them from Financial inclusion received the
campus hiring. necessary impetus in 2014
CASE FOR PRIVATISATION OF EXISTING PUBLIC through the Pradhan Mantri Jan
SECTOR BANKS (PSBs) Dhan Yojana (PMJDY). This
improvement was on account of
Improve overall efficiency of banking Sector: Even
active involvement of both PSBs
though, the PSBs and NPBs are operating in the same
and NPBs.
domestic market, the PSBs are considered to be less
efficient and thus leading to loss of taxpayers' money. ARGUMENTS AGAINST PRIVATISATION OF PSBs
Increased Competition leading to development of large- Improve Governance framework of PSBs: Main reason
sized banks: India’s banking sector is disproportionately for the lower efficiency of the PSBs is actually the
under-developed given the size of its economy. Government's political intervention in the functioning of
Government's Monopoly: Government ownership in the the PSBs, which is in turn leading to lack of autonomy
PSBs, which account for almost 70% of the Banking and freedom to the PSBs and thus hurting their
assets has led to a kind of virtual monopoly which is revenues. So, according to experts, solution to improve
reducing the competition, breeds inefficiency and thus efficiency of PSBs is not privatisation, rather a complete
hurts the overall growth of the Banking Sector. overhaul of Governance framework. Some external
Previous Experience: Strategic disinvestment has led to constraints faced by PSBs which is leading to their poor
increase in overall efficiency gains which later translated efficiency include:
into higher returns for the shareholders. 1. Dual regulation by Finance Ministry and RBI: The
Possibility of Leveraging MFIs and NPBs for Social causes Finance Ministry's directives could be both explicit
such as DBT, MGNREGA Wages, Pradhan Mantri Jan (through the issue of guidelines) and through
Dhan Yojana etc. undocumented suasion. However, the Private sector
banks are free from dual regulation.
Reduce the Burden on Government by doing away with
the need for undertaking their recapitalisation to comply 2. Board constitution: The appointment to the Boards
with the higher BASEL III requirements. of the Banks is mainly based on Political
considerations without giving due emphasis on merit.
No benefit due to Nationalisation of Banks as shown
Average tenures of Chairmen and Executive Directors
below:
are short, all of which lead to the weak empowerment
Arguments in Favour Arguments against of boards.
3. External vigilance enforcement through the CVC and
Allocations of banking Poverty alleviation not entirely
CBI inhibits the PSBs from taking commercial risks
resources to rural due to Nationalisation of Banks;
which are otherwise deemed acceptable. Further,
areas, agriculture, and other factors such as Green
there is higher focus on adherence to procedures and
priority sectors and Revolution, launch of poverty
rules rather than outcomes leading to red-tapism and
hence responsible for alleviation programmes such as
slow decision making.
poverty alleviation IRDP contributed to Poverty

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Privatisation may not solve Problems: We must realise help the Government in meeting the stringent capital
that even all the new private banks (NPBs) are not requirements stipulated under the BASEL III Norms.
efficient. The balance sheets of the existing NPBs are as Significant cost benefits from synergies: larger
poor as the PSBs. The case in the point is the recent Yes distribution network of the amalgamated bank will
Bank Crisis. Similarly, number of Banking frauds of much reduce operating and distribution costs with benefits for
higher value have become known even in the NPBs as its customers and their subsidiaries.
well. So, it is not the ownership structure that
RISKS AND CHALLENGES OF BANK MERGERS
determines the efficiency levels of the Banks. Rather, it is
Systemic Risk: 2008 crisis highlighted that presence of
the quality of Governance framework and effective
regulation which is a key to promote efficiency of the large financial institutions pose systemic risk to economy
PSBs. and such institutions are "too big to fail". Further, in
event of any such crisis in future, onus would lie on
Accordingly, the Government must implement the
government to bail out the institutions, thus posing a
recommendations of the P.J. Nayak Committee to
moral hazard.
improve the Governance of the PSBs. One of the most
important recommendations given by this committee Human Resource Integration: Many employees would
was related to the setting up of Banking Investment fear job loss and disparities in form of regional
allegiances, benefits, reduced promotional avenues, new
Company (BIC). The committee had recommended the
Government to set up BIC as a holding company and culture, etc.
transfer all its shares in the PSBs to BIC. The BIC would Affect Financial Inclusion: Consolidation may lead to
then exercise its control over the PSBs and make shutting down of overlapping branches of entities being
appointments of the Board of Directors leading to lack of merged.
political interference in the working of PSBs. Technological challenges: Various banks are currently
operating on different technology platforms.
►MERGER OF BANKS Adverse Impact on Big banks: Forced mergers of weaker
Bank with stronger banks would adversely affect
NEED FOR CONSOLIDATION OF PSBs
operations of the strong banks.
Fragmented Banking Structure in India: Indian banking
Customer Retention: SBI’s recent merger with its
sector is highly fragmented, especially in comparison
associate banks saw customers of associate banks
with other key economies. Additionally, most of the
opting to move their business to rival lenders.
PSBs in India are competing within themselves; most of
them have same business models and compete in the Low Positive Correlation between Size and Efficiency:
same segments as well as same geographies. Thus, Merger of PSBs is undertaken on an assumption that a
there is a huge scope of consolidation in this sector. large sized bank would be more efficient than a small
sized bank. In case of India, some small sized banks are
Build capacity to meet credit demand: India needs to
much more efficient than large sized Public Sector Bank.
have global sized banks that can support the investment
needs of economy and sustain economic growth. The
Consolidation of Public Sector Banks into 4 or 5 banks ►FINANCIAL FRAGILITY IN NBFCS
would create larger banks with capacity to fund larger
Shadow banking comprises a set of activities, markets,
size projects of economic importance.
contracts and institutions that operate partially or fully
Need for larger capital base to manage NPAs: Public outside the traditional commercial banking sector and
Sector Banks (PSBs) which form approximately 72% of are either lightly or not regulated at all. Shadow banking
the Indian banking system are among the most affected sector has grown significantly in India and accounts for a
by the high non-performing asset (NPA) problem. The significant proportion of financial intermediation
consolidation of PSBs would lead to a larger capital base especially in those segments where traditional banking
to manage the NPAs. sector is unable to penetrate. Three important segments
Merger of weak Bank with the strong bank would of shadow banking system in India:
prevent failure of weak Banks 1. Non-Banking Housing Finance Companies (HFCs)
Benefits for Government: Reduce the financial burden 2. Retail Non-Banking Financial Companies (Retail-
on the Government on undertaking frequent NBFCs)
recapitalization of the Public Sector Banks. It would also
3. Liquid Debt Mutual Funds (LDMFs)

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 BANKING AND FINANCE
NBFC sector in India has been roiled by a series of made it difficult for the NBFCs to fulfil their debt
defaults by Infrastructure Leasing & Financial Services obligations.
(IL&FS) group of companies. NBFC's crisis has also been Lack of Integrated Regulation: Presently, NBFC Sector is
called as India's "Lehman Moment" since it could have regulated by multiple regulators such as RBI, IRDA, SEBI
had “contagion impact” on the entire Indian Economy etc due to which it makes it difficult for a single regulator
due to the exposure of IL&FS to various banks and (such as RBI) to have the complete picture of the
financial Institutions. finances of the NBFCs.
PROBLEM WITH THE NBFC SECTOR IMPACT OF NBFC CRISIS ON THE ECONOMY
Several NBFCs have defaulted in payment obligations of Banking Sector: Increase in NPAs Higher
bank loans, commercial paper and inter corporate Provisioning Decrease in Credit Creation Economic
deposits. Consequent to defaults, credit rating agencies
slowdown.
have downgraded the ratings of the financial
Infrastructure Financing: Further, NBFCs such as IL&FS
instruments issued by the NBFCs. A large number of
banks and Mutual Fund companies have lent their have provided finance for major infrastructure projects
money to the NBFCs and hence the default on the such as Chenani-Nashri Tunnel. Thus, going forward,
repayment of loans would have adverse impact on the NBFC crisis would have adverse impact on infrastructure
entire financial sector leading to “Contagion impact”. financing in India.

REASONS FOR THE NBFC CRISIS Loans to MSMEs: Affect the credit creation and hence

Asset-Liability Mismatch: NBFCs such as IL&FS depend the associated investment expenditure and employment
on short term loans (through issuance of Commercial creation.
Paper) to lend money for infrastructure projects. The Equity Market: Sell-off of shares of NBFCs leading to
gestation period of such infrastructure projects is rapid fall in share prices of the NBFCs such as IL&FS,
around 10-15 years. This leads to Asset – Liability DHFL etc.
Mismatch.
Debt market: Default by NBFCs makes it difficult for
Roll over Risk: ALM in NBFC sector leads to redemption other companies from raising money from the debt
pressure on the mutual funds. Faced with redemption market.
pressures, the LDMF sector is reluctant to roll over loans
Mutual Fund Companies: face redemption pressure and
to the NBFC sector (Rollover Risk), causing a liquidity
find it difficult pay back the investors’ money.
crunch in the NBFC sector.
Credibility of Credit Rating Agencies takes a hit.
Increase in rates of Interest: Short-term interest rate of
the commercial papers has increased sharply in the HOW TO PREVENT SUCH CRISIS IN FUTURE?
recent times leading to increase in the cost of borrowing Integrated Monitoring of NBFCs: Present crisis would
for the NBFCs. have not arisen had we put in place institutions that
Complex Structure: Most NBFCs have complex business monitor and regulate systemic risks such as a systemic-
structure spanning multiple sectors which makes it risk regulator. Financial Sector Legislative Reform
extremely difficult to audit their accounts and regulate Commission (2012) had recommended to create
them efficiently. For example, IL&FS has 27 direct Financial Data and Management Centre to collect data
subsidiaries and 159 indirect subsidiaries. across the sectors and monitor systemic risk.
Delays and cost over runs in Infrastructure projects: Strengthening Credit Ratings: Credit rating agencies
Infrastructure projects in India face various constraints must consider financial position of the NBFCs before
such as delay in land acquisition, environmental rating their financial instruments. Further, they must
clearances, cost escalation etc. This is having in turn
also provide the rationale for their credit ratings.
adversely affected IL&FS as well.
Addressing Asset- Liability Mismatch (ALM): NBFCs need
Vicious Circle: Banks have been reluctant to lend loans
to maintain enough liquidity to avoid ALM. Recent RBI’s
to the NBFCs after the default by the bigger NBFCs such
guidelines on extending Liquidity Coverage Ratio (LCR) to
as IL&FS. On similar lines, there has been drastic fall in
NBFCs is a step in the right direction.
the demand of the bonds and commercial papers of the
NBFCs among the financial entities. Earlier the NBFCs Reducing over-exposure to NBFCs: There is a need to
were able to roll-over their debt (take loans to repay ensure that Banks and Mutual Fund companies are not
back previous loans). However, this vicious cycle has over-exposed to NBFCs in term of their loan portfolios.

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2019-20 ECONOMIC SURVEY'S RECOMMENDATIONS ►REGULATION OF COOPERATIVE
• Regulators can employ Health Score methodology
BANKS
(something similar to Prompt Corrective Action used
for Banks) to detect early warning signals of Recently, the PMC Bank Crisis has exposed the poor
impending rollover risk problems in individual NBFCs. regulation of the Urban Cooperative Banks (UCBs).
Downtrends in the Health Score can be used to According to some of the estimates, In the last 5 years,
trigger greater monitoring of an NBFC. the Urban cooperative banks have reported nearly 1000
cases of fraud worth more than Rs 220 crores. This
• When faced with a dire liquidity crunch situation,
failure of the UCBs is attributed to their dual regulation
regulators can use Health Score as a basis for
by the RBI and Registrar of Cooperative Societies.
optimally directing capital infusions to deserving
NBFCs to ensure efficient allocation to scarce capital. Hence, to address this problem, Parliament has recently
passed the Banking Regulation (Amendment) Bill 2020.
• Prudential thresholds can be set on the extent of
wholesale funding that can be permitted for firms in
the shadow banking system.

PROBLEMS WITH REGULATION OF URBAN to strong political pressure, Registrar of Cooperative

COOPERATIVE BANKS societies have failed to perform their role efficiently.
Dual Regulation: Urban cooperative Banks are under Lack of Empowerment of RBI: RBI has been adequately
dual regulation of RBI and Registrar of Cooperative empowered to regulate the Banking related functions of
societies. Such dual regulation leads to lack of the Scheduled Banks. RBI has been empowered to set
coordination between regulating entities. This enables minimum level of qualifications for the Board of
cooperative Banks to escape from greater scrutiny Directors. RBI can supersede the Board of Directors of
leading to financial irregularities and lapses. This can be the scheduled Banks. Auditing of such Banks is
understood by looking at PMC Bank, which was conducted in accordance with best practices laid down
consistently under-reporting its NPAs, but both by RBI. However, such powers are not entrusted with RBI
regulators failed to see the problem. with respect to the regulation of UCBs leading to laxity.
Poor regulation by Registrar of Cooperative Societies: SALIENT FEATURES OF BANKING REGULATION
Several core functions such as audit of accounts and (AMENDMENT)ACT 2020
supersession of Board of Directors are required to be The act does not put complete end to dual regulation of
performed by Registrar of Cooperative Societies. Urban Cooperative Banks. The act does not completely
However, some of UCBs are controlled by local level take powers of State Registrar of Cooperative Societies/
influential political leaders and businessmen. Hence, due Central Registrar of Cooperative Societies. However,

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 BANKING AND FINANCE
their powers have been substantially curtailed and has certain fundamental flaws which can hinder
regulatory powers of RBI has been substantially economic growth and development in an economy.
enhanced. ABOUT INFLATION TARGETING
For example, audit of such Banks will take place Inflation Targeting is monetary policy framework
according to the best practices laid down by the RBI. The wherein Central Bank of a country focuses only on
RBI would be empowered to supersede the Board of maintaining rate of Inflation within a targeted range.
Directors. The RBI would also be empowered to lay
In case of India, Inflation targeting was introduced
down the minimum level of qualifications for the Board
through Monetary Policy Framework Agreement signed
of Members. Hence, the overall idea behind the
between RBI and Government in 2015.
Ordinance is to strengthen the regulatory oversight of
the RBI. As per terms of the agreement, RBI’s primary objective
would be to maintain price stability, while keeping in
mind the objective of growth. RBI is required to maintain
►CENTRAL BANK DIGITAL rate of inflation of 4% with a deviation of 2% i.e., inflation
CURRENCY has to be maintained between 2% to 6%.

CBDC is a digital currency backed by the Central bank of BENEFITS OF INFLATION TARGETING
a country and hence considered as legal tender. It is Enhanced Transparency: Explicitly mandated Inflation
considered as “programmable money” since it could be targets brings in more amount of clarity and
used only for selected transactions or in specific regions. predictability with respect to rate of Inflation and
It can be either used for transactions by people (Retail monetary policy formulation.
CBDC) or for settling transactions among financial
Promote Growth: A high rate of inflation leads to
Institutions such as Banks (Wholesale CBDC).
decrease in purchasing power of currency, reduces
Subhash Chandra Garg Committee (2019) has savings and investment rate, increases unemployment
recommended a ban on private cryptocurrencies on and leads to overall decrease in the GDP growth rate.
account of concerns such as volatility, instability, security Further, high rate of inflation is accompanied by higher
risk and risk of funding illegal activities. However, the
levels of Fiscal Deficit and Current Account Deficit
committee has highlighted that an official digital
leading to an adverse impact on the macro-economic
currency can have number of advantages such as
stability of the country. Hence, low and moderate level
• Promote cashless society. of inflation would incentivise the investors to undertake
• Increase in Financial Inclusion investment in the economy leading to promotion of
• Foster development of Fintech sector higher growth and development.

• Provide a real time picture of economic activity and Autonomy and Accountability of RBI: As per monetary
hence better GDP estimates and efficient monetary policy framework agreement, RBI has been given
policy formulation. complete autonomy in maintaining rate of inflation
• Traceability of transactions would crack down on within mandated targets. If RBI fails to maintain Inflation
corruption and money laundering. within the target, then it would be required to submit in
writing, the reasons for its failure.
• Counter the monopoly of private sector issued
cryptocurrencies. Empirical Evidence: Inflation targeting has been quite
successful in some advanced economies such as UK,
Draft National Blockchain strategy has also advocated in
New Zealand etc. These advanced economies have been
favour of CBDC. Hence, a committee needs to be set up
able to maintain moderate rate of inflation for a much
to examine its feasibility.
longer time leading to increased macro-economic
stability.
►CHALLENGES ASSOCIATED WITH
CHALLENGES WITH INFLATION TARGETING
INFLATION TARGETING Disregards multi-faceted role of RBI: In a developing
One of the most critical functions of RBI is Inflation country like India, it is not practical for central bank to
Targeting as provided under Monetary Policy Framework focus exclusively on inflation without taking into account
Agreement signed between RBI and Government in the larger development context. RBI needs to balance
2015. Critics have pointed out that Inflation Targeting between growth, price stability and financial stability.

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No Clear link between Price Stability & Financial Stability: Corporate bonds are debt securities issued by private
Prior to 2008 Global Financial Crisis, advanced and public corporations. Companies issue corporate
economies were able to maintain moderate rate of bonds to raise money for a variety of purposes, such as
inflation for a long term mainly due to adoption of building a new plant, purchasing equipment, or growing
Inflation Targeting. However, 2008 Global Financial Crisis
business.
has clearly proved that price stability alone cannot lead
to financial stability and excessive focus of Central banks NEED FOR DEVELOPING CORPORATE BOND MARKET
on the price stability may lead to neglect of other crucial Meet Investment needs: Economic Survey 2018-19 has
functions such as regulation leading to the economic highlighted that India needs to shift gears from
crisis. consumption-driven economy to investment-led
Empirical Evidence against Inflation Targeting in India: economy wherein private sector investment has to
RBI has been able to maintain stable rate of Inflation become key driver of Indian Economy. The development
within mandated range since last 2-3 years. However, of corporate bond market can significantly enhance
despite stable rate of Inflation, Indian economy is facing investment rates and enable India to become $5 trillion
challenges on multiple fronts.
economy by end of 2024-25.
Poor Monetary Policy Transmission: Inflation targeting is
Reduce pressure on Government and Banks: In most
more suited to developed economies since monetary
international markets such as USA, corporate bond
policy transmission in such economies is quite efficient.
However, in case of India, monetary policy transmission market is well developed, and this enables companies to
is quite inefficient, and this can in turn reduce raise funds across different maturities including for
effectiveness of Inflation Targeting. infrastructure projects with long gestation periods. In
Hinder GDP Growth: To contain Inflation, RBI would be India, given the absence of a well-functioning corporate
required to increase the rate of Interest by following bond market, the burden of financing infrastructure
contractionary monetary policy. However, such a policy projects such as roads, ports, and airports are more on
would lead to increase in rate of interest on loans banks and the government.
leading to decrease in investment and consumption
Asset-Liability Mismatch in financial sector: Banks use
expenditure leading to decline in GDP growth rates.
short term deposits (3-5 years maturity period) to fund
Does not address Supply Side Inflation: Government of
long term infrastructure projects with long gestation
India would be required to address supply side
disruptions to moderate the prices of such commodities. period leading to asset-liability mismatch. Thus, an active
corporate bond market helps in the diversification of
WAY FORWARD
risks in the financial system.
Post-Global Financial crisis, the dominant view around
the world is that flexible inflation targeting, rather than Lower cost of capital: Corporate bond markets can help
pure inflation targeting is more efficient for monetary borrowers reduce their financing costs in two ways. First,
policy formulation. According to Flexible inflation they enable the corporates to borrow money directly
targeting, role of Central Bank would depend on from the investors and facilitate bank disintermediation,
prevailing rate of inflation in the country. If the rate of thus removing the “middleman” and related costs.
inflation is way off target, primary emphasis of central
Second, by issuing corporate bonds, firms may tailor
Bank would be bringing the rate of inflation within an
their asset and liability profiles to reduce the risk of
acceptable range.
maturity and currency mismatch on their balance sheet,
If the rate of inflation is within the range, central Bank
thus reducing the overall cost of capital.
should focus on its other core objectives. Thus, it is
being said that Central banks should focus on flexible Reduce Foreign currency exposures: Corporate bond
inflation targeting rather than pure inflation targeting. market enables firms to borrow for longer maturity
Thus, there is a need for greater debate around kind of periods in local currency to meet their investment needs
Inflation targeting in India. and avoid foreign currency exposures.

Provide long term financial assets: An active corporate

►DEVELOPING CORPORATE BOND bond market could provide institutional investors such
MARKET IN INDIA as insurance companies and provident and pension

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 BANKING AND FINANCE
funds with quality long term financial assets, helping risks arising out of interest rate movements and default
them in matching their assets and liabilities. probabilities.
Present Status of Corporate Bond Market in India: Taxation Structure: Stamp duties on corporate bonds
Corporate debt to GDP ratio in India stood at around across various states have not been standardised.
17% in 2017 as compared to 123% in US and 19% in the
WAY FORWARD
case of China. The proportion of firms using banks as
Several reports by expert committees on development
the primary source of working capital is higher than
of corporate bond markets in India such as R. H. Patil
most developing countries. Further, most corporate
bond sales in India occur through private placement Committee (2005), High Powered Expert Committee on

route, with share of such issues in total standing at Making Mumbai an International Financial Centre in
around 95% in recent years. 2007 (Percy Mistry Committee), H.R Khan Committee on

REASONS FOR UNDERDEVELOPED BOND MARKET IN Corporate Bond Market. Important Recommendations:
INDIA • Enhancing Issuer Base: To incentivise corporates to
Narrow Investor Base: Demand for corporate bond as raise a part of their requirements through bonds,
an investment is mostly confined to institutional time and cost for public issuance and disclosure and
investors with retail investors accounting for only 3% of listing requirements should be reduced and made
outstanding issuances. simpler.
Dominance of Government securities: Central and State
• Enhancing Investor Base:
Government securities constituted almost half of the
o The scope of investment by provident/pension/
total investment in Bond Market.
gratuity funds and insurance companies in
Constraints on Foreign Investors: Investment limit for
corporate bonds should be enhanced.
FPIs in corporate bond has been enhanced along with a
o Retail investors should be encouraged to
reduction in the withholding tax. However, FPIs are not
participate in the market through stock exchanges.
fully utilizing enhanced limits due to limited liquidity in
the market. Such investors should also be encouraged to
participate in the corporate bond market through
Higher rated Companies dominate corporate issuance:
mutual fund.
In Indian corporate bond markets almost 70% of bonds
outstanding by value are rated AAA. This indicates that o Investment in corporate bonds should be
the number of sub investment grade issues is minimal considered as part of total bank credit while
and the proportion below AAA is small. computing credit deposit ratio by banks

Private Placement issues: In India, over 95% of issuances • Bonds Primary Issuance Database: A centralized
are through private placements. Small & medium database of all bonds issued by corporates; made
corporate issuers generally raise resources through available free of cost to all the investors.
private placement route given cost considerations, ease
• Acceptance of corporate bonds under LAF repo of
of issuance, greater institutional demand and less retail
RBI: Encourage Banks to invest in Corporate Bonds
interest.
and then use them to borrow loans from RBI through
Absence of Longer maturity Bonds: Corporate Bond Repos.
market is basically dominated by bonds with average
• Debt Market Index: Though equity indices such as
maturity period of 2-5 years. Corporate bond market has
Nifty 50 and BSE Sensex serve as popular benchmarks
not been able to cater to the needs of long-term
for equities, designing debt indices has posed
investors such as pension and insurance fund
challenges in India as the market lacks breadth and
companies through issuance of long-term maturity
depth.
bonds.
• Credit enhancements of bonds by setting up of Credit
Lack of Risk management market: Absence of interest
Guarantee Enhancement corporation.
rate/ credit derivatives which can efficiently transfer the

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 BANKING AND FINANCE
• Strengthening of Credit Default Swaps (CDS): A credit Bonds and hence there is a need to have legal and
default swap (CDS) is a financial swap agreement that administrative structure for their development.
the seller of the CDS will compensate the buyer in the
event of a debt default (by the debtor) ►DEVELOPMENT OF GREEN BONDS
• Municipal Bond Market: Municipal bonds may be
IN INDIA
given some fiscal support in the form of bond
Green Bonds are like Corporate Bonds. However, the
insurance or providing credit enhancement so that
proceeds of such Bonds are exclusively used for
municipalities are encouraged to issue such bonds.
financing green projects such as renewable energy
projects, projects to mitigate the impact of climate
►IMPACT BONDS change, reducing the emission of fossil fuels etc. First
Green Bond was issued in 2007 when European
Impact Bonds are a form of contractual agreement
Investment Bank raised €600 million under the label
between Investors and implementation agency wherein
“Climate Awareness Bond” dedicated for renewable
the investors pay money to implementation agency only
energy projects and energy-efficient projects.
if it is able to achieve the pre-determined empirically
verifiable social indicators. GREEN BONDS IN INDIA

Mechanism of Impact Bonds is as shown below: In January 2016, Securities and Exchange Board of India
published its official green bonds requirements for
Indian issuers making India the second country (after
China) to provide national level guidelines. Indian
Railway Finance Corporation Ltd (IRFC) has established a
Green Bond Framework for fund raising.
CHALLENGES AND CONCERNS
In the last nearly seven years, green bonds worth
$500bn have been issued. Of this, India’s contribution is
hardly around $8.6 billion (1.7 per cent).
Lack of Awareness: Due to newness of instrument,
average domestic investor is wary of investing in Green
Some examples of Impact Bonds include USAID’s
Bonds and perceives them as high-risk investments.
Utkrisht Bond, World Bank’s Women’s Livelihood Bonds
etc. Impact bonds have become innovative method of Lack of Sector Diversification: Presently, most Green
financing social projects related to Education, Health etc. Bonds are used for development of renewable energy
on account of following reasons: projects. Green Bonds need to be used for diversified
purposes such as forestry and marine conservation to
Focus on Outcomes: Greater emphasis on achieving
strengthen the Green Bond Market.
targets rather than on Inputs
Smaller projects: Most times, Green Bonds are issued for
Innovative design: In case of failure, onus falls on private
smaller projects leading to smaller issue size of such
investors. Hence, it has an in-built accountability
bonds. This is in turn hindering the full-fledged
mechanism which leads to development of innovative
development of the Green Bonds Market.
strategies.
Incentivizes Collaboration between Government, Private
Sector and NGOs brings strength of each of these ►APPRAISAL OF INSOLVENCY AND
entities onto a single platform leading to synergistic
BANKRUPTCY CODE
efforts.
The year 2021 marks 5 years of completion of Insolvency
Government expenditure of 7.5% of GDP on social
and Bankruptcy code (IBC).
sector can be optimally harnessed through impact

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RELATIONSHIP BETWEEN FINANCIAL HEALTH OF BANKS AND ECONOMIC GROWTH

EVOLUTION IN THE FRAMEWORK FOR THE RESOLUTION OF NPAs

SARFAESI ACT,2002: Empowers banks to directly auction 3. Appoint a person to manage the assets.
residential or commercial properties that have been DIFFERENCE BETWEEN SARFAESI ACT AND IBC, 2016
pledged with them to recover loans from borrowers. As
1. SARFAESI- Applicable only for secured financial
per the SARFAESI Act, if a borrower defaults on a loan,
creditors; IBC- Applicable for both secured and
the Banks can give a notice period of 60 days to the
unsecured financial creditors.
borrower to repay the loans. If the borrower fails to
repay within 60 days, the Banks can take the following 2. Unlike IBC, SARFAESI is not applicable to Operational
Creditors.
actions:
1. Take possession of the pledged assets and then lease 3. The minimum threshold for invoking IBC: Individuals
or sell it off to recover the loan amount. (Rs 1000); Companies (Rs 1 crore); Minimum
threshold for SARFAESI: Rs 1 lakh.
2. Take over the management of the business of the
borrower.

HITS AND MISSES OF IBC, 2016

HITS MISSES
1. Higher Recovery rate of 45% in comparison to recovery rate of 26% in 1. Case Closure: Only 60% of the cases
the earlier regime. closed.
2. Time taken to close the cases: Around 1 year in comparison to 3-4 2. Mode of Case Closure: Majority of cases
years earlier. closed through liquidation; Few cases
3. Improvement in Ease of Doing Business closed due to Resolution.

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4. Addresses the Chakravyuha challenge of Indian Economy: 3. Recovery rates: Exclusion of large recovery
• 1991 LPG Reforms has enabled easier entry of private sector but cases such as Bhushan Steel, Essar Steel
made the exit difficult. etc. would lead to recovery rate of around
• Old Inefficient firms continue to operate with highly efficient firms 35-36%.
leading to misallocation of factors of production 4. Delay in admission of Applications and
• IBC has enabled faster exit of old inefficient firms Approval of Resolution plans

5. Behavioral Change 5. Infrastructural issues: Less number of

NCLTs; Delay in appointments; Higher
1. Fear of losing control of the company forces the promoters to operate
vacancies etc.
at highest level of efficiency.
2. Encourages the borrowers to settle dues at the earliest.

►SOCIAL STOCK EXCHANGES enable India to meet various Sustainable

Development Goals (SDGs)
WHAT IS SOCIAL STOCK EXCHANGE (SSE)?
• Provides a great opportunity for donors,
philanthropic foundations, companies with CSR
obligations to contribute to socio-economic cause.
• Helps to rebuild livelihoods affected by the COVID-19
pandemic

►ESG INVESTMENT
ESG (Environmental, Social and Governance) investing
has been able to attract a large number of investors in
other countries. Taking a cue from these countries, the
Indian mutual fund Industry has also been rolling out
India needs huge amount of capital for social sector
ESG funds for the benefit of Investors.
expenditure such as Education, Health, Sanitation,
Housing etc. Usually, the investors are reluctant to invest WHAT IS ESG INVESTING?
in these sectors due to poor financial returns. However, The ESG strategy revolves around investing in
the investment in these sectors has huge socio- companies that score high on three non-financial
economic returns in terms of improvement of standard parameters i.e., environment friendliness, social
of living, poverty alleviation, women empowerment etc. responsibility, and governance. The focus is on
Hence, in order to increase investment in the social companies that adopt environment-friendly practices,
sector expenditure, the Government has proposed produce products or services that influence society
Social Stock Exchange (SSE). It enables various societies, positively and conduct their business ethically.
trusts, not-for- profit companies to raise capital for Some of the aspects of ESG investment can include:
undertaking expenditure in social sectors. • Normally investors do not invest in sectors that are
For example, Brazil’s Socio-environmental Impact deemed harmful such as Tobacco, liquor etc. (Social
Exchange (BVSA) was the first SSE. Some of the other Responsibility).
SSEs across the world include- UK Social Stock Exchange, • The Investors make more investment in the
South Africa’s SASIX, Canada’s Social Venture Connexion. companies which have reduced carbon footprint,
RATIONALE FOR SETTING UP OF SSE IN INDIA follow emission norms, waste recycling etc.
• Conventional capital focusses more on financial (Environment Friendliness)
returns and not on socio-economic returns and hence • The investors avoid firms which have poor
does not invest in social sectors. governance (Ethical Business)
• India has over 3 million non-profit organizations. SIGNIFICANCE OF ESG INVESTMENT
However, they face financial constraints. Hence, the • Pressure from the investors force the corporate world
SSE would enable the non-profit organizations to to behave responsibly from a social, environmental
raise capital for social sector expenditure and thus and governance perspective

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 BANKING AND FINANCE
• Factors such as climate change and governance • Improve the Credit-to- crisis 2017-18 due to
issues pose risks to corporate earnings. Companies GDP ratio and facilitate dominance of Public Sector
that are aligned with ESG norms usually have lower Investment driven Banks.
risk of losses due to these factors.
Model. Conflict of Interest: Corporate
• Benefits the Investors through increase in the • Reduce the houses can involve in inter-
corporate earnings. Government’s connected lending. They can
SEBI’S FRAMEWORK FOR ENVIRONMENT FRIENDLY monopoly in banking easily turn banks into a source
GOVERNANCE sector and reap of funds for their own
• The Indian Institute of Corporate Affairs has benefits (Example of businesses. They can also use
developed a concept of National Voluntary Guidelines Liberalisation of banks to provide finance to
(NVGs) on Social, Environmental and Economic Telecom and Aviation customers and suppliers of
Responsibilities for adoption by the corporate sector. Sectors) their businesses. Tracing
• In 2012, the Securities and Exchange Board of India • Infuse competition in inter-connected lending is a
(SEBI) has mandated the Annual Business Banking Sector leading challenge.
Responsibility Reporting (ABRR), a reporting to higher efficiency. Contagion Impact: Banks
framework based on the National Voluntary • Lead to development owned by corporate houses
Guidelines (NVGs) on Social, Environmental and of large-sized banks to will be exposed to the risks of
Economic Responsibilities of Business released by the cater to credit needs of the non-bank entities of the
Ministry of Corporate Affairs. These guidelines serve $ 5 trillion economy. group.
as a driver to pursue sustainable management
• Leverage the Private Poor Supervision and
practices.
sector Banks for the Regulatory oversight: Recent
socio-economic failure of Yes Bank and Laxmi
►CORPORATES AS BANKS: PROS, development. (Ex: Jan Vilas Bank has exposed the
CONS AND WAY FORWARD Dhan Yojana, DBT etc) weakness in supervision of
• Many Countries across PSBs. Failure of Banks
In June 2020, the RBI had appointed Internal Working
the world have not promoted by large corporate
Group (IMG) to review the ownership guidelines and
explicitly prohibited houses would be disastrous.
corporate structure of the Indian Private Banks. One of
entry of large Concentration of Political and
the most contentious recommendations submitted by
corporate/Industrial Economic Power: Political
this committee is to allow large corporate/Industrial
houses. biasedness in giving licenses
houses to be the promoters of the Indian Banks. The
acceptance of this recommendation would pave way for to certain corporate houses;
large corporates such as Reliance, Tata etc. to set up Anti-competitive practices;
private sector Banks. promotion of crony
Capitalism.
SHOULD CORPORATE/ INDUSTRIAL HOUSES BE
ALLOWED TO SET UP BANKS? Misallocation of Credit:
Possibility of diverting
A large corporate/industrial/business house is defined
depositors’ money only
as a group having total assets of Rs 5000 crore or more
towards certain sectors and
wherein the non-financial business of the group
hence may affect financial
accounts for more than 40 per cent in terms of total
inclusion.
assets or gross income. The Committee has highlighted
that the private sector Banks must be set up non- Over-Burdened RBI leading to
operative finance holding company (NOFHC) structure. decrease in quality of
This would provide for the separation of ownership and Regulation.
management control over the Private sector Banks. Moral Hazard: Banks in India
are rarely allowed to fail. They
Arguments in Favour Arguments against
may have to be rescued by
• Bring in Capital and Prone to Shocks: Indian the Government which poses
necessary expertise in Economy remained less moral hazard.
Banking affected by Global financial

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 BANKING AND FINANCE
WAY FORWARD • Peer-to-peer (P2P) lenders connect lenders and
The issue of licences to the corporate houses should be borrowers via an internet-based platform. Example:
Faircent, Lendenclub etc.
preceded by number of reforms:
• E-Aggregators to compare the prices and features of a
Strengthen Banking Regulation Act, 1949: Federal
financial products. Example: Policy Bazaar
Reserve Act in USA prohibits financial transactions of
• Account Aggregators: An individual may have
Banks with their affiliates. Hence, amendments to
investments in fixed deposits with ABC Bank which
Banking Regulation Act, 1949 should be done to prevent
comes under the purview of RBI, mutual fund
Inter-connected lending.
investments with XYZ AMC which comes under the
Consolidated Supervision: RBI must be empowered to purview of SEBI and life insurance cover with DEF
carry out the consolidated supervision of the Banks and Insurance Corporation (which comes under the
their non-Banking entities to avoid any conflict of purview of IRDAI). Gathering and consolidating all the
Interest. scattered data while applying for a loan may prove to
be time-consuming. Hence, Individuals can authorize
Strengthen Supervisory Cadre: RBI has set up Specialised
NBFC-aggregators to do this job and provide the
Supervisory and Regulatory Cadre (SSRC) in 2019 to
information to Banks.
strengthen and consolidate the supervision functions,
HOW CAN FINTECH COMPANIES BENEFIT THE INDIAN
which were scattered across different departments. The
ECONOMY?
SSRC needs to be strengthened and given proper
• Increase in digital payments
training.
• Improvement in Lending and Investment through
Reforms in PSBs: Failure of Yes Bank and Laxmi Vilas
innovative tools such as Peer to Peer (P2P) lending,
Bank (LVB) has highlighted that it is not the ownership crowd funding etc.
structure, rather the quality of corporate governance
• Provide finances to MSMEs for trading of their
which determines the efficiency of the banks. Hence, the invoices Example: TreDS Platform
Government must also give due amount of emphasis on
• Provide Insurance and advisory services
reforming PSBs as highlighted by P.J. Nayak Committee.
• Improvement in Credit Creation through the Account
aggregator services
►FINTECH SECTOR- RECOMMENDATIONS OF SUBHASH CHANDRA GARG
OPPORTUNITIES, CHALLENGES COMMITTEE ON FINTECH SECTOR (2019)
Virtual banking: RBI should examine the suitability of
AND STRATEGIES
‘virtual banking system’ where banks do not need to set
Fintech can be defined as designing and provisioning of up branches and yet deliver the full-scale banking
financial services by using new technological services ranging from extending loans, savings accounts,
innovations. Basically, fintech comprises of technology- issuing cards and offering payment services through
based businesses that compete against, enable and/or their app or website

collaborate with financial institutions. Examples: Paytm, Removing discriminatory regulatory barriers: To boost
MobiKwik, Policy Bazaar, Phonepe, Googlepay etc digital payments in India, the National payment
corporation of India should provide non-discriminatory
Growth drivers: Rapid increase in the use of
access to fintech firms on par with Banks.
smartphones, internet connectivity, online shopping;
Fintech for Cyber Security: The fintech firms specialising
Younger population; Advancements in technology such
in field of cyber security should be encouraged to set up
as big data, AI etc; Improvement in Financial Inclusion;
their businesses in India and provided necessary
Launch of payment systems such as UPI; Regulatory
regulatory approvals for expanding their services in the
support given by RBI etc. country.
EXAMPLES OF INNOVATIVE PRODUCTS OF Flow-based lending to MSMEs: The GSTN data integrated
THE FINTECH COMPANIES with TreDS exchanges should form the basis of a flow-
• Crowd funding is a way of raising debt or equity from based lending system for MSMEs by banks and NBFCs.

multiple investors via an internet-based platform. Reforming P2P markets: Credit needs of MSMEs,
Example: Kickstarter, FuelAdream etc. households and individuals can be taken care of by

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 BANKING AND FINANCE
creating a marketplace model of debt financing where financial sector regulators (RBI, SEBI, IRDAI, and PFRDA)
savers, non-banks and banks are all permitted to lend. must focus on developing supervision technology.
The Ministry of Finance should develop a marketplace
model of debt financing in India.
►DIGITAL BANKS IN INDIA
Remote Sensing and Drone Tech for Credit and
Insurance: Insurance Companies and Lending agencies In Union Budget 2022-23, Finance Minister had
in Agri sector should be encouraged to use drone and announced setting up of 75 Digital Banking Units (DBUs)
remote sensing technology for crop area, damage and by Scheduled Banks across 75 selected districts in India.
location assessments to support risk reduction in In accordance, RBI has recently issued guidelines related
insurance/lending business. to setting up of such DBUs in India.

Digitisation of Land Records: Government should take PRESENT STATUS IN INDIA

up modernisation and standardisation of land records in Presently, only those entities which are licensed by the
the country on a war footing and complete such an RBI can undertake Banking related operations. As of
exercise within 3 years. now, the RBI does not allow Banks to be 100% digital.
Legal Framework for Customer Protection: A legal Hence, even though Banks can provide Banking services
framework for consumer protection should be put in by leveraging technology (such as imobile of ICICI),
place keeping in mind rise of fintech and digital services. Banks must have mandatorily have physical branches.
Hence, there is no provision for Licensed 100% Digital
Development of Regulation Technology (RegTech):
Banks in India.
Regtech is a new field within the financial technology
industry that utilizes information technology to enhance PROPOSAL OF 100% DIGITAL BANKS BY NITI AAYOG
regulatory processes. It puts a particular emphasis on • To be licensed under Banking Regulation Act, 1949 as
regulatory monitoring, reporting and compliance. The 100% Digital Banks.
financial sector regulators (RBI, SEBI, IRDAI, and PFRDA) • Provide Banking Services- Acceptance of Deposits,
must develop standards for RegTech by financial sector Giving Loans, provide insurance etc. without the need
service providers to make compliance with regulations to have physical branches.
easier, quicker and more automated for regulated
• No Physical Branches (No Brick and Mortar)
entities. It will enable them to meet their increasingly
strict know-your-customer (KYC), anti-money laundering • Leverage Technology to provide Banking Services
(AML) and counter-terrorist financing (CTF) • Also called as Challenger Banks- Newly created Banks
requirements. which compete with longer established Banks
Development of Supervision Technology: Supervision through use of Digital Technology. Global Examples:
technology is the application of technology by financial Challenger Banks such as Starling Bank, Monese
regulators so as to strengthen their regulatory and Banks in UK.
supervisory role. The committee has recommended that

UNION BUDGET 2022-23 up by issuing licenses to 100% Digital Banks. Only the
Proposal to set up Digital Banking Units (DBUs). existing Banks in India which already have physical
However, these Digital Banking Units would not be set presence are allowed to open DBUs.

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 BANKING AND FINANCE
►MICROFINANCE SECTOR- increase their income levels. It can facilitate achievement
of national policies such as poverty reduction, women
OPPORTUNITIES AND CHALLENGES empowerment, improvement in the standards of living
Microfinance is a tool to promote financial inclusion, etc.
enable the households to come out of poverty and

EVOLUTION OF MICRO FINANCE SECTOR IN INDIA 2011: Appointment of Malegam Committee on

1992: NABARD’s SHG-Bank Linkage program. Banks Regulation of MFIs. Committee recommended creation
started lending to Women-led SHGs based upon the of separate category of MFIs called as NBFC-MFIs. Called
money which these SHGs saved in the bank accounts. upon RBI to lay down comprehensive guidelines.

1992 to 2010: No separate RBI guidelines for the Micro 2011-2020

finance sector. Facilitated rapid growth of micro-finance • RBI created separate category of NBFC-MFIs and has
institutions (MFIs). These MFIs operated in regulatory laid down comprehensive regulatory framework.
vacuum and hence led to their exponential growth. This • Some of the MFIs have been merged into Banks while
phase saw the growth of large sized MFIs such as SKS some MFIs have been issued license to operate as
Microfinance, Spandana etc. small finance Bank
2010: Andhra Pradesh Microfinance crisis. MFIs indulged • Bandhan Financial services, which was an MFI earlier,
in unethical practices such as charging higher interest has been issued license for Universal Bank
rates, adoption of forced recovery techniques, not
Present Status: Total micro-finance loans stand at Rs 2.7
following due diligence in giving loans etc. Led to suicide
lakh crores. The highest share is accounted by the SCBs
by large number of people in the rural areas.
(40%). The NBFC-MFIs account for 30% of the loans.

SUMMARY OF THE RBI’S RECOMMENDATIONS ON THE REGULATORY FRAMEWORK FOR THE MFIS

CRITERIA EARLIER FRAMEWORK PRESENT FRAMEWORK

Applicability RBI's guidelines was applicable only to NBFC- RBI's guidelines extended to all Banks and financial
MFIs. Not applicable to other categories of institutions involved in Micro finance.
Banks and Financial institutions. Problem: Did Covers All Commercial banks (Including RRBs, Small
not cover 70% of micro-finance loans Riven bv Finance Banks and Local Area Banks) + Cooperative
the Banks and financial institutions. Banks + NBFCs (NBFC-MFIs and Housing Finance
Companies).

Definition of No Common Definition; RBI's definition of Common Definition of Micro-finance loan

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 BANKING AND FINANCE
Micro-finance what constitutes Micro-finance loan (including for NBFC-MFIs)
loan applicable only to NBFC-MFIs. Definition of • Collateral-free loan given to a household having
Micro-finance loan for NBFC-MFIs: annual household income up to Rs 3 lakhs.
• Loan given to a borrower with a rural • Given irrespective of end-use and mode of
household annual income less than Rs. 1.25 disbursal (either through Physical or digital
lakh or urban and semi-urban household channels)
income less than Rs. 2 lakhs. • Flexibility of repayment as per the borrowers'
• Loan amount does not exceed Rs. 1.25 lakh requirement.
per borrower.
• Loan extended without collateral.
• At least 50% of loans should be given for
income generation.
• Flexibility of repayment as per the
borrowers' requirement.

Limits on Single borrower cannot borrow from more Loan repayment obligation should not be more
borrowing than 2 NBFC-MFIs. than 50% of the monthly household income.
Problem: Individual could borrow from
multiple Banks  Over-borrowing  Strain on
household finances and Banks

Rate of Interest Rate of Interest on loans given by NBFC-MFIs All the entities given freedom to fix interest rates.
was based upon formula given by RBI. But such interest rates should not be too high.
However, other Banks and Financial institutions
had complete freedom in fixing interest rates

RBI's guidelines Non-deposit taking NBFC: Non-deposit taking NBFC:

on NBFC-MFIs • Minimum Net Owned Funds of Rs.5 crore. • Minimum Net Owned Funds of Rs.5 crore. (For
(For NBFC-MFIs registered in the NBFC-MFIs registered in the Northeastern Region,
Northeastern Region, the minimum NOF of the minimum NOF of Rs. 2 crore).
Rs. 2 crore). • At least 75% of its loans are in the nature of
• At least 85% of its loans are in the nature of microfinance loans.
microfinance loans.

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Section-6
UDGETING AND
TAXATION
SUB- THEME YEAR QUESTION

What are the reasons for introduction of Fiscal responsibility and Budget Management
(FRBM) act, 2003? Discuss critically its salient features and their effectiveness.
2013
What is meaning of the term tax-expenditure? Taking housing sector as an example,
discuss how it influences budgetary policies of the government.

In what way could replacement of price subsidy with Direct Benefit Transfer (DBT) change
2015
the scenario of subsidies in India? Discuss.

2016 Women empowerment in India needs gender budgeting. What are the requirements and
Budgeting status of gender budgeting in the Indian context?

One of the intended objectives of Union Budget 2017-18 is to ‘transform, energize and
2017 clean India’. Analyse the measures proposed in the Budget 2017-18 to achieve the
objective.

The public expenditure management is a challenge to the government of India in the

2019
context of budget making during the post-liberalization period. Clarify it.

Distinguish between Capital Budget and Revenue Budget. Explain the components of both
2021
these Budgets

Comment on the important changes introduced in respect of the Long-term Capital Gains
2018
Tax (LCGT) and Dividend Distribution Tax (DDT) in the Union Budget for 2018-2019.

Enumerate the indirect taxes which have been subsumed in the Goods and Services Tax
2019 (GST) in India. Also, comment on the revenue implications of the GST introduced in India
Taxation
since July 2017.

Explain the rationale behind the Goods and Services Tax (Compensation to States) Act of
2020 2017. How was COVID-19 impacted the GST compensation fund and created new federal
tensions?

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 BUDGETING AND TAXATION
►BASICS OF GOVERNMENT’S lens to the entire policy process. It is concerned with
gender-sensitive formulation of legislation, policies,
BUDGETING
plans, programmes and schemes; allocation and
Article 112 of Constitution requires the Government to collection of resources; implementation and execution;
present Annual Financial Statement (AFS) before the monitoring, review, audit and impact assessment of
Parliament every financial year. The AFS should programmes and schemes; and follow-up corrective
distinguish the expenditure on the revenue account action to address gender disparities. In a nutshell,
from other expenditures. Gender Budgeting covers analysing various economic
Revenue Budget include Current Receipts and policies of the Government from a gender perspective.
expenditure that can be met from these receipts. On the FIVE-STEP FRAMEWORK FOR GENDER BUDGETING
other hand, Capital Budget includes Assets and
Step 1: An analysis of the situation for women and men
Liabilities.
Step 2: Analysis of present policies and schemes
CRITERIA REVENUE BUDGET CAPITAL BUDGET Step 3: Find out adequacy of the budget allocations to
implement the gender-sensitive policies and
Receipts Non-redeemable Receipts which programmes
receipts create liability or Step 4: Monitor whether the money was spent as per
reduce financial the requirements.
assets.
Step 5: An assessment of the impact of the policy/
programme/scheme and the extent to which the gender
Examples of Tax Revenue (Direct Debt Receipts:
gap has been addressed
Receipts and Indirect Taxes): Market
PRESENT STATUS IN INDIA
GST, Income Tax, Borrowings.
Corporate Tax, It has been introduced in India in 2005. All the ministries
Non-Debt
Excise Duty, and Departments have been mandated to set up Gender
Receipts:
Customs duty (In Budgeting Cells as focal points for mainstreaming
Disinvestment,
Declining Order) gender through the tool of Gender Budgeting. Further,
Recovery of Loans
the Ministry of Women and Child Development
Non-Tax Revenue:
developed a Gender Budgeting Handbook and a Manual
Interest Receipts,
in 2007 for training the officers of these Gender
Dividends and
Budgeting Cells.
Profits of PSUs, User
Charges, External Several State Governments have also implemented
Grants etc. Gender Budgeting with significant success. States such
as Karnataka, Kerala, Gujarat, Rajasthan, Madhya
Expenditure Recurring: Incurred Non-Recurring: Pradesh, Chhattisgarh and many others have taken
for purposes other Incurred for Asset significant steps to institutionalise Gender Budgeting to
than creation of creation address gender gaps.
Assets PROCESS OF GENDER BUDGETING IN INDIA
The Budget Circular issued by the Ministry of Finance
Examples of Interest Payments, Creation of Roads, requires Ministries and Departments to review all
Expenditure Subsidies, Salaries railways etc. and ongoing schemes to determine their relevance, prioritise
and Pensions, loans to States. their activities and schemes and furnish estimates of
Defence, Grants to expenditure. Additionally, all Ministries/ Departments
the States for are required to prepare a Gender Budget Statement.
creation of Assets The Gender Budget Statement presents information
etc. regarding programmes/schemes that are:
(a) women-specific (in which 100% of allocation is
earmarked for women) and
►GENDER BUDGETING
(b) pro-women (in which at least 30% provision is for
Gender Budgeting is a tool for gender mainstreaming women).
which uses Budget as an entry point to apply gender

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 BUDGETING AND TAXATION
RATIONALE BEHIND GENDER BUDGETING newly formed UT of Jammu and Kashmir, and Ladakh
• Promote Gender Equality through positive from resources of Centre.
discrimination in favour of women. Criteria for Horizontal distribution of taxes among States
• Promote higher efficiency through adequate th
Criteria 14th Finance 15 Finance
provisions for women.
Commission Commission
• Needs and requirements of Genders differ. Gender
neutral budgets ignore the gender specific impacts of Income Distance 50 45
Budgets.
Population (1971 17.5 Not Considered
Census)
IMPORTANCE OF GENDER BUDGETING IN
ADDRESSING GENDER GAP Population (2011 10 15
• Identification of the needs of women and census)
reprioritising/increasing expenditure to meet these
needs Demographic Not Considered 12.5
• Not only ensures higher budgetary allocation, but also Performance
ensures that efficient utilisation of resources
Forest Cover 7.5 Not Considered
• Participatory and inclusive as it involves inputs from
stakeholders such as women groups and NGOs in Forest and Ecology Not Considered 10
identification of problem, allocation of resources,
social audit of schemes and policies etc. Area 15 15
• Formulation of Taxation policies to address gender
Tax Effort Not considered 2.5
inequalities in property ownership, unequal
contribution to unpaid labour within the household,
Total 100 100
gender differentials in wages, etc. Examples include
Sukanya Samridhi Account, Lower stamp duty for ANALYSIS OF CRITERIA USED BY 15
TH
FINANCE
registration of property in the name of females etc. COMMISSION
• Leads to formulation of special programmes for the Earlier, 15th Finance Commission has asked to explore
benefit of women the possibility of using the Population of 2011 census
• Higher transparency and accountability instead of 1971 census for the devolution of taxes.
However, this was opposed by the Southern states.

►15TH FINANCE COMMISSION These states have taken substantial efforts to reduce
th
Population growth rates by undertaking Family planning
15 Finance Commission headed by Mr. N.K. Singh
programs since 1970s. So, naturally, if the criteria of
submitted its recommendations. Usually, Finance
2011 census were to be used, this would lead to loss in
Commission recommendations are valid for a period of
the share of their taxes. Here, the Finance Commission
5 years. However, 15th Finance Commission
has done a fine balancing between the directions issued
recommendations would be valid for a period of 6 years.
by Centre and concerns raised by Southern states.
Earlier, 15th Finance Commission had submitted its first
It has used the Population of 2011 census and done
set of recommendations which were applicable for the
away with Population of 1971 census. However, keeping
financial year 2020-21. Now, commission has submitted
in mind, concerns raised by Southern states, it has
its second report, whose recommendations will be
introduced new criteria of Demographic performance.
applicable for the next 5 years i.e., 2021-2026.
TH
Demographic performance indicator looks at the Fertility
RECOMMENDATIONS OF 15 FINANCE COMMISSION
rate in a state. If the fertility rate in a particular state is
Vertical Devolution of Taxes: Share of states in central lower, it would mean that such a state has taken
taxes for the 2021-26 period is recommended to be 41%, substantial efforts to reduce its population growth rate
same as that for 2020-21. This is less than 42% share and accordingly it would get a higher share. Since
recommended by 14the Finance Commission for 2015- fertility rate in southern states is much lower,
20 period. The adjustment of 1% is to provide for the introduction of such an indicator is likely to reduce the

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 BUDGETING AND TAXATION
impact caused by using the criteria of 2011 census Several multinational companies usually shift their
instead of 1971 census. profits from high tax jurisdiction to tax haven countries
GRANTS-IN-AID such as Mauritius, Singapore, Hongkong, Cayman
Islands, Panama, Bermuda etc. through “Base Erosion
Revenue Deficit Grants worth Rs 74,000 crore to these
profit Shifting” (BEPS). Hence, to prevent BEPS, recently,
14 states.
India has joined the OECD Inclusive framework on BEPS.
Grants to local bodies: Total grants to local bodies for Under the OECD”G20 Inclusive Framework on BEPS, 140
2020-21 has been fixed at Rs 90,000 crore. This countries (including India) are collaborating to put an
allocation is 4.31% of the divisible pool. This is an
end to tax avoidance strategies of the MNCs.
increase over the grants for local bodies in 2019-20,
which amounted to 3.54% of the divisible pool. The
PILLAR 1 OF OECD: ALLOCATION OF
grants will be divided between states based on
population and area in the ratio 90:10. The grants will be PROFITS OF MNCS AMONG THE COUNTRIES
made available to all three tiers of Panchayat- village, Present Status: Existing tax norms have been framed
block, and district. keeping in mind the brick-and-mortar business models.
Disaster risk management: Commission recommended Hence, these tax norms are not suitable to tax internet-
setting up National and State Disaster Management based companies such as Google, Amazon, Microsoft
Funds (NDMF and SDMF) for the promotion of local-level etc. These digital MNCs do not pay tax in the country in
mitigation activities. which they earn profits. This is because they may
Centrally Sponsored Schemes (CSS) operate business without establishing any physical
presence.
Present Status: Union Budget 2020- 21 shows that
fifteen of thirty umbrella CSS account for about 90% of Implications: This leads to revenue loss of around $ 100
total allocation under CSS. Many umbrella schemes bn on an annual basis for the countries across the world.
have, within them, several small schemes, some of them Example: While Facebook has users in every country, it
with negligible allocations. doesn’t have physical operations in every country. A
Recommendations: It is important to gradually stop country like India might have millions of Facebook users
funding for those CSS and their subcomponents which and Facebook is earning huge profits from those users.
have either outlived their utility or have insignificant However, since Facebook has no physical presence in
budgetary outlays not commensurate to a national India, the company does not pay tax here.
programme. There should also be a minimum threshold Proposal: Pillar One addresses nexus rules (or where tax
funding size for the approval of a CSS. Below stipulated will be paid) and new profit-allocation rules (or what
threshold, administrating department should justify portion of a MNCs profits will be taxable). The idea here
need for continuity of the scheme. Third-party is to ensure that the MNCs should pay fair share of tax
evaluation of all CSS should be completed within a wherever they operate. It would ensure that the certain
stipulated timeframe. profits of the MNCs would be shared between the
FUNDING OF DEFENCE AND INTERNAL SECURITY countries where the MNC has significant economic
presence. So, in future, the profits of these companies
Present Status: Defence expenditure has been
would be shared among countries in which they
characterised by a higher share of revenue expenditure,
operate.
huge pension bills and lower capital expenditure with
high dependence on import of defence equipment. APPLICABILITY

Recommendations: A dedicated non-lapsable fund called Which MNCs would be covered? MNCs which have global
the Modernisation Fund for Defence and Internal annual revenues of above 20 billion euros and profit
Security (MFDIS) should be constituted under Public margin of more than 10%. MNCs which do not fulfil this
Account for capital expenditure in defence and internal criterion will not be required to pay tax.
security. The fund will be funded through (a) Transfers What will the tax rate? 20-30% of the residual profits
from the Consolidated Fund of India (b) Disinvestment of earned by the MNCs. The residual profit is computed as
defence PSUs (c) Monetisation of defence lands. profit more than a certain profitability threshold
percentage (in this case, it is 10%).

►OECD TAX PROPOSALS & For example, let’s say a particular MNC has global
revenues of around $ 100bn and overall profits of $ 15
IMPLICATIONS FOR INDIA bn. So, its profit margin is 15%. Its residual profits would

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 BUDGETING AND TAXATION
be profits more than threshold of 10% i.e., 5% ($ 5 bn). the above country “X” would get 10% of the share of $
Accordingly, 20-30% of the Residual profits ($ 5 bn) 20bn i.e., $ 2bn.
would be imposed as tax on such an MNC.
PILLAR 2: GLOBAL MINIMUM
Which all countries would be allocated tax? A country
would get its share of tax if a particular MNC (which
CORPORATE TAX
fulfils the above criteria) earns at least 1 million euros in Proposal: All countries across the world need to impose
revenue in that country. minimum corporate tax of 15%, which is the minimum
On what basis will profit be allocated to different corporate tax which should be applicable. The countries
countries? Based on the share of revenue earned by would have complete flexibility to fix corporate tax rates
MNC in that country. For example, if a MNC earns 10% of above 15%. Ideally, no country should have corporate
its revenue in country “X”, then the country “X” would get tax rates below 15%.
10% of the share of the profits which are allocated Working Mechanism: If any country adopts corporate tax
between different countries. below 15%, then in that case, a particular MNC would
Example: For ex., let’s say a particular MNC has residual pay the lower corporate tax to such a country and the
profit of $ 100bn. 20-30% of the residual profit would be remaining tax amount (Minimum Corporate Tax amount
shared among the countries. Let’s consider this as $ of 15% - Prevailing tax rate in a particular country) would
20bn (20% of Residual profit of $ 100bn). So, in this case, be paid to the country to which the company originally
belongs.

All the countries agree to impose minimum corporate tax at 15% Countries to have flexibility to fix corporate tax above 15% If
any country fixes the corporate tax below 15%, then the difference tax amount to be paid to be country to which the company
originally belongs.

Different Scenarios Tax Rates Tax Paid

USA Country XYZ USA Country XYZ

Scenario 1 28% 15% 0 $15bn

• US based Company operating in country XYZ (India)
• Annual Profits: $100bn
• Minimum Tax liability: $15 bn

Scenario 2 28% 10% $5bn $10bn

• US based Company operating in country XYZ (Mauritius-
Tax Haven)
• Annual Profits: $100bn
• Minimum Tax liability: $15bn

Scenario 3 28% 25% 0 $25bn

• US based Company operating in country XYZ (China)
• Annual Profits: $100bn
• Minimum Tax liability: $15bn

GLOBAL MINIMUM CORPORATE TAX

Rationale Challenges

Proposed Tax hikes in USA: During Trump’s Presidency, corporate tax rates Mainly serves Interests of USA: Proposal
in US were reduced from 35% to 21%. Now, Joe Biden Administration put forward to finance $2 trillion spending
seeks to increase the corporate tax rate from 21% to 35% to raise revenue program; 30% of Forbes 2000 MNCs
and provide stimulus measures. However, the proposal to increase the tax American based and hence US government
rates might prompt the US based companies to shift their bases to other would be the ultimate beneficiary.
low tax jurisdictions. Hence, the idea is to prevent the US based companies

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from shifting their bases to low tax authority countries. Against Interests of Poor and developing
Target Low Tax Jurisdictions: According to research by the Tax Justice countries which uses lower tax rates as a
Network campaign group, total revenue lost at the global level on an tool to attract foreign investment and
annual basis due to BEPS is as high as $ 427bn. India’s annual tax losses boost GDP growth.
due to corporate tax abuse are estimated at over $10 billion. Almost $8.7 Difficult to achieve consensus among
trillion of global wealth is stored in these low-tax jurisdictions. multiple countries at international level.
Target Technological companies such as GAFAM which end up paying Goes against Principle of Sovereignty as the
lower taxes due to BEPS. country would lose their freedom to fix low
Prevent "Race to the Bottom": According to OECD, countries across the tax rates.
world are locked in intense competition to attract foreign investment by
reducing the corporate tax rates. The average corporate tax rate has fallen
from 32% in 2000 to 23% in 2018.
Compulsions before US Government to reduce FD, higher Debt levels and
finance $ 2 trillion spending program.

IMPLICATION OF PILLAR 1 AND PILLAR 2 ON ensure its interests and concerns are taken into
consideration.
INDIA
Indian IT Companies: Indian IT companies with a global
The OECD is set to finalize the proposals on both Pillar 1
footprint in business will have to evaluate their current
and Pillar 2 by the end of October 2021. Let's
business models and how the OECD proposals would
understand its implications on India and what should be
impact them.
India's stand.
Global Minimum Corporate Tax rates: India has brought
Revenue Implications: Since India has a large consumer
down the corporate tax rate to 15% for the domestic
base for companies such as Facebook, Google, Amazon
manufacturing companies, which is on par with the
etc., India would be able to get a bigger share of their
OECD proposal. The adoption of Global minimum
profits as compared to other countries. However, as of
corporate tax would put a dent in the appeal of low-tax
now, it is difficult to quantify the amount of taxes which
jurisdiction countries and can help India to attract
would flow to India.
foreign companies to set up their bases here. Similarly, it
Doing Away with Equalization levy: India has unilaterally would discourage the Indian companies from setting up
imposed Equalization levy to bring digital companies bases in tax havens solely for the purpose of tax
under the ambit of tax. The finalization of OECD deal avoidance.
would mean that India would have to do away with
Equalization levy. India needs to be cautious here. It
►CAN CAPITAL EXPENDITURE
needs to ensure that the revenue gains from the OECD
deal is much higher than the revenue earned through BOOST ECONOMY?
Equalization levy. To deal with Economic slowdown, Union Budget 2021-22
Expansion in scope of MNCs covered: Pillar 1 covers only has enhanced the Capital Expenditure to ensure
those MNCs which have global annual revenues of multiplier effect, boost both demand and supply, crowd-
above 20 billion euros and profit margin of more than in private sector investment, revive the animal spirits
10%. This criterion would include only the bigger MNCs and kickstart Indian economy. However, it is easier said
(such as Google, Apple, Facebook etc) and leaves out than done. The ability of capital expenditure to boost
smaller MNCs. Hence, India needs to argue for lowering long-term growth is saddled with multi-faceted
criteria and bring even smaller companies under the tax challenges.
bracket. Trends in Revenue and Capital Expenditure in India:
Tax Rates: Pillar 1 proposes tax rate which ranges Share of revenue expenditure in the total expenditure
between 20% to 30% of residual profits above 10% profit has increased from 73% in 1990 to 84% in 2021.
margin. The developed economies have argued for a However, the share of Capital Expenditure has reduced
lower tax rate of 20%, while India has demanded for the from 27% in 1990 to 12% in 2019-20. Similarly, a higher
tax rate to be at higher end of 30%. India needs to share of our borrowings (Fiscal Deficit) is used for

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funding Revenue Expenditure rather than Capital Higher Debt Sustainability: Economic Survey 2020-21 has
Expenditure. This shows a consistent decline in the highlighted that India need not be worried about
quality of Fiscal Deficit in India. Quantity of Public Debt, we should be worried about our
CASE FOR INCREASE IN CAPITAL EXPENDITURE capacity to repay. Our capacity to repay in turn depends
upon Interest rate growth differential (IRGD.
Revive Economy: In India, capital expenditure multiplier
is around 2.45, while revenue expenditure multiplier is
0.99 (RBI Bulletin, Dec 2020). Thus, for a Rs. 1 crore
increase in capital expenditure, GDP increases by Rs.
2.45 crores, whereas if there is a 1 crore increase in
revenue expenditure, the GDP increases only by Rs.0.99
crore.
Crowd-in Private sector Investment as Government
expenditure on creation of capital assets would boost
demand for Goods and services produced by the Private
sector entities.
Shift gears from Consumption driven to Investment
driven economy as recommended by Eco Survey 2019-
20

Plug gaps in Infrastructure: India needs to spend $4.5 Neglect of Immediate needs of people: According to
trillion on infrastructure by 2030 to sustain its growth some of economists, instead of providing benefits to the
rate. Higher Capital expenditure would lead to creation people in the form of cash transfers, free ration,
of world class infrastructure in terms of Roads, railways, Education, healthcare etc. to deal with Covid-19
pandemic, Government ends up giving more emphasis
ports etc.
on creation of capital assets.
Reduce Logistics cost and boost Make in India: Higher
Problem of Time lag as the increase in the capital
Capital expenditure would help us bring down the
expenditure would not have immediate impact on the
logistics cost from around 12%-14% of the GDP to the
economy.
global benchmark of around 8-10% of GDP.
Multiplier effect may not be come into being as the
Boost Employment Creation: Higher Capital expenditure private sector may not increase its investment due to
would create more employment opportunities, enable fear to lower GDP growth rates and lower rate of
people to earn their livelihoods and boost demand in returns. Similarly, due to unforeseen circumstances
the economy. prevailing in the economy, people may decide to save
money instead of spending leading to decline in
CONCERNS AND CHALLENGES
demand.

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Crowd out Private sector investment due to higher Government agencies which borrow money from market
government borrowings. based on government guarantee fails to repay such
Time and cost overrun in completing infrastructure loans. Under such circumstances, the Government
projects could lead to lower rate of returns and hence would be required to pitch in and fulfill its obligations.
make the projects financially unviable. Reduced Sanctity of Government's Finances: Ideally, the
Poor quality of asset creation can lead to higher Government guarantee on repayment of bonds should
recurring expenditure on maintenance. be accounted under Debt and Liabilities so as to provide
correct picture about its finances. However, since it is
WAY FORWARD
not accounted, it would lead to understating of
The Budget 2021-22 has rightly prioritised on Capital Government's borrowings and do not present correct
Expenditure. However, the Government must address picture related to fiscal indicators such as Fiscal Deficit
some of the constraints such as time and cost overruns,
and Revenue Deficit.
improving Ease of Doing Business etc. At the same time,
HOW TO ADDRESS THIS PROBLEM?
new initiatives such as Development Banks and National
Monetisation Pipeline must be implemented in the right CAG has given recommendations to tackle the problem
earnest. The government should also aim to cut down of off-budget financing. They are:
on inefficient revenue expenditure and focus on creating • Government of India must put in place policy
a balanced and stable virtuous cycle, which can have framework for off-budget financing to provide for
positive knock-on effects over the long term. enhanced disclosure to Indian parliament. Such a
policy framework must mandate Government to
►CONCERNS WITH OFF-BUDGET highlight rationale and objective of undertaking off-
budget financing.
FINANCING
• Government must come out with quantum of off-
Off-Budget Financing refers to expenditure undertaken budget financing and way it has been undertaken
by PSUs through market borrowings based upon
every year.
guarantee of repayment of loans given by Government.
• Government must disclose all details about off-
For example, let's say government needs to invest in
budget financing through disclosure statements in
Railways. It may ask Indian Railway Finance Corporation
Budget.
(IRFC) to borrow money from market and finance railway
projects. However, Government guarantees the
repayment of principal and interest for the money ►FISCAL COUNCIL IN INDIA
borrowed by Indian Railway Finance Corporation in case
Chairman of 15th Finance Commission, NK Singh has
it fails to repay the borrowed money.
recommended setting up of institutional mechanism like
CONCERNS WITH OFF-BUDGET FINANCING a ‘Fiscal Council’ to fill major institutional gap in India's
According to various Estimates put forward by Subhash Fiscal System.
Chandra Garg, Off-budget Expenditure accounts for at ABOUT FISCAL COUNCIL
least 1% of India's GDP, which is quite huge. The same
A fiscal council is an independent and non-partisan
concern was raised even by Comptroller and Auditor
agency set up to publicly assesses government’s fiscal
General (CAG) in 2019.
performance against its stated objectives. Fiscal Councils
Decrease in Government's Financial Accountability: The
can serve both ex-ante and ex-post functions such as
Government’s strategy to meet capital expenditure
through off-budget financing provides flexibility in • Producing independent forecasts related to GDP
meeting requirement of capital-intensive projects. growth, tax buoyancy, inflation rate.
However, such financing remains outside budgetary • Review the government’s forecasts and assumptions
control of the Parliament. related to tax collections, Fiscal Deficit, GDP Growth
Decrease in Fiscal discipline: Increase in off-budget etc (an ex-ante function).
expenditure highlights that the Government has not • Monitoring governments’ fiscal performance including
been able to manage its finances efficiently and thus adherence to fiscal rules (an ex post function)
there is greater level of fiscal indiscipline. International Experience with Fiscal Council: Fiscal
Enhanced Financial Risk: Increase in off-budget financing councils can improve fiscal outcomes and accuracy
poses enhanced risk for Government, particularly when related to government's forecasts related to fiscal

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parameters. Example: United Kingdom (Office of Budget granting permanent status to Finance Commission
Responsibility), USA (Congressional Budget Office) under Art 280.
Committees related to Fiscal Council: FRBM Review UNDERSTANDING FISCAL FEDERALISM
committee headed by N.K Singh and D.K. Srivastava Fiscal federalism is economic counterpart of Political
Committee on Fiscal Statistics have proposed to set up Federalism. Fiscal Federalism consists of 2 aspects:
independent Fiscal Council in India.
• Assignment of functions to different levels of
NEED FOR FISCAL COUNCIL IN INDIA Governments
• Promotes coordination among multiple agencies • Allocation of financial powers
involved in collection of the fiscal data.
NEED TO HAVE PERMANENT FINANCE COMMISSION
• Produce Independent forecasts related to various
• Finance Commissions have adopted different
parameters such as GDP, Tax collection, Deficits etc.
approaches with regard to principles of tax
• Advise the Government on the formulation of Budget. devolution, grants to be given to states and fiscal
• Monitor Government's fiscal performance to FRBM consolidation issues.
Targets • Even though, there has to be freedom for fresh &
• Ensure greater accountability of the Government to innovative thinking by every Finance Commission; at
the Parliament. another level, there is a need for broad consistency
• Act as counterpart to the Monetary Policy Committee between Finance Commissions so that there is some
degree of certainty in flow of funds to states.
• Address the problem of Off Budget Financing.
• For example, 14th Finance Commission has provided
ROLE OF FISCAL COUNCIL IN INDIA
for tax devolution of 42% as compared to 32%
• Fiscal Data Coordinator: As a fiscal data coordinator, provided by 13th Finance Commission. Further, 14th
Fiscal Council should have responsibility of compiling Finance Commission has added parameters of Area
and collating centre, state, and local government under Forests and Demographic Change (2011
fiscal data and provide individual and consolidated census) for the horizontal tax devolution. Fiscal
fiscal accounts of governments in India on a timely discipline parameter used by 13th Finance
basis and make such data accessible to governments Commission has been done away with by 14th
and public. Finance commission.)
• Fiscal Data Analyst: Utilize compiled fiscal data to NEED TO STRENGTHEN NITI AAYOG
provide valuable insights into the underlying fiscal Vijay Kelkar is of opinion that the present mechanism of
trends and highlight their policy significance. setting up of Finance Commission every 5 years is
• Fiscal Consolidation Path Monitor: Central and state working perfectly fine. However, there is a need to
governments follow their respective fiscal strengthen fiscal Federalism by empowering NITI Aayog
consolidation paths according to targets set under with transfer of finances.
their FRBM Acts. Fiscal Council should monitor Rationale
compliance of these targets by Central and State
• Planning Commission was involved with transfer of
Governments. It should highlight deviations in targets
finances to the states which to a certain extent were
by publishing quarterly and annual reports. able to reduce the regional imbalances existing
• Fiscal Policy Advisor: Fiscal Council should provide among different states in India. However, Planning
guidance to central and state governments on Commission was replaced by NITI Aayog, which acts
appropriate fiscal policy interventions aimed at more like a think tank without power of transferring
improving growth and macro-stabilization outcomes. finances.
• Two problems have arisen with this. Firstly, India’s
►STRENGTHENING FISCAL Fiscal Federalism stands only on one pillar, viz., Union
Finance Commission. This is a serious weakness of
FEDERALISM our present Fiscal Federalism and needs to be
Recently, Vijay Kelkar has argued for strengthening Fiscal corrected.
Federalism in India by empowering NITI Aayog to • Secondly, India has been experiencing process of
transfer funds to states to promote balanced regional “Conditional Convergence” amongst different States
development. Some economists have pitched for wherein poorer states have been growing more

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 BUDGETING AND TAXATION
rapidly than richer states leading to reduction in ►PERFORMANCE ANALYSIS OF
income inequality. Such conditional convergence has
been possible on account of transfer of finances by
GOODS AND SERVICES TAX (GST)
Planning Commission. New GST system was implemented from July 2017 to
• Thus, there is a strong case for strengthening the role replace several central and state taxes on same base
of NITI Aayog with powers of allocating finances to with a country-wide common framework. As each State
states. To make the new NITI Aayog more effective, it levied its own VAT, tax system was fragmented with
is essential to ensure that the institution is at the different rates being applied for comparable sales of
“High Table” of decision making of the Government. goods.
This means the Vice Chairman of the new NITI Aayog OUTLINE OF GST SYSTEM
will need to be a permanent invitee of the Cabinet Legal Framework: Legal regime of GST includes four
Committee on Economic Affairs. Thus, new NITI Aayog Central laws (Central Goods and Services Tax (CGST) Act,
will make available to the highest level of policy Integrated Goods and Services Tax (IGST) Act, Union
making knowledge-based advice and provide national Territories Goods and Services Tax (UTGST) Act and
and long-term perspective on the policy proposals. Goods and Services (Compensation to States) Act along
with twenty-four state laws, relevant State Goods and
►TENSIONS IN FISCAL Services Tax (SGST) Act

FEDERALISM Policy Framework: GST system is based on a system of

multiple rates to various categories of sales (0%, 5%,
EROSION OF FISCAL AUTONOMY OF STATES UNDER
12%, 18%, 28% and additionally 0.25% for precious
GST REGIME stones and 3% for gold).
• With the advent of the GST regime, States Tax Administrative Framework: Administration of GST is
surrendered the power to levy many taxes. Ex: state done in parallel by Central and State GST
sales tax, octroi, Entertainment tax etc. administrations with powers to audit and administer
• State governments cannot change the rates of GST on shared. To support the administration of taxpayers, a
their own according to their fiscal needs. common nation-wide IT backbone called the GST
• Loss of revenue to the manufacturing states since Network (GSTN) has been put in place through which all
GST is a destination-based tax. tax returns are required to be filed.

Delay in payment of GST compensation to states. POSITIVES: Done away with Cascading effect of Tax on
Tax + One Nation One Tax + Improved Tax Compliance +
States share in overall tax revenues has stagnated
Increase in number of registered taxpayers + Lower cost
because the non-divisible pool of cesses and surcharges
of Goods and Services + Improvement in Ease of Doing
has been increasing.
Business
Union government laid down several conditions to
ISSUES IN GST IMPLEMENTATION AND FUNCTIONING
increase the borrowing limits of the state governments.
15th Finance Commission has highlighted some
15th Finance commission has given more weightage to
challenges with the implementation of the Goods and
the population criteria in Horizontal devolution formula
Services Tax (GST). These include:
STEPS TO STRENGTHEN FISCAL FEDERALISM
Stagnation in Revenue: Monthly GST collections crossed
Flexibility should be given to the states to increase tax Rs 1 lakh crore in April 2018 and since then have
during crisis. Ex: Kerala government was allowed to levy remained stagnant.
1% Calamity cess on GST to reverse the devastation Inverted Duty Structure refers to a situation where the
caused by the floods rate of tax on inputs purchased (i.e., GST Rate paid on
Flexible borrowing limits for fiscally prudent states, inputs) is more than the GST rate on finished goods. The
which have not breached FRBM limits and managed inverted duty structure leads to higher input tax credits
overall debt at sustainable levels. and hence lower tax collection for the Government.
Extension of GST compensation beyond 2022 should be Complexity: GST was introduced to simplify the tax
considered. However, the 14% assumed growth rate structure and improve the tax compliance. However, the
should be revised keeping in view of present economic existing GST regime has multiple rates: 0, 0.25, 1, 3, 5,
scenario. 12, 18 and 28%.

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Coverage: Petroleum crude, petrol, high speed diesel, Composition: Chaired by Union Finance Minister and
Aviation Turbine Fuel (ATF), Natural gas etc. are still other members are Union State Minister of Revenue or
outside GST. Finance and Ministers in-charge of Finance of all States.
Issues in Refunds: Delays in GST refunds, recent Decision Making: Voting Weightage- Centre (1/3) and all
unearthing of fake invoices and fraudulent practices to States (2/3). Decision shall be taken by a majority of not
corner input tax credit. less than three-fourths of weighted votes of members
Anti-profiteering framework: Need to evolve clear present and voting. Thus, Central Government has an
guidelines on anti-profiteering mechanism. effective veto on all decisions of GST Council.

Shortfall in GST Compensation CSS: Almost 21 states still Quorum: Half of the total members
depend upon Centre for the GST compensation. ARGUMENTS OF CENTRE ON RECOMMENDATIONS OF
Lack of Revenue Neutrality: A change in tax structure is GST COUNCIL
revenue neutral if the modified tax is able to realize Certain provisions of IGST Act, CGST Act and SGST Acts
revenue comparable to the original tax regime. In this explicitly provide that Government shall take decisions
sense, the much-needed revenue neutrality of GST based on recommendations of GST Council. For eg. if
stands compromised. The Share of General GST council makes recommendations related to changes
Government’s revenue from taxes subsumed under GST in GST rates or inclusion of petroleum products in GST,
was 6.3% of GDP in 2016-17. However, collections then accordingly, Central and State Government would
under GST were 5.7% of GDP in 2018-19 and 5.6% in issue notification to give effect to recommendations of
2019-20. GST council. Similarly, power of Central Government to
exempt goods or services from levy of tax shall be
exercised on recommendations of GST Council.
►SC RULING ON GST COUNCIL
If recommendations of the GST council are not binding,
Supreme Court has recently ruled that then different states could impose different tax rates on
recommendations of GST council are not binding on goods and services which would defeat the purpose of
Parliament and State legislatures. On one hand, SC "One Nation, One Tax".
judgement was welcomed by the opposition-ruled
SUPREME COURT JUDGEMENT ON GST COUNCIL
states, while Centre has ruled out any change in the
The recommendations of the GST Council are not
functioning of the GST. The Centre has argued that the
binding on the Union and States for the following
SC judgement has merely reiterated the constitutional
reasons:
and legal provisions related to the functioning of the GST
council and hence would not affect its functioning. • Article 279A provides that the GST council shall make
recommendations to the Union and States. There is
DETAILS ABOUT GST COUNCIL
no explicit provision in Article 279A for the
GST Council is a constitutional body under Article 279A
recommendations to be binding.
for making recommendations to Union and State
• Article 246A provides that both Union and States are
Government on issues related to Goods and Service Tax.
empowered to make laws related to GST. There is no
Mandate: Make recommendations to Union and States
explicit provision in Article 246A for the
on the following
recommendations of the GST council to be binding on
• Recommend Taxes, surcharge and cess to be the Parliament or state legislatures.
subsumed into GST.
• The ‘recommendations’ of the GST Council are the
• Model GST laws product of a collaborative dialogue involving the
• Recommend GST Rates. Union and States. To regard them as binding edicts
• Recommend the date on which the GST be levied on would disrupt fiscal federalism, where both the Union
petroleum crude, high speed diesel, petrol, natural and the States are conferred equal power to legislate
gas and aviation turbine fuel. on GST.

• Recommend threshold limit of turnover below which • The Government while exercising its rule-making
GST may be exempted. power under the provisions of the CGST Act and IGST
Act is bound by the recommendations of the GST
• Any other matter related to GST, as the council may
Council. However, that does not mean that all the
decide.

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recommendations of the GST Council are binding on Compensation cess is levied on luxury and sin goods,
the legislature. and the proceeds are used to compensate states for any
ANALYSIS OF THE SUPREME COURT JUDGEMENT loss they incur within the first five years of GST
The GST council may make two types of implementation (i.e., until end of 2022). According to the
recommendations- (a) which would require the GST Act, States and UTs with Assemblies are guaranteed
Government to issue notification (b) which require the compensation if the GST revenue growth is less than 14
legislatures to make laws related to GST. per cent. The amount is paid bi-monthly.

For example, under the CGST, the Central Government

issues notification based upon the recommendations of
GST council related to changes in the GST rates or
inclusion of petroleum products in the GST. Once the
central Government issues the notifications, such
notifications must be compulsorily placed before the
Parliament. So, here the Parliament has delegated some
of its powers to the Central Government. Such
recommendations of the GST council should be binding on
the Central Government and State Governments. This
would help realise the framework of "One Nation One Shortfall in GST Compensation: In 2020-21, the Centre

Tax". collected GST compensation cess of around Rs 65,000

crores against the compensation requirement of Rs 3
On the other hand, the GST council may make
lakh crores. However, this entire shortfall of Rs 2.35 lakh
recommendations on any other matter related to GST, as
crores was not due to GST implementation alone, it was
the council may decide. So, here, the Government cannot
also on account of COVID-19. Accordingly, the Centre
issue notification based on the recommendations of the
had estimated that out of total shortfall of Rs 2.35 lakh
GST council. To give effect to the recommendations of
crores, only Rs 1.10 Lakh crores is on account of GST
the GST council, the Parliament and State Legislatures
implementation due to rate cut or lower tax returns, the
may have to formulate separate law. According to the
rest is on account of COVID-19.
Supreme Court, in such cases, the recommendations of
the GST council would not be binding on the Parliament and Accordingly, the Centre had asked the states to borrow

State Legislatures. this shortfall amount either from the RBI or the market.
The centre had assured that the borrowed money would
WAY FORWARD
be paid by extending the GST compensation cess
So far, the GST council has functioned in the spirit of
beyond 2022.
cooperative federalism. This is evident in the fact that no
ARGUMENTS OF THE STATES
state has exercised its power to reject council
recommendation in the past five years. However, in • Centre should compensate the States from the Cess

future, increasing political polarization may throw up that it collects from other taxes such as Education and

challenges before the GST Council. Hence, going Health Cess, Road and Infrastructure cess imposed on

forward, there is a need to set up GST dispute resolution petroleum products etc.

mechanism to deal with the possible conflicts between • Centre should tap into Consolidated Fund of India to
the Centre and States. compensate the States.

• Centre should itself borrow money in order to

►UNDERSTANDING THE compensate the States.

HOW WAS THE ISSUE RESOLVED?

CONTROVERSY OVER GST
The Central Government borrowed Rs 1.10 lakh crores
COMPENSATION MECHANISM
through a special window from the RBI to compensate

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the states. This would be passed on to the states as a PROBLEMS WITH THE PRESENT ANTI-PROFITEERING
loan and paid back by extending the GST compensation FRAMEWORK
Cess beyond the mandated period of 5 years. This will Absence of Methodology to ascertain Profiteering: Rule
not have any impact on the fiscal deficit of the 126 of the Central Goods and Services Tax Rules, 2017,
Government of India. The amounts will be reflected as mandates that National Anti-profiteering Authority (NAA)
the capital receipts of the State Governments and as must evolve a methodology to deal with anti-profiteering
part of financing of its respective fiscal deficits. issues. However, the NAA has failed to prescribe the
LESSONS TO BE LEARNT FROM THE CONTROVERSY methodology leading to arbitrariness and contradictions

Such kind of issues between the Centre and States likely in Anti-Profiteering Framework.

to arise in the future as well. Some of the steps that Only Mode prescribed for passing on the Benefit:
need to be taken include: Present, the companies are compulsorily required to

1. Handling Disputes: The GST Council must devise a reduce the prices of their products whenever the GST

mechanism to handle such disputes in future. This rates are reduced. If the companies use any other

could either be through setting up of GST Dispute method to pass on the benefit of reduced GST rates, it

Settlement authority (as provided under 101st still is considered as Profiteering. Now, for example, the

Constitutional amendment) or referring the issue to companies can decide to pass on the benefit in the form

ministerial panels or committees to evolve consensus of increased grammage i.e., providing higher quantity of

on contentious issues. commodity at the same price.

2. Set up Fiscal Council to provide better economic Other Factors not considered: Despite reduction in the

forecasts. GST rates, the cost of manufacturing of commodities

(Raw materials, Labour Cost etc) may have been
increased. However, these factors are not considered to
►ANTI-PROFITEERING MECHANISM
ascertain profiteering.
AND CONSTRAINTS Absence of Appellate Body: There is no appellate
ABOUT NATIONAL ANTI-PROFITEERING AUTHORITY mechanism or authority prescribed against the order of

Section 171 of the CGST act deals with profiteering. It National Anti-profiteering Authority (NAA). Thus, only

empowers the central Government to constitute remedy for a person dissatisfied with the NAA order is to

authority to check illegal profiteering. Accordingly, the approach the High Court through Writ Petition.

Union Cabinet has constituted National Anti-Profiteering

Authority (NAA) in 2017. The tenure of National Anti- ►LIMITS ON FISCAL DEFICIT- A
profiteering Authority (NAA) was due to end by 30
CONSTRAINT ON BOOSTING
November 2019. Initially, it got extension of 2 years until
end of November 2021. Recently, it has got extension of ECONOMIC GROWTH?
another year. The FRBM Act, 2003 requires the Government to
MECHANISM OF WORKING maintain FD target of 3% to ensure fiscal discipline.
When the NAA certify that there is anti-profiteering in a However, during exceptional times such as Covid-19,
specific case, it can order the concerned firm to reduce such reasonable targets can force the government to
its prices or return the undue benefit availed by it along adopt pro-cyclical fiscal policy and hence prolong
with interest to the recipient of the goods or services. If economic revival.
the undue benefit cannot be passed on to the consumer, As seen below, reasonable restriction on FD is extremely
it can be ordered to be deposited in the Consumer critical to promote higher Tax-GDP ratio, rationalization
Welfare Fund. In extreme cases, the NAA can impose a
of expenditure, ensure inter-generational equity and
penalty on the defaulting business entity and even order
fiscal discipline and hence higher GDP growth rate.
the cancellation of its registration under GST.

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 BUDGETING AND TAXATION

However, during abnormal times such as Covid-19, the to provide fiscal stimulus to deal with present economic
Government needs to adopt counter cyclical fiscal policy scenario. However, at the same time, there is a need to
and hence such restrictions on FD can hinder economic ensure higher quality of Fiscal deficit by increasing the
revival. Thus, even though, increase in Fiscal deficit can share of Capital expenditure and reducing share of
have long term adverse consequences, the current revenue expenditure. Necessary amendments would
economic scenario requires us to deviate from FD have to be introduced in the FRBM Act, 2003.
targets on account of following reasons:
Unprecedented Times: The Covid-19 has led to twin ►DISINVESTMENT POLICY IN
shocks leading to a record GDP contraction of -7.5% in
INDIA- PRIVATISATION AND
2020-21. Deviation of 0.5% in FD which is allowed under
FRBM act is not sufficient. Unprecedented times call for WEALTH CREATION
unprecedented measures. EVOLUTION OF DISINVESTMENT POLICY
Sticking to FD Limit- Counter-Productive: Sticking to FD The liberalization reforms undertaken in 1991 ushered
Limit  Cutting down on Expenditure and Increasing the in an increased demand for privatization/ disinvestment
tax rates  Decline in Investment and Consumption of PSUs.
expenditure  Decline in Employment  Decline in GDP
• First Phase: Sale of minority stake in bundles through
growth rates and Income levels (Pro-cyclical Fiscal Policy)
auction.
Key to Economic Revival: Both Investment and
• Second Phase: Separate Sale of each PSU
Consumption expenditure affected and unlikely to
increase due to economic uncertainty. Hence, need for • Third Phase:
increasing Government expenditure (GFCE). o Strategic Disinvestment- Sale of substantial portion

Increase in GFCE  Creation of Infrastructure  Crowd- of Government shareholding in identified Central

in Private sector Investment  Boost Demand in the PSEs (CPSEs) up to 50 per cent or more, along with
economy  Address Twin Shocks  Boost GDP growth transfer of management control.
rate. o Launch of exchange traded funds (ETFs) - an equity

HIGHER FD- NOT A MATTER OF CONCERN instrument that tracks a particular index.
o Monetization of select assets of CPSEs.
• Lower absolute debt
• Negative IRGD- Higher Debt Sustainability STRATEGIC PUBLIC SECTOR ENTERPRISE POLICY

• Long term maturity profile of India’s Debt Under the new “Public Sector Enterprise” policy, various
sectors will be classified as strategic and non-strategic
• Adequacy of forex Reserves
sectors. The policy has identified 4 sectors as strategic
• Downgrade in Sovereign Credit Ratings--> Minimal sectors: i) Atomic energy, Space and Defence ii)
impact on India’s GDP growth rate Transport and Telecommunications iii) Power,
Hence, as rightly pointed out by Economic Survey 2020- Petroleum, Coal and other minerals iv) Banking,
21, the Government need not be worried out higher FD Insurance and financial services.

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 BUDGETING AND TAXATION
In strategic sectors, there will be bare minimum these norms are not suitable to regulate online services.
presence of the public sector enterprises. The remaining With rapid advancements in the field of big data and AI,
CPSEs in the strategic sector will be privatised or merged the digital companies have been able to harness the
with other CPSEs. In non-strategic sectors, CPSEs will be user generated data enabling them to earn huge
privatised, otherwise shall be closed. revenues through digital advertisements. In spite of the
BENEFITS OF PRIVATISATION fact that these companies earn revenue by harnessing
the data generated in a particular country, these
• Strong positive effect of labour productivity and
companies are not obliged to pay adequate taxes in
overall efficiency of PSUs in India: Post-privatization,
source country. Hence, Equalization Levy has been
the performance of the privatized entity improves
introduced in the Union Budget 2016 in order to bring
significantly in terms of net worth, net profit, return
such Internet based companies within the ambit of tax.
on assets (ROA), return on equity (ROE), gross
revenue DETAILS ABOUT EQUALIZATION LEVY

• Improved capital allocation and economic efficiency The equalization levy of 6% is applicable to the income
accruing to a foreign E-commerce company which is not
• Cost reductions
a resident of India. Any person or entity in India which
• Privatisation has multiplier effect on other sectors of makes a payment exceeding Rs 1 lakh in a financial year
the economy.
to a non-resident technology company (such as Google)
• Enhanced Competitiveness for some B2B (Business to Business) transactions needs
• Professionalism in management of CPSEs to withhold 6% of the gross amount to be paid as

WAY FORWARD equalization levy.

Privatisation or disinvestment program should aim at Two conditions to be met to be liable to equalization
maximisation of Government's equity stake value. The levy:
learning from the experience of Temasek Holdings • The payment should be made to a non-resident
Company in Singapore may be useful in this context. The service provider.
Government can transfer its stake in the listed CPSEs to
• The annual payment made to the service provider
a separate corporate Entity. This entity would be
should exceed Rs. 1 lakh in one financial year.
managed by an independent board and would be
EXPANSION OF EQUALISATION LEVY IN UNION
mandated to divest the Government stake in these
BUDGET 2020
CPSEs over a period of time. This will lend
professionalism and autonomy to the disinvestment The Finance Act, 2020 has inserted a provision to impose
program. Equalisation levy of 2% on the revenues generated
through the online sale of goods and services by non-
resident e-commerce companies. The Equalisation levy
►EQUALISATION LEVY would be applicable only if the aggregate revenues for a
RATIONALE BEHIND INTRODUCTION OF DIGITAL non-resident e-commerce companies exceed a
TAXES threshold of Rs 2 crores.
The existing tax norms have been framed keeping in
mind the brick-and-mortar business models. However,
Applicability: Payment made by Indians to the Foreign Companies non-resident in India

Earlier Regime Present Regime post 2020

Companies Foreign Companies which provide Digital All the Foreign Companies with an annual turnover of
Covered Advertisements such as Google, Facebook, Rs 2 crores and above.
Twitter etc. Amazon, Netflix, Trivago etc.

Goods and Only Digital Advertisements Payment for Digital Advertisements to Foreign
Services Companies

covered +
Payment for buying Goods and Services online.
Applicable to companies such as Amazon, Flipkart,

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 BUDGETING AND TAXATION
Netflix, Trivago etc.

Tax Rate 6% of the total payment made for Digital Ads Digital Ads: 6% of the total payment
+
Payment for buying Goods and Services online: 2%
of the payment received.

The new modification introduced in the Finance Act, ►CONCERNS OVER DIGITAL
2020 has been opposed by the foreign e-commerce
companies on account of following reasons:
TAXATION
WIDER APPLICATION OF TAXATION REGIME: Earlier, Most of the Internet-based companies such as Google,
the Equalisation levy was applicable only on the Apple, Facebook etc. evade taxes through Base Erosion
advertising revenue of non-resident companies. Now, and Profit Shifting (BEPS) strategies such as Treaty
this would be applicable on the all the revenue earned Shopping, Round Tripping etc. Hence, countries such as
through the online sale of goods and services by non- India (Equalisation levy) and France (GAFA Tax) have
resident e-commerce companies. The scope of the imposed digital taxes to bring such MNCs within the
application of Equalisation levy is so wide that it will ambit of tax. In this regard, an international debate is
bring almost all the foreign based technological occurring over the global taxing rights of revenues and
companies under the tax bracket. This includes e- profits earned by multinational corporations (MNCs)
commerce companies such as Amazon; online CHALLENGES OF TAXATION IN DIGITAL ECONOMY
streaming/ content service providers such as Netflix, In the Digital Economy, a main concern and potential
Amazon Prime; online travel aggregators such as source of disagreement between countries is the
Trivago, TripAdvisor etc. question of where value is created. While countries
HIGHER TAX BURDEN: Earlier equalisation levy was agree that a multinational’s profits should be taxed in
applicable only on B2B transactions. But now, the new the jurisdictions in which it creates value, some
equalisation levy would be applicable on every countries argue that the value for companies in the
transaction undertaken by non-resident e-commerce Digital Economy derives from factors such as user
companies which includes both B2B as well as B2C participation or user location.
transactions. HOW DO DIGITAL COMPANIES AVOID TAXATION?
LACK OF DISTINCTION BETWEEN DIGITAL SERVICES 1. Eliminating or reducing tax in the market country
AND GOODS/SERVICES PROVIDED THROUGH DIGITAL
• Avoiding taxable presence
MODE: If you watch a movie online on a digital platform
• Minimising income allocable to functions, assets and
such as Amazon Prime, Netflix etc., then it can be
risks in market
considered as Digital service. On the other hand, if you
book a movie ticket online through a platform (such as • Maximising deductions in market jurisdictions
Book My Show) and then watch it in a multiplex, then it 2. Avoiding withholding tax
cannot be considered as completely Digital Service. 3. Eliminating or reducing tax in the intermediate
Here, the booking platform is providing you with the country (Tax heavens)
service of booking a movie ticket through the Digital
INSTANCES OF DIGITAL LEVIES BY COUNTRIES
mode. It is not providing movie as a Digital service.
1. GAFA tax imposed by France (Digital Service Tax)
Hence, such booking platforms are quite distinct from
streaming services such as Amazon Prime, Netflix etc. 2. Digital Equalisation Levy imposed by India

Accordingly, some of the companies have pointed out 3. Australia's mandate for platforms such as Google and
that it would be unfair to tax the companies that provide Facebook to pay original news creators
Goods/services through Digital mode on par with 4. USA has opposed these instances of taxation. Arguing
companies that provide Digital Services. Hence, even that taxing internet giants amount to protectionism.
though, the Government’s idea is to tax e-commerce STEPS TAKEN TO COUNTER BEPS
transactions, but it may end up taxing even those
OECD BEPS Project: In order to combat risks associated
transactions where Internet is just a medium.
with BEPS and to improve the transparency, the OECD

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 BUDGETING AND TAXATION
has come out with 15-point action plan based on the cover protection against disasters such as Floods,
recommendations of G-20. Droughts, Earthquakes, landslides etc.
Ratification by India of the Multilateral Convention to DESIGN OF THE DISASTER RISK INSURANCE
Implement Tax Treaty Related Measures to Prevent Base Coverage of Disasters: Insurance against all types of
Erosion and Profit Shifting: The Multilateral Disasters in India.
Convention/MLI is an outcome of the OECD / G20 Project
Applicability: Government, Private Sector and Household
to tackle Base Erosion and Profit Shifting (the “BEPS
sector. (For the poor households, Insurance premium
Project”). The MLI will modify India’s tax treaties to curb
should be entirely paid by the Government)
revenue loss through treaty abuse and base erosion and
profit shifting strategies by ensuring that profits are Working Mechanism: Pay the premium to an insurance
taxed where substantive economic activities generating company  Get Insured for losses such as Property
the profits are carried out. damage, business interruption, livelihood costs,
disability, loss of lives etc  Insurance mechanism gets
trigged in event of Disaster  Insurance company pays
►DISASTER RISK INSURANCE for the loss  Reduces the financial burden.
FINANCING BENEFITS
INDIA'S VULNERABILITY TO DISASTERS: India is very • Reliable and timely financial relief for recovery of
vulnerable to natural hazards because of its unique geo- livelihoods and reconstruction.
climatic conditions. Almost 85% of the country is
• prevent people from falling into poverty
vulnerable to single or multiple disasters and about 57%
• Diversification of risk from the Government towards
of its area lies in high seismic zones. Approximately 40
the private sector
million hectares (12%) of the country’s land area is prone
to flood, about 8% of the total land mass is vulnerable to • Amount of premium depends upon the risk involved
cyclone and 68% of the area is susceptible to drought. Higher premium for higher risk such as
construction of houses in flood prone areas
IMPACT OF DISASTERS: According to the Global Climate
Encourage people to construct disaster Resilient
Risk Index published by Global Environmental thinktank
houses in safe zones.
'German Watch", India is the 5th most vulnerable
country. The economic losses in India accounted for • States limited capacity to deal with Disasters 
around $13,789 million, the 4th highest in the world. Allocate finances meant for the purpose of
development towards Relief and Rehabilitation 
PROBLEMS WITH DISASTER FINANCING IN INDIA
Less funds available for development  Growth Gap.
Insufficient Funds: The large events like Kerala Flood,
IMPORTANT CASE STUDIES
Chennai Flood or Cyclone Fani clearly show that one
Disaster Risk Financing and Insurance Program (DRFIP):
cannot entirely depend on Government's support.
World bank funded Program; Helps the governments to
Over- reliance on Government's funding: Less of private
improve the disaster risk insurance in close coordination
sector investment in providing relief and rehabilitation, with the Private sector.
construction of infrastructure projects.
Southeast Asian Disaster Risk Insurance Facility (2018):
More focus on Relief and Rehabilitation: less focus on Cambodia, Indonesia, Lao PDR, Myanmar, Singapore,
Disaster Mitigation and Japan agreed to establish SEADRIF as a trust to own
Less emphasis on bringing about behavioural changes in a general insurance company in Singapore.
the people- Discouraging people from building houses in
flood plain areas; Encouraging people to build disaster ►RETROSPECTIVE AMENDMENT
resilient infrastructure etc.
TO TAXATION
DISASTER RISK INSURANCE- RATIONALE AND
RETROSPECTIVE TAXATION AND RECENT
BENEFITS
AMENDMENT BILL
Rationale: The Government of India has launched quite a
The 2012 Finance Act had amended the IT Act to impose
few social protection schemes leveraging on insurance
tax on the foreign companies on a retrospective basis.
solutions like Pradhan Mantri Jan Arogya Yojana (PM-
Under the act, if a company is registered outside India,
JAY), Pradhan Mantri Fasal Bima Yojana (PMFBY). On
its shares will be deemed to be situated in India if they
similar lines, we need to have insurance schemes to
derive their value substantially from the assets located

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 BUDGETING AND TAXATION
in India. As a result, the persons who sold such shares of retrospective amendment, but they have also affected
foreign companies before the enactment of the Act (i.e., our global image as reliable investment destination.
May 28, 2012) also became liable to pay tax on the Revenue Neutral: The intention behind the retrospective
income earned from such sale. amendment was to enhance the revenue collection.
TAXATION LAWS (AMENDMENT) BILL 2021 However, the revenue collection under the amendments
Now, the Government has decided to do away with the was zero, and losses in terms of FDI and FPI was
retrospective amendment. Salient features: substantial. Hence, retrospective amendment was
counterproductive.
• Demand for the payment of the taxes on the
transactions which were done before May 28, 2012, Economic Policy Uncertainty: Economic Survey 2018-19
would be withdrawn. Tax collected on a retrospective highlights the direct co-relation between higher
basis would be refunded back to the companies. economic policy uncertainty and lower GDP growth rates
in India. To become $ 5 trillion economy, there is a need
• No further demand for taxes on the transactions
for pro-business policies that foster ethical wealth
which were done before May 28, 2012.
creation.
• Above provisions would be applicable if the company
WAY FORWARD
withdraws the case against the Government.
Undoubtedly, the Government has sovereign rights to
RATIONALE FOR RETROSPECTIVE TAXATION
tax the companies in whichever way it would want to,
Prevent Revenue loss: Foreign companies such as but while doing so, it must keep in mind the rights of the
Vodafone have used loopholes in the tax laws to avoid companies as well. The companies should be given the
paying taxes. For example, in case of Vodafone, the
rights of safe, secure, stable and predictable legal
transaction was deliberately carried out in Cayman environment. Such an environment is not only necessary
Islands (and not in India) simply to avoid payment of to encourage foreign investment, but it is also crucial to
capital gains tax which amounted to Rs 14000 crores.
uphold rule of law.
According to the State of Tax Justice report of 2020 notes
Hence, doing away with the retrospective taxation is a
that India loses over $10 billion in tax revenue.
well-intended and pragmatic move which would ensure
Undo the decision of Supreme Court: In the Vodafone
to keep Indian economy more open, transparent and
case, the SC had ruled that IT Act does not empower the rules based.
tax authorities to demand tax from Vodafone and
accordingly ruled in the favour of Vodafone. The
retrospective amendment was brought to undo the ►PUBLIC FINANCIAL
decision of the Supreme Court. MANAGEMENT SYSTEM (PFMS)
No International Agreements on Tax Avoidance: In The Public Financial Management System (PFMS) is a
absence of international agreements, Retrospective web-based online software application designed,
amendment to taxation can be considered as one of the developed, owned and implemented by the Office of the
fair means to collect revenue from MNCs. Controller General of Accounts. It has been started with
Prevent Tax avoidance by MNCs in future: The the objective of tracking funds released under all Plan
retrospective amendment can also discourage the MNCs schemes of Government of India, and real time
from carrying out transactions in BEPS and hence reporting of expenditure at all levels of Programme
increase tax revenue for the government. implementation. Subsequently, the scope was enlarged
PROBLEMS WITH RETROSPECTIVE AMENDMENT to cover direct payment to beneficiaries under all
Schemes.
Hurt Foreign Investment: Introduction of Retrospective
amendment to taxation is well within the powers of the Functions of PFMS:
Parliament. However, such amendments lead to greater • Transfer the funds under various Government
uncertainty in taxation and hence discourage foreign schemes to the implementation agencies
Investment. • Track the usage of funds by various implementation
Increase in Litigations: Companies such as Vodafone and agencies
Cairn have dragged the Indian Government before the • Enable Implementing Agencies to transfer funds to
international arbitration tribunals under the Bilateral lower-level agencies.
Investment treaties (BITs). The orders issued by these
• Make e-payments to vendors, employees, and
arbitration tribunals have not only gone against
beneficiaries.

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 BUDGETING AND TAXATION
• Facilitating direct benefits transfer to beneficiaries SNA Model has been introduced as part of PFMS in 2021
under Government schemes such as MGNREGA, for the better management of CSS funds. Under the SNA
National Social Assistance Program (NSAP) Model, each State is required to identify and designate a
• Linking PFMS with State Treasury systems SNA for every centrally sponsored scheme. All funds for
that State in a particular scheme are credited in this
• Enabling collection of Non-Tax Receipts
bank account, and all expenses are made by all other
• Interface with the Banks for effective payments and Implementing Agencies involved from this account.
reporting to scheme/ program managers.
The SNA Dashboard depicts releases made to different
Benefits of PFMS
States by Ministries, further releases made by State
• Establishes a common electronic platform for Treasuries to the SNA accounts, expenditure reported by
comprehensive tracking of fund flows from the the agencies, interest paid by banks to SNA accounts etc.
Central Government to a large number of programs
How has SNA Module improved Public financial
implementing agencies, both under the central management?
government and the state governments, till it reaches
Time bound transfer of funds: Earlier, there was no time
the final intended beneficiaries.
limit for the transfer of funds by the concerned state
• Ensures timely release of funds to the governments to the implementation agencies. However,
implementation agencies and thus help in effective
under the SNA Module, a time limit has been prescribed
financial management for transfer of the state's share.
• Accountability to show the utilization of public funds Ensures Transparency and accountability: Earlier, the
• Transparency for ready access to reliable and states used to spend money for all the centrally
comprehensive information sponsored schemes (CSS) from a single account and
• By facilitating DBT, PFMS has plugged leakages and hence it was not possible to track utilisation of funds.
eliminated ghost beneficiaries. However, under the SNA model, for each and every CSS,
a single nodal agency is to be designated. This enhances
Single Nodal Agency (SNA) Model
transparency and accountability.
The Centrally sponsored schemes (CSS) account for
around 20% fiscal transfers from centre to states. The

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Section-7
NDUSTRIAL POLICY AND
LPG
SUB- THEME YEAR QUESTION

Discuss the impact of FDI entry into multi-trade retail sector on supply chain management
in commodity trade pattern of the economy.
2013
Though India allowed foreign direct investment (FDI) in what is called multi brand retail
through joint venture route in September 2012, the FDI even after a year has not picket up.
Discuss the reasons.

Foreign direct investment in the defence sector is now said to be liberalised. What influence
this is expected to have on Indian defence and economy in the short and long run?

Industrial 2014 Normally countries shift from agriculture to industry and then later to services, but India
shifted directly from agriculture to services. What are the reasons for the huge growth of
Policy
services vis-a-vis industry in the country? Can India become a developed country without a
strong industrial base?

There is a clear acknowledgement that Special Economic Zones (SEZs) are a tool of industrial
development, manufacturing and exports. Recognizing this potential, the whole
2015
instrumentality of SEZs requires augmentation. Discuss the issues plaguing the success of
SEZs with respect to taxation, governing laws and administration.

“Industrial growth rate has lagged behind in the overall growth of Gross-Domestic-Product
2017 (GDP) in the post-reform period” Give reasons. How far the recent changes in Industrial
Policy are capable of increasing the industrial growth rate?

Examine the impact of liberalization on companies owned by Indian. Are they competing
2013
Economic with the MNCs satisfactorily?
Liberalisation
How globalization has led to the reduction of employment in the formal sector of the Indian
2016
economy? Is increased informalization detrimental to the development of the country?

International How would the recent phenomena of protectionism and currency manipulations in world
2018
Trade trade affect macroeconomic stability of India?

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 INDUSTRIAL POLICY AND LPG
►FAILURE OF MANUFACTURING development of MSMEs etc- National Manufacturing
Competitiveness Program (NMCP), Zero Defect, Zero
SECTOR- REASON & SUGGESTIONS
Effect etc.
Countries across the World have relied upon 3 modes of
Escape- Geography, Geology and Jeans to promote
Economic growth and development. Countries such as
Switzerland, Mauritius etc. have focused on promotion
of Tourism (Geography). Countries such as Saudi Arabia,
Australia, Canada etc. have relied on their rich natural
resources (Geology). Countries such as Singapore,
Thailand, South Korea, China etc. have relied on low-cost
manufacturing by making optimum utilization of their
human resources (Jeans).
In spite of having world's second largest Population,
India has failed to capitalize on Jeans and promote low-
cost manufacturing.
In this context, the Indian manufacturing sector exhibits
many peculiarities: first, it contributes small and
stagnant share to GDP (17%) ; second, its composition is
ANALYSIS OF THE "MAKE IN INDIA" CAMPAIGN
more skewed towards skill and capital intensive
activities; third, only a small share of employment in The success of the "Make in India" campaign can be
manufacturing is in organized manufacturing (the analyzed from three important economic parameters-
unorganized manufacturing sector accounted for almost Investment rates, Output Growth and employment
70 per cent of total manufacturing employment); and growth.
fourth, employment is heavily concentrated in small Investment rates: There has been decline in the overall
firms. capital investments in the manufacturing sector in the
GOVERNMENT INITIATIVES TO BOOST last 5 years. The investment rate within the Indian
MANUFACTURING Economy has reduced from 31.3% in 2013-14 to 28.6% in
2017-18.
• Make in India Action Plan: Increasing the
Output Growth: The output growth of the
manufacturing sector’s contribution to 25 per cent of
manufacturing sector can be analyzed by looking at high
GDP by 2020 frequency indicators such as Index of Industrial
• National Manufacturing Policy 2011: Create 100 production. The IIP has registered double-digit growth
rates only on two occasions between 2012 to 2019. The
million additional jobs by 2022
share of Manufacturing sector to GDP has also remained
• Infrastructure: National Investment and stagnant.
Manufacturing Zones (NIMZs), Special Economic Employment Growth: The Unemployment within India
Zones (SEZs), Industrial Corridors, Dedicated Freight has increased to 45-year high of 6.1% as highlighted by

Corridors, Sagarmala, Bharatmala etc. PLFS Report.

REASONS FOR THE FAILURE OF 'MAKE IN INDIA'
• Policy Initiatives: Recent changes in definition of
Poor Condition of the Financial Sector: The NPAs of the
MSMEs; Consolidation of labour laws into 4 Labour
Indian banks and liquidity crunch faced by the NBFCs
Codes; Reduction in Corporate tax rates; Increase in has led to reduced credit creation within the Indian
FDI limits on various sectors such as Defence, Public Economy.
Procurement Policy etc. Archaic labour laws: The archaic and outdated labour
laws have led to higher compliance burden on the firms
• Aatma Nirbhar Bharat: Vocal for Local and protection
and disincentivized the private sector from investing in
to domestic Industries through tariffs. the manufacturing sector.
• Schemes: Production Linked Incentive (PLI) Scheme, Problem of Missing Middle: The Manufacturing sector is
Start-up India, Stand-up India, MUDRA, Schemes for basically dominated by a large number of small

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 INDUSTRIAL POLICY AND LPG
enterprises and a relatively less number of large-scale • Boosting Innovation through Start-Ups: Conducive
manufacturing enterprises. There is almost near ecosystem for nurturing and promoting start-ups
absence of mid-sized firms. Such a peculiar scenario is through access to finance, handholding, tax
referred to as "Problem of Missing Middle". This is incentives, access to market etc.
basically attributed to the Government incentive • Attracting foreign Investment though Plug and Play
structure and policies. Model: Under the plug-and-play model, the investors
Skilled Human Resources: As per census 2011, India has are provided with land at affordable cost with all the
almost 53% of the population in the working-age group. necessary pre-clearances including Environmental
However, in order to optimally utilize the demographic clearances. It would provide in-built office spaces and
dividend, we need skilled human resources. The lack of all the basic facilities such as Electricity, water etc.
availability of skilled human resources is considered to One of the biggest advantages of such a model is that
be a constraint for the manufacturing sector. it kickstarts the production as early as possible
Logistics cost: The Logistics cost account for almost 12- without any hurdles. Some of the States such as
14% of India's GDP as compared to 8-9% in other Maharashtra, Haryana etc. have decided to adopt
countries. such a model to boost foreign Investment. This model
needs to be replicated by the other states as well.
Impact of FTAs: The FTAs signed by India with the
developed economies such as Japan, South Korea etc. • Facilitate Investment: Reforms in Public Sector Banks
have led to import of cheaper foreign goods and hence to enhance credit creation; Strengthen corporate
adversely impacted the domestic manufacturing. Bond market; Improve financial position of NBFCs.

High Taxation: The Corporate tax rates within India was • Government's financial support to manufacturing
considered to be at least 50% higher as compared to clusters and provide single window clearances to
other emerging economies. It was only recently that the entrepreneurs and investors.
Government has decided to reduce the corporate tax • Extend Product Linked Incentive (PLI) scheme to other
rates and bring them on par with the tax rates prevailing sectors.
in other countries. • Focus on Quality standards to boost exports: Task the
Technology adoption: The adoption of new technologies Bureau of Indian Standards and Quality Council of
like artificial intelligence, data analytics, machine-to- India with assessing the improvements in standards
machine communications, robotics and related and productivity required to achieve global standards.
technologies, collectively called “Industry 4.0”, are a • Renegotiate FTAs to India's advantage and address
bigger challenge for SMEs than for organized large-scale inverted duty structure.
manufacturing.
• Skilling India: Greater connect between government-
Other important reasons that could be attributed to the industry-academia is required to identify the changing
failure of "Make in India" are cumbersome land requirements in manufacturing and prepare an
acquisition procedure, poor ease of doing business, employable workforce. In the context of employability
greater amount of policy uncertainty, poor infrastructure of engineers, there is a need for thorough review of
etc. standards of engineering education and its linkages
BROAD CONTOURS OF NEW MANUFACTURING with industry.
POLICY
• Focus on Coastal Economic zones (CEZs): Port-led ►ANALYSIS OF PLI SCHEME
Industrialisation by fast tracking implementation of
To become $ 5 trillion economy and realize the vision of
CEZs. Setting up of Coastal SEZs in China such as
Aatma Nirbhar Bharat, there is a need to enhance
Shenzhen enabled it to attract manufacturing
investment in the Manufacturing sector. Hence, as part
companies from Taiwan and Hongkong; Need to
of Aatma Nirbhar Bharat Package, the Government has
replicate the same to attract the companies from
approved PLI schemes for almost 13 sectors such as
China now.
Mobile Manufacturing, Pharmaceutical Industry, Textile,
• Focus on Sunrise Sectors based on new-age Automobiles, Specialty steel, Solar PV Modules etc.
technologies such as blockchain, robotics, machine
DETAILS ABOUT PLI SCHEME
learning, big data, AI etc to leverage opportunities
created by Industrial Revolution 4.0. Objective: Boost domestic manufacturing and attract
large investments in domestic manufacturing

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Strategy: Offer companies incentives on incremental 7. Ensure Self-Reliance: Even today, India is critically
sales of products manufactured in India. The scheme dependent on import of critical products such as
also invites foreign companies to set up units in India Telecom, Active Pharmaceutical Ingredients (APIs),
and avail benefits. Mobile phones, Electronic Goods, Advanced Batteries
Incentives: Extend an incentive of 4% to 7% on etc. By boosting production of these critical goods,
incremental sales (over base year of 2019-20) of goods the scheme not only ensures self-reliance, but also
manufactured in India for a period of 5 years. positions India to become major exporter.

Eligibility: Incentives are provided under the scheme to 8. Employment Creation: Generate large-scale
only those companies which cross the threshold level in employment by incentivizing the development of
terms of incremental sale of Manufactured Goods and traditional, labour-intensive sectors like food
Incremental investment over the base year. processing and textiles.

Tenure of Scheme: 5 years 9. Attract foreign companies exiting China: Presently,

very few foreign companies which are exiting from
BENEFITS OF PLI SCHEME
China have established their base in India. These
The PLI scheme would help us achieve import companies are establishing their bases in other
substitution, export promotion, cost-competitive and economies such as Vietnam. PLI Scheme would help
efficient manufacturing, economies of scale, increased
us attract these foreign companies.
contribution in global value chains and higher market share
CHALLENGES
in the champion sectors.
Higher Manufacturing Cost: Manufacturing sector has
1. Linking Incentives to Output: Unlike previous schemes
remained stagnant due to poor access to factors of
which focusses on Inputs (such as increase in customs
production such as Land, capital, poor labour
duty under the Phased Manufacturing Programme),
productivity, poor ease in doing business, higher
the PLI scheme focusses on outputs as it encourages
logistics cost etc. Because of these factors, the cost of
the companies to increase both investment and
manufacturing is quite high in comparison to our
production of Goods.
competitors. So, despite PLI scheme, foreign companies
2. Outcome-based and result-oriented: This means that
may prefer other investment destinations such as China,
incentives will be disbursed only after production has Vietnam etc.
taken place in the country. PLI scheme is likely to boost
May Go against Domestic Companies: Incentives are
India's manufacturing output by Rs.37 lakh crores crore
uniformly applicable to both domestic companies and
(US$ 520 billion) in five years.
foreign companies incorporated in India. Deep pocketed
3. Easy to Administer: The incentives are available based foreign companies may be able to reap higher benefits
upon fulfilment of objective criteria and hence easy to in comparison to domestic companies and thus
implement. domestic companies may get adversely affected.
4. Creating ‘champions’ to integrate into Global Value Limit on Incentives: The incentives given to a company is
Chains (GVCs): The scheme focuses on size and scale based on the incremental production. That is, greater
by selecting those players who can deliver on the production, the higher the incentives. However, the
volumes. This would enable nurturing of lead firms incentives cannot be claimed beyond the financial outlay
which can help set up Global Value chains (GVCs) proposed by the Government. Hence, an over-
performing company may not be reap the benefits
5. Technology Adoption: PLI Scheme focusses more on
under the scheme in absolute terms.
incentivising adoption of advanced technology. For
Limited Applicability:
example, PLI scheme for Automobile sector focusses
on manufacturing of advanced Batteries and Electric • Applicable to only certain sectors. Important labour-
Vehicles. This would encourage industries to give up intensive sectors such as Leather have been left out.
obsolete technology, adopt cutting edge technology • Applicable to only selected few big companies. For
and become globally competitive. example, only 10 companies have been chosen for
mobile phone manufacturing.
6. Linkages with MSMEs: PLI scheme will establish
backward linkages with the MSME sector which in Promote rent-seeking tendencies among private sector:
turn will lead to more inclusive growth and create Experience of the pre-liberalization period shows that
huge employment opportunities. schemes such as these are prone to create rent seeking
tendencies among the private sectors. For example,

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foreign companies such as Samsung, Wistron and EVALUATION OF SEZS IN INDIA
Foxconn have already approached the government to Department of Commerce has granted approval for
delay the starting of the first-year conditions on setting up of 417 SEZs, out of which 349 have been
additional sales and investments. notified. The exports from SEZs over the past 14 years
Inward Oriented and Protectionist Policies: To ensure (2005-06 to 2018-19) has increased by over 30 times.
success of PLI scheme, the Government has increased Almost 20 million employment opportunities have been
customs duty on number of goods such as electronic created in SEZs since 2006.
and electric goods, Electric cars etc. Protection to • Though SEZs were envisaged to promote
selected industries both through subsidies and customs manufacturing led exports, however, SEZs policy has
duties would lead to the problem of protectionism and been leveraged well by companies in the Services
reduction in competition. sector. Manufacturing sector has been unable to
WAY FORWARD replicate similar export led growth.
Subsidies and incentives can be a game-changer only • Regional disparity
when we are able to address structural problems of the • Value of exports from SEZs have been rising.
manufacturing sector. PLI is a game-changer to
• Investments in SEZs have also been rising though its
transform the manufacturing landscape of the country.
rate of growth has been decelerating.
However, its success hinges on supporting reforms that
realise the full potential of the economy. • Complexity in undertaking domestic and international
business through same units impacting viability of
SEZs for manufacturing.
►ANALYSIS OF SPECIAL
• Uncertainty in government policies ex. Withdrawal of
ECONOMIC ZONES Minimum Alternate Tax and Dividend Distribution tax
SPECIAL ECONOMIC ZONES SEZs is a geographical area exemptions, announcement of sunset date etc.
that has economic laws different for a country’s general • Multiple regulatory stakeholders (Direct tax, indirect
economic laws. They are delineated duty-free enclaves tax, exchange controls, State Governments and SEZ
and shall be deemed to be foreign territory for the authorities) need not necessarily always aligned.
purpose of trade, duties and tariffs. India enacted • Procedural delays and infrastructural bottlenecks.
Special Economic Zones, 2005 Act which provided for the
'SEZ EXPERIENCE IN OTHER COUNTRIES
establishment, development and management of the
SEZs. The SEZ law also provides for establishment of China: Focussed on enabling a limited number of zones,
International Financial Services Centre and Free Trade large size to achieve agglomeration benefits and
and Warehousing Zones. GIFT city in Gujarat has been maintained long-term focus on these zones.
established under this law. RECOMMENDATIONS OF BABA KALYANI COMMITTEE
OBJECTIVES The committee advocated for a strategic shift in purpose
• Generation of additional economic activity and principles of the SEZs in India with the objective of
moving from islands of exports to catalysts of economic
• Promotion of exports of goods and services
and employment growth.
• Promotion of investment from domestic and foreign
Framework shift from export growth to broad-based
sources
Employment and Economic Growth (Employment and
• Creation of employment opportunities Economic Enclaves-3Es): SEZs to be renamed as 3 E's-
• Development of infrastructure facilities Employment and Economic Enclaves. Today, SEZs are
• Provide globally competitive and hassle-free viewed as zones promoting only exporters with special
environment for companies engaged in exports for privileges; change in nomenclature will bring together all
goods and services the categories of Investors that enable economic activity
and boost employment creation.
BENEFITS TO SEZS INCLUDE
• Promote Investment that create economic activities
• Tax holidays
and job creation and do not limit to promoting
• Exemption from import duties
exports.
• Single window clearance for central and state
• Quantum of Incentives to be based on certain
approvals
parameters and delinked from exports

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ο Investment committed ►ISSUES WITH MSME SECTOR
ο Job Creation
MSME sector employs around 111 million people and is
ο Inclusivity- Jobs for Women second largest employer after agriculture. It contributes
ο Value Addition 28% of India's GDP and 45% of our manufacturing
ο Technology Adoption
output. However, MSMEs continue to face challenges of
formalization, access to technology, access to timely &
ο Priority Industry
adequate finance, improving competitiveness,
Shift from supply driven to demand driven approach availability of skilled manpower, access to latest
• Beyond Private sector driven enclaves, the technology & marketing. MSME sector is yet to benefit
Government could focus on few but large zones as from advances in digitization, which can substantially
future zones of excellence (Similar to Institutes of reduce cost and time. The sector was also affected in the
eminence in Education sector) recent past due to structural changes in the economy
such as implementation of GST and demonetisation.
• Develop SEZs close to ports
GOVERNMENT INITIATIVES FOR MSMEs
• Focus on developing SEZs in key manufacturing hubs
such as Industrial Corridors etc. • Prime Minister Employment Generation Programme
(PMEGP): Financial Support for setting up of new
• Priority focus on certain SEZs so that they become
MSMEs; Maximum Cost of project: Rs 25 lakhs
successful.
• ZED Certification Scheme: Financial support for
Shift from trade competitiveness to manufacturing
manufacturing products which have Zero Defect and
competitiveness: Government should increase the
Zero Effect on Environment.
competitiveness of the 3Es by enabling link
• Credit Guarantee Trust Fund for Micro & Small
infrastructure by funding high speed multi modal
Enterprises (CGTSME): Collateral free loan up to a
connectivity, business services and utility infrastructure
limit of Rs 1 crore is available for individual MSE on
Enabling framework for Ease of Doing Business (EoDB): payment of guarantee fee to bank by the MSE.
Integrated online portal for new investments, easier
• A Scheme for promoting Innovation, Rural Industry &
operational requirements and exits related matters. Entrepreneurship (ASPIRE): One-time grant of 100% of
Enhance competitiveness by enabling ecosystem the project cost or Rs 1 crore (whichever is lower) for
development by funding high speed multi modal promotion of innovation and entrepreneurship
connectivity, business services and utility infrastructure. • National Manufacturing Competitiveness Programme
Critical to provide support to create high quality (NMCP): Credit Linked Capital Subsidy for Technology
infrastructure either within or linked to the zones e.g., Upgradation (CLCSS); Lean Manufacturing
High Speed Rail, Express roadways, Passenger/Cargo Competitiveness for MSMEs
airports, shipping ports, warehouses etc. • MSME SAMADHAAN: Portal to monitor the delays in
Promote integrated industrial and urban development- the payments
walk to work zones, States and center to coordinate on • MSME-SAMBANDH: Portal to monitor public
the framework development to bring linkages between procurement policy
all initiatives. • TReDS Platform: Discounting of invoices for MSMEs
Unified regulator for IFSC. from corporate buyers through multiple financiers.
NEW DEFINITION OF MSME
Export duty should not be levied on goods supplied to
developers and used in manufacture of goods exported. Problems with existing Definition of MSME: Definition of
MSMEs has been provided under MSMED Act, 2006.
Infrastructure status to improve access to finance and
Presently, MSMEs are defined in terms of their
enable long term borrowing.
investment in plant and machinery or equipment as
Promote MSME participation in 3Es and enable shown below. There are a number of problems with the
manufacturing enabling service players to locate in 3E. existing definition of the MSMEs.
Dispute resolution through arbitration and commercial 1. Definitions based on investment limits in plant and
courts. machinery/ equipment were decided when the Act
Formulation of separate rules and procedures for was formulated in 2006 and does not reflect the
current increase in price index of plant and machinery
manufacturing and service SEZs.
/ equipment.

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2. MSMEs due to their informal and small scale of these benefits. Hence, in order to avoid losing the
operations often do not maintain proper books of status of MSME, the industries deliberately keep their
accounts and hence find it difficult to get classified as investment levels below the threshold mentioned in
MSMEs as per the current definition. the MSMED act.
3. Presently, the MSMEs get number of benefits from Hence, in a way, the existing definition has incentivised
the government such as collateral free loans, tax the MSMEs to remain smaller rather than incentivising
concessions etc. Hence, if they lose the status of them to grow bigger and create more number of jobs.
MSME, then they would no longer be able to avail

Existing MSME Classification

Criteria: Investment in Plant & Manufacturing or Equipment

Classification Micro Small Medium

Manufacturing Enterprises Investment < Rs 25 lakh Investment < Rs 5 crore Investment < Rs 10 crore

Service Enterprises Investment < Rs 10 lakh Investment < Rs 2 crore Investment < Rs 5 crore

Revised MSME Classification

Composite Criteria: Investment and Annual Turnover

Classification Micro Small Medium

Manufacturing Investment < Rs 1 crore Investment < Rs 10 crore Investment < Rs 50 crore
Enterprises And And And
Service Enterprises Turnover < Rs 5 crores Turnover < Rs 50 crores Turnover < Rs 250 crore

New Definition: Three important changes have been State. Hence, there is a need to increase the number of
introduced in the new definition of MSMEs: Facilitation Councils particularly in larger States.
1. Investment limit has been increased. Expanding scope of GeM Portal: Government should
2. An additional criterion of annual turnover has been make it mandatory for PSUs/ Government Department
introduced. to procure from MSEs up to the mandated target of 25%
through the GeM portal only. Further, the portal can be
3. Distinction in definition of Manufacturing and Service
developed as a full-fledged marketplace enabling MSE
sector enterprises has been done away with.
sellers to procure raw material as well.
U.K. SINHA COMMITTEE RECOMMENDATIONS FOR
Improving Ease of Doing Business: Presently, MSMEs
MSME
must do multiple registrations with various entities such
Institutional Framework: For convergence of various as Udyog Aadhaar portal, GSTN, National State
MSME related policies, National Council for MSMEs Insurance Corporation (NSIC) etc. These needs to be
should be set up at apex level under Chairmanship of replaced by making PAN as a Unique Enterprise
Prime Minister. States should have a similar State Identifier (UEI) and the same should be used for various
Council for MSMEs, for better co-ordination of purposes.
developmental initiatives. Further, Ministry of MSME
Capacity Building: Proposal to establish Enterprise
may consider setting up of a Non-Profit Special Purpose
Development Centers (EDCs) within District Industries
Vehicle (SPV) to support crowd sourcing of investments
Centers (DICs) has to be expedited; Provide handholding
by various agencies particularly for conducive business
support to entrepreneurs in various aspects such as
ecosystem for MSMEs.
technical know-how, managerial skill, filling up of
Addressing delays in Payments to MSMEs by setting up a knowledge gap, etc.
monitoring authority under the Development
Focusing on MSME Clusters: MSME clusters should
Commissioner, MSME. Majority of States have only one
collaborate with companies having innovation
MSE Facilitation Council (MSEFC) which is not adequate
infrastructure, R&D institutions and universities that
to cater to delayed payment cases arising in the entire
specialize in a specific industry or knowledge area.

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Distressed Asset Fund: Assist units in clusters where a • Loan Service Providers: RBI should create a new
change in external environment, e.g., a ban on plastics category of Loan Service Providers (LSPs). LSPs would
or ‘dumping’ has led several MSMEs becoming NPA. act as agents of borrowers (MSMEs) and offer
ACCESS TO FINANCE individualised advice to them catering to all the
aspects of finance.
• PSBLoansIn59Minutes portal caters only to existing
entrepreneurs having information required for in- • Development service providers: MSMEs lack expertise
principle approval such as GSTIN, Income Tax returns, in product development, technology adoption and
bank statement, etc; Portal should also cater to new marketing strategy. Government should build
entrepreneurs, who may not necessarily have such networks of development service providers that can
information, including those applying under PMMY provide customized solutions to MSMEs in the area of
loan and Stand-up India. technology, product development and marketing
techniques; Need for strengthening of MSME Export
• Priority sector lending (PSL) guidelines apply
Promotion Council.
uniformly to all lenders and mandate specific targets
to banks to lend to priority sectors, i.e., agriculture, • Insurance: Government should take active efforts to
small and marginal farmers, micro enterprises, provide insurance coverage to MSME employees on
weaker sections, etc. At present, overall target for the lines of PMSBY and PMJJBY schemes.
universal bank is 40% and target for small finance • Fund-of-Funds: Government sponsored Fund of
bank is 75%. The committee has recommended that Funds (FoF) to support VC/PE firms investing in the
for banks that wish to specialize in MSME lending, MSME sector.
requirement to do agricultural lending under PSL can RECOMMENDATIONS OF ECONOMIC SURVEY 2018-19
be waived provided they achieve 50% PSL lending FOR MSMEs
target to MSMEs in case of Universal Banks and 80%
The Government provides a number of incentives so as
in case of Small Finance Banks.
to nurture Infant MSMEs to grow into large sized giants
• RBI should increase the limit for non-collateralised and ensure optimum utilization of factors of production,
loans to Rs 20 Lakh from the present limit of Rs 10 higher productivity and job creation. However, the
Lakh. This limit of Rs 20 lakh should also be applicable Government policies as shown below create perverse
to the loans provided under the MUDRA scheme. incentives for firms to remain small rather than grow
bigger.

The above-mentioned problem has led to dominance of The dominance of dwarf firms has led to a number of
dwarf MSMEs firms which are more than 10 years old problems- Stagnation in Share of Manufacturing Sector
but yet continue to employ less than 100 people. These (17%), Problem of Missing Middle, lower employment
firms account for more than half of all firms in elasticity, Informalization of jobs etc.
manufacturing by number, but their contribution to In this regard, the Economic Survey 2018-19 has given
employment is only around 14%. This clearly shows that the following recommendations:
these firms are reluctant to grow bigger due to the fear
Incentivizing ‘infant’ firms rather than ‘small’ firms:
of losing out on the benefits enjoyed by MSMEs.
Provision of incentives to firms irrespective of their age

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has led to dwarf firms. Hence, incentives should be indigenously designed, developed and manufactured
limited to initial 5-7 years only. within India.
Re-orientation of PSL: Under MSME’s PSL targets, it is Defence Offset Policy: Persuade foreign vendors to
necessary to prioritize start-ups and infants. outsource orders, transfer technologies to Indian
Focus on High Employment elastic sectors such as companies and invest in India.
Textiles, leather etc. Import Bans: Under ‘Aatmanirbhar Bharat’, a list of 101
Deregulating labour law restrictions can create items has been prepared for which there would be an
significantly more jobs, as seen by the recent labor embargo on the import.
reforms introduced in states such as Rajasthan. Innovations for Defence Excellence (iDEX): iDEX is aimed
MSMEs that grow not only create greater profits but also at creation of an ecosystem to foster innovation and
contribute to job creation and productivity in the technology development in Defence and Aerospace by
economy. Hence, the Government policies must, engaging Industries including MSMEs and Start-ups.
therefore, focus on enabling MSMEs to grow by Strategic Partnership Model (2017): Indian companies
unshackling them. can seek technology transfers from MNCs to set up
domestic manufacturing infrastructure and supply
►DEFENCE MANUFACTURING- chains.

INITIATIVES, PROSPECTS AND Policy for indigenisation of components and spares used
in Defence Platforms (2019): To indigenize the imported
CHALLENGES components and sub-assemblies for defence equipment
India is the world’s second largest arms importer, and platform manufactured in India.
accounting for about 12% of global arms imports. This Defence Corridors: In Feb 2018, Government decided to
external dependence for Defence Goods not only poses establish two defence industrial corridors (One in UP
security risk, but it is also a challenge to Aatma Nirbhar and another in Tamil Nadu) to promote growth of
Bharat. defence industrial base in India.
OBJECTIVES OF DEFENCE PRODUCTION & EXPORT Public Procurement Order: Department of Defence
PROMOTION POLICY (DPEPP) 2020
Production has notified list of 24 items for which there is
• Achieve a turnover of Rs 1,75,000 Crores (US$ 25Bn) local capacity and completion and procurement of these
including export of Rs 35,000 Crore (US$ 5 Bn) in items shall be done from local suppliers only irrespective
Aerospace and Defence goods and services by 2025. of the purchase value.
• To reduce dependence on imports and take forward CONSTRAINTS AND CHALLENGES IN BOOSTING
"Make in India" initiatives through domestic design DEFENCE MANUFACTURING
and development.
Lack of Independence and autonomy of Ordnance
• To promote export of defence products and become factory Board (OFB): This has been addressed recently
part of the global defence value chains. through the Aatma Nirbhar Bharat Package through the
STEPS TAKEN BY THE GOVERNMENT TO BOOST decision of Corporatisation of OFB.
INDIGENIZATION OF DEFENCE INDUSTRY Higher Preference to Defence PSUs: The Government
The size of the Defence Industry, including Aerospace tends to give higher preference to Defence PSUs which
and Naval Shipbuilding Industry, is currently estimated in turn constraints the growth of Private sector.
to be about Rs 80,000 Cr in 2019-20. While the
Delays in procurement of Defence Goods
contribution of Public Sector is estimated to be Rs
Failure in Defence Offset Policy wherein the CAG has
63,000 crores, the share of Private Sector has steadily
recently highlighted that most of the time foreign
grown to Rs 17,000 crores over the years.
vendors give commitment for offsets in order to win the
Defence Procurement Procedure (DPP): A new category
tender, but later on do not fulfil their commitments.
of capital procurement ‘Buy Indian-IDDM' (Indigenously
Designed, Developed and Manufactured has been Lack of Investment in R&D which is around 0.7% of
introduced in Defence Procurement Procedure (DPP) to India's GDP
promote indigenous design and development of defence Failure to attract FDI in Defence manufacturing due to
equipment. Under this, highest priority would be given over-dependence on Defence PSUs, Poor Ease of Doing
to procurement of Defence Goods which are Business etc.

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STRATEGIES TO BOOST DEFENCE MANUFACTURING • Time consuming environmental clearances and Red-
• Set up Project Management Unit (PMU) that should be tapism
able to provide clear picture of future requirements MAJOR CONSTRAINTS IN PRODUCTION OF APIS
of Armed Forces to Industries. It should also support • Non-availability of raw materials, Chemicals and
the acquisition process and facilitate management of solvents needed for the manufacture of APIs.
the contracts.
• Currently, if APIs are manufactured in India, the cost
• List of Defence Goods whose import is banned should would be 20% higher as compared to China
be reviewed and updated regularly.
• Lower Profit margin in the manufacture of APIs.
• Need to move away from licensed production to
• Inadequate Financial support to Indian companies for
Design, Develop and produce wherein the India
manufacture of APIs.
should own the Design Rights and Intellectual
property rights. INITIATIVES TO PROMOTE MANUFACTURE OF APIS

• Procurement of indigenously developed Scheme for Promotion of Bulk Drugs: Grants-in-Aid to

products/systems involves conducting a number of States with a maximum limit of Rs. 1000 Crore per Bulk
tests and trials and consumes a considerable amount Drug Park.
of time as a result of which placement of orders is Production Linked Incentive Scheme: Financial incentive
delayed. This needs to be streamlined and expedited. to eligible manufacturers of identified critical bulk drugs
• Set up Indigenisation portal to provide necessary on their incremental sales over the base year (2019-20)
support to MSMEs/ Start-ups for import substitution. for a period of 6 years.

• Need to have a distinct budget head for domestic STEPS TO BOOST MANUFACTURING OF APIs
capital procurement. • Build a National Stockpile of APIs to ensure
• Tap growing opportunities in Aerospace Industry such uninterrupted supply.
as Aircraft MRO, Unmanned Aerial Vehicles (UAVs) etc. • Creation of mega drug manufacturing clusters with
• Enhance Investment in R&D and convert the common infrastructure facilities
prototypes into commercially useful products. • Drugs manufactured from indigenously
• Promote export of domestically manufactured manufactured APIs should be given preference in
defence products through Govt-to-Govt agreements Government procurements
and Lines of Credit/Funding. • Increase the customs duty on the imported APIs in a
phased manner
►ENSURING SELF-RELIANCE IN • Alternate markets such as Vietnam, Indonesia etc.
PHARMACEUTICAL INDUSTRY needs to be explored till the time India develops
Indigenous capability
The Indian Pharmaceutical Industry is the third largest in
the world in terms of volume and 14th largest in terms • Academia-Industry collaboration to boost the
of Value. However, in order to make our Pharmaceutical production of chemicals for manufacture of APIs
Industry self-reliant, there is a need to reduce our • Early-Stage Government R&D Support in form of fiscal
dependence on the import of Active Pharmaceutical incentives
Ingredients (APIs) from China. • Adoption of Good Manufacturing Practices (GMP) and
REASONS FOR HIGHER IMPORT DEPENDENCE Good Laboratory Practices (GLP) by the MSMEs.
Before 1991, Indian Pharma Industry imported only 0.3% • Revitalise Public sector Enterprises such as Hindustan
of its API requirements from China. However, presently, Antibiotics Ltd.
almost two-thirds of APIs are imported.
• Imports from China work out to be cheaper and cost- ►ELECTRONICS MANUFACTURING-
effective. (China is largest producer of APIs accounting
for 20% of world's production)
INITIATIVES & CHALLENGES
• Uncertainty of price fluctuations from other Union Cabinet has approved three major schemes to
producers such as US, Italy etc. boost domestic manufacturing of electronic goods and
to get India integrated into Global value chains (GVCs).
• Lack of suitable policies and incentives to boost
These schemes have been launched with 3 major
indigenous development and production of essential
objectives:
APIs within India

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• Attract MNCs such as Apple, Samsung, Oppo, Vivo etc. CRITICAL ANALYSIS
to start manufacturing mobile phones for exports. Positives: 22 companies have filed application under the
• Enable Indian Companies such as Micromax, Lava, new schemes (Samsung, Foxconn, Wistron, Pegatron etc)
Intex etc. to become global champions. Concerns:
• Attract investments in selected electronic • Benefits available to companies lower in comparison
components such as semiconductors, transistors etc. to benefits available in China and Vietnam
so that India gets integrated into Global value chains
• Focusses on increasing production and not value
(GVCs).
addition. Companies may resort to importing cheaper
These schemes can generate manufacturing revenue components to enhance production and hence set
potential of Rs 10 lakh crore and create direct and back to "Assemble in India". Incentives need to be
indirect jobs for 20 lakh people by 2025. provided on both production and value-addition. This
STATUS OF ELECTRONICS INDUSTRY IN INDIA will incentivise global MNCs such as Samsung, Apple
Production of Electronic Goods: Contributes 2.3% of etc. to move their entire assembly line to India.
India's GDP; India’s share in electronics manufacturing • Lack of development of semiconductor
has growth from 1.3% (2012) to 3% (2018); Second manufacturing fab units in India.
largest producer of Mobile phones after China.
Higher Demand for Electronic Goods: Imports- $ 56bn; ►MANUFACTURING OF MEDICAL
China accounts for 70% share; Decline in share of
domestic mobile companies (Micromax, Intex, Lava,
DEVICES
Karbonn) from 45% to 19% in last 2 years. Indian Medical device Industry is a sunrise segment in
healthcare space. However, India depends on imports
DETAILS ABOUT NEW SCHEMES
up to an extent of 85% of total domestic demand of
1. Production Incentive Scheme (PLI) for Large Scale
medical devices. Hence, to achieve self-sufficiency and
Electronics Manufacturing
become major exporter of medical devices, Union
Objective: Production linked incentive to boost domestic Cabinet has approved the following schemes:
manufacturing and attract large investments in mobile
• Promotion of Medical Device Parks
phone manufacturing and specified electronic
components including Assembly, Testing, Marking and • Production Linked Incentive (PLI) Scheme for
promoting domestic manufacturing of medical
Packaging (ATMP) units.
devices.
Incentives: Extend an incentive of 4% to 6% on
STATUS OF MEDICAL DEVICE INDUSTRY IN INDIA
incremental sales (over base year) of goods
manufactured in India for a period of 5 years Indian healthcare Industry was valued at over $100
subsequent to the base year as defined. billion in 2016 and is expected to reach $ 175 billion with
CAGR of 20%. The medical device Industry was accorded
2. Scheme for Promotion of manufacturing of
the status of independent Industry in 2014 when it was
Electronic Components and Semiconductors
included as one of focus sectors of "Make in India
(SPECS)
Program". Indian Medical device Industry is highly
Objective: To promote the domestic manufacturing of
fragmented. Currently, this sector is dominated by MNCs
electronic components and to focus on "Assemble in
and with 80-85% of demand met through imports.
India".
Around 30% of the domestically manufactured devices
Incentives: 25% of capital expenditure for the are exported, in which consumables and disposables
manufacturing of goods that constitute the supply chain segment has the largest share.
of an electronic product.
PROBLEMS FACED BY SECTOR
3. Modified Electronics Manufacturing Clusters
• Lack of favorable policy and regulatory framework
(EMC2.0)
• Unlike Pharmaceuticals, manufacturing of medical
Objective: Support setting up of both Electronics
devices is dependent on a mix of technologies such as
Manufacturing Clusters (EMCs) and Common Facility
engineering, electronics, material science and IT.
Centres (CFCs)
Hence, India has failed to emphasis on domestic
Incentives: Availability of ready infrastructure and Plug & manufacturing of medical devices.
Play facility for attracting investment in electronics
• Medical Device sector in India suffers on account of
sector:
lack of adequate infrastructure, domestic supply

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chain and logistics, high cost of finance, inadequate EFFORTS TAKEN BY GOVERNMENT TO BOOST SOLAR
availability of quality power, limited design MANUFACTURING
capabilities and low focus on R&D and skill • 100% foreign investment in solar power
development, etc. manufacturing under automatic approval.
INITIATIVES • foreign investors encouraged to set up solar power
Promotion of Medical Devices Parks: Aims to promote plants on build-own-operate basis.
Medical Device Parks in partnership with the States. A • safeguard duty of 25% on imports
maximum grant-in-aid of Rs.100 crore per park will be
Problems in Solar Manufacturing in India: Lack of
provided to the States.
human capabilities, technological capabilities and huge
Production Linked Incentive (PLI) Scheme: Incentive @ capital in order to substitute cheaper imports from
5% of incremental sales over base year 2019-20 will be China.
provided on the segments of medical devices identified
LESSONS TO BE LEARNT FROM CHINA'S EXPERIENCE
under the Scheme.
China has emerged as a global player in Solar
BENEFITS OF THE SCHEMES
manufacturing on account of 3 reasons.
• Boost domestic manufacturing and attract large
• Human and Technical Know-how:
investments in the medical device sector
• Proactive Government Policy such as subsidized land
• Setting up of Common Infrastructure Facilities in 4
acquisition, access to raw materials, flexible labor
Medical Device Parks is expected to reduce
laws, incentives for exports etc.
manufacturing cost of medical devices.
• Access to Capital to gain competitive edge over the
• Generation of additional employment of 34,000 jobs
industries located in other countries.
over a period of five years.
• Substantial reduction in import of medical devices.
►TELECOMMUNICATION SECTOR-
►NEED FOR SOLAR STATUS, OPPORTUNITIES AND
MANUFACTURING STRATEGY CHALLENGES
The Telecommunication sector is considered as a
India has made rapid strides in the solar energy capacity
powerful tool of development and poverty reduction. It
addition in recent times. The solar generation capacity
is one of the key enablers for meeting several
has increased by around 10 times from 2,650 MW in
Sustainable development Goals (SDGs).
2014 to 28 GW in 2019. The government had an initial
target of 20 GW of solar capacity by 2022, which was PRESENT STATUS OF TELECOMMUNICATION SECTOR
achieved four years ahead of schedule. However, in spite Size and Contribution: Currently, India is world’s 2nd
of the rapid progress achieved, India has failed to largest telecommunications market with a subscriber
become the manufacturing hub of Solar panel cells and base of 1.16 billion. It contributes almost 8.2% of India's
it continues to rely on the cheaper equipment from GDP.
China. Tele density: 88% (Urban- 156%, Rural -56%)
NEED FOR SOLAR MANUFACTURING STRATEGY Higher share of Private Sector: Since the 1991 LPG
Huge Potential to generate around 750 GW of solar reforms, the share of private sector has steadily
energy in India by boosting manufacturing of solar panel increased to 88%.
cells. Efficiency of Sector: India is global leader in monthly
Boost Make in India data consumption, with average consumption per
Reduce Import Dependency: While around 80% of the subscriber per month increasing 146 times from 16 MB
equipment used in wind power projects are in 2014 to 9.06 GB in 2019.
manufactured locally, in the case of solar projects about CHALLENGES OF TELECOMMUNICATION SECTOR
90% of the equipment are imported and 85% of which Higher Licensing Fee: Presently, Telecom companies are
come from China required to pay higher share of their revenue in form of
Poor Domestic Manufacturing: India has an annual solar various fees such as Licensing Fee (3%), Spectrum Usage
cell manufacturing capacity of about 3 GW while the Charges (3%) and Universal Service Obligation Fund (5%).
average annual demand is 20 GW. This in turn affects their profit margin and reduces their
ability to undertake higher investments.

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Cut-throat Competition: The entry of new private players This is set to reduce the financial burden on the Telcom
such as Reliance Jio has undoubtedly benefitted the operators in future.
consumers in terms of reduced call and data charges. Moratorium on payment of existing dues for a period of
However, the stiff competition has led to price wars 4 years. This move is expected to ease liquidity
among telecom operators. This had an overall negative constraints of Telecom Operators and would help them
impact on the telecommunication sector in the form of to undertake investment in new age technologies ex. 5G.
reduced revenues and higher debt (almost 8 lakh
Spectrum Tenure: In future Auctions, tenure of spectrum
crores).
would be increased from 20 to 30 years.
Higher NPAs of Telecom Companies: The poor financial
No Spectrum Usage Charge (SUC) for spectrum acquired
position of Telecom companies has had a contagion
in future spectrum auctions.
impact on Banking Sector. In a way, this has created a
vicious cycle wherein the Banks have been reluctant to Changes in FDI Norms for Telecom Sector: Presently,
lend loans to these loss-making Telecom companies. 49% FDI is allowed through the Automatic Route and up
to 100% through Approval Route. Now, Government has
Broadband Connectivity: Fixed broadband penetration
decided to allow 100% FDI through the automatic route.
in India is among the lowest in the world at only 6 per
cent as compared with 55 per cent in China, 70 per cent
in Eurozone and 80 per cent in Japan. ►SHIP BREAKING INDUSTRY
Limited Spectrum Availability: Presently, government has In her Budget Speech, the finance minister has
proposed to auction spectrum in 3300-3600 MHz bands announced that the Ship recycling Capacity in India
for the roll out of 5G services in India. However, only would be doubled by the end of 2024 leading to creation
about 175 units are available in the 3300-3600 MHz of additional employment opportunities of 1.5 lakh jobs.
band. The rest is under the control of ISRO and Ministry In this regard, let us understand the various facets of
of Defence. 5G requires a minimum of 100 MHz block. Ship Breaking Industry in India.
Anything less, will not be attractive for Telecom Global Ship Breaking Industry: Earlier, the ship breaking
operators. Industry was concentrated in the advanced economies
Poor Connectivity: Lack of Telecom Infrastructure in such as US, EU etc. However, over a period, the global
Rural and Remote areas as evident in poor Tele density ship breaking Industry has shifted towards the
of 56% as compared to Urban Tele density of 156%. developing economies such as Bangladesh, India,
Decline in revenue due to growth of Over the Top (OTT) Pakistan, China and Turkey. More than 80% of the
providers: OTT providers are the entities that offer ICT shipping vessels are recycled along the beaches of Alang
services without owning or operating the network. The (Gujarat), Chattogram (Bangladesh) and Gadani
best examples include Skype, WhatsApp, Snapchat, (Pakistan). Asian countries dominate the industry
Google Talk, Netflix etc. Some of these apps such as because of cheap labour cost and relatively less
WhatsApp, Skype etc. provide options such as Call, stringent environmental and health regulations.
messaging etc. which are similar to services offered by SHIP BREAKING INDUSTRY IN INDIA- SIGNIFICANCE
Telecom operators leading to decline in their revenue. AND ISSUES
Recent judgement of Supreme Court: In 2019, SC ruled Due to its natural geographical advantage of a high
that Adjusted Gross Revenue (AGR) of Telecom inter-tidal gradient, favourable weather conditions and
Operators would include both Core and Non-Core low labour costs, India has emerged as a leader in terms
revenue. This judgement of SC has led to increase in the of both volume and number of ships broken. Ship
share of revenue which the Telecom operators are breaking yards are located in the states of Gujarat,
required to pay to the Government in form of various Maharashtra and West Bengal.
fees. The total burden on all the telecom operators due Most ship breaking activity is concentrated in the Alang
to the SC judgement is as high as around Rs 1.4 lakh and Sosiya yards in Gujarat. Alang alone accounts for
crores. more than 90 per cent of the ships dismantled in India.
RECENT REFORMS PACKAGE FOR THE TELECOM SIGNIFICANCE
SECTOR (SEP 2021)
• Around 10% of the steel used in India is extracted
Rationalization of Adjusted Gross Revenue: Henceforth, from the ships.
AGR would include only the core revenue. Non-Core
• Employment generation- more than 55,000 workers
Revenue will be excluded from the calculation of AGR.
alone are employed in Alang.

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• Generate Forex revenue. • 2nd largest producer of MMF Fibre after China and
ISSUES 6th largest exporter of Textiles & Apparel in world.

Environmental problems: Ship breaking leads to release • Provides employment to around 45 million people.
of large amounts of carcinogens and toxic substances ABOUT PM MITRA SCHEME
such as mercury, lead, sulphuric acid; No proper waste Vision: 5F vision PM Modi. The '5F' Formula
management system; Environmental damage on flora encompasses - Farm to fibre; fibre to factory; factory to
and fauna. fashion; fashion to foreign.
Health of workers: According to ILO, Shipbreaking is Scope: Set up 7 PM Mega Integrated Textile Region and
amongst the most dangerous of occupations, with Apparel (PM MITRA) Parks in Greenfield/Brownfield sites
unacceptably high levels of fatalities, injuries and work- in partnership with the willing State Governments.
related diseases.
Nature of Incentives:
SLOWDOWN IN SHIP BREAKING INDUSTRY
• Incentives to MITRA Parks: Government to provide
Number of ships coming to India for recycling has capital support of 30% of project cost in
declined in the recent past. For example, India's global Greenfield/Brownfield parks. The support would lead
share of ship breaking Industry reduced from 31% to creation of Core Infrastructure such as Developed
(2016) to 26% (2018). One of the most important factors Factory Sites, Plug & Play facility, Incubation Centre,
has been the non-compliance of labour and Roads, Power, Water and Wastewater system etc.
environmental rules. Further, international agencies
• Incentives to Industries: up to 3% of the total sales
such as ILO have increasingly emphasised the effective
turnover. This is only available to those
implementation of international conventions such as
manufacturing companies who are not availing
Basel Convention on Control of Transboundary
benefits under Textile PLI scheme.
Movements of Hazardous Wastes and Their Disposal.
• Operational Model: Public Private Partnership (PPP)
STEPS TAKEN BY INDIA
model based on Design-Build-Finance-Operate-
Recycling of Ships act, 2019: Parliament has passed Transfer (DBFOT) format.
Recycling of Ships act, 2019. Through this act, India has
SIGNIFICANCE OF SCHEME
acceded to Hong Kong Convention (HKC) which is
implemented by International Maritime organization Reduce Logistics Cost: Logistics cost account for 12-14%
(IMO). The provisions of HKC have also been included in of the GDP, which is higher in comparison to global
the new Recycling of Ships Act, 2019. benchmarks. Higher logistics cost reduces the
Hong Kong International Convention covers the design, manufacturing competitiveness of textile Industries. The
construction, operation and maintenance of ships to PM MITRA Scheme will reduce logistics cost and
ensure they can be recycled safely and in an strengthen the value chain of the textile sector to make
environment-friendly way at the end of their lives. Under it globally competitive.
the Hong Kong Convention, ships sent for recycling are
Employment Opportunities: Economic Survey had
required to carry an inventory of all hazardous materials
on board. Ship recycling facilities are required to provide highlighted that Apparels are 80 times more labour-
a "Ship Recycling Plan", specifying how each ship will be intensive than automobiles and create 240-fold more
recycled, based on its characteristics and its inventory of jobs than steel.
hazardous materials. Women Empowerment: Textile Industries employ more
women and hence considered as vehicles for socio-
►PM MITRA SCHEME economic transformation. For example, In Bangladesh,
Government has launched the PM MITRA Scheme to female education, total fertility rates, and women’s
enable the textile industry to become globally labour force participation have improved due to the
competitive, attract large investments, boost rapid expansion of the textile sector.
employment generation and exports.
Historic Opportunity: India is well positioned to take
FACTSHEET OF INDIAN TEXTILE INDUSTRY advantage of China’s deteriorating competitiveness
• Contributed 2% to GDP, 12% to export earnings and because wage costs in most Indian states are
accounted for 5% of global trade in textiles and significantly lower than in China.
apparel in 2018-19.

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►ENTREPRENEURSHIP & WEALTH Lack of funds and technical knowledge: poor literacy and
skills hamper the true potential of grass root
CREATION AT GROSS ROOTS innovations.
“Start-up India” campaign of recognizes Therefore, the administrative steps should be taken to
entrepreneurship as an increasingly important strategy promote dialogue with rural innovators, leveraging
to fuel productivity growth and wealth creation in India. schools and panchayats to promote rural
PRESENT STATUS OF ENTREPRENEURSHIP (ECO entrepreneurship and involving civil society and media
SURVEY 2019-20) to reward the grassroots innovators.
• India has the 3rd largest entrepreneurship ecosystem We must remember that grass root innovations
in the world (World Bank) represent the possibility of radical strides for India and
• New firm creation in services is significantly higher promise boundless rewards if dealt with correctly.
than that in manufacturing, infrastructure or
agriculture. ►PRO-BUSINESS VS PRO-CRONY
• Entrepreneurship at the bottom of the administrative POLICIES
pyramid has a significant impact on wealth creation.
10 per cent increase in registration of new firms per India’s aspiration to become a $5 trillion economy
district-year yields a 1.8 per cent increase in GDDP. depends critically on promoting “pro-business” policy
that unleashes the power of competitive markets to
• There is a reginal disparity across India in terms of
generate wealth. At the same time, we need to give up
new firms created
Pro-crony policies that may favour specific private
• Ease of doing business directly impacts new firm interests.
creation
PRO-BUSINESS POLICIES
POTENTIAL OF ENTREPRENEURSHIP AT GRASS ROOTS
• Pro-business policies make it easy to start a business,
Huge human capital: Around 70% of the population lives register property, enforce contracts, obtain credit, bid
in villages having vast amounts of social and human for natural resources, get permits, and resolve
capital and vast reservoirs of traditional knowledge insolvency help firms to function effectively and
which can turn the wheels of grass root innovation. thereby enable competitive.
Bottom-up solutions: Can be created for sustainable • Pro-business policies increase competition, correct
livelihoods and entrepreneurial opportunities. National market failures, or enforce business accountability.
innovation foundation in its report on grass roots
PRO-CRONY POLICIES
technical innovations listed new techniques created by
rural innovators like groundnut digger, paddy thresher, • Pro-Crony policies may promote narrow business
hand operated water lifting device etc. interests and may hurt social welfare because what
crony businesses may want may be at odds with the
Cost effective and environment friendly: Such
same.
alternatives can also lead to massive turnovers. For
instance, the modified boiler, which recycles used • For example, crony businesses may lobby the
stream, leading to lesser fuel and water consumption government to limit competition in their industry,
creates a turnover of Rs1 crore. restrict imports of competing goods or reduce
regulatory oversight. These initiatives enhance the
Uniqueness in approach: They have their unique
lobbying group’s income but undermine markets and
learning practices, local solutions and networking
reduce aggregate welfare.
capabilities.
• Thus, pro-crony policy can inadvertently end up being
CHALLENGES AND CONCERNS
hurtful to businesses in general.
Urban centrism: Stories of innovation in India tend to
• Catering to the needs of crony businesses alone
demonstrate a city-centrism of sorts and thus the grass
without regard for other businesses and the
root innovations do not get their worthy space.
remaining stakeholders in the economy may end up
Lack of literature on grass root innovations and lack of benefitting the preferentially treated firms at the
empirical studies which can explore the conceptual expense of other firms, market efficiency and social
boundaries of grass root innovation. welfare.

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Section-8
MPLOYMENT, SKILLS

& LABOUR REFORMS

SUB- THEME YEAR QUESTION

While we found India’s demographic dividend, we ignore the dropping rates of

2014 employability. What are we missing while doing so? Where will the jobs that India
desperately needs come from? Explain.

The nature of economic growth in India in described as jobless growth. Do you agree
with this view? Give arguments in favour of your answer.
2015
“Success of ‘Make in India’ programme depends on the success of ‘Skill India’ programme
and radical labour reforms.” Discuss with logical arguments.
EMPLOYMENT,
SKILLS AND Comment on the challenges for inclusive growth which include careless and useless

LABOUR REFORMS manpower in the Indian context. Suggest measures to be taken for facing these
challenges.
2016
How has globalization led to the reduction of employment in the formal sector of the
Indian economy? Is increased informalization detrimental to the development of the
country?

Account for the failure of manufacturing sector in achieving the goal of labour-intensive
2017 exports rather than capital-intensive exports. Suggest measures for more labour-
intensive rather than capital-intensive exports.

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 EMPLOYMENT, SKILLS AND LABOUR REFORMS
►JOBLESS GROWTH IN INDIA REASONS FOR JOBLESS GROWTH IN INDIA
• Focus on Capital Intensive Industries
EMPLOYMENT SITUATION IN INDIA
o Accidental Impact of Government Policies: Both at
central and state levels, there are fiscal and
monetary incentives (e.g., capital investment
subsidy, interest subsidy, export promotion capital
goods scheme, credit-linked capital subsidy for
technology upgrading of small-scale industries,
etc.) that provide support for capital to various
Industries. An indirect effect of such measures has
been to decrease cost of capital and enhance cost
of labour. This has incentivised Industries to be
more capital Intensive and less labour Intensive.
o Nature of Demand: Since 1991 LPG reforms,
demand for manufactured commodities has
increased substantially. These manufactured
Jobless Growth: Stagnation in share of Manufacturing
commodities are more capital intensive and less
Sector to India's GDP at 17% since 1991 reforms,
labour intensive. This in has implications for
Dominance of small-sized firms, Complexity in labor
technology choice and employment generation
laws and land acquisition, lack of skill sets etc.
Nature of Jobs: Jobs created in Indian Economy have • Presence of Dwarf Firms in MSME Sector:
been concentrated in low-paying, low-productivity Government provides a number of incentives to
informal sectors such as Construction, Small-sized nurture Infant MSMEs to grow into large sized giants
enterprises. Informal workers account for almost 90% and ensure optimum utilization of factors of
of India's workforce. Thus, concerns have been raised production, higher productivity & job creation.
over not just over number of Jobs created, but also over
However, Government policies as shown below create
nature of Jobs.
perverse incentives for firms to remain small rather
Growing Informalisation of Workforce: Share of
than grow bigger.
contractual workers increased from 12% of all registered
manufacturing workers in 1999 to over 25% in 2010. • Poor Implementation of Labour Reforms
Informal workers are paid almost 20 times less wages as • Stagnation in the share of Manufacturing sector
compared to formal workers and lack social security.
• Need for high skill sets in Services sector such as IT
Working Poors: Informal workers face number of
and BPM, Telecommunication etc.
vulnerabilities such as Poor wages, lack of access to
social security benefits, poor skill sets, lack effective • Disguised unemployment in agriculture accompanied
representation through trade Unions, lack of access to by poor skill sets hindering job creation.
basic facilities such as housing, sanitation etc.
• Employment data. We currently lack timely and
Decline in Female LFPR: India exhibits a low and periodic estimates of the work force. This lack of data
declining female labour force participation rate. Female
prevents us from rigorously monitoring the
labour force participation rate in India was 23.7% in
employment situation and assessing the impact of
2011-12 compared to 61% in China, 56% in United
States. various interventions to create jobs.

Protection and social security: Several workers that are STRATEGIES TO PROMOTE JOB CREATION
engaged in unorganized sector is not covered by labour • Focus on Labour Intensive industries such as Textile
regulations and social security. and Leather
Skills-Set: According to India Skill Report 2018, only 47%
• Exploring Tourism Potential: potential to create more
of those coming out of higher educational institutions
than 40 million new jobs in the next 5 years.
are employable.

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• Smart Farming: should be explored from inherent • Promotion of secondary Agriculture in rural areas to
strengths in the agriculture sector to shift disguised boost non-farm employment.
unemployment from the traditional agriculture to the • Making investment subsidies conditional on realizing
agro and food processing exports. a targeted level of employment per unit of
• Focus on Assemble in India: By integrating “Assemble investment.
in India for the world” into Make in India, India would • Enhance female labour force participation by
create about 4 crore well-paid jobs by 2025 and about ensuring the implementation of and employers’
8 crores by 2030. adherence to the recently passed Maternity Benefit
• Incentivizing ‘infant’ MSME firms rather than dwarf (Amendment) Act, 2017, and the Sexual Harassment
firms: Provision of incentives to firms irrespective of of Women at Workplace (Prevention, Prohibition and
their age has led to dwarf firms. Hence, incentives Redressal) Act. It is also important to ensure
should be limited to initial 5-7 years only. implementation of these legislations in the informal

• Change in Orientation of SEZs: SEZs to be renamed as sector

3 E's- Employment and Economic Enclaves. Today,

SEZs are viewed as zones promoting only exporters ►ANALYSIS OF LABOUR CODES
with special privileges; change in nomenclature will PROBLEMS WITH LABOUR LAWS IN INDIA
bring together all the categories of Investors that
Labour laws are under concurrent list. Currently, there
enable economic activity and boost employment
creation. (Discussed separately under the Topic of SEZs). are 44 labour laws under the purview of Central

• Effective Implementation of Labour Reforms, Government and more than 100 under State

including promotion of Fixed term Employment. Governments, which deal with a host of labour issues.

Low Employment Elasticity: Even though, Indian incentives the small firms to stay smaller. This in turn
Economy has grown rapidly, it has failed to create adversely affects the job creation in the Indian Economy.
enough jobs leading to low employment elasticity.
Lack of Flexibility to Firms: Labour laws fail to provide
Archaic Labour Laws: Labour Laws need to be reoriented necessary flexibility to the firms. For example: Industrial
to address the emerging needs of the service sector and Disputes Act (IDA) requires firms employing more than
the new technology intensive manufacturing sector. 100 workers to seek permission from their respective
Multiplicity of Labour Laws: This not only leads to state governments to retrench or lay off workers.
significant increase in the compliance costs for the firms
Obstacle to Human Capital Formation: Industries play
and gives scope for corruption and harassment.
crucial role in skill development. However, as stated
Poor Coverage of workers: Cover only around 10% of before, labour laws discourage firms from employing a
workforce employed as Formal Workers; Remaining 90% large number of permanent workers and steer them
Informal workers face significant challenges in terms of towards employing more casual or contract workers.
poor wages, working environment and lack of social The firms do not invest in upgrading the skills of the
security benefits.
informal workers leading to lack of human capital
Problem of Missing Middle: Labour law imposes formation.
compliance costs on the mid-sized and large firms and

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 EMPLOYMENT, SKILLS AND LABOUR REFORMS
Reduce Global Competitiveness: Labour-intensive mainly informal in nature due to labour policies.
industries such as Textile and Leather have remained

DETAILS ABOUT THE 4 LABOUR CODES

1. CODE ON WAGES 2019
Minimum Wages Act, 1948
Provisions Problems
Centre and State required to bring different forms Did not automatically extend to new forms of Employment. Did not
of employment under the act cover l/3rd of India's workforce.
Covered around 1900 Scheduled Employment
Included workers in both Organized sector and Did not explicitly include vast majority of workers in the
certain categories of workers in Unorganized Unorganized Sector
Sector
Wages fixed based upon the Subsistence Low Level of Minimum wages
Level/Poverty Lines
Minimum Wages varied across Employments, Variation across Employments  Gender Bias  Minimum wage
Within States and across States. for Security Guards (men) higher than that of Domestic workers
(Women)
Variation within States  Wage Disparities between different
forms of Employment.
Variation across States  Region-wise Discrimination

PROVISIONS OF CODE ON WAGES • Introduction of National Minimum Wage to address

Objective: Regulate wage and bonus payments. The regional disparities.
Code replaces the following four laws: (i) the Payment of • Addresses gender disparity by ensuring equal
Wages Act, 1936, (ii) the Minimum Wages Act, 1948, (iii) remuneration for men and women.
the Payment of Bonus Act, 1965, and (iv) the Equal • Reduced Compliance burden since 4 laws have been
Remuneration Act, 1976. subsumed into a single code.
Coverage: Applicable to all employees, central • Ease of Doing Business- Replaces inspector with
government will make wage-related decisions for inspector cum facilitators to handle inspections. The
employments such as railways, mines, and oil fields, Code also provides for inspection, which is web based
among others. State governments will make decisions and automatic, thereby eliminating any corrupt
for all other employments. practices which were earlier carried by the Inspectors.
Floor wage: Central government will fix a floor wage, CONCERNS WITH CODE ON WAGES 2019
considering living standards of workers. Further, it may
Lack of Methodology for Fixing Minimum Wages: The
set different floor wages for different geographical
Code does not outline methodology for fixing an
areas. Minimum wages decided by central or state
adequate minimum wage. It completely ignores the
governments must be higher than floor wage.
formula, which was unanimously recommended by
Fixing minimum wage: Code prohibits employers from Indian Labour Conference (ILC) as well as Supreme Court
paying wages less than minimum wages. Minimum ruling in Raptakos Brett case of 1992. According to this
wages will be notified by central or state governments. formula, wages should be set by considering expenses
While fixing minimum wages, central or state on food, clothing, fuel and lighting, education and
governments may consider factors such as: (i) skill of healthcare as well as social costs such as marriages,
workers, and (ii) difficulty of work. festivals etc. This methodology prioritised needs of
HOW THE CODE ON WAGES WOULD BENEFIT? workers, rather than viewing them merely as factors of
• Expansion in coverage of Employees covers both production.
formal and informal workers. Lower National Level Minimum Floor wages: Anoop
• Unlike Minimum wages Act, 1948, there is no need to Satpathy committee (2019) recommended the
explicitly bring different forms of employments. government increase the national minimum wage to Rs

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 EMPLOYMENT, SKILLS AND LABOUR REFORMS
375 per day. However, as of now, the minimum wages quite meagre and hence may not be sufficient to
are still lower at just Rs 178 per day. discourage firms from violation of law. Hence, law can
Delay in implementation: Even after more than 2 years, be considered to be mere paper tiger.
Code on wages along with labour codes have not been Grievance Redressal Mechanism: Wage Code takes away
notified by Government. Government was expected to jurisdiction of courts in providing justice to workers who
implement labour reforms from April 2021, but it has have faced violations with respect to their wages. This
been delayed further. means that workers can no longer access courts, but can
Prompt race to bottom: State Governments can compete only approach the quasi-judicial body and appellate
to lower minimum wages to attract private sector authority set up under the provisions of the Wage Code
investment. This goes against interests of the workers. 2. INDUSTRIAL RELATIONS (IR) CODE
Poor Consolidation of Labour Laws: Earlier, number of The Code provides for the recognition of trade unions,
provisions were incorporated in the act itself, but now notice periods for strikes and lockouts, standing orders,
under Code on wages 2019, these provisions have been and resolution of industrial disputes. It subsumes and
converted into rules to be formulated by Government. replaces three labour laws: the Industrial Disputes Act,
Hence, if we combine Code of wages 2019 along with 1947; the Trade Unions Act, 1926; and the Industrial
rules formulated under it, it would be much bulkier and Employment (Standing Orders) Act, 1946.
more complex as compared to previous 4 laws. PROVISIONS ON FIXED TERM EMPLOYMENT
Discretionary powers: Minimum wage will be Provision: Introduces provisions on fixed term
determined according to the skill of employee, difficulty
employment. Fixed term employment refers to workers
of work, geographical location etc. This strengthens employed for a fixed duration based on a contract
discretionary powers of the administrators. signed between the worker and the employer.
Employer Friendly rather than Worker Friendly:
Penalties/fines imposed under Code on wages, 2019 are
FEATURE FIXED TERM EMPLOYEE PERMANENT EMPLOYEE CONTACT LABOUR
Type of • Employment under written • Employment directly • Engaged in an establishment
employment contract. under a written contract. through a contractor or agency.
• No contractor or agency is • On the payroll of the • Not on the payroll of the
involved. establishment. establishment.
• On the payroll of the
establishment.
Term • Stipulated fixed term. • Employed on a Based on terms negotiated with the
• Employment lapses on permanent basis contractor.
completion of term, unless • Notice must be given for
renewed. termination of
employment.
Nature of work Not specified. Hired for routine work. Employment may be prohibited in
certain cases, e.g., if similar work is
carried out by regular workmen.

BENEFITS OF FIXED TERM EMPLOYMENT insurance and pension) and conditions of work as are
• Allow employers flexibility to hire workers for a fixed available to permanent employees.
duration and for work that may not be permanent in • Improve conditions of temporary workers in
nature. comparison with contract workers who may not be
• Fixed term contracts are negotiated directly between provided with such benefits.
employer and employee and reduce role of a REASONS FOR OPPOSITION
middleman such as an agency or contractor. • Unequal bargaining powers between worker and
• Benefits worker since Code entitles fixed term employer could affect the rights of workers.
employees to the same benefits (such as medical • Employer has power to renew contracts and hence
lead to Job Insecurity

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• Code does not restrict the type of work in which fixed APPLICABILITY OF STANDING ORDERS
term workers may be hired. Therefore, they may be Provision: IR Code, 2020 provides that all industrial
hired for roles offered to permanent workmen. establishment with 300 workers or more must prepare
WHY ARE FIRMS CONTINUING TO HIRE CONTRACT standing orders on the matters related to: Classification
WORKERS INSTEAD OF FIXED TERM EMPLOYEES? of workers, method for termination of employment,
• Ideally, to encourage a shift away from contract grievance redressal mechanisms etc.
workers to fixed-term employees, government should Problems: This means that Small Scale Industries
have completely prohibited use of contract labour in employing less than 300 workers would no longer be
core activities, that is, those activities for which the required to lay down standing orders and hence may
establishment is set up and includes any activity lead to exploitation of workers.
which is essential or necessary to the core activity. CLOSURE AND LAY-OFF
However, Industries have been allowed to hire
Provision: Earlier, an establishment having at least 100
contract workers in core activities under certain
workers was required to seek prior permission of
conditions such as a sudden increase of volume of
government before closure, lay-off, or retrenchment.
work. Such a provision encourages use of contract
The threshold has been increased to 300 workers.
workers and undermines the initiative of introducing
Problems: Enable small scale Industries to hire and fire
fixed-term employment.
workers at will.
• Cost of hiring contract workers continues to remain
lower than cost of hiring fixed-term employees. This is Strikes and Lockouts

because Fixed-term employees need to be provided Provision: Prior notice of 14 days before a strike or lock-
with benefits such as medical insurance, pension, out.
provident fund etc. Problems: Impacts the ability of the workers to carry out
• Reduced compliance cost for hiring Contract workers Strike or lock-out; Decreases their bargaining power
since it is staffing companies that are required to Power to Exempt Industries
incur monitoring and litigation costs.
Provision: Provides government with power to exempt
• Rapid growth of staffing companies any new industrial establishment or class of
ADDRESSING CONSTRAINTS FACED BY FIXED-TERM establishment from any or all its provisions if it is in
EMPLOYEES "Public Interest".

Constraints: Industrial Relations Code does not specify a Reason for Opposition: Factories Act, 1948 permitted
minimum or maximum tenure for hiring fixed-term exemptions from its provisions only in cases of public
employees. It does not specify number of times contract emergency and limited such exemption to three months.
can be renewed. It does not restrict type of work in However, under IR Code 2020 there is no limit on time
which fixed term workers may be hired. Absence of such duration for which Industries can be exempted. The
safeguards can lead to an erosion of permanent jobs. term "Public Interest" could be interpreted broadly and

HOW THIS COULD BE IMPROVED UPON? hence government has wide discretion in providing
exemptions.
Second National Commission on Labour (2002)
had recommended that no worker should be kept 1. CODE ON SOCIAL SECURITY BILL 2020
continuously as a casual or temporary worker against a This bill seeks to provide social security benefits such as
permanent job for more than two years. International Provident Fund, Insurance etc. to the workers. It seeks to
Labour Organisation (ILO) has highlighted that several replaces nine laws related to social security. These
countries restrict the use of fixed term contracts by: (i) include the Employees’ Provident Fund Act, 1952, the
limiting renewal of employment contracts (Example- Maternity Benefit Act, 1961, and the Unorganised
Vietnam, Brazil and China allow two successive fixed Workers’ Social Security Act, 2008.
term contracts), (ii) limiting duration of contract SOCIAL SECURITY ENTITLEMENTS
(Example- Philippines limits it up to a year), or (iii)
Provision: The Bill states that central government
limiting proportion of fixed term workers in the overall
through notification provide that Industries employing
workforce.
workers above a certain threshold level would be
These recommendations of Second National required to make contributions towards various social
Commission on Labour and ILO need to be security benefits such as Provident Fund, Insurance etc.
incorporated.

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Reasons For Opposition: Presently, the threshold level laws include Factories Act, 1948; Mines Act, 1952; Dock
for contribution towards Social Security scheme has Workers Act, 1986; Contract Labour Act, 1970; and Inter-
been provided under the law itself. For example, State Migrant Workers Act, 1979.
Employees Provident Fund Act, 1952 is applicable to all THRESHOLD FOR COVERAGE OF ESTABLISHMENTS
Industries employing more 20 people. EPF is not
Provision: The 2020 Bill defines a factory as any
compulsory for all employees. Only those who earn up
premises where manufacturing process is carried out
to Rs 15,000 a month have to contribute 12% of their
and it employs more than: (i) 20 workers, if the process
basic salary plus dearness allowance to EPF. Employer
is carried out using power, or (ii) 40 workers, if it is
contributes an equal percentage (12%) to the corpus out
carried out without using power.
of which 3.67% goes to the EPF and the rest 8.33% goes
towards employees’ pension scheme (EPS). Reasons For Opposition: Safety Standards should be
applicable to all Industries irrespective of size.
However, 2020 Bill gives discretionary power to
Government to lay down the criteria for the eligibility for Power to Exempt Industries

the contribution to Social Security Schemes. This has Provision: Empowers the Government to exempt any
been criticised on account of following reasons: new factory from the provisions of the Code to create
1. Excessive Delegated Legislation. more economic activity and employment.
Reasons for Opposition: Factories Act, 1948 provided for
2. Exclusion of Informal Workers in the Small-Scale
Industries from Social Security benefits exemption only in cases of Public Emergency and for a
limited time duration of 3 months. The new provision
3. Against the Idea of Universal Social Security put
has led to higher discretionary powers to Government.
forward by National Commission on Labour.
BENEFITS FOR INTER-STATE MIGRANTS
EXPANDED COVERAGE OF WORKERS
Provision: Benefits for Inter-State Migrant Workers in the
Provision: Government can make provisions for
form of
registration of various categories of workers-
Unorganised, Gig Workers and Platform workers. It can • Option to avail PDS either in Native State or state of
also notify schemes for their social security. Gig workers employment.

refer to workers outside the traditional employer- • Insurance and Provident Fund Benefits
employee relationship. Platform workers are those who • Create a database of Inter-state Migrant Workers
access organisations or individuals through an online
Reasons for Opposition: Need to implement 'One-Nation
platform and provide services or solve specific One ration Card' faster; Need to have proper
problems.
coordination between Centre and States.
Reasons For Opposition: Lack of Clarity in the definition
of Unorganised Worker, Gig Worker or Platform Worker.
►DECLINE IN FEMALE LABOUR
For example, Ola Cab Driver can be considered to be
belonging to all the 3 different categories FORCE PARTICIPATION RATE
simultaneously. (LFPR)
MANDATORY LINKING WITH AADHAAR
Provision: Employee or a worker (including an
unorganised worker) must provide his Aadhaar number
to receive social security benefits
Reasons For Opposition: This may violate Supreme
Court’s judgement in Puttaswamy Case, where the Court
had ruled that Aadhaar card/number may only be made
mandatory for expenditure on a subsidy, benefit or
service incurred from the Consolidated Fund of India.
2. OCCUPATIONAL SAFETY, HEALTH AND
WORKING CONDITIONS CODE BILL
The Code seeks to regulate health and safety conditions
of workers. It subsumes and replaces 13 labour laws
relating to safety, health and working conditions. These

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IMPORTANT OBSERVATIONS Rashtriya Mahila Kosh: Provides micro-credit at
• Labour Force Participation Rate in 2017-18: Total- concessional terms to poor women for various livelihood
49.8%; Male- 75%; Female- 25.3%. and income generating activities.

• Female LPFR in Rural Areas (26.6%) higher as Prime Minister’s Employment Generation Programme
compared to Urban Areas (22.3%) (PMEGP): Under the scheme, women entrepreneurs are
provided 25 per cent and 35 per cent subsidies for the
• Decline in the total Female LPFR from 45.2% in 1993-
project set up in urban and rural areas respectively.
94 to 25.3% in 2017-18.
Deendayal Antyodaya Yojana- National Rural Livelihoods
• Decline in Female LPFR sharper in Rural areas (from
Mission (DAY-NRLM) - seeks to reach out to 8-9 crore
52% in 1993-94 to 26.6% in 2017-18) as compared to
rural poor households and organize one-woman
Urban areas (from 25.1% in 1993-94 to 22.3% in 2017-
member from each household into affinity-based
18).
women SHGs and federations at village and at higher
REASONS FOR DECLINE IN FEMALE LFPR
levels.

SUPPLY SIDE DEMAND SIDE

►SKILLING INDIA: PROSPECTS,
• Higher Enrolment of • Structural
Females in higher Transformation: Decline CHALLENGES AND WAY FORWARD
Educational in agriculture not Presently, India faces a dual challenge of shortage of
Institutions. accompanied by creation trained workforce and non-employability of large
• More number of of jobs for women in number of educated youth, who possess little or no job
Women opting for other sectors. skills. This is India’s skilling paradox: Dwindling
Household duties due • Decline in Labour opportunities in agriculture, much potential for jobs in
to increase in Intensive Industries in manufacturing and services, but not enough people with
household incomes. Urban areas. the right skills.

• Cultural factors- Social • Significant wage gap Present Status: PLFS Report only 13% of workforce
Constraints and between males and received training (11%- Informal Training, 2%- Formal
Patriarchal norms. females Training)
People in working age-group (20-59 years) Expected to
INITIATIVES TO IMPROVE FEMALE WORK
increase from 50% (2011) to 59% (2041) Need to skill
PARTICIPATION
the work force to reap demographic dividend.
Improving the Safety of Women at Workplace
National Skill Development Mission: Converge,
Mahila Shakti Kendra Scheme: Empowers rural women coordinate, implement and monitor skilling activities
through community participation. through institutional structure
Female Entrepreneurship: To promote female
entrepreneurship, the Government has initiated
schemes like MUDRA, Stand Up India and Mahila e-Haat.
CHART: INSTITUTIONAL FRAMEWORK OF NSDM
KEY INSTITUTIONAL FUNCTIONS
MECHANISMS
Governing Council • Provide overall guidance and policy direction
Chair: Prime Minister • Decide on Sub-Missions in high priority areas.
• Review overall progress and development of Mission activities
• Overlook convergence of all skill development initiatives/ schemes across
Central Ministries/Departments with Mission objectives.
Steering Committee • Ensure implementation as per Government Council directions
Chair: Minister. SDE • Set targets and approve annual Mission Plan
• Review overall progress of Mission activities on a quarterly basis

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Mission Directorate • Implement monitor Mission activities
(Executive • Coordinate implementation of Governing Council & Steering Committee
Committee) decisions
Chair: Secretary. SDE • Coordinate State efforts and submissions
• Coordinate Sub-Missions.
NDSA/NSDC/DGT State Skill Development Missions

National Skill Development Agency: Quality Assurance Poor Linkages between Universities and Industry which
and policy research body. Evaluate existing schemes to leads to demand-supply mismatch in the skill
improve their efficacy and suggest improvements; Poor participation of Women who constitute 50% of
Ensure skilling needs of marginalised sections are taken population
care of etc.
Fragmentation of skill development initiatives across
National Skill Development Corporation: PPP to promote ministries and state governments.
skill development: Government (49%); Private Sector
Low public perception on vocational training has
(51%) Financing of schemes such as Pradhan Mantri
reduced its attractiveness
Kaushal Vikas Yojana (PMKVY), Pradhan Mantri Kaushal
Kendra (PMKK) etc. WAY FORWARD

Pradhan Mantri Kaushal Vikas Yojana (PMKVY): Shift in the Policy

Objective: Skill 1 crore people over the four years (2016- • Implement the labour codes at the earliest to enable
2020) creation of formal sector jobs in the economy.
Components: (a) Short-term Training at training centers Formalisation will increase firms’ incentives to invest
in upskilling their workers.
affiliated and accredited by NSDC and (b) Recognition of
Prior learning: Issuing Skill certificates to the people with • Promote public and private investments in labour
existing skill set. intensive sectors such as Textiles and Leather.
Pradhan Mantri Kaushal Kendra: Establish state-of-art Mapping skill requirements for a demand driven skill
Model District training centres in every district of India. development ecosystem
Strategy: Provide soft loan up to Rs 70 lakhs to create • Industry stakeholders must be incentivized to provide
training infrastructure. data on their skill requirements on regular basis
National Skill Development Fund: Set up by Government • Regular labour market studies should be conducted
to receive contributions from Government and Non- to capture changes in industry requirements to
Government agencies for skilling. Money spent by NSDC assess the skill sets required.
for building skills.
• Regularly update the curriculum in
CONSTRAINTS AND CHALLENGES Universities/Colleges/Training Institutes to address
Poor Penetration of Skills: PLFS Report only 13% of demand-supply mismatch of skill sets.
workforce received training (11%- Informal Training, 2%- Improving training delivery and quality
Formal Training). This is quite lower as compared to 68
• Capacities of teacher training institutes need to be
per cent in the UK, 75 per cent in Germany and 96 per
upgraded to ensure the availability of qualified
cent in South Korea.
trainers
Lower Employability: Only 46 per cent of those coming
• A single regulatory body with branches in all states
out of higher educational institutions are employable.
should be set up to lay down minimum standards for
(India Skills Report 2021).
all players in the skilling system
Informalisation of workforce: Difficult to upgrade the Promote Vocational Education in secondary education
skills of 90% of the workers who are employed as
Alternative financial sources such as Corporate Social
informal workers.
Responsibility (CSR) funds, MPLAD Fund, MGNREGA etc.
Quantity and Quality of Training: India’s annual skilling need to be explored.
capacity is significantly lower than the workforce
Overseas Employment Promotion Agency should be set
entering the market annually. Further, the quality of
up to train and certify Indian workers keen on overseas
skills imparted in the existing facilities is also poor.
employment, in line with international standards.

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Apprenticeship Training has to be promoted through apprenticeship in India. The low number of
National Apprenticeship Promotion Scheme (NAPS) participating enterprises is reported due to high
National Rural Livelihoods Mission (NRLM) has to be regulatory compliance burden upon employers.
leveraged to provide necessary skill set to the people in • Limited occupational coverage: The Indian formal
the rural areas. apprenticeship system has a limited list of designated
trades in which apprenticeships can be offered.

►APPRENTICESHIP TRAINING • Inadequate stipend: The stipend that is required to be

paid to apprentices is very low.
PROGRAM
• Limited progression into permanent employment:
ABOUT APPRENTICESHIP: Apprenticeship training
Normally, apprenticeships do not lead to permanent
refers to a course of training in any industry or
employment and hence there is low demand for
establishment. Apprentices get an opportunity of
apprenticeship among the youths.
undergoing 'on the job' training and are exposed to real
• Lack of progression into higher qualifications:
working conditions.
Apprentices who pass their trade tests (All India
APPRENTICESHIP ECOSYSTEM IN INDIA
Trades Tests) obtain a National Apprenticeship
Apprenticeship is regulated in India by Apprentices Act, Certificate. However, such certificates remain outside
1961. the formal educational system and are therefore
SALIENT FEATURES relatively unattractive to potential entrants.
• All the establishments having work force (regular and • Low status of apprentice training: India has a very
contract employees) of 40 or more are mandated to long tradition of informal training and workplace
engage apprentices undertake Apprenticeship learning. This tradition is preserved today in the
Programmes in a range from 2.5% -10% of their ‘informal apprenticeship system’ that exists alongside
workforce (including contractual employees) every the formal system.
year. RECENT CHANGES IN APPRENTICESHIP RULES
• For establishments having a workforce between 6 and • Minimum stipend amount that will be paid to trade
40, engagement of apprentices is optional. apprentices will be based on qualification. The
Establishments having a workforce of 5 or less are not amount can range anywhere between INR 5000 per
permitted to engage apprentices. month to INR 9000 per month from now onwards.
• National Apprenticeship Promotion Scheme has been • Size-limit of an establishment with a mandatory
launched to promote apprenticeship training and obligation to engage apprentices on an optional basis
incentivize employers who wish to engage has been lowered from 40 to 30.
apprentices. Under the scheme, there is 25% of
• Reduced the size-limit of an establishment wanting to
reimbursement of prescribed stipend and sharing of
engage apprentices from 6 to 4. This will allow smaller
cost of basic training.
companies to hire more trainees and give more
STATUS OF APPRENTICESHIP IN INDIA youths an opportunity to get into the apprenticeship
• Currently India has only about 3 lakh apprentices as fold.
compared to the labour force of nearly 500 million • Establishments having four or more workers are
people. eligible to engage apprentices.
• This proportion of less than 0.01% of the workforce
compares unfavourably with the countries such as
►ENTREPRENEURSHIP
Germany and Australia, which both have around 3.7%
of their workforces participating in apprenticeships. DEVELOPMENT IN INDIA
• India has set a target of skilling 500 million people Entrepreneurs play an important role in the economic
with employable skills by 2022. Thus, apprenticeship development of a country. Successful entrepreneurs
will play a crucial role in the task of up-skilling India’s innovate, bring new products and concepts to the
workforce and increasing employability. market, improve market efficiency, build wealth, create
REASONS FOR POOR APPRENTICESHIP IN INDIA jobs, and enhance economic growth. De novo firms that
• Lack of enterprise engagement in the system: Only unleash creative destruction shift surpluses from rent-
around 24,000 enterprises have taken up

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seeking large producers to consumers and broader 8. Bias against hiring non-engineers and those from
society. non-elite universities

INITIATIVES TO BOOST ENTREPRENEURSHIP 9. Loss of top talent to other countries

1. MUDRA Scheme 10. Trust deficit between government and private sector.

2. SETU WAY FORWARD

3. Atal Innovation Mission 1. Introducing competitions to solve pressing economic

4. Start-up India scheme and social challenges. For ex. Hackathons etc in which
new budding ideas for new companies will come out.
5. ASPIRE scheme for rural entrepreneurship
2. Harnessing corporate funds to Finance R&D
6. India Aspiration fund under SIDBI to invest in various
venture funds. 3. Improving efficiency of incubators

CHALLENGES TO ENTREPRENEURSHIP IN INDIA • Increasing amount of funding to business incubators

1. Lack of incentive structures for entrepreneurship • Creating virtual incubators

2. Lack of adequate business incubators to support • Link funding with an institutionalised annual ranking

early-stage ventures • Exit nonperforming incubators

3. Inadequate access to capital and insufficient impact • Strengthening links between incubators and
assessment corporate sector

4. Gaps in education and work-readiness 4. Reforming education sector and upskilling workers

5. Lack of ease of business as compared to advanced 5. Providing access to entrepreneurial courses

entrepreneurial economies, issues of taxation (Angel 6. Strengthening Intellectual Property Rights regime
Tax etc.), Intellectual property regime, complex labour
7. Improving ease of doing business.
laws and infrastructure deficit.
Aatmanirbhar Bharat provides a truly watershed
6. A cultural affinity for stability with emphasises job
moment in our history to ignite the innovative
security over risk taking
entrepreneurial spirit of New India by focusing on
7. Stigma over failure strengthening the above pillars.

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Section-9
XTERNAL SECTOR

►EXPORT-LED MODEL OF Empirical Evidence: Countries such as Japan, South

Korea, Singapore etc. have been able to sustain higher
DEVELOPMENT- NEED, economic growth by following export-led strategy. In the
CONSTRAINTS AND WAY FORWARD recent times, such an export-led strategy has benefitted
both bigger economies such as China as well as smaller
India’s vision of becoming a $ 5 trillion economy by 2024
economies such as Vietnam.
is intricately linked with an export-oriented approach.
Greater integration with global value chains (GVCs) will
enable India to attract investment, create Jobs, Boost
Exports and hence sustain virtuous economic cycle. In
line such a strategy, NITI Aayog has taken a significant
step by developing the first-ever Export Preparedness
Index for Indian states.
IMPORTANT ASPECTS OF INDIA'S TRADE
• India's share in the world's exports has remained
stagnant at 1.6% in the last decade.
• India is still critically dependent on import of critical
goods such as Pulses, Oilseeds, Electronic Goods,
Active Pharmaceutical Ingredients (APIs) etc. which
shows lack of self-sufficiency of Indian Economy.
• Imports into India is much higher than exports. This
usually leads to Current Account deficit.
• India's export basket is dominated by Capital
intensive goods such as Petroleum products, Gems, Shift from Consumption-led to Investment and Export
Jewellery etc. (rather than Labour intensive goods driven Model: India’s growth drivers highlight that its
such as Textiles, Leather etc.) economic growth has been primarily propelled by
• Undoubtedly, the forex reserves have increased to all domestic demand which accounts for 60% of India's
time high. However, it is mainly on account of GDP. However, exports account for only 12% GDP. It
increase in volatile FPI inflows rather than on account should also be recognised that an economy with only
of export surplus. $2,000 per capita income will not be able to expand
simply based on domestic demand. Moreover, too much
• Unlike China, India has failed to get integrated into
focus on domestic demand might strengthen imports
Global value chains (GVCs).
faster than exports, which could potentially lead to a
NEED FOR EXPORT-LED MODEL widening deficit.

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 EXTERNAL SECTOR
Conducive environment in terms of decline in exports create about 4 crore well-paid jobs by 2025 and about 8
from China on account of US-China Trade war, rising crores by 2030.
Labour costs, growing anti-China sentiment etc. Innovation and Efficiency: Exporters would be required
Boost Make in India and Assemble in India: By to innovate and adopt new technologies to boost
integrating “Assemble in India for the world” into Make exports.
in India, India can raise its export market share to about
3.5 percent by 2025 and 6 per cent by 2030. India would
INDIA'S PERFORMANCE ON GLOBAL TRADE INDICES

Index Logistics Performance Trading Across Borders Trade Facilitation Enabling Trade Index
Index (LPI) – Doing Business Index

Publishing World Bank World Bank OECD World Economic

Agency Forum

What it Logistics Friendliness of Time and cost of the Assessment of trade Factors, policies and
measures countries logistical process of facilitation policies, services that facilitate
countries areas for action and trade across borders
impact of reforms and to destination.

India's Rank 44/160 (2018) 68/190 (2019) 1.52/2 (2018) 102/136 (As per 2016)

Best Top 5: Germany. Sweden, Austria, Belgium, 1.86/2- Netherlands Top 5: Singapore,
performing Belgium, Austria, Japan Denmark, France, Netherlands, Hong
Hungary, Italy, Kong, Luxembourg,
states/
Netherlands, Spain all Sweden
countries
tied for Rank 1

CHALLENGES IN BOOSTING EXPORTS Improvement in innovation ecosystem would help us

Supply-side improve manufacturing competitiveness and help us
manufacture high quality goods for the global market.
• Dominance of Dwarf Firms in MSME Sector: MSMEs
account for around 40% of the exports and 45% of • Lack of Market Intelligence related to consumer
manufacturing output. However, these MSMEs face preference in export markets. For example, higher
problems with respect to factors of production such sweetness in Indian mangoes is not necessarily in
as Land, labour and capital. Plus, most of the MSMEs demand in many countries.
use obsolete technology which leads to poor • Identification Challenges: Each district of a country
efficiency and competitiveness. has a potential equivalent to that of a small country in
• Higher Logistics Cost: India’s logistics cost as a share boosting exports. However, there is lack of focus on
of GDP is 14 percent, which is high when compared to identifying potential export clusters within a state.
developed nations, where it ranges between eight • Lack of coordination among multiple government
and ten percent. Higher logistics cost in turn reduces ministries and departments involved in boosting
the overall competitiveness of Indian economy. exports.
• Trade Facilitation: Involves reducing the number of • Adverse Impact of FTAs: Some FTAs with countries
documents needed for trade. Trade facilitation such as Japan, South Korea etc. has led to inverted
reduces the time to export and cost of exports. In duty structure which has in turn encouraged import
India, Trade facilitation, as measured by "Trading of finished goods and discouraged domestic
Across Borders" is quite poor. "Trading Across manufacturing.
Borders" is one of the parameters for measuring Policy Instability
World Bank's Ease of Doing Business.
• Delay in announcement of incentives under Rode
• Poor Innovation: India spends hardly around 0.7% of scheme. Even though, this scheme was announced on
its GDP on R&D, which is quite lower in comparison to 1st Jan 2021. The Government has notified the
USA (2.1%), China (2.8%), Israel (4.3%) etc. guidelines in Aug 2021.

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 EXTERNAL SECTOR
• Whenever there is increase in prices of agricultural exports, but also on employment creation and GDP
commodities such as Onions, Potato etc., the growth rate. Incentives given to companies in SEZs
Government imposes ad-hoc ban on export of such should depend upon factors such as Value addition,
commodities. This affects India’s image as a reliable Technology adoption etc. This would encourage the
supplier of agricultural commodities. companies to innovate and compete at the global
Demand-side: level.

• Rising Protectionist Policies in importing countries: • Integration into Global value chains (GVCs): Invite
High import duties and Quota limits in export markets large anchor firms in critical products to set up
operations in India. Government initiatives like
• Easier market access to India's competitors: Goods
simplified labour laws, PLI incentives, low corporate
from countries such as Bangladesh, Vietnam etc.
tax on new manufacturing operations & scrapping of
enter into export markets such as EU, USA etc. at
retrospective tax would encourage firms searching for
almost zero customs duty. However, Indian goods
China plus-one location to shift base to India.
enter such markets with comparatively higher
customs duty and thus our goods become
uncompetitive. India's exports of Textiles and Leather ►EXPORT-LED MODELS OF
to USA and EU has been declining on account of this. BANGLADESH AND VIETNAM:
• WTO Norms: Indiscriminate application of sanitary
LESSONS FOR INDIA
and phytosanitary measures by other countries
against Indian products. For example, basmati and PROBLEMS WITH EXPORT-LED MODELS OF
non-basmati rice exports to the US have been BANGLADESH & VIETNAM
rejected multiple times on the grounds of low hygiene Lack of Diversification of Exports: While most of the
standards. Similarly, the issue of pesticides residues is exports of Bangladesh are dominated by apparel,
frequently raised by the EU and Japan exports from Vietnam are dominated by Mobile phones,
WAY FORWARD Textiles, Electronic Goods etc. The poor diversification
• Improve Trade Competitiveness by improving access of exports from these countries is evident in Economic
to factors of production (Land, Labour, Capital), Complexity Index (ECI), published by Harvard growth
Reduce Logistics costs (14% of GDP) to global Lab. This index ranks countries based on how diversified
benchmarks (8% of GDP), improving Ease of Doing and complex its manufacturing export basket is. The ECI
Business etc. rank for China is 32, India 43, Vietnam 79, and
• Protect domestic Market from the import cheap Bangladesh 127. Such lack of diversification of exports
foreign goods through (a) strong and effective hinders development of other crucial sectors such as
technical regulations (b) trade safeguards such as Agriculture, Defence, Pharmaceuticals etc.
Anti-dumping duties and safeguard duties. Low Value Addition: One of the reasons for increase in
• Better Inter-Ministerial Coordination: Ministry of Exports from Vietnam is on account of its integration
Commerce and Industry must hold regular Inter- with the Global value Chains (GVCs). However, the
ministerial meetings. Further, regular Interactions amount of value addition that takes place in Vietnam is
with the State Governments is also crucial so that quite lower. For example, most of its exports of
trade facilitation takes place under cooperative electronic goods is on account of final assembly of
federalism. Goods which are manufactured in other countries.
• Handholding support to MSMEs: MSMEs need to be LESSONS FOR INDIA
provided handholding support to have access to
Both Bangladesh and Vietnam are much smaller
factors of factors and use appropriate technology to
economies as compared to India. Obviously, being a
boost exports.
large economy, India cannot rely only on exports to
• Increase access to formal finance: Less than 4 per boost its GDP growth. Over-reliance on Exports could
cent of small firms in India have access to formal make India more vulnerable to external shocks. For
finance. The figure for US, China, Vietnam and Sri example, the Export-to-GDP (EGR) ratio of Vietnam is
Lanka is 21 per cent.
around 107%, which makes it highly vulnerable to
• Reorient SEZs (Baba Kalyani Committee): SEZs should external crisis such as Global Financial crisis of 2008. In
be renamed as 3 E's- Employment and Economic comparison, India's EGR is around 18.7%, which makes it
Enclaves. Focus should not only be on boosting less vulnerable.

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Undoubtedly, boosting exports is need of the hour. But Hinders Innovation: Shield domestic companies from
it should not be pursued at the expense of other sectors. foreign competition leading to complacency and decline
Rather than focussing entirely on boosting exports, India in quality of Goods.
needs to focus on boosting Manufacturing sector, attract Historical Insights: Policy of import-substitution which
FDI and thus promote economic growth. In that case, started in 2nd five-year plan has failed.
exports from India would automatically increase. So,
International Experience: Countries such as China and
rather than treating Exports as means to promote
smaller economies such as Vietnam, Malaysia etc. have
economic growth, the Government must perceive the
achieved higher GDP growth rates through free and
exports as ends of economic growth.
open trade.
Retaliatory Actions: As evident in US-China Trade war,
►ANALYSIS OF AATMA NIRBHAR protectionist policies invite retaliatory actions from other
BHARAT countries and hence makes everyone worse-off.

Government has sought to achieve self-sufficiency and Discourage Foreign Investment: Higher preference to
boost domestic manufacturing through the Aatma domestic companies leads to lack to level-playing field.
Nirbhar Bharat. Some of the strategies include Set back to Export-led Growth: India needs to realize
protectionist and inward oriented policies such as Ban that being open as importer is a prerequisite for
on imports, Increased Customs duty, Higher preference becoming successful exporter.
to Domestic companies in Public Procurement, Hence, Government must realize that path to self-
withdrawal from FTAs etc. sufficiency is through export promotion and global
These inward-oriented strategies highlight that the economic integration rather than through protectionism
Government sees trade as a problem and not as a and import-substitution.
solution to economic revival. This would have following
adverse impacts:
►DECOUPLING INDIAN ECONOMY
Set-Back to Make in India and Assemble in India: Some
Industries such as Pharma, Automobile, Electronics etc. FROM CHINA- AATMA NIRBHAR
are heavily dependent on raw materials and hence BHARAT
Increase in customs duty would increase production
The Government has come up with the vision of Aatma
costs leading to adverse impact on domestic
Nirbhar Bharat to boost domestic Manufacturing,
manufacturing and job creation.
employment, exports and to reduce dependence on
Against Well-Established Theory: Theory of comparative non-critical imports. However, one of the biggest hurdles
advantage states that bilateral trade benefits both the
to this goal is the nature of Economic Interaction
Countries since it enables them to import those goods
between India and China as given below:
which otherwise, cannot be manufactured economically
as compared to its trading partner.

The Government has adopted various strategies such as procurement etc. to promote Aatma Nirbhar Bharat.

Vocal for Local, Stringent FDI norms, higher import However, concerns have been raised over the forced

tariffs, preference to domestic firms in public decoupling of Indian Economy from China.

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Minimal Impact on China: India accounts for only around Mere slogans will not lead to
3 % of China's exports. China's FDI into India is hardly increase in FDI. It has to be
around $ 2 bn. accompanied by deep
Adverse Impact on India: Some of the sectors such as structural reforms.
Pharma, Electric vehicles, Electronics etc. are critically
Brands that are Global Consumers are Utility
dependent on Chinese raw materials and hence such a
today, were initially local Maximisers  Buy Goods
strategy would impose additional costs and lead to loss
and grew because of which are of Superior Quality
of jobs.
customer support. and at lower Prices Indian
Despite these challenges, substitution of Chinese Goods Hence, buying and Goods may not be able to
with domestic Goods is not a herculean task. Almost Promotion of Indian compete with Foreign Goods
one-third of the Chinese imports constitute low-tech Brands will enable them in terms of Quality and Price.
goods that were made earlier by Indians. Accordingly, to become Global brands (Case in Point is Mobile
we can ramp up the production of around 3,000 in future and boost our Phones).
products such as toys, fabrics, kitchenware, cosmetics Exports. Consumers also buy Foreign
within a short period of time. In the medium and long Goods in order to improve
run, the Government has to stick to its stated goal of their Social Status and
"Self-Reliant" India and reduce dependence on China. Prestige.
De-coupling of Indian Economy from China is
Boosting the Local supply Development of local supply
undoubtedly challenging but not impossible. Within a
Chain  Make India Self- Chain requires skilled work
short period of 2 months, India has become the second
Dependent  Decrease force as seen in China. India
largest producer of personal protection equipment (PPE)
in Imports into India needs to focus more on “Skill
after China. India can repeat the same feat in other
India” campaign.
sectors as well.
Higher Production of Almost 22% of India’s
►CRITICAL ANALYSIS OF VOCAL Goods of different population live below poverty
Brands Increase in line. Food, Clothing and
FOR LOCAL CAMPAIGN
Choice of Goods to Shelter is of utmost
PRESENT STRATEGIES ADOPTED BY GOVERNMENT TO Indian Consumers importance for them.
PROMOTE LOCAL GOODS
Increase in choice of Goods
• Nationalistic Sentiments: Appeal to the Nationalistic
has no meaning for the
sentiments of the Indians to buy and Promote Indian
Goods. people living at lower strata.

• Withdrawing from FTAs such as RCEP

Increased demand for Increased demand for
• Increasing Customs duty/ Safeguard Duty on some of Indian Goods  Reduce Foreign Goods such as
the goods such as Solar Panel Cells to promote dumping of Goods by Chinese Goods is mainly on
domestic Manufacturing.
Countries such as China account of Price
• Higher Preference to Domestic Companies in  Improve the trade competitiveness. Unless the
Government Procurement
Deficit India Goods are able to match
• Negative list to avoid import of certain defence Goods the imported Goods in terms
of quality and prices, Trade
BENEFITS CHALLENGES/ CONCERNS
Deficit would not improve.
Incentivizes the Foreign Make in India has been
Increase in Domestic Government’s strategies such
Companies to shift their launched in 2014. But not
Investment and FDI  as Increase in Customs duty,
production base to India quite successful so far due to
Increase in Employment Preference to domestic
 Boost Make in India poor regulatory environment
Opportunities  Increase companies in procurement
and Create Employment such as hurdles in Land
in Per-Capita Income  etc. shields the domestic
Opportunities. acquisition, delays in
Higher Demand for companies from foreign
environmental clearances,
Goods Increase in competition. This fosters
complexity in labour laws.
Investment and FDI complacency in domestic

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(Virtuous Economic Cycle) manufacturing leading to INDIA AND FREE-TRADE AGREEMENTS
decline in quality of Goods.
India has to realise that it was
its integration with Global
Economy in 1991 that led to
rapid increase in its GDP size
from $ 270 billion in 1991 to $
2.9 trillion in 2019.
The Government’s strategies
to boost local manufacturing
takes India back to pre-1991
and hint towards
protectionist and Anti-
Globalisation policies. Hence,
such strategies can be
considered to be retrograde.

INDIA'S EXPERIENCE WITH FTAs

►INDIA’S EXPERIENCE WITH FTAS- POSITIVE IMPACTS:
BENEFITS, CHALLENGES AND WAY India's Trade with FTA partners: India’s total trade has
increased with each FTA partner in post-FTA phase.
FORWARD
Structure of Imports and Exports: FTA partners have
RATIONALE BEHIND FREE TRADE AGREEMENTS (FTAs)
been able to provide for high quality raw materials.
Access to high quality Raw Materials to support the Further, India’s exports are primarily accounted for by
domestic Industries and promote "Make in India" and non-raw materials with respect to each FTA partner.
"Assemble in India".
Trade in Services: India's trade in services has increased
Access to global markets and enable export-led model of with some of the FTA partners such as Japan, South
Development Korea, Malaysia etc. Some of the sectors that have been
Integration into Global value Chains leading to benefitted include technology (Computer Software),
employment creation, enhanced efficiency, higher GDP telecommunication, finance, tourism etc.
growth rates. FDI in FTA Partners: Indian companies have been
Trade Liberalisation with Flexibility: FTAs help reduce established in most of the major FTA partner countries
tariffs with a chosen trade partner in a calibrated of India leading to greater exports from India.
manner with tariff reductions spread over time. Further, ADVERSE IMPACTS
the partner country would also be required to
Structure of Trade: FTAs have led to increased imports
reciprocate by reducing the tariffs.
and exports. However, imports are much higher than
exports. Further, India’s exports to FTA countries have
not outperformed overall exports to rest of the world
Widening Trade Deficit: India’s trade deficit with ASEAN,
Korea and Japan has widened post-FTAs.
Sector-Wise Impact of FTAs: Apart from the widening
trade deficit, the quality of trade has also deteriorated
after signing of FTAs. Out of 21 important sectors, 13
sectors have been adversely affected by higher imports
as compared to exports. Some of these affected sectors
are minerals, leather, textiles, gems and jewellery,
metals, vehicles etc.
Under-Utilised FTAs: Utilisation rate of FTAs by exporters
in India is very low (between 5 and 25%).

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WHAT SHOULD BE DONE THEN? ►DECODING INDIA'S REFUSAL FOR
The Surjit Bhalla Committee has given the following
JOINING RCEP
recommendations for effective utilization of FTAs:
India has decided to remain outside the proposed RCEP
Review of Existing FTAs: India must undertake a
trade agreement which was negotiated between ASEAN
comprehensive review of the existing FTAs in terms of
and its six Free trade partners. India has officially stated
benefits to various stakeholders like industry and
that the present form of the RCEP Agreement does not
consumers. If necessary, these FTAs have to be
fully reflect the basic spirit and the agreed guiding
renegotiated to ensure that India's interests and
principles of RCEP.
concerns are adequately addressed.
BENEFITS OF INDIA JOINING RCEP
Improve Trade Competitiveness: Exports in India are
constrained by improper access to factors of production, Effective utilisation of FTAs: RCEP provides an avenue for
namely, land, labour and capital in India and high cost of India to complement India’s existing free trade
these factors of production. agreements with the ASEAN and some of its member
countries.
Protect the domestic Market by laying down strong and
effective technical regulations to avoid importing cheap Greater Regional Integration: Enable India to strengthen
quality goods. At the same time, we must use the trade its 'Act East" Policy; Quite important because India is not
safeguards such as Anti-dumping duties and safeguard a party to two important regional economic blocs - Asia-
duties to protect our domestic Industry. Pacific Economic Cooperation and the Comprehensive
and Progressive Agreement for Trans-Pacific Partnership
Approach towards Services: With respect to FTA in
(CPTPP).
Services, India has so far excessively focussed on the
movement of Natural persons which would enable Harness Comparative Advantage in areas such as ICT,
Indian professionals (such as IT, Educators, doctors etc) Education and Healthcare.

to render their services in the FTA partner countries. Attract Investment from RCEP member countries
However, going forward, we need to go beyond and CHALLENGES AND CONCERNS WITH INDIA'S
negotiate with the FTA partners to allow Indian service- MEMBERSHIP OF RCEP
based companies to set up their bases in their country. Adverse Trade Deficit: India has around $104 billion
Better Inter-Ministerial Coordination: The ministry of trade deficit with the RCEP member countries, which is
Commerce and Industry must hold regular Inter- 65% of India’s total trade deficit. The RCEP agreement
ministerial meetings to improve the coordination forced India to eliminate tariffs on almost 90% of the
between various ministries. imported goods over the next 15 years. Hence, India was
Facilitation for MSMEs: Launch nation-wide sensitisation apprehensive that RCEP agreement would lead to
increase in its trade deficit, particularly with countries
scheme whereby the MSMEs can be explained about the
such as China.
potential of FTAs.
Adverse impact of previous FTAs: FTAs with Japan and
Launch FTA Utilisation Mission: MSMEs are often unable
South Korea have led to substantial increase in import of
to take advantage of the FTAs due to lack of Information
goods into the domestic market leading to adverse
about the FTAs. Hence, there is a need to launch nation-
impact on domestic manufacturing.
wide sensitisation scheme whereby the MSMEs can be
explained about the potential of FTAs. Base Year for Eliminating Tariffs: RCEP member
countries demanded that the base year should be 2013
Reorient SEZs (Baba Kalyani Committee): The SEZs
while India demanded that the base year should be
should be renamed as 3 E's- Employment and Economic
2019. It is to be noted that India has increased import
Enclaves. Focus should not only be on boosting exports,
duties on several products between 2014 and 2019 and
but also on employment creation and GDP growth rate.
hence adoption of 2019 as the base year would have led
Incentives given to companies in SEZs should depend
to lower reduction in the customs duties and offered
upon factors such as Value addition, Technology protection to the Indian domestic Industry.
adoption etc. This would encourage the companies to
Ratchet Clause: Ratchet means a screw which turns only
innovate and compete at the global level.
in one direction, up or down and not both ways. This
Integrate Government initiatives such as One-District concept is proposed to be applied in RCEP which will
One Product, RoDTEP Scheme etc. into FTAs to push for disallow the member country to increase the import
exports. duties, once reduced. The Indian Government wanted

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the RCEP member countries to adopt safeguard the infrastructural bottlenecks, build manufacturing
mechanism which should enable the countries to capabilities, improving logistics supply chain, focus on
increase the tariffs on certain products when there is a R &D etc.
surge in imports. However, the RCEP member countries • To realize vision of $ 5 trillion economy, India needs
wanted that once the tariff on products is raised, it to get integrated into regional trading agreements
should not be allowed to reduce. (including RCEP). Hence, it should keep engaging with
the RCEP countries to ensure that its demands are
Adoption of liberalized Rules of Origin would have
taken into consideration.
affected India's interests.
Application of Investors to State Dispute Settlement
►GLOBAL VALUE CHAINS: A TOOL
(ISDS) mechanism: Under multilateral trade and
investment agreements such as RCEP, a third-party FOR STRUCTURAL
forum is normally provided for to resolve such disputes. TRANSFORMATION OF ECONOMY
This means that the relevant laws and judiciary in India
In Budget 2020-21, Finance Minister had highlighted
will no longer be able to intervene in such disputes.
need for "Assemble in India" on lines of "Make in India".
Provisions against Data Localization in the e-commerce In a way, this was a call for greater Integration of Indian
chapter in the RCEP goes against India's interests. Economy with the Global Value Chains (GVCs) to reap
WAY FORWARD multiple benefits. Integration into GVCs has the potential
• India has already signed FTAs with almost 12 to bring about structural shift in our economy- From
countries which are part of RCEP. This includes 10 Agriculture to Manufacturing, From Low-end
ASEAN Countries, Japan, and South Korea. Hence, in Manufacturing to high-end Manufacturing, From Self-
the short-run, India can afford to remain outside Employed and Casual Workers to Salaried Workers, from
RCEP until its core interests and concerns are lower Productivity to higher productivity and overall, a
addressed. change in our orientation from being inward to outward
• In the medium and long run, India must focus on
enhancing its export competitiveness by addressing

WHAT ARE GLOBAL VALUE CHAINS? product from its conception to its end use and beyond.
GVCs refer to the full range of activities (design, The Global value Chains (GVCs) have been developed for
production, marketing, distribution and support to the number of products such as Automobiles,
final consumer, etc) that are divided among multiple Pharmaceuticals, Textiles, Electronics, Chemicals, Gold
firms and workers in multiple countries to bring a and Jewellery etc.

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Socio-Economic Transformation: GVCs support
employment of not just men, but also women. Notably
in the apparel and electronics sectors, where assembly
of many small parts must be done manually, firms
report preferences for female employees because of the
high levels of dexterity required. Thus, as seen in
Bangladesh, higher employment creation for Women
would have following benefits:
• Higher Expenditure on Girls' Education
• Decline in IMR and MMR
• Political, Economic and Social Empowerment of
WHY SHOULD INDIA GET INTEGRATED INTO GVCs? Women
Economic Growth and Development: According to World Doubling of Farmers' Income: India is one of the largest
Bank, 1 percent increase in the level of GVC participation producers of Agri-commodities, its share in global
increases average productivity by 1.6 percent and per- exports stands at merely 2.2% (9th Rank). This clearly
capita Income by more than 1% in long-run. This is on highlights India's poor Integration into Global
account of following reasons: agricultural supply chains. Hence, greater integration
• Provides fast track route to Industrialisation since would translate into expanded market access and higher
there is no need to build entire supply chain right prices for the farmers leading to doubling of their
from scratch. income levels.

• Better access to a greater variety of higher-quality or Higher Resilience: According to OECD, Integration of
less costly intermediate inputs economies into GVCs lead to resilience, stability and
flexibility in their production network and hence capable
• No need for firms to focus on entire supply chain and
of responding to domestic shocks. On the other hand,
instead focus on specialised tasks leading to Hyper-
economies which are less integrated into GVCs are more
specialisation.
vulnerable to shocks and hence may see decline in
• Transfer of technology and know-how from the
economic activity and fall in National incomes in
foreign partners.
response to domestic shocks
• Promotes collaboration rather than competition
INDIA'S POOR INTEGRATION INTO GVCs
between Domestic and Foreign Firms wherein each of
According to OECD-WTO’s TiVA (Trade in Value Added)
them focusses on specialised task in the production
database, India’s GVC participation index stands at 43, as
cycle. Both Domestic and Foreign firms collaborate
compared to 52 for Vietnam and 60 for Malaysia. The
with each other in order to minimise the costs and
GVC participation index displays a country’s integration
maximise the profits.
into the GVC and is the sum of forward and backward
• Knowledge Intensive firms in other countries would
linkages divided by total exports. The foreign value
share product innovations with Indian Firms and thus
added of India's Gross Exports (Forward Linkages) has
provide scope for the Indian firms to move higher up
reduced from 25% (2012) to 16% (2016).
the value chain
Some of the reasons for India's poor Integration into
• Increase in Employment creation and Exports
GVCs are as given below:
Increased Job Creation and Labour Welfare:
• Historical Reasons: Inward-looking Industrial policies
• Potential to provide fillip to Manufacturing sector with focus on State-led Industrialisation, Import-
leading to structural change in Indian Economy. substitution, Licence-raj System etc.
• Shift in the Workers from agriculture to • Lack of Lead Firms in India: The lead firms are the
Manufacturing. firms that establish supply chains across the world
• Higher Paying Jobs accompanied by Social Security and hence major drivers of GVCs. For example, in
benefits India, Tata Motors (Automobile) and Ranbaxy
• Induce shift in type of employments from Self- (Pharmaceuticals) have emerged as lead firms by
employed and Casual workers towards Salaried attracting foreign Investment, transferring
Workers technology, establishing supply chains etc. However,

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there is a need to have such lead firms in almost all Agricultural Development: Average growth rate of Indian
sectors. agriculture is below the targeted growth rate of 4% and
• Higher Focus on Domestic Market: Indian Firms have is way below the double-digit growth rate of the service
traditionally focussed on Indian Domestic Market sector. Despite being the one of the largest producers of
since it is quite large. However, they have failed to food grains, India's share in global export of agricultural
realise that integration into GVCs would give them commodities has remained stagnant at 2% (9th Rank).
much wider market. Similarly, the import of cheaper agricultural
commodities has adversely affected the income levels of
• Inward Oriented FDI Policy: Countries such as China
the farmers. This clearly shows that the farmers in India
and Vietnam have been inviting MNCs with GVC
have not able to get benefitted from LPG reforms.
linkages to their countries leading to their Integration.
However, India has so far not given due emphasis on Stagnation in Manufacturing sector: Share of
this aspect of FDI policy. manufacturing sector to India's GDP has remained
stagnant at 16-17% since 1991 reforms. Instead of
• Lack of Focus on R&D leading to limited knowledge
focussing on labour intensive industries, the
transfer
manufacturing sector has come to be dominated by
• Lack of access to Finance- Higher Dependence of capital intensive Industries. The failure of the LPG
Banks, Under-developed Bond Market etc.
reforms to promote manufacturing sector is the biggest
• Inability of the Government to bring about long- loss for the Indian Economy.
pending Labour Reforms Jobless Growth: Employment elasticity is hardly around
• Lack of availability of skilled manpower in crucial 0.1 which means every 1% increase in GDP growth rate
sectors Electronics. leads to 0.1% increase in employment creation. Apart
• Higher Logistics Cost (14%) as compared to USA (9%) from low quantity of jobs, concerns have also been
and Japan (11%) - leading to Uncompetitive Indian raised with respect to poor quality of jobs. 90% of India's
exports. workforce is employed in informal sector, characterised
by low wages, poor productivity and lack of access to
• Poor Focus on Quality due to higher share of small-
scale enterprises social security benefits. Hence, there is a need to create
high-paying, high-productivity formal sector jobs.
• Inverted Duty structure making import of Finished
Lack of Inclusive Growth: India has failed to prevent
Goods cheaper
concentration of wealth and provide for equitable
WAY FORWARD
distribution of income. For instance, as per Credit Suisse,
Government should address the various constraints 1% of wealthiest in India have increased their share in
highlighted above in order to successfully integrate wealth from 40% in 2010 to 60% in the last five years.
Indian Economy into GVCs. India should target the entire Richest 10% in India own more than 4 times the wealth
production cycle in the Smile Curve of the Global Value than remaining 90%. Going forward, richest 10% in India
Chains (GVCs). In some of the selected products such as would take away majority share of $ 5 trillion economy.
Automobile, Pharmaceuticals etc, India needs to focus
Provision of basic services: The Government has failed to
on high-end activities such as Conceptualisation and
allocate sufficient financial resources for provision of
Design in order to reap its expertise in R&D, technology.
basic goods and services. For instance, India's
India must also focus on lower end of the curve
expenditure of 3% on education is much below the
(Production and Assembly) to give fillip to "Make in
target of 6%. Similarly, expenditure on health has
India" and "Assemble in India".
remained quite lower at 1.5% as against the mandated
3%.
►ANALYSIS OF 1991 LPG REFORMS CONCERNS WITH INDIA'S EXTERNAL SECTOR
July 2021 marks the 30th anniversary of the LPG • India's share in the world's exports has remained
Reforms. So, far, the LPG reforms has been a mixed bag stagnant at 1.6% in the last decade.
for India. On one hand, the GDP size of India has
• India's export basket is dominated by Capital
increased from $275 bn to $ 2.9 trillion. However, on the
intensive goods such as Petroleum products, Gems,
other hand, the increase in GDP size has not been
Jewellery etc. (rather than Labour intensive goods
accompanied by transformative changes in the Indian
such as Textiles, Leather etc.)
Economy.

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• Undoubtedly, the forex reserves have increased to all developing countries. In this regard, debate has arisen
time high. However, it is mainly on account of between developed and developing countries with
increase in volatile FPI inflows rather than on account respect to the nature of trade negotiations under WTO.
of export surplus. Developed countries have put forward four plurilateral
• Unlike China, India has failed to get integrated into agreements in the areas of e-commerce, investment
Global value chains (GVCs). facilitation, MSME and gender. However, developing
Poor Innovation Ecosystem: R&D Expenditure as % of countries led by India have staunchly opposed the
GDP at 0.7% has remained stagnant in the last 2 plurilateral agreement and instead pushed forward for
decades. Unlike developed economies, the R&D the continuation of multilateral framework under WTO.
expenditure in India is mainly driven by public sector. Agreement on Fishery Subsidies: The WTO member
The private sector investment in R&D needs to be countries are presently negotiating a multilateral treaty
substantially enhanced. of Fishery Subsidies. This agreement seeks to prohibit
certain forms of fisheries subsidies that contribute to
overcapacity and overfishing. Some developed countries
►WTO REFORMS
such as USA have been insisting that larger developing
IMPORTANT TERMS IN NEWS countries like India and China should not continue to get
Special and Differential Treatment give developing special and differential treatment. However, India has
countries special rights and allow other members to argued that special and differential treatment should be
treat them more favorably. The special provisions built into the fisheries subsidies agreement.
include longer time periods for implementing Agreement on E-Commerce: Developed countries led by
agreements and commitments, support to help USA have put forward a number of proposals which
developing countries to build the infrastructure to include tackling barriers that prevent cross-border sales;
undertake WTO work etc. Further, it also enables the addressing forced data localization requirements and
developing countries to provide higher subsidies as permanently banning customs duties on electronic
compared to developed countries as seen under the transmissions, among others. India has clearly stated
Agreement on Agriculture (AoA) that it is against any binding rules in e-commerce.
Plurilateral and Multilateral Agreement: Multilateral Permanent Solution to Public Stock holding: India has
Agreements are adopted through consensus among all been demanding a permanent solution on public
the member countries. The provisions of the multilateral stockholding to implement National Food Security Act.
agreements are applicable to all the member countries. At the Bali ministerial conference in December 2013,
Further, such agreements may decide to incorporate India secured a “peace clause". Under it, if India
special and differential treatment for the benefit of poor breaches the 10% limit on subsidy under AoA, other
and developing economies. Most of the WTO member countries will not take legal action under the
agreements such as AoA, GATS, TRIPS etc. are WTO dispute settlement mechanism. Further, in 2014,
multilateral agreements which the member countries India forced developed countries to clarify that the
are obliged to follow. peace clause will continue indefinitely until a permanent
Plurilateral agreement is an agreement between limited solution is found.
number of WTO member countries wherein the DEFINITION OF DEVELOPING COUNTRY UNDER WTO
countries would be given the choice to agree to new
Background: There are no WTO definitions of
rules on a voluntary basis. In other words, the provisions
“developed” and “developing” countries. Members
of plurilateral agreement would not be applicable to all
announce for themselves whether they are “developed”
the member countries. Examples of Plurilateral
or “developing” countries. However, other members can
agreements under WTO include Trade in civil aircraft;
challenge the decision of a member to make use of
Government Procurement; Bovine meat; Dairy products.
provisions available to developing countries. The
ISSUES UNDER THE WTO NEGOTIATIONS Developing countries enjoy special and differential
Plurilateral Vs. Multilateral Agreements: Since provisions such as longer time periods for implementing
multilateral agreements are consensus driven, normally agreements and commitments.
trade negotiations under multilateral framework tend to USA's Opposition: US has been demanding reform in the
be slow paced and lead to unnecessary delay. However, Developing Country status. US believes that even some
good aspect about multilateral agreements is that they of the developed economies such as South Korea, China,
consider the special needs and interests of poor and

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Hong Kong, Kuwait, Singapore, UAE etc. have been India's Viewpoint: Elimination of customs duties on IT
claiming the status of developing country. US has also products under the ITA-1 has adversely affected the
questioned India's status of developing country in the domestic manufacturing of IT components in India. To
WTO. boost domestic manufacturing of certain IT products,
DEFUNCT DISPUTE SETTLEMENT BODY customs duties on certain products were increased to
around 20% in Union Budget 2018-19. India has stated
The sanctioned strength of the Appellate Body (AB) of
that the IT goods in question do not fall under the ITA-1
WTO's Dispute Settlement Mechanism is seven
but under ITA-2. Since India is not a signatory to ITA-2,
members and these members are appointed through
there is no obligation on India to reduce customs duty
consensus among the member countries.
on goods.
The quorum required to decide on disputes is 3 judges.
Viewpoints of WTO Member Countries: WTO member
The US government believes that AB is biased against it
countries have raised concerns with respect to
and has criticized it for being "unfair". Consequently, US
imposition of customs duty on IT products by India.
has so far been blocking appointment of members to
These countries have alleged that IT products for which
the Appellate Body (AB) and it is left with only one judge
duties were increased fall under ITA-1 and not ITA-2.
which is below the quorum of 3 judges needed to hear
appeals.
►BREAKDOWN OF WTO DISPUTE
►CONTROVERSY OVER SETTLEMENT MECHANISM
INFORMATION TECHNOLOGY The WTO appellate body has become defunct after USA
AGREEMENT (ITA) consistently blocked the appointment of Judges to the
appellate body. The break down in the dispute
INFORMATION TECHNOLOGY AGREEMENT (ITA-1)
settlement mechanism is a huge blow to the role of WTO
The Information Technology Agreement (ITA) is a which is facing the threat of trade war and rising
plurilateral agreement under the WTO which came into protectionist policies of developed economies.
force in 1997. It presently covers 81 WTO member
UNDERSTANDING DISPUTE SETTLEMENT MECHANISM
countries which account for approximately 97 per cent
Settling disputes is the responsibility of the Dispute
of world trade in information technology products. Every
Settlement Body (DSB) which consists of all WTO
member country signing this agreement is required to
members.
eliminate tariffs on IT products listed in the Annex A and
Annex B of the IT Agreement. Some IT products covered First stage: Consultation (up to 60 days) to settle the
in this agreement include computers laptops, mobile trade disputes through conciliation.
phones, set up boxes, semiconductors, Second stage (up to 1 year): Failure of consultations
telecommunication equipment and parts etc. India is a leads to formation of Dispute Panel by the DSB. The
signatory to ITA-1 and hence it has eliminated customs report of the panel can be rejected only through
duties on 217 IT products over a period of time. consensus among the members of the DSB.
INFORMATION TECHNOLOGY AGREEMENT (ITA-2) Appeal Stage: Either side can appeal a panel’s ruling.
In 2015, some of the member countries agreed to Each appeal is heard by three members of a permanent
expand the products covered by the Information seven-member Appellate Body set up by the Dispute
Technology Agreement by eliminating tariffs on an Settlement Body. The members of the Appellate Body
additional list of 201 products. This was done on account have four-year terms. The appeal can uphold, modify or
of new advances in the field of information technology. reverse the panel’s legal findings and conclusions. The
The new accord covers new generation semi-conductors, Dispute Settlement Body has to accept or reject the
semi-conductor manufacturing equipment, optical appeals report and rejection is only possible by
lenses, GPS navigation equipment, and medical consensus.
equipment such as magnetic resonance imaging PRESENT CONTROVERSY
products and ultra-sonic scanning apparatus. However, • Sanctioned strength of Appellate Body (AB) is seven
it is to be noted that India has not signed ITA-2 since it members and these members are appointed through
would have an adverse impact on domestic consensus among the member countries. The AB
manufacturing due to cheaper imports. must have quorum of 3 judges to hear a particular
WHAT'S THE PRESENT CONTROVERSY ALL ABOUT? case.

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• US Government believes that AB is biased against it INDIA'S ARGUMENT AGAINST SUBSIDIES UNDER AoA
and has criticised it for being "unfair". Consequently, • Percentage limit on the Subsidies is quite deceptive.
US has so far been blocking appointment of members In terms of absolute value, the developed economies
to the Appellate Body (AB). have been providing subsidies far higher than India.
• Since December 10, 2019, the AB has been left with • Limit on the subsidy does not factor in the Inflation. It
only 1 Judge and the quorum required to hear a case
is calculated as the value of production in 1986-88.
is minimum 3 judges. Hence, the WTO appellate body
Since then, the prices of agricultural commodities
has become dysfunctional.
have increased.
• Under Green Box Subsidies, direct income support to
►AGREEMENT ON AGRICULTURE the farmers (not linked to specific product) is allowed.
The Agreement on Agriculture (AoA) basically aims to This has been misused by countries such as USA. The
facilitate international trade in agricultural goods by direct cash transfers to the farmers in USA account
putting a cap on the agricultural subsidies given by the for almost 50% of its agricultural value production.
member countries. This agreement stands on 3 pillars • Procurement of Commodities under MSP regime is
viz. Domestic Support, Market Access, and Export not for boosting agricultural exports, rather it is for
Subsidies.
meeting food security needs of Indian Citizens. Hence,
procurement of commodities for ensuring food
security should not be included in the Amber Box,
rather it should be included in the Green Box.
Hence, India must address the historical imbalances and
ensure a rule-based, fair and equitable international
trade through AoA.

►MORATORIUM ON CUSTOMS
DUTIES ON E-COMMERCE
• As per WTO, E-commerce is defined as the
“production, distribution, marketing, sale or delivery
of goods and services (such as Films, music, video
games, software, newspapers, books etc.) by
Current Issues with AoA: To implement National Food electronic means.
Security Act (NFSA), the Government is required to • In 1998, WTO members came out with a Declaration
procure more food grains by announcing MSP. on global Electronic Commerce, under which
Government would be required to declare subsidies countries have decided not to impose customs duties
over and above the limit specified under AoA. The (or a moratorium on customs duties) on E-Commerce
developed countries were challenging this such as USA, transactions. This moratorium is renewed by the
which wanted India to stick to subsidy limit imposed members at every Ministerial Conference, which
under AoA. usually happens every two years.
At the Bali ministerial conference in December 2013, PRESENT DEBATE OVER MORATORIUM ON CUSTOMS
India secured a “peace clause". Under it, if India DUTIES ON E-COMMERCE
breaches the 10% limit on subsidy under AoA, other
The Developed countries are the major exporters of
member countries will not take legal action under the
these digital goods and services. Hence, the developed
WTO dispute settlement mechanism. countries are in favour of making this moratorium on e-
Further, in 2014, India forced developed countries to commerce transactions permanent. In a way, the
clarify that the peace clause will continue developed countries want that no member country
indefinitely until a permanent solution is found. should impose customs duty on these e-commerce
Presently, India has been demanding a permanent transactions in future.
solution on public stockholding in order to implement ARGUMENTS IN FAVOUR OF PERMANENT
National Food Security Act. MORATORIUM

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Low share of Digitised Goods (just 1%) in the overall plurilateral initiatives are detrimental to rules-based
international trade. Hence, imposition of customs duty multilateral trading system.
would have adverse impact on the growth of e-
commerce transactions.
►IMF QUOTA REFORMS
Promote Growth of other sectors: Permanent
ABOUT INTERNATIONAL MONETARY FUND (IMF)
moratorium on e-commerce transactions would provide
fillip to e-commerce sector, which in turn would promote Both IMF and World Bank came into being after the
growth of other sectors in the economy. For example, Bretton Woods Conference which was held in 1944 after
lower prices for e-books can drive demand for e-readers. the Second World War. These institutions were mainly
Similarly, demand for smart TVs or projectors can rise as set up in order to ensure global financial stability and to
the cost of online streaming falls. promote growth and development. The role of the World
Bank is to give loans to the poor and developing
Adverse impact on consumers: Increasing customs duty
countries to promote growth and development. The
on e-commerce would increase prices of digital services
IMF's main role is to give loans to the member countries
such as e-newspaper, e-book, video games etc. and
which are facing Balance of Payment (BoP) crisis.
hence adversely affect the consumers.
ABOUT QUOTA
Administrative challenges: Customs duty imposed on
physical goods can easily be collected at the borders The Quotas determine the maximum amount of
during their physical movement. However, since e- financial resources a member is obliged to provide to
commerce transactions take place over the internet, it the IMF. The financial contribution of each member
would become administrative nightmare for the tax country is mainly determined based on 4 indicators- Size
authorities to impose tax on digital transactions. of GDP (50%), Openness (30%), Economic Variability
(15%) and International Reserves (5%). The Quotas are
ARGUMENTS AGAINST PERMANENT MORATORIUM
denominated in Special Drawing rights (SDRs) which is
(INDIA'S STANCE)
the IMF's unit of account.
Revenue Loss: In 2019, India and South Africa brought
The Quotas in the IMF also determines the member
out a joint paper at the WTO on revenue implications of
country's financial and organisational relationship with
the moratorium on electronic transmissions. India has
the IMF in the following manner:
highlighted that imposition of moratorium has led to
loss of revenue of around $ 10 billion at the global level. 1. Voting Power: Quota also largely determines the
voting power of the member countries.
Adverse impact on Developing countries: More than 95%
of the revenue loss is incurred by the developing 2. Borrowing Limit: Quota also determines the amount
countries. of loans which a member country can avail from the

Rapid Technological advancements: Digitalisation of IMF. For example, presently the member countries
previously physical goods (CD-ROMs to mp3s, DVDs to are allowed to borrow up to 145% of its quota on
online streaming, printed books to eBooks) have led to annual basis and 435% cumulatively.
losses in customs revenue. HOW DOES THE QUOTA REVIEW WORK?
Ensure Aatma Nirbhar Bharat: India believes that doing • IMF's Board of Governors usually undertakes the
away with moratorium and imposition of customs duty review of the Quotas at regular intervals (usually once
would benefit the domestic companies which engage in in 5 years). Any changes in Quota must be approved
e-commerce transactions. by 85% majority of the total votes and a member's
PRESENT CONDITION quota cannot be changed without its consent. During

Due to lack of consensus between developed and the 14th Quota review in 2010, it was decided to
developing countries, some of the countries are now increase the quotas of the developing countries by
exploring options on their own. In 2019, a group of 71 shifting more than 6% of the quota shares from the
WTO countries (including both developed and over-represented countries to the under-represented
developing) started plurilateral initiative to discuss, countries.
debate and put in place permanent moratorium on the • India's quota and voting rights have increased to
customs duties. 2.76% and 2.64% respectively. The USA has the
However, India has been opposed to this plurilateral highest quota and voting rights at 17.46% and 16.52%
initiative. India has categorically stated that such respectively.

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• Presently, top 10 countries with highest quota and Thrust to Industrial Revolution 4.0: Data localization
voting rights are USA, Japan, China, Germany, France, norms would force the companies to store their data in
UK, Italy, India, Russia and Brazil in descending order. India giving a much-needed push to Industrial
Revolution 4.0.

►DATA LOCALISATION Preventing Foreign Surveillance: A significant portion of

the data collected and stored by global MNCs in other
IMPORTANCE OF DATA IN NEW GLOBAL ORDER
countries increases the scope of foreign surveillance.
Data is the new oil. The technological giants such as
CONCERNS RELATED TO DATA LOCALIZATION
Apple, Amazon, Facebook, Google, Microsoft etc. have
been harnessing the data generated by the users to Increase in Compliance Cost: Presently, some of the
make huge profits. The advent of Industrial revolution in Indian companies store their data in servers located in
Britain enabled it to become superpower and eventually the other countries at much cheaper prices. The data
it went on to colonize other countries across the world. localization norms may make it costlier for the Indian
Similarly, the data is the necessary ingredient of the companies to create necessary digital infrastructure to
Industrial Revolution 4.0. store the data within India.

Presently, USA and China have already taken lead in Monopolization of Data: Data Localization would require
terms of Industrial revolution 4.0 by focusing on big data huge investment in creation of digital infrastructure
and Artificial Intelligence (AI). Because of this, India which can be done only for large MNCs. However, the
would be required to be dependent on these two global small and medium sized businesses would have to be
digital superpowers in future. This would compromise dependent upon the infrastructure set up these global
our economic and political independence leading to MNCs in India.
Digital Colonization of India. Cyber Threat: Forcing the companies to store data locally
DATA LOCALIZATION- PROS AND CONS deprives them of the option of distributing information
across servers in multiple locations, making it more
Data localization refers to storage of data on any device
vulnerable to cyber threats.
that is physically present within the borders of a specific
country where the data gets generated. In case of India, Issues related to Privacy: It is to be noted that data
the Draft E-Commerce policy has mandated for the data localization may not be able to eliminate cyber-attacks.
localization norms for the e-commerce companies such Even when, data is stored locally, it is prone to cyber-
as Flipkart, Amazon etc. On Similar lines, the RBI has attacks leading to data breach and loss of privacy.
mandated that all the payment system operators such
as Mastercard, Visa etc. should compulsorily store the ►INTERNATIONAL LABOUR
payments related data in the servers which are
ORGANIZATION (ILO)
physically based in India.
In 2019, the ILO celebrated its 100th anniversary. In this
BENEFITS OF DATA LOCALIZATION:
regard, ILO and its various labour conventions, including
Data as Public Good: Economic Survey 2018-19 has
Convention No. 182 become quite important for the
highlighted that the data generated by the Indian users
UPSC exam.
has to be accessible by the people and ultimately used
ABOUT INTERNATIONAL LABOUR ORGANIZATION
for the benefit of people and that is why the chapter has
(ILO)
been aptly titled as "Data of the People, by the People,
for the People"; Promotes evidence based policy making Establishment and its Role: ILO was created in 1919 as
in order to improve the education, health and various part of the Treaty of Versailles after the end of First
dimensions of human development. World War. It is a United Nations agency that sets
international labour standards and promotes social
Enforcement: Enable law enforcement officers to access
protection and work opportunities for all. It is
information required for the detection of crime as well
headquartered in Geneva, Switzerland.
as in gathering evidence for prosecution.
Unique Structure of ILO: Unlike other UN specialized
Reducing Vulnerabilities: A large amount of data is
agencies, the ILO has a tripartite governing structure
transmitted from one country to the other via undersea
that brings together governments, employers, and
cables which increases the risk of vulnerability of the
workers to set labour standards.
internet and cross-border transfer of data.

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How ILO Works? ILO accomplishes its work through Reports published by ILO
three main bodies which comprise governments, • World Employment and Social Outlook
employers and workers' representatives:
• Global Wage Report
• International labour Conference: It sets the
• World Social Protection Report
international labour standards and the broad policies
INTERNATIONAL LABOUR STANDARDS
of the ILO. It meets annually in Geneva and it is also
as international Parliament of labour. International labour standards are legal instruments
setting out basic principles and rights at work. They are
• Governing body: It is the executive council of the ILO.
either Conventions (or Protocols), which are legally
• International Labour Office: It is the permanent
binding international treaties that may be ratified by
secretariat of the International Labour Organization.
member states, or Recommendations, which serve as
Supervision of Labour Standards: ILO regularly examines non-binding guidelines. In many cases, a Convention lays
the application of standards in member states and down the basic principles to be implemented by ratifying
points out areas where they could be better applied. If countries, while a related Recommendation
there are any problems in the application of standards, supplements the Convention by providing more detailed
the ILO seeks to assist countries through social dialogue guidelines on how it could be applied.
and technical assistance.
8 Fundamental ILO Conventions are:

ILO Convention Name Convention Number

Freedom of Association and Protection of the Right to Organise 87

Right to Organise and Collective Bargaining Convention 98

Forced Labour Convention 29

Abolition of Forced Labour Convention 105

Minimum Age for Admission to Employment 138

Worst Forms of Child Labour Convention 182

Equal Remuneration Convention 100

Discrimination in Respect of Employment and Occupation 111

India and ILO: India is a founding member of ILO. India • Full Protection and Security (FPS): Mandates States to
has so far ratified 47 ILO Conventions. Out of the 8 provide full protection and safety to foreign
Fundamental Conventions highlighted above, India has investments.
ratified 6. • National Treatment: The foreign investors should be
treated at par with the domestic investors.
►MODEL BILATERAL INVESTMENT • Most Favourable Nation Treatment (MFN):
TREATY Concession extended to foreign investor of a
particular country would be extended to foreign
WHAT IS BILATERAL INVESTMENT TREATY? investors of other countries.
Bilateral investment Treaties (BITs) are agreements
• Expropriation (Taking over property): Bars the state
between two Countries for the reciprocal promotion and from expropriating the foreign investments except
protection of investments in each other's territories by under exceptional circumstances.
individuals and companies situated in either State. BITs
• Repatriation of Investment and Returns: Mandates
encourage foreign investors to invest in a State and
the states to provide unrestricted power to the
there by contributing towards overall developments and
foreign investors to repatriate their investments and
advancements of the economy.
returns.
Some of the important features of the BITs are:
• Investor State Dispute Resolution (ISDS): Foreign
• Fair and Equitable Treatment (FET): Mandates States investors can directly initiate arbitration proceeding
to have a stable and predictable legal framework against a State without approaching its own
regulating investments which meets the reasonable government. To handle such a dispute, an ad-hoc
expectations of the investors. tribunal may be set up in accordance with the

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Arbitration rules of the United Nations Commission Partial Rupee Convertibility on Capital Account: Capital
on International Trade Law. Account Convertibility (CAC) is not just currency
REASON FOR TERMINATION OF BITs convertibility, but it also involves freedom to invest in
financial assets of other countries. The Committee on
BITs signed by India gave extensive protection to the
Capital Account Convertibility (1997) headed by Tarapore
foreign investment with scant regard for state's interests
has given a working definition for the CAC - “CAC refers
based on the neoliberal model. For example, a number
to the freedom to convert local financial assets into
of foreign corporations slapped ISDS notices against
India challenging a wide array of regulatory measures foreign financial assets and vice versa at market
such as the imposition of retrospective taxes (Vodafone determined rates of exchange. It is associated with
case), cancellation of spectrum licences and revocation changes of ownership in foreign/domestic financial
of telecom licenses. assets." So, it basically refers to easing of restrictions on
movement of capital (such as FDI, FPI etc) from one
These ISDS cases against India led to a fundamental
country to another.
rethink and review of BITs in India leading to the
adoption of Model BIT in 2016. PROS AND CONS OF FULL RUPEE CONVERTIBILITY ON
CAPITAL ACCOUNT TRANSACTIONS
IMPORTANT PROVISIONS OF MODEL BIT
• Enterprise based definition of investment: Asset- PROS CONS
based definition of the investment under the earlier • Easier access to Foreign • Higher Volatility in the
BITs has been replaced by Enterprise based definition Capital and technology Exchange rate due to
under the model BIT. Asset based definition considers due to greater ease for sudden inflow and
every kind of asset – both movable and immovable the foreign Investors. outflow of foreign
including the IPRs as investment and gives protection • Promote competition currencies. (1997 Asian
under treaties. Moving away from an asset-based between domestic Financial Crisis)
approach to an enterprise-based approach aims at companies and MNCs • Higher Inflows of foreign
narrowing the scope of investments to be protected • Internationalisation of Capital could lead to
and thus seeks to reduce the number of BIT claims Rupee- Rupee can easily sudden appreciation in
that can be brought against India. be accepted in other the value of Rupee and
• Exclusion of MFN treatment: In recent years, some countries. thus hurt Exports.
foreign investors have sued India arguing that they • Enable domestic • Greater chances of global
have to get the same beneficial treatment given to Investors to invest in risks affecting Indian
companies from other countries. Accordingly, India overseas market Economy! Example: 2007-
has dropped MFN Clause from the Model BIT. • Promote Financial 08 Global Financial Crisis)
• Conditions for initiating arbitrations at international Discipline since the • Higher Foreign Debt
arbitrations: Model BIT stipulate that the aggrieved Government must keep • Outflow of Domestic
investor should use all local remedies as well as in check Fiscal Deficit and Savings to other
negotiations and consultations before initiating Public Debt to attract Countries.
arbitrations against the host State. Investor can use foreign Capital • No empirical link
outside remedies only five years after resorting to all • Promote Employment between Capital Account
domestic arrangements. opportunities and GDP Convertibility and
growth. Economic Growth.
• Corporate Social Responsibility: Model BIT mandates
foreign investors to voluntarily adopt internationally INDIA’S READINESS FOR CAPITAL ACCOUNT
recognized standards of corporate social CONVERTIBILITY
responsibility. Tarapore Committee has recommended that India
should Capital Account Convertibility in a phased and
►CAPITAL ACCOUNT gradual manner. At the same time, it has laid down
some pre-conditions to be met for the introduction of
CONVERTIBILITY
Capital Account convertibility:
RUPEE CONVERTIBILITY IN INDIA
1. Eliminate Revenue Deficit and ensure Revenue
Full Rupee Convertibility on Current Account: Current surplus
Account under Balance of Payment (BoP) includes
2. Substantial part of Revenue surplus should be
various transactions such as Imports, Exports,
earmarked for meeting repayment obligations.
Remittances, Gifts, Donations. On these transactions,
India has adopted full Rupee Convertibility in 1993.

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3. Strengthen Regulation of Financial sector, including has remained stagnant at around 0.7% of India's GDP.
that of Banks. Reduce the NPAs of Banking sector and It is much lower as compared to other countries-
focus on reforms in Public Sector Banks (PSBs). China (2.1%); USA (2.8%); South Korea (4.2%); Israel
4. To meet import and debt service payments, forex (4.3%) etc.
reserves should be adequate enough. • Increase in Share of Private Sector Investment: In
5. RBI should evolve policies to allow industrial houses most advanced economies, major chunk of
to have stakes in Indian banks or promote new banks. expenditure on R&D is borne by the private sector
entities. However, in case of India, the major share of
WHAT APPROACH SHOULD INDIA FOLLOW?
GERD (0.7% of GDP) is incurred by the Public Sector
• Capital account liberalization should be regarded as a
(0.4%). The share of private sector is hardly around
process and not an event i.e., it should be introduced
0.3% of GDP.
in a phased and gradual manner.
• Increase in number of Patents: Lower expenditure on
• The degree and timing of capital account R&D has in turn led to India's poor ranking on
liberalization need to be sequenced with other
international indices such as International IP Index,
reforms, such as strengthening of banking systems,
Global Innovation Index and Global Competitiveness
fiscal consolidation, trade liberalization and the
Report and hence the Patent Box Regime is expected
changing domestic and external economic
to increase the filing of Patents in India.
environments.
WAY FORWARD
• India must focus more on liberalising inflows as
Patent Box Regime is expected to give a push to ‘Make in
compared to outflows. Among the kinds of inflows,
FDI should be preferred for stability, while excessive India’. ‘Start up India’, ‘Digital India’ initiatives of the
short-term external debt needs to be avoided. Government and thus promote Aatma Nirbhar Bharat.
Considering the fact that more than 25 countries across
• For outflows, the hierarchy for liberalization must be -
the world have adopted Patent Box Regime, the Indian
Corporates first, followed by financial intermediaries,
Government should improve the regime even further to
and finally individuals.
promote R&D:
1. Concessionary tax regime should not only be limited
►PATENT BOX REGIME to Patents, but also extended to other IPRs such as
Need for Patent Box Regime: MNCs usually register their Copyrights, Trademarks etc.
patents in low tax jurisdictions such as Singapore, 2. Concessionary tax regime should also include the
Mauritius, Netherlands, Ireland etc. This is although the income accrued from the sale of manufactured
new inventions may have been developed in some other products with embedded patented components.
countries such as USA, India, Germany etc. This is so 3. Reduction in the time required to register patents.
because the income earned from the patents would be
taxed in low-tax jurisdiction rather than in countries ►IPR WAIVER ON TRIPS
where the income is earned.
AGREEMENT- PROS AND CONS
What Patent Box Regime does? Provides for a special tax
In Dec 2020, India and South Africa had asked for patent
regime for Intellectual Property (IP) revenues. In a Patent
waiver to deal with CoVID-19. WTO agreed to the
Box Tax Regime, a lower rate of tax is applicable for the
income generated from licensing or transfer of Waiver on Patents: Any pharmaceutical company would
intellectual property rights like patents. Such a regime be allowed to manufacture the vaccines, medicines
has been adopted by countries such as UK, France, Spain without having patents or without entering into
etc. to incentivise R&D. voluntary licensing agreements with the patent holder.
Patent Box Regime in India: Introduced through Finance Mechanism for Waivers under WTO Agreements can be
Act, 2016. It provides for a concessional rate of tax at the decided at the WTO Ministerial Conference through
rate of 10% on the gross amount of royalty earned consensus among all the member countries. The waiver
through Patents. However, to be eligible for this benefit, needs to contain a justification based on the exceptional
the Patent must be developed and registered in India. circumstances. Waivers are reviewed by the Ministerial
HOW PATENT BOX REGIME BENEFITS INDIA? Conference annually until its termination.
• Enhance Expenditure in R&D: Investments in R&D BENEFITS OF PATENT WAIVER
measured in terms of Gross Expenditure on R&D Saving Lives: The vaccination coverage in advanced
(GERD) have shown a consistently increasing trend economies such as USA, UK etc. is more than 50%.
over the years. However, as percentage of GDP, GERD

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However, in African countries, it is below 1%. In India, it companies to enter into a greater number of voluntary
is around 10%. licensing agreements with the Pharma companies based
Public funded Research: Most of pharma companies, in poor and developing countries. For example,
particularly in advanced economies such as USA have AstraZeneca has entered into voluntary licensing
received huge grants from their governments to agreement with Serum Institute of India to manufacture
undertake R&D to develop vaccines and medicines. Covishield. AstraZeneca can enter into a greater number
Hence, since a significant chunk of R&D expenditure is of such voluntary licensing agreements with other
indirectly incurred by the Government, it would be pharma companies in India as well as other countries.
prudent to provide for temporary waiver on Patents.
Best bet to Fight Pandemic: ►BREAKING UP BIG TECH
• Promote Global Cooperation to fight Crisis. COMPANIES
• Ramp up Production of Vaccines and Medicines and The Digital Era has seen the growth of Big Tech
Flatten the Curve Companies such as Google, Amazon, Facebook, Apple
and Microsoft, which are combinedly known as
• Equitable distribution of Vaccines
"GAFAM". As of September 2020, the combined
• Availability of Vaccines at affordable cost valuation of these platforms is more than $5 trillion.
Saving Livelihoods: Impact of Pandemic- 1.4% of Global Over the past decade, the digital economy has become
Population pushed into extreme poverty; 90% of highly concentrated and prone to monopolization.
Several digital markets such as social networking,
countries faced GDP contraction.
general online search, and online advertising are
Current Mechanism for Exemptions for Patents such as dominated by just one or two firms.
Compulsory Licensing and Parallel Imports – Time
HOW BIG TECH COMPANIES HAVE GAINED
Consuming and Complex Process DOMINANT MARKET POSITION?
REASONS FOR OPPOSITION • Role of Online Platforms as Gatekeepers: As Amazon,
Discourage Investment in R&D for undertaking further Apple, Facebook, and Google have captured control
development in field of medicines, vaccines, and over key channels of distribution, they have come to
diagnostic tests. This is particularly of concern since the function as gatekeepers. Their role as gatekeepers
also gives the dominant platforms to control the fates
virus is mutating.
of other businesses.
Flawed Assumption: The lower production and higher
For example, in 2007, Google bought Android OS
prices of medicines and vaccines is not entirely on
which is used for running the smart phones. Then,
account of Patent regime. Apart from Patents, other Google called upon the smartphone manufacturers to
extrinsic factors such as availability of raw materials, pre-install and give default status to Google’s own
Technological know-how, manufacturing capacity etc. apps such as Chrome, Google Map etc. Through
are also hindering widespread availability. Chrome, Google now owns the world’s most popular
browser, a critical gateway to the internet.
Complexity in manufacturing of medicines and vaccines
(such as mRNA Vaccines) prevent the pharma companies • Acquisition of Competitors: Big tech companies have
from entering into voluntary licensing agreements with also resorted to acquisition of smaller competitors to
retain their dominant market position. For example,
the pharma companies in the poor and developing
Facebook acquired WhatsApp and Instagram to
countries.
continue its dominance in the field of social media.
Lower profit Margins for the Pharma companies as they
• Collection, storage and Analysis of Data: Big tech
mainly sell vaccines to the Government at lower prices. companies enjoy dominance with respect to amount
Problem of Quality controls as less capable pharma of data collected by them. This in turn makes smaller
companies may try to manufacture patented products. companies to depend upon Google, Amazon etc. for
advertising their products.
Extremely time consuming and complex as the waiver
on Patents would have to be agreed through consensus • Discriminatory Practices: Companies such as Amazon
force their sellers to sell their products only on their
among all the WTO member countries
platform. Further, companies such as Google give
THIRD WAY higher preference to the companies which place their
The Director General of WTO has proposed for a third advertisement with them.
way instead of Temporary waiver on Patents. Under the
third way, there is a need to encourage pharma

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• Higher Economies of scale and scope also enable store, Amazon Appstore etc. Despite availability of so
these Big Tech companies to have profits as many choices, most of us use either Google play store or
compared to their smaller rivals. Apple Appstore.
HOW DOMINANCE OF BIG TECH HURT ECONOMY? Unfair Practices: Both Google and Apple collect
• Hinders Innovation: Competition in digital markets payments from App developers to get their Apps listed
incentivizes incumbent firms and new entrants to on their respective Appstore. Apple also requires the
build new technologies and improve business App developers to pay 30% as commission for the in-app
processes. In case of monopolisation, the incumbent purchases made by App developers.
firms lack the incentive to invest in research and Lack of Choice to Consumers and App developers in
development. terms of accessing and listing mobile apps.
• Data Privacy Issues: Misuse of personal data of the Set back to Domestic App Ecosystem: PM has recently
users to make profits. highlighted that digital gaming has a huge potential at
• Hinders Start-up Ecosystem: Monopoly enjoyed by the international level and called upon Indian
deep-pocketed big tech companies would prevent entrepreneurs to take a lead and develop apps to boost
growth of start-up companies. mobile app ecosystem. But, in the present ecosystem, an
entrepreneur faces multiple costs as well as risks as
• Affects Consumers: Monopolised market is usually
shown below:
characterised by higher prices and poor quality of
services. • Required to pay charges and commission to get their
Apps listed.
• Exercise pervasive influence on society and politics
which could affect process of democratisation. Take • Required to comply with unfair rules and regulations
for instance, the role of social media in spreading fake laid down by Big Tech
news, hatred, communal disharmony etc. • In absence of regulation, there is a risk of app being
WHAT MUST BE DONE TO DEAL WITH DOMINANCE OF delisted without any mechanism for redressal of his
BIG TECH? grievances.

Strengthening Antitrust Laws: The anti-trust laws such as So, having an Indigenously developed Appstore would
Competition Act, 2002 need to be strengthened; help us address these problems faced by app
Empower Competition Commission of India to deal with developers. Further, the regulation of Appstore through
abuse of dominant market position by Big Tech an Independent authority would help us lay down clear
companies. rules and guidelines over aspects of listing of mobile
apps.
BREAKING UP THE BIG TECH
WHAT SHOULD BE DONE TO BREAK THE MONOPOLY
There are basically 3 proposals to reduce the dominance
OF MNCS IN MOBILE APP ECOSYSTEM?
of the Big Tech by breaking them.
1. Platforms should evolve into separate companies: Mobile Seva App Store hosts the various mobile
This proposal would break up tech companies by applications for government services as well as private
separating the underlying platform from the sector mobile apps. This needs to be developed as viable
products and services sold on it. Google could no alternative to Appstore of Google and Apple.
longer own Android and offer apps like Gmail, Maps, Encouraging development of Mini-App Stores: Paytm has
and Chrome. Amazon could no longer own the recently launched Mini-App store, which is a web-based
Amazon Marketplace and sell its own private-label service that provides access to various apps as if they
goods. Apple could no longer own iOS and offer are downloaded on your mobile. Two advantages here-
products like Safari, Siri, or Find My iPhone. Saves phone memory and saves Data which otherwise
2. Restrict the number of products the Big Tech can gets used up for downloading the mobile app.
offer Encouraging development of local handsets: Most
3. Reversal of past acquisitions which enabled Big Tech mobile phones sold in India are Chinese and these come
Companies to enjoy dominance. pre-loaded with their own apps and play stores. So, we
need to boost the Indigenous manufacturing of Mobile
►NEED FOR MADE IN INDIA phones. Just like how the Android OS comes pre-loaded
with Google applications, we can ensure that mobile
APPSTORE
phones manufactured in India come pre-loaded with our
Abuse of Dominant Position by Google and Apple:
Appstore such as MobileSeva App store.
Presently, there are more than 300+ app stores such as
Google's play store, Apple's Appstore, Samsung's Galaxy

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Section-10
NFRASTRUCTURE AND

INVESTMENT
SUB- THEME YEAR QUESTION

Adaptation of PPP model for infrastructure development of the country has not been free
2013
from criticism. Critically discuss the pros and cons of the model.

Explain how private public partnership agreements, in longer gestation infrastructure

2014 projects, can transfer unsuitable liabilities to the future. What arrangements need to be put
PPP Model/ in place to ensure that successive generations’ capacities are not compromised?
Infrastructure
Examine the developments of Airports in India through Joint Ventures under Public-Private
2017
Partnership (PPP) model. What are the challenges faced by the authorities in this regard?

“Investment in infrastructure is essential for more rapid and inclusive economic growth. ”
2021
Discuss in the light of India’s experience

National urban transport policy emphasizes on moving people instead of moving vehicles.
Transport 2014
Discuss critically the success of various strategies of the government in this regard.

Access to affordable, reliable, sustainable and modern energy is the sine qua non to achieve
Sustainable Development Goals (SDGs). Comment on the progress made in India in this
regard.
2018

With growing energy needs should India keep on expanding its nuclear energy programme?
Energy
Discuss the facts and fears associated with nuclear energy.

Describe the benefits of deriving electric energy from sunlight in contrast to the
2020 conventional energy generation. What are the initiatives offered by our Government for this
purpose?

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►INFRASTRUCTURE SECTOR- • The transport network is not planned holistically: Lack
of interconnectedness and synergies in the transport
CONSTRAINTS AND CHALLENGES/
network; Poor Intermodal connectivity; Lack of
NATIONAL INFRASTRUCTURE connectivity between ports and inland modes of
PIPELINE transport.
NEED FOR INFRASTRUCTURE BOOST IN THE INDIAN • Poor Maintenance of Indian Railways, National
ECONOMY highways and roadways etc.
• Vision of $ 5 Trillion Economy: It is estimated that • Limited Capacity leading to congestion of roads and
India would need to spend $4.5 trillion on railways.
infrastructure by 2030 to sustain its growth rate. • Modal imbalances: Roadways have become the
• Boost Demand and Employment Creation dominant mode of transport of goods at the cost of
• Increased Urbanisation: According to World Bank railways, despite the latter’s economic and
data, by 2030, it is estimated that around 42% of environmental advantages over the former. Similarly,
India’s population would be urbanised from the inland waterways remain underutilized as a mode of
current 31%. transport.

• Changing Demography in India: The Economic survey • Poor Transport safety leading to increase in
2018-19 has highlighted that the share of working of accidental deaths
working-age population would increase from 50% • Higher dependence on fossil fuels affecting India's
(2011) to 59% (2041), while the share of senior citizens energy security.
would increase from 8% (2011) to 16% (2041). The • Lack of access to long term financing options
changed demography will need the converged
• Delays in Land acquisition and environmental
development of a host of infrastructure facilities such
clearances.
as housing, water sanitation services, digital and
National Infrastructure Pipeline: The Task force has now
transportation needs.
outlined the expenditure of around Rs 102 lakh crore
• Climate change and disaster resilience: Building
over the next 5 years in order to realise $ 5 trillion
Climate Resilient infrastructure is critical for people’s
economy. The funding of the National Infrastructure
well-being, quality of life, and economic prospects.
Pipeline will be jointly made by the Centre, states and
CONSTRAINTS AND CHALLENGES IN TRANSPORT the private sector in the proportion of 39:40:22 (39 % by
SECTOR the centre, 40% by the states and 22% by the private
sector).

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►NATIONAL MONETISATION Note: Assets which are central to the business
PIPELINE- BENEFITS, CHALLENGES objectives of the Government have been categorised as
AND STRATEGIES NEEDED Core Assets for the purposes of monetisation.
The Budget 2021-22 has laid out a three-pronged
strategy for infrastructure financing in the country. This
includes:

• Creation of institutional structures in the form of

Development Bank (National Bank for Financing
Infrastructure and Development (NaBFID).

• Increase in allocation of capital expenditure

• National Monetisation Pipeline

The Government has recently launched the National

Monetization pipeline (NMP) to raise around Rs 6 lakh
crores during the next 4 years -2022-25. This would help
us meet our investment needs for the National
Infrastructure pipeline. One of the critical factors for
ensuring the success of NMP is to attract more
investors-both domestic as well as institutional Global Examples: Asset Recycling Initiative (ARI) in
Australia helped in raising over $ 17 billion for funding
Concept of National Monetization Pipeline (NMP): Asset
infrastructure. Similarly, Indonesia's Limited Concession
Monetisation is defined as transfer of core assets owned
Scheme (LCS) was also hugely successful.
by the Government to the private sector for a limited
period. The core infrastructure assets include roads, Need for National Monetisation Pipeline (NMP): The

ports, airports, telecom, railways, warehousing, energy NMP would help us meet the financing for the National

pipelines, power generation, power transmission, Infrastructure Pipeline (NIP). As estimated by the Task

hospitality and sports stadiums. NMP does not include Force for NIP (2019), traditional sources of capital are

monetization of non-core assets (such as land, buildings expected to finance 85% of the capital expenditure
under NIP. Remaining 15% is expected to be met
etc).
through innovative mechanisms such as Asset
NMP is not privatisation since the ownership of the
Monetisation and NaBFID.
assets would continue to remain with the Government.
The assets would be only transferred to the private
sector for limited duration of time based upon the
contract.

Asset Monetization Models

Direct Contractual Models Structured Financing Models
1. Operate-Maintain-Transfer (OMT) Model: Used as Toll- 1. Real Estate Investment Trusts (REITs)
Operate-Transfer (ToT) Model in National Highways 2. Infrastructure Investment Trusts (InVITs)
2. Operate Maintain Develop (OMD): Used as Operation
Management Development Agreement (OMDA) in Airports
3. Long term lease Agreements: Used for leasing of Telecom
Towers, Bus Terminals, Stadiums etc.

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BENEFITS the service delivery and efficiency in management of

• Unlock the value: The NMP would help us unlock the public assets.
value of existing public assets such as Roads, • Better Targeted: Taxpayers’ money would not be
Railways, ports etc. It would reduce the burden on the utilised for the maintenance of the assets. Rather,
government owned agencies for operation and only those people who use such assets will be
maintenance of assets. required to pay user charges.
• Raise Finances: The Covid-19 pandemic has led to CHALLENGES AND CONCERNS
decrease in revenue collection, while at the same time Enhanced Role of the Government: Under NMP, the
calls for enhanced public expenditure on capital Government would continue to build and own capital
assets. NMP would enable the Government to raise assets. Presently, there are number of problems in
finances by monetising its existing assets to spend on creation of infrastructure- time and cost overruns,
creation of new infrastructure. delays in land acquisition, poor quality of infrastructure
• Experience with Disinvestment: In the past, etc. This needs to be addressed to ensure success of
disinvestment proceeds from the PSUs have not NMP.
necessarily been invested in new infrastructure Impact on the people: People may be required to pay
creation. NMP enables the government to raise higher user charges to private sector.
revenue without losing ownership of the assets.
Lack of Independent regulatory authority in some of the
• Risk Averse Private sector: The Private sector has sectors such as Roads, Railways etc. may discourage the
been reluctant to undertake investment due to private sector investment. An Independent regulatory
economic slowdown. Under NMP, the Government authority would (a) Make rules and regulations for PPP
would raise revenue to create new assets and then agreements (b) Ensure that user charges are market
transfer such assets to the Private sector. This is less determined (c) Adjudicate on disputes between
risky for the private sector and hence attracts greater Government and private sector. This would create
investment. atmosphere of trust, confidence and fairness and hence
• Lead role for the Government: Presently, creation of encourage private sector investment.
new infrastructure assets is saddled with multi- DESIGNING PPP AGREEMENT
faceted challenges such as delays in land acquisition,
• Contracts must provide flexibility for addressing
environmental clearances etc. If the Govt. takes lead
unforeseen developments (such as climate-related
in creation of infrastructure, the Government can
disasters, for example).
easily address these challenges.
• Clear quality benchmarks must be set for the assets
• Better Operation and Maintenance of assets: The
that are handed over by the government.
Private sector would be involved in operation and
maintenance of assets which is expected to improve • Limit arbitrary actions by the Government such as
Cancellation of projects

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• Need to set up a robust mechanism for dispute group with the sole mandate to identify assets, method
resolution relating to PPP contracts. of monetisation and handhold in the transactions
Ability to realise fair value: Presently, economy is facing process.
slowdown and the private sector is highly averse to User Charges by Private sector: Develop mechanism to
taking risk. Hence, the Government may not be able to ensure that the private sector set user charges by
realise fair value from the assets due to poor considering the investment and risks involved. The user
participation of the private entities. charges should not be too high as it would impact
FINANCING PROBLEMS common people.

• Success of NMP depends upon structured financing

models such as REITs and InVITs. Poor awareness ►GATI SHAKTI MASTER PLAN:
among the investors may make it difficult for BENEFITS AND CHALLENGES
REITs/InVITs to raise money.
PM Modi has launched the Gati Shakti Master Plan –
• Banks may be unwilling to lend money to the private
National Master Plan for Multi-modal Connectivity. The
sector to lease assets.
Gati Shakti platform would provide Gati (Speed) and
• Under-developed corporate bond market may make it Shakti (Strength for integrated planning and coordinated
difficult for the private sector to raise revenues implementation of infrastructure connectivity projects.
Encourage Crony Capitalism: Only few large business CURRENT PROBLEMS IN INFRASTRUCTURE
houses can end up leasing the assets leading to
Lack of Coordination between different Ministries/
monopolisation.
Departments. Most of the Government ministries work
STRATEGIES NEEDED (NITI AAYOG'S in silos without adequate coordination with other
RECOMMENDATIONS) agencies. For example, once a road is constructed, other
Streamlining Investment Guidelines: Presently, the SEBI agencies dug up the constructed road again for activities
has laid down certain restrictions on the Insurance, like laying of underground cables, gas pipelines etc.
Pension fund and mutual fund companies with respect Time and Cost overruns: According to Ministry of
to how much money can be invested in REITs and InVITs. Statistics and Programme Implementation, One out of
For example, the insurance fund companies cannot every five infrastructure projects have a delay of over
invest more than 3% of the money raised by five years. Further, delays in execution of projects have
REITs/InVITs. Such lower limits would make it difficult for led to increase in cost by almost 4.5 lakh crores,
the REITs/InVITs from tapping long term finances from amounting to 80% of our capital expenditure in 2021-22.
the institutional investors. Hence, there is a need to
Huge difference between Macro planning and micro
enhance the investment limit to mobilize more money
implementation: Different departments are not even
from the institutional investors.
aware which department is preparing to start which
Tax benefits: To encourage the participation of the retail project and where. Similarly, the private sector is also
investors, the Government should consider providing not aware about the new infrastructure projects being
income tax benefits for the investment in REITs/InVITs. planned and executed. Prior idea about such
REITs/InVITs under IBC: The REITs/InVITs can issue bonds infrastructure projects can lead to higher private sector
to raise money from the market. However, as of now, investment.
the REITs/InVITs do not come under the Insolvency and ABOUT PM GATI SHAKTI
Bankruptcy code. Hence, in case of default by the
PM Gati Shakti is supposed to break departmental silos
REIT/InVIT, the lenders cannot take recourse under IBC.
and institutionalize holistic planning for stakeholders
Such a restriction may discourage investments in
across major infrastructure projects. The PM Gati Shakti
REIT/InVITs. Hence, to encourage investment, there is a
will ensure that India of the 21st century does not waste
need to bring REITs/InVITs under the IBC.
money or time due to lack of coordination in
Need for Standard Agreements: There is a need to infrastructure projects. Under the PM Gati Shakti
develop model PPP concession frameworks for various National Master Plan, everything, from roads to railways,
brownfield asset classes for quicker adoption. from aviation to agriculture, various ministries and
Creating institutional structures for fast tracking asset departments would be linked.
identification and monetisation transaction: Each • National Master plan for Multi-modal connectivity
ministry should establish suitably empowered working

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 INFRASTRUCTURE AND INVESTMENT
• Seeks to bring 16 Ministries together for integrated (Bhaskaracharya National Institute for Space
planning, design and execution of infrastructure Applications and Geoinformatics).
projects. HOW IS GATI SHAKTI DIFFERENT FROM NATIONAL
• Monitor projects worth Rs 100 lakh crores. INFRASTRUCTURE PIPELINE?
• Incorporate the infrastructure schemes of various Under the National Infrastructure Pipeline (NIP), the
Ministries and State Governments like Bharatmala, Government has identified infrastructure projects worth
Sagarmala, UDAN etc. Rs 111 lakh crores which it will be constructing in the five
• Economic Zones like manufacturing clusters, defence years between 2021-2025. The Implementation of NIP
corridors, electronic parks, industrial corridors, fishing requires coordination and integrated planning between
clusters, agri zones will be covered to improve multiple ministries and departments. Such an integrated
connectivity & make Indian businesses more and holistic approach to infrastructure creation would
competitive. be provided through the Gati Shakti.

• Leverage technology including spatial planning tools

with ISRO imagery developed by BiSAG-N
6 PILLARS OF GATI SHAKTI

The PM Gati Shakti would provide to Gati (speed) and

Shakti (power) for creation of infrastructure in India. It
would provide fillip to manufacturing sector, reduce
logistics costs and enhance exports from India and
hence critical to ensure vision of Aatma Nirbhar Bharat.
BENEFITS
Local Multiplier effects: In India, the capital expenditure
multiplier is around 2.45, while the revenue expenditure
multiplier is 0.99 (RBI Bulletin, Dec 2020). Hence, Capital
Expenditure has the potential to revive both demand
and supply leading to expeditious economic recovery
and creation of more employment opportunities.
Enhance Income levels of Farmers: PM Gati Shakti would
help us in integrating rural economy with rest of India
through Roads, Railways, Ports, Airports, Digital
Infrastructure etc. Such integration would reduce post-
harvest losses, streamline agriculture supply chain,
ensure success of E-NAM and boost exports.

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 INFRASTRUCTURE AND INVESTMENT
Reduce Logistics cost: The logistics cost account for In Budget speech 2021-22, Finance Minister announced
around 12-14% of India's GDP, which is quite higher as setting up of an agency to conduct monetization of the
compared to 8-10% in other economies. The higher land and other non-core assets of Government agencies
logistics cost reduces the competitiveness of and public sector undertakings (PSUs). In pursuance of
manufacturing sector, reduces our exports and hence the Budget announcement, National Land Monetisation
critical to ensure $ 5 trillion economy. Corporation (NLMC) has been recently set up.
Promote Industrial Development: Provide multi-modal UNDERSTANDING ASSET MONETISATION
connectivity to Economic Zones like manufacturing • The Government agencies and PSUs own both core
clusters, defence corridors, electronic parks, industrial and non-core assets. The Core assets are the assets
corridors etc. which are integral to the functioning of the PSUs.
Ensure efficient implementation of Infrastructure While the non-core assets include land and buildings.
projects: Promote inter-ministerial and inter- • For example, NHAI's core assets would include the
departmental coordination and hence reduce time and National Highways which it has built. While non-core
cost overruns and improve ease of living for the people. assets would include surplus land and buildings
To Sum up, PM Gati Shakti plan will break inter- owned by it.
ministerial silos, enhance India's global competitiveness • Some of these core and non-core assets may be
through next-generation infrastructure and seamless under-utilised or unused. Selling or leasing these
multi-modal connectivity, ensure seamless movement of assets would help us unlock their value, raise capital
goods and people and enhance the ease of living as well and undertake investment for creation of new
as the ease of doing business. infrastructure projects.
• The monetisation of core assets is undertaken under
►NATIONAL LAND MONETIZATION the National Monetisation Pipeline. On the other
hand, monetisation of non-core assets (sale/lease of
CORPORATION land and buildings) would be undertaken by the
National Land Monetisation Corporation (NLMC)

DETAILS ABOUT NATIONAL LAND MONETISATION assets. As part of such an exercise, NLMC would
CORPORATION (NLMC) either sell or lease the surplus land and buildings to
Establishment: Set up as a wholly owned Government the private sector.
of India company with an initial authorized share capital • NLMC will also act as an advisory body and support
of Rs 5000 crore and paid-up share capital of Rs 150 other government entities and CPSEs in identifying
crore. their surplus non-core assets and monetising them in
Mandate: an efficient and professional manner.

• The surplus land and building assets of PSUs would • Act as a repository of best practices in land
be transferred to the NLMC. The NLMC would then monetization.
undertake monetization of surplus land and building BENEFITS

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Unlock value of Underutilised Non-Core assets: Various as per the official records, then the Government's
Government agencies hold land in excess of 5 lakh revenue realisation would be lower. On the other hand,
hectares. For example, the Railways and Defence independent valuation may lead to higher unrealistic
Ministries have the largest amount of government land, valuation and hence may discourage private sector from
some of which can be monetised. buying/leasing-in land.
Administrative Efficiency: Monetisation of land by
individual PSUs would be time-consuming exercise. ►ROAD SECTOR
However, when unutilised lands of different agencies are
PRESENT STATUS
pooled in together by NLMC, it would be able to bring in
India has the second-largest road network globally.
higher economies of scale, better technical expertise
Roads can be classified into national highways,
and higher revenue realisation.
expressways, state highways, major district roads and
Raise Finances: Monetisation of land is one of the most
rural roads. The total road network in India was 59 lakh
viable options for government to raise additional
km. It accounts for largest share in the movement of
finances for the creation of new infrastructure.
both passengers and freight.
Efficient Utilisation of Land: Monetisation of land would
GOVERNMENT INITIATIVES FOR ROAD SECTOR
lead to the efficient utilisation of unutilised land and
Bharatmala Pariyojana: Bridging critical infrastructure
boost urban infrastructure and economic development.
gaps through effective interventions like development of
The Vijay Kelkar Committee (2014) had recommended
Economic Corridors, Inter Corridors and Feeder Routes,
monetising government’s under-utilised land to finance
National Corridor Efficiency Improvement, Border and
infrastructure projects in urban areas.
International Connectivity roads, Coastal and Port
Cascading Effects: The commercial development of
Connectivity roads and Green-field expressways etc.
unutilised land accelerates the development of real
Setu Bharatam: Make all national highways free of
estate sector leading to planned urbanisation, boost to
railway crossings
Tourism sector and creation of employment
opportunities. SETTING UP OF MULTI-MODAL LOGISTICS PARKS

Fast track strategic disinvestment: The NLMC would also Monetisation of Assets through Toll-Operate-Transfer
facilitate the monetisation of assets belonging to PSUs (TOT) Model
that have ceased operations or are in line for a strategic Electronic Toll Collection (ETC) system to remove
disinvestment. For instance, at the time of Strategic bottlenecks, ensure seamless movement of traffic and
Disinvestment of Air India, it owned land and buildings collection of user fee.
worth Rs 14,000 crores. It was transferred to the BhoomiRashi Portal: Digital and paper-less processing of
government’s Air India Assets Holding Limited (AIAHL). land acquisition related Notifications
Now, NLMC will undertake the monetisation of such
Infrastructure Debt Fund (IDF) set up to enhance flow of
assets.
long-term infrastructure debt
CHALLENGES AND CONCERNS
CONSTRAINTS/ CHALLENGES
Lack of Reliable Land Inventory: Presently, there is no
• Capacity of existing National highways: The NHs
Centralised, updated and consistent inventory of all the
account for only 2.2 per cent of the country’s total
unutilised lands owned by Government departments
road network but carry 40 per cent of India’s total
and PSUs. This could complicate the process of Land
road traffic.
monetisation.
• Maintenance of existing infrastructure: The annual
Reluctance of the Government Agencies and PSUs to
outlay earmarked for maintenance is only about 40
demarcate land parcels as “surplus”. Hence, Government
per cent of the funds required
agencies must be required to identify the surplus land
and also provide justification for holding on to surplus • Low private sector participation in NH - 15%.
lands. • Poor connectivity of remote areas with trunk routes
Realistic Valuation of land: There is a need for realistic and metros
valuation of land before undertaking its monetisation. • Problems with Tolls- Revenue leakages; congestion at
Normally, state Governments provide for official toll plazas; Flat rate toll irrespective of actual distance
valuation of Land. However, such valuation is usually travelled
lower than the existing market price. If land is monetised

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• Cost escalation for roads: Delays in acquiring land can the freight charges to compensate for this loss.
affect project costs Hence, the cross-subsidization of low passenger fares
• Limited use of advanced technology in safety and by artificially high freight rates has led to shift in favor
security - traffic management, surveillance, of road transport, for both freight as well as short
automated fare collection system. distance passenger traffic.

HOW TO ADDRESS THESE CHALLENGES? • Under- Investment: The expenditure on the railways
as a percentage of transport expenditure declined
• Increase connectivity, especially in Rural India and
from 56 per cent in 1985-90 to 30 per cent in 2007-
with Ports by expanding the road network
12.
• Improve road maintenance and safety: Earmark funds
• Organizational structure: Delays in decision making,
from the Central Road and Infrastructure Fund (CRIF)
inadequate market orientation lead to slow turnover
• Urban Mobility: Dedicated cells for integrated times and delays in the implementation of railways
planning, coordination and delivery of transport projects.
services in smaller cities; dedicated Metropolitan
• Internal generation of resources: Lower share of the
Urban Transport Authority in larger metropolitan
railways in freight traffic; Low and static prices for the
authorities.
passenger segment
• Streamline land acquisition
• Safety and poor quality of service delivery:
• Increase emphasis on research and development
• Higher Operating Cost of 98.4%
• Expand the reach of the electronic toll collection (ETC)
HOW TO ADDRESS THESE PROBLEMS?
system to all the toll plazas.
Bibek Debroy committee on Railway Modernisation and
Anil Kakodkar Committee on improving railway safety
►RAILWAYS have given a number of recommendations to improve
the performance and safety of Indian railways.
Rationalize fare structures and subsidies by ending the
cross-subsidisation model presently followed by
railways. Freight tariffs should be competitive with the
cost of road transportation so that there is increase in
the modal share of Railways.
Independent Regulator for Railways to determine the
tariff and monitor whether the tariff is market
determined and competitive.
Focus on Core Activities of running trains and give up
non-core activities such as running schools, hospitals
and a police force.
Accounting reforms: The current accounting system
does not provide details of the cost of various activities
and services, such as introduction of new trains and
scheduling of stops. It neither tracks assets nor assesses
India has the fourth largest railway network in the world. liabilities. Consequently, it becomes difficult to compute
It has come a long way since 1950-51 in terms of the costs and benefits of any project or activity. Hence,
number of trains and quantum of traffic carried. in this regard, there is a need to adopt accounting
However, it has been highlighted that Indian Railways reforms to track these details.
may end up as burden on the national economy due to Financing of Projects: Railways can lease huge amount of
the number of issues. land that it holds to the private sector for certain
PROBLEMS WITH THE INDIAN RAILWAYS duration of time and earn revenue. Similarly, railways
can enter into PPP agreements for the development of
• Decline in share of Freight Traffic on account of
stations.
shortfall in carrying capacity and lack of price
competitiveness. The Indian Railways has kept the Safety of Railways: The Kakodkar committee had
passenger fares at lower value while it has increased recommended for an investment of Rs 1 lakh crores

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over a period of 5 years to improve the safety of Indian Benefits to the passenger: Higher service quality and
railways. reduced journey times through the introduction of next
generation coaches.

►PPP MODEL IN INDIAN RAILWAYS HOW WOULD THE PPP MODEL OF PRIVATE TRAINS
WORK?
NEED FOR PPP IN INDIAN RAILWAYS (IR)
Sharing of Resources: Under this model, the physical
Demand exceeds capacity: Around 5 crore (15%)
infrastructure such as Railway tracks, signaling, Railway
passengers could not be given confirmed tickets in 2019-
stations etc. would remain under the control of Indian
20. On certain routes, the demand exceeds the train
railways. The private sector entities would be required to
capacity by 30%
bring in their modern coaches to operate on specific
Availability of track capacity: The two Dedicated Freight routes. Here, the Private sector entities are expected to
Corridors (DFCs) are set to be commissioned in 2021. be given complete autonomy with respect to fixing the
This will generate additional capacity on routes adjacent fares and provision of various other services such as
to the DFCs, where more passenger trains can be run. catering, housekeeping etc.
Higher Investment needs: PPP enables IR to raise Payment Mechanism: The Private sector is required to
revenue to meet its investment needs of around Rs 50 pay haulage charge to the Railways for the use of its
lakh crores between 2018 and 2030. physical infrastructure such as Railway tracks, signaling,
Higher Multiplier ratio: IR has strong forward-backward Railway stations etc. Apart from that, the private sector
linkages due to which it has large multiplier effect of 5. operator needs to share the revenue with the Indian
Investment of Rupee 1 increases the output by Rs 5 (Eco Railways.
Survey 2014-15)
HOW PPP MODEL IN INDIAN RAILWAYS BENEFITS VARIOUS STAKEHOLDERS?

BENEFITS FOR THE STAKEHOLDERS

Indian Railways Private Sector Passengers

No Political Interference in Fixing Complete independence and Greater choice to the passengers
of Passenger Fares autonomy to decide on the fares on
such trains.

Decrease in operating cost due to Scope to earn higher Profits Private sector operators would be forced to
higher revenue collections from attract passengers and hence provide world-
Private sector class amenities.

Steady income As of now, only 5% of routes are Almost around 5 crore passengers could not
• Haulage Charge opened up for private sector. be given confirmed tickets in 2019-20.
Paves way for higher Private sector Private sector participation would expand the
• Share of Revenue of Private
participation in Indian Railways passenger capacity and hence benefits
sector
passengers

Reduce Indian Railways' reliance

on borrowed funds for
Investment in Expanding Railway
Network

REASONS FOR POOR RESPONSE OF PRIVATE SECTOR are also required to share a certain percentage of their
Higher entry barriers: Private entities required to buy revenue with IR. Private entities argue that the higher
their own Fully Air-conditioned modern coaches which charges reduce their profit margin.
are higher costly. Lack of Level playing field: Trains run by Indian Railways
Higher charges: Private entities are required to pay (IR) and private sector would operate on same routes.
multiple charges to the Indian Railways in the form of Presently, there is lack of clarity with respect to whether
Haulage charges, Station usage charges etc. Plus, they there would be level playing field between IR and Private

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sector. For example, IR trains may get priority in terms of • Adjudicate on disputes which may arise between IR
allotment of platforms, preferential departure, and and private entities.
arrival timings etc. Unlike other infrastructure sectors such as Roads, Ports,
Unfair competition: Indian Railways maintains lower Airports etc, IR has so far failed to attract private sector
passenger fares through cross-subsidization. Similarly, investment. Hence, going forward, IR must address
the subsidy provided on certain air routes under the various bottlenecks and challenges which are hindering
UDAN scheme has led to decline in airfare prices. the private sector investment.
On the other hand, the Private sector operating the
passenger trains needs to fix higher fares to recover its ►CIVIL AVIATION
investment. The higher fares on such private trains vis-a-
India is currently considered the third largest domestic
vis IR/air travel acts as major obstacle.
civil aviation market in the world. However, the industry
UNREASONABLE TERMS IN PPP AGREEMENT is facing multi-faceted challenges because of which
• Lack of flexibility for the private entities in changing concerns have been raised over the future growth
departure/arrival timings, introduction of new halts prospects of the industry.
along the routes, deciding on length of train etc. GOVERNMENT’S POLICY SUPPORT
• PPP Agreement provides for key performance National Civil Aviation Policy 2016: Aims to take flying to
indicators such as punctuality, reliability, maintenance the masses by making it affordable and convenient;
of trains etc. to be met by private entities. Inability to covers 22 areas of the Civil Aviation sector.
meet these indicators attracts penalty. For example, if
UDAN (“Ude Desh Ka Aam Naagrik”) Scheme: put smaller
the private trains do not arrive/depart on time, they
cities and remote regions on the aviation map
would be required to pay fine. However, the private
entities argue that ability to arrive/depart on time Nabh Nirman Scheme: Expand airport capacity more

(punctuality) depends on the signaling provided by than five times to handle a billion trips a year.

Indian Railways. So, it would be unfair to force the CHALLENGES BEFORE THE AVIATION INDUSTRY
private entities to pay fines in such cases. Government Intervention: The flying rights over another
WAY FORWARD country’s territory do not lie in the hands of the airline

The Bibek Debroy committee on Railway Modernisation company; rather it depends on the political relation and

had strongly advocated setting up of Railway Regulatory bilateral treaty between two or more countries.

Authority of India (RRAI) to ensure success of PPP in Rising Fuel Prices: The industry’s operational cost
Indian Railways. component is dominated by the cost of the Aviation

Rationale: Presently, policy making, and the regulatory Turbine Fuel (ATF) accounting for almost 45% of the

function are both vested with the Ministry of Railways. operational expenses.

There is a clear conflict of interest as the regulator Congestion: Capacity limitations at many airports like
(Ministry of Railways) is also the competitor for the Delhi and Mumbai; Inadequate hangar space and
private entities. Because of this, private entities would unavailability of land to expand airports at their current
always have an apprehension that policies would be sites,
tilted in the favour of Indian Railways. An atmosphere of High Airport (aeronautical) Charges: The airport charges
trust and confidence must be built through setting up of payable at the international airports are higher than
an independent and autonomous regulator in form of those payable at the airports nominated as Domestic
RRAI. airports or domestic flights leading to higher operational
ROLE costs of aviation companies.

• Determine whether the tariffs fixed by IR are market Shortage and gaps in availability of industry-recognised
determined and competitive. Create level playing field skills – from airline pilots and crew to maintenance and
between Indian Railways (IR) and private entities. ground handling personnel.

• Ensure that the private entities are treated on par HOW TO ADDRESS THESE CHALLENGES?
with IR on all aspects, including access to railway • Enhance aviation infrastructure- Complete the
infrastructure. planned airports under the UDAN initiative in a time-

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 INFRASTRUCTURE AND INVESTMENT
bound manner; Revival of 50 un-served and under- additional costs and delays due to the feeder voyage
served airports/airstrips should be completed. from India to the hub port.
• Increase investment in the sector through financial • Capital for inland vessels: At present, the cost of
and infrastructure support- Reduce taxes on MRO capital is very high and makes IWT freight
services and consider granting infrastructure status uncompetitive.
for MRO; Increase aircraft parking infrastructure and • Technical issues in inland waterways: The varying and
facilities at metro airports. limited depths due to the meandering and braiding of
• Bring aviation turbine fuel (ATF) under GST. alluvial rivers and the erosion of their banks causing
excessive siltation, lack of cargo earmarked for IWT,
• Address shortage of skilled manpower- Expedite
non-mechanized navigation lock systems and
commencement of courses by the National Aviation
insufficient unloading facility at terminals hinder the
University; Facilitate greater involvement of the use of IWT by shippers.
private sector in sponsoring aviation institutions
WAY FORWARD
• Ease the regulatory burden- Deregulate further and
• Open up India’s dredging market: At present, the
open up the aviation market; Strengthen regulatory
Dredging Corporation of India (DCI) and a limited set
capacity with respect to public private partnerships
of private vendors serve the Indian dredging market,
etc. limiting competition.
• Expedite the implementation of Sagarmala to
►PORTS & SHIPPING AND INLAND modernise ports.
WATERWAYS • Enhance last mile connectivity to inland waterways:
India has a coastline spanning about 7,500 km, forming IWT should be integrated to multimodal/ intermodal
one of the biggest peninsulas in the world. Around 90 connectivity. Inland terminals with proper road
and/or rail connectivity and seamless transfer of
per cent of India’s external trade by volume and 70 per
goods from one mode to the other are important for
cent by value are handled by 12major ports and 205
an efficient logistics supply chain.
non-major ports operate on India’s coast. Yet, roads and
railways continue to be the dominant mode for cargo • Facilitate access to capital for inland vessels:
movement. Despite being the most cost-effective and Financing for inland vessels could be made part of
priority sector lending by banks. Categorizing inland
efficient mode, water transport accounted for mere 6
vessels as infrastructure equipment will further ease
per cent of freight transport in India in 2016-17.
access to capital issues for a sector where capital
CONSTRAINTS BEFORE INLAND WATER WAYS investments and operational costs are high.
• Modal mix: Roads (54 per cent) continue to be the • Address technical and regulatory constraints in inland
dominant mode of transporting cargo, followed by waterways to ease movement of inland vessels-
rail (33 per cent). Transportation of cargo through Detention of a vessel without a valid reason should
waterways – shipping and inland water – accounts for not be allowed; A clear directive needs to be issued
a minuscule modal share (6 per cent) despite it being for security of inland vessels, crew and cargo;
the most cost effective and efficient mode. Strengthen existing Inland Water Transport
• Draught levels: Most Indian container handling ports Directorates or Maritime Boards or set them up in
lack the capability to handle large container vessels states where they do not exist to ease the IWT
due to inadequate depth; a minimum draft depth of business and to ensure efficient regulation and
facilitation of IWT for cargo movement.
18 metres is needed to enable mother vessels to dock
at ports. • Streamline the governance of inland waterways:
Currently, inland waterways are governed by multiple
• Connectivity to ports: Weak hinterland connectivity
authorities including the Central Inland Water
between production centres and gateway ports
Corporation Limited (CIWTC Ltd), port authorities and
• Transhipment port: A large percentage of containers state governments. Streamlining the regulatory
in India are currently transhipped through other structure and bringing an overarching body to
ports, such as Colombo (just south of India), oversee Inland Water Transport such as the IWAI will
Singapore (East) due to the absence of a bring more consistency in the rules and strategy of
transhipment port in the country. This has led to the sector.

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• Develop measures for year-round navigation: provider manages the entire logistics function for a
Currently, due to weather conditions, several inland company. There are only few third-party logistics
waterways are only serviceable during a part of the providers in India.
year. The seasonality of this mode of transport Strategy: Develop Warehousing zones outside the major
reduces its adoption. Efforts should be made to cities by using the land Banks with the NHAI. The
develop deeper stretches of the river, i.e., at least 2.5 Government can invite private entities to develop
m to 3 m. Warehousing zones in PPP mode on the identified land.

►WAREHOUSING IN INDIA- STATUS ►ENERGY SECTOR

AND CHALLENGES The energy sector is fundamental to growth and
Importance: Warehousing constitutes only 15%-35% of development. Availability of electricity, petrol, diesel and
the total logistics costs but its importance is significant gas at competitive prices is essential for the efficient
with respect to the role it plays in the smooth functioning of energy user sectors, which include
functioning of supply chain networks. households, transportation, industry, agriculture and the
government and comprise nearly the entire economy.
Problems with Warehousing in India:
OBJECTIVES
• Domestic warehousing market is highly fragmented
with most of the warehouses having an area less than The government’s on-going energy sector policies aim
10,000 sq. ft. “to provide access to affordable, reliable, sustainable
and modern energy”.
• Approximately 90% of the warehousing space in the
country is controlled by unorganized players, which • Make available 24x7 power to all by 2019.
manage small-sized warehouses. • Achieve 175 GW of renewable energy generation
• Limited mechanisation in warehouses. Higher capacity by 2022.
dependence on manual loading and unloading of • Reduce imports of oil and gas by 10 per cent by 2022-
cargo. 23.
• Lower adoption of IT infrastructure for tracking of • Continue to reduce emission intensity of GDP in a
cargo. manner that will help India achieve the intended
• Higher storage costs and handling losses. nationally determined contribution (INDC) target of
2030.
• Lack of cold chain infrastructure
• Under-developed Third-party logistics (3PL Market):
3PL is a concept where a single logistics service

►ENERGY POVERTY IN INDIA According to World Bank, there is direct correlation

between Access to Energy and Human Development.
ENERGY POVERTY IN INDIA
Access to clean, affordable and safe energy in the form

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 INFRASTRUCTURE AND INVESTMENT
of electricity, clean cooking fuel etc. automatically leads • Improve financial health of DISCOMs
to improvement in education, health and over-all well- There is positive correlation between Access to Energy
being. That is why, SDG 7 calls upon the countries to and Human Development and hence India’s prosperity is
provide affordable, sustainable and reliable energy for dependent upon its ability to reduce energy poverty.
all.
Even though India accounts for 18% of the world's
►DISCOMS: PRESENT STATUS,
population, it uses only around 6% of the world's energy.
India’s per-capita energy consumption is one-third of CHALLENGES AND STRATEGIES
global average. There is also a wide disparity between The DISCOMs have incurred heavy losses around Rs 75,000
urban and rural areas in access to energy. Hence, apart crores in 2020-21 due to structural, operational and
from income poverty, India is also facing energy poverty. managerial inefficiencies.
Higher Cost of Power Procurement: Discoms have
entered into expensive and long-term thermal Power
purchase agreements (PPAs).
Lack of Independence and Autonomy: Political
interference in fixing tariffs leading to lower tariffs on
electricity. The DISCOMs end up supplying electricity to
households and agriculture sector at subsidized prices
leading to higher losses.
Cross-Subsidization of Tariffs: The DISCOMs have
increased the electricity tariffs for the industries to
compensate for the losses.
Higher AT&C losses (22%) on account of Transmission
losses, Commercial losses due to power theft, absence
of metering, inefficiencies in bill collection etc. The
Global Average for AT&C losses is much lower at 8%
(USA- 6%; China- 8%).
Higher Dependence on State Governments: The
DISCOMs depend on the state governments for the
STEPS TAKEN TO REDUCE ENERGY POVERTY subsidies. Delays in receiving subsidy reimbursements
from the government add to the liquidity stresses of
Ujjwala Yojana: Deposit-free LPG Connection.
discoms.
PAHAL Scheme: DBT for LPG Cylinders
Monopolisation: Presently, DISCOMs enjoy monopoly in
Saubhagya Scheme: Electricity connections to all un-
distribution of electricity leading to absence of
electrified households.
competition, higher inefficiencies and poor service
KUSUM Scheme: Installation of solar pump-sets. delivery.
Energy Efficiency measures such as National Mission DISTRIBUTION SECTOR REFORMS
on Enhanced Energy Efficiency, Ujala, Standards and
Electricity Amendment Act, 2003:
Labelling etc.
• Established regulatory bodies - Central Electricity
The Economic Survey 2018-19 has highlighted that India
Regulatory Commissions (CERCs) and State Electricity
has to increase its per-capita energy consumption by 4
Regulatory Commission (SERCs).
times to achieve higher levels of Human Development.
• Appellate tribunal for dispute resolution.
This can be done through:
• Introduction of competition through open access
• Increase subsidy amount under Ujjwala Scheme and
policy
use behavioural economics to nudge people to
regularly use LPG cylinders. • Delicensing of Thermal Generation

• Address the issue of frequent power cuts under • Introduction of Renewable Purchase Obligation Policy
Saubhagya scheme. (RPO) which requires DISCOMs certain percentage of
their electricity needs from Renewable energy.
• Promotion of electric induction cookstoves.

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Deen Dayal Upadhyaya Gram Jyoti Yojana–DDUGJY: Private Participation and Competition in Distribution:
Focuses on feeder separation (rural households and Some of the states have promoted private participation
agricultural) and strengthening of sub-transmission and in the DISCOMs through (a) Franchise Model and (b)
distribution infrastructure in rural areas. It is meant to Privatisation of DISCOMs.
provide round-the-clock power to rural households and (a) Under the Franchise model, the private entity has no
adequate power to agricultural consumers. ownership over the distribution grid assets. The private
UDAY Scheme: Aims at improving the financial position party manages billing and revenue collection. Example:
of DISCOMs. Under the scheme, states are supposed to Bhiwandi, Maharashtra.
take over 75 percent of the discoms’ debt and the (b) In case of privatisation, the private entity not only
DISCOMs were required to reduce AT&C losses to 15%. manages the billing and revenue collection but also
Saubhagya Scheme: Free electricity connections to all owns the distribution grid. Example: Privatisation of
households (both APL and poor families) in rural areas Delhi Vidyut Board in 2002.
and poor families in urban areas. Retail Choice to Consumers: Presently, the DISCOMs
Reforms based Results linked Revamped Power enjoy monopoly in distribution of electricity which in
Distribution Scheme: Help DISCOMs improve their turn leads to lack of consumer choice and higher
operational efficiencies and financial sustainability by inefficiencies. Hence, the Union Budget 2021-22 has
providing result-linked financial assistance to DISCOMs sought to introduce competition in the distribution
to strengthen supply infrastructure based on meeting sector and provide retail choice to the consumers.
pre-qualifying criteria and achieving basic minimum Privatisation of DICOMs: The Centre has announced that
benchmark. Under this scheme, the DISCOMs are it would privatise the DISCOMs in all the Union
required to reduce AT&C losses to 12-15% by 2024-25. Territories.

STRATEGIES TO IMPROVE THE DISTRIBUTION SECTOR

►PERFORMANCE ANALYSIS OF success of this scheme can be evident in the fact that
LPG coverage in India has increased to 95% from 55% in
PRADHAN MANTRI UJJWALA
2014.However, providing connections is just one part of
YOJANA (PMUY) the push towards cleaner and reliable cooking fuels.

Government has achieved its target of providing 8 crore About PM Ujjwala Yojana: It aims to provide deposit

LPG connections to poor under PM Ujjwala Yojana. The free LPG connections to poor households. Under the

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 INFRASTRUCTURE AND INVESTMENT
scheme, an adult woman member of a below poverty the Centre. Eligible households are identified in
line family identified through the Socio-Economic Caste consultation with state governments and Union
Census (SECC) is given a deposit-free LPG connection territories. The scheme is being implemented by the
with financial assistance of Rs 1,600 per connection by Ministry of Petroleum and Natural Gas.

PRADHAN MANTRI UJJWALA YOJANA

Achievements Challenges Way Forward

Target achieved: Target of providing 8 Higher refilling cost: On an average, Higher subsidy amount to poor
crore LPG connections achieved 7 the families with Ujjwala connections households: Under the National Food
months ahead of schedule (March are opting for four subsidised Security Act (NFSA), the Antyodaya
2020). cylinders in a year, this is lower than households are provided higher

Increase in LPG coverage from 62% the seven subsidised cylinders that amount of food grains as compared to
(2016) to 99.5% (2021). non-Ujjwala connections go for in the priority households. There is a need to
same time period. The lower usage adopt this model even in PM Ujjwala
Addressed energy poverty- India
can be attributed to higher refilling Yojana as well wherein the Antyodaya
accounts for 18% of world’s population
cost which is forcing them to use the households could be provided the LPG
but uses only 6% of world’s energy.
LPG cylinders sparingly. cylinders free of cost.
Facilitated human development as
Flawed mind set of the people: Most Integrating behavioural economics
there is direct correlation between
people believe that food cooked on a into Ujjwala Yojana: Adopt nudge
access to energy and human
chulha is healthier and tastier. In theory to encourage regular and
development.
contrast, rotis cooked on gas cause continuous usage of the LPG cylinders.
Women empowerment as time saved
indigestion. They also believe The Government must launch a
on collecting firewood can be better
cooking with solid fuels is healthy for campaign communicating solid fuels
spent on more productive activities.
the women too as the fumes causes harm respiratory health. Similarly,
Better health outcomes as indoor tears and purifies the eyes. advertisements that food cooked on
pollution gets reduced gas can be as tasty and healthy as
Expansion in constitutional rights as it food cooked on a chulha would be
strengthens Right to Life (Art 21) helpful.

Progress towards SDG 7 - Access to

affordable, reliable and sustainable
energy for all

►COAL SECTOR REFORMS • Coal accounts for almost 55% of our energy needs.
Hence, the shortage of coal within our domestic
PRESENT STATUS OF COAL SECTOR
economy is forcing the thermal power plants to
• India has the world's third largest coal reserves. India operate their threshold capacity. This has led to lower
is also the second largest coal producer in the world. profit margins of the thermal power plants and
However, due to the growing needs of the rapidly reduced their ability to repay back the loans to the
expanding economy, the annual demand for coal has banks. Thus, the shortage of coal within India has not
increased to around 900 MT. Hence, the shortage of only led to poor financial position of power plants but
coal in India is met through imports. it has also led to increase in the non-performing
assets (NPAs) of the Indian banks.

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GOVERNMENT'S INITIATIVES TO LIBERALISE COAL SECTOR

SIGNIFICANCE OF GOVERNMENT'S INITIATIVES • Delays in Land acquisition.

Boost Coal Mining: Domestic production by Coal India • Tendency to expand opencast mining and discourage
Ltd (CIL) has been unable to keep up with the demand underground operation even for better quality coal
for coal reserves.
Meet the Coal Needs of Power Plants: Power plants in • outdated technology.
India have been operating below their installed capacity,
POWER GENERATION, TRANSMISSION AND
necessitating imports to meet demand.
DISTRIBUTION
Reduce Current Account Deficit: 25% of our coal
• Old inefficient plants continue to operate whereas
requirements are met through imports
more efficient plants are underutilized.
Technological advancement in Coal Mining: FDI
• Although legally independent, Regulatory
would lead to newer and efficient exploration
Commissions are unable to fully regulate discoms and
technologies and methods for mining coal, especially
fix rational tariffs.
high-end technology for underground mining used by
global miners, which would help in lowering costs. • State power utilities are not able to invest in system
improvements due to their poor financial health.
Promote Competition: New policy would also enable
the opening up of the industry to competition, which • High aggregate technical and commercial (AT&C)
until now had been the monopoly of Coal India Limited. losses
• Unmetered power supply to agriculture provides no
►MAJOR CONSTRAINTS IN THE incentive to farmers to use electricity efficiently
• High industrial/commercial tariff and the cross-
ENERGY SECTOR
subsidy regime have affected the competitiveness of
SUBSIDIES AND TAXES: A variety of subsidies and taxes the industrial and commercial sectors.
distort the energy market and promote the use of
ENERGY EFFICIENCY
inefficient over efficient fuels. They also make Indian
exports and domestic production uncompetitive as • Limited technical capabilities, high initial capital

energy taxes are not under GST and hence, no input expenditure, limited market and policy issues have

credit is given. adversely affected efforts to achieve energy efficiency.

COAL • Non-availability of sufficient credit facilities and

difficulties in obtaining required finances for energy
• Monopoly in extraction of coal by Coal India Limited.
saving projects are strong deterrents to investments
• Demand-supply mismatch in coal leading to imports in energy efficiency in India
(25% of domestic requirements).
RENEWABLE ENERGY: High energy costs result in
• Most of the thermal power plants are operating reneging on old power purchase agreements (PPAs) and
below their capacity- Plant Load Factor (PLF) is hardly erode their sanctity. This leads to uncertainty regarding
around 56% in 2019-20.

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power off take and consequently endangers further in 2016-17. The governments will then issue ‘UDAY
investments. bonds’ to banks and other financial institutions to raise
money to pay off the banks. In return for the bailout, the
discoms have been given target dates (2017 to 2019) by
►PERFORMANCE ANALYSIS OF
which they will have to meet efficiency parameters such
UDAY SCHEME as reduction in power lost through transmission, theft
BACKGROUND and faulty metering, installing smart meters etc.

The State DISCOMs have been suffering from poor PROBLEMS WITH THE SCHEME
financial viability due to number of reasons. These • As per the MoU signed under the UDAY Scheme, the
discoms have been supplying electricity at tariffs that are discoms were required to initiate structural reforms
far below their operating cost mainly due to political by reducing Aggregate Technical and Commercial
intervention. Inefficiencies in power distribution such as Losses (AT&C) from 26% in 2015 to 15% in 2019. They
large transmission and distribution losses on power were also required to implement regular tariff hikes
have further strained the finances of the discoms. These of 5-6% per annum. However, the DISCOMs have
DISCOMs have borrowed heavily from banks to meet failed to initiate structural reforms due to which they
their operational expenses. Due to their poor financial are unable to meet the targets set under the UDAY
viability, the loss making DISCOMs have failed to fulfill Scheme.
their debt obligations leading to increase in the NPAs of • Other problems of the DISCOMs are as highlighted
the Banks. below:
OBJECTIVE OF UDAY SCHEME: The Scheme envisages o Lack of Metering of electricity connections.
financial turnaround of the DISCOMs so as to improve
o Increase in the power theft cases.
their financial viability through operational
o Loss due to electricity subsidies to agriculture.
improvement. The idea is to reduce the debt burden of
the DISCOMs wherein the states would take over some o Fall in the cost of renewable energy generation has
percentage of their Debt obligations of the DISCOMs. In put pressure on DISCOMs, which traditionally
return, the DISCOMs are required to implement depend upon sourcing major part of their power
structural reforms in order to improve their financial requirements from coal-fired thermal power
viability. stations.
SALIENT FEATURES OF THE SCHEME: States should take
over 75% of the DISCOM debt - 50% in 2015-16 and 25%

►PROGRESS REPORT OF
RENEWABLE ENERGY
Progress Report of Renewable Energy
st
Targets Achievements as on 31 July 2021

175 GW of Renewable Energy by 2022 100 GW of Renewable Energy

th
450 GW by end of 2030 4 in terms of Installed Renewable capacity
th th
5 in Solar and 4 in Wind
Solar -100 GW
Wind- 60 GW
Biomass-10 GW
Small Hydropower (less than 25 MW) - 5 GW

40% of Installed Capacity from non-fossil fuels by end of 2030 25% from Renewable Energy Sources (Solar, Wind,
Biomass,
Small Hydropower)
+

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12% from large hydropower (More than 25 MW)

Total 37% of Installed capacity from Non-Fossil Fuels

SLOWDOWN IN RENEWABLE ENERGY GENERATION access to information, increasing electronics

The Government of India has set a target to set up 175 manufacturing, providing information technology skills
GW of Renewable energy by 2022. However, wind and for jobs and early harvest programs.
solar power capacity additions have been far less than Current Situation: According to Internet Trends 2017
satisfactory and hardly on the path to meeting the report, 27% of India’s population (355 million users) uses
targets. The Reasons for slowdown in Renewable Energy the internet. While this represents exponential growth
Addition can be seen as given below: compared to 4% penetration in 2009, there is scope for
• Sub-categories of renewable energy such as rooftop improvement. Tele-density, or the number of telephone
solar, solar heating etc. have not received adequate connections for every 100 individuals, is 83. In rural
focus. areas, the tele-density is one-third that of urban areas.
• Unviable projects due to lower tariffs GOVERNMENT INITIATIVES
• Weak financial position of DISCOMs National Digital Communication Policy
• Increased competition is making renewable energy • Broadband for all
less financially rewarding • Creating 4 million additional jobs in Digital
• Withdrawal of incentives such as Viability Gap Communications sector
Funding • Enhancing contribution of the digital communication
• Lack of domestic manufacturing of solar PVs and wind sector to 8% of India's GDP from 6% in 2017.
turbines. • Propelling India to Top 50 Nations in the ICT
• Increased custom duties on solar panels Development Index of ITU from 134 in 2017.
• Poor transmission infrastructure • Enhancing India's contribution to Global Value Chains
• States not honoring PPAs and Renewable Energy • Ensuring Digital Sovereignty
Contracts National Broadband Mission: Universal and equitable
Renewable Energy sources are an excellent way to fulfil access to broadband services across the country,
our developmental needs by balancing the requirements especially in rural and remote areas.
to deal with climate change. Hence, new policies such as Digital India Scheme: Areas of focus include broadband
Ultra Mega Renewable Energy Power Parks (UMREPP), highways, providing universal access to mobile
One world one sun one grid, International Solar Alliance, connectivity, a public internet access program, e-
Hybrid solar-wind policy need to be effectively governance, electronic service delivery, access to
implemented. information, increasing electronics manufacturing,
providing information technology skills for jobs and early
►DIGITAL INFRASTRUCTURE- harvest programs.
BharatNet: Providing high-speed broadband to all the
PROSPECTS & CONSTRAINTS
panchayats in the country
Digital connectivity facilitates the communication and
National Information Infrastructure (NII): Ensure
commerce that drives economic growth. Individuals
integration of networks and cloud infrastructure to
cannot transfer payments digitally, use e-governance
provide high-speed connectivity to various government
portals to connect with the government, access
departments up to the panchayat level.
information or make online purchases without
Public Internet Access Program: Make 2,50,000 common
continuous and reliable Internet or telephone access.
service centres (CSCs) operational at the gram panchayat
The Digital India Programme has made significant
level to deliver government services online
progress in its nine growth areas. The areas of focus
Universal Service Obligation Fund (USOF): Fund is raised
include building broadband highways, providing
through the imposition of 'Universal Access Levy (UAL)',
universal access to mobile connectivity, a public internet
which is a percentage of the revenue earned by
access program, e-governance, electronic service delivery,
operators under various licenses. This fund was

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established with the object of improving telecom • Creation of Innovation led Start-ups in Digital
services in the remote and rural areas of India. Communications Sector
CONSTRAINTS AND CHALLENGES • Accelerateate transition to Industry 4.0
1. Broadband connectivity Quality of Service: Adequate availability of spectrum is
• Internet access is plagued by issues related to quality critical to ensure service quality. Efficient spectrum
and reliability, outages, call drops and weak signals. allocation in large continuous blocks should be explored.
We should explore migration to new technologies which
• The current definition of broadband of 512 kbps
would resolve some of the bandwidth challenges.
speed is inadequate and not in line with the expected
rise in demand in the future. Access and digital literacy: National Digital Literacy
Mission should focus on introducing digital literacy at
• Existing networks have been strained by limited
primary school level in all government schools for basic
spectrum availability and usage, affecting the
content, higher classes and colleges for advanced
provision of quality services.
content. Multiplier effects of this mission will be realised
2. Digital access and literacy
when these students educate their family members.
• A significant portion of our population does not have
CONTENT IN INDIAN LANGUAGES
access to devices such as laptops, computers,
• State governments should pay special attention to
smartphones, etc.
creating content, particularly those relating to
• Digital literacy in India is estimated to be less than 10
government e-services, in Indian regional languages.
per cent of the population.
• Centre, States and researchers need focused
3. Content in Indian languages: Currently, most digital
collaboration to promote Natural Language
content is in English. However, “9 out of every 10 new
internet users in India over the next 5 years are likely to Processing for making all government's online

be Indian language users”. services available in all 22 official languages.

4. Availability of e-services: • Focus could be laid on the automatic translation of

content into regional languages from Hindi or English.
• Several e-services are not available on digital platform
• Wide variation across states in availability of citizen e- • Case studies like those of European Union, which had
services. similar problems in making content available in the
languages of member countries, should be explored
• Currently, citizens must physically visit government
offices to access most government-to-citizen (G2C) to identify models that can potentially be adopted.
services, as municipalities and other government Availability of e-services: Individual ministries and states
bodies have been slow to digitize their processes. must play a pivotal role in ensuring that all their services
5. Cyber security: Regulatory framework for cyber are available and easily accessible by citizens over digital
security is inadequate. Hacking and denial-of-service platforms. Boosting domestic manufacturing of
attacks have led to disruption of services, both in the Electronics and other Digital Components.
government and the private sector – banks and Boost Electronics Manufacturing to reduce the import of
governments increasingly face security breaches.
electronic Goods and ensure digital sovereignty
STEPS FOR IMPROVING DIGITAL INFRASTRUCTURE
CYBER SECURITY
Improving Access:
• Need to evolve a comprehensive cyber security
• Provide Universal broadband connectivity at 50Mbps framework for data security, safe digital transactions
to every citizen
and complaint redressal.
• Provide 1 Gbps connectivity to all Gram Panchayats of
• Promotion of Data Localisation and a comprehensive
India by 2020 and 10 Gbps by 2022
data protection regime based on recommendations
• Enable deployment of public Wi-Fi Hotspots; to reach
of B N Srikrishna Committee should be implemented.
5 million by 2020 and 10 million by 2022
• Principles of Net neutrality should be upheld and
• Ensure connectivity to all uncovered areas
aligned with service requirements.
Innovation in Digital Sector
• Security standards, testing for devices and networks
• Attracting investments of $100 billion in the Digital
should be mandated and periodically updated.
Communications Sector

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WAY FORWARD • Interoperable technology across modes: Lack of
Digital Infrastructure is the bedrock on which the vision interoperability of software systems used by
of digitally empowered Digital India can be realised. This authorities governing different modes of transport
needs to be given focussed attention for a transparent, leads to inefficiencies as it increases transit time and
empowered and secure India of 21st Century. need for manual intervention when switching modes.
• Higher Border compliance & document processing
time
►LOGISTICS SECTOR-
MEASURES TAKEN BY GOVERNMENT
CONSTRAINTS AND CHALLENGES
• Draft National Logistics Policy for higher economic
CURRENT SITUATION
growth.
Logistics is the overall process of managing how
• Infrastructure status to Logistics.
resources are acquired, stored and transported. It
• Infrastructure lending at easier terms with enhanced
includes industrial parks, warehouses, cold storages and
limits.
transportation.
• Access to larger amounts of funds as External
• Employs around 22 million people (2016).
Commercial Borrowings (ECB).
• Growth rate in the last decade is around 7.8%
• Access to longer tenor funds from insurance
• Higher Logistics costs in India around 14 % of GDP
companies and pension funds.
(U.S - 9 %, Japan- 12 %)
• Eligibility to borrow from India Infrastructure
• Poor Ranking on Logistic performance Index
Financing Company Limited (IIFCL).
• A 10 per cent decrease in indirect logistics cost has
• National Trade Facilitation Action Plan - reflection of
the potential to increase exports by 5-8 per cent.
the Government's commitment to implement the
CONSTRAINTS IN LOGISTIC SECTOR Trade Facilitation Agreement (TFA)
• Cost of logistics: remains high due to challenges in • New Logistics Division in the Ministry of Commerce
accessing finance, underdeveloped infrastructure, and Industry (Bibek Debroy committee
poor connectivity and an unfavourable modal mix. recommendation).
(India: Road-60%, Rail- 31%, Water-9%; International
• E-way bill – reduced truck turnaround time by 20%.
Benchmarks: Road-25-30%, Railways-50-55%,
• India has signed International Conventions:
Waterways- 20-25%)
o UN TIR convention (Customs Convention on
• Coordination due to multiple stakeholders’
involvement: Logistics has four key components: International Transport of Goods)
transport, warehousing, freight forwarding and value- o TFA of WTO has been ratified which aims to
added logistics. Each of these falls under different simplify custom procedure.
segments of regulatory oversight, which adds • LEADS Index by Ministry of Commerce & Industry
complexity to the system. The presence of multiple
• Infrastructure creation Bharatmala, Sagarmala, BBIN
agencies often leads to duplicate processes. Non-
(framework MVA)
uniform documentation across states adds to
transaction costs. • Logistics park - Ministry of Road Transport and

• Warehousing capacity and fragmented structure: Highways (MoRTH) is developing multi-modal logistics
India’s current reported warehousing capacity is parks at selected locations in the country under its
108.75 million metric tonnes (MMT) of which the Logistics Efficiency Enhancement Program (LEEP)
private sector makes up less than 20 per cent. There • Relaxed FDI norms.
is low value addition in the warehouse sector. • GST has eased cross border movement of goods.
Handling and warehousing facilities are still largely
WAY FORWARD
un-mechanized with manual loading, unloading and
handling in the case of many commodities. • Driving logistics cost as a % of GDP down from

• Seamless movement of goods across modes and high estimated current levels of 13-14% to 10% in line with
dwell time: Movement of goods across modes suffers best-in-class global standards and incentivize the
from the absence of last mile connectivity and sector to become more efficient by promoting
infrastructure. integrated development of logistics

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• Optimizing the current modal mix (road-60%, rail- NITI Aayog in its report has highlighted that making
31%, water-9%) in line with international benchmarks India's passenger mobility shared, electric and
(25-30% share of road, 50-55% share of railways, 20- connected can cut its energy demand by 64% and
25% share of waterways) carbon emissions by 37%. This roughly translates into
• Enhancing efficiency across the logistics value chain savings of Rs 3.9 lakh crores by 2030.
through increased digitization and technology INITIATIVES TAKEN FOR ELECTRIC MOBILITY
adoption such as Blockchain, Bigdata, and AI etc. National Electric Mobility Mission Plan 2020: Aims to
• Ensuring standardization in logistics (warehousing, have 6-7 Million Electric Vehicles by the end of 2020.
packaging, 3PL players, freight forwarders) Implemented by Ministry of Heavy Industries and Public
• Creating a National Logistics e-marketplace as a one Enterprises.
stop marketplace. It will involve simplification of National Council for Electric Mobility: Inter-Ministerial
documentation for exports/imports and drive team headed by Minister of Heavy Industries to approve
transparency through digitization of processes Electric Mobility Plans.
involving Customs, PGAs etc. in regulatory, National Board for Electric Mobility: Inter-Secretarial
certification and compliance services team headed by Secretary, Department of Heavy
• Improve India’s ranking in the Logistics Performance Industries to recommend Policies for adoption of Electric
Index to between 25 to 30 Vehicles.
• Strengthening the warehousing sector in India by FAME Scheme (Phase II): Demand Incentive and
improving the quality of storage infrastructure Charging Infrastructure.
including specialized warehouses across the country CHALLENGES IN ADOPTION OF ELECTRIC VEHICLES
• Set up Multi Modal Logistics Park Authority (MMLPA) Despite these initiatives, share of Electric vehicles in
India has remained below 1%. This is quite low as
►ELECTRIC MOBILITY compared to countries such as Norway where the share
of electric vehicles is as high as 40%. Similarly, last year,
NEED TO PUSH FOR ELECTRIC MOBILITY
China alone accounted for more than half of the global
Climatic change: India has committed to cutting its GHG
sale of Electric Vehicles. Some of the constraints and
emissions intensity by 33% to 35% below 2005 levels by
Challenges are:
2030
• Higher Dependence on Raw Materials: India does not
Advances in renewable energy and battery technology:
have enough reserves of rare earth minerals such as
Lower cost of clean, low-carbon energy with higher
energy densities, faster charging and long-lasting Lithium, Cobalt etc. which are required for
batteries. manufacturing batteries. Most of these minerals are
imported from countries such as China.
Rapid urbanization: According to a study by WHO, India
is home to 14 out of 20 most polluted cities in the world. • Poor Charging Infrastructure: Once fully charged, the
Electric vehicles (EVs) can improve that scenario by Electric Vehicles can run for an average maximum
reducing local concentrations of pollutants in cities. distance of around 250 km. Hence, unless the
Data capture and analysis: Mobility has undergone a charging infrastructure improves, the demand for
digital revolution. This has created possibility of a electric vehicles would remain lower.
greater utilization of existing transportation assets to • Higher Capital costs of Electric vehicles in comparison
move towards electric mobility. to conventional vehicles.
Opportunities through Improved battery technology: • Lower efficiency of Electric vehicles in terms of
Advances in battery technology have led to higher average speed and distance travelled.
energy densities, faster charging and reduced battery
• Energy Insecurity: Fossil fuels account for almost 65%
degradation from charging.
of electricity needs in India. Hence, higher demand for
Energy security: EV’s will facilitate lower reliance on fossil electricity to charge electric vehicles could lead to
fuel imports and at the same time reduce India's Current
increased demand for fossil fuels.
account Deficit (CAD).
• Lack of skilled manpower for manufacture of Electric
Lower Maintenance of Electric Vehicles due to a smaller
and hybrid vehicles.
number of moving parts.

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STEPS TO PROMOTE ELECTRIC VEHICLES due to lower range (250-300 km) of electric vehicles and
• Revisiting FAME Scheme: Provide higher incentive for higher time taken for charging batteries. The
two-wheelers instead of four wheelers. introduction of Battery swapping would enable seamless

• Promote Battery Swapping travel without the need to worry much about range and
charging.
• Retrofitting Existing Vehicle Fleet by enabling them to
act as Hybrid Vehicles (both Petrol/Diesel and PROBLEMS AND CHALLENGES
Electric). Demand-Supply Mismatch: Presently, we need one
• Ensuring availability of critical and strategic minerals electric battery for one vehicle. However, with
such as Lithium, Cobalt etc. by acquiring mines introduction of battery swapping, the number of
overseas. Setting up of Khanij Bidesh India Ltd. batteries needed would increase.
(KABIL) to ensure mineral security is a step in right Non-Removable batteries: Only few companies provide
direction. for removable batteries. If the batteries are in-built and
• Providing charging infrastructure cannot be removed, then battery cannot be swapped.
• Import Duty and Make in India: Components such as For ex., in case of Ola e-scooter, batteries cannot be
batteries, drivetrains etc. should have lower customs removed from the vehicles and hence drained batteries
duty as compared to finished Electric cars. cannot be replaced with the recharged ones.
• GST rates should favour commercial vehicles in Lack of interoperability standards: If battery swapping
comparison to private vehicles. policy has to be successful, batteries should be made
• Invest in Research & Development in new approaches interoperable across different manufacturers. For
and technologies such as hydrogen fuel-cells, new example, it should be possible for the batteries used in
battery-chemistries (with higher specific energy and Ola e-scooters to be used in any other electric scooters
energy densities) etc. Appropriate guidelines must be such as Bounce infinity, Bajaj etc. Such interoperability
laid down for provide for tax exemption and standards would make it easier for the people to adopt
utilisation of CSR Funds. electric mobility.
• Added thrust on Renewable energy projects such as Higher GST rate on Electric Batteries: Presently, GST rate
Solar, Wind etc. for charging of Electric Vehicles and to on stand-alone electric batteries is quite higher at 18%
ensure energy security. and hence higher tax rate can be a disincentive for the
• Explore innovative incentives to promote Electric battery recharging stations.
Vehicles such as Doing away with Road Tax and
Waste Management: At the end of battery lifespan,
Registration charges, free toll, free parking, dedicated
enormous amounts of electronic wastes such as cobalt,
parking spaces in offices and residential buildings etc.
lithium, manganese oxide, nickel etc. get generated.
Hence, there is a need to put in place efficient waste
►BATTERY SWAPPING POLICY recycling programme aimed at optimum recovery and
minimal destruction of environment.
NITI Aayog has recently come out with Draft Policy on
Battery Swapping. NITI AAYOG'S DRAFT BATTERY SWAPPING POLICY

BENEFITS OF BATTERY SWAPPING Interoperability standards: Battery swapping services

will need to ensure interoperability between EVs and
Reduce cost of Electric Vehicles: Battery swapping policy
batteries for successful mainstreaming of battery
would lead to decrease in initial cost of EVs and
swapping as an alternative. Accordingly, policy aims to
encourage more people to adopt electric mobility.
lay down the interoperability standards.
Reduce Maintenance Cost: Electric batteries can be
Registration of vehicles with swappable batteries: Policy
recharged for only finite cycles. Beyond 4-5 years, older
provides for easier registration of vehicles without
batteries would have to be replaced with the new ones.
electric batteries.
This can lead to higher maintenance costs. In case of
Battery Swapping, Customers do not own batteries and Unique Identification Number (UIN) to be assigned to
hence this maintenance cost gets eliminated. electric batteries for their tracking and monitoring.
Similarly, a UIN number will be assigned to each Battery
Address anxiety issues related to Charging and Range:
Swapping Station.
Normally, people are reluctant to buy electric vehicles

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Fiscal Support: Unequal Distribution of Resources: More than 50% of
• Demand side incentives offered under FAME Scheme World's production is contributed by only 4-5 countries
for EV purchase can be made available to EVs with such as China, Democratic Republic of the Congo,
swappable batteries. Bolivia, Argentina, Chile etc.

• Subsidies may be given by the Centre to the entities Increased Demand for Strategic Minerals: Strategic
setting up battery swapping stations. minerals are crucial in the production of a range of high-
tech and clean energy technologies. For example, India's
• State Governments may provide additional capital
push for Electric Mobility is critically dependent upon
subsidies for the setting up of battery swapping
availability of Lithium and Cobalt.
stations.
Geopolitical/Geo-Economic Constraints: Concentration
Rationalise GST Rates: GST council may recommend for
of Strategic minerals in specific countries such as China
the reduction in the GST rates on the electric batteries.
could lead to supply side disruption. For ex., 97% of
Re-use and Recycling Ecosystem: Policy aims to promote China controls rare earth supplies globally. China has
the re-use of swap batteries after their End-of-Life (EOL) decided to put export restrictions on rare earth
and also fix the Extended Producer Responsibility (EPR). minerals.
Nodal agencies: Bureau of Energy Efficiency (BEE) will be Enhanced Competition over Strategic Minerals could
responsible for implementation of battery swapping lead to exponential increase in their prices.
networks across the country. States and UTs are
STRATEGIES TO ENSURE MINERAL SECURITY IN INDIA
responsible for the implementation and governance of
the battery swapping ecosystem. Appointed state nodal • Focus on Advanced Exploration and mining methods
agencies (SNAs) for EV public charging infrastructure will to explore and mine strategic minerals. For example,
facilitate the rollout of battery swapping. advanced beneficiation techniques of removing
impurities can enable India to extract strategic
minerals from low-grade ores.
►STRATEGIC & MINERALS
• Focus on recycling of waste and scrap to extract
IMPORTANCE OF STRATEGIC AND CRITICAL MINERALS strategic minerals, which then can be reused.
FOR INDIA
• Focus on R&D to develop new materials which can
Strategic minerals such as Beryllium, Rhenium, Rare substitute strategic minerals.
Earths, Germanium, Lithium, Cobalt, Tantalum,
• Obtain a secure supply of strategic minerals from the
Chromium, Strontium etc. find specialized use in a range
friendly nations.
of industries and modern applications, such as Electric
Vehicles, aerospace, defence, laptops, medical imaging, • KABIL must enter into Bilateral agreements with other
countries to acquire overseas mines.
nuclear energy and smartphones.
According to a report published by Council on Energy,
Environment and Water (CEEW), 12 critical minerals ►NATIONAL MINERALS POLICY
could play an important role in success of ‘Make in India’. 2019
Present Status of Critical Minerals in India: India is totally Aim of National Mineral Policy 2019 is to have a more
import-dependent for 7 out of 12 identified minerals and effective, meaningful and implementable policy that
does not have any declared resources for them, except brings in further transparency, better regulation and
light rare earth (found along with monazite sands) and enforcement, balanced social and economic growth as
beryllium. Presently, India is heavily dependent upon well as sustainable mining practices.
imports of these minerals from countries such as China.
SALIENT FEATURES
China is currently a leading global supplier for 6 out of
12 mineral resources identified as critical for India by • Encouraging private sector to start exploration.
2030. • Auctioning in virgin areas for composite RP cum PL
CHALLENGES IN ENSURING MINERAL SECURITY cum ML on revenue share basis.

Low Resource Base in India: Almost 100% dependency (RP means Reconnaissance Permit, PL means
for rhenium, germanium, strontium, and rare earth. Prospecting License, ML means Mining Lease. RP is
Moreover, concentrations of some strategic minerals granted for preliminary prospecting of a mineral
such as gallium, germanium, indium, selenium, through regional, aerial, geophysical or geochemical
tellurium, etc., in ore deposits are too low. surveys and geological mapping. PL is granted for

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undertaking operations for purpose of exploring, • Vision of $5 trillion Economy: It is estimated that
locating or proving mineral deposit. ML is granted for India would need to spend $4.5 trillion on
undertaking operations for mining minerals.) infrastructure by 2030 to sustain its growth rate.
• Encouragement of merger & acquisition of mining • Boost Demand and Employment Creation
entities. • Equitable risk allocation and mitigation
• Transfer of mining leases and creation of dedicated • Plugging the deficiency in infrastructure to cater to
mineral corridors to boost private sector mining Increased Urbanisation
areas.
• Complementary roles and drivers: Public sector is
• Introduction of Right of First Refusal for RP/PL predominantly driven by ‘public good’, while private
holders. (Usually, mines are leased for a specified sector by ‘profit’. PPP projects allow both sectors to
period and upon the expiry of lease period, mine is cooperate and enable both to meet their goals.
auctioned once again. Under Right to First Refusal INITIATIVES TAKEN BY GOVERNMENT TO BOOST PPP
Option, when the mine is auctioned through bidding,
• Viability Gap Funding (VGF) Scheme: Aims at
the company presently involved in the exploration of supporting infrastructure projects that are
mine would be given the option of keeping the mining economically justified but may not be financially
lease by paying bidding amount. However, if it refuses viable
to pay the bidding amount, only then mining lease • India Infrastructure Project Development Fund
gets transferred to a third party.) (IIPDF): funding to Central, State and local bodies to
• Grant status of industry to mining activity to boost carry out various activities related to project
financing of mining for private sector (Getting development.
‘industry’ status will help in easy sanction of loans for • Public Private Partnership Appraisal Committee: to
projects.) streamline the procedure for approval of PPP projects

• Use coastal waterways and inland shipping for • India Infrastructure Finance Company (IIFC):
evacuation and transportation of minerals and Dedicated institution for financing infrastructure with
encourages dedicated mineral corridors to facilitate focus on PPP projects.

the transportation of minerals. • National Infrastructure Investment Fund (NIIF): Quasi-

Sovereign Wealth Fund to provide financing to
• Concept of Inter-Generational Equity that deals with
infrastructure projects.
the well-being not only of present generation but also
of the generations to come. • Rupee denominated bonds or masala bonds were
launched to eliminate foreign exchange risk.
• Constitute an inter-ministerial body to institutionalize
• RBI introduced NBFCs (Infrastructure Finance
the mechanism for ensuring sustainable development
Companies (IFCs)) to provide credit facilities to
in mining.
projects.
BENEFITS
• Setting up of Infrastructure Investment Trusts (InvITs)
New National Mineral Policy will ensure more effective MODELS OF PPP IN INDIA
regulation. It will lead to sustainable mining sector
PPP arrangements are characterised by the
development in future while addressing the issues of
identification of risks and their allocation among the
project affected persons especially those residing in parties to the arrangement. Based on the risk allocation,
tribal areas. the various PPP models are designed.

Type of Risk ⇒ Financing Revenue Maintenance

►ANALYSIS OF PPP Risk Risk Risk
Type of Model ⇓
PPP refers to a contractual arrangement between a
BOT Model Private Private Private
government or a government-owned entity on one side
and a private sector entity on the other wherein private EPC Model Govt. Govt Govt
sector entity provides for public assets or public
HAM Model Govt, and Govt. Private
services.
Private
NEED FOR PPP IN INDIA

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Build-own-operate
Private partner has the responsibility for construction and operations. Ownership is with
Transfer (BOOT)
the private partner for the duration of the concession.
Contracts

MODES Asset ownership PPP Capital Rote of Private Sector Examples

during contract duration Investment
by

Build-own-operate- Private Long Private Design, Finance, construct, Used for

transfer (BOOT) or (e.g., 20-30 own, manage, maintain. development of
DBOOT yrs.) Transfer Minor Ports

Build-own-operate Private Perpetual Private Design, Finance, construct, Not very common in
(BOO) own, manage, maintain India

Build-Ope Rate-
Responsibility for construction and operations with the private partner while
Transfer (BOT)
ownership is retained by the public sector.
Contracts

MODES Asset PPP Capital Role of Private Examples

ownership duration Investment Sector
during
by
contract

Design-build-operate Public Short-medium Government Design, construct, Not very common in

(DBO) (e.g., 3-5 yrs) manage, maintain India

Build-operate-transfer Public Long Private Design, finance, Most common form.

(BOT)/ Design-Build- (e.g., 20-30 Yrs) construct, manage, Used for Bus terminals.
Finance-Operate- maintain, Transfer Highways, Expressways,
Transfer (DBFOT) Water supply etc.

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CHALLENGES RELATED TO PPP operational efficiencies. Therefore, state owned

Challenges across the PPP lifecycle can be classified into: enterprises or public sector undertakings should not
be allowed to bid for PPP projects.
Financing Issues:
• PPPs should not be used by the government to evade
• Financing issues, including aggressive bidding,
its responsibility of service delivery to citizens.
underpricing of projects, and funding constraints
(debt and equity). • This model should be adopted only after checking its
viability for a project, in terms of costs and risks.
• Project sponsors in PPP projects depend hugely on
Further, PPP structures should not be adopted for
commercial banks for financing the debt portion of
very small projects, since the benefits are not
the project. The delay in infrastructure projects leads
commensurate with the costs.
to increase in NPAs, which in turn leads to vicious
cycle of lower credit to PPP projects. • Currently, PPP contracts focus more on fiscal benefits.
The focus should instead be on service delivery for
• Project delays and aggressive bidding have resulted in
citizens. Further, fiscal reporting practices and
poor recovery from the projects
performance monitoring of PPPs should be improved.
• Delays in execution of projects lead to equity getting
Risk allocation and management
trapped in ongoing projects, thus not being available
for newer projects. • PPP contracts should ensure optimal risk allocation

Capacity and procedural challenges: lack of efficient across all stakeholders by ensuring that it is allocated
project preparation activities, delay in land acquisition, to the entity that is best suited to manage the risk.
delays in obtaining requisite approvals and clearances, • A generic risk monitoring and evaluation framework
and poor project monitoring activities. should be developed covering all aspects of a
Policy, regulatory and institutional gaps: Absence of project’s lifecycle.
regulators or multiplicity of regulators results in many
• Guidelines for risk allocation should be formulated.
issues and disputes being unresolved, leading to
litigations and cases. This in turn leads to delays or Strengthening policy and governance
cancellation of projects and results in cost escalation, Some countries have a legal framework for PPPs in the
thereby making the projects unviable. form of PPP act/law/policy which clearly spells out the
STRATEGIES NEEDED TO IMPROVE FRAMEWORK OF objectives, scope and implementing principles of the
PPPS- KELKAR COMMITTEE RECOMMENDATIONS PPP program.
Revisiting PPPs
• Ministry of Finance may develop a national PPP policy
• PPP model requires the involvement of a private document.
partner to leverage financing and improve
• Formulating a PPP law,

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• Prevention of Corruption Act, 1988 should be and Awareness. PPP can be leveraged to transform
amended to distinguish between genuine errors in healthcare sector in following ways:
decision making and acts of corruption by public Improving efficiency of hospital management by handing
servants. over the management of public hospitals to private
Strengthening institutional capacity partners with the responsibility for its up gradation. The
• Capacity of all stakeholders including regulators, Interest of the poor could be protected through
authorities, consultants, financing agencies, etc. reimbursement of the fees by the Government. This
should be built up. A national level institution should would have multiple benefits such as expansion of
be set up to support institutional capacity building healthcare facilities, decrease in Government's burden
activities and encouraging private investments about and leveraging private sector's expertise in terms of
PPPs. human resources and equipment.

• Independent regulators must be set up in sectors that Addressing shortage of Medical Personnel by setting up
are going for PPPs. new Medical Colleges in PPP Mode and linking them to
existing district hospitals.
• Infrastructure PPP Project Review Committee may be
set up to evaluate PPP projects. Reducing out-of-pocket expenditure by enabling poor
people to get treatment in the private hospitals and
• Infrastructure PPP Adjudication Tribunal should also
reimbursing their costs.
be constituted.
Addressing Accessibility and Affordability by contracting
Strengthening contracts: Since infrastructure projects
out the management of the Primary Healthcare Centers
span over 20-30 years, a private developer may lose
(PHCs). PPP agreements can also be signed with the
bargaining power because of abrupt changes in the
Private Laboratories to provide round-the-clock tests.
economic or policy environment. The Committee
recommended that the private sector must be protected Ensuring Affordable Medicines through the expansion of
against such loss of bargaining power. This could be Pradhan Mantri Bhartiya Janaushadhi Pariyojana
ensured by amending the terms of the PPP contracts to (PMBJP)
allow for renegotiations. PPP Investment in IT Infrastructure to provide Universal
Health Coverage (UHC) based on recommendations of
Srinath Reddy Committee.
►PPP IN HEALTHCARE
Improving Preventive Care by engaging with NGOs for
The COVID-19 pandemic has exposed the deep-rooted
information dissemination and capacity building of ASHA
flaws in our healthcare sector. Hence, there is a need to
workers.
mobilise resources from both Public and Private sector
through PPP to improve the health outcomes. Cross country experiences reveal that countries which
have adopted PPP have much better healthcare
infrastructure. Hence, recent crisis has to be turned into
an opportunity to bring in structural changes by
rejuvenating PPP.

►HAM MODEL OF PPP

Presently, the Government uses different PPP Models
such as BoT, EPC and HAM for construction of National
Highways (NHs). However, HAM has emerged as a
dominant model due to its inherent advantages over
UN SDG-17 has highlighted that PPP can help in ensuring other models.
4 As of Healthcare- Accessibility, Affordability, Availability
Features of PPP Models are as shown below:

PPP Model Role of Private Sector Role of Government Risks

Build -Operate-Transfer Build, Finance, Construct, Minimal Private Sector

(BoT) Maintain and Transfer

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Engineering Design, Procure raw materials. • Funding Government
Procurement Construct • Land acquisition
Construction (EPC)
• Collect user fees and Maintenance

HAM • 60% Funding • Upfront Funding of 60% in Instalments. Both

• Build and maintain • Collect user fees and pay Private sector
in form of annuities

HAM combines features of BoT and EPC and hence

emerged as preferred model due to following
reasons:

Equitable Risk Sharing: Under BoT, the private sector

faces considerable risk in form of delays in clearances,
lower traffic, lower toll collection etc. While EPC leads to
higher financial burden on the Government.

Lower Financial Burden on Government: 60% of the

upfront project cost is provided by the private sector.
Government’s financial support is in the form of
Installments.

Lower burden on Banks: Private sector financing in form

of equity and debt and hence need for Bank loan
reduces.

Timely completion of project due to active involvement SCM has been used for awarding PPP projects such as
of Government. Railway stations, Monorail project, Mumbai-Pune
Hyperloop project etc. SCM can provide a fillip to the
Proper Maintenance of NHs etc.
National Monetisation Pipeline and address problems
HAM model has great potential in boosting private faced in PPP projects.
sector Investment in other PPP projects such as metro BENEFITS
rail projects and hence need to be explored. • Provides Innovative solutions as projects are
identified by the Private sector on their own.
►SWISS CHALLENGE METHOD • Ensure certainty of success as it has willing partner
right from the start.
Swiss Challenge method (SCM) is used for awarding PPP
• Reduce Time and cost as pre-project studies are
projects. Under SCM, an interested party initiates a
conducted in advance.
proposal for a project. The government then invites
• Ensures greater cooperation between Government
proposals from other parties. On the receipt of these
and private sector.
bids, the original contractor gets an opportunity to
• Government can choose the best alternative among
match the best bid.
various options.
• Can be used for technologically advanced projects
such as Hyperloop Transportation system.
Presently, there is lack of uniformity in state
Governments’ policies for using SCM. Hence, as
highlighted by NITI Aayog, there is a need for adoption
of National Policy framework to implement SCM in a
standardised manner.

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Section-11
OOD PROCESSING

INDUSTRIES
SUB- THEME YEAR QUESTION
Food 2015 What are the impediments in marketing and supply chain management in industry in India?
Processing Can e-commerce help in overcoming these bottlenecks?
Industries
2017 What are the reasons for poor acceptance of cost-effective small processing unit? How the
food processing unit will be helpful to uplift the socio-economic status of poor farmers?

2018 Examine the role of supermarkets in supply chain management of fruits, vegetables and
food items. How do they eliminate number of intermediaries?

2020 What are the challenges and opportunities of food processing sector in the country? How
can income of the farmers be substantially increased by encouraging food processing?

►FOOD PROCESSING SECTOR • India is the single largest producer of milk in the
world, with the production estimated at 137.7 MT.
Food processing is a technique of manufacturing and
• India has the largest livestock population across the
preserving food substances in an effective manner with
globe, which is equal to 512 million, including 119
a view to enhance their shelf life; improve quality as well
million milch (in-milk and dry) animals, 135 million
as make them functionally more useful. Food processing
goats and 65 million sheep.
sector is a sunrise sector in India. It provides many
• The segment contributes about 25 per cent to the
positives prospects as well as face many challenges.
country’s farm Gross Domestic Product (GDP).
Hereby discussing the prospect of this sector in India,
challenges faced and steps needed.
PROSPECTS OF FOOD PROCESSING IN INDIA
IMPORTANT DRIVERS
• Strong demand growth
• India is the world’s second–largest producer of fruits
o Demand for processed food rising with growing
and vegetables.
disposable income, urbanisation, young population
• India has second largest production of marine
and nuclear families
products, and meat and poultry
o Household consumption set to double by 2020

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o Changing lifestyle and increasing expenditure on • Transport Facilities: Committee on Doubling Farmers
health and nutritional foods Income had recommended that railways needs to
• Food processing hub upgrade its logistics to facilitate the transport of fresh
produce directly to export hubs. This includes
o India benefits from a large agriculture sector,
creation of adjoining facilities for loading and
abundant livestock, and cost competitiveness
unloading, and distribution to road transport.
o Investment opportunities to arise in agriculture,
MEGA FOOD PARKS
food infrastructure, and contract farming
The Mega Food Parks scheme was launched in 2008. It
o Diverse agro-climatic conditions encourage
seeks to facilitate setting up of food processing units. As
cultivation of different crops
of March 2018, out of the 42 projects approved, 10 were
• Increasing investments operational.
o Investments, including FDI, would rise with
The Standing Committee on Agriculture noted certain
strengthening demand and supply fundamentals reasons for delay in implementation of projects under
o Launch of infrastructure development schemes to the scheme. These include: (i) difficulty in getting loans
increase investments in food processing from banks for the project, (ii) delay in obtaining
infrastructure clearances from the state governments and agencies for
• Policy support roads, power, and water at the project site, (iii) lack of
o Sops to private sector participation; 100 per cent special incentives for setting up food processing units in
Mega Food Parks, and (iv) unwillingness of the co-
FDI under automatic route.
promoters in contributing their share of equity.
o Promoting rationalization of tariff and duties
Further, the Standing Committee stated that as the
relating to food processing sector.
scheme requires a minimum area of 50 acres, it does
o Setting up of National Mission on Food Processing
not to promote smaller or individual food processing
CHALLENGES AND STEPS NEEDED and preservation units. It recommended that smaller
• Poor quality of produce- not of processing standard. agro-processing clusters near production areas must be
• Lack of Integrated domestic market' promoted.

• Lack of quality standards and poor focus on good The Committee on Doubling Farmers Income
manufacturing practices recommended establishment of processing and value
addition units at strategic places. This includes rural or
• Losses high among perishables such as fruits and
production areas for pulses, millets, fruits, vegetables,
vegetables
dairy, fisheries, and poultry in public private-partnership
o Crop losses ranged between 7-16% among fruits
mode.
and around 5% among cereals in 2015.
Role of E-commerce in improving supply chain
o Perishables such as fruits and vegetables are more
management
prone to losses as compared to cereals. Such crop
E-commerce helps in:
losses can occur during operations such as
harvesting, thrashing, grading, drying, packaging, 1. Reducing the distribution and transactions costs.
transportation, and storage depending upon the 2. Increasing the speed of product development.
commodity. 3. Providing more information for buyers and sellers.
• Inadequate food processing infrastructure: forced to 4. Increasing the options of customer and their access
sell their produce soon after harvest, irrespective of to suppliers.
the prevailing market situations.
5. Reducing the time intervals.
• Cold chain infrastructure needs to be coupled with
logistical support to facilitate smooth transfer of
harvested value from farms to distant locations.

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