Volume - 1

CHAPTER 1- Economic Outlook, Prospects, and Policy Challenges

1. Last Economic Survey spoke about the sweet spot for the Indian economy, arising from a
combination of a strong political mandate and a favourable external environment. At the same time, it
cautioned against unrealistic expectations of Big Bang reforms because of the dispersed nature of
power in India and the absence of that impelling drivercrisis.
- If the world economy lurches into crisis or slides into further weakness, Indias growth will be seriously
affected, for the correlation between global and Indian growth has been growing dramatically.
- At a time when the newest normal for the world economy is one of turbulence and volatility, India is a
refuge of stability and an outpost of opportunity. Its macro-economy is robust, and it is likely to be the
fastest growing major economy in the world in 2016.
2. Key to creating a more competitive environment will be to address the exit (the Chakravyuha)
problem which bedevils the Indian economy and endures as an impediment to investment, efficiency,
job creation and growth .
- The Indian economy had moved from socialism with restricted entry to marketism without exit.
- The government is undertaking a number of initiatives such as introducing a new bankruptcy law,
rehabilitating stalled projects, and considering guidelines for public private partnerships that can help
facilitate exit, thereby improving the efficiency of the economy.
3. The delivery of essential services is a gargantuan challenge. With increased devolution of resources,
states will need to expand their capacity and improve the efficiency of service delivery.
- That will require them to shift their focus from outlays to outcomes, and to learn by monitoring,
innovating, and even erring.
4. Smaller farmers and landless laborers esp. are highly vulnerable to productivity, weather, and market
shocks changes that affect their incomes. The newly introduced crop insurance schemes (like Pradhan
Mantri Fasal Bima Yojana) should begin to address these problems to a great extent.
5. If macro-economic stability is one key element of assessing a countrys attractiveness to investors, its
growth rate is another.
# Macroeconomic Vulnerability Index (MVI) & Rational Investor Rating Index (RIRI) was talked about in
Last year's economic survey, not this time.

6. The CPI-New series inflation has fluctuated around 5.5%, while measures of underlying trends core
inflation, rural wage growth and minimum support price increases have similarly remained muted.
- Meanwhile, the WPI has been in negative territory since November 2014, the result of the large falls in
international commodity prices, especially oil.
- As low inflation has taken hold and confidence in price stability has improved, gold imports have
largely stabilized, notwithstanding the end of a period of import controls.
7. With the acceptance of the Fourteenth Finance Commission recommendations, and the large
devolution toward the states as well as restructuring of the centrally sponsored schemes, the quality of
expenditure must increasingly be assessed from a general government (i.e. combining the center and
the states) perspective.
- The main findings are that a welcome shift in the quality of spending has occurred from revenue to
investment, and towards social sectors.
8. Real GDP growth for 2015-16 is expected to be in the 7 to 7.75% range, reflecting various and largely
offsetting developments on the demand and supply sides of the Indian economy.
9. Indias long-run potential GDP growth is substantial & has been projected to about 8-10%. - But its
actual growth in the short run will also depend upon global growth and demand.
- After all, Indias exports of manufactured goods and services now constitute about 18% of GDP, up
from about 11% a decade ago.
# Components of Aggregate Demand : exports, consumption, private investment and govt.
10. There are 3 significant downside risks :
(i) Turmoil in the global economy could worsen the outlook for exports and tighter f inancial conditions
significantly.
(ii) if contrary to expectations oil prices rise more than anticipated, this would increase the drag from
consumption, both directly, and owing to reduced prospects for monetary easing.
(iii) Finally, the most serious risk is a combination of the above two factors. This could arise if oil markets
are dominated by supply-related factors such as agreements to restrict output by the major producers.
11.
El
Nino,
La
Nina
and
Agricultural
harvest
in
2017
:
- From time to time, agricultural production is affected by El Nio, an abnormal warming of the Pacific
waters near Ecuador & Peru, which disturbs weather patterns around the world.
- The 2015 El Nio has been the strongest since 1997, depressing production over the past year. But if it
is followed by a strong La Nia, there could be a much better harvest in 2016-17.

- An extended & strong El Nio explains why India had a deficient south-monsoon and dry weather
lasting through the winter this time. The prolonged moisture stress from it has, in turn, impacted both
kharif as well as the rabi crop.
- La Nia, involving an abnormal cooling of sea surface waters along the tropical west coast of South
America with an ONI less than minus 0.5 degrees Celsius, has been associated with normal-to-excess
monsoons in India, which may be a by-product of atmospheric convection activity shifting to the north
of Australia.
12. Oceanic Nino Index (ONI)
compares east-central Pacific Ocean surface temperatures to their long-term average and is used by
the US National Oceanic and Atmospheric Administration (NOAA) for identifying El Nio events.
13. Positive Indian Ocean Dipole where the western tropical Indian Ocean waters near Africa become
warmer relative to those around Indonesia.
14. The govt should be ready with a contingency plan for a monsoon, esp. after two successive drought
years.
- Declaring MSPs well before kharif sowing operations, incentivizing farmers to produce crops most
prone to domestic supply pressures (such as pulses), & timely contracting of imports of sensitive
commodities would be essential components of this strategy.
15. One of the most critical short-term challenges confronting the Indian economy is the twin balance
sheet (TBS) problem
(i) the impaired financial positions of the Public Sector Banks (PSBs) and
(ii) some large corporate houses what we have hitherto characterized as the Balance Sheet Syndrome
with Indian characteristics.
- By now, it is clear that the TBS problem is the major impediment to private investment, and thereby to
a full-fledged economic recovery.
16.
Resolving
the
TBS
challenge
- It would require 4 R : Recognition, Recapitalization, Resolution, and Reform.

(i) Banks must value their assets as far as posible close to true value (recognition) as the RBI has been
emphasizing;
(ii) once they do so, their capital position must be safeguarded via infusions of quity (recapitalization) as
the
banks
have
been
demanding;
(iii) the underlying stressed assets in the corporate sector must be sold or rehabilitated (resolution) as
the
government
has
been
desiring;
and
(iv) future incentives for the private sector and corporates must be set right (reform) to avoid a
repetition of the problem, as everyone has been clamouring.

- But there is a needed sequence to these 4 R: Recognition must come first, but it must be accompanied
by an adequate supply of resources; otherwise, banks will be vulnerable.
17. This economic survey project that CPI inflation will ease to between 4.5 - 5% in 2016-17.
18. Transmission Problem in economy (from policy rate cut to base rate cut):
- The gaps between policy rates and bank rates have increased significantly over the past year. For e.g.
deposit rates before the first rate cut were about 50 basis points higher than the policy rate, whereas
now they are around 75 basis points higher. The lending rate spread, meanwhile, has increased by even
more, from 200 basis points to 275 basis points.
- Many commentators have emphasized that transmission is limited by high administered and small
savings schemes. The argument is that banks worry that if they cut their deposit rates, customers will
flee to small savings instruments. Recognizing this, the govt has reduced rates on some small savings
schemes to make them more responsive to market conditions.
- But it is also true that the small saving schemes dont always constrain passthrough. For e.g. the June
rate cut was followed by a large reduction in deposit rates whereas the much larger October cut was
barely passed on at all.
- And the small saving schemes cannot explain why the reductions that have taken place in deposit rates
have not led to commensurate reductions in lending rates.
- Banks have been stating that due to competition from small savings scheme they were not able to
reduce their deposit rate further. As a result, the cost of funds were not coming down and hence lending
rates could not be lowered.
Additional Factor :
- It consequently seems that additional factors are at work. One possible factor could be changes in
liquidity conditions as these can reinforce or negate the changes in policy rates.
- The reason is straightforward: if liquidity conditions are tight, commercial banks will be extra cautious
about passing on policy rate cuts into lower deposit rates, for fear of losing customers and hence more
liquidity, & thence lending base rate cut will be negligible or minimum or will not occur.
19. The most fundamental task of budget policy is to preserve fiscal sustainability.
- The clearest sign that a gov is on a sustainable path is the direction of its debt-to-GDP ratio. If this ratio
is declining, then the govts fundamental fiscal strength is improving.
20. Primary deficits push up the debt ratio. But nominal growth can bring it down, as long as the growth
rate exceeds the interest rate on government debt.

- The primary deficit has been curbed to less than 1% of GDP in 2015-16, far below the nearly 3% of GDP
recorded in 2011-12. But nominal growth has collapsed, as the GDP deflator has plunged to minimal
levels, virtually eliminating the gap between growth and interest rates. And therein lies the problem.
- The fiscal outlook consequently hinges on what will happen to the interest-growth differential. If it
normalizes, the debt-GDP ratio could come down on its own, even without adjustment measures.
21. One of the puzzles this year has been how remittances have held up despite a dramatic decline in oil
prices and hence in the health of countries that host overseas Indian workers.
- The Indian economy and foreig exchange earnings were buoyed by this non-decline in remittance
flows. Still, prudence warrants monitoring this source of earnings because it is plausible that with oil
prices remaining low in the near future, oil exporting countries will eventually be forced to curtail their
use of foreign labour.
22. In recent years the composition of Indian exports of services is more favorable than that of Indian
exports of manufactured goods. More of the former goes to the United States, and more of the latter to
Asia.
- Since Asia has slowed down more rapidly, Indias exports of manufactures should have been more
affected. Furthermore, in the last year, the rupee has depreciated strongly against the dollar which
should have helped Indias exports of services.
23. Agriculture and the WTO :
Two key issues in the Doha Development Agenda (DDA): the special safeguard mechanism (SSM) and
food security/public stockholding both of which affect farmer interests.
- The SSM embodies the right to impose trade barriers if there is a surge in agricultural imports into
India.
24. Changes in India's agricultural polilcy from Uruguay Round (1986-1994) to till date :
- At the time of the Uruguay Round, India was a net importer of food and decided that it needed a lot
of room to maintain border protection (tariffs in particular) and was less concerned about providing
support to agriculture via domestic support (producer subsidies, MSPs etc).
- That was Indias choice. 20 years on, Indias position in agriculture has changed: it has become more
competitive in agriculture and it now relies relatively more on domestic support (and less on tariff
protection) for agriculture both to sustain domestic production and address low incomes for farmers.
- Indias WTO obligations could predominantly be based on this domestic shift away from border
protection to domestic support. India could consider offering reduction in its very high tariff bindings
and instead seek more freedom to provide higher levels of domestic support: this would be especially
true for pulses going forward where higher MSPs may be necessary to incentivize pulses production.

This would be good for India, and Indias trading partners should be more reasonable about accepting
this shift.
25. Volatile Trade Policy :
- Agricultural policy, esp. trade policy, is characterized by unusual volatility. The ups and downs are
striking.
- In agriculture, the interests of the producer and consumer have to be balanced. When world prices go
up or there is domestic scarcity, export restrictions or bans are imposed; when the reverse happens,
import tariffs are imposed.
- But this policy volatility actually ends up hurting farmers (of course) but eventually also consumers.
This is because farmers produce less because of the policy volatility which results in reduced domestic
availability and hence higher prices.
- Farmers are affected not only by the fact that on average they get less for their produce but even more
so by the policy uncertainty that dampens, even chills, the incentive to produce. The notion that there is
a trade-off b/w farmers and consumers is false except in the very short run.
26. This economic survey (2015-16) suggests :
- Farm policyMSPs and import and export policyshould be announced well in advance of the crop
growing season and should not be altered during the course of the season unless there are exceptional
developments.
27. This economic survey tells :
- Trade policy is under stress also for reasons related to the ongoing turmoil in the international
environment. Global demand is weak, and one of the powerhouses of trade in recent timesChina
is slowing down.
- Chinese slowdown has important implications for India. As the Chinese currency weakens, setting in
train reactions from other countries, Indias external competitiveness across-the-board will come
under pressure.
- But there will also be sectoral impacts. Chinese excess capacity in commodity-related sectors such as
steel and aluminum will lead to a surge in imports into India.
How should India respond ?
- India should resist calls to seek recourse in protectionist measures, esp. in relation to items that could
undermine the competitiveness of downstream firms and industries.
India could respond in three ways :

(i) the most effective instrument to respond to threats to overall competitiveness is the exchange rate.
The rupees value must be fair, avoiding strengthening. This can be achieved through some combination
of monetary relaxation, allowing gradual declines in the rupee if capital flows are weak, intervention in
foreign exchange markets if inflows are robust, and being cautious about any further opening to inflows
that could unduly strengthen the rupee.
(ii) India should strengthen procedures that allow WTO-consistent and hence legitimate actions
against dumping (anti-dumping), subsidization (countervailing duties), and surges in imports
(safeguard measures) to be taken expeditiously and effectively.
(iii) India should eliminate all the policies that currently provide negative protection for Indian
manufacturing and favor foreign manufacturing. This could be achieved by quick implementation of the
GST as recommended by the recent report of the GST Committee. If delays are envisaged, a similar
result could be achieved by eliminating the countervailing duty exemptions.

CHAPTER 2 : The Chakravyuha Challenge of the Indian Economy

28. India has made great strides in removing the barriers to the entry of firms, talent, and technology
into the Indian economy but less progress has been made in relation to exit.
- Thus, over the course of 6 decades, the Indian economy moved from socialism with limited entry to
marketism without exit. Impeded exit has substantial fiscal, economic, and political costs.
- However, the governments initiatives including the new bankruptcy law, rehabilitation of stalled
projects, proposed changes to the Prevention of Corruption Act as well as the broader JAM agenda hold
the promise of facilitating exit, and providing a significant boost to long-run efficiency and growth.
29. A market economy requires unrestricted entry of new firms, new ideas, and new technologies so
that the forces of competition can guide capital and labour resources to their most productive and
dynamic uses. But it also requires exit so that resources are forced or enticed away from inefficient and
unsustainable uses
30. Since the early 1980s, the Indian economy has made remarkable progress in increasing entry:
industrial licensing has been dismantled, public sector monopolies have been diluted, some public
sector assets have been privatised, FDI has been considerably liberalised, a process that has been
accelerated under this govt, and trade barriers have been reduced. Indeed, the narrative of reforms has
been one of promoting entry by eliminating the barriers to it.
- Indian economy had moved from socialism with restricted entry to marketism without exit.
31. Two caveats are in order :

(i) focusing on the exit problem does not mean that the challenges of entry have been fully addressed.
The Govts reform agenda, including liberalising FDI and launching the Start-up India and
Entrepreneurship initiatives are noteworthy endeavours to further facilitate entry.
(ii) there are sectors in which exit is not a first-order problem. Chakravyuha challenge is more a feature
of the relatively traditional sectors of the economy but is not restricted to the public sectorindeed,
impeded exit in the private sector is becoming a major challenge.
32. India unlike many countries seems to have a disproportionately large share of inefficient firms with
very low productivity and with little exit.
33. Costs of Impeded Exit :
- The lack of exit creates at least 3 types of costs: fiscal, economic (or opportunity), and political.
(a) Fiscal costs: Exit is impeded often through government support of incumbent, mostly inefficient,
firms. This supportin the form of explicit subsidies (for e.g. bailouts) or implicit ones (tariffs, loans
from state banks)represents a cost to the economy.
(b) Economic costs: Economic losses result from resources and factors of production not being
employed in their most productive uses. In a capital scarce country such as India, misallocation of
resources can have significant costs.
(c) Political costs: The lack of exit can also have considerable political costs for govts attempting to
reform the economy. The benefits of impeded exit often flow to the rich and influential in the form of
support for "sick" firms. This can give the impression that govts favour large corporates, which politically
limits the ability to undertake measures that will benefit the economy but might be seen as further
benefitting business.
34. No sector illustrates the combination of fiscal, economic, and political costs more starkly than
fertilizer.
- fiscal subsidies amount to 0.8% of GDP, much of which leaks abroad or to non-agricultural uses, or goes
to inefficient producers, or to firms given the exclusive privilege to import. But precisely for these
reasons it has proved politically impossible to close the inefficient firms or eliminate the canalisation of
imports.
35. In India, the exit problem arises because of 3 types of reasons, what might be called the three Is:
interests, institutions, and ideas/ideology.
(A) Interests: The first, most obvious, and perhaps most powerful reason for lack of exit is the power of
vested interests. Often, this vested interest problem is aggravated by a certain imbalance or asymmetry
that confers greater power on concentrated producer interests in relation to diffused consumer
interests.

- It has long been known that trade liberalization is difficult because the beneficiaries are consumers
who are benefitted individually by a small amount and the losers are a few producers each of whom
stands to lose by a lot.
- The latter will be more influential because they have more voice, backed by financial power. And often
democratic political systems will give disproportional influence to the latter.
- One good example of interest groups blocking reform comes from introducing JAM for MGNREGA
expenditure. It is acknowledged that MGNREGA, despite its benefits as a well-targeted social insurance
mechanism and for rural development, suffers from significant leakage.
- To reduce leakages and payment delays, Andhra Pradesh introduced DBT, so that salaries would be
paid directly to workers, with biometric Smartcards to reduce the scope of siphoning of funds via
registering ghost workers.
- In the case of administrative schemes, vested interests often create a market of their own, planning
their actions to benefit from it: put differently, this is a case of supply creating its own demand. Thus
schemes may become an instrument of granting favours.

(B) Institutions: Another reason for impeded exit is institutions. The interesting, even paradoxical, fact
about India today is that the problem arises from a combination of both weak and strong institutions.
- Examples of weak institutions are legal procedures that increase the costs time and financial costs
of exit. One example is the debt recovery tribunals (DRTs). The delay in debt recovery creates dynamic
efficiency cost on the economy since it prevents the cleaning up of balance sheets of banks and the
corporate sector.
- Another stark example of weak institutions is simply the inability to punish wilful defaulters: for e.g.
Vijay Mallya.
- Paradoxically in India, exit is also impeded by strong institutions. For a number of reasons, certain
institutions characterized by Devesh Kapur of University of Pennsylvania as referee institutions--for
example, some of our investigative institutions have become enormously powerful over the last few
decades.
- The strength of these institutions now exists in conjunction with another feature of Indian decisionmaking, namely the asymmetric incentives for bureaucrats that favours abundant caution and hence the
status quo.
(C) Ideas/Ideology: A third reason for impeded exit relates to ideas/ideology. All around the world, and
at most points in time, it is very difficult to phase out entitlements. But this may be especially true in a
country with sizable poverty and inequality and one that is a democracy.

- Democracy will favour legitimately redistribution for the numerous poor. The founding ideology of
state-led development and socialism both mirrored this imperative and furthered the objective.
- The objective of all the interventions in agriculture and all the anti-poverty programs are laudable. But
once the policies and programs have been set in place, they are very difficult to reverse.
e.g. = Minimum support prices (MSPs) were envisioned as an insurance mechanism for farmers, but
have become price floors instead, favouring some crops in some regions at the expense of others. A
variety of subsidies and tax concessions are intended for the poor end up accruing to the relatively
better-off.
- Another factor that impedes exit is what might be called the sanctification of the small". To be sure,
small firms and enterprises merit help through easy availability of credit.

36. How might the exit problem be addressed ?

- 5 possible ways :
(a) Avoid exit through liberal entry: to promote competition via private sector entry rather than change
ownership through privatisation.
(b) Direct policy action: Some of the problems of weak institutions can be addressed through better
laws. This is why the govt has introduced a new bankruptcy law that will significantly expedite exit.
- The Kelkar Committee on Revisiting and Revitalising the PPP model of Infrastructure has made
recommendations on resolving legacy issues and key contractual features going forward. - The
Committee has recommended quick finalisation of principles of renegotiation to build in the flexibility
while protecting authorities against the risk of moral hazard.
- Recognizing the importance of predictability and fairness in dealing with both sides of the partnership,
the Committee has recommended the setting up of independent sector regulators with a unified
mandate.
(c) Technology and the JAM solution: Many of the exit problems in 'relation to fertilizer, agriculture,
sugar etc can be addressed through technology and leveraging the potential of JAM.
- Technology can help in two ways. First, it brings down human discretion and the layers of
intermediaries. And, second, it breaks the old shackles and old ways of doing business. Both can
contribute directly to finding solutions to the exit problems plaguing Indian agriculture and informal
sectors.
(d) Transparency: In relation to agriculture, the govt sets MSPs to create incentives for producing
wheat, cereals, and pulses. It is increasingly clear that there is over-production of cereals, esp. in some
states. Reducing this over-production a manifestation of this exit problem is difficult.

- One possibility might be for the govt to highlight the social costs of producing cereals in the northwestern states: over-use of fertilizer and the health and soil quality costs; over-use of water and power
and the environmental costs; and the post-harvest burning of stalks that leads to pollution and health
hazards.
- Another example relates to the small savings schemes. Here, transparency about the real
beneficiaries as the very rich and not the small at all can help further reform and facilitate exit.
(e) Exit as an opportunity: In many cases where public sector firms need to be privatized, the problems
of exit arise because of opposition from existing managers or employees interests. - But in some
instances,
such
action
can
be
converted
into
opportunities.
e.g. = resources earned from privatization could be earmarked for employee compensation and
retraining.
37. An amendment to the Prevention of Corruption Act :
- In a bid to tighten anti-corruption law, the new Prevention of Corruption Act of 1988 (PCA) added a
provision in Section 13(1)(d)(iii) according to which: A public servant is said to commit the offence of
criminal misconduct if he, while holding office as a public servant, obtains for any person any valuable
thing or pecuniary advantage without any public interest.
- Because the definition does not include words like corruptly or wrongfully, this offence has no
requirement of mens rea or guilty intent it is an 'absolute offence'. Since the law does not require the
public servant to have had any improper motive, even a benefit conferred inadvertently is sufficient to
be prosecuted.
- For e.g. = suppose an honest public servant makes, in good faith, an error of judgment and undervalues
an asset which is being disinvested. Obviously that undervaluation causes a pecuniary gain to the buyer
of the asset and is not in public interest, but it was not a corrupt or deliberate undervaluation.

Therefore, this year Economic Survey recommends Amendments to the PCA :

- The Prevention of Corruption (Amendment) Bill 2013-14, which is pending in the Rajya Sabha, seeks to
carry out major improvements to the PCA and in general strengthen the anti-corruption law by bringing
it into conformity the United Nations Convention against Corruption.
- It proposes to replace the provisions of Section 13(1) with new wording in conformity with
international norms that is fairer and would prevent prosecution for mere administrative errors. The
Kelkar Committee on Public Private Partnerships too has strongly recommended amendment of the law
to protect bona fide decision-making.

- The Survey also recommends the govt. to set up a Commission to recommend a new prosecutorial
policy for the offence of corruption which balances the need for probity with the need for bona fide
decisions to be taken without fear of false allegations of corruption.
- The Commission should also recommend measures to improving the capacity of both the investigative
agencies and the public prosecutors.

CHAPTER 3 : Spreading JAM across India's economy

38. 3 Challenges in spreading JAM :

- When deciding where to spread JAM, policymakers should consider :
(i) first-mile (beneficiary identification),
- deal primarily with beneficiary eligibility and identification.
# Targeting:- targeted subsidies are harder to JAM than universal programs, as they require government
to have detailed information about beneficiaries. They are targeted at any soecific section of society. By
contrast, the LPG subsidy is universal; all households are eligible.
# Beneficiary databases:- to identify beneficiaries, the government needs a database of eligible
individuals.
# Eligibility:- a third issue with identification is the household-individual connection. Some benefits are
for households while others are for individuals. For example, the National Food Security Act (NFSA)
provides for subsidised grain to households but a cash transfer maternal entitlement to mothers. Jan
Dhan is monitored at household level, while Aadhaar is an individual identifier.

(ii) middle-mile (distributor opposition)

- The chief middle-mile issues are the administrative challenge of coordinating government actors and
the political economy challenge of sharing rents with supply chain interest groups.
# Within-government ministries departments and share coordination:- state government authority in
administering subsidies and transfers. Some subsidies have more streamlined administrative
arrangements than others.
# Supply chain interest groups:- agents along a commoditys supply chain can obstruct the spread of
JAM if their interests are threatened. The limited progress in getting Fair Price Shops in the Public

Distribution System (PDS) to adopt Point of Sale (POS) machines for biometric authentication is
suggestive of such resistance.

(iii) last-mile (beneficiary financial inclusion)

- Last-mile issues relate to the risks of excluding genuine beneficiaries, especially the poor. These
depend on two factors: # Beneficiary financial inclusion:- exclusion errors can be substantial if few beneficiaries have bank
accounts and can easily access them. Bank account penetration is growing, thanks to Jan Dhan, but in
rural areas physical connectivity to the banking system remains limited, and BCs and mobile money
providers have not yet solved this last-mile problem.
# Beneficiary vulnerability: - exclusion error risks increase when the beneficiary population is poorer.
The poorest 3 deciles of Indian households consume only 3% of subsidised LPG consumption, but 49% of
subsidised kerosene.

- The main constraint on JAMs spread is the last-mile challenge of getting money from banks into
peoples hands, especially in rural areas.
- The government should improve financial inclusion by developing banking correspondent and mobile
money networks, while in the interim considering models like BAPUBiometrically Authenticated
Physical Uptake.
- At present, the most promising targets for JAM are fertiliser subsidies and within government fund
transfersareas under significant central government control and with substantial potential for fiscal
savings.
39. JAM preparedness index :- to assess states ability to implement two varieties of JAMDBT and
Aasaan.
40. Despite Jan Dhans record-breaking feats, basic savings account penetration in most states is still
relatively low 46% on average and above 75% in only 2 states (Madhya Pradesh and Chattisgarh).
Policymakers thus need to be cognisant about exclusion errors due to DBT not reaching unbanked
beneficiaries.
- Comparing the reach of Jan Dhan with that of Aadhaar suggests that the unbanked are more likely to
constrain the spread of JAM than the unidentified.
41. Bank Beneficiary: the last-mile challenge of getting money into peoples hands.
- This economic surey identfies that in rural India, there is a serious last-mile problem of getting
money from banks into households hands.

- Mobile penetration across India is strong. Only in Bihar (54%) and Assam (56%) is penetration lower
than 60%.
- India should take advantage of its deep mobile penetration and agent networks by making greater use
of mobile payments technology. Mobiles can not only transfer money quickly and securely, but also
improve the quality and convenience of service delivery.
For example, they can inform beneficiaries that food supplies have arrived at the ration shop or fertiliser
at the local retail outlet.
- While some important changes have occurred this year to improve last-mile financial connectivity
including the Jan Dhan Yojanas initiatives to develop the BC (Business Correspondent) space and the
licensing of several mobile money operatorsthe Bank-Beneficiary connection still appears the weakest
link in the JAM chain.

42. This economic survey talks about March problem in LPG.

- Because March is the end of the fiscal year, distributors have strong incentives to invoice unconsumed
subsidised cylinders to households and resell them in in the black market.
- This explains the observed spike in March consumption (January and December consumption are high
because households use LPG for heating during the winter months). Reducing the cap could significantly
reduce this leakage.

43. MGNREGS is one of the governments largest schemes, and forms 41% of DBT expenditure. Through
fund management reforms, it is overcoming these challenges. Similar gains are possible from adopting
these reforms for all government payments, including other central and state schemes that still use the
old model.
44. DBT in LPG has generally been a big success, and policymakers in other areas are understandably
keen to emulate its success.
- However, when designing DBT schemes in other areas, caution should be exercised in drawing lessons
from the LPG case. Several features of LPG made it conducive to the application of JAM.

45. The policy areas that appear most conducive to JAM are those where the central government has
significant control and where leakages and hence fiscal savings due to JAMare high. This
combination is met for fertiliser and within-government fund transfers (e.g. MNREGA).
46. Mainly there are 2 JAM options:-

DBT and BAPUBiometrically Authenticated Physical Uptake.

With
DBT,
subsidies
are
transferred
to
beneficiaries
in
cash.
- With BAPU, beneficiaries certify their identity using Aadhaar and then physically take the subsidised
goods like today.
47. JAM Preparedness Index :
- It is an index to measure states preparedness to implement :
(i)
(ii)
(iii) BAPU.

DBT

DBT
in

in
rural

urban
areas,

areas,
and

- The Rural DBT preparedness index adds an additional indicator : BC density as a ratio of the Kenyan
level. We use Kenya as a benchmark intuitively as the 100% level because it is a country where
banking agent networks appear to be functioning relatively well in rural areas.
- The DBT rural preparedness scores are significantly worse than the urban scores.
48. It is clear that last-mile financial inclusion is the main constraint to making JAM happen in much of
rural India. Jan Dhans vision must truly succeed before much of India can JAM.
49. What can be done to reduce leakages in the meantime, while banking correspondent networks
develop and mobile banking spreads ?
- One possibility would be what we call BAPUBiometrically Authenticated Physical Uptake.
Beneficiaries verify their identities through scanning their thumbprint on a POS machine while buying
the subsidised productsay kerosene at the PDS shop.
- This is being successfully attempt by Krishna district in Andhra Pradesh, with significant leakage
reductions. Despite financial inclusion scores being low, if Fair Price Shops are equipped with POS
machines, beneficiaries can simply authenticate their identities while taking their rations as under the
current
system.
- BAPU preparednes is much better than for Rural DBT preparedness.
50. This economic survey recommends equal treatment of domestic and commercial users of LPG in
PAHAL
Scheme
in
terms
of
taxes.
- The commercial users have to pay high taxes on LPG while domestic users dont have to pay.
- Therefore, diversion of LPG from domestic to commercial sources continues, because of the
differential
tax
treatment
of
commercial
and
domestic
LPG.
- In other words, the One Product One Price principle is still being violated.
- However, the Pahal scheme has been a big success. The use of Aadhaar has made black marketing
harder, and LPG leakages have reduced by about 24% with limited exclusion of genuine beneficiaries.
51. Conclusion & Recommendations :

- Despite huge improvements in financial inclusion due to Jan Dhan, the JAM preparedness indicators
suggest that there is still some way to go before bank-beneficiary linkages are strong enough to
pursue DBT without committing exclusion errors.
- In that sense, the JAM agenda is currently jammed by the last-mile challenge of getting money from
banks into beneficiaries hands, esp. in rural India. The centre can invest in last-mile financial inclusion
via further improving BC networks and promoting the spread of mobile money. The recent licensing of
banks will help.
- In the meantime models like BAPU offer the prospect of lower leakages without the risk of exclusion
errors, and therefore merit serious consideration.

Chapter 4 : Agriculture: More from Less

52. Indian agriculture, is in a way, a victim of its own success, which over time is posing to be a major
threat. Indian agriculture has become cereal-centric and as a result, regionally biased and inputintensive, consuming generous amounts of land, water, and fertiliser.
- Encouraging other crops, notably pulses (via a Rainbow Revolution to follow the Green and White
Revolutions) will be necessary to match supply with evolving dietary patterns that favor greater proteins
consumption.
- At the same time, rapid industrialization and climate change will require economizing on land and
water, respectivelygetting more from less of these inputs.
53. The Macro-picture of Productivity :
- The central challenge of Indian agriculture is low productivity, evident in modest average yields,
especially in pulses. The main food grains wheat and rice - are grown on the most fertile and irrigated
areas in the country.
- And they use a large part of the resources that the government channels to agriculture, whether water,
fertiliser, power, credit or procurement under the MSP program. Even then, average yields of wheat and
rice in India are much below that of Chinas 46% below in the case of rice and 39% in the case of
wheat.
- In terms of yield/hectare, India has low yields comparable to most countries. Given that India is the
major producer and consumer of pulses, imports cannot be the main source for meeting domestic
demand. Therefore, policy must incentivise movement of resources towards production of pulses.
M.P
is
the
largest
pulses
produing
state
in
India
followed
by
U.P.
- These figures carry one important message: India could make rapid gains in productivity through

convergence within India. For e.g., in pulses, if all states were to attain even Bihars level of productivity,
pulses production would increase by an estimated 41% on aggregate.
54. Not only is most of the land dedicated to growing pulses in each state unirrigated, but the national
output of pulses comes predominantly from un-irrigated land. In contrast, a large share of output in
wheat, rice and sugarcane in Punjab, Haryana and UP is from irrigated land.
- In water scarce Maharashtra, all sugarcane is grown on irrigated land. Meeting the high and growing
demand for pulses in the country will require large increases in pulses production on irrigated land, but
this will not occur if agriculture policies continue to focus largely on cereals and sugarcane.
55. A/c to this year economic survey, inflation, fiscal deficit, current account deficit all have declined.
56. India uses 2 to 4 times more water to produce a unit of major food crop than does China and Brazil.
Hence, it is imperative that the country focus on improving the efficiency of water use in agriculture.
- Flood irrigation is an extremely inefficient use of water. Irrigation investments must shift to adopting
technologies like sprinkler and drip irrigation and rainwater harvesting.
57. In order to facilitate this shift, the new irrigation technologies need to be accorded infrastructure
lending status (currently accorded to canal irrigation) and both the centre and states need to increase
public spending for micro irrigation.
- The consolidation of ongoing irrigation schemes the Accelerated Irrigation Benefit Programme
(AIBP), Integrated Watershed Management Programme (IWMP) and On Farm Water Management
(OFWM) into the Prime Ministers Krishi Sinchayi Yojana (PMKSY) offers the possibility of convergence
of investments in irrigation, from water source to distribution and end-use.
- A key factor undermining the efficient use of water is subsidies on power for agriculture that, apart
from its benefits towards farmers, incentivises wasteful use of water and hasten the decline of water
tables.
58. Water embedded in crops is the water content of each crop and once the crop is exported, it
cannot
be
recovered.
- China remains a net importer of water. This is also evident in China and Indias trade patterns. China
imports water-intensive soybeans, cotton, meat and cereal grains, while exporting vegetables, fruits and
processed food. India, on the other hand, exports water-intensive rice, cotton, sugar and soybean.
59. In drip irrigation, perforated pipes are placed either above or slightly below ground and drip water
on the roots and stems of plants, directing water more precisely to crops that need it.
- An efficient drip irrigation system reduces consumption of fertiliser (through fertigation) and water
lost to evaporation, and higher yields than traditional flood irrigation.

60. Price Deficiency Payment

- It was suggested by the Niti Aayog in 2015. Under this system if the price in an Agriculture Produce
Market Committee (APMC) mandi fell below the MSP then the farmer would be entitled to a
maximum of, say, 50% of the difference between the MSP and the market price.
- This subsidy could be paid to the farmer via Direct Benefits Transfer (DBT). Such a system would keep
the quantum of the subsidy bill in check and also be consistent with Indias obligations to the WTO.
61. In more recent years, agriculture research has been plagued by severe under investment and
neglect.
3
weaknesses
:
(a) states where agriculture is relatively more important (as measured by their share of agriculture in
state GDP), agriculture education is especially weak if measured by the number of students enrolled in
agricultural universities.
- The agriculture universities have been plagued by: (i) resource crunch, (ii) difficulty in attracting
talented faculty, (iii) limited linkages and collaborations with international counterparts, (iv) weakening
of the lab-to-land connect; and, (v) lack of innovation
(b) Investment in public agricultural research in India needs to be augmented. Given the large
externalities, the centre needs to play a more important role. Indias current spending on agriculture
research is considerably below that of China and as a share of agriculture GDP even less than that of
Bangladesh and Indonesia.
(c) Resource augmentation can go only so far unless accompanied by changes in incentives. There is a
strong need to take steps to enhance research productivity among the scientists in public agriculture
research institutes by instituting performance indicators as the majority (63.5%) of scientists had low to
very low level of productivity".
- The policy should seek to level the playing field for private, public and citizen sector participation.
62. Market segmentation :
- It reduces overall welfare because it prevents gains through competition, efficient resource allocation,
specialization in subsectors and fewer intermediaries.
Causes :- differences in remoteness and connectivity (rural roads), local market power of intermediaries,
degree of private sector competition, propensity of regional exposure to shocks, local storage capacity,
mandi infrastructure and farmers access to them, storage life of the crop and crop specific processing
cost.
- Segmentation also creates a wedge at various points in the supply chain from the farm-gate to the
final consumer in India.

Chapter 6 : Bounties for the Well-Off

63. Subsidies for the poor tends to attract policy attention. But a number of policies provide benefits to
the well-off. Indian states generosity is not restricted to its poorest citizens. In fact, in many cases, the
beneficiaries are disproportionately the well-off.
- Key areas are:- small savings schemes, kerosene, railways, electricity, LPG, gold, and aviation turbine
fuel (ATF).
64. "Small" Savings :
How they hinder monetary policy transmission :
- Because small savings schemes offer high and fixed deposit rates (within year) and compete with
banks, it is difficult for banks to reduce their own deposit rates and hence pass on policy rate cuts to
consumers in form of lower lending rates. Recently, the government has reduced rates on some small
savings schemes to make them more responsive to market conditions.
- It is misleading to characterise these savings schemes as small, because in fact there are at least 3
types of schemes, only one of which can really qualify as small".
- This 1st set of actually small schemes ranges from postal deposits to schemes for the elderly and
women. The 2nd set is of not-so-small schemes, which includes the most important of all the Public
Provident Fund (PPF). And the 3rd category is not-small-at-all schemes, which includes tax-free bonds
issued by designated public sector companies like IRCL, IIFCL, PFC, HUDCO, NHB, REC, NTPC, NHPC,
IREDA, NHAI and others, supposedly to finance infrastructure projects.
65. Ideally, savings schemes should be taxed according to the EET principle. The first E stands for tax
exemption of the contribution, the second E for exemption of interest income, while T stands for
taxation of the principal (and interest) when it is withdrawn.
66. Gold is a strong demerit good: the rich consume most of it (the top 20% of population account for
roughly 80% of total consumption) and the poor spend almost negligible fraction of their total
expenditure 5 on it.
- Yet gold is only taxed at about 1-1.6% (States and Centre combined), compared with tax of about 26%
for normal goods (the central governments excise tax on gold is zero compared with 12.5% for normal
commodities.)
- LPG consumers receive a subsidy of Rs. 238.51 per 14.2 kg cylinder (as in January 2016), which
amounts to a subsidy rate of 36% (ratio of subsidy amount to the market price). It turns out that 91% of
these subsidies are accounted for by the better-off as their share of consumption of LPG in the total
consumption is about 91%; while the poor account for only 9% of LPG consumption and hence only 9%
of subsidies go to them.

- So, this subsidy, aimed at benefitting the poor, is hardly being used by them. Another important point
to note is that LPG is subsidized heavily, as compared to other energy related commodities like petrol,
diesel etc which are taxed at very high rates
67. One can think of a commodity-wise benefit-cost analysis for determining the efficacy of government
interventions on taxes and subsidies. The benefit could be thought of as the share of the subsidy going
to the target (poor) group. The cost is simply that proportion that leaks to the non-target group.
- More precisely, the benefit/cost ratio is defined as a share of expenditure of that commodity in the
household budgets of the poor, divided by the share of consumption of that particular commodity by
the non-target group.
- Ideally, the higher the benefit-cost ratio the more is the rationale for a subsidy/ lower tax on that
commodity and vice-versa.

Chapter 7 : Fiscal Capacity for the 21st Century

68. India stands out in the number of individual income taxpayers. The ratio of taxpayers to voters is
only about 4%, whereas it should be closer to 23%.
69. Democracy is a contract between the state and its citizens. This contract has a vital economic
dimension: the state's role is to create the conditions for prosperity for all by providing essential services
and protecting the less well-off via redistribution. The citizen's part of the contract is to hold the state
accountable when it fails to honour the contract.
- If a citizen does not pay - through taxes or user fees - he either becomes a free rider (using the service
without paying) or exits (not using the service at all). Both reduce the accountability of the state.
- Hence the expression: no representation without taxation. Taxation is not just about financing public
spending, it is the economic glue that binds citizens to the state in a necessary two way relationship.
70. India is a significant negative outlier when it comes to the tax to GDP ratio and significantly so with
respect to expenditures on health and education. In other words, controlling for democracy, India taxes
less and spends less (especially on human capital).
71. The accountability of citizens weaken if they do not pay directly for the services the state provides.
This is likely to render citizens as free riders or compel them to exit thereby diluting the accountability of
the state itself. Hence the number of taxpayers is a key indicator of fiscal capacity.
- While at present about 4% of citizens who vote pay taxes, the%age should be about 23.

72. India has not fully translated its democratic vigour into commensurately strong fiscal capacity. In the
long run, if India is to stay on the line as its per capita income grows, it will need to build fiscal
capacity.
- One low hanging fruit that this economic survey suggested was to refrain from raising exemption
thresholds and allowing natural growth in income to increase the number of taxpayers.
- This economic survey also suggests that the Property Taxation needs to be developed. Higher property
tax rates would put sand in the wheels of property speculation.
- Property taxes are especially desirable because they are progressive, buoyant (at least in the Indian
context), and difficult to evade, since they are imposed on a non-mobile good, which can with today's
technologies, be relatively easily identified.

Chapter 8 : Preferential Trade Agreements

73. Within the broad category of PTAs, one can distinguish five forms :
(i) Partial Scope Agreement (PSA): It is partial in scope, meaning it allows for trade between countries
on a small number of goods.
(ii) Free Trade Agreement (FTA): Members reduce tariffs on trade among themselves, while maintaining
their own tariff rates for trade with nonmembers.
(iii) Customs Union (CU): Members apply a common external tariff (CET) schedule to imports from
nonmembers.
(iv) Common Market (CM): A customs union where movement of factors of production is relatively free
amongst member countries.
(v) Economic Union (EU): A common market where member countries coordinate macro-economic and
exchange rate policies.
74.
IndIa
and
Free-trade
agreements
:
- In addition to its long-standing commitment to multilateralism under WTO agreements and in line with
global trends, India has made use of FTAs as a key component of its trade and foreign policy, especially
from
2003-04
onwards.
- All FTAs are not same. There are some differences among all kinds of FTAs among/between different
countries.

75. The two major mega regional agreements are the Trans-Pacific Partnership (TPP), which has been
signed but not yet ratified by member countries, and the Trans Atlantic Trade and Investment
Partnership (TTIP), which is currently being negotiated.
- The TPP comprises twelve member countries : Australia, Brunei, Canada, Chile, Japan, Malaysia,
Mexico, New Zealand, Peru, Singapore, United States, and Vietnam.
- The TPP will cover 40% of global GDP and 33% of world trade.
76. The gravity model of trade relates bilateral trade flows between countries to country-specific
characteristics.
- The two basic axioms are that trade flows between countries are directly proportional to the size of
the two countries - as measured by GDP - and inversely proportional to the distance between them.
77. As per this economic survey :- FTA-based reductions have the same impact as non-FTA ones. That is,
a 10% import side reduction in tariffs has the same effect in FTA and non-FTA cases: imports increase by
0.9%.
Lump-sum result of India's FTAs :
- Indias FTAs have worked exactly as might be expected. They have increased trade with FTA countries
more
than
would
have
happened
otherwise.
- Increased trade has been more on the import than export side, most likely because India maintains
relatively high tariffs and hence had larger tariff reductions than its FTA partners.

Chapter 9 : Reforming the Fertiliser Sector

78. Recent reforms in the fertiliser sector, including neem-coating to prevent diversion of urea to
industrial uses, and gas-pooling to induce efficiency in production, are steps in the right direction.
- Fertiliser accounts for large fiscal subsidies (about 0.73 lakh crore or 0.5% of GDP), the second-highest
after food. We estimate that of this only 17,500 crores or 35% of total fertiliser subsides reaches small
farmers.
- The urea sector is highly regulated which: creates a black market that burdens small farmers
disproportionately; incentivises production inefficiency; and leads to over-use, depleting soil quality and
damaging human health.
- Reforms to increase domestic availability via less restrictive imports (decanalisation) and to provide
benefits directly to farmers using JAM will address many of these problems.

79. Multiple distortionsprice and movement controls, manufacturer subsidies, import restrictions
feed upon each other, making it difficult to reallocate resources within the fertiliser sector to more
efficient uses. The fertiliser sector is thus one example of the exit problem that bedevils the Indian
economy.
80. There are 3 basic types of fertiliser usedurea, Diammonium Phosphate (DAP), and Muriate of
Potash (MOP).
- In many ways, urea dominates the sector. Of all the fertilisers, it is the most produced (86%), the most
consumed (74% share), and the most imported (52%). It also faces the most government intervention.
- Urea is the most physically controlled fertiliser, with 50% under the Fertiliser Ministrys movement
control order compared with 20% for DAP and MOP. It also receives the largest subsidies, in outlay
terms (accounting for nearly 70% of total fertilisers subsidy) and as proportion of actual cost of
production (75% per kg, compared with about 35% for DAP and MOP).
81. The government intervenes in the urea market in 5 ways:
1. It sets a controlled Maximum Retail Price (MRP) at which urea must be sold to farmers. This price is
currently Rs 5360 per metric tonneapproximately Rs 268 per 50 kg bagless than one-third the
current imported price (Rs 18600 per tonne);
2. It provides a subsidy to 30 domestic producers that is firm-specific on a cost-plus basis, meaning that
more inefficient producers get larger subsidies;
3. It provides a subsidy to importers that is consignment-specific;
4. Imports are canalisedonly three agencies are allowed to import urea into India;
5. Finally, about half of the movement of fertiliser is directedthat is, the government tells
manufacturers and importers how much to import and where to sell their urea.
- Thus nearly all actorsconsumers, producers, importers, distributersare controlled. These
distortions feed upon each other, and together create an environment that leads to a series of adverse
outcomes .
82. Types of Leakages in the Fertiliser (Urea) sector :
Leakage 1 Black Market
- Urea is only subsidised for agricultural uses. Subsidies like this violate what we call the One ProductOne Price principlethe intuition that products which are essentially the same should be charged
essentially the same price, else there will be incentives to divert the subsidised commodity from
eligible to ineligible consumers.

- The 75% subsidy on agricultural urea creates a large price wedge which feeds a thriving black market
diverting urea to industry and possibly across the border to Bangladesh and Nepal. It is estimated that
about 51% of Indian farmers buy urea at above-MRP.
- Black market effects are aggravated by a further regulationcanalisation. Only three firms are
allowed to import urea into India, and the canalisers are also instructed when to import, what
quantities
to
import,
and
in
which
districts
to
sell
their
goods.
- Every season the Fertiliser Department estimates how much imports are required by forecasting
domestic supply and demand. Forecasting fertiliser demand is a difficult business, and misestimates
esp. shortages are difficult to correct because the system to procure imports is time consuming.
Leakage 2 Small Farmer Inability to derive full benefits
- The black market hurts small and marginal farmers more than large farmers since a higher %age of
them are forced to buy urea from the black market. This regressive nature is characteristic of black
market rationing and happens because large farmers are typically better connected and therefore able
to secure scarce subsidised urea.
Leakage 3 Inefficient Fertiliser Manufacturers
- A third source of leakage arises from some of the urea subsidy going to sustaining inefficient domestic
production instead of going to the small farmer.

83. A consequence of fixing retail pricescombined with the cost-plus subsidy regimeis that even
though urea consumption has increased steadily over the last 15 years, no new domestic production
capacity has been added, leading to a large dependence on imports.
84. Agricultural scientists recommended that for Indian conditions, Nitrogen, Phosphorus and
PotassiumN, P and Kshould be used roughly in the ratio of 4:2:1.
85.
Reforms
Needed
:
(i) Decanalising urea importswhich would increase the number of importers and allow greater
freedom in import decision--would allow fertiliser supply to respond flexibly and quickly to changes in
demand.
- This would reduce the likelihood and severity of shortages, decrease black marketing and thereby
benefit the small farmer.
(ii) Bringing urea under the Nutrient Based Subsidy program currently in place for DAP and MOP would
allow domestic producers to continue receiving fixed subsidies based on the nutritional content of their
fertiliser, while deregulating the market would allow domestic producers to charge market prices.

(iii) Turning fertiliser into JAM- Technology could be used to curtail leakages and improve targeting of
fertiliser subsidies. Fertiliser is a good sector to pursue JAM because of a key similarity with the
successful LPG experience: the centre controls the fertiliser supply chain.
- The governments policy of neem-coating urea is a step in the direction of controlling the leakage.
Neem-coating makes it more difficult for black marketers to divert urea to industrial consumers.
- Neem-coating also benefits farmers by reducing nitrogen losses from the soil by providing greater
nutrient to the crop. As a result, farmers need less urea to achieve the same effect.
86. This economic survey suggest that : Reform of the fertiliser sector would not only help farmers and
improve efficiency in the sector. It would also show that India is prepared to address exit constraints
that bedevil reform in other sectors.

Chapter 10 : Structural Changes in Indias labour markets

87. India is demographic dividend a period of time when demography gives economic growth a boost
by expanding the working-age share of the population. To exploit this dividend and meet the growing
aspirations of those entering the labour force, Indias economy needs to create enough good jobs
jobs that are safe and 1 pay well, and encourage firms and workers to midway through its improve skills
and productivity.
88. Informal sector jobs are much worse than formal sector ones wages are, on average, more than
20 times higher in the formal sector, though informal sector wages have grown somewhat faster
between 1989-2010.
- Formal sector jobs also score better on some non-pecuniary grounds. e.g,= they allow workers to build
employment history which is important for gaining access to cheaper formal credit.
- The challenge of creating good jobs in India could be seen as the challenge of creating more formal
sector jobs, which also guarantees worker protection.
89. CompetItIve federalIsm :
- With private investment lagging, states are under pressure to be seen as attractive destinations for
investments that will create jobs and boost economic growth.
90. PRODY :
- It is the average GDP of countries producing a particular product. PRODY is thus a measure of the
quality of a particular product.

EXPY :
- It is an analogous measure for the quality of a countrys export mix. It is calculated as the average of
PRODY for all products a country exports, and is a good predictor of subsequent economic growth.
91. Relocation :
- Apparel is an industry in which India should be performing well. It is labour intensive, with 30% of costs
from wages. Only 2-3% of costs are due to capital-intensive inputs like power. And yet India is ceding
market share in the global apparel industry to countries like Bangladesh & Vietnam.
How
can
Indias
productivity
in
apparel
be
improved
?
- Productivity could be substantially improved by reallocating capital from less-productive to moreproductive firms.
- Formal sector apparel firms are about 15 times more productive than their informal sector
counterparts. Yet, Indias apparel sector is dominated by informal firms. Indeed, apparel firms now make
up the largest share of establishments in the informal sector.
92. The apparel industry typically employs many female workers: for instance about 70% of the
employees of India's largest apparel exporter are women. Therefore, apparel manufacturers locating in
rural areas can help address the low rates of female labour force participation that prevent India from
achieving its full economic potential.
93. Relocation Model of Business in Apparel Industry :
- Some formal sector apparel manufacturers are adoptingrelocating in second- and third-tier towns
and cities. This business model of moving factories to workers has a number of commercial and social
advantages
(a)
spreads
economic
development
to
underdeveloped
areas,
(b)
reduces
spatial
mismatch
in
the
labour
market
and
(c) can improve competitiveness by raising firms access to lower cost labour.
94. Female Labour Force Participation (LFP) can be expected to depend on the availability of suitable
jobs, which are flexible and located close to home. In fact recent research suggests that more than half
of the decline in female LFP Rate is explained by a deficit of suitable jobs at the local level.
- The relocation model addresses this concern by offering precisely the kind of suitable jobslocated
in small cities, utilising womens comparative advantage in garments, flexible working hours and
childcare on site that women in rapidly urbanising areas are looking for but often do not have.
- Thus the relocation model could be termed a win-win-win: commercially advantageous for the
manufacturer, bringing women into the labour market, and boosting growth.

95. EPF contributions have an EEE statusExempt, Exempt, Exempt meaning that contributions,
interest earned and withdrawals are all exempt from tax.
96. ConclusIon :
- Indias most pressing labour market challenge going forward will be to generate a large number of
good
jobs.
These
jobs
tend
to
be
formal
sector
jobs.
2
obstacles
to
formal
sector
job
creation
are
:
(a)
regulation-induced
taxes
on
formal
workers
and
(b) spatial mismatch between workers and jobs.

Chapter 10 : Powering One India

97. The Indian Railways and Open Access :

- The Indian Railways (IR), one of the largest transportation networks in the world, consumes17.5 billion
units of energy (1.7% of the country's total electricity consumption) for which it pays about Rs12,300
crore to distribution companies annually.
- This amounts to more than 25% of total revenue budget of IR which is the 2nd largest component of its
revenue expenditure. IR has embarked on a cost rationalisation strategy to migrate from existing
arrangements with 14 state utilities/ NTPC and procure electricity through open access.
- These new arrangements are expected to bring good savings for IR. To facilitate this arrangement, IR
was given the status of deemed licensee by the Ministry of Power in May, 2014. As such, the cross
subsidy charges levied by states may not be applicable to it, though charges for using states
transmission and distribution networks will continue to be paid.
98. Salient features of policy action on distribution front :
A.
Ujwal
DISCOM
Assurance
Yojana
(UDAY)
1. States shall take over 75% of discom debt outstanding as of September 2015.
2. Reduction of Aggregate Technical & Commercial (AT&C) losses to15% by 2018-19.
3. Reduction in difference between average cost of supply and average revenue realized (ARR) by 201819.
4.
Increased
supply
of
domestic
coal
to
substitute
for
imported
coal.
5. States shall take over future losses of discoms in a phased manner.
6. Banks/FIs not to advance short term debt to discoms for financing losses.

B.
Deen
Dayal
Upadhyaya
Gram
Jyoti
Yojana
(DDUGJY)
1.
Electrification
of
all
villages.
2.
Metering
of
unmetered
connections
for
reducing
losses.
3. Separation of feeders to ensure sufficient electricity to agriculture and continuous supply to other
categories.
4. Improvement of sub-transmission and distribution network to improve the quality and reliability of
supply.
C.
Integrated
Power
Development
Scheme
1. Strengthening of sub-transmission and distribution network in
2.
Metering
of
distribution
transformers/feeders/consumers
in
3. IT enablement of distribution sector and strengthening of distribution network.

(IPDS)
urban
urban

D.
Domestic
Efficient
Lighting
Program
1.77 crore LED bulbs to replace household and street light in candescent bulbs.

(DELP)

areas.
areas.

E.
National
Tariff
Policy,
2016
1.
Cross
subsidy
surcharge
formula
revised.
2. Regulator will devise power supply trajectory to ensure 24X7 power supply for all consumers latest by
2021-22 or earlier.

99. While discussing the Indian power sector it must be borne in mind that reforms in this sector are
more challenging than in many others due to the clear demarcation in the roles and responsibilities of
the states and centre undertheconstitution.
100. Discoms have a key role in the power sector, acting as an interface between retail consumers and
rest
of
the
value
chain.
- These companies act as intermediaries between generators and retail consumers, purchasing
electricity from wholesale markets and marketing it to retail consumers. As with any other market
intermediary, they recover returns on their equity investments (ROI) by charging a mark-up over their
cost of supply.
101. Tariffs reflecting costs are a necessary condition for discoms to sustain themselves over the longrun. Several states are attempting to close this gap under the UDAY Scheme.
102. Single Market Price & Open Access :
This economic survey is advocating for a single market price for power around the country. - The Open
Access (OA) policy introduced under Electricity Act 2003, allows consumers with electricity load
above1MW to procure electricity directly from electricity markets.
- Some states, however, have imposed significant barriers to OA, like cross-subsidy surcharge and
additional surcharge for purchasing electricity from the power exchanges (PX) in 2015-16.

- This problem was meant to be addressed by the National Tariff Policy (2006), which established a
methodology for determining the cross-subsidy surcharge to be levied on OA consumers, with the goal
of reducing it over time. Nonetheless, cross-subsidy surcharges over the years have gone up.
- Significant non-price barriers exist in states that do not cross-subsidise to a great extent but where
discoms derive the bulk of their revenues from industry.
103. Conclusion :
- Impressive strides have been made in the power sector over the last two years including:- (i) The
addition
of
record
generation
capacity;
(ii)
moves
to
create
one
market
in
power;
(iii)
long
overdue
reforms
of
discoms;
and
(iv) energizing the development of the renewables sector.
- The new paradigm of surplus power sets the stage for continuing these reforms so that India can
become one market in power; the burden on industry can be relieved, allowing it to become
internationally competitive as envisaged in MakeinIndia; tariffs can be made simple and transparent,
avoiding proliferating end-use charges; and by taking advantage of the possibility of greater
progressivity in rate-setting, charges for the poor could be reduced while generating more revenues.

VOLUME- 2

Chapter 1 : State of the Economy: An Overview

104. India has made striking progress in its contribution to the global growth of Gross Domestic Product
(GDP)
in
Purchasing
Power
Parity
(PPP)
terms.
- PPP represents the number of units of a country's currency required to purchase the same amount of
goods and services in the domestic market as the US dollar would purchase in the United States.
- Indias contribution to global growth in PPP terms increased from an average of 8.3% during the period
2001 to 2007 to 14.4% in 2014.
105. Indias share in world GDP :
- Indias share in world GDP has increased from an average of 4.8% during 2001-07 to 6.1% during 200813 and further to an average of 7.0% during 2014 to 2015 in current PPP terms (IMF).
- India's resilience and current levels of reasonably strong growth should, thus, be appreciated in the

light
of
its
increasing
contribution
to
- The recent growth revival in India is predominantly consumption-driven.

global

growth.

106. From the expenditure side, GDP at current market prices can be seen as :
the
sum
of
(a)
consumptionboth
private
and
public,
(b) investment, also known as Gross Capital Formation (GCF) which comprises fixed capital formation,
change
in
stock
and
valuables,
and,
(c) net exports which represent the difference between exports and imports of goods and non-factor
services.
107. Three visible changes are taking place in aggregate demand :
(i) with improving growth in private consumption, its contribution to GDP growth is getting aligned to its
GDP share. Private consumption has strengthened in the current year. There was a significant increase
in the growth of government consumption expenditure in 2014-15, which got corrected in the current
year.
(ii) aided by the growth in capital goods, the growth of fixed capital formation (also known as fixed
investment and which reflects addition to the productive capacity in the economy) has picked up. A
robust growth in valuables has been recorded during the current year.
(iii) the substantial erosion of global demand for Indian output, manifest in loss of Indian Exports, acts as
a drag on domestic growth. It is from this angle that the India's achievement of being able to sustain its
growth at a fairly high level, primarily on the strength of her domestic absorption, becomes noteworthy.

108. Since 1950-51, India has had only seven years of marginal net export (exports minus imports of
goods and nonfactor services) surpluses; and never since 1993-94. Thus, India has generally been a net
importer.
- However, the growth contribution of net exports was positive in many years substantially positive in
somewhen its negativity declined from the immediately preceding year.
109. Growth in Gross Value Added :
- The Gross Value Added (GVA), which broadly reflects the supply or production side of the economy,
registered an increase in the growth rate from 5.4% in 2012-13 to 7.1% in 2014-15.
- In the current year, the growth in GVA is likely to increase to 7.3%, as per the Advance Estimates (AE)
released by the Central Statistics Office (CSO), affirming the positive trends in the economy indicated by
GDP growth.

#. The difference between GDP and GVA is product taxes net of product subsidies and indicates net
indirect taxes (NIT).
110. The GVA at basic prices is the sum of Compensation of Employees including social contributions
made by the employer (CE), Operating Surplus (OS)/ Mixed Income of the Self-employed (MI),
Consumption of Fixed Capital (CFC) and taxes net of subsidies on production. OS is the difference
between Net Value Added (NVA) and CE.
111. Broadly, there are three institutional sectors that save and invest, i.e. households, the private
corporate sectorboth financial and non-financialand the public sector consisting of the general
government and public corporations.
112. The current account balance of the Balance of Payments (BoP) mirrors the difference between
domestic savings and domestic investment, and conveys the extent of this gap that needs to be bridged
by foreign savings.
- The gap between investment and savings has been declining over time. However, it is due to the
greater decline in the investment rate (measured as ratio of GCF to GDP) vis--vis the savings rate.
113. The astute policies and management of inflation by the government through buffer stocking, timely
release of cereals and import of pulses and moderate increase in Minimum Support Prices (MSP) of
agricultural commodities helped in keeping prices of essential commodities under check during 2015-16.

#. Headline Inflation :- Headline inflation is a measure of the total inflation, based on CPI, within an
economy, including commodities such as food and energy prices (e.g., oil and gas), which tend to be
much more volatile and prone to inflationary spikes. It can also be calculated on WPI.
114. The sluggish growth of bank credit can be attributed to several factors:
(a) incomplete transmission of the monetary policy as banks have not passed on the entire benefit to
borrowers;
(b) unwillingness of the banks to lend credit on account of rising Nonperforming Assets (NPA);
(c) worsening of corporate balance sheets, forcing them to put their investment decisions on hold;
(d) interest rates in the bond market being more attractive to borrowers.

115. For creating a universal social security system for all Indians, especially the poor and the
underprivileged, three schemes were launched in 2015 in the insurance and pension sectors--the
Pradhan Mantri Suraksha BimaYojana, the Pradhan Mantri Jeevan Jyoti Bima Yojana and the Atal
Pension Yojana--on pan-India basis on 9 May 2015.

- In pursuance of the announcement in the Union Budget 2015-16 of the setting up of a Micro Units
Development Refinance Agency (MUDRA) Bank to refinance lastmile financers, the Pradhan Mantri
Mudra Yojana has been launched on 8 April 2015.
- MUDRA seeks to offer two products, namely refinance products with a loan requirement up to R10
lakh and support to micro-finance institutions by way of refinance.
- In order to mobilize gold for productive purpose and to reduce the countrys reliance on imports of
gold, two main schemes were launched in 2015: (i) the Sovereign Gold Bond Scheme and (ii) the Gold
Monetization Scheme.

116. World Economic Outlook update show that India and the rest of emerging Asia are bright spots,
with some other countries facing strong headwinds from Chinas economic rebalancing and global
manufacturing weakness.
117. India's Foreign Trade Policy (FTP) and WTO Negotiations :
- In the wake of declining exports, the government took various measures to boost exports in the Union
Budget 2015-16 and in the new Foreign Trade Policy (FTP), for the period 2015-20, announced on 1 April
2015.
- The focus of the new FTP has been on supporting both manufacturing and services exports and
improving ease of doing business.
118. Nairobi Package :
- The 10th Ministerial Conference of the WTO was held in Nairobi, Kenya, from 15 to 19 December 2015.
The outcomes of the conference, referred to as the Nairobi Package include Ministerial Decisions on
agriculture, cotton and issues related to Least Developed Countries (LDCs).
- These cover public stockholding for food security purposes, a Special Safeguard Mechanism (SSM) for
developing countries, a commitment to abolish export subsidies for farm exports, particularly from the
developed countries, and measures related to cotton.
- Decisions were also taken regarding preferential treatment to LDCs in the area of services and the
criteria for determining whether exports from LDCs may benefit from trade preferences.
- As regards the future of the Doha Round of trade negotiations, the Nairobi Ministerial Declaration
reflects divergence amongst the WTO membership on the relevance of reaffirming the Doha mandate as
the basis of future negotiations.
- With the process of multilateral negotiations being slow, megaregional trading agreements like the
Trans- Pacific Partnership have emerged.

119. Despite the decline in merchandise exports during the first half (H1) of 2015-16, Indias BoP
position remained comfortable. Some of the salient external sector developments are: (i) lower trade
deficit and modest growth in invisibles resulted in lower Current Account Deficit (CAD),
(ii) continued increase in Foreign Direct Investment (FDI) inflows and Non-resident Indian (NRI) deposits
and
(iii) net outflow of portfolio investment. Although, there was a net outflow under portfolio investment,
capital/financial flows were in excess of the CAD and the absorption of the same by the RBI led to an
accretion in reserves.
120. Indias foreign exchange reserves at US$351.5 billion as on 5 February 2016 mainly comprised
foreign currency assets amounting to US$328.4 billion, accounting for about 93.4% of the total.
- As per the latest available data, Indias external debt stock increased by US$8.0 billion (1.7%) to
US$483.2 billion at end-September 2015 over end-March 2015. This rise in external debt occurred on
account of long-term debt, particularly commercial borrowings and NRI deposits. (Here, NRI deposits
are also taken as a kind of foreign borrowing---imp.)
- Long-term foreign debt accounts for the major portion of the total external debt.
121. The global economy, shrouded in uncertainties and constrained by sluggish demand, has failed to
generate confidence. While the emerging market economies have clearly slowed down, the large
Chinese economy is faced with concerns of rebalancing investment and consumption activities.
- In this milieu, the Indian economy stands out as a haven of macroeconomic stability, resilience and
optimism and can be expected to register GDP growth that could be in the range of 7.0 to 7.75% in the
coming year.
122. The possible shifts on the consumption front in the next year are:
(i) consumption incentives flowing from declining oil prices may partially recede in the next year;
(ii) the pay commission awards could potentially add modestly to consumption demand;
(iii) an improved farm sector performance can add to rural consumption.
123. The uncertainties in growth in agriculture are explained by the fact that 60% of agriculture in India
is rainfall dependent and there have been two consecutive years of less than normal rainfall in 2014-15
and 2015-16.
124. At present, there are multifarious issues and challenges faced by the agriculture sector and in order
to revive it, a significantly different approach needs to be followed. The following measures, inter alia,
need to be taken to step up productivity in agriculture and transform the sector :
(a) Need to scale up investments to expand water efficient irrigation to achieve more crop per drop to
improve
productivity
in
agriculture.
(b) Effective use of other inputs like fertilizers, quality seeds and pesticides is also required, along with
irrigation,
to
reach
optimal
agricultural
potential
of
India.

(c) The success of dairy, an allied sector, has been the result of an integrated cooperative system of milk
collection,
transportation,
processing
and
distribution.
- Diversification of the produce through value added products in the dairy industry has minimized the
seasonal impact on suppliers, which is a strategy that needs to be emulated by other allied sectors in
agriculture.
(d) There is tremendous potential to increase availability of agricultural produce by reducing wastage in
the post-harvest value chain. Reducing post-harvest losses through investments in storage facilities and
drying facilities will also help ensure food security for the population.

125. The services sector has emerged as the most dynamic sector globally and remains the key driver of
Indias economic growth.
126. Indias services exports increased from US$16.8 billion in 2001 to US$155.6 billion in 2014, making
the country the eighth largest services exporter in the world.
127. Skill gaps in various productive sectors in India are large and will require upscaling of training and
skill development to maximize the benefits of its demographic dividend and make Indias development
trajectory more inclusive and productive.
- Thus, India has to address the challenges of not just providing employment but of increasing the
employability of the labour force, which is correlated to knowledge and skills developed through quality
education and training along with ensuring good quality of health.
#. Annual Employment-Unemployment Survey conducted by the Labour Bureau.

128. The year 2015 witnessed two landmark international events :

(i) The historic climate change agreement under the United Nations Framework Convention on Climate
Change (UNFCCC) was adopted by 195 nations in Paris in December 2015, with the aim of keeping the
rise in global temperature well below 2C, which will set the world towards a low carbon, resilient and
sustainable future.
(ii) The world also witnessed the adoption of the Sustainable Development Goals (SDGs) in September
2015 which replace the Millennium Development Goals (MDGs) and set the development agenda for the
next 15 years with the aim of guiding the international community and national governments on a path
of sustainable development.
- The SDG agenda highlights poverty eradication, combating inequalities, promoting gender equality and
the empowerment of women and girls as the ambient goal and has at its core the integration of the
economic, social and environmental dimensions of sustainable development.

129. India has submitted ambitious targets in its Intended Nationally Determined Contribution (INDC) in
the renewable energy sector, mainly from solar and wind energy. With a potential of more than 100
GW, the aim is to achieve a target of 60 GW of wind power as well as 100 GW of solar power installed
capacity by 2022.
- Indias INDC is comprehensive and covers all elements, i.e. adaptation, mitigation, finance, technology
and capacity building. The countrys goal is to reduce overall emission intensity and improve energy
efficiency of its economy over time, at the same time protecting the vulnerable sectors and segments of
the economy and society.

Chapter 2 : Public Finance

130. The fiscal policy for 2015-16 was calibrated with three main objectives:
(i) to amplify the growth revival with greater emphasis on public investment at a time when private
investment was understandably lean;
(ii) to institutionalize the changing structure of cooperative federalism; and
(iii) to continue the commitment to fiscal consolidation.

131. The Budget signalled governments intent on fiscal consolidation with respect to all major deficit
indicators, albeit with a revised medium-term framework that opted for shifting the fiscal deficit target
of 3% of the GDP by one year, from 2016-17 to 2017-18.
- Accordingly, the envisaged fiscal deficit to GDP targets were 3.9% in 2015-16, 3.5% in 2016-17 and
3.0% in 2017-18.
#. Fiscal consolidation entails revenue augmentation and expenditure rationalization.
132. Budget 2015-16 envisaged a growth of 15.8% in gross tax revenue (GTR) over the revised estimates
(RE) of 2014-15. GTR was estimated to be Rs 14.49 lakh crore for 2015-16, which was 10.3% of GDP.
- Roughly 54% of the GTR was estimated to accrue from direct taxes and the remaining 46% from
indirect taxes.
133. Non-tax revenue mainly consists of interest and dividend receipts, external grants and receipts
from services provided by the central government which include fiscal services like currency and mint,

general services like the Union Public Service Commission police, etc.; social services like education,
health, etc. and economic services like irrigation and transportation.
134. In the Budget 2016-17, the government announced that 100% FDI in food retail will be permitted
on the condition that the goods have to be manufactured in India.
135. One of the major constraints in the rationalization of non-plan revenue expenditure is committed
expenditure.
- Committed expenditure occurs on two counts: (i) interest liability on debt incurred in the past, and (ii)
pension payment to superannuated/retiring workforce from government services.
- The share of committed expenditure in total non-plan revenue expenditure has been constantly
increasing, but it started declining post 2013-14 as a% of the GDP and BE 2015-16 estimated a decline to
3.86% of the GDP, from 3.90% in 2014-15.
136. APM :
- The prices of petroleum products were determined by the government under what is known as the
administrative pricing mechanism (APM), with effect from July 1975 and this continued till 2002.
- Under the APM, the oil refining and marketing companies were compensated to meet operating costs
and certain return on net worth. An oil pool account was maintained to ensure stable domestic prices of
petroleum products (to prevent the fluctuating international prices from affecting domestic oil prices).
- It was being increasingly realized that the APM was coming in the way of expansion programmes of the
refinery and marketing companies and that private companies would find it difficult to invest in the
sector. Hence, following the recommendations of the Strategic Planning Group on Restructuring of Oil
Industry (also known as the R group), the government decided to dismantle the APM in a phased
manner.
137. The robust growth in GTR in the first three quarters of the year 2015-16 was aided by the 34.8%
growth in indirect taxes, with union excise duties growing by about 68%.
- Excise collections may have been bolstered by improving dynamics of economic activity and also
measures like increasing the excise duty on petrol and diesel in the backdrop of falling international
prices of crude oil.
- The 1.7% decline in major subsidies was due to a near 44.7% decline in petroleum subsidy (AprilDecember) that occurred due to a steep decline in international crude oil prices. The other major
subsidiesfood and fertilizer increased by 10.4% and 13.7% respectively during the period.

Chapter 3 : Monetary Management and Financial Intermediation

138. The easing of the policy repo rate has been accompanied by a pick-up in the growth rates of
reserve money (M0) and narrow money (M1) in 2015.
- The growth in M0 has been higher owing to pickup in growth of currency in circulation and in bankers'
deposit with the RBI, while the increase in M1 has been due to a higher rate of growth in demand
deposits with banks.
- However, the growth of broad money (M3) has not picked up.
139. Credit Impulse :
- The concept of credit impulse was first introduced by Deutsche Bank economist Michael Biggs, in
November 2008. The concept emphasizes that spending is a flow and as such it should be compared
with net new lending, a flow, rather than credit outstanding, which is a stock.
- Credit impulse is measured as the change in new credit issued as a%age of the gross domestic product
(GDP).
- Given that there is a strong correlation between credit impulse and investment growth, the rise in
credit impulse may help push the growth of real investment in the near future, though this may not be a
conclusive indicator as several other factors also affect investment.

140. The RBI in its Financial Stability Report of September 2015 has pointed out that full pass-through by
commercial banks (excluding RRBs) of large reduction in repo rate has not happened owing to structural
rigidities in the credit market.
The
key
reasons
for
structural
rigidities
are:
(a) mobilization of deposits at fixed rates with only about 20% of term deposits getting re-priced during
a
year;
(b) competition from small savings schemes where the interest rates are revised with considerable lags;
(c) savings deposit rates of public sector banks remaining unchanged at 4% despite deregulation in
October
2011;
and
(d) base rate of banks being mostly determined on the basis of average cost rather than marginal cost.

141. The decline in credit growth reflected the slowdown in industrial credit off take, poor earnings
growth reported by the corporate sector and risk aversion on the part of banks owing to rising NPAs.

142. MUDRA seeks to offer refinance products having a loan requirement up to Rs. 10 lakh and support
to micro finance institutions (MFI) by way of refinance.
143. The products designed under the PMMY are categorized into three buckets of finance named :
(a)
Shishu
(loan
up
to
Rs
50,000
),
(b)
Kishor
(Rs
50,000
to
Rs
5
lakh)
and
(c) Tarun (Rs 5 lakh to Rs 10 lakh)
based on the stage of growth/development of the micro business units, with about 60% of the allocation
to Shishu.
- The PMMY aims to provide formal bank credit to more than 5.7 crore existing informal sector micro
enterprises and many more aspiring micro entrepreneurs in the country.
144. Based on their liability structure, non-banking finance companies(NBFC) are classified into two
broad
categories:
(a)
deposit-taking
NBFCs
(NBFC-D),
and
(b) non-deposit taking NBFCs (NBFC-ND).
145, Government had launched Sovereign Gold Bonds and Gold Monetisation Schemes on 5th
November, 2015.
Objectives
:
- to reduce the demand for physical gold and shift a part of the gold imported every year for investment
purposes into financial savings.
Sovereign
Gold
Bonds:
- These are issued by RBI on behalf of the Government of India in rupees and denominated in grams of
gold and restricted for sale to the resident Indian entities only both in demat and paper form.
- The minimum and maximum investment limits are two grams and 500 grams of gold per person per
fiscal year respectively.
146.
Gold
Monetisation
Scheme:
- Bureau of Indian Standards (BIS) certified Collection, Purity Testing Centres (CPTC) collect the gold from
the
customer
on
behalf
of
the
banks.
- The minimum quantity of gold (bullion or jewellery) which can be deposited is 30 grams and there is no
limit
for
maximum
deposit.
- Gold Saving Account can be opened with any of the designated bank and denomination in grams of
gold for short-term period of 1-3 years, a medium-term period of 5-7 years and a long-term period of
12-15
years
.
- The CPTCs transfer the gold to the refiners. The banks will have a tripartite / Bipartite Legal Agreement
with refiners and CPTCs.

147. A no. of Reforms in the Financial Sector :

(i) The Forwards Markets Commission (FMC) has been merged with the Securities and Exchange Board
of India (SEBI) with effect from 28 September 2015 to achieve convergence of the regulation of the
securities and commodity derivatives markets and increase the economies of scope and scale for
exchanges, financial firms and other stakeholders.
(ii) A Monetary Policy Agreement has been signed between the government and the RBI in February
2015.
(iii) The govt intends to deepen such reforms including amendment of the RBI Act for providing a
statutory Monetary Policy Framework and Monetary Policy Committee, strengthening and upgrading
the Securities Appellate Tribunal to the Financial Sector Appellate Tribunal and creation of a Resolution
Corporation to enable faster dispersal of deposit insurance as well as orderly resolution of financial
service providing companies.
(iv) For providing an entrepreneur-friendly legal bankruptcy framework for India, the Insolvency and
Bankruptcy
Code
2015
has
been
introduced.
- The bill seeks to consolidate and amend the laws relating to reorganization and insolvency resolution
of corporate persons, partnership firms and individuals in a time-bound manner for maximization of the
value of assets of such persons, to promote entrepreneurship and availability of credit, to balance the
interests of all the stakeholders including alteration in the order of priority of payment of government
dues and to establish an Insolvency and Bankruptcy Fund, and for matters connected therewith or
incidental thereto.
(v) With a view to strengthening and institutionalizing the mechanism for maintaining financial stability,
enhancing inter-regulatory coordination and promoting financial sector development, the Financial
Stability and Development Council (FSDC) under the chairmanship of union Finance Minister was set up
by
the
government
as
the
apex-level
forum
in
December
2010.
- The council maintains macro prudential supervision of the economy, including functioning of large
financial conglomerates, and addresses inter-regulatory coordination and financial sector development
issues, including those relating to financial literacy and financial inclusion.
148. PMSBY :
- The PMSBY offers a renewable one-year accidental-death-cum-disability cover to all subscribing bank
account holders in the age group of 18 to 70 years for a premium of Rs 12 per annum per subscriber.
The risk coverage available will be Rs 2 lakh for accidental death and permanent total disability and Rs 1
lakh for permanent partial disability.
Difference between PMSBY & PMJJBY :-

S. No. Feature

PMSBY

PMJJBY

Age at entry

18-70 years

Sum Assured

200000

Premium (Annual)

Rs. 12

Rs. 330

Cover ceasing age

70

55

Maturity Benefit

Nil

Nil

Death
(Not by accident)

Nil

Benefit
200000

7
8

Death
(by accident)

or
one limb
9

200000

Benefit
200000

200000

Disability
both

Disability
or one limb

18-50 years

of
hands,
one
200000
Nil

both
both
eye

of
100000

200000 (From any

one of Bank account)

11

Risk Period

1st June to 31 May

Same
every
year
deduction of premium
Auto debit

eye

Nil

Maximum cover

Mode of Payment

and
one

10

12

eye,
legs

200000 (From any one of Bank account)

on

Auto debit

-- Both yojana come under Ministry of Finance.

APY :
- The APY was launched in May 2015 and it provides a defined pension, depending on the contribution
and
its
period.
- The subscribers to the APY will receive a minimum pension of R 1000, 2000, 3000, 4000 or 5000 per
month, from the age of 60 years, depending on their contributions, which are themselves based on the
age of joining the scheme.

- The scheme is open to all bank account holders. The central government co-contributes 50% of the
total contribution subject to a maximum of Rs 1000 per annum, to each eligible subscribers account, for
a period of five years, i.e. from FY 2015-16 to FY 2019-20, who joined the APY between 1 June 2015 and
31March 2016 and who is not a member of any statutory social security scheme and is not an income
tax payer.

Chapter 4 : External Sector

149. Reflecting the weak global demand and trends, Indias exports have been declining since December
2014. With imports falling in level due to lower global commodity prices, merchandise trade deficit
continued at moderate levels in 2015-16.

#. Global Economic Prospects is published by World Bank.

#. World Economic Outlook is published by IMF.

150. Merchandise Export from India Scheme:

- The six different schemes of the earlier FTP (Focus Product Scheme, Market Linked Focus Product
Scheme, Focus Market Scheme, Agriculture Infrastructure Incentive Scrip, Vishesh Krishi and Gram
Udyog Yojana and Incremental Export Incentive Scheme) which had varying sector-specific or actual user
only conditions attached to their use have been merged into a single scheme, namely the Merchandise
Export from India Scheme (MEIS).
- Notified goods exported to notified markets will be incentivized on realized FOB value of exports.
Countries have been grouped into three categories--namely Category A: traditional markets, Category B:
emerging & focus markets and Category C: other markets--for grant of incentives.
151. Service Export from India Scheme:
- The Served from India Scheme (SFIS) has been replaced with the Service Export from India Scheme
(SEIS).
- The SEIS applies to service providers located in India instead of Indian service providers. Thus it
provides for incentives to all service providers of notified services who are providing services from India,
regardless of the constitution or profile of the service provider. The rates of incentivization under the
SEIS are based on net foreign exchange earned.

152. Under the Export Promotion Capital Goods (EPCG) scheme, in case capital goods are procured from
indigenous manufacturers, specific export obligation has been reduced to 75%. This is designed to help
the indigenous capital goods manufacturing industry.
- Under the MEIS, export items with high domestic content and value addition have generally been
provided higher levels of incentives.
153. In the wake of declining exports, the exports in the Union Budget 2015-16 and a new Foreign Trade
Policy (FTP). A new FTP for the period 2015-20 was announced on 1 April 2015, with a focus on
supporting both manufacturing and services exports.
154. A Council for Trade Development and Promotion has been constituted in July 2015 to ensure
continuous dialogue with the governments of states/ union territories (UT) on measures for providing an
international trade-enabling environment and for making the states active partners in boosting Indias
exports. The first meeting of the council was held on 8 January 2016.
155. WTO Negotiations and India :
- The 10th Ministerial Conference of the WTO was held in Nairobi, Kenya during 15-19 December 2015.
This was the first such meeting to be hosted by an African nation.
Nairobi
Package
Includes
:
(a)
public
stockholding
for
food
security
purposes,
(b)
a
Special
Safeguard
Mechanism
(SSM)
for
developing
countries,
(c) a commitment to abolish export subsidies for farm exports particularly from the developed countries
and
(d) measures related to cotton.
- Decisions were also made regarding preferential treatment to LDCs in the area of services and the
criteria for determining whether exports from LDCs may benefit from trade preferences.
- India, along with many other developing countries, from groups such as the G-33, LDCs, and the Africa
Group, and wanted a reaffirmation of the mandate of the Doha Round.
- Developing countries, such as India, will have a longer implementation period. One of the Decisions
adopted extends the relevant provision to prevent evergreening of patents in the pharmaceuticals
sector.
- This decision would help in maintaining an affordable and accessible supply of generic medicines.
- India supported outcomes on issues of interest to LDCs including enhanced preferential rules of origin
for LDCs and preferential treatment for LDC services providers.
- India already offers duty-free, quota-free access scheme to all LDCs, which provides a comprehensive
coverage
with
simple,
transparent
and
liberal
rules
of
origin.

- India has also recently made available substantial and commercially meaningful preferences in services
to LDCs.
- On the issue of rules on Anti-dumping, India strongly opposed a proposal that would give greater
power to the WTOs Anti-Dumping Committee to review Members practices. There was no convergence
in this area and, hence, no outcome was achieved.
156. Multilateralism Vs Regionalism :
- With the multilateral trade negotiations process under the WTO being a painfully slow one requiring
broad-based consensus, Regional Trade Agreements (RTAs) have progressively assumed greater
importance and a growing share in international trade.
- While bilateral RTAs have no equity considerations, mega-regional trading groups may not necessarily
be equitable if membership is diverse and small countries may lose out either wayif they are part of it
they may not have much say and if they are not, they may stand to lose.
India's
Stand
:
- India has always stood for an open, equitable, predictable, nondiscriminatory and rule-based
international trading system and views RTAs as building blocks in the overall objective of trade
liberalization as well as complementing the multilateral trading system under the WTO.
157. TPP & Its effects on India's trade :
- The 12 Pacific Rim nations (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand,
Peru, Singapore, the US and Vietnam) signed the TPP agreement on 5 October 2015.
- It is likely to set higher standards for goods and services trade. It is considered a mega regional FTA
which
can
be
a
pioneer
in
many
ways.
- The TPP is likely to be a game-changer for the world economy and global trade. The 12 members of the
TPP account for around 40% of global GDP and around 60% of merchandise trade. In terms of economic
size, the TPP is larger than the existing North America Free Trade Area (NAFTA).
- The TPP trade agreement is very comprehensive and not only encompasses the scope of tariffeliminating mega regional trade pacts, but also aims at setting higher global standards for international
trade through lower benchmarks for nontariff barriers, more stringent labour and environment
regulation, higher intellectual property rights (IPR) protection, greater transparency in government
procurement and limiting advantages to state-owned enterprises (SOE) and transparency in health care
technology, competitiveness and supply chains.
- It includes new and emerging trade issues and cross-cutting concerns such as internet and digital
economy and participation of SOEs in global trade and investment.
- In the short run, the trade impact of the TPP may not be seriously adverse but careful analysis is
required for adapting and responding to the challenges in the long run. Many institutional analyses have
focused on the implications for India.

- Openness of market:- TPP economies on average are more open than the Indian economy. India needs
to work significantly in terms of openness of market as its tariff rates are significantly higher than those
in the TPP countries.
Negative Aspects/Threats of Joining TPP for India :
(i) Import competition: Domestic industries will face severe import competition due to tariff elimination
on some of the products. Indian industry is already battling infrastructure deficiency and
implementation of stringent measures may raise the cost of production, threatening the survival of
domestic manufacturing.
(ii) State owned Enterprises (SoEs): Membership of the TPP would prevent the government from using
SoEs and government procurement as vehicles for achieving social and economic objectives, including
employment generation. India would have to compromise on the Make in India policy.
(iii) IPRs: The TPP agreement on IPRs does not prevent a party from taking measures to protect public
health and, in particular, to promote access to medicines for all. However, the prices of pharmaceutical
products can be expected to rise due to implementation of IPR agreements which will give more
protection to patented medicine and may lead substantially to elimination of generic drugs from the
market.
(iv) Government procurement: As the agreement curtails the flexibility available to signatory countries
to impose export restrictions on food, it will jeopardize Indias endeavour to ensure food security.
(v) Labour Standards : TPP has gone beyond core labour standards to include acceptable conditions of
work within its ambit. These bind the members to adopt and maintain laws and practices governing
acceptable conditions of work relating to minimum wages, hours of work, and occupational health and
safety determined by each party. These labour standards may increase the labour cost in the developing
countries as they raise the issue of enforceable commitments which require the member countries to
pass legislation in line with the TPP labour standard and put effective implementation agencies in place.
(vi) Environment Standard : TPP members acknowledge that inadequate fisheries management, fisheries
subsidies that contribute to overfishing and overcapacity, and illegal, unreported and unregulated (IUU)
fishing can have significant negative impacts on trade, development and the environment and thus
recognize the need for individual and collective action to address the problems of overfishing and
unsustainable utilization of fisheries resources.
- This is in contradiction to Indias current policy of subsidizing the fishery industry. It may severely affect
special governmental assistance programmes for around 15 million poor fishermen in India. Fishery
subsidies rule has been incorporated for the first time in an FTA agreement and this will set the standard
for other countries in the WTO arena. Hence these TPP rules are likely to affect the multilateral process
and impact India, independently of whether it joins the TPP or not.

Chapter 5 : Prices, Agriculture and Food Management

158. The new monthly CPI (combined), with base 2012=100, is now taken as the measure of headline
inflation and is tracked by the Reserve Bank of India (RBI) to anchor its monetary policy.
159. Impact of Fall in Crude Price on Inflation :
- Since India is dependent on import of crude oil to meet about 80% of its crude requirement, global
fluctuation in crude oil prices has significant impact on domestic inflation.
- Price of the Indian basket of crude oil declined by 46% in April-December 2015. Earlier the decline in
crude oil prices had helped India deregulate diesel prices. Deregulation has reduced the subsidy burden,
thereby helping reduce fiscal deficit. Post deregulation, decline in diesel prices has resulted in reduction
in overall inflation.
160. Diesel and petrol whose prices are directly linked to global crude prices constitute around 40% of
the WPI fuel & power basket.
- Petroleum products have negligible weight in CPI fuel & light group. The main contributors to CPI fuel
& light inflation in the current year were three items namely firewood & chips, electricity and dung cake
which form around 70% of the CPI (combined) fuel & light basket.
161. The consumer food price index (CFPI) basket comprises various categories such as cereals, pulses,
vegetables, fruit, milk and eggs, meat and fish.
162. Both WPI-based food inflation and the CPI-based food inflation have been moving in tandem. In
comparison with the CPI, the WPI series assigns less weight (24.3%) to food items (food articles and food
products) in its basket.

163. The decline in food articles inflation during 2015-16 so far was mainly on account of a fall in the
prices of cereals, vegetables, fruits, milk, egg, fish and meat. However, a spike in the prices of pulses on
account of low domestic production kept foodgrain prices high.
164. The urban CPI basket has been experiencing lower inflation as compared to the rural consumer
expenditure-based basket. The global commodity prices meltdown has pulled down prices of fuel
products and other tradeables and has benefited urban consumers.
165. The gap between rural and urban inflation in India has increased from the beginning of the year
2015. The difference is partly owing to variation in the weights of items in the two baskets.
- The rural basket of the CPI assigns significantly larger weights to cereals, vegetables, meat and fish and
pulses. Prices of these commodities have been experiencing volatility due to supply-side constraints and
lack of a seamless common market for agri-products in the country.

- While WPI-based inflation continues to be in the negative zone for fourteen months in a row from
November 2014 to December 2015, CPI-based inflation averaged 4.8% during the same period.
- The weakness in global commodity prices, in particular crude prices, during the last one and half years
has been the cause of decline in the WPI.

166. Agriculture and allied activities remain the major source of livelihood for nearly half of the Indian
population. The share of agriculture in employment was 48.9% of the workforce [National Sample
Survey Office (NSSO), 2011-12] while its share in the Gross Domestic Product (GDP) was 17.4% in 201415 (First Revised Estimates) at constant (2011-12) prices.
167. There are issues of expansion in irrigation and its efficiency, growth of capital formation in the
sector has been declining and there is volatility in the markets, especially of prices, altering and
distorting cropping patterns of some crops. This suggests that for the agriculture sector to achieve a
target of 4%, a significantly different approach has to be followed.
168. From 2010-11, the%age changes in average yields of rice, wheat, pulses, oilseeds and cotton are
also showing declining trends, which is a cause for concern.
169. Need to improve Agricultural productivity :
- Can be done by :

(a) expansion in the share of irrigated areas, investments to improve efficiency in water use,
(b)
suitable
pricing
of
water,
(c) mechanization of operations of agriculture to lower costs and reduce wastage, and seed
development
for
improved
varieties
to
increase
yields,
(d) debate and address the concerns about introduction of genetically modified seeds in a time frame of
three
to
six
months,
(e)
efficient
use
of
fertilizers
and
pesticides
through
improved
practices,
(f)
market
driven
pricing
of
fertilizers
with
no
restriction
on
imports,
(g) shift to direct benefit transfer of fertilizer and other agriculture subsidy,
(h) distinguish and target subsidy to the farmer and that (subsidy) to inefficient operations of agriculture
inputs,
(i) credit access to farmers for investments at rates that the financial institutions pay for their deposits,
(j) ring-fencing of agriculture related operations of banks from Non-Performing Assets (NPA) to nonagricultural
operations,
(k) replacement of intermediation of agricultural finance with direct benefit transfers, and
(l) development of real time information system to back an improved timely agricultural advisory
services.

170. As per the latest available data on irrigation, the all India%age distribution of net irrigated area to
total cropped area during 2012-13 was 33.9%, i.e. it is still around 35% only.
- There is regional disparity in irrigated farming, with net irrigated area to total cropped area at more
than 50% in the states of Punjab, Tamil Nadu and Uttar Pradesh, while it is at less than 50% in the
remaining states . There is need and scope for increasing the coverage of irrigated area across the
country to increase productivity in agriculture.

171. One of the objectives of the Prime Ministers Krishi Sinchai Yojana (PMKSY) is to enhance on-farm
Water-Use- Efficiency (WUE) spatially and temporally to reduce wastage by promoting precision
irrigation like sprinkler, drip etc.
172. In India, there are multiple challenges to the development and adoption of quality seeds, in the
form of inadequate research inputs for development of new seeds especially early ripening and resistant
(to pest, moisture variations, etc.) varieties, high cost of seeds for small and marginal farmers, shortage
of supply of quality seeds, non-resolution of issues related to adoption of Genetically Modified (GM)
crops and inadequate number of players restricting competition.
- Seeds which are open pollinated varieties can be developed by farmers from their own harvested
crops. However, for high-yielding hybrid varieties, the farmer has to depend on the market for each
crop. For small and marginal farmers the cost of hybrid seeds is very high, affecting the viability of
farming.

173. Maximum Sale Price of cotton seeds :

- The maximum sale price is the maximum price inclusive of seed value, licence fee, trade margin and
local taxes or duties, at which cotton seeds or transgenic varieties of cotton seeds are sold to farmers.
174. Indian soils show deficiency of micro nutrients like boron, zinc, copper and iron in most parts of the
country, which limits crop yields and productivity.
- The micro nutrient deficiency can be overcome if there is expansion of the use of organic fertilizer.
Moreover, it is cheaper for small farmers to adopt and use organic composting and manure.
175. Judicious use of chemical fertilizers, bio-fertilizers and locally available organic manures like
farmyard manure, compost, vermi compost and green manure based on soil testing is necessary to
maintain soil health and productivity.
- Use of information technology and providing soil fertility maps to farmers can go a long way in efficient
nutrient management for improved productivity.

176. In the poultry segment, the Governments focus, besides framing suitable policies for enhancing
commercial poultry production, is for strengthening the family poultry system, which addresses
livelihood issues. Both egg and fish production has also registered an increasing trend over the years.

177. Following the Budget announcements in July 2014 and 2015, the scheme for setting up of a
National Agriculture Market (NAM) through an Agri-Tech Infrastructure Fund (ATIF) was approved by
the Cabinet Committee on Economic Affairs (CCEA) on 1 July 2015 with a budget of R200 crore, to be
implemented during 2015-16 to 2017-18.
178. The government decides on the support prices for various agricultural commodities, taking into
account the recommendations of CACP, the views of state governments and Ministries/Departments
concerned and other relevant factors. There has been steady increase in the MSP of crops over the years
since 2011-12.
179. Indias Agriculture Trade :
- India has emerged as a significant agri-exporter in a few crops, namely cotton, rice, meat, oil meals,
spice, guargum meal and sugar.
- As per the WTOs Trade Statistics, the share of Indias agricultural exports and imports in the world
trade in 2014 were 2.46% and 1.46% respectively.
- It means, India is a net exporter country in terms of agri products.

Chapter 6 : Industrial, Corporate, and Infrastructure Performance

#. Industrial sector broadly comprises Manufacturing, Construction, Electricity and Mining.

180. The government has taken several measures to accelerate the growth of the industrial sector so as
to strengthen and sustain the momentum of economic growth. These are primarily focused on
simplification and rationalization of procedures and processes for boosting investment, adopting a more
open Foreign Direct Investment (FDI) policy and measures for creating a conducive business
environment.
- Some of the recent reforms are:
(A) reducing the list of industries that can be considered defence industries requiring industrial licence;

(B) amendments in FDI policy which include allowing FDI in defence up to 49%, in railway infrastructure
up to 100% and in the insurance and pension sector up to 49%.
(C) The investment limit requiring prior permission from the Foreign Investment Promotion Board
(FIPB)/Cabinet Committee on Economic Affairs has been increased from Rs 1200 crore to Rs 3000 crore.
(D) The definition of investment by Non Resident Indians (NRI), Persons of Indian Origin (PIO) and
Overseas Citizens of India (OCI) in the FDI policy has been revised.
(E) The government has launched several programmes/initiatives such as ease of doing business, Make
in India, Invest India, and e-biz Mission Mode Project under the National e-Governance Plan.
(F) The Government of India is also building a pentagon of corridors across the country to boost
manufacturing and to project India as a global manufacturing destination.
(G) The Ministry of Environment, Forest and Climate Change has completed the process for online
submission and clearance of applications for environment, coastal regulation zone and forest
clearances.
(H) The system for coal block auctions has been streamlined so that these are now granted in a
transparent framework.
(I) In order to improve the financial viability of the State Electricity Distribution Companies, a
comprehensive financial restructuring of these bodies has been taken up through the Ujwal DISCOM
Assurance Yojana (UDAY) programme.
- The scheme envisages reduction of interest burden and cost of power and AT&C (Aggregate Technical
and Commercial) losses incurred by discoms that have entered into tripartite agreements with the
Government of India and the respective state governments.
BENEFITS OF SUCH REFORMS :
- With these initiatives, Indian industry has been given a boost leading to an improved business
environment and larger FDI inflows and these have also improved Indias global outlook.
- In the World Banks Ease of Doing Business report 2016, Indias position has improved to 130 in 2016
from 142 in 2015.

181. The eight core infrastructure supportive industries, coal, crude oil, natural gas, refinery products,
fertilizers, steel, cement and electricity have a total weight of nearly 38% in the IIP (Index of Industrial
Production).
#.
India
is
the
4th
largest
producer
of
crude
#. India is the 2nd largest aluminum producing country in the world.

steel

in

the

world.

182. Due to near-stagnant demand for steel globally, and in particular in China, major global steel
producers are pushing steel products into the Indian market, leading to a surge in steel imports. The
Indian steel industry with higher borrowing and raw material costs and lower productivity is at a
comparative disadvantage.
- The government has taken the following measures to curb the surging steel imports and make
domestic production sustainable:
a) Raised basic customs duties on certain primary iron and steel products by
b) Imposed anti-dumping duties for some industrial-grade stainless steel imported from China, Malaysia
and South Korea.
c) Imposed provisional safeguard duty.
d) Minimum import price (MIP) has been imposed on a number of steel product for a six month period.
e) Reduced export duty on iron ore to 10% for select steel (grade< 58), others remained at 30%.

183. Reforms in Micro, Small & Medium Enterprises (MSME) :

- Realizing the importance of the MSME sector, the government has undertaken a number of
schemes/programmes like the Prime Ministers Employment Generation Programme (PMEGP), Credit
Guarantee Trust Fund for Micro and Small Enterprises (CGTMSE), Credit Linked Capital Subsidy Scheme
(CLCSS) for Technology Upgradation, Scheme of Fund for Regeneration of Traditional Industries
(SFURTI), and Micro and Small EnterprisesCluster Development Programme (MSECDP) for the
establishment of new enterprises and development of existing ones.
New Initiatives undertaken for MSMEs :
(1)
Udyog
Aadhar
Memorandum
(UAM):
- Under the scheme, MSME entrepreneurs just need to file an online entrepreneurs memorandum to
instantly get a unique Udyog Aadhaar Number (UAN). The information sought is on self-certification
basis and no supporting documents are required. This is to do away with earlier cumbersome
procedure.
(2)
Employment
Exchange
for
Industries:
- To facilitate match making between prospective job seekers and employers, an employment exchange
for industries was launched on June 15, 2015 in line with Digital India.
(3)
Framework
for
Revival
and
Rehabilitation
of
MSMEs:
- Under this framework, banks have to constitute a Committee for Distressed MSME enterprises at zonal
or district level to prepare a Corrective Action Plan (CAP) for these units.

(4) A scheme for Promoting Innovation and Rural Entrepreneurs (ASPIRE): ASPIRE was launched with the
objective of setting up a network of technology centres and incubation centres to accelerate
entrepreneurship and promote start-ups for innovation and entrepreneurship in rural and
agriculturebased industry.
- The India Aspiration Fund has also been set up under the Small Industries Development Bank of India
(SIDBI) for venture capital financing of newly set-up or expanding units in the MSME sector.
- SIDBI Make in India Loan for Small Enterprises (SMILE) has been launched to offer quasi-equity and
term-based short-term loans to Indian SMEs with less stringent rules and regulations and a special focus
on 25 thrust sectors of Make in India.
184. Foreign direct investment (FDI) :
- It is an important driver of economic growth as it leads to productivity enhancement and is a major
source of non-debt financial resources and employment generation. FDI inflows are critical for
sustaining a high growth rate.
- With a view to liberalizing and simplifying the FDI policy to provide ease of doing business climate in
the country that will also lead to larger FDI inflows, the government has undertaken various reforms.
- A number of sectors have been liberalized, including defence, construction, broadcasting, civil aviation,
plantation, trading, private sector banking, satellite establishment and operation and credit information
companies.
- Manufacturing of medical devices and white label ATM operations have been opened up to 100% FDI
under automatic route.

185. There are wide variations in the FDI inflows into India from different countries. However,
Singapore, Mauritius, Netherlands and the USA account for the major share.
186. Make in India initiative, is based on four pillars --new processes, new infrastructure, new sectors
and new mindset-187. Policy for Marginal Fields of ONGC and OIL:
- The Government approved the Marginal Fields Policy (MFP) on 2nd September 2015 for the
development of hydrocarbon discoveries made by national oil companies, i.e. ONGC and OIL.
- With this policy, it is expected that these fields can be brought into production, helping augment
Indias energy security.

188. Bharatmala programme:

- Bharatmala is a proposed umbrella scheme for
(i) Development of State Roads along Coastal areas / Border areas, including connectivity of non-major
ports.
(ii) Backward Areas, Religious, Tourist Places Connectivity programme.
(iii) Setubhratam Pariyojana which is for the construction of about 1500 major bridges and 200 ROBs /
RUBs and
(iv) District Head Quarter Connectivity Scheme.
- The programme is targeted for completion by 2022.

189. Inland Waterways Transport Sector :

- The Inland Waterways Transport (IWT) sector remained dormant for a long time and lost its relevance
and importance in the overall transport sector.
- Considering its potential in terms of fuel savings, environment friendliness and cost effectiveness for
transportation of bulk goods, dangerous goods, etc., it is necessary that wherever potential for IWT
corridors exists, this mode is developed with basic infrastructure so that its utilization is increased for
transportation of cargo and passengers.
- Various actions are being taken to develop IWT infrastructure and the focus is on cargo- related
projects. A significant step in creation of IWT infrastructure is implementation of the Jal Marg Vikas
Project with World Bank assistance of Rs 4200 crore.
- To provide a thrust to the IWT sector, on the legislative front, it has been decided that in addition to
the existing 5 national waterways, 106 more waterways across 24 states would be declared as National
Waterways and a bill was passed to this effect by the Lok Sabha.

190. Machine to Machine Communications :

- The Government recognizes the futuristic role of machine to machine communication (M2M) to
facilitate the role of new technologies in furthering public welfare and enhanced customer choices
through affordable access and efficient service delivery.
- A National Telecom M2M Roadmap has been prepared putting together various standards, policy and
regulatory requirements and approach for the industry on how to look ahead to M2M.

191. MovIng towards hIgher IndustrIal growth :

- Supply-side bottlenecks, infrastructural and structural constraints hindering the achievement of
medium-term growth and job creation, are being addressed on priority basis.
- Programmes like Make in India, Ease of Doing Business, Skill India, Startup India and reforms in various
industrial and infrastructure sectors are some of the major initiatives in the direction of attracting more
investment to ensure high industrial growth.
- Make in India and Ease of doing Business in India are focusing on more and faster industrial growth
while Startup India aims at nurturing an entrepreneurial mind set among youth in an inclusive manner.

Chapter 7 : Services Sector

192. As per the World Investment Report 2015, the shift towards services FDI has continued over the
past 10 years in response to increasing liberalization in the sector, the increasing tradability of services
and the growth of global value chains in which services play an important role.
193. WTO Services Negotiations and Bilateral Negotiations including Services Trade :
- The 10th session of the WTO Ministerial Conference was held in Nairobi, Kenya, from 15 to 18
December 2015. In the area of services trade, the conference took decisions such as implementation of
preferential treatment in favour of services and service suppliers of least developed countries (LDC) and
increasing LDC participation in services trade; and moratorium on payment of customs duties on
electronic transmissions until 2017.
Preferential treatment for LDCs:
- So far, 21 members, including India, have notified preferential treatment to LDCs in services trade.
India has offered this in respect of: (i) article XVI of the General Agreement on Trade in Services (GATS)
(Market Access); (ii) technical assistance and capacity building; and (iii) waiver of visa fees for LDC
applicants applying for Indian business and employment visas.
- India is the only member which has offered waiver of visa fees. This is a unique and almost pathbreaking offer by India.
#. The RCEP is the only mega-regional FTA of which India is a part.
194. The government has taken many initiatives to promote the R&D sector in India, which include the
weighted tax deduction of 200% for R&D expenditure and the Budget 2015-16 announcement for
establishment of the Atal Innovation Mission (AIM) in the National Institution for Transforming India
(NITI) Aayog.

- This will be an innovation promotion platform involving academics, entrepreneurs, and researchers
and draw upon national and international experiences to foster a culture of innovation, R&D and
scientific research in India. The platform will also promote a network of world-class innovation hubs.

Chapter 8 : Climate Change and Sustainable Development

195. The year 2015 witnessed two landmark international events: the historic climate change agreement
under the UNFCCC in Paris in December 2015 and the adoption of the Sustainable Development Goals in
September 2015.
- The Paris Agreement aims at keeping the rise in global temperatures well below 2C, which will set the
world towards a low carbon, resilient and sustainable future, while the Sustainable Development Goals,
which replace the Millennium Development Goals, set the development agenda for the next fifteen
years.
- On the domestic front too some important climate-related initiatives were taken, including the
launching of the historic International Solar Alliance and the submission of the ambitious Intended
Nationally Determined Contribution.

196. The Millennium Development Goals (MDG) that were in place from 2000 to 2015 were replaced by
the Sustainable Development Goals (SDG) with the aim of guiding the international community and
national governments on a pathway towards sustainable development for the next fifteen years.
- A new set of 17 SDGs and 169 targets were adopted by the world governments in 2015.
197. India announced its intended nationally determined contribution (INDC) which set ambitious
targets for domestic efforts against climate change.
- Including other efforts, the country has set itself an ambitious target of reducing its emissions intensity
of its gross domestic product (GDP) by 33-35% by 2030, compared to 2005 levels, and of achieving 40%
cumulative electric power installed capacity from non-fossil fuel-based energy resources by 2030.
198. The energy sector is the largest contributor to GHG emissions and, within this, CO2 emissions from
combustion of fuels have the largest share. The global emissions profile shows that emissions have been
distributed very unequally among different countries.

- In terms of CO2 emissions, India with 39.0 Gt is way behind the top three emitters the USA, the EU
and China.
- In 2014, in terms of absolute emissions, China was at the top, while in terms of per capita emissions,
the USA was at the top. Indias per capita emissions are among the lowest in the world.
199. This universal agreement will succeed the Kyoto Protocol. Unlike the Kyoto Protocol, it provides a
framework for all countries to take action against climate change.
- Placing emphasis on concepts like climate justice and sustainable lifestyles, the Paris Agreement for the
first time brings together all nations for a common cause under the UNFCCC.
- One of the main focus of the agreement is to hold the increase in the global average temperature to
well below 2C above pre- industrial level and on driving efforts to limit it even further to 1.5C.
Marked Departure from the Past :
- A marked departure from the past is the Agreements bottom-up approach, allowing each nation to
submit its own national plan for reducing greenhouse gas emissions, rather than trying to repeat a topdown approach advocated by the Kyoto Protocol, giving each country an emission reduction target.

Meaning of 'Adaptation' in the treaty :

- Adaptation: Given the trends in global warming, even if the temperature rise is restricted to below 2C,
adaptation support would be required for developing countries like India.
- The agreement establishes the global goal on adaptation of enhancing adaptive capacity,
strengthening resilience and reducing vulnerability to climate change with a view to contributing to
sustainable development and ensuring an adequate adaptation response in the context of the 2C goal.
- Countries are required to update periodically their adaptation communication, but are given flexibility
on the timing and method of communication.
200. India's INDC: Climate Change Contributions
(1) To put forward and further propagate a healthy and sustainable way of living based on traditions and
values of conservation and moderation.
(2) To adopt a climate friendly and cleaner path than the one hitherto followed by others at a
corresponding level of economic development.
(3) To reduce the emissions intensity of its GDP by 33 to 35% of the 2005 level by 2030.

(4) To achieve about 40% cumulative electric power installed capacity from non-fossil fuel- based energy
resources by 2030 with the help of transfer of technology and low cost international finance including
from the Green Climate Fund (GCF).
(5) To create an additional carbon sink of 2.5 to 3 billion tonnes of CO2 equivalent (CO2eq.) through
additional forest and tree cover by 2030.
(6) To better adapt to climate change by enhancing investments in development programmes in sectors
vulnerable to climate change, particularly agriculture, water resources, the Himalayan region, coastal
regions, health and disaster management.
(7) To mobilize domestic and new and additional funds from developed countries for implementing
these mitigation and adaptation actions in view of the resources required and the resource gap.
(8) To build capacities, create a domestic framework and an international architecture for quick diffusion
of cutting-edge climate technology in India and for joint collaborative R&D for such future technologies.

201. Green Finance :

- The term green finance has gained a lot of attention in the past few years with the increased focus on
green development. The Rio+20 document clearly states what green economy policies should result in
and
what
they
should
not.
- While there is no universal definition of green finance, it mostly refers to financial investments flowing
towards sustainable development projects and initiatives that encourage the development of a more
sustainable economy.
- Green finance includes different elements like greening the banking system, the bond market and
institutional investment.
- Attaining the ambitious solar energy target, development of solar cities, setting up wind power
projects, developing smart cities, providing infrastructure which is considered as a green activity and the
sanitation drive under the Clean India or Swach Bharath Abhiyan are all activities needing green
finance.
National Clean Energy Fund :
- India has created a corpus called the National Clean Energy Fund (NCEF) in 2010-11 out of the cess on
coal produced/imported (polluter pays principle) for the purpose of financing and promoting clean
energy initiatives and funding research in the area of clean energy.
Green Bonds :
- So far four banks have issued green bonds in India. Proceeds from these bonds are mostly used for
funding renewable energy projects such as solar, wind and biomass projects and other infrastructure

sectors, with infrastructure and energy efficiency being considered as green in their entirety. The
Securities and Exchange Board of India (SEBI) has also recently approved the guidelines for green bonds.
Some issues which need to be taken note of :
For a developing country like India, poverty alleviation and development are of vital importance and
resources should not be diverted from meeting these development needs. Green finance should not be
limited only to investment in renewable energy, as, for a country like India, coal based power accounts
for around 60% of installed capacity. Emphasis should be on greening coal technology.
- In fact, green finance for development and transfer of green technology is important as most green
technologies in developed countries are in the private domain and are subject to intellectual property
rights (IPR), making them cost prohibitive.
Green bonds are perceived as new and attach higher risk and their tenure is also shorter. There is a
need to reduce risks to make them investment grade.
There is also a need for an internationally agreed upon definition of green financing as its absence
could lead to over-accounting.
While environmental risk assessment is important, banks should not overestimate risks while
providing green finance.
Green finance should also consider unsustainable patterns of consumption as a parameter in deciding
finance, particularly conspicuous consumption and unsustainable lifestyles in developed countries.

202. Multilateral Climate Funds :

- International climate funds can either be multilateral or bilateral depending on the participating
countries. Funds may further be classified according to their area of focus, namely mitigation,
adaptation or REDD (reducing emissions from deforestation and forest degradation).
- Currently, the Green Climate Fund (GCF) is the largest, with pledges amounting to US$10.2 billion. The
second largest is the Clean Technology Fund (CTF) with pledges amounting to US$5.3 billion.
The GCF :
- The GCF was established as an operating entity of the financial mechanism of the UNFCCC in 2011 and
is expected to be a major channel for climate finance from developed to developing countries. The GCF
has so far been pledged US$10.2 billion by 38 governments. - These include some developing countries
with small contributions.
The Global Environment Facility (GEF) :

- It was established as a pilot programme for environmental protection. The current project cycle is GEF6 over the years 2014-18. In 1992, when the Biodiversity and Climate Change Conventions were adopted
at Rio de Janeiro, the GEF was adopted as a financial mechanism for helping developing countries meet
their financing needs for achieving their climate change goals.

203. The Clean Development Mechanism (CDM) :

- Created multilaterally under the UNFCCC, it is one of the mitigation instruments under the Kyoto
Protocol. Lack of mitigation ambition in the pre-2020 period has slowed its momentum.
- Moreover, low ambition for emissions reductions expressed by developed countries under the Kyoto
Protocol and some major players pulling out of Kyoto Protocol has further suppressed the demand for
certified emissions reduction (CER) credits. At present, the CDM is facing its most severe crisis since it
was set up a decade ago.
204. The National Mission on Coastal Areas (NMCA) :
- It will prepare an integrated coastal resource management plan and map vulnerabilities along the
entire (nearly 7000-km-long) shoreline. The Ministry of Earth Sciences will provide it scientific and
technical advice and the Ministry of Environment, Forest and Climate Change (MoEF&CC) will manage
and implement the NMCA.
205. National Adaptation Fund for Climate Change :
- It is meant to assist in meeting the cost of national- and state-level adaptation measures in areas that
are particularly vulnerable to the adverse effects of climate change.
- The overall aim of the fund is to support concrete adaptation activities that reduce the adverse effects
of climate change facing communities, sectors and states but are not covered under the ongoing
schemes of state and central governments.
- The adaptation projects contribute towards reducing the risk of vulnerability at community and sector
level.
206. The Reserve Bank of India has issued guidelines for the inclusion of renewable energy in priority
sector lending for scheduled commercial banks.

207. SDGs :
- In the June 2012 RIO+20 United Nations Conference on Sustainable Development, the UN General
Assemblys Open Working Group proposed SDGs covering a broad range of sustainable development
issues, including ending poverty and hunger, improving health and education, making cities more

sustainable, combating climate change and protecting oceans and forests, and were adopted by the
General Assembly as part of the broader post-2015 development agenda in September 2015.
- The SDGs are effective from January 2016 and will end in 2030.

Chapter 9 : Social Infrastructure, Employment and Human Development

208. The Labour Force Participation Rate (LFPR) for women is significantly lower than that for males in
both rural and urban areas. The Worker Population Ratio (WPR) reflects a similar pattern, with women
having lower participation rate in comparison to men in both rural and urban areas.
- As per Census 2011 also, the workforce participation rates for females trails behind that for males.
209. A notable aspect of the employment situation in India is the large share of informal employment
and growth in informal employment in the organized sector.
- The share of informal employment in the organized sector increased from 48% to 54.6% in 2004-5 to
2011-12. Its share in total employment remained above 90% throughout this period.

210. Targeting coverage of all those children by 2020 who are either unvaccinated, or are partially
vaccinated against seven vaccine-preventable diseases which include diphtheria, whooping cough,
tetanus, polio, tuberculosis, measles and hepatitis B, Mission Indradhanush was launched in December
2014.
- So far, a total of 3 phases of Mission Indradhanush has been completed.
- In addition, vaccination against Japanese Encephalitis and Haemophilus influenza type B will be
provided in selected districts/states of the country.
Japanese Encephalitis :
- Japanese encephalitis virus (JEV) is a flavivirus related to dengue, yellow fever and West Nile viruses,
and is spread by mosquitoes. JEV is the main cause of viral encephalitis in many countries of Asia with an
estimated 68 000 clinical cases every year.
West Nile fever :
- West Nile fever is a mosquito-borne infection by the West Nile virus. Approximately 80% of West Nile
virus infections in humans have few or no symptoms.

211. UHC Index :

- The Universal Health Coverage (UHC) index has been developed by the World Bank to measure the
progress made in health sectors in select countries of the World.
- India ranks 143 among 190 countries in terms of per capita expenditure on health ($146 PPP in 2011).
It has 157th position according to per capita government spending on health which is just about
$44 PPP.
212. As per the Human Development Report (HDR) 2015, India ranks 130 out of 188 countries. The
Human Development Index (HDI) is based on the indices for life expectancy, educational attainment and
per capita income. It is an alternative indicator of socio-economic development of the country. Indias
HDI value for 2014 is 0.609.
- In comparison to other nations in the BRICS grouping, India has the lowest rank with Russia at 50, Brazil
at 75, China at 90 and South Africa at 116.
- Between 1980 and 2014, Indias Gross National Income (GNI) per capita increased by about 338 per
cent. Over the same period, the Life Expectancy at Birth (LEB) increased by 14.1 years, mean years of
schooling by 3.5 years and expected years of schooling by 5.3 years.