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Approach – Answer: General Studies Mains Mock Test 750 (2016)

Answer all the questions in NOT MORE THAN 200 WORDS each. Content of the answers is more important than
its length. All questions carry equal marks. 12.5X20=250

1. The value of waterways for Indian economy is well recognized. Discuss the potential benefits of an
integrated approach to the development of waterways with reference to the recently passed National
Waterways Bill 2015.
Approach:
 Briefly discuss what is meant by an integrated approach to waterways development.
 Write benefits with respect to industries, transport, energy efficiency, environment etc.
 Conclusion.
Answer:
India has about 14,500 km of navigable waterways comprising of rivers, canals, backwaters, creeks, etc.
About 34 percent of Indian cargo is currently trans-shipped through international hub ports, resulting in
revenue loss for Indian ports as well as high costs on the customer side. The modal share of IWT in total
freight movement in India is merely 0.5%. Less than 100 million tonnes of cargo is carried by IWT in India
as compared to 600 mT in US and 1.1 billion tonnes in China. River systems on important routes in US,
China and EU support large vessels which can carry upto 40,000 tonnes of cargo on a single voyage. India
is still looking to create depths to ply 1500 tonnes cargo ships.
The integrated approach to development of waterways involves two aspects:
 Connecting and integrating multiple waterways and water bodies together, such as joining the three
NWs on the east coast together through a network of lakes & canals.
 Integrating multiple sectors to waterways development – such as roads, rail, tourism, coal, power,
manufacturing (ship building), etc.
The recently passes IW Bill designates 111 (106 New and 5 Old) waterways as National Waterways. The
Central government can make laws on shipping and navigation on inland waterways that are classified as
NWs. The Bill states that while inland waterways are recognised as a fuel efficient, cost effective and
environment friendly mode of transport, they have received lesser investment as compared to roads and
railways. Since inland waterways are lagging behind other modes of transport, the central government
has evolved a policy for their integrated development.
The Government is considering setting up an Integrated National Waterways Transport Grid (INWTG).
The INWTG includes development of the National Waterways with at least 2.5 meter Least Available
Depth (LAD), upgrading/ setting up of priority terminals, establishing road connectivity, wherever
feasible, rail and port connectivity.
The potential benefits are:
 Comparative cost of moving cargo is cheapest in case of IWT (25p/KM), as against road (Rs. 2.5/KM)
and rail (Rs. 1.5/KM). Recent changes in cabotage laws that mandate use of Indian ships to transport
cargo between different ports along the coast will save time and money.
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  Transportation by water is most environmentally sustainable – it will reduce ecological footprint of
the transport sector.
 Integration of supply chain is the way forward rather than sector specific measures which tend to be
isolationist. For e.g., the Patna jetty was developed without consideration of evacuation and
warehouse space in the middle of the city, leaving the jetty useless.
 Having ship-building and port development as part of India’s maritime policy will aid in strategic
capabilities.
 Cruise Tourism can be exploited by simplifying procedures for boarding/de-boarding, visas, etc.
 It will reduce pressure on roads/rail, thereby reducing congestion and accidents.

2. Discuss the need for adhering to the road map for fiscal consolidation by fixing the fiscal deficit. Has
the Fiscal Responsibility and Budget Management (FRBM) Act, 2003 served the purpose for which it
was envisaged?
Approach:
 The question is focused on the recent controversy surrounding the desirability of achieving fiscal
deficit without any regard for monetary scenario. Therefore, the answer should start by briefly
explaining the context of enacting the FRBM Act and its need.
 In the next part discuss whether the FRBM Act has fulfilled its stated objectives.
Answer:

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The FRBM Act was introduced to check the deteriorating fiscal situation prevailing in 1990s. It intends to

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ensure prudent fiscal management. It specifies the annual reduction targets for fiscal and revenue

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deficits. The amended Act stipulates the reduction of fiscal deficit to 3% of the GDP by 2017-18. The Act
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binds the Government to adhere to the path of fiscal consolidation (although exceptional situations like
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the 2008 crises allow the government to take exceptional measures).

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Achievements of the Act

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 Brought centrality to the issues relating to fiscal consolidation as the government has to mandatorily
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present medium-term and strategy statements annually.

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Sustained high FDs raise the debt-GDP ratio and increase interest payments as proportion of
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revenue.
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 It improved the fiscal performance of both centre and states, which has contributed to their
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economic stability, as reflected in controlled inflation in the past year.

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 Performance on controlling fiscal deficit has been an important factor deciding sovereign debt
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ratings. Adherence to consolidation has helped us from being downgraded.

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 Strict adherence to the path of fiscal consolidation during pre-crisis period created enough fiscal
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space for pursuing counter cyclical fiscal policy.

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However, fixing a blanket target for fiscal deficit has been debatable. It is argued that, if the bank credit
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to the economy does not adequately grow, economic growth will suffer for want of money. Government
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expenditure must fill the gap in such situation, the consequence of which is rise in fiscal deficit. The
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economic slowdown since 2012 can partly be attributed to reduced money supply since. Further, the
restrictions placed by the FRBMA have constrained the ability of the state to fill the expenditure gap.
The Finance Minister has recently suggested that fiscal expansion or contraction should be aligned with
credit (money supply) contraction or expansion respectively. That is, if credit growth falls, fiscal deficit
may needs to rise and vice-versa to ensure adequate money supply to the economy. FRBMA in its current
form ignores this possibility and therefore, it is appropriate to get it reviewed.

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3. Public investment in railways has a multiplier effect for the larger economy. Elaborate. What factors
have held back the railways despite having a separate budget and considerable resources? In this
context, enumerate the relevant recommendations of Bibek Debroy committee?
Approach:
 The answer should begin with the effectiveness of public investment in Indian Railways and how it
would be beneficial for the whole economy.
 The next part should discuss causes of dismal performance.
 Finally, the answer should discuss the relevant recommendations of Bibek Debroy Committee.
Answer:
The transport network is akin to arteries of the economy. Therefore, there is a strong case for increased
public investment in railways, because:
 Transport networks links markets, reduce a variety of costs, and improve the competitiveness of the
economy.
 An efficient rail freight network can help industry to transport raw materials at lower costs and also
with associated lower greenhouse gas emissions.
 As compared to road, railways consume 75 to 90 per cent less energy for freight and 5 to 21 per cent
less energy for passenger traffic.
 Railways possess strong forward and backward linkages with economy of the region. According to

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one estimate, increasing the railway output by Rupee 1 would have the overall multiplier effect of Rs.

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5. This effect is greatest on the manufacturing sector.

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However, despite having separate budget and resources, railways have not been effective due to various

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reasons: 27
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 Successive plans have allocated fewer resources to the railways compared to other transport sectors.
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Currently, the share of railways in total plan outlay is only 5.5 % vis-à-vis about 11 % for other
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sectors.
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 This problem is compounded by inadequate resource creation by railways through periodic revision
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of fares. This has led to cross-subsidization of passenger traffic by the freight traffic.
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The combined effect of the above two is lack of capacity addition. It is reflected in congestion and
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slow speed of freight trains, when compared to global average.

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 Currently, the same network is shared by both passenger and freight trains in India. With the
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passenger trains utilize around 65 % of the network; this situation imposes significant constraints on
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freight traffic.
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 Railways also have to maintain many civil facilities out of its own resources. This further puts burden
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on the resources.
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It was in this context that, Bibek Debroy Committee has recommended some far reaching reforms. Some
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of those are:
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Transition to commercial accounting: current process of accounting in Indian Railways is very

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complicated, which makes it impossible to figure out the rate of return on a project.
 Focus only on core areas: Currently, a lot of tasks carried out by the Indian Railways are not at the
core of rail transportation. These activities include running hospitals and schools, catering, real
estate development, etc.
 All the existing production units should be placed under a government SPV known as the Indian
Railway Manufacturing Company (IRMC). This would ensure autonomy to manufacturing of railways
equipment.

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  Private entry into running both freight and passenger trains in competition with Indian railways
should be allowed and private participation in various Railway infrastructure services and non-core
activities like production and construction, should be encouraged.
 Shift regulatory responsibility from the government to an independent regulator as the private
sector will only come in if there is fair and open access to infrastructure. Ministry of Railways should
set the policy, whose enforcement and implementation will in turn be done by the regulator.
 A separate Railway budget should be phased out progressively and merged with the General Budget.
Thus, the committee has given comprehensive recommendations for reforming the ailing transport giant.
It is high time to give serious consideration to these recommendations.

4. “There is a myth that small firms create the most jobs in an economy. The fact is that small firms that
grow big create the jobs". In context of the Indian economy what are the factors that prevent firms
that start small from growing bigger. What progress has India made in this respect and what other
measures are required?
Approach:
 The answer is centered on the employment potential of small firms and the problems faced by them.
Therefore, the answer should start with elaboration of the given statement.
 The next part should discuss some problems being faced by those firms.
 Finally, the answer should discuss some measures taken by the government to improve the situation.

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Answer:

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MSME sector employs close to 40 percent of India's workforce plays a critical role in generating millions

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of jobs, especially at the low-skill level. According to NSSO, there are about 57.7 million non-corporate
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business units outside construction sector, mostly unregistered and self-employment units. However,
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SMEs in India, due to their low scale and poor adoption of technology, have very poor productivity. The
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total employment in MSME sector is about 80.5 million (4th All India Census for Small Scale Industry),
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which averages to less than 2 people per firm.

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Although they employ 40% of India's workforce, they contribute less than that (~35%) to the GDP. Too
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many firms stay small, unregistered and un-incorporated in the unorganised sector so that they can avoid
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taxes and regulations. These firms need to expand, grow and innovate in order to continue to scale up
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and hire more people to run their operations.

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In a journey from a small firm towards a big one, it may face following roadblocks:
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 Finance: with most of the 57.7 million units unregistered, banks, perhaps rightly, do not finance
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them. Lack of institutional credit means exploitation by usurious moneylenders.

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 Regulations: Compliance cost- money, time and labour rise drastically once a firm graduates from M
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to S to Medium and large. As such, about 90% of MSMEs are Micro only and remain so.
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 Marketing and Branding: Generally, small firms have good business idea but lack marketing and
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branding strategy to evolve themselves as a big firm.

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 Access to technology – partly because of limited finance and partly due to inertia. This hampers
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productivity and renders the enterprise uncompetitive..

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 Strict Labor Laws & Lack of skilled workforce: Firms deliberately remain small because as they grow
they come under strict labour laws.
 Tax incentives: SMEs have tax concessions, therefore to continue to enjoy those benefits, they
remain small.
However, these problems can be overcome through the following measures:
 Finance: We need banks that specifically cater the needs of the small firms- Recently launched
Payments Banks, MUDRA Bank, and Small Finance Banks.
 Regulations: Self-certification to some compliances and single online portal for registration,
clearances and approvals as envisaged in different programs (like Start Up India).

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  Collaboration Hub: Setting up a hub like Start Up India hub for collaboration of governments,
consultants, R&D institutions etc. that would assist small firms to adopt best practices through
exchange of ideas can be a way for adoption of better technology.
 Incentives: Innovation awards as provisioned in Atal Innovation Mission should be provided to
prompt small firms to spend on R&D and hence become more competitive.
 Focus on manufacturing: The recently launched Make in India program is another move by the
government to promote manufacturing, with a focus on SME sector.
 Skill development: Since majority of people employed in this segment is unskilled or semi-skilled,
therefore skilling programs can be important game changer. In this regard, the government has
launched the Skill India Mission.
 Dedicated e-commerce portal with the help of National Small Scale Corporation has been launched
to provide wider market coverage.
Apart from these already launched, or proposed measures, there is a need to bring in much awaited tax
reforms for streamlining the tax structure. SMEs is really the backbone of our economy, a very strong tool
for poverty alleviation, and empowerment of marginalized segment, therefore there is an urgent need to
bring in reforms to this sector.

5. Enumerate the reasons why problem of NPAs is more pronounced in the public sector banks as
compared to the private sector. Discuss the implications of having high NPAs in an economy. Also list
the measures which the government has taken in order to address them.
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Analyse the problem of NPAs plaguing the banking sector especially PSBs and the major reasons

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behind PSBs greater distress compared to Private players.

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Discuss the effect of high NPAs on the overall economy.
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 List the various steps taken by the government.
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As per RBI, an asset becomes non-performing when it ceases to generate income for the bank. Both
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Private as well as PSBs face the problem of NPA’s, however it is much more pronounced in case of the
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PSBs. The reasons behind this can be:

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 Burden of stalled growth-oriented infrastructure projects is largely borne by PSBs.

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 Government interferences influence the appointment of top executives and affect sanctioning and
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disbursal of loans.
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Mandatory high risk, Priority-sector-lending to agriculture, MSMEs etc.

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 Procedure followed in extending and monitoring credit - The culture that is created out of frequent
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interference in disbursing of credit leads to poor objective analysis in decision making. Excessive past
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lending during economic growth is associated wrong credit decisions, which are presently NPAs.
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 PSBs reflect poor level of debt recovery, patronage to wilful defaulters, whereas Private Banks
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concentrate more on lucrative-less risky lending.

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 Interest rate hikes in the past also hit PSBs.

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Effects of high NPAs on the economy:

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 NPAs shrink banks’ resources/provisions owing to non-receipt of credit, reducing their lending power.
This has huge impact on developmental priorities of the govt. such as in infrastructure as well as
Small Scale, high-risk entrepreneurs.
 Puts pressure on Government of infusing capital and on its fiscal expenditure.
 Perhaps the largest impact is the tacit impunity it grants to the existing borrowers, which in turn can
cause a bank run, and which can trigger a collapse of the entire banking system.
For addressing the NPAs the Government has taken several initiatives. Along with Debt-Recovery-
Tribunals, SARFAESI-Act; the government has tried to tackle NPAs via:

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  The initiation of the Bank Boards Bureau (in accordance with P.J Nayak Committee) and as part of the
broader Indradanush strategy (appointments, capitalization, de-stressing, empowerment, framework
of accountability and governance-reforms) is expected to facilitate independent decision-making in
PSBs.
 Bankruptcy Code Bill will help banks in the recovery of bad asset
 100% FDI in Asset-Reconstruction-Companies will encourage foreign entities, thus address the capital
problem of ARCs.
 The Budget 2016-17 also made a contribution towards refinancing PSBs and increasing their
compliance with Basel 3 norms.
 Clearing of balance sheets, as directed by the RBI will help in proper classification and accounting of
bad assets. With a ‘fresh-start’, banks can rigorously implement best appraisal techniques.

6. Disinvestment and strategic sale of public sector enterprises have been touted as important sources for
bolstering government exchequer. However, the achievements have not been at par with the
expectations in the last few years. Analyse.
Approach:
 Briefly provide meaning and importance of disinvestment in terms of revenue generation, capital
formation etc. in order to give your answer context as per the given statement in the question.
 Lay out the objectives and expectations from disinvestment.

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 Explain the reasons for government missing the disinvestment targets.

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 Mentioning the steps taken to address the concern end on a note suggesting way ahead.

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Disinvestment is a process where a company or government organization divests an asset or subsidiary

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as a strategic move for the company, planning to put the proceeds from the divestiture to better use that
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garners a higher return on investment. In the Indian context, disinvestment is also a means to raise
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resources to meet fiscal-deficit targets. However, successive budgets have seen the targets being missed
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or revised by the government. Recently, the finance ministry trimmed its target for FY 2015-16 by over
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50%.
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Reasons for missing disinvestment targets are:

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Market sentiments: fears of hard-landing of China’s economy, devaluation of the Yuan and an
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increase in interest rates by the US Federal Reserve had muddied market sentiment and dampened
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the prospects of share sales.

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 Low Equity investments: stock markets saw heavy sell-off due to the volatility in global markets.
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Decline in crude oil prices have made investments in ONGC much less attractive.
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 Trade union struggles as seen in Coal India pose another worry for sale in stake.
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 Tapering foreign flows: Most Sovereign Wealth Funds (SWFs) belong to oil-producing countries,
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whose investment capabilities have taken a hit with oil prices nearly halved.
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To address these concerns the SEBI created a special offer for sale of shares through stock exchange
mechanism largely with a view to facilitate round-the-year stake sales without resorting to time-
consuming procedures of issuing prospectuses and conducting road-shows.
Looking ahead, the government needs to be both ambitious as well as smart about disinvestment. These
receipts can be re-deployed in fresh public investments that the economy desperately requires today. An
ambitious disinvestment programme, extending to even majority stake sale, is also something the
markets would view positively and, in turn, boost valuations of public-sector undertakings.

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7. Mention the salient features of the Hybrid Annuity Model (HAM) proposed by the government to
reinvigorate private investment in infrastructure sector. How is it an improvement over the EPC model?
Approach:
 Briefly define the HAM and move in to enlist the salient features.
 Make a comparative assessment of the EPC and HAM to delineate the advantage of the latter.
Answer:
The Hybrid Annuity Model (HAM) is a mix of Engineering Procurement Construction (EPC) and Build
Operate and Transfer (BOT) formats, with the government and the private enterprise sharing the total
project cost in the ratio of 40:60, respectively. In hybrid annuity model (HAM), the government funding
to the extent of 40 per cent of the project cost will come in equal installments during the construction
period thus reducing the financial burden on concessionaire during the project implementation phase.
Some salient features of this model are:
 The government would partially fund the contractors (40%).
 The maintenance of the project will be carried out by the govt. and a fixed annuity would be
provided to the contractors.
 Necessary land acquisition and environmental clearances would be handed over to private
contractors prior to the commencement of project.
 The model would prevent instances of Viability gap funding given to contractors under BOT and
hence increase their accountability.

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HAM is an improvement over EPC model in the following ways:

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 In HAM, the government would partially fund the project, as compared to complete funding under

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EPC model. Therefore reducing the burden on the exchequer.

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 HAM is a win- win situation for both private players and government. The government has to arrange
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only 40% funds, while in EPC it was 100%. Moreover all regulatory clearances risk, compensation
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risk, commercial risk and traffic risk is borne by government, so risk for private sector is also minimal.
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 Annuity nature of the projects would eliminate traffic related risks thereby improving ease of
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financial closure and refinancing ability post project completion. Here the government would
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shoulder the responsibility of revenue collection and refund the amount in instalments over a period
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of 10 years in 20 equated instalments.

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 In the current situation where developers lack capital and the public exchequer is under stress, the
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move to lower the upfront costs is significant. Given the certainty of cash flows in the annuity model,
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developers can obtain more leverage from banks.

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This model is likely to give a boost to infrastructure sector when compared to EPC model.
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8. Even within the multilateral format of WTO the FTA route has served India well. Comment. How can
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India effectively deal with the challenges posed by the new mega regional agreements such as TPP?
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Approach:
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 Briefly explain what FTAs are.

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 Contextually provide how within WTOs multilateralism FTAs are permitted and how India has utilised
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this.
 Delineate gains made by India and also add the concerns raised by relevant actors.
 For the second part briefly explain mega regional deals with the example of TPP.
 Briefly enumerate the likely challenges it poses to India.
 The ways to deal with these challnges should be delineated in relatively detailed manner.
Answer:
Free Trade Agreements (FTAs) are arrangements between two or more countries or trading blocs that
primarily agree to reduce or eliminate customs tariff and non-tariff barriers on substantial trade between
them. While remaining committed to the multilateralism of WTO, under Article 1 of the GATT, India has
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 negotiated a series of FTAs , with Sri Lanka, Singapore, ASEAN, Malaysia, Japan and Korea etc, under the
exemptions of the Articles XXIV of GATT and Article V of GATS. Thus, the FTA route has been a preferred
method to promote trade with mutually advantageous groups and countries.
It has served India well by:
 Ensuring Market Access to the preferred countries
 Increase in exports
 Increase in overall trade by about 50% over roughly four years.
However, industry associations have repeatedly complained to the commerce ministry that because of
FTAs, India’s imports from these nations have significantly jumped, while exports have not increased
proportionately. Thus there has been a clamor to have a relook at the FTA strategy
The emergent mega regional agreements like Trans Pacific Partnership (TPP) also require a relook at the
strategy. On the one hand higher standards on environment, labor and Intellectual Property make the
TPP exclusionary, on the other hand the non-participation in this may pose challenges in terms of
reduced GDP to the tune of 0.2%, making Indian exports uncompetitive in certain markets, challenges to
food security, pressure on sectors such as pharmaceutical industry.
Keeping these effects in mind, India needs to take the following measures quickly:
 International Coalition - India needs to stitch together a coalition of like-minded countries
 Attain higher standards in production - We should, side by side, try to meet those upgraded

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standards to avoid the risk of exclusion

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Conclude ongoing free trade negotiations soon - These include the India-EU Bilateral Trade and

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Investment Agreement and the mega Regional Comprehensive Economic Partnership with the
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Association of Southeast Asian Nations, China and others. Benefits from these agreements will help
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mitigate some of the export losses that India may face in leather goods, textile, and plastics on
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account of trade diversion due to TPP.

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Diversify exports - Aiming to diversify export destinations to hitherto untapped markets like Latin
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America and Africa would also help.

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 Identify India’s trade interest areas - India also needs to identify its trade interest areas and propose
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alternative negotiating templates. One such area is biopiracy, protection of traditional knowledge,
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and the link between the WTO’s Trade-Related Aspects of Intellectual Property Rights agreement and
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the Convention on Biological Diversity.

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 Infrastructure development -, including port congestion and poor road connectivity, is one of the
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main hurdles in attaining this cost competitiveness. Addressing India’s infrastructural deficiency will
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have the dual effect of not only making India’s exports cost-competitive, but making them attractive
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for international lead firms to integrate India in global value chains.

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9. India’s export performance in the recent past has been poor in relation to the needs of the economy
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and in comparison with some other developing countries. Examine the reasons behind the decline in
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India’s exports. Highlight the measures proposed in Foreign Trade Policy 2015 to overcome this
challenge.
Approach:
 Contextualise India’s export performance in the introduction.
 Delineate the reasons for the performance on this front.
 Provide a comparison with other developing countries.
 Clearly delineate the reasons behind decline in India’s exports.
 Measures proposed in Foreign trade policy 2015.

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Answer:
For 12 consecutive months from January to December in 2015, India’s total exports were significantly
lower than previous year. The data for the period 2010-11 to 2014-15 reveals stagnation in the dollar
value of exports, around $300 billion per annum. It also shows that, on average, exports were able to
finance just two-thirds of imports, leading to considerable trade deficit. India’s export performance has
been poor even in comparison with some other developing countries. Between July and December of
2015, months that India's exports were slumping, Bangladesh in fact saw exports grow by eight per cent
year-on-year. Vietnam saw exports grow 9.2 per cent in 2015. This is a cause of concern for India's trade
policy.
Following reasons can be identified in this context:
 Slump in the prices of various commodities has adversely impacted the value of Indian exports.
 Global economy slowdown - The Great Recession that followed the financial crisis of 2008 and the
Great persists even now. Recovery in output is slow, uneven and fragile. The recovery in trade is just
as slow.
 Demand constraints – There are demand constraints also for the exports of developing countries
from their markets in slowing economies.
 Infrastructural constraints – Deficiencies in sectors such as Power, road, rail proved to be a drag on
export competitiveness
 Non-price factors - Like quality , delay in delivery etc. also affects the competitiveness of
manufactured exports.

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Overvaluation of the rupee which makes exports difficult and imports attractive, contributed to the

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stagnant export performance.

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 Chinese economy slowdown - Imports from China have increased markedly following the slowdown
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in that country’s economy whereas exports, chiefly in raw materials, have declined.
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The foreign trade policy 2015 offers the following measures:

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 It introduces two new schemes, namely "Merchandise Exports from India Scheme (MEIS)" and
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"Services Exports from India Scheme (SEIS)". The 'Services Exports from India Scheme' (SEIS) is for
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increasing exports of notified services.

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 These schemes (MEIS and SEIS) replace multiple schemes earlier in place, each with different
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conditions for eligibility and usage. Incentives (MEIS & SEIS) to be available for SEZs also. e-
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Commerce of handicrafts, handlooms, books etc., eligible for benefits of MEIS.

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 Branding campaigns planned to promote exports in sectors where India has traditional Strength.
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No need to repeatedly submit physical copies of documents available on Exporter Importer Profile.
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 Export obligation period for export items related to defence, military store, aerospace and nuclear
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energy to be 24 months instead of 18 months

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Within manufacturing exports, the government will chart out a strategy to promote the key sectors
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of engineering products, electronic goods and textile exports.

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 Within services, a host of incentives are likely to be rolled out to sectors such as tourism, hospitality,
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is

education, etc, which might be promoted in the form of project exports from India.
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10. Examine the provisions of the recently unveiled Start Up India scheme. How will it help in playing a
transformative role in India’s development?
Approach:
 In the introduction briefly mention the main aims and provisions of Start Up India scheme.
 Then discuss how its provisions play a transformative role in India’s development.
 Identify the issues to be addressed further.
 Conclude on a positive note.
9 www.visionias.in ©Vision IAS
Answer:
With an aim to help start-ups and catalyse entrepreneurship in India Government recently unveiled Start
Up India scheme. In order to give a boost to entrepreneurship in India the action plan lists out a
comprehensive set of structural and regulatory reforms such as:
 Income tax exemption,
 easing compliance through reduction of regulations and
 having fixed qualifications as to what a ‘start-up’ is,
 A provision of 80 per cent waiver on patent filing fees by start-ups,
 provide advisory services and create a Rs.10,000 crore fund-of-funds which is to be managed by
professionals drawn from the private sector.
Transformative potential of the scheme can be seen from the following:
 It will provide opportunities to young entrepreneur to become “job creators rather than job seekers”.
Further, there will be trickle-down effect of startups for job creation in smaller towns and villages.
 It will boost the economy by generating both demand and consumption.
 It will lead to increased investment from international community.
 Startup India will also help to create an ecosystem that will connect the youth from academic
institutional network to business community.
 With increased awareness created by the media, more talent will be attracted towards the scheme.
 It will make India hub to innovation and creativity.

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In order to be effective the Action Plan needs to address certain issues like:

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 The Action Plan instituted an inter-ministerial body led by DIPP to examine whether an enterprise is

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27
‘innovative’. An involvement of government in this ecosystem is hardly desirable.
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 It also requires a ‘recommendation’ from an incubator setup by the government. This additional
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layer of bureaucracy could slow down the starting up process.

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 The present provisions are pro to tech-startups but it is also important that the government should
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support non-tech start-ups also. It should make special provisions to ensure that this support
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structure extends to the agriculture, manufacturing, and handicrafts sectors.

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
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Action Plan exempts starts-up from inspection for six labour laws. There are about 45 laws at the
an

central level and about four times this number at the state level.
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 The Centre needs to work with the States to ensure a smooth rollout of the benefits under the
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Action Plan and avoid discord between policies at the two levels.
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The Start up India scheme aims at creating a positive environment. Concerted efforts by all stakeholders
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including the central government, various state governments, entrepreneurs, investors, mentors can
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drive this mission to the next level.

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en
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11. Cashless economy is a global trend now. What are the challenges of achieving a cashless economy in
do

the case of India? How can these challenges be overcome?

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Approach:
 In the introduction explain the concept of Cashless Economy.
 Mention the challenges which the economy is facing w.r.t. existing systems.
 Highlight the solution to these challenges.
 Conclude with a practical timeline for such action in the near future.
Answer:
Cashless economy is defined as a scenario in which the flow of cash within an economy is non-existent
and all transactions have to be through electronic channels such as direct debit, credit and debit cards,

10 www.visionias.in ©Vision IAS

 electronic clearing, payment systems such as Immediate Payment Service (IMPS), National Electronic
Funds Transfer (NEFT) and Real Time Gross Settlement in India.
Availability of smartphone and internet technology has seen economies like Sweden to make a
transtition towards cashless transactions. India as an Economy has toppled US from its second spot with
maximum smartphone users and is seeing surge of e-retailers and Digital Wallet facilities.
The present day challenges are seen as a roadblock while envisioning a complete cashless economy.
Challenges faced include:
 Bank account and Banking Access to all.
 Option of replacement of Cash.
 High transaction cost for using payment gateways.
 Rent seeking nature of Bank while providing access to payment gateways or Digital Wallet.
 Dependency and Trust on technology and Network.
These challenges can be overcome by having a multi-stake holder approach where the government, RBI,
financial Institutes and Private sectors provide the necessary inputs towards this transition. Some way
out to encourage the transition towards cashless economy are:
 Incentivising the users for using cashless transactions:- Income tax rebate for cashless transactions
could well trigger a series of coordinated policy tweaks that could help boost revenues for the
government, productivity for the economy and an effective infrastructure for direct benefit transfers
and financial inclusion.


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Technology Adoption in Large Scale:- The only way to bridge the last-mile gap will be through the

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widespread adoption of electronic payment systems. A strong fool –proof IT network system is must

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to ensure trust amongst the users.

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27
Cash is a very expensive habit for the nation to cultivate. The cost of printing, managing and moving
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money around the country is huge. Further, owing to a huge amount of cash in the form of black money
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being circulated in the economy, the government along with other stakeholders need to build a robust
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and leakage proof framework for ensuring scrutinize transactions. Though it might take a longer duration
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but India will soon see a larger amount of transactions being done through cashless systems.
ho
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12. Abysmal level of formally skilled workers in Indian economy, as indicated by the Labour Bureau Report
ka
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2014, is a cause of concern. What are the factors responsible for such a scenario? Also, examine the
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measures taken by the government in recent years to address the relevant concerns.
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Approach:
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 Explain the reasons behind the large rural and urban unskilled labour force. No need to make any
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comparison between rural and urban employment.

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 Government measures will include the names of different policies and their overall impact. However,
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individual policies shall not be given much attention.

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Answer:
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An abysmally low level of skilled workers is acting as a major impediment in the development of the Indian
Th

economy. While all major economics such as Germany, US and South Korea have high level of skilled labor
force, this has not been possible in India because of the following reasons:
 Dearth of a formal vocational education framework which restrict the vocational training to the rapidly
growing young population.
 Even if there are few vocational training institute, there is wide variation in quality among them.
 High school dropout rates is one of the most significant cause for abysmal level of formally skilled
workers. This owes it existence to socio-economic conditions of a family.
 There is an inadequate skills training capacity in our existing training institutes.

11 www.visionias.in ©Vision IAS

  In some sections of society there prevails a negative perception towards skilling and they continuously
try to engage themselves in informal sectors of the economy.
 One of the main causes of this problem is lack of ‘industry ready’ skills even in professional courses,
which compel industries to not employ people even with good degrees.
 A large section of workforce, in rural areas, engage in agricultural sector. The lack of agriculture related
reforms renders this section to work in informal sectors.
Various measures taken by the government to address this concern are as follows:
 A dedicated Department of Skill Development and Entrepreneurship has been created under the Ministry
of Skill Development, Entrepreneurship, Youth Affairs and Sports to accord focused attention towards
skilling the youth.
 The skilling programme for rural youth has been refocused and reprioritized to build the capacity of poor
rural youth to address domestic and global skill requirements.
 The Deen Dayal Upadhyaya Grameen Koushalya Yojana (DDU-GKY) is a placement-linked skill
development scheme for poor rural youth.
 For bringing minorities into mainstream development, Nai Manzil, a program for education and skill
development of dropouts, has been started.
 USTTAD (Upgrading Skills and Training in Traditional Arts/Crafts for Development) to conserve traditional
arts/crafts and building capacity of traditional artisans and craftsmen belonging to minority communities
has also been introduced.

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 Nai Roshni, a leadership training programme for women which focusses on equipping women with

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knowledge, tools and techniques to interact with government systems, banks and intermediaries.

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 MANAS for upgrading entrepreneurial skills of minority youths.

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27
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13. While women are entering the urban workforce in large numbers, most women are only able to find
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marginal work in the informal economy, with low wages and little or no job security. Analyse the
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reasons behind this phenomenon.

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Approach:
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 Give an introduction about women participation rate.

ka


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Then discuss how the data shows that they are only able to find marginal work with no job security
uv

etc.
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 Then analyse the reasons behind this phenomenon.

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Answer:
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Over the past decade, India has been near the bottom of the global rankings, as far as female
pe

participation in the urban workforce is concerned. The good news is that our analysis of data from the
s
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past two decades shows that this is beginning to change. Women (especially young women) are entering
en
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and looking to enter the urban workforce in large numbers.

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But unfortunately, most women are only able to find marginal work in the informal economy, with low
is
Th

wages and little or no job security. In addition, highly educated young urban women appear to have very
limited job options in urban India. Close to 20% of urban females work as domestic help, cleaners,
vendors, hawkers and salespeople. 43% of urban women were self-employed and the same proportion
of women had regular wage salaried jobs, according to NSSO in 2011. Yet, 46% of urban women with
regular wages have no social security or employment benefits, while 58% have no written contract for
their jobs.
There are various reasons for this including demand side and supply side reasons:
Demand side
 Dual pressure of work and family - It leads to occupational stress and women settle for a low paying
job or marginal jobs which they are able to pursue without much stress.
12 www.visionias.in ©Vision IAS
  Gender bias due to the age old convention that women are less capable and inefficient in working as
compared to men. This attitude is entrenched in our patriarchal society which considers women unfit
for certain jobs, also holds back women to achieve their aspirations.
 Low education - The study notes that poor education among rural women acts as a barrier to
smooth inter-sectoral labour mobility. Nearly 69 per cent of rural women are either illiterate or have
been educated only up to the primary level.
 Inadequate skills - A recent OECD report found that significantly lesser numbers of women enter
STEM (science, technology, engineering, mathematics) degree programmes, thereby limiting
women’ participation in these fields that create some of the largest number of white-collar jobs
highlights how the gender gap in education could be one of the reasons.
 Safety issues - while traveling compels them to take up a job which is near to their house and not
which is upto their qualifications or desires
 Discrimination at Workplace: Indian women still face blatant discrimination at their workplaces.
They are often deprived of promotions and growth opportunities at work places so women does not
put efforts towards higher jobs in fear of glass ceiling.
 Orthodox mindset in the Indian society makes it difficult for a working woman to balance her
domestic environment with the professional life. In some families, it may not be acceptable to work
after six o’clock. Those families that do accept these working hours may restrict options for women
Supply side
 Bias in Preference during recruitment – Biased mindset of the society regarding efficiency and talent

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of women may get reflected in their recruitment preference also.

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 Extra economic burden for employers – Issues like maternity leaves etc. serves as an extra economic

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burden for the company so they prefer to choose men in place of them.

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 Extra care required – The women need to be given more attention for security purposes and they
27
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also may not be available for the night shifts which is the case with many manufacturing and service
s
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jobs.
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m

 Extra infrastructural measures – They need to be given crèche facilities and late night transport
tta
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facilities which is again economically taxing to the company.

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 Low policy interventions – We see a lot of talks now a days regarding women empowerment but
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that does not translate into higher investment in resources for the same. This shows continued
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discrimination and ineffectual laws and policies.

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Inadequate employment generation – Even if India’s GDP is growing but it is not enough to create as
fo

much employment opportunities as needed and the existing ones are filled majorly by men owing to
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the biases described above.

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 Access to credit – There are vary less avenues for the women entrepreneurs to get investors for their
rs
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idea.
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14. In the 10 years of its existence MGNREGA has won laurels as well as attracted criticism. Comment.
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What changes are required for the scheme to be relevant in the current scenario.
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Approach:
 Give a short introduction about MGNREGA.
 Then discuss the success of this programme.
 Further, provide a criticism of it.
 Finally, discuss the changes required in the current scenario.
Answer:
MGNREGA provides a legal guarantee for one hundred days of employment in every financial year to
adult members of any rural household willing to do public work-related unskilled manual work at the
statutory minimum wage. The World Development Report 2014 has described the Mahatma Gandhi
13 www.visionias.in ©Vision IAS
 National Rural Employment Guarantee Act as a "stellar example of rural development". Its success can be
measured through the following:
 Increase in rural wages - Rural wages started climbing and reports also pointed towards a decline in
migration to urban centres.
 Reduction in poverty - A NCAER study of 2015 showed that the Act helped in lowering poverty by
almost 32 percent in the period 2004-05 to 2011-12. Since the launch of the scheme it has helped in
reducing poverty level among scheduled caste and scheduled tribes by 38 per cent and 28 per cent
respectively.
 Women & SC/ST employment - It has generated 19.86 billion person-days of employment
benefitting 276 million workers, with more than half the jobs going to women workers and almost a
third to members of scheduled castes and scheduled tribes. 57% of all workers are women, more
than the statutory requirement of 33% and the highest in three years.
 Increase in bargaining power - MGNREGA has played a much larger role in revitalizing the labour
market in rural areas. It has led to the creation of a class of workers who are using the MGNREGA as
a safety net. Also these workers are able to use it as a bargaining tool for extraction of higher wages.
 Empowering gram Panchayats - It has acted as the single most important instrument for
empowering gram panchayats. The act gave gram sabhas the mandate to plan their own works and
untied funds to execute these works.
 Environmental effect - Research suggests that water-related assets created under MGNREGA have

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increased quantity of water available in a year. This led to changes in crop patterns and increased

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area under cultivation according to some studies.

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Even after such successes in rural areas in terms of employment and quality of life, various criticisms

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have come in the way of MGNREGA: 27
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
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Inequitable allocation of funds - CAG report showed that from 2009-10 to 2011-12, only 20 per cent
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of total funds allocated under the scheme has been released for Bihar, Maharashtra and Uttar
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Pradesh where almost 46 per cent of India’s rural poor reside.

ho

 Corruption - CAG also found rampant corruption and swindling of public funds and around Rs 2,252
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crore of inadmissible work was undertaken under the MGNREGA including construction of earthen
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roads, bathing Ghats, raised platforms for cattle etc.

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 No skill development - There is not enough skill development happening for the people working
uv
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under this scheme.

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Unproductive and low durable assets - Asset creation under this scheme is not productive as it
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should be.
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
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Delay in payments - There is large-scale delay in payments of wages. The workers in some area have
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not even been compensated till now for their work done one year back.
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In light of these criticisms and to ensure the success of MGNREGA in the future, following changes can be
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made in the scheme:

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
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Convergence with other related programmes - In order to create the productive assets, the scheme
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should be converged with related programmes in the department of agriculture, irrigation, animal
husbandry and road transport.
 Digitisation and social accountability mechanisms - To fight corruption, the use of IT and
community-based accountability mechanisms like social audits should be encouraged.
 Better targeting - The act should be linked with the Socio-Economic Caste Census to ensure better
targeting.
 Capacity building - There should be focus to develop a cadre of identified trainers/experts which will
be useful in effective implementation of the scheme.

14 www.visionias.in ©Vision IAS

  Skill development - Skilling of the MGNREGA workers in conjunction with the Deen Dayal Upadhyaya
Grameen Kaushalya Yojana (DDU-GKY) and NRLM should be encouraged on a larger scale so that
they will be able to acquire vertical mobility in the job market, and would no longer depend on
unskilled manual work.

15. Power sector reforms, crucial as they are, have remained elusive. Discuss the reasons for their failure.
How far can the UDAY scheme address the issues concerning DISCOMS and improve the entire power
sector value chain?
Approach:
 Briefly mention some power sector reforms of the past.
 Then discuss the reasons for their failure.
 Thereafter, explain the features of UDAY scheme and elaborate how it can improve the condition of
DISCOMS.
Answer:
In India some reforms in the power sector have been: Electricity Act, 2003 with aim to privatize power
sector; streamlining allotment of coal and gas blocks so that power can be produced cheaply;
restructuring debts of DISCOMS; separating transmission and utility function of PGCIL.
However, these reforms have not been able to create desired impact because:

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 Focus on generation augmentation rather than distribution/delivery optimisation.

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

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Allocation of fuel blocks at cheap rates has led to reselling of blocks or fuels itself by the private

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operators to other bidders.

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Failure to address inefficiencies and wastage at every stage — production, transmission, distribution
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and delivery.
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 Weakest link in value chain is distribution, wherein DISCOMs have accumulated losses of
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tta

approximately Rs. 3.8 lakh crore and outstanding debt of approximately Rs. 4.3 lakh crore. Financially
ho

stressed DISCOMs are not able to supply adequate power at affordable rates.
us
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
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Reforms not been comprehensive failing to correct the ills of system— ill-trained workforce, poor
ka

reliability, high line losses, low voltage profiles, overloading of transformers, poor maintenance,
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absence of conservation measures, power theft, haphazard layouts, whimsical load connection,
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inadequate clearance, etc.

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This has led to the need of addressing the distribution side malfunctions. With these aim government
is

has launched UDAY scheme with following features:

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
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States shall take over 75% of DISCOM debt.

pe

 States will issue non-SLR including SDL bonds in the market or directly to the respective banks /
s
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Financial Institutions (FIs) holding the DISCOM debt.

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 States shall take over future losses of DISCOMs in a graded manner.

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
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DISCOMs will comply with the Renewable Purchase Obligation (RPO).

is

 States shall be supported with additional coal at notified prices.

Th

 Operational efficiency improvements are proposed to be brought in by compulsory smart metering,

upgradation of transformers and meters to reduce electricity lost during transmission and
distribution (or theft).
This will lead to improving operational efficiencies of DISCOMs, reduction of cost of power, reduction in
interest cost of DISCOMs and enforcing financial discipline on DISCOMs through alignment with state
finances. It will help DISCOMs to attain breakeven in 2-3 years. Thus UDAY is not bailout package but a
revival plan for DISCOMs.
However, it is just one aspect of the reforms and lot needs to be done to improve the overall efficiency of
the power sector.

15 www.visionias.in ©Vision IAS

16. Market volatility and vulnerability to weather are the major issues facing Indian agriculture.
Elaborate. In this regard, critically examine the importance of Pradhan Mantri Fasal Bima Yojana vis-a-
vis earlier insurance schemes in addressing the problems of Indian agriculture.
Approach:
 Briefly elaborate the statement given in the question.
 Issues with earlier crop insurance scheme should be discussed.
 Then, discuss how PMFBY will tackle the above problems.
 Then mention the challenges and issues with PMFBY.
 Conclude positively.
Answer:
Weather vulnerability and market volatility are the major problems, that agriculture suffers from.
Market Volatility: Fluctuations of prices are steep:
 Excess Production: Usually accompanied by low prices, as demand is distributed and excess supply
leaves farmers with low profits.
 Low Production: Prices that farmer gets at the point of sale often do not reflect high prices.
 Decision of the crop variety by the farmer is seldom based on future commodity market projections,
which render the farmers unable to utilize price fluctuation positively.
Vulnerability to weather: As 56% of total cropped area is not irrigated, dependence on monsoon is high.
Crop insurance acts as a major safeguard against weather vulnerability. Some crop insurance schemes

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like NAIS, MNAIS, WBCIS, etc. exist but suffer from several drawbacks.

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Lacunae in these schemes:

gm

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Coverage limited to cost of production, weather based damages.
27

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High premium especially of the non-food crops.
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 Disbursements have been limited and skewed.

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m

 Low penetration – Only 20 million out of 120 mn farmers covered.

tta
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 Challenges in crop cutting exercise – Expensive, non-transparent and one of the biggest technical
us
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lacunae in whole process.

rP
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 The reference area is very large and localised damages were neglected.
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uv

 Low sum insured amount.

rS
fo

 Capping of expenditure – To limit the government subsidy burden for the premium payment
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In order to overcome the above issues Government has unveiled PMFBY.

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Key Improvements:
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
s

Reduced premium
ti
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 Use of technology for mapping and uploading of crop loss data to reduce delays in settling claims,
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remote sensing will be used to reduce the number of crop-cutting experiments.

do

 Immediate payment for crop damage.

is


Th

Larger coverage
o Post-harvest losses, sowing failures and localised crop losses like hailstones would also be
covered.
o An aim is to give crop insurance coverage to half of the country’s cropped area in the next three
years. At present, the coverage is 23%.
 Banks risk of lending to farmers will reduce due to insurance.
 No cap on Government subsidy towards premium contribution.
 Panchayat would be unit of assessment.
 Even tenancy farmers would be given protection.

16 www.visionias.in ©Vision IAS

 Challenges:
 Spread of awareness to farmers.
 Patwari (local block administration) will have discretionary power to assess the expected loss.
 It only covers against weather risk not price fluctuation.
 Standardized Land records needed.
 Distribution of cost between Centre-states is equal so burden on state will increase which is also a
major challenge.
Thus, PMFBY is a noble effort and addressing the existing issues with the scheme will enhance its
effectiveness manifold.

17. The Hydrocarbon Exploration Licensing Policy (HELP) is a step forward from the New Exploration
Licensing Policy (NELP). Compare the two policies and elaborate how HELP can encourage investment
in the hydrocarbon sector as well as curtail India's export dependence?
Approach:
 Give a brief introduction of both the policies – HELP and NELP.
 Comparison of two policies will be in respect of their various provisions.
 Write the provisions of HELP which will give freedom of choice and freedom from other regulatory
difficulties to investors.

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 Explain how HELP will be instrumental in increasing the crude oil production.

l.c
ai
gm
Answer:

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27
NELP and HELP are policies adopted by government of India for award of hydrocarbon acreages towards
h0
exploration and production (E&P), to attract significant risk capital from Indian and Foreign companies,
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state of art technologies, new geological concepts and best management practices to explore oil and gas
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resources in the country to meet rising demands of oil and gas.

tta
ho

NELP follows the mechanism of profit-sharing where the explorers first recovered their costs and then
us
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shared profits with the government. This led companies to artificially lower their profits to lower the
rP
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government’s profits share. This mechanism was severely criticized by the CAG. NELP had the provision
an

of multiple-license, where in the investor has to obtain different license for different hydrocarbons. The
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investors were also dependent on government in fixing the price of their produce.
fo
ed

Recently declared HELP has the following provisions:

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
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HELP follows the revenue-sharing mechanism. Revenue-sharing will not be subject to cost recovery,
rs

monitoring will be simple, and the government share will accrue immediately on production, unlike
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s

in cost-recovery where the contractor first claimed its costs before splitting leftover profits
ti
en

 It provides for marketing and pricing freedom for crude oil and natural gas produced.
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 Introduction of open acreage policy where companies can submit bids for areas of their choice and
do
is

can choose blocks from the designated area round the year without waiting for road-shows and
Th

auctions like in NELP.

 It has lower royalty as compared to NELP.
Thus, HELP has more investor friendly features when compared to NELP. This will encourage exploration
and production and will be instrumental in reducing the India’s export dependency of crude oil. The
reduced government intervention (due to revenue-sharing mechanism) should lure global investment
when global oil prices recover. This is positive from the long-term perspective. It may not result in
immediate benefits but will give flexibility to the companies and is in line with global trends.

17 www.visionias.in ©Vision IAS

18. Development and administration of smart cities is contingent upon financial sustainability of the local
bodies. In this regard, list the constitutional measures and discuss some strategies for raising resources
to improve their financial health.
Approach:
 The answer should briefly discuss the constitutional provisions regarding raising of financial
resources by the municipalities.
 The next part should discuss some strategies for augmenting those resources.
Answer:
Municipal finances in India are characterized by constant tension between funds and functions of local
governments. Indian cities have insufficient revenue tools to meet their expenditure. Out of 18 functions
to be performed by municipalities under 74th CAA, less than half have corresponding financing sources.
Some provisions to augment resources of municipalities:
A. Internal resource generation:
1) Levy of taxes, like property tax, professional tax, etc.
2) User charges for availing civic services.
3) Collection of fees for specific municipal services.
B. External resource generation:
1) Bank loans, municipal bonds or other capital market instruments.

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2) Grants from the Centre or state governments.

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3) Investment by private or public agencies.

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In the context of newly launched Smart Cities project, raising of resources for sustainable city
development becomes all more important. This can be done in the following ways: 27
s h0
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 Levy of vacant land tax.

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
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Land conversion charges at the time of land use conversion, e.g. from rural to urban, and from
tta

residential to commercial use.

ho
us

 Advertisement tax can be levied on hoardings, buses, cars, etc. But states need to empower local
ur
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bodies to levy these taxes.

ka

 Entertainment tax: states should take action to increase its scope to cover more and newer forms
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uv

of entertainment.
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
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Development of bond market for raising resources through municipal bonds.

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 Profession tax: Levied by state governments or municipalities under Article 276 of the
is
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Constitution, i.e. a tax in respect of profession, trade, calling and employment. Current ceiling of
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Rs.2,500 per taxpayer per annum is low and needs to be revised. This tax can help municipalities
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reap the benefit of a rapidly urbanizing population and a concomitant increase in the workforce.
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At present, 21 states in India impose professional tax. The tax is applicable to all persons engaged
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in any employment or profession in some states; in some others, it is applicable only to certain
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specified professions. 14th Finance Commission recommended that professional tax could be an
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important source of revenue for local bodies, if they are allowed to levy and collect it under state
legislation within a reasonable ceiling set by Parliament.
Revenue enhancement of municipalities needs to be a national priority if infrastructure gap in our cities
is to be addressed. A principal component is fiscal decentralization, with a focus on devolving buoyant
revenue streams to municipalities. State legislatures should do their part by committing to pass on
revenue generated by cities back to their municipalities.

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19. Despite being declared sick or unproductive, many public and private ventures are not able to exit on
time. Mention the reasons which impede the exit of sick units. Giving examples, discuss the constraints
placed on the economy by not having an efficient exit policy. Suggest some measures to address this
problem.
Approach:
 Discuss the reasons for impeding the exit of sick units.
 Elaborate the harmful effect on economy of a flawed exit policy.
 Suggest remedial measures.
Answer:
India has a disproportionately large share of inefficient firms with very low productivity. It is because of
lack of simple exit policy for sick units whether in public or private sector. This is because:
 Labour unions have been against such policy because of fear of loss of job.
 Industrial Disputes Act, 1947 puts restrictions on employers in the matter of reducing excess staff by
retrenchment, by closure of establishments and the retrenchment process involves lot of legalities
and complex procedures.
 Focus on concentrated producer interests in relation to diffused consumer interests. Hence, it
becomes difficult to phase out schemes and they become instruments of granting favours.
 Weak institutions increase time and financial costs of exit. Furthermore, inability to punish wilful

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defaulters questions the legitimacy of all institutions.

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Exhaustive process of transfer of assets of sick firms to other entities.

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This lack of exit generates externalities that hurt the economy: 27
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Inefficient firms often require government support in the form of explicit subsidies (bailouts) or
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implicit subsidies (tariffs, loans from state banks).

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 Misallocation of scarce resources and factors of production in unproductive uses including overhang
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of stressed assets on corporate and bank balance sheets.

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Government support to sick firms can give the impression that government favours large corporates,
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which politically limits its ability to undertake measures that will benefit economy but might be seen
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as further benefitting businesses.

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Reflects poorly on business environment thus discouraging investment and M&A.

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Thus it is imperative that a simple and comprehensive exit policy be brought to facilitate the exit of sick
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firms while balancing the interest of the workers. Government has introduced Voluntary Retirement
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Scheme; some states have simplified the process of transfer of land of sick industries to new firms;
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Scheme of Counselling, Retraining and Redeployment (CRR) of rationalized employees of Central Public
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Sector Undertakings (CPSUs) to secure the interest of employees; proposed Insolvency and Bankruptcy
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Code etc.
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Apart from these following steps can be taken:

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 Promoting competition via private sector entry rather than change of ownership from public to
private.
 Increased use of technology to remove persistent distortions by bringing down human discretion and
layers of intermediaries.
 Increasing transparency and efficiency of the institutions through use of online portal and single
window clearance.
All this will help in evolving a simple exit policy which facilitates exiting a non-profitable venture and
exploring opportunities in new one.

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20. "Provision of subsidies to the poor has large welfare dimensions but most of the subsidies
disproportionately benefit the well-off sections of society." In context of the above statement, critically
analyse the utility of subisidies in a welfare economy like India.
Approach:
 Give a short introduction of subsidies and explain their benefits.
 Throw light on the welfare dimensions of subsidies.
 Discuss the perception of well-off sections of the society cornering the subsidies.
 Examine whether subsidy is useful for the intended segment.
Answer:
Subsidies are one of the quintessential attributes of any welfare state to achieve its objectives of socio-
economic development. India spends almost 10% of its total annual expenditure on subsidies. Economic
survey 2015-16 has highlighted that all the schemes and policies of subsidies provide a bounty to the
well-off of about R1 lakh crore. Their benefits can be understood from the following examples:
 Tax incentives – All the tax incentives benefit not the middle class but those at the very top end of
income distribution as only 2% of Indian population approximately pay taxes.
 Gold – 20% of population consumes 80% of gold and yet it is taxed at such lower rates of 1-1.6%
 LPG - 91% of the LPG subsidies were accounted for by the well-off people
 Transportation fuel – Aviation fuel is charged at 20% while diesel and petrol are taxed at 55% and
61% respectively where aviation industry services are used only by the well-off.

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Despite various loopholes in subsidies provision and its multiple other negative effects along with the

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aim for which it has been given, subsidies for a country like India has tremendous utility for the following

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reasons:
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 For redistribution of money to ensure we go forward in reducing our inequalities of society
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 For millions of people suffering from poverty and huger

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For agriculture as it has become less attractive for farmers as a profitable venture
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For equal opportunity to every section of society to basic necessities of life including health,
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education etc. to achieve ideals of social justice

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For effective and optimal allocation of resources

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 For stabilizing the price of goods and services which hurts the poor the most.
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Rather than reducing the subsidies, they should be targeted well and recent steps of the government
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points in the right direction. For example – income cap for LPG subsidies, neem coated urea to prevent
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its usage by other industries, direct benefits transfer using adhaar, Food Security Act along with add on
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benefits to mother and infants etc.

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