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Approach Answer: General Studies Mains Mock Test 863 (2017)

1. It is important for India to return to the path of fiscal consolidation while also increasing public
investment. Explain why achieving both these objectives are important to revive the present economic
environment in the country.
Approach:
Defining fiscal consolidation, discuss its significance for economic stability.
Discuss the significance of public investment.
Discuss the underlying challenges in balancing the two and suggest measures for the same.
Answer:
Fiscal consolidation (FC) means reducing fiscal deficit (FD) by reducing public expenditure and/or
increasing the revenue. The aim is to discipline the public finances and is enjoined by the FRBM Act, 2003
(which intends to cap the Fiscal deficit to 3% of GDP). Public investment means committing public money
to various socio-economic objectives. It is often seen that public investment is curtailed to cater the
needs of fiscal consolidation. Both these objectives have been contested, with arguments on both the
sides.
Fiscal Consolidation (FC)
A. Significance
Large FD means government as the major borrower leaving private sector short of credit for
investment.
High FD adds to interest burden on the government, thereby diverting the money from productive
sectors. At present, interest payments at the Union level, account for almost 50% of their net tax
revenues.
High FD increases the interest rates in the economy, thereby fuels inflation.
Therefore, the importance of FC cant be overstated. Hence, the credit rating agencies consider FD as an
important variable to assess the credit worthiness of an economy.
B. Argument against
During economic slowdown, the government has to incur deficit to boost the economy. When the
aggregate demand is already low, adhering to the path of FC is counter-productive. For example, during
2008 crisis we have to abandon the targets under FRBM Act. To look into this issue further, NK Singh
Committee has been set up by Finance Ministry.
Public Investment
A. Significance
Public investment in productive sectors acts as the stimulator, fueling demand and hence growth in
the economy. It is particularly important in current scenario of sluggish growth.
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 At present, capital expenditures is merely 1.7% of GDP which means lesser future growth. Public
investment in infrastructure would boost future growth and consumption in the present.
It has domino effect as it crowds in the private investment, which, at present, is significantly
depressed.
Private investment is volatile and it being majorly in form of FDI and FII is prone to global risks and
hence more volatile.
Private investment in India has been in capital intensive sectors like services. Hence, to boost
employment growth public investment is needed.
Public investment is necessary to bridge the sectoral and regional inequalities.
B. Challenges
Increased public investment may crowd out private investment.
It is difficult to mobilize resources for investment in current slowdown.
Way forward
We have to find balance between these apparently conflicting objectives as under:
Reprioritize expenditure, with greater focus on the productive capital expenditure and reducing
revenue expenditure.
Rationalize subsidies to increase fiscal space.
Divest governments stakes held in specified PSUs and utilize these resources for capital investment.
In line with Vijay Kelkar Committees report on PPP, we should resolve the stuck investment projects
and revive the PPPs.
As suggested by FFC, there should be an independent Fiscal Council to monitor the implementation
of fiscal rules by the government.
The implementation of a well-designed Goods and Services Tax (GST) and other tax reforms would
also play the crucial role in enhancing revenues.
Exploring feasibility of having a fiscal deficit range as the target in place of the existing fixed
numbers(percentage of GDP) as fiscal deficit target.

2. Although it is the right time for elevating the mission of 'Make in India' to 'Innovate in India',
significant challenges exist in doing so. Elaborate. How can these challenges be overcome?
Approach:
Briefly discuss why it is the right time for elevating the mission of 'Make in India' to 'Innovate in
India'.
Mention the existing challenges.
Suggest measures to overcome these challenges.
Answer:
Indias rise in the Global Innovation Index from 88 in 2015 to 66 in 2016, along with the below mentioned
factors, is a cue that it is right time for elevating 'Make in India' to 'Innovate in India':
Achieving technological self-reliance: Indias dependence on import for strategic sectors as well as
rising protectionism in the western world calls for in-house innovation.
Dealing with Indias unique socio-economic challenges requires indigenous innovation.

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 Attaining and sustaining double digit GDP growth in coming years would require India to become a
knowledge-based learning society and enhance competitiveness of industries by improving efficiency
and productivity.
But India still faces significant challenges to make innovation its hallmark on global stage which are:
Indias brand of innovation is associated with frugal innovation misconstrued as low cost and low
tech products.
Both the public and private sectors invest very less in research and development (R&D)less than
1% of the countrys GDP whereas US invest anywhere from 3-6%.
India attracts only 2.7 per cent of global R&D spend, while China attracts 17.5 per cent.
Only a few Indian universities (eg- IISc) ranks in the top global rankings. Also, Indian universities
suffer from poor linkages to industry and rarely there are any strong research collaborations.
The legal provisions are not implemented harmoniously causing overlaps, conflicts or inconsistencies
among them.
Though it is seems difficult to overcome these challenges but they can be overcome by:
Articulation of a national vision of innovation: This can only be done through collaboration among
the government and other key stakeholders including the private sector and academia, such as in
Atal Innovation Mission.
Investing in the core intellectual capability of universities and building appropriate innovation
ecosystems in partnership with leading firms.
Identification of focus areas where India seeks to innovate with appropriate technologies.
Recognize that entrepreneurship and innovation are related but not the same, entrepreneurship is
important for creating jobs and promoting self-employment while innovations happens in existing
institutions.
Government needs to build a competitive environment by prioritizing scientific research with a
strong intellectual property (IP) system. A proper implementation of National Intellectual Property
Rights Policy 2016 needs to be done.
Focus on improving Indias rank in the Ease of Doing Business index.
Effective regulatory regimes should be encouraged to support intellectual property and the longer
term investments of firms.
Government should make itself the showcase of digital transformation and innovation.
A smart pro-active strategy for innovation, supported by appropriate leadership from the government
and the private sector can help elevate Indias mission to Innovate in India.

3. What is meant by public debt? Highlight the objectives of public debt management. Explain why it is
considered prudent to disaggregate debt management from monetary policy and take it out of the
realm of central bank.
Approach:
Define Public debt.
Discuss the objectives of Public Debt Management.
Discuss the benefits of disaggregating public debt management from monetary policy.

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Answer:
In India, public debt refers to a part of the total borrowing by the Union Government which includes
internal debt such as market loans, treasury bills and special loans and securities issued by the Reserve
Bank and outstanding external debt.
However, it does not include the following items of borrowings:
Small savings
Provident funds
Other accounts, reserve funds and deposits.
The government generally borrows from the people to meet three kinds of expenditure:
to meet budget deficit.
to meet the expenses of war and other extraordinary situations; and
to finance development activity.
Effective Public debt management strategy has the following objectives:
To Ensure Sustainable growth: High public debt diverts the societys limited capital from productive
private to unproductive public sector public debt that retards growth in the long run.
To prevent Crowding-Out Effect: When the government borrows money from the people by selling
bonds, there is diversion of societys limited capital from the productive private to unproductive
public sector. The shortage of capital in the private sector will push up the rate of interest.
To prevent Efficiency and Welfare Losses from Taxation: When the government borrows money
from its own citizens, it has to pay interest on such debt. Interest is paid by imposing tax on people
thereby adversely impacting incentives to work and to save.
Sustain domestic consumption: High debt-service-ratio imposes a burden on present and future
needs of society and represents a reduction in consumption possibilities
Stable Macroeconomic indicators: Need for low and stable Fiscal deficit, Inflation and CAD etc.
Currently, the external debt in India is managed by Ministry of Finance and internal debt is managed by
RBI.
Need for debt management strategy independent from fiscal and monetary policy
To eliminate the conflict involved in central Bankss function to ensure low interest rates on one hand
while ensuring high returns through selling government securities on the other hand.
To develop the liquidity and depth of market for government securities and end the practice of using
scheduled banks as captive buyers of government securities.
Consolidate all debt management functions in a single agency and bring in holistic management of
the internal and external liabilities.
To ensure planning borrowings of the government, management of central liabilities, monitoring
cash balances of the government as a professional and objective exercise.
To advise the Finance Ministry on external borrowings and enhance transparency in external
borrowings.
The Finance Ministry has decided to set up a Public Debt Management Cell to better manage
government's debt management function. The cell will be upgraded to an independent and statutory
debt management agency - Public Debt Management Agency (PDMA), in the course of two years. The
PDMC will have 15 experts on debt management from budget division of the Finance Ministry, RBI and
other government units. But it will only have advisory functions to avoid any conflict with the functioning
of RBI.
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4. There is an urgent need for India to get infrastructure financing, however, the current investment
model of PPPs is poorly designed and needs restructuring. Discuss the issues plaguing the success of
PPPs with respect to stalled projects, risk management, governance & institutional capacity.
Approach:
Briefly describe the importance of PPP in infrastructure financing.
Discuss the flaws in current PPP regime.
Suggest measures to revitalize PPP in India.
Answer:
With the current demographic transition, and the consequent growing need for better infrastructure, it
is important for India to reinvent its current model of PPPs. PPPs have the potential to deliver
infrastructure projects better and faster. However, the model has certain shortfalls that need to be
overcome.
Flaws in the existing design
Risk management
o Inefficient and inequitable allocation of risk is a factor leading to failure of PPPs. PPP contracts should
ensure optimal risk allocation across all stakeholders by ensuring that it is allocated to the entity best
suitable to manage it.
o Comprehensive and continuous assessment of viability of a project, in terms of costs and risks is
lacking.
o Contracts are focused more on revenue generation rather than efficient delivery of services to
citizens that hampers their viability in long run.
Governance & Institutional capacity :
o A lack of any credible and independent governance mechanism for ensuring level-playing field
conditions and re-negotiations.
o There are no ex-ante structures for renegotiation. Failed projects lead neither to penalties nor
investigation. With such asymmetric incentives, bureaucrats naturally avoid renegotiation.
o Over-regulation and multiple clearances retard the process starting from bidding to execution stage.
Project Development: The project development activities such as, detailed feasibility study, land
acquisition, environmental/forest clearances etc., are not given adequate importance by developers
and authorities. The absence of adequate project development by authorities leads to reduced
interest by the private sector, mispricing and many times delays at the time of execution owing to
projects stuck in litigations.
Way forward to revitalise PPP investment model
A generic risk monitoring and evaluation framework should be developed covering all aspects of a
projects lifecycle.
Prevention of Corruption Act, 1988 should be amended to distinguish between genuine errors in
decision making and acts of corruption by public servants.
The capacity of all stakeholders including regulators, authorities, consultants, financing agencies, etc.
should be built up.
A national level institution should be set up to support institutional capacity building activities, and
encouraging private investments with regard to PPPs.
Setting up an independent regulator or tribunal for quick and efficient dispute resolution.

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 An Infrastructure PPP Project Review Committee may be setup to evaluate PPP projects.
An Infrastructure PPP Adjudication Tribunal should also be constituted.
A quick, efficient, and enforceable dispute resolution mechanism must be developed for PPP
projects.
It is better to continue combining construction and maintenance responsibilities to incentivise
building quality. If a single entity is responsible for both construction and maintenance, it takes
lifecycle costs into account.
Financing structures should be able to attract pension and insurance funds, which are a natural
funding source for long-term infrastructure projects.

5. What are the reasons behind a low tax base in India? Discuss the issues associated with it and the
steps required to widen the tax base.
Approach:
Explain why taxes are required and the reasons for low tax base.
Explain what are the problems due to this.
End with positive note like what needs to be done.
Answer:
Tax collection form the backbone of an economy as taxes fund an effective state that protects national
security, administers justice, builds infrastructure and funds a social security net. However, Indias
economic development lags behind its political development, as the tax collection is very low- only 3-4%
registered voters pay income taxes in India.
Reasons:
Ineffective tax administration: Therefore, we do not have data on potential tax payers.
Frequent raising of tax exemption threshold- Faster than the rise in income levels.
High rate of poverty.
Tax evasion due to corruption, black money, low number of income tax official, high rate of tax due
to multiplicity of tax and various tax exemptions.
Non taxation of agriculture sector.
90% of workforce is in informal sector, which is poorly regulated and majorly out of tax net.
Prevelance of cash transactions, avenues for parallel economy like Hawala transactions etc.
A low tax collection adversely affects the economy in several ways :
Regressive tax structure: Low direct tax means increasing share of indirect taxes in total revenue
which affect poor.
Reduced legitimacy of the state.
Generation of black money which directly affects the expenditure on capital formation and social
security.
Taxation evasion also results in rise of organised crime.
Limits governments ability to fund social security and developmental schemes.
Less number of tax payers pose limitations to accountability and transparency mechanisms and
implicitly penalises the honest tax payers.

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 Way forward
Reduce corruption in tax administration to increase legitimacy of the state. This would motivate
people to pay their dues.
Improve tax administration to make tax compliance easier.
Need for widening the tax base.
Explore the possibility of taxing the property tax in urban areas which has not been explored fully till
now.
Do not raise tax exemption limits so frequently.
Swift implementation of big tax reforms like GST, GAAR etc.
Promoting cashless and digital transactions.
Creating awareness among consumers and establishments regarding tax discipline.
The Indian state is fiscally constrained thanks to inadequate direct tax collections. The solution is neither
a sharp increase in tax rates nor a carefree disregard for fiscal imbalances. The way ahead has to be
based on further tax reforms combined with better tax administration, so that more Indians pay income
tax.

6. The worsening road safety situation in India is further complicated by an increasing population and
proliferation of vehicles on the road. Discuss. Also, highlight the steps that are being taken by the
government to address the issue of road safety and reduce the associated fatalities.
Approach:
In the introduction, qualify the given statement. Some statistics can be used to highlight the issue of
road accidents.
The next part should discuss the reasons for increasing fatalities, with main focus on population and
vehicle population.
Then the answer should discuss the steps taken by the government to fight the malady.
The answer may end with some suggestions to further improve the situation.
Answer:
According to a recent report, close to 1.5 lakh people were killed and 5 lakh people got injured in road
accidents in India in 2015. There are many reasons for this national crisis, with increased human and
vehicular population being the significant ones.
Reasons for high fatality rates
Archaic laws: Currently, road traffic is regulated under Motor Vehicles Act, 1956, which does not have
sufficient safety mechanisms.
Ineffective enforcement of traffic rules: This is due lack of policing and corruption in transportation
department.
Ineffective monitoring: It is due to too high human and vehicular population to effectively monitored
clubbed with personnel inefficiency and limited use of technology.
Proliferation of vehicles without commensurate improvement in the transportation infrastructure,
like safe roads. This is further compounded by large fleet of obsolete vehicles.
No comprehensive policy on road safety.
Lack of coordination among the centre and state road safety agencies.

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 50% of fatalities could be avoided if immediate medical treatment was provided. However,
harassment of good samatarians by administration and hospitals has discouraged public.
The situation is aggravated due to rising population (with a major chunk of youth population),
proliferation of vehicles and poor public transport and traffic management.
According to Sundar Committee (2007), road accidents killed more people in India than prominent
diseases cumulatively, like TB, Malaria, and AIDS. But ironically, there are specific policies for each of
these causes with huge budgets, and none for road safety.
Implications
Demographic loss: About 50% of those killed in accidents are youth, below 35 years of age.
Economic loss: Unsafe roads prevent seamless connectivity necessary for economic growth.
Inefficiency: Unsafe roads increase cost of logistics and thereby reducing the profit margin.
Measures taken by the governments
1. Center
National Road Safety Council: It is advisory body on road safety and is headed by Minister of Road
Transport.
Scheme on Black Spot: It involves a dedicated website for reporting high fatality areas and reasons
thereof, so that corrective measures can be taken.
Good Samaritan rules: They intend to protect the people from legal difficulties for helping the
accident victims.
2. States
State Road Safety Council: It analogous to National Road Safety Council.
Dedicated Traffic management police.
Identification of accident prone areas so that they can be improved.
Though significant, these measures remain less than effective in reducing the road accidents.
Way Forward
Enact the Transportation and Road Safety Bill 2016: It has comprehensive provisions for promoting
road safety along with economic growth by improving logistics efficiency.
Speedy implementation of National Highway Grid program for seamless and safe transport.
Educating peers and community members to increase safe behaviors.
Eliminate corruption in transportation system such as license allocation only after proper testing.
Promoting cycling, car pooling and no vehicle zones.
Improving the public transport system
Working towards making road safety a social movement.

7. Explain the concept of 'green economy'. Highlight the costs and benefits in making a transition
towards green economy for developing countries like India. Also discuss the associated challenges.
Approach:
Explain Green Economy.
Discuss the costs and benefits of transitioning towards green economy for developing countries like
India.
Discuss the challenges in transition towards green economy.

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Answer:
UNEP defines green economy as one that results in improved human well-being and social equity, while
significantly reducing environmental risks and ecological scarcities. It aims to transition to an economy
that is low-carbon, resource efficient, and socially inclusive. It is based on the idea of qualitative growth,
where low-carbon and environmentally friendly technologies, as well as international cooperation play a
key role.
Transition towards green economy has global importance, but its more significant for developing
countries like India with its associated benefits and costs.
Benefits:
Prevent melting of glaciers, rise of sea level, variability in rainfall, temperature, crop production and
climate disasters like droughts and floods saving huge environmental, social and economic cost.
Contribution to fight against global warming, desertification, and loss of biodiversity.
Improvements in air, water and soil quality. Reduce disease burden and deaths reducing attached
human and economic cost.
Manufacturing and markets in areas such as biofuels and renewable energy sources.
By investing in alternative energy sources, access to energy services can be improved and
infrastructure can become more energy efficient. This also reduces energy importation and saves
money.
Improve resource efficiency will increase industrial and agricultural production.
Will create new avenues for employment and skills.
Costs:
Might slow down economic development during first few years. Negatively impact poverty reduction
programmes and industrial growth.
Choosing between immediately alleviating energy issues or investing in expensive renewable energy
sources.
Requires infrastructure and time to implement.
Changing market focus of countrys main industries may lead to job losses in industries seen as not
environmentally friendly such as coal mining.
Huge cost to government in form of subsidies to promote production and use of energy efficient
green products.
Apart from the associated costs, there are challenges specific to developing countries.
Lack of know-how regarding green technology and availability of related skills.
Absence of guarantee of future markets in presence of deep pocket Western companies.
Developed countries may exploit green economy model using their technological advantage and
environment to gain market access.
Developing countries may be unable to meet required environmental standards on their product
export, affecting their economic development.
Developed countries have resources to provide their firms with subsidies for R&D on low carbon
technologies. This results in an uneven balance between developed and developing countries.
Benefits of transition are aplenty, but associated costs and challenges demand caution. Green economy
concept should address inequality shaped by current economic system. Developing countries must be
reassured that new premises would not disturb the current financial and technical support approved on
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 sustainable development principles. India has led by example in this context. It has taken gradual steps
towards green economy in the last decade and has tried to balance it with development priorities. Thus a
gradual transition along with international cooperation vis-a-vis transfer of funds and technology, access
to markets, subsidy regime and trade barriers is a must for developing countries becoming green
economies.

8. Even though the construction sector has significant multiplier effect on the economy, in recent years, it
has been showing signs of stress. What are the causes for such a state of affairs? In this context, also
highlight the steps taken by the government.
Approach:
Begin with the importance of the construction sector for the economy of the country.
Write about the stresses being faced by the sector briefly before enumerating the reasons behind
them.
End with policy measures taken by the government to remove these impediments.
Answer:
The construction industry is a major contributor towards Indias GDP, both directly and indirectly. It
employs 33 million people, and any improvements in the construction sector affect a number of
associated industries such as cement, steel, technology, skill-enhancement, etc.
It has major forward and backward linkages, and therefore a high multiplier effect on economic
growth (almost two times).
But, this sector is under stress, indicated by:
o Increasing levels of debt which affect financial stability
o A large number of stalled projects
o A slowdown in construction sector leading to stretched liquidity and limited resources
o The construction sector is reeling under a severe shortage of skilled workforce, and in many areas of
the country, shortage of construction sand, raw materials, and political disturbances are also acting
as growth deterrents.
o Pending claims from government bodies causing huge debt of construction companies. Over 85%
claims raised are still pending
o The prolonged real estate market slowdown has resulted in a lot of unsold housing projects across
India.
The government has been striving to revive the sector through steps like:
o Increased impetus to the creation of affordable housing mission (Housing for All by 2022), along with
quicker approvals and other supportive policy changes will soon result in an increase in construction
activity.
o Granted infrastructure status to affordable housing that will provide a boost in volume of
construction activity. Norms for FDI in 15 sectors including real estate and construction development
have now been eased, and this has very positive implications for these sectors and the larger
economy.
o The introduction of GST will ease tax-related complexities in the construction sector and bring with it
a major spurt in activity and growth.

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 Dispute Settlement:
o PSUs/Departments may seek the consent of the contractors/ concessionaires to transfer the
arbitration cases initiated under the pre-amended Arbitration Act to the amended Arbitration Act,
wherever possible.
o In those cases where the award is challenged, the government agencies would pay 75% of the
arbitral award amount to an escrow account against margin free bank guarantee. This will help in
recovery of loans by banks and increase the speed of projects. This will allow the companies to bid
for new projects, thus resulting in competition.
o PSUs/Departments may adopt the Model EPC contracts for construction works.
o Department of Financial Services, in consultation with Reserve Bank of India, may evolve a suitable
one-time scheme for addressing stressed bank loans in the construction sector.

9. As India eyes a resurgence in port-led activities in the country, it first needs to identify the challenges
which have marred their development. Elaborate various challenges faced by ports in India and
highlight the steps taken to overcome them.
Approach:
Give a brief introduction about the Indian Port Sector and its importance in Indian Economy.
Delineate the challenges faced by Indian Port Sector.
Mention the steps taken to overcome these challenges.
Answer:
India is gifted with vast coastline of more than 7500 kms that is serviced by 13 major ports and 187
notified minor and intermediate ports. As per Ministry of Shipping, around 95 per cent of Indias trading
by volume and 70 per cent by value is done through maritime transport.
Challenges faced by Indian Port Sector:
Geographical: Heavy silting as seen in riverine ports like Haldia.
Technological: Inadequate dredging capacities, poor mechanization and manual handling of critical
processes. Eg: Paradip port.
Low economic viability: Logistic cost has reduced the sustainability of the port sector in India.
Infrastructural: Congestion of roads connecting the port leading to time delays as seen in JLN port.
Underutilization of physical infrastructure of the ports due to tariff issues. Eg: Cochin port.
Lack of connectivity with the hinterland and far-off continental area due to lack of inland water
transport'.
Policy and regulatory issues: Currently the ports are owned and operated by government on Trust
Model. Non-uniform tariff structure makes some ports uncompetitive. High turnaround time of as
much as 3-4 days compared to average time of 6-7hrs in other developed ports because of
cumbersome documentation and clearance.
To overcome above challenges, Government has come up with several initiatives which include:
Sagarmala Project: It has four major objectives:
Port Modernization & New Port Development,
Port Connectivity Enhancement,
Port-led Industrialization; and

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 Coastal Community Development.
Also, under this project:
Coastal states will set up State Sagarmala Committee and identify the potential Coastal Economic
Zones (CEZs).
National Perspective Plan (NPP) for comprehensive development of Indias coastline and maritime
sector has also been prepared under the Sagarmala Programme, integrating the Industrial Corridors
and Dedicated Freight Corridors.
Undertaking mechanization and providing facilities like logistics parks, warehousing, maritime
zones/services integration with hinterland hubs, offshore storage, drilling platforms etc.
Further,
The Cabinet has also cleared a Major Port Trust Authorities bill, 2016 proposing a significant
overhaul of the functioning of major ports in the country.
Offshore Renewable Energy Projects with base ports for installations.
Coastal community development scheme to fund coastal community development projects
identified under the Sagarmala Project, which will enhance livelihood of coastal communities.
A Master Plan has been prepared for expansion of port capacity, which includes a number of new
ports (Ports being developed at Sagar Island, Enayam).
Thus, along with Sagarmala project, these initiatives taken with great institutional integrative mechanism
and comprehensive nature underscores the steps taken and envisaged for implementationto realize the
full potential of the port sector in India.

10. Indias rail infrastructure has failed to keep pace with the rate at which both passenger and freight
traffic has increased substantially over the years. Comment. In light of the Kakodar committee
recommendations, enumerate the measures that can be taken in this regard.
Approach:
Introduce with the existing situation of Indian railways.
Comment upon how Indias rail infrastructure has not been developed as per increasing requirement
and problems caused by it.
Discuss the recommendations of Anil Kakodar committee to improve railways infrastructure in this
regard.
Answer:
According to the Ministry of Railways, in the last 64 years, the freight loading has increased by 13 times
and passenger kilometers by 16 times, but the route kilometers have grown by only 23%.
Effects:
Over utilization of existing infrastructure, which causes faster wear and tear.
Frequent rail accidents mostly caused by derailment and at level crossings leading to death of
innocent persons.
Cross subsidization: Passenger fares are not revised while freight charges are increased to recover
cost. This has resulted in shifting of the traffic to other transportation system.
High operating cost: It means that railways have to spend more to earn less.

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 Increase environmental pollution as Railways are less polluting than road transport in terms of per
capita goods/passengers.
Anil Kakodkar committee was appointed in 2011 for reviewing the rail safety issues and recommend
improvements. Committee observed key issues: poor financial condition, inadequate performance
and lack of autonomy at functional level.
Way forward
National Rail Safety Fund: Rs 1.31 lakh crore have been allocated by the recent budget for rail safety
to be spent over a period of next five years.
Capital expenditure has been allocated by the budget to overhaul railway infrastructure, ranging
from old tracks to erratic signalling systems.
Need for an Independent Railway Safety Authority with chairman and expert from outside the
government. It will do away high degree of vertical integration in the present situation.
Elimination of both manned and unmanned crossing within next five years. For this Setu Bharatam
project is being implemented under which bridges are being constructed to eliminate railway
crossing from National Highways.
Improve signalling system by adopting the Communication Based Train Control System (CBTC) to
improve efficiency of track utilization and reduce accidents; adoption of an Advanced Signalling
System (akin to the European Train Control System) for the entire trunk route length of 19,000 km
within 5 years.
Rationalise tariffs to generate resources, which is being done gradually with the recent budget.
Restructuring of Research Design and Standards Organization (RDSO) for greater empowerment.
Moreover Railway Research and Development Council (RRDC) be set up directly under the
government.
Rail infrastructure need to be enhanced to meet increasing demand from both passengers and freight.
The focus should be on increasing revenue from freight traffic and increasing investment in rail
infrastructure to provide sustainable, safe and efficient transport system.

11. Despite the government claiming excess electricity production, the power situation for households
continues to remain bleak in many parts of the country. Explain the reasons behind this. How can the
UDAY scheme help in improving the current situation?
Approach:
Start with some statistics, like the installed power capacity, and households deprived of constant
power supply.
Discuss the reasons for mismatch between excess power generation and lack of access to power at
household level. The most important reason is deficient power off-take by discoms due to poor
financial health for buying power.
Discuss how UDAY scheme would help in this situation.
Suggest some other measures to ameliorate the situation.
Answer:
India has an installed power generation capacity of 310 GW as of December 2016. With this, India has
become world's 3rd largest producer and 4th largest consumer of electricity. However, during 2014-15,
per capita electricity generation in India was 1,010 kWh with consumption rate at 746 kWh per capita. It

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 shows that India has surplus power generation. But, ironically, more than a third of the country's
population still lives without power. It is shown below.

Reasons for this paradox:

Poor financial health of state distribution companies (Discoms): Therefore, they are not buying
power. Because of this, plants are running at only 60% of their capacity. This is the biggest reason for
supply-demand mismatch.
Reasons for this state of affairs: Irrational tariffs i.e. tariffs are lower than production cost; populist
measures by states, like waver of electricity bills; free powers to some sections; non-payment of
subsidy by states to Discoms; high AT&C losses etc.
Underutilized renewable energy: It is because of technical difficulties in power from renewable
plants (solar) on conventional grids and high tariffs..
Irrational Tariffs: There is huge disparity in power tariffs across states, resulting in subdued demand
in some states. Further, there are multiple commercial tariffs for different industries making it
complex for Discoms to recover the price, while on the other hand, big consumers go for captive
power generation.
So it is misleading to say that India has excess power. Statistics show the extent to which power supply
falls short of demand by only those connected to the grid. With about 1/3rd of total households still not
having electricity connection, the numbers underestimate the extent. Also, it does not capture the
quality of power supplied. There are no metrics to estimate the potential power requirement according
to standards of living.
UDAY scheme: A way out?
Debt restructuring of Discoms: It mandates states to take over 75% Discoms debt outstanding as of
September 2015.
Reduction of AT&C losses to 15% by 2018-19 from more than 30% now.
Rationalize tariffs to reduce the gap between average cost of supply and average revenue realized by
2018-19.
States shall take over future losses of Discoms in a phased manner and enforce financial discipline.
In this way, UDAY scheme seeks to improve the financial health of Discoms thereby enabling them to buy
surplus power to meet the demand.
Further reforms:
Implement Open Access (OA) Policy: This policy, contained in Electricity Act 2003, provides for
unified national power market. Under this policy, large consumers can directly buy power from
power plants, rather than through Discoms. This would bypass the disabilities of Discoms, while
filling the gap between demand-supply. Indian Railways is going for this policy.

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 Effective implementation of schemes: Such as Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY) for
providing round the clock power to the rural areas; and Power for All to ensure adequate power to
all by 2019.

12. Despite the potential of Special Employment Programmes in alleviating poverty, their impact has
largely been limited. Comment. Also discuss how they can be made more effective.
Approach:
By giving introduction in brief mention some Special Employment Programmes.
Discuss the role of Special Employment Programmes in alleviating property and how their role is
limited.
Suggest some measures to make these programmes more effective.
Answer:
Since the 5th five- year plan, India has launched several special employment generation programs
targeting poverty.
These programmes largely fall into two categories:
Self-Employment Programmes: These include programmes like PMs Employment Generation
Programme (PMEGP), NRLM, NULM etc.
Shortcomings:
o Lack of adequate financial resources, skills and capacity, and sustained institutional support.
o Low survival rate of promoted micro-enterprises.
o Bureaucratic apathy and corruption at all levels.
o The incidences of red-tapism by banks.
o Wage Employment Programmes
Under this the flagship program is MGNREGA, launched in 2005 with legal backing guaranteeing 100 days
of wage employment on demand at statutory minimum wages, to people in all rural areas.
Shortcomings:
o Work is not adjusted to agricultural lean season resulting in workers migrating for work during the
lean season.
o Local government machinery not able to provide work for lack of technical and managerial capability.
o Corruption and fudging of rolls.
o Delayed or non-payment of wages.
o Non maintenance of assets created under it.
o Focus on manual labor with little or no provision of skill development and its utilisation.
Steps to make programs more effective:
Link them with the infrastructural development programmes.
Strict monitoring and evaluation made part of the implementation plan.
Programmes should not be judged only for the economic impacts but for non-economic ones also.
PRIs also need to be strengthened, especially for extracting accountability.
MGNREGA work needs to be in line with lean agricultural season.

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 MGNREGA should be integrated with the ongoing development programme, including skills and
training.
Transfering cash directly to intended beneficiaries.
Poverty is one of the evils that act as a major impediment in the development of the country. To
eradicate poverty and to achieve social inclusion these employment generation programmes are a
necessity. To a make them successful they needs to be dove-tailed with JAM (Jan Dhan, Aadhar and
mobile banking) and universal social protection scheme (excluding the better off groups). Also universal
basic income as a concept is good in tackling the problem of poverty but it need to vetted first.

13. Enhancing the competitiveness of the Textile sector can create employment as well as promote
inclusive growth. Elaborate with reference to government initiatives for promotion of the textile
sector.
Approach:
Briefly discuss the importance of textile sector in inclusive growth.
Discuss the initiatives taken for this sectors competitiveness.
Mention their benefits.
Answer:
With ongoing demographic transition India needs to generate employment opportunities while ensuring
balanced and inclusive growth. Certain sectors such as Textiles need special focus due to the following
factors:
Contributes about 14% to industrial production, 4% to GDP and 17 % to exports
Largest employment provider after agriculture
Direct employment to over 40 mn people and indirectly 60 mn
Large number of women and MSMEs
Self reliant in entire value chain
Supports agriculture
The Textile industry has two broad segments, namely, handloom and handicrafts in the unorganized
sector and powerlooms, spinning and garmenting in the organised sector. Yet its potential of US$ 500
billion remains unreached owing to poor technology, underskilled labor, problem of funds, inefficient
supply chain, labour laws etc. Emergence of South Asian and African countries in this sector has
increased competition. Hence, its imperative that sector improves its competitiveness to maintain
prominence and impart inclusive growth.
Hence, government has taken initiatives aimed at employment generation and enhancing
competitiveness of sector:
Special Package for Job Creation & Export Promotion in Apparel Sector: includes labor-friendly
measures that would promote employment generation, economies of scale and boost exports.
Amended Technology Upgradation Fund Scheme: to facilitate technology upgradation of textiles
industry for improvement in quality and productivity
Integrated Skill Development Scheme: to address critical gap of skilled manpower through industry-
oriented training programmes to meet the needs of industry for a skilled workforce and thereby
support its competitiveness

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 Pradhan Mantri Rojgar Protsahan Yojana: Employers would be provided an incentive for enhancing
employment by reimbursement of 8.33% EPS contribution made by employer in respect of new
employment.
North East Region Textile Promotion Scheme: to promote employment in NE States and encourage
entrepreneurship especially amongst women
Scheme for Integrated Textile Parks: Addresses the need for infrastructure on cluster basis, and
helps industry meet international environmental standards and establish integrated value-chains
under PPP for lowering costs.
Integrated Processing Development Scheme: to enable textile processing sector in meeting
environmental standards through appropriate technologies such as marine, riverine and Zero Liquid
Discharge (ZLD). Government provides financial assistance.
For Handloom sector, Common Facility Centres (CFCs), skill upgradation, assistance for loom
upgradation and effective project management by engaging the services of full time Cluster
Development Executives and competent designers. Hathkargha Samvardhan Sahayata (HSS) aims to
improve earnings of the handlooms weavers. National Institute of Fashion Technology and leading
members of the fashion industry have been roped in for design support to weavers.
Synergy of handloom, handicraft with tourism has been worked out by development of Adarsh
Gram as tourists destinations.
Rashtriya Swasthya Bima Yojana (RSBY): Life insurance and health insurance benefits to handloom
weavers. Government is also in the process of providing coverage to handloom weavers in Pradhan
Mantri Jeevan Jyoti Yojana. Labor law reforms, Shramev Jayate etc
As a result of these steps competitiveness of textile sector has improved owing to following factors:
Skill training and upgradation
Technology upgradation and productivity
Availability of institutional credit
Favourable export promotion policies
Welfare and social security measures
Upholding Environmental concerns and norms
Simplification of Labor laws

14. Digitalisation of transactions is a panacea to address the problems of corruption and tax evasion as
well as achieve financial inclusion. Critically evaluate. Also enumerate the impediments for India to
transit to a digitalised cashless economy.
Approach:
With proper reasoning and on the basis of evidence and facts, go into the merits and demerits of the
statement.
Arrive at a logical conclusion at the end.
List of the impediments in terms of factors which favour a high cash transaction economy, and
factors which go against a digitalised economy.
Answer:
It is the endeavour of the government to digitalise monetary transactions given its potential in
bringing about landmark change for good governance.

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 However, in the case of India, digitization in a predominantly informal economy, where transactions
are made largely in cash, will not result in eradicating the black economy. This is because corruption
and tax evasion will still be possible, unless cash is totally banned, which is an unrealistic step.
Further, corruption can take place even without money transactions, such as nepotism, quid pro quo,
biases and gifts.
While financial inclusion has received a boost with demonetization, what it also needed is a
supporting policy environment to enable the informal economy to avail the benefits of financial
inclusion.
Whereas, developed economies like USA, Britain and Singapore have seen these benefits of
digitisation, countries like Brazil have failed to curb these evils despite aiming to go cashless.
Experiences of countries like Japan prove that an economy can be free from these problems and
ensure financial inclusion, without going cashless, if proper compliance is ensured.
Further, digital networks remain vulnerable to cyber-attacks which means that these networks can
be used for round tripping of money etc.
The problem of tackling tax evasion also goes beyond the scope of digitization as individuals and
corporates exploit loopholes in our legal systems such as lopsided Double Tax Avoidance
Agreements(DTAA).
Mere digitization of services does not ensure financial inclusion as well. Financial literacy and access
to the services are also critical dimensions of effective financial inclusion.
Without first addressing these fundamental challenges, digitization, alone, will not eliminate
corruption and tax evasion or enhance financial inclusion.
Even the Economic Survey 2016-17 states that Digitalisation is not a panacea.
The impediments to transition to a digitalised cashless economy are listed below.
Factors which favour a cash-high economy:
o Indian economy is relatively cash dependent. According to estimates by the Watal committee, cash
accounts for 78% of all consumer payments. People prefer cash transactions because of its
convenience, acceptance and anonymity.
Factors against digitalised economy:
o It needs special equipment, i.e. cellphones for customers and Point of Sale (POS) machines for
merchants.
o E-payment firms impose charges to recoup their costs, which imposes a cost on the users and
merchants.
o Banking is still inaccessible to a large portion of the Indian population.
o It needs internet connectivity and also lack of internet connections in many regions of the country.
o 90 percent of the workforce in the country, which accounts for half of the countrys output, is in the
unorganised sector. This huge informal sector makes transition to a cashless economy difficult.
o Fear of data theft and hacking. Robust security apparatus still absent.

15. The recently launched UDAN scheme to develop the regional aviation market will not only ensure
affordability and connectivity but also growth and development of the civil aviation market. Elaborate.
Approach:
Briefly discuss UDAN scheme and elaborate how this scheme will ensure affordability and
connectivity
Discuss the challenges it may face in the course of implementation

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Answer:
UDAN is an innovative scheme of Ministry of Civil Aviation which aims to develop the regional aviation
market. It is a market-based mechanism in which airlines bid for seat subsidies. This first-of-its-kind
scheme globally will create affordable yet economically viable and profitable flights on regional routes so
that flying becomes affordable to the common man even in small towns. It also lends a fillip to Indias
aim of emerging as the third largest aviation market by 2020.
Ensuring affordability and connectivity
The passengers would be benefited through additional connectivity on regional routes at prices
which are at or below the airfare caps making flying affordable for common man.
The operators could seek a Viability Gap Funding (VGF) apart from getting various concessions like free
of cost fire, water, electricity etc. to start operations on hitherto unserved routes.
For reducing operating costs for regional operators the scheme brings down the operating cost for an
airline by reducing taxes on aviation turbine fuel (ATF) and airport and other charges to maintain
balance between commercial and consumer interests
Improving liquidity in the small plane leasing market will make it easy for entrepreneurs and airlines
to start these unserved or underserved routes. For example spicejet recently unveiled its plan to
lease as many as 10 planes for this scheme.
The government also plans to upgrade 50 unserved and underserved airports in the country which
would further boost air connectivity pan India.
Development of domestic aviation market
To stimulate further growth and development of the sector, amount collected as Regional
Connectivity Fund (RCF) will be used to provide financial support to airlines in the form of Viability
Gap Funding (VGF) for operations under the Scheme . The RCF levy per departure will be applied to
certain domestic flights.
The partner State Governments (other than North Eastern States and Union Territories where
contribution will be 10 %) would contribute a 20% share to this fund which will be used for the
development of aviation market
Creation of regional air connectivity / services that would have spin-off benefits within the sector in
terms of passengers taking other flights (not under RCS) and using airports / airport services that are
not at concessional rates under RCS. The amount collected under the levy will be ploughed back into
the sector.
Amount expected to be collected under this levy in context of other businesses which create
connectivity and benefit from the network effect, for example, telecom and railways
Step to use civil aviation to boost tourism, jobs and balanced regional growth across the country.
Exclusive rights will be given to the regional airlines on a route for the 1st three years to ensure
commercial viability of these regional routes and aiding the growth of aviation market.
Challenges
Technical infrastructure like equipments, technical manpower etc. Mostly, these are day airports
without night training facility. If this is included, the costs would be very high and runways have to be
improved as well. Air traffic control services and air safety also need to be ramped up.
Participation of mainstream airlines is unlikely as they are already dealing with heavy traffic flow.
Also, the overhead cost for a small aircraft is almost same as that of bigger aircrafts. Therefore, low
cost operations might not ensure much profit for big airlines. Investments have to be attracted here
from new and local investors.

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 Increased fiscal burden because viability-gap funding, subsidized ATF and concessions have to be
ensured. States need to provide free land and operational infra to bring down costs.
Overburdening of Air India - Lack of interest of private players, may overburden Air India

16. Budgetary reforms announced by the government include merging of railway budget with general
budget and advancing the date of its presentation. Examine the rationale behind these reforms. What
are the anticipated issues that may arise because of these?
Approach:
Examine the rationale for the two reforms.
Discuss the possible issues.
Discuss the possible remedies and assessment of the move in conclusion.
Answer:
The Government has taken some radical budgetary reforms with the 2017-18 Budget: Merger of Railway
and General Budget & presentation of General Budget on 1st Feb. Government has put forward the
following rationale:
Merger of Railway and General Budget:
During British Raj, Railway Budget made up 85% of General budget but now, only 15%. Hence, the
merger is in line with contemporary realities.
Railway budget was used for populism and party politics. These decisions can now be taken by
railway board on commercial basis.
Railways will get rid of annual dividend it has to pay for gross budgetary support from government
every year. Railways will save about Rs 10,000 crores annually.
Will not impact functional autonomy but help in enhancing railways capital expenditure as the
government proposes to operate railways with autonomy similar to other public sector enterprises
like ONGC etc.
Railway has a huge revenue deficit. It will be transferred to finance ministry.
This will help in formulating an integrated multi-modal transportation policy including the roads, rail,
aviation and the shipping sectors.
Advancing date of Budget Presentation:
Budgetary allocations will be available to spending authorities before beginning of financial year i.e.
1st April. All spending authorities will be able to work out their activities with assured resources in
beginning of year.
More planned and regulated expenditure profile during the year as earlier, the disbursal of resources
at the onset of monsoon made it difficult to execute projects related to infrastructure etc. in the
second quarter
Eliminate the need for executive to obtain a vote-on-account to incur expenditure during first two
months.
Parliamentary approval of final batch of supplementary demands i.e. for additional budgeted funds
and re-appropriation relating to current financial year will be feasible a few weeks before the end of
financial year. This will enable additional releases from the Centre to States in February or early
March. State governments will consequently get more time to actually utilise the funds available to
them, in the year of release itself.

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 It may lead to budget promises being fulfilled in time. Around 51% of the promises during UPAs
tenure remained works in progress by the time next budget was presented.
However, some issues which could arise should be considered while executing these reforms.
Once two budgets are merged, all rail-related expenditures will also become part of Union budget. A
fall in revenue or gross receipts in general budget will mean similar cuts in expenditure allocated to
railways. Further, merger may make Railways just another government department. It may lose its
commercial character. Its plans of modernisation and privatization may get affected.
Due to advancement of budget, Parliament and its standing committees may not get adequate time
to deliberate upon it. Also, budget provisions have to be based on three quarters of current years
expenditure and partially on anticipated trends. Inputs from PFMS (Public Fund Management
System) on the entire gamut of Centres expenditure are not expected to be fully available for
assessing expenditure of current year to enable budget preparation of ensuing year. Further, the
outgoing years fourth quarter will remain a dark area while formulating budget for the next year.
However, these are temporary hiccups which can be smoothened out with experience. If the financial
year is shifted before 1st April as government may possibly, the issue of incomplete information and
inadequate deliberation will be resolved automatically. Likewise, if railway is provided with considerable
autonomy, like Mahartanas, there is little reason that it will fall for populism and perform poorly. Also,
Railway reforms should be considerate of railways indispensability and dependence upon it, of every
stratum. Aiming for professionalism should not hurt welfare services in long run.

17. Explain why the government has adopted the HELP in place of the NELP that was existing for almost a
decade. Also discuss how HELP has the potential to transform India's E&P activities with special
emphasis on non-conventional sources of energy.
Approach:
In the introduction, give a general idea of HELP and NELP and the time period of adoption of NELP.
In the first part, mention the shortcomings of NELP and plugging of those shortcomings by HELP.
In the last part, show how the various provisions of HELP will boost the E&P of hydrocarbons and non
conventional sources of energy.
Answer:
Hydrocarbon Exploration and Licensing Policy (HELP) is the new exploration and production policy of the
government in the hydrocarbon sector which has replaced NELP which was in place since 1997-98. The
HELP is adopted for the following reasons.
The Production Sharing Contracts in NELP was responsible for inflating the cost of production and
loss to the government. It has been replaced with Revenue Sharing Contracts.
The multiple licenses for different hydrocarbons in NELP dampened the exploration and production.
The pricing and marketing freedom for gas produced from deep water, ultra-deep water and high
pressure high temperature (HPHT) fields was missing in NELP.
Realisation that NELP wont be sufficient to achieve the milestones set by Hydrocarbon Vision 2025.
The success rounds of NELP witnessed the declining interest in the exploration. The policy dismally
failed to attract to global players.

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 Investments in deep water and ultra-deep water have been at a standstill, caught between defence
objections, pricing and production disputes and proxy wars. An innovative policy was needed to sort
these issues.
Open Acreage Licensing Policy is likely to eliminate micro-management by the regulator of the block
auction process, besides giving greater flexibility to operators.
HELP has the potential to transform Indian E&P of hydrocarbons because
Due to Revenue Sharing Contracts explorers will not dampen their production. By Open Acreage
Licensing Policy now the players can conduct the survey on their own and then contact the
government for the license. (Similar to Swiss Challenge Model)
Crude oil and natural gas production will surge as there is marketing and pricing restriction over
them.
The transparent bidding and allocation process will attract more players in E&P activities. Due to
Revenue Sharing Contract, transparency will be induced in operations as well.
Uniform licence proposed in the policy will enable the contractor to explore conventional as well as
unconventional oil and gas resources including CBM, shale gas/oil, tight gas and gas hydrates under a
single license.
Challenges needed to be overcome for success of HELP
Since, contractors now have to share revenue with government from start; costs cannot be
recovered first. Hence, there is scepticism among contractors. Government needs to provide them
support and ensure that transparency is maintained.
Pricing of hydrocarbons in India is based on formulae based on international prices and ceiling. Since,
international prices are very low, producers have problem in recovering cost. Hence, it is imperative
that ceiling be removed and price be aligned to the local factors.
There is also the danger of the government nudging PSU companies to make sub-optimal
investments. Sub-optimal capital allocation, if any, will impede the ability of the PSU companies to
invest in the future and hence, must be avoided.

18. Successive governments have resorted to disinvestment of sick and loss-making PSUs. What, according
to you, are the targets which the government seek to meet from this exercise? Also explain why the
disinvestment targets have not been met in the past.
Approach:
Explain the reasons why disinvestment is required and what are its objectives.
Explain why the disinvestment targets have not been met .
End with positive note like how to overcome this kind of crisis.
Answer:
Often protected from competition and subsidized by government, PSUs frequently suffer from low
productivity, higher costs, inefficiency and non-competitiveness. To address these challenges
government resorted to disinvestment with following objectives:
Reduce financial burden on Government
Improve public finances
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 Introduce, competition and market discipline

Create Fund for infrastructure growth (NIF)

Encourage wider share of ownership

Depoliticise non-essential services

Up gradation of existing PSUs.

Initially only sick PSUs were to be disinvested but later others were also included but with a cap of 49%
so that government remains majority stakeholder. As per Department of Disinvestment it was decided
that 20 per cent of equity of PSUs will be disinvested incrementally and they will be sold to financial
institutions, banks and employees etc.
However, the disinvestments did not succeed as expected because:

People were not taken into confidence before disinvestment was started; therefore whole move was
opposed by certain group of people and parties in opposition.

2006 CAG report found that the valuation of the companies' assets was done without "due
seriousness". In several instances substantial "surplus land" was sold along with the company when
they were privatised.

The unfavourable market conditions were mainly responsible for this downward trend of
disinvestment hence the receipt generated was sub-optimal.

The amount realized through disinvestment was not paid to the enterprise concerned for its
expansion and improving efficiency but the Government has been using such disinvestment
proceeds to bridge the budget deficit.

The Government was not transparent about its approach towards sequencing the restructuring and
methods of disinvestment of PEs.

The offers made by the Government for disinvestment of PEs were not attractive and stringent
bureaucratic procedures discourage the private sector interest.

The Government had no clear cut policy on disinvestment of its PEs when the disinvestment process
was started.

Lack of consultation with the specialists.

In 2012, a government panel headed by Vijay Kelkar recommended monetizing surplus government land,
which represents a huge opportunity cost, from port trusts, railways and PSUs as the ideal solution to
Indias urban problems in cities that are land-starvedallowing for civic infrastructure such as hospitals,
schools and roads besides the obvious benefits of unlocking huge revenue and betterment of the fiscal
consolidation situation.
Recently government has transferred advising role of DIPAM on utilization of proceeds from
disinvestment to Department of Economic Affairs (DEA). It has approved an alternative mechanism to
decide modalities related to stake sales in PSUs, so as to speed up and streamline the process. Under this
mechanism, the quantum of disinvestment in a PSU will be decided on a case-by-case basis subject to
Government retaining 51% stake.

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19. Briefly highlight the parameters used by the government to determine the extent of poverty in India.
Examine the relationship of economic growth and poverty alleviation in the post-reforms era.
Approach:
The answer should begin with a very brief definition of poverty, and how it is measured.
Mention the different figures arrived at by Rangarajan and Tendulkar methodology.
Then the answer should discuss the lack of consensus among scholars as to the efficacy of various
methods and criteria to measure poverty estimates.
The second part has to discuss the rise or fall of poverty with economic growth since the dawn of
economic reforms. This part should end with an assessment with supportive argument.
Answer:
Poverty is a state of deprivation, in which some people are not able to meet their basic needs. For
evaluating the effectiveness of poverty alleviation programs, we need to measure the extent of poverty,
which is done using a poverty line. In India, Poverty line was determined by erstwhile Planning
Commission based on consumption data provided by NSSO. However, what constitutes the
representative basket of consumption is debatable and is decided differently by different committees.
The two most common parameters are income and energy requirement for meeting basic demands.
Rangarajan Methodology: the latestIt used the following parameters:
Monthly expenditure of a Household of five, such as house rent, electricity etc.
Certain normative levels of adequate nourishment plus clothing, house rent, conveyance,
education.
Behaviorally determined level of other non-food expenses.
For the first time, apart from calorie, it also considered fats and proteins as part of normative
nutrition.
Based on these, it fixed Rs. 972 in rural and Rs. 1407 in urban areas as poverty line. Accordingly, the all-
India poverty ratio was 29.5% and 38.2%, in 2011-12 and 2009-2010, respectively. This was quite high
than 21.9% and 29.8% as estimated by the Tendulkar Committee methodology for the corresponding
periods. These contrasting estimates were due to different methodologies adopted.
Impact of economic reform on poverty:
There are two conclusions on trends in poverty:
Poverty declined by 1.3 percentage points per annum after 1991, compared to that of 0.44
percentage points per annum prior to 1991. Among other things, urban growth is the most
important contributor to the rapid reduction in poverty in the post-reform period.
In the post-reform period, poverty declined faster in the 2000s than in the 1990s.
According to Tendulkar committee, around 138 million people were lifted above the poverty line during
2004 to 2009 alone. Rangarajan committee report also showed faster reduction in poverty during 2009-
10 to 2011-12. This indicates the success of reforms in reducing poverty.
Statistically, change in poverty can be separated into two components (assuming constant inflation
indexed poverty line) - Growth and redistribution of income. If distribution (i.e. inequality) remains
constant, only through growth can poverty be addressed.
However, as inequality increases, as has been the case in India, the growth would have to outstrip the
pace of increase in inequality in order to reduce poverty. Another way of seeing this is that if the

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 incomes of the super-rich increase at a higher pace (causing increasing inequality), the pace of increase
of income of the people below poverty line would have to be higher. This is highly unlikely.
In this kind of scenario, there has be forced redistribution on part of the government. With government
adding to incomes of poor through welfare schemes, the net growth of real income of poor becomes
higher, contributing to reduced poverty.
Higher economic growth, agriculture growth, rural non-farm employment, increase in real wages for
rural labourers, employment in construction and programmes like the Mahatma Gandhi National Rural
Employment Guarantee Act (MGNREGA) contributed to higher poverty reduction in the 2000s compared
to the 1990s.
World Bank in its latest report also estimated that based on $1.90 income to measure extreme poverty,
Indias actual extent of poverty may be much less (approx. 11%). Still, 300 million people live below the
poverty line in India.
Issues with poverty measurement
No unanimity on appropriate parameters among different scholars, as shown above.
Poverty line mainly focuses on economic criteria, whereas poverty may also have social, cultural, and
political aspects, which are not addressed by the current approach.
Way forward
Use the recently concluded Socio-Economic Caste Census for more effective targeting as its based on
7 parameters to identify the poor.
Accelerate economic growth along with redistributive justice, for eliminating poverty in medium to
long term. For this we need to effectively implement the Sustainable Development Goals.

20. Clearly explain how the proposed GST regimen is different from the current system of indirect taxation
in the country. Analyse the challenges which the new taxation system may pose to the economy in the
short term.
Approach:
In introduction highlight the potential of GST.
Bring out differences between the current system of indirect taxation and the proposed GST system.
Mention the challenges posed by the implementation of GST in the short term
Conclude on the basis of above points.
Answer:
GST will be a game changing reform for the Indian economy by creating a common market and reducing
the cascading effect of tax on the cost of goods and services.
Essentially, GST functions in the same manner as the current value added taxation system. However, it
will be different from the present indirect taxation system in the following terms:
Presently separate indirect taxes like Central excise, state VAT etc. are there whereas GST will be a
single tax subsuming all these taxes, except the Customs Duty that will continue to be charged.
Value added system operates separately at the central and state level. At centre, there is the concept
of CENVAT, which refers to the taxes on production of raw material and intermediary goods used in
final goods production. Excise duty paid on the inputs of production is thus offset.

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 Similarly, at the State level, the sales tax is paid only on the value added (called as VAT) rather than on
the entire price of the product.
Even though both excise duty and VAT are indirect taxes, they accrue to different authorities centre and
state respectively. As such, there is no offset available of central or state duties against each other. With
GST, since there will only be 1 tax (the components CGST and SGST are only for distributional purposes),
input tax credit will be available at all successive stages for all the times GST is paid.
The burden on tax payer is high in the present system because of cascading effect which is not there
in GST.
Both Centre and State is vested with power to make law on GST by virtue of proposed Art. 246(A) of
the constitution which is not the case presently.
Tax compliance will be high as it is easier to follow whereas there is multiplicity of taxes presently. It
is expected that as the cost of compliance decreases and system becomes more transparent, more
and more people will come into the formal financial system.
GST will be destination based and not applied at various points which promotes transparency and
corruption free tax regime.
However, GST would pose following short term challenges:
The current taxation structure is complex, effectively having 6 rates as well as cesses. (Exempt(0), 5,
12, 18, 28, 28+Cesses). This can potentially make the switch to GST difficult to implement. If too
many exceptions (like food items and drugs) are there itll defeat the purpose of GST and also it cant
be done endlessly. It will also lead to disputes between company and taxman as companies try to
take advantage of exemptions.
Workplace challenge as the tax assessors of centre and state will have to work together.
Small companies with a turnover of Rs 10 lakh will have to pay GST as opposed to currently Rs 1.5
crore, it means many small companies will end up paying excise taxes.
Unorganized sector will lose some of its competitive edge initially; which means there can be layoffs
in companies. Hence GST will put constraints on smaller companies which are the biggest job
creators.
Those evading excise (legally or otherwise) will henceforth pay the tax it means they have to raise
prices to stay profitable. Hence GST may be inflationary in the short term.
GST more or less equalizes taxation across products which mean that rich will pay less tax on luxury
goods and services and poor will pay more for basic goods and services which goes against the
progressive system of taxation. However,
Though in the short run there may be some challenges but the benefits in the long run will more than
compensate for them. Increased tax compliance is expected to lead tomore revenue for the government
and more development for the country.

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