Economic Survey 2017-18 &

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 Index

1. An Overview of India’s Economic Performance in 2017-18

2. Fiscal, Monetary and External Sector

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!! Monetary, Fiscal and External sector
!! Is there a “Late Converger Stall” in Economic Development?
Can India Escape it?
!! Investment and Saving Slowdowns and Recoveries Cross-
Country Insights for India
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!! Reconciling Fiscal Federalism and Accountability: Is there a
Low Equilibrium Trap
3. Economic Sectors
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!! Agriculture
!! Industry
!! Infrastructure
!! Service
4. Sustainable development
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!! Sustainable Development, Energy and Climate Chang

!! Climate, Climate Change, and Agriculture
5. Social Development
!! Social Infrastructure, Employment and Human Development
!! Gender and Son Meta-Preference: Is Development Itself an
Antidote?
6. Reforms Needed
!! Ease of Doing Business’ Next Frontier: Timely Justice
!! Transforming Science and Technology in India
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 1.
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Overview
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Chapter
1
An Overview of India’s
Economic Performance in
2017-18
GDP Growth
 GDP growth is expected to be between
6.5 and 6.75 per cent in 2017-18.
 Real GDP growth is expected at 6.5 per
cent in 2017-18
 GVA growth at basic prices is expected
to be 6.1 per cent in 2017-18. This is on
account of lower growth in ‘Agriculture &
allied’, and ‘Industry’ sector, which are
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expected to grow at 2.1 per cent and 4.4
per cent respectively.
 2018-19: Real GDP growth of 7-7.5%.
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 The growth in nominal GDP in 2016-17 is
estimated to be 11 per cent and it is
expected at 9.5 per cent in 2017-18 on
account of both lower real growth as well
as lower value of deflator in 2017-18.
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Nominal and Real GDP
The main difference between nominal and
real values is that real values are adjusted
for inflation, while nominal values are not.
As a result, nominal GDP will often appear
higher than real GDP.
Per Capita Income
 The real per capita income (measured in
terms of per capita net national income at
constant (2011-12) prices) is one of the
important indicators representing the
welfare of people of a country.
 It is expected to increase from Rs. 77,803
in 2015-16 to Rs. 86,660 in 2017-18,
growing at an annual average rate of 5.5
per cent.
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 In nominal terms, it increased by an average
of 9.0 per cent per annum from Rs. 94,130
in 2015-16 to Rs.111, 782 in 2017-18.
Decline in Saving and
Investment
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 The investment rate (Gross Capital
Formation (GCF) as a share of GDP) in the
economy declined by nearly 5.6 percentage
points between 2011-12 and 2015-16. The
major reduction occurred in the year 2013-
14, when investment rate declined by nearly
5 percentage points.
 This was on account of number of factors ,
viz. difficulties in acquiring land, delayed
and cumbersome environmental clearances,
problems on infrastructure front, etc.
Although many of these problems have
been addressed, resulting in improved
power situation, lessening of infrastructure
bottlenecks, etc., the investment rate
(mainly fixed investment) has not picked
up.
 The faster decline in investment rate vis-à-
vis the savings rate has led to lower level of
current account deficit (Savings Investment
Gap) from 2013-14 to 2015-16.
Fiscal Deficit
 Central Government is confident of
achieving fiscal deficit of 3.2 per cent of
GDP for 2017-18.
 The fiscal deficit during April-November
2017 has reached 112 per cent of
budgeted expenditure as compared to
85.8 per cent during the corresponding
period last year.
 Economic Survey 2017-18
 Revenue and fiscal deficits of states as a
percentage of corresponding budget
estimates is lower in the current year as
compared to the previous year.
External Sector
 The current account deficit has declined to
reach about 1.8 per cent of GDP in the
first half of FY2018.
 During April-December 2017, trade deficit
increased by 46.4 per cent over
corresponding period of previous year.
 During April-December 2017, exports
grew 12.1 per cent to US$ 223.5 billion,
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while imports increased by 21.8 per cent
to US$ 338.4 billion.
 Private transfer receipts, most of which is
composed of remittances from Indians
working abroad, increased by 10 per cent
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to US$ 33.5 billion in first half of 2017-18.
Performance of Key Sectors
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 Agriculture & Food Management:
!! The growth rate in Gross Value Added
(GVA) by the agriculture and allied
sectors is estimated to be 4.9 per
cent for 2016-17, as per provisional
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estimates.
!! The production of Kharif food-
grains during 2017-18 is estimated
at 134.7 million tonnes compared to
138.5 million tonnes in 2016-17.
!! The area sown under Rabi Crops
during 2017-18 has reached 61.78
million hectares as of January 19, 2018.
!! Around 840,000 hectares of land
was brought under micro-irrigation
during 2016-17.
!! Coverage of non-loanee farmers
under the Pradhan Mantri Fasal Bima
Yojana (PMFBY) increased 123.5 per
cent in 2016-17 and the scheme is
being implemented in 25 states/UTs
in 2017. The scheme covers farmers
from pre-sowing to post harvest
against natural non-preventable risks.
&
 Industries, Corporate and Infrastructure
Sector:
!! Growth rate in the Gross Value Added
(GVA) by the industrial sector was 5.6
per cent in 2016-17 and 5.8 per cent
in the second quarter of 2017-18.
!! During April-November 2017, the
Index of Industrial Production (IIP)
grew 3.2 per cent, while registering
a growth rate of 8.4 per cent in
November 2017, the highest in 25
months.
!! The eight core infrastructure
supportive industries, viz. coal, crude
oil, natural gas, refinery products,
fertilizers, steel, cement and electricity
that have a total weight of nearly
40 per cent in the IIP, registered a
cumulative growth of 3.9 per cent
during April-November 2017.
!! The performance of corporate sector
highlighted that the growth in sales of
more than 1,700 non-government non-
financial (NGNF) listed manufacturing
companies was 9.5 per cent in Q2 of
2017-18 compared to 3.7 per cent in
Q2 of 2016-17.
!! As of September 2017, India had
115,530 km of national highways,
176,166 km of state highways and
53,26,166 km of other roads. Under
the new umbrella program ‘Bharatmala
Pariyojana’ the government is aiming
holistic development of highways in
the country.
 Services sector:
!! The services sector is projected to
grow at 8.3 per cent in 2017-18, as
against 7.7 per cent in 2016-17.
!! As per World Trade Organisation
(WTO) data, India’s share in the
exports of commercial services in
the world increased to 3.4 per cent
in 2016 from 3.3 per cent in 2015.
In terms of growth in tourism sector,
between January-December 2017,
Foreign Tourist Arrivals (FTAs) were
10.2 million with a growth of 15.6 per
cent and foreign exchange earnings
(FEE) were at US$ 27.7 billion with a
growth of 20.8 per cent.
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Public Finance
 The growth in non-debt receipts at 4.58
per cent during April-November 2017 as
against the growth rate of 25.8 per cent in
the previous year.
 The realisation of the gross tax revenue
during April-November 2017 as ratio of the
budget estimates for 2017-18 was 56.9 per
cent compared to 57.2 per cent in the
corresponding period of the previous year.
Prices & Inflation
 Inflation in the country continued to
moderate during 2017-18. Headline
inflation as per Consumer Price Index –
Combined (CPI-C) declined to 3.3 per cent
in 2017-18 (Apr-Dec) from 4.8 per cent in
the corresponding period of 2016-17.
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 CPI inflation, which was below 3.0 per cent
in the first quarter of 2017-18 mainly due
to lower food inflation, especially pulses
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and vegetables, rose marginally and stood
at 3.0 per cent in the Q2 of 2017-18.
 CPI-based core (non-food, non-fuel)
inflation also declined to 4.5 per cent in
2017-18 (Apr-Dec) from 4.8 per cent in
2016-17.
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 Average inflation based on the Wholesale
Price Index (WPI) stood at 2.9 per cent in
2017-18 as compared to 0.7 per cent in
2016-17.
 WPI inflation which remained subdued for
several months, surged during February
and March 2017 due to sudden spurt in
global crude oils prices. Thereafter, with
the moderation in the global crude prices,
inflation also moderated in the next four
months till July, reaching a low of 0.9 per
cent in June 2017. As oil prices bounced
back and moved upwards in the successive
months, coupled with rising food prices,
inflation too rose and reached the level of
3.6 per cent in December 2017.
 WPI based core (non-food manufactured
products) inflation stood at 2.6 per cent
in 2017-18 (Apr- Dec) as compared to -0.8
per cent in 2016-17 (Apr-Dec). The inflation
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of manufactured group, which has the
weight of 64.2 per cent in the WPI basket,
has however, remained range bound
hovering around 2.6 per cent.
Headline Inflation:
It is a measure of the total inflation within
an economy, including commodities such
as food and energy prices (e.g., oil and
gas), which tend to be much more volatile
and prone to inflationary spikes.
Core Inflation:
Core inflation represents the long run
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trend in the price level. In measuring
long run inflation, transitory price
changes should be excluded. One way of
accomplishing this is by excluding items
frequently subject to volatile prices, like
food and energy.
Outcome of the Study of GST
Data from the GST can help in unveiling some
long-elusive and basic facts about the Indian
economy. Some exciting new findings include:
 There has been a large increase in the
number of indirect taxpayers; many have
voluntarily chosen to be part of the GST,
especially small enterprises that buy from
large enterprises and want to avail
themselves of input tax credits.
 The distribution of the GST base among
the states is closely linked to their Gross
State Domestic Product (GSDP), allaying
fears of major producing that the shift to
the new system would undermine their tax
collections. New data on the international
exports of states suggests a strong
correlation between export performance
and states’ standard of living.
 India’s exports are unusual in that the
largest firms account for a much smaller
share than in other comparable countries.
 Internal trade is about 60 percent of GDP,
even greater than estimated in last year’s
Survey and comparing very favorably with
other large countries.
 Economic Survey 2017-18 &

 India’s formal sector non-farm payroll is
substantially greater than currently
believed. Formality defined in terms of
social security provision yields an estimate
of formal sector payroll of about 31 per
cent of the non-agricultural work force;
formality defined in terms of being part of
the GST net suggests a formal sector
payroll of 53 per cent.
 Similarly, the size of the formal sector
(defined here as being either in the social
security or GST net) is 13 per cent of total
firms in the private non-agriculture sector
but 93 per cent of their total turnover.
!! The five largest exporting states are
Maharashtra, Gujarat, Haryana,
 Remittances have shown signs of revival in
the first half of current year and can be
expected to pick up, particularly if oil prices
maintain their rising trend witnessed in the
current year.
 The policy rates can be expected to remain
fairly stable if the inflation rate does not
deviate much from its current levels. This,
along with the still favourable interest rate
regime prevailing in the global markets
could provide greater certainty to the
investment climate.
 The reform measures undertaken in 2017-
18 can be expected to strengthen further
in 2018-19 and reinforce growth

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Tamil Nadu and Karnataka. momentum. On the other hand, downside
!! The five largest importing states are risk to higher growth emanate from higher
Maharashtra, Tamil Nadu, Uttar crude oil prices, which (going by current
Pradesh, Karnataka and Gujarat.
indications) can be expected to increase by
!! The states with the largest internal
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about 10-15 per cent over and above the
trade surpluses are Gujarat,
likely average price of around US$ 56-57
Haryana, Maharashtra, Odisha and
Tamil Nadu. per barrel (for Indian basket) for 2017-18.
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 Protectionist tendencies in some of the
Prospects of Growth for 2018-19 countries could have an impact on exports
 CSO has estimated the GDP growth in growth, while the possibility of tightening
2017-18 to be 6.5 per cent. The growth of monetary conditions in the developed
during 2018-19 could be higher, depending
countries could lead to lower capital
on a number of factors.
inflows. This monetary tightening could
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 As per IMF’s World Economic Outlook
released in October 2017, the global growth
is expected to accelerate to 3.7 per cent in
2018 from 3.6 per cent in 2017. This can be
expected to provide further boost to India’s
exports, which have already shown
acceleration in the current financial year.
also lead to the possibility of financial
stress and therefore can be a downside
risk. On balance, there is a strong possibility
of growth in 2018-19. Growth of GDP in
2018-19 could be in the range of 7.0 to
7.5 per cent.

1. What are the new facts related to Indian Economy that

has been highlighted in the Economic Survey?

The survey points out that India can be rated as among the best performing economies in the world as
the average growth during last three years is around 4 percentage points higher than global growth
and nearly 3 percentage points higher than that of Emerging Market and Developing Economies.

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The facts highlighted are:
1. There has been a large increase in registered indirect and direct taxpayers
!! A 50 percent increase in unique indirect taxpayers under the GST compared with the pre-
GST system.
!! Similarly, there has been an addition (over and above trend growth) of about 1.8
million in individual income tax filers since November 2016.
2. Formal non-agricultural payroll is much greater than believed
!! More than 30 percent when formality is defined in terms of social security (EPFO/ESIC)
provision.
!! More than 50 percent when defined in terms of being in the GST net.
3. States’ prosperity is correlated with their international and inter-state trade
!! States that export more internationally, and trade more with other states, tend to be richer.
But the correlation is stronger between prosperity and international trade.
4. Indian firms export structure is substantially more egalitarian than in other large countries

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!! Top 1 percent of Indian firms account for 38 percent of exports; in other large countries,
they account for a substantially greater share (72, 68, 67, and 55 per cent of exports in
Brazil, Germany, Mexico, and USA respectively). And this is true for the top 5 percent,
10 percent, and so on.
5. The clothing incentive package boosted exports of readymade garments
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!! The relief from embedded state taxes (ROSL) announced in 2016 boosted exports of ready-
made garments (but not others) by about 16 per cent.
6. Indian society exhibits strong son “Meta” Preference
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!! Parents continue to have children until they get the desired number of sons. This kind of
fertility-stopping rule leads to skewed sex ratios but in different directions: skewed in favor
of males if it is the last child, but in favor of females if it is not the last. Where there are no
such fertility-stopping rules, ratios remain balanced regardless of whether the child is the
last or not.
7. There is substantial avoidable litigation in the tax arena which government action could
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reduce
!! The tax department’s petition rate is high, even though its success rate in litigation is low
and declining (well below 30 percent).
!! Only 0.2 percent of cases accounted for 56 percent of the value at stake.
!! About 66 percent of pending cases (each less than Rs. 10 lakhs) accounted for only 1.8
percent of the value at stake.
8. To re-ignite growth, raising investment is more important than raising saving
!! Cross-country experience shows that growth slowdowns are preceded by investment
slowdowns but not necessarily by savings slowdowns.
9. Direct tax collections by Indian states and local governments are significantly lower
than those of their counterparts in other federal countries
!! This share is low relative to the direct taxation powers they actually have.
10. The footprint of climate change is evident and extreme weather adversely impacts
agricultural yields
!! The impact of weather is felt only with extreme temperature increase and rainfall
deficiencies.
!! This impact is twice as large in un-irrigated areas as in irrigated ones.

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 Economic Survey 2017-18 &

Formality in Indian Economy

!! Formality can be defined in at least two senses. First, when firms are providing
some kind of social security to employees. In India, government provides this
for its employees, and the Employees’ Provident Fund Organization (EPFO)
provides it to private sector employees in respect of pensions and provident
funds; and the Employees’ State Insurance Corporation (ESIC) in respect of
medical benefits.
!! The EPFO contribution is mandatory for industries employing greater
than 20 workers, and whose monthly wage/salary is below Rs. 15,000.
Above that level, contributions are voluntary.
!! A second definition of formality is when firms are part of the tax net. Since
new data on the GST is available, one can define tax formality as firms having
registered under the GST.

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2. Why Pink-Color Economic Survey 2017-18 was
presented in Parliament?
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 The Survey takes into account that Gender equality is an inherently multi-dimensional issue.
Accordingly, assessments have been made based on three specific dimensions of gender:
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(a) Agency (relates to women’s ability to make decisions on reproduction, spending on

themselves, spending on their households and their own mobility and health);
(b) Attitudes (relate to attitudes about violence against women/wives, and the ideal number
of daughters preferred relative to the ideal number of sons); and
(c) Outcomes (relate to ‘son preference’ measured by sex ratio of last child, female
employment, choice of contraception, education level, age at marriage, age at first birth
and physical or sexual violence experienced by women) which aim to reflect the status,
role and empowerment of women in the society.
 The key findings of the assessment made in the Survey include: Over the last 10-15 years,
India’s performance improved on 14 out of 17 indicators of women’s agency, attitudes,
and outcomes. On seven of them, the improvement has been such that India’s situation is
comparable to that of a cohort of countries after accounting for levels of development.
 The Survey, encouragingly notes that gender outcomes exhibit a convergence pattern,
improving with wealth to a greater extent in India than in similar countries so that even where
it is lagging, it can expect to catch up over time.
 The Survey, however, cautions that on several other indicators, notably employment, use of
reversible contraception, and son preference, India has some distance to traverse because
development has not proved to be an antidote.

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 Economic Survey 2017-18 states that within India, there is significant heterogeneity, with the
North-Eastern states (a model for the rest of the country) consistently out-performing others
and not because they are richer; hinterland states are lagging behind but the surprise is that
some southern states do less well than their development levels would suggest.
 The Economic Survey 2017-18 notes the challenge of gender is long-standing, probably going
back millennia, so all stakeholders are collectively responsible for its resolution.
 The Survey, thus recommends that India must confront the societal preference, even meta-
preference for a son, which appears inoculated to development. The skewed sex ratio in favor
of males led to the identification of “missing” women. But there may be a meta-preference
manifesting itself in fertility stopping rules contingent on the sex of the last child, which
notionally creates “unwanted” girls, estimated at about 21 million, adds the Survey. Consigning
these odious categories to history soon should be society’s objective, opines the Survey.
 The Survey, acknowledges that government’s Beti Bachao, Beti Padhao and Sukanya Samridhi
Yojana schemes, and mandatory maternity leave rules are all steps in the right direction.
The Survey states that just as India has committed to moving up the ranks in Ease of Doing
Business indicators, a similar commitment should be endeavored on the gender front.

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 Economic Survey 2017-18 &

2.
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Sector
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 1
Chapter
Economic Survey 2017-18 &

Monetary, Fiscal
& External sector

Data on Fiscal Developments

Fiscal indicators - revenue buoyancy, expenditure quality, devolution and deficits improved discernibly
in the last three years. The Receipts and Expenditure of the central government has been discussed
below:

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A. Receipts:
!! There are three distinct patterns on the revenue front till November 2017, the confluence
of which is reflected in the trends in non-debt receipts of the Centre.
The gross tax collections are reasonably on track.
The non-tax revenues have visibly under-performed.
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Non-debt capital receipts, mainly proceeds from disinvestment, are doing well.
!! As against last year’s achievement of Rs. 46,247 crore realized from 16 transactions of
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disinvestment, the budget estimate for 2017-18 was set at Rs. 72,500 crore, split into
Rs. 46,500 crore from disinvestment of Central Public Sector Enterprises (CPSEs), Rs.
15,000 crore from strategic disinvestment and Rs. 11,000 crore from listing of insurance
companies.
!! The share of States in taxes grew by 25.2 per cent in 2017, much higher than the growth
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in net tax revenue (to centre), which is what the Centre has at its disposal to spend from its
own taxes. Disinvestment proceeds and non-tax revenues have shown contrasting growth
patterns, the former reinforcing the revenue position and the latter dampening it.
Central Government’s Receipts during April-November

2015-16 2016-17 2017-18 2015-16 2016-17 2017-18

(Rs. in lakh crore) Per Cent of BE (for full year)
Gross Tax Revenue 7.68 9.33 10.87 53.0 57.2 56.9
Net tax revenue
4.65 6.21 6.99 50.5 58.9 57.0
(to centre)
Non-tax revenue 1.73 1.75 1.05 78.1 54.2 36.5
Revenue receipts 6.38 7.96 8.05 55.9 57.8 53.1
Non-debt capital 0.21 0.33 0.62 25.8 48.5 73.3
receipts
Non dept receipts 6.59 8.29 8.67 53.9 57.4 54.2

B. Expenditure and Deficits

!! Central Government expenditure progressed at a robust pace during April-November
2017. One of the major fiscal reforms in the current year was the advancing of the budget
cycle and processes by almost a month.

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 Economic Survey 2017-18 &

!! This gave considerable leeway to the spending agencies to plan in advance and start
implementation early in the financial year.
!! The expenditure trends in the current year at any midpoint both as percentage of budget
estimates and in terms of their growth rates become not comparable with those of
previous years. This has also partly contributed to greater deficits in the current year so
far, compared to corresponding periods in the previous years.
!! The trends in fiscal and revenue deficits are the combined effect of the patterns in non-
debt receipts and expenditure.
!! Apart from the early progression of expenditure, the fiscal deficit overshooting the
budgetary target during April-November, 2017, has also been due to the front-loading of
some expenditure, undertaken as part of prudent expenditure management.
!! Movements in revenue expenditure can be majorly explained by changes in interest
payment liabilities and subsidy payments. Interest payment liabilities have firmed up
moderately during April-November 2017, possibly due to outgo on account of servicing
the market stabilization bonds issued to reduce excess liquidity, post demonetization.

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!! With the loss of price advantage in petroleum products in the international market, the
petroleum subsidy has firmed up. On the whole subsidies seem to be within control and
target. The outgo on pensions grew strongly during the first eight months reflecting
enhanced payments under the Seventh Pay Commission.
Central Government’s Expenditure during April-November
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2015-16 2016-17 2017-18 2015-16 2016-17 2017-18
(Rs. in Lakh crore) Per cent of BE
Total Expenditure 11.42 12.87 14.79 64.3 65.0 68.9
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Revenue Expenditure 9.83 11.44 12.95 64.0 66.1 70.5
Capital Expenditure 1.59 1.42 1.84 65.8 57.7 59.5

Some Major Components of Revenue Expenditure

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2015-16 2016-17 2017-18 2015-16 2016-17 2017-18

April-November April-November
(per cent of BE) (percentage growth)
Interest Payment 55.4 54.1 59.2 8.6 5.6 16.2
Food subsidy 81.4 91.3 93.1 11.1 21.6 9.9
Fertilizer subsidy 85.4 79.7 70.5 7.6 -10.5 -11.5
Petroleum subsidy 82.6 65.2 85.7 -46.6 -23.8 13.3
Major subsides 82.9 85.3 85.7 -3.6 5.0 4.2
Salaries and pensions 52.9 52.5 61.6 3.2 28.5 22.5

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 Macro-Economic Analysis

1. Discuss the salient measures taken by the government

under indirect taxes during 2017-18.

A. Customs duty changes to incentivize ‘Make in India’:

!! Basic Customs Duty:
It was reduced on inputs and raw materials like liquefied natural gas, o-Xylene, vegetable
tanning extracts, nickel, medium quality terephthalic acid and qualified terephthalic acid,
etc.
It was increased on specified goods manufactured indigenously in significant quantity,
including: ad-valorem Component on 298 items of fabrics on manmade fibres, etc.

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It was increased on crude and refined palm oil of edible grade etc. to protect the interest
of farmers and local producers of agricultural product.
!! Export Duty of 15% was imposed on other aluminium ores, including laterite.
B. Rollout of GST:
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!! In a historic tax reform, the Goods and Services Tax was rolled out on 1st July, 2017,
subsuming almost all major indirect taxes like Central Excise Duty, Service Tax, VAT, CST,
entertainment tax, Octroi, luxury tax, a large number of cesses/surcharges and various
other state and central levies on goods and services.
!! Addressing concerns under GST:
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A Committee on exports was constituted to address the concerns of exporters. The GST
Council also recommended significant rationalization in rates.
Extensive exercises were undertaken for streamlining tax administration, ensuring that
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taxpayer has single interface (with either Central or State tax authority). Committees
of officers examined issues relating to law and processes, and sectoral issues like
handicrafts.
A number of procedural changes have been made to simplify processes. Extensive
efforts were made for taxpayer education and facilitation by way of knowledge sharing,
dissemination of information and replies to frequently asked questions.
!! Facilitation measures taken in GST:
Ease of doing business for small traders: GST has significantly raised turnover thresholds
of Rs. 20 lakh for an entity to be taxable in GST. Threshold for composition was increased
in general to Rs. 1 crore (Rs 75 lakh for special category states except Jammu & Kashmir
and Uttarakhand).
C. Other measures for MSME sector include:
!! Service providers whose annual aggregate turnover is less than Rs. 20 lacs (Rs. 10 lacs in
special category states except J & K) were exempted from obtaining registration even if
they are making inter-State taxable supplies of services.
!! This measure will significantly reduce the compliance cost of small service providers.
!! Small and medium businesses with annual aggregate turnover up to Rs. 1.5 crores would
be required to file quarterly return (monthly for other taxpayers).

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 Economic Survey 2017-18 &

!! The reverse charge mechanism under the CGST Act, 2017 and under the IGST Act, 2017 has
been suspended till 31.03.2018.
!! The requirement to pay GST on advances received was proving to be burdensome for
small dealers and manufacturers. In order to mitigate their inconvenience on this account,
it has been decided that taxpayers having annual aggregate turnover up to Rs. 1.5 crores
shall not be required to pay GST at the time of receipt of advances on account of supply
of goods.
D. Rationalization of GST rate structure for goods and services.

25th Meeting of the GST Council

!! The meeting was held on 18th January, 2018, recommended many relief measures
regarding GST rates on goods and services and certain clarifications on issues
relating to GST rates and taxability of certain goods and services.
!! Some of the important changes in the rate of goods recommended by the Council

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include:
From 28% to 18% on buses exclusively run on bio fuels.
From 18% to 12% on, drip irrigation system including laterals, sprinklers, mechanical
sprayer, 12 specified bio-pesticides, bamboo wood building joinery (HS Code 4418),
fertilizer grade phosphoric acid, bio-diesel, drinking water packed in 20 litters
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bottles.
From 3% to 0.25% on diamonds and precious stones. Rough diamonds and precious
stones are already at 0.25%.
From 28% GST plus applicable cess to 12% on used motor vehicles [other than
medium and large cars and SUVs] on the margin of the supplier of such vehicles,
subject to condition that no input tax credit of central excise duty/ Value Added
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Tax or GST paid on them has been availed.

From 28% GST plus applicable cess to 18% on used medium and large cars
and SUVs on the margin of the supplier of such vehicles, subject to condition that
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no input tax credit of central excise duty/ Value Added Tax or GST paid on them
has been availed.
From 12% to 5% with no refund of unutilised input tax credit on velvet fabrics.
Some of the important changes recommended on the rate of services include:
Reduce GST rate on construction of metro and monorail projects (construction,
erection, commissioning or installation of original works) from 18 per cent to 12
per cent.
Reduce GST rate on transportation of petroleum crude and petroleum products
(MS, HSD, ATF) from 18 per cent to 5 per cent without ITC and 12 per cent
with ITC.
Reduce GST to 12 per cent in respect of mining or exploration services of petroleum
crude and natural gas and for drilling services in respect of the said goods.
Extend the concessional rate of GST on houses constructed/acquired under the
Credit Linked Subsidy Scheme for Economically Weaker Section/ Lower Income
Group/ Middle Income Group-1/ Middle Income Group-2 under the Housing for
All (Urban) Mission/Pradhan Mantri Awas Yojana (Urban) and low-cost houses
up to a carpet area of 60 square metres per house in a housing project which has
been given infrastructure status under the same concessional rate.

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 Macro-Economic Analysis

2. Discuss the salient measures taken by the government

under Direct Taxes during 2017-18.

 Lowering of tax rate on domestic companies with turnover or gross receipts less than or equal
to Rs. 50 Crore in FY 2015-16 to 25 per cent from 30 per cent.
 Lowering of tax rate on individuals between income of Rs. 2.5 lakhs and Rs. 5 lakhs to 5 per
cent from 10 per cent.
 Levying of surcharge at 10 per cent on individuals with income between Rs. 50 lakhs and Rs.
1 crore.
 In moving towards a less cash economy and to incentivise small traders/businesses to proactively

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accept payments by digital means, the existing rate of deemed profit of 8% under section
44AD of the Act was reduced to 6% for amount of total turnover or gross receipts received
through banking channel/digital means for the financial year 2016-17 and subsequent years.
 Clarification that provisions for taxation of indirect transfers not to apply in case of certain
foreign institutional investor, and those registered as category-I or category II foreign portfolio
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investor under the SEBI Regulations, 2014 made under SEBI Act, 1992.
 Clarification that the condition of maintaining the monthly average of the corpus of the fund
at minimum Rs. 100 crore provided in section 9A of the Income-tax Act, 1961 not to apply
to the previous year in which the fund is being wound up.
 Exemption provided to Prime Minister’s Relief Fund under the Act also extended to Chief
S

Minister’s Relief Fund or Lieutenant Governor’s Relief Fund.

 Clarification that corpus donations to exempt charitable institutions not to be treated as
application of income.
GS

 Exemption from levy of tax extended to income accruing or arising to a foreign company on
account of sale of leftover stock of crude oil, if any, from a facility in India after the expiry of an
agreement or an arrangement, subject to conditions to be notified.
 Section 12A of the Act amended to make it mandatory for a trust or institution, which has
been granted exemption under the Act, to seek fresh registration on adopting or undertaking
modifications of the objects such that the modified objects do not conform to the conditions
of registration.
 In respect of exempt trusts or institutions, additional condition of furnishing return within due
date by the person in receipt of the income chargeable to income-tax provided.
 A new safe harbour regime has been notified for three years with effect from 1st April,
2017 to reduce transfer pricing disputes, provide certainty to taxpayers, align safe harbour
margins with industry standards and enlarge the scope of safe harbour transactions.
 Rules for maintaining and furnishing of transfer pricing documentation by multinational
enterprises in the Master File and Country-by-Country report were notified.
 Fair market value of the asset to be the cost of acquisition for capital gains purpose if the asset
taken into account for computation of accreted income and taxes paid thereon.
 Benefit of lower rate of 5 per cent withholding tax, in respect of interest payable to a non-
resident by a specified company on borrowings made by it in foreign currency from sources

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 Economic Survey 2017-18 &

outside India under a loan agreement or by way of issue of any long-term bond including long-
term infrastructure bond, extended till 30.06.2020.
 Appreciation of rupee to be ignored for capital gains calculation at the time of redemption of
rupee denominated bond of an Indian company in respect of secondary holders as well.
 Transfer of capital asset, being rupee denominated bond of Indian company issued outside
India, by a non-resident to another non-resident not to be regarded as transfer.
 Benefit of lower rate of 5 per cent withholding in respect of interest payable to FIIs and QFIs on
their investments in Government securities and rupee denominated corporate bonds, at the
rate of interest not exceeding the notified rate, extended to 30.06.2020.
 Period of holding for computation of long term capital gains in the case of immovable property
reduced from 36 months to 24 months to give fillip to the housing sector.
 100 per cent deduction of profit has been made available to an assessee developing and
building affordable housing projects if the housing project is approved by the competent
authority before the 31st March, 2019 subject to certain conditions.
 Capital gains exemption provided to an individual or Hindu Undivided Family under the land

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pooling scheme notified under the provisions of Andhra Pradesh Capital Region Development
Authority Act, 2014.
 Categories of bond investments under Section 54EC of the Act, for the purpose of availing
capital gain exemption, have been expanded.
 To remove complexities in chargeability of tax in the case of Joint Development Agreements, it
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has been provided that the capital gain shall be chargeable to income tax as income of the
previous year in the year of the completion of project.
 Base year for fair market value and cost inflation index has been shifted from 1981 to 2001.
 Period of Tax credit available in respect of Minimum Alternate Tax (MAT) and Alternate Minimum
Tax (AMT) has been increased from the existing 10 years to 15 years.
S

 Tax neutrality has been provided on the conversion of preference shares of a company into
equity shares of that company.
 The cost of acquisition of share of an Indian company, received in a tax neutral demerger, shall
GS

be taken as the cost of acquisition in the hands of resulting foreign company.

 Period of claim of profit-linked deduction by eligible start-ups has been increased from 3 out
of 5 years to 3 out of 7 years and conditions for carry forward of loss of such start-up in case
of change in shareholding relaxed.
 Limit of cash donations under Section 80G of the Act reduced to Rs. 2000 from Rs. 10,000.
Self-employed individual shall be eligible for deduction up to 20 per cent of his gross total
income in respect of contribution made to National Pension System Trust. Exemption from
taxation has been provided to partial withdrawal made by subscriber of New Pension
Scheme.
 The provisions relating to computation of book profit for the purpose of levy of minimum
alternate tax (MAT) have been amended so as to align them with the Indian Accounting
Standards (Ind-AS).
 The amendment made by the Finance Act, 2016 providing for concessional rate of tax for
transfer of share of a private limited company shall be applicable retrospectively from assessment
year 2013-14.
 Section 10AA of the Act has been amended to provide that the amount of deduction referred
therein shall be allowed from the total income computed in accordance with provisions of the
Act before giving effect to provisions of the said section and that the deduction shall not
exceed the total income.

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 Macro-Economic Analysis

 Further, to bring transparency in the source of funding to political parties, the provisions of
Section 13A of the Act have been amended to provide for the following additional conditions
for availing the benefit of the exemption from income-tax: No donations of Rs. 2000/- or more
are received otherwise than by an account payee cheque drawn on a bank or an account payee
bank draft or use of electronic clearing system through a bank account or through electoral
bonds.
 In order to strengthen the PAN mechanism a new Section 206CC was inserted in Act to provide
for collection of tax at source (TCS) at higher rate of 20 per cent in case of non-quoting of
Permanent Account Number (PAN).
 To widen the scope of tax deduction at source, a new Section 194-IB was inserted in the Act
to provide that individuals or a Hindu Undivided Family (other than those covered under
Section 44AB of the Act) responsible for paying to a resident any income by way of rent
exceeding Rs. 50,000 for a month or part of month during the previous year, shall deduct an
amount equal to 5 per cent of such income as tax thereon.
 To address the concern of recovery of revenue in doubtful cases, a new Section 241A has been

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inserted, which inter alia provides that refund shall be withheld only in some cases in the
manner provided in said section and with the prior approval of the higher authorities. This shall
be applicable to returns furnished for assessment year commencing on or after 1st April,
2017.
 Necessary amendments have been made to Chapter XIX-B of the Act to enable merger of the
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Authority for Advance Ruling (AAR) for income-tax, central excise, customs duty and service tax.
 A new Section 269ST was inserted in the Act to prohibit cash receipt equal to or exceeding Rs.
2 lakh.
 In order to eliminate bogus/multiple PANs, a new Section 139AA was inserted in the Act, which
inter alia mandates linking of Aadhaar with PAN database.
S

 Rule 114 and rule 114A of the Income-tax Rules, 1962 have been amended to enable
allotment of PAN and TAN through a common application Form published in Official Gazette.
GS

 Income-tax return (ITR) Forms have been rationalised to make it more objective and taxpayer
friendly. Viz. at one page ITR-1 (Sahaj) Form has been notified for the assessment year 2017-
18 for taxpayers having income upto Rs. 50 lakh from salary and one house property.

3. New Insolvency and Bankruptcy Code passed by

Parliament, promises to address the structural
problems hampering the efficient recycling of capital
and rebalance the rights of creditors. Do you agree?

What are Insolvency and Bankruptcy?

 Insolvency is the situation where the debtor is not in a position to pay back the creditor. For a
corporate firm, the signs of this could be a slow-down in sales, missing of payment deadlines etc.
 Bankruptcy is the legal declaration of Insolvency. So, the former is a financial condition and
latter is a legal position. All insolvencies need not lead to bankruptcy. The new code has a
sequential procedure of Insolvency resolution, failing which, it leads to Bankruptcy.

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 Economic Survey 2017-18 &

The IBC was enacted in 2016 to find a time-bound resolution for ailing and sick firms, either through
closure or revival, while protecting interests of creditors. Successful completion of resolution process is
expected to aid in reducing rising bad loans (NPA - Non Performing Assets) in the banking system.

What is the need for an insolvency and bankruptcy code 2016?

Indian banks are sitting on a huge pile of bad debts. The total Non Performing Assets (NPAs) is
around 4 Lakh Crore and a huge amount of restructured loans also. Thus, the total stressed assets
(Bad Debts) amount to 11% of the total lending.
1. As a percentage of total loans, the bad loans grew from 3.49% (2013) to 8.3%(2015).
2. Corporate bad loans constitute 56% of the total bad loans of state-run banks.
3. At present, there are around 70,000 pending liquidation.
4. It takes almost 4 years to wind up an ailing company in India.
5. There are around 12 laws (some are more than 100 years old) to tackle Insolvency.
6. Ease of doing Business – India is presently ranked 130 (Out of 189 countries) in 2016.

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7. Resolving Insolvency – India is presently ranked 136 (Out of 189 countries) in 2016.
!! Effective implementation of Insolvency and Bankruptcy Code can potentially release about
Rs 25,000 Crore capital over next 4-5 years currently locked in bad loans.
!! If implemented successfully, the Code will help India’s banking sector catch up with or
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even exceed the recovery rates of 32 per cent and average time taken of 2.8 years in other
emerging markets.
!! The capital released can be deployed for other productive lending which could help in
credit expansion.

Important provisions of the Code:

S

 The Code seeks to provide for designating National Company Law Tribunal (NCLT) and Debt
Recovery Tribunal (DRT) as the adjudicating authorities for corporate persons and firms and
individuals, respectively, for resolution of insolvency, liquidation and bankruptcy.
GS

 It provides for priority with regard to distribution of proceeds following liquidation of the
company.
 In the order of priority, the first charge will be insolvency resolution process cost and liquidation
costs to be paid in full. Liquidation proceeds will then be used to clear debts owed to people
in the following order:
1. Secured creditors.
2. Workmen’s dues for 12 months.
3. Unpaid dues to employees other than workmen.
4. Financial dues owed to unsecured creditors.
5. Government taxes for two years, other debts, preference shareholders and equity
shareholders will receive last priority for payment.
 It also provides for monetary penalty and jail term of up to five years for concealment of
property, defrauding creditors and furnishing false information.
 The Code also provides for fast track corporate insolvency resolution process to be completed
in 90 days.
 Bankruptcy applications will now have to be filed within three months rather than the earlier six
months.

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Anyone declared bankrupt will be barred from holding public office, thereby ensuring that politicians
and government officials cannot hold any public office if declared bankrupt.
Key Features of the Amendment:
 Resolution applicant: The Bill redefines resolution applicant mentioned in code as a person who
submits a resolution plan after receiving an invite by the insolvency professional to do so.
 Eligibility for resolution applicants: It amends provision related to eligibility in IBC to state
that insolvency professional will only invite those resolution applicants to submit a plan, who
fulfill certain criteria laid down by him with approval of committee of creditors and other
conditions which may be specified by Insolvency and Bankruptcy Board.
 Ineligibility to be a resolution applicant: It prohibits certain persons from submitting
resolution plan in case of defaults. These include: (i) willful defaulters, (ii) promoters or
management of the company if it has outstanding non-performing debt for over year, and (iii)
disqualified directors, among others.
 Liquidation: The Bill bars the sale of property of a defaulter to such persons who is ineligible

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to be a resolution applicant during liquidation.
 Penalties: The Bill inserts provision to specify that person contravening any provisions of IBC,
for which no penalty has been specified, will be punishable with penalty ranging between Rs. 1
lakh to Rs. 2 crore.
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Stressed Assets:

!! The stressed assets are getting increased attention as the trend of deteriorating
asset quality has emerged as a big economic risk for the Indian banking sector.
S

The ratio of stressed assets to gross advances of the Indian banking system is
increasing from 2013 onwards. On the banking side, stressed assets now stand at
over 12% of the total loans in the banking system.
GS

!! Stressed assets comprise of restructured loans and written off assets besides
NPAs. So
Stressed assets = NPAs + Restructured loans + Written off assets.
!! NPA:
A loan whose interest and/or installment of principal have remained ‘overdue‘(not
paid) for a period of 90 days is considered as NPA.
Where the installment of principal or interest thereon remains overdue for two crop
seasons for short duration crops.
Where the installment of principal or interest thereon remains overdue for one crop
season for long duration crops.
!! Restructured loans:
The assets which got an extended repayment period, reduced interest rate, converting
a part of the loan into equity, or providing additional financing, so that the loan could
be recovered.
!! Written off assets:
Written off assets are those the bank or lender doesn’t count the money borrower
owes to it. The financial statement of the bank will indicate that the written off loans
are taken off the financial statement.

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 Economic Survey 2017-18 &

Achievements
A major factor behind the effectiveness of the new Code has been the adjudication by the
Judiciary. The Code prescribes strict time limits for various procedures under it. In spite
of the large inflow of cases to NCLT benches across India, these benches have been able to
admit or reject applications for CIRP admissions with few delays. In addition, appellate
courts, including the NCLAT, High Courts and the Supreme Court have also disposed
appeals quickly and decisively. In this process, a rich case-law has evolved, reducing future
legal uncertainty.
Further the amendment in the bill, is to prevent a range of undesirable persons from bidding
for the debtor. The Bill may prevent promoters from bidding for their own firms. A resolution
plan would typically involve significant haircuts on the parts of the financial and operational
creditors. Thus, allowing a promoter to bid without restriction would mean countenancing
a situation where an owner, having driven a firm into insolvency, is now able to purchase
it back at a discount. This can lead to a situation of moral hazard, where incompetent or

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fraudulent promoters are effectively rewarded with the control of their company, leaving
the creditors to write off their debts. The Bill, thus, seeks to achieve a balanced approach,
enabling the CoC to avoid imprudent transactions, while preserving its freedom to choose
the best resolution plan from amongst all the applicants.
CO
4. Discuss the current trends in inflation and steps taken
S

by the government for tackling inflation.

GS

!! In the last 4 years economy witnessed a gradual transition from a period of high and variable
inflation to more stable prices.
!! Headline inflation measured by the Consumer Price Index (CPI) has remained under control for
the fourth successive year.
!! Financial year (FY) 2017-18 began with an annual inflation rate of 3.0%.
!! Food inflation measured by the Consumer Food Price Index (CFPI) declined to a low of 1.2 per cent
during the FY 2017-18.
!! WPI based inflation for FY 2017-18 stood at 2.9%.
General inflation based on different price indices (per cent)
2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 (Apr-Dec)*
WPI 6.9 5.2 1.2 -3.7 1.7 2.9 (P)
CPI (combined) 10.2 9.5 5.9 4.9 4.5 3.3 (P)
CPI (IW) 10.4 9.7 6.3 5.6 4.1 2.3#
CPI (AL) 10.0 11.6 6.6 404 4.2 2.0#
CPI (RL) 10.2 11.5 6.9 4.6 4.2 2.1#

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 Macro-Economic Analysis

CURRENT TRENDS IN INFLATION:

!! The average CPI-combined (CPI-C) inflation declined to 3.3% in FY 2017-18 as compared to 4.5%
in last year.
!! Food Inflation: Good agricultural production coupled with regular price monitoring by the
Government helped to contain inflation, especially food inflation.
!! Though decline in food inflation is broad-based, major drivers are meat & fish, oil & fats, spices
and pulses & products.
!! The rise in food inflation in recent months is mainly due to factors driving prices of vegetables
and fruits.
!! Food inflation based on WPI has also declined.
!! Core Inflation: CPI based core inflation has remained above 4% during the last four financial
years. And significant moderation has been witnessed in the headline and food inflation.

DRIVERS OF INFLATION:

RE
!! At the all India level, CPI-C inflation was driven mainly by food during last year. The miscellaneous
group has contributed the most to it during the current FY 2017-18.
!! Miscellaneous group: Includes household goods & services, health, transport & communication,
recreation and amusement, education and personal care and effects.
Contribution to CPI (Combined) inflation 2016-17 (Apr-Dec) and 2017-18 (Apr-Dec)
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2016-17 (Apr-Dec)

2017-18 (Apr-Dec)
S
GS

Food & beverages

Pan, Tobacco & Intoxicants
Cloting & Footwear
Housing
Fuel & light
Miscellaneous

!! Rural: Food was the main driver of CPI (Rural) inflation in last year but miscellaneous category
contributed the most to inflation in rural areas of the current financial year.
!! The contribution of fuel and light, clothing and footwear and pan, tobacco and intoxicants
categories in CPI (Rural) inflation has risen.
!! Urban: Housing sector has contributed the most to CPI (Urban) inflation in the current financial
year, followed by other miscellaneous category.

EFFORTS TO CONTAIN INFLATION:

!! Central Government monitors the price situation on a regular basis as controlling inflation is a
priority area. It has taken a number of measures to control inflation especially food inflation which,
inter alia, includes:

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a. Advisories are being issued, as and when required, to State Govts to take strict action against
hoarding & black marketing and effectively enforce the Essential Commodities Act, 1955 &
the Prevention of Black-marketing and Maintenance of Supplies of Essential Commodities
Act, 1980 for commodities in short supply.
b. Regular review meeting on price and availability situation is being held at the highest level. Ex.
Committee of Secretaries, Inter Ministerial Committee, Price Stabilization Fund Management
Committee.
c. Higher MSP has been announced so as to incentivize production and thereby enhance
availability of food items which may help moderate prices.
d. Price Stabilization Fund (PSF) scheme is being implemented to control price volatility of
agricultural commodities like pulses, onions, etc.
e. Government approved enhancement in buffer stock of pulses from 1.5 lakh MT to 20 Lakh MT
to enable effective market intervention for moderation of retail prices.
f. A dynamic buffer stock of pulses of up-to 20 lakh tonnes has been built under the Price
Stabilization Fund (PSF) Scheme through both domestic procurement as well as imports.

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g. Pulses from the buffer are being provided to States/UTs for PDS distribution, Mid-day Meal
scheme, etc. Also are being utilized to meet the requirement of pulses by Army and Central
Para-military Forces.
h. Export of edible oils was allowed only in branded consumer packs of up to 5 kg with a
minimum export price. With a view to incentivizing domestic production this restriction has
CO
been removed on oil except for palm oil, mustard oil and sunflower oil.
i. Government has imposed stock holding limits on stockiest/dealers of sugar till April, 2018,
and also imposed 20% duty on export of sugar for promoting availability and moderating
price rise.
j. Permitted import of 5 lakh tonnes of raw sugar at zero duty; subsequently, import of additional
S

3 lakh tonnes was allowed at 25% duty.

k. States/UTs have been advised to impose stock limit on onions. States were requested to
indicate their requirement of onions so that import of requisite quantity may be undertaken
GS

to improve availability and help moderate the prevailing high prices.

Terms mentioned in the Economic Survey

Producer Price Index (PPI):
Recommendations working Group under the Chairmanship of B. N. Goldar on PPI are as
follows:
a. IPPI in India may be compiled based on Supply Use Table 2011-12 using Total Final
Use values for higher level weights.
b. Two separate sets of input PPIs may be compiled - one including services and the
other excluding services.
c. Additional set of output PPI based on Final Demand and Intermediate Demand
framework may also be compiled for the benefit of the users.
d. The PPIs may be initially compiled on an experimental basis and switching over from
WPI to PPI should be undertaken after the PPI series stabilizes and due consultation
with the stakeholders is done.

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 e. For compilation of experimental PPI, price quotations collected for current series of
WPI may be used.
f. The experimental PPI will be released on monthly basis. Initially, the base year of
the experimental PPI would be 2011-12.
g. It also recommended inclusion of 15 services in the PPI basket to begin with. The
coverage of service sector may be extended to all key sectors on an urgent basis
during the experimental phases of PPI.
Producer Price Index (PPI) measures the average change in the prices of goods and services,
either as they leave the place of production called Output PPI or as they enter the production
process called Input PPI.
PPI contrasts with other measures such as the Consumer Price Index (CPI) which measures
changes in prices from buyers or consumers perspective.
PPIs significantly reduce the distortion arising from multiple counting by deriving weights
from Supply Use Table compiled by the CSO. Further, the scope of PPI extends to services

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which are not presently covered under WPI.
Benefits of migrating from WPI to PPI are to cover bulk transactions of all goods and services,
do away with the bias of double counting inherent in WPI and to compile indices that are
conceptually consistent with the National Accounts Statistics (NAS) for use as deflators.

Housing Price Index:

CO
 The Housing Price Indices (HPIs) are a broad measure of movement of residential
property prices observed within a geographic boundary.
 The first official housing price index for the country named ‘NHB RESIDEX’ was
launched in 2007 by the National Housing Bank (NHB).
 Currently, NHB is publishing NHB RESIDEX for 50 cities on quarterly basis with FY
S

2012-13 as base year. Among 50 cities covered are 18 State/UT capitals and 37 Smart
Cities.
GS

 NHB is not computing the composite all India housing price index as of now. Using
population proportion as weights, an all India index as weighted average of city indices
has been computed in-house
 The RBI also began compiling a house price index (HPI) in 2007 with a quarterly HPI
for Mumbai city.

5. Discuss the Mid Term Review and subsequent trade

related policies of the government.

!! In the mid-term review of FTP released on 5th December, 2017, some additional measures have
been taken to help India’s trade sector. Besides, on 15th December, 2017, a special package for
employment generation in leather and footwear sector was approved by the Government which
is also likely to help exports from this sector.

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 Economic Survey 2017-18 &

!! The salient reviews are:

!! MEIS (Merchandise Exports from India Scheme) incentives for two sub-sectors of Textiles, i.e.,
Ready Made Garments and Made Ups increased from 2% to 4% involving additional annual
incentives of Rs. 2743 crore.
!! Across the board increase of 2% in existing MEIS incentive for exports by MSMEs / labour intensive
industries amounting to Rs. 4576 crore.
!! To provide an impetus to the services trade, the SEIS (Service Export from India Scheme) incentives
have been increased by 2% for notified services such as Business, Legal, Accounting, Architectural,
Engineering, Educational, Hospital, Hotels and Restaurants amounting to Rs. 1140 crore.
!! The validity period of the Duty Credit Scrips has been increased from 18 months to 24 months
to enhance their utility in the GST framework. GST rate for transfer/sale of scrips has been reduced
to zero from the earlier rate of 12%.
!! New trust based Self Ratification Scheme introduced to allow duty free inputs for export
production under duty exemption scheme with a self-declaration. Under this scheme, instead of
getting a ratification of the Norms Committee for inputs to be used in the manufacture of export

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products, exporters will self-certify the requirement of duty free raw materials/ inputs and take
an authorization from DGFT. The scheme would initially be available to the Authorized Economic
Operators (AEOs).
!! Contact@DGFT service for Complaint Resolution has been activated on the DGFT website (www.
dgft.gov.in) as a single window contact point for exporters and importers for resolving all foreign
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trade related issues.
!! To focus on improving Ease of Trading across Borders for exporters and importers, a professional
team envisaged to handhold, assist and support exporters with their export related problems,
accessing export markets and meeting regulatory requirements.
!! New Logistics Division created in the Commerce Department to develop and coordinate
implementation of an Action Plan for the integrated development of the logistics sector, by way
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of policy changes, improvement in existing procedures, identification of bottlenecks and gaps and
introduction of technology in this sector.
GS

!! For clarity, a negative list of capital goods which are not permitted under the EPCG (Export
Promotion on Capital Goods) scheme has been notified.
!! The concept of Domestic Tariff Area (DTA) sale from Export Oriented Units (EoUs) on concessional
and full duty has been removed and hence, the limit on entitlement of DTA sale has also been
removed. Consequently, restriction on DTA sale of motor cars, alcoholic liquors, books and tea
has been removed.
!! Second Hand Goods imported for the purpose of repair/refurbishing/re-conditioning or re-
engineering have been made free, thereby facilitating generation of employment in the repair
services sector.
!! Issue of working capital blockage of the exporters due to upfront payment of GST on inputs
has been addressed. Under advance authorization Export Promotion for Capital Goods (EPCG)
Scheme, 100% EoU’s, exporters have been extended the benefit of sourcing inputs/capital goods
from abroad as well as domestic suppliers for exports without upfront payment of GST. Further an
e-wallet will be launched from 1st April, 2018, to make these schemes operational from 1st April,
2018.
!! The Union Cabinet Committee on 15th December, 2017, approved the special package for
employment generation in leather and footwear sector. The package involves implementation of
Central Sector Scheme “Indian Footwear, Leather & Accessories Development Programme” with
an approved expenditure of Rs. 2,600 crore over the three years from 2017-18 to 2019-20. The

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 scheme would lead to development of infrastructure for the leather sector, address environment
concerns specific to the leather sector, facilitate additional investments, employment generation
and increase in production. The Special Package has the potential to generate 3.24 lakhs new
jobs in 3 years and assist in formalization of 2 lakh jobs as cumulative impact in Footwear, Leather
& Accessories Sector.

6. India has improved its ranking in the “Logistics

Performance Index” (LPI) from 54 in 2014 to 35 in 2016.
However, compared to countries like Singapore and
China, India has some way to go. Discuss the challenges
and steps needed for improving the logistic sector.

RE
!! The Indian logistics industry is estimated to be worth around US$ 160 billion in 2016-17 and
has grown at a compound annual growth rate (CAGR) of 7.8 per cent over the past five years.
Considering the impact of implementation of the Goods and Services Tax (GST), the Indian logistics
market is expected to reach about US$ 215 billion in 2019-20, growing at a CAGR of 10.5%.
Improved logistics have huge implications on increasing exports, as a 10% decrease in indirect
logistics cost can contribute to around 5-8% of extra exports. India has improved its ranking in
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the “Logistics Performance Index” (LPI) from 54 in 2014 to 35 in 2016. However, compared to
countries like Singapore (rank 5), South Africa (20), Taiwan (25) and China (27), India has some
way to go.
!! Some key Challenges
 High cost of logistics – impacting competitiveness in domestic & global market.
S

 Unfavorable modal mix (Roadways 60%, Railways 30%) and inefficient fleet mix.
 Under-developed material handling infrastructure and fragmented warehousing.
 Multiple regulatory/policy making bodies with procedural complexities including cumbersome
GS

and duplicate processes.

 High dwell time and lack of seamless movement of goods across modes.
!! Suggested Action Plan
 Formulation of National Integrated Logistics Policy to bring in greater transparency and
enhance efficiency in logistics operations.
 Develop integrated IT Platform as a single window for all logistics related matters. This portal
will have linkages with the IT systems of Railways, Road transport & Highways, Shipping, Civil
Aviation, CBEC, State Transport departments, etc. and act as a Logistics marketplace.
 Usher in ease of documentation, faster clearance, digitization.
 Bring down logistics cost to less than 10% of GDP by 2022.
 Faster clearances for setting up of logistics infrastructure like Multi-modal logistic parks (MMLPs),
Container Freight Station (CFS), Air Freight Station (AFS) & Inland Container Depot (ICD).
 Introduce professional standards and certification for service providers.
 Promote introduction of high-end technologies, like high-tech scanning equipment, RFID, GPS,
EDI, online Track & Trace systems in the entire logistics network.
 Improve Logistics skilling in the country and increase jobs in Logistics sector to 40 million by
2022.

28 www.iasscore.in
 Economic Survey 2017-18 &

7. Union Cabinet has approved Rs. 6,000 crore package

for the apparel sector. Analyse whether the Export
Incentives Work or not?

!! The apparel sector has immense potential to drive economic growth, increase employment, and
empower women in India. This is especially true as China’s share of global apparel exports has
come down in recent years. However, India has not, or not yet, capitalized on this opening. Instead,
countries like Vietnam and Bangladesh are quickly filling the space left by China.
!! Thus, in June 2016, the Cabinet announced a Rs. 6,000 crore package for the apparel sector. The
largest component of this package were Rebates on State Levies (ROSL) to offset indirect taxes
levied by the states (the VAT) that were embedded in exports. This ROSL was over and above the

RE
duty drawbacks and other incentives (e.g., Merchandise Exports from India Scheme (MEIS)) that
were given to offset indirect taxes embedded in exports. Prior to the package, duty-drawbacks
were between 7.5 percent-9.8 percent for apparels. After the package, the ROSL increased export
incentives by between 2.8 percent-3.9 percent.
!! A key question is: did the package succeed? To answer this, we use a well-recognized Difference-
CO
in-Difference (DD) approach, which allows us to isolate, albeit imperfectly, the impact of the
package. Essentially, the approach asks whether the gap between clothing and comparator group
export growth increased after the package was introduced. By analysing the methodology in
greater detail, three main findings emerge:
 The package increased exports of readymade garments (RMG) made of man-made fibres
(MMFs)
S

 The package did not have a statistically positive impact on RMG made of other fibres (silk,
cotton, etc.); and
 The impact on MMF-RMGs increased gradually over time; by September 2017, the cumulative
GS

impact was about 16 percent over other comparator groups.

Figure 1: Exports of Ready Made Garments (RMG’s) and Selected Other Groups
(Index; June 2015 = 100)

Announcement of Disbursement
130 Notification
package

Other Ready-Made Garments

120
Ready-made Garments: Manmade Fibers
Other Manufactured Goods
110 Other Labour Intensive

100

90

80
May-16

May-17
Aug-15

Nov-15

Aug-16

Nov-16

Aug-17
Mar-16

Mar-17
Dec-15

Dec-16
Apr-16

Apr-17
Sep-15
Sep-15

Feb-16

Sep-16
Sep-16

Feb-17

Sep-17
Sep-17
Oct-15

Oct-16
Jun-15

Jun-16

Jun-17
Jan-16

Jan-17
Jul-15

Jul-16

Jul-17

Source: Ministry of Commerce and Industry, Survey calculations.

www.iasscore.in 29
!! The figure below shows the growth in clothing exports compared to other labor-intensive and
manufacturing goods, which did not receive ROSL. The positive impact on RMGs made of MMF
after the package emerges starkly.
!! A policy implication is that the GST Council should conduct a comprehensive review of embedded
taxes arising from products left outside the GST (petroleum and electricity) and those that arise
from the GST itself (for example, input tax credits that get blocked because of “tax inversion,”
whereby taxes further back in the chain are greater than those up the chain). This review should
lead to an expeditious elimination of these embedded export taxes, which could provide an
important boost to India’s manufacturing exports.

8. Understanding the Stock Market Boom: Is India

Different?

RE
!! Over the past two fiscal years, the Indian stock market has soared, outperforming many other
CO
major markets. As Figure 1 shows, since end-December 2015, the S&P index has surged 45 percent,
while the Sensex has surged 46 percent in rupee terms and 52 percent in dollar terms. This has led
to a convergence in the price-earnings ratios of the Indian stock market to that of the US at a lofty
level of about 26 (Figure 2). Yet over this period the Indian and US economies have been following
different paths. So what explains the sudden convergence in stock markets?
S

Figure 1: US and India Stock Market Performance, Figure 2: US and India Price-Earnings Ratios,
Dec. 2015-Jan. 2018 Dec. 2015-Jan. 2018
200 26
GS

260 BSE Sensex

S&P 500
25
240 BSE Sensex in 5 terms 24
220
23
200
22
180
160 21
140 20
120 19 BSE Sensex S&P 500

100 18
May-16

May-17
Aug-16

Nov-16

Aug-17

Nov-17
Mar-16

Mar-17
Dec-15

Dec-16

Dec-17

17
Apr-16

Apr-17
Feb-16

Sep-16
Sep-16

Feb-17

Sep-17
Sep-17
Oct-16

Oct-17
Jun-16

Jun-17
Jan-16

Jan-17

Jan-18
Jul-16

Jul-17

May-16

May-17
Aug-16

Nov-16

Aug-17

Nov-17
Mar-16

Mar-17
Dec-15

Dec-16

Dec-17
Apr-16

Apr-17
Feb-16

Sep-16
Sep-16

Feb-17

Sep-17
Sep-17
Oct-16

Oct-17
Jun-16

Jun-17
Jan-16

Jan-17

Jan-18
Jul-16

Jul-17

Source: BSF, Yahoo finance, Survey Calculations.

The paths of the Indian and US economies have differed in three striking ways:
!! The stock market surge in India has coincided with a decelaration in economic growth, whereas
US growth has accelerated (Figure 3).
!! India’s current corporate earnings/GDP ratio has been sliding since the Global Financial Crisis,
falling to just 3½ percent, while profits in the US have remained a healthy 9 percent of GDP (Figure
4). Moreover, the recently legislated tax cuts in the US are likely to increase post-tax earnings.

30 www.iasscore.in
 Economic Survey 2017-18 &

Figure 3: US and India, Real GDP Growth Figure 4. US and India Corporate Profits (% of GDP
end-Dec. 2015-end-Dec. 2017

9.6
11%
8.8
8.0 10%

7.2 9%
6.4
8%
5.6
India
4.8 7%
USA
4.0 6%
3.2 India
2.4 USA 5%

1.6 4%
0.8
3%
Mar-16

Mar-17
Dec-15

Dec-16
Sep-16

Sep-17
Jun-16

Jun-17
FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16 FY 17

RE
!! Critically, real interest rates have diverged substantially. Rates in the US have persisted at negative
levels, while those in India have risen to historically high levels. Over the period of the boom,
US real rates have averaged -1.0 percent, compared to India’s 2.2 percent, a difference of 3.2
percentage points (Figure 5).
Figure 5: Real Interest Rate: India & US
CO
4.8
India USA
3.8

2.8

1.8

0.8
S

-0.2

-1.2

-2.2
Mar-16
Apr-16
May-16
Jun-16
Jul-16
Aug-16
Sep-16
Sep-16
Oct-16
Nov-16
Dec-16
Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Sep-17
Oct-17
Nov-17
Dec-17
GS
Ma

Source: Survey Calculations.

!! What, then, explains the stock market convergence? Two factors seem to be at work. First,
expectations of earnings growth are much higher in India. Indeed, it was such expectations that
lie at the origin of the stock market boom. In early 2016-17, signs emerged that the long slide
in the corporate profits/GDP ratio might finally be coming to an end. Investors reacted to this
news with alacrity, bidding up share prices in anticipation of a recovery they hoped lay just ahead.
Accordingly, the ratio of prices to current earnings rose sharply.
!! By 2017-18 signs began to accumulate that the profit recovery was not obviously around the
corner. But at that point a second factor gave the market further impetus. That factor was
demonetisation.
!! The price of an asset is not solely determined by the expected return on that asset. It is also
determined by the returns available on other assets. As pointed out in last year’s Economic
Survey, the government’s campaign against illicit wealth over the past few years—exemplified by
demonetisation—has in effect imposed a tax on certain activities, specifically the holding of cash,
property, or gold. Cash transactions have been regulated; reporting requirements for the acquisition
of gold and property have been stiffened. In addition, rupee returns to holding gold have plunged
since mid-2016, turning negative since mid-2017 (Figure 6). In addition, previously, stock prices
had suffered because reporting requirements were higher on shares than purchases of other asset.

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 But the attack on illicit wealth has
Figure 7: Flows into Mutual Funds
helped to level the playing field. Figure 6: Returns from Gold (in present)
(percent of GDP)

!! All of this has caused investors to 20% 1.2%

re-evaluate the attractiveness of 21%

16%
1.0%

stocks. Investors have accordingly 11%

0.8%

reallocated their portfolios toward 6% 0.6%

shares, with inflows through

1% 0.4%
-4%
stock mutual funds, in particular, -9%
0.2%

amounting in 2016-17 to five

Dec-15
Jan-16
Feb-16
Mar-16
Apr-16
May-16
Jun-16
Jul-16
Aug-16
Sep-16
Sep-16
Oct-16
Nov-16
Dec-16
Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Sep-17
Oct-17
Nov-17
0.0%
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17*
times their previous year’s level
(Figure 7). Accordingly the equity
Source: RBI.

Figure 8: US and India, Euity Risk Premiums

risk premium (ERP, the extra return
required on shares compared with 10%

other assets) has fallen. 9%

8%

!! Does this imply that Indian P/E 7%

ratios have reached a higher “new 6%

5%
normal”? Perhaps. It’s possible that

RE
4%
the portfolio shift set in train by 3%
the campaign against illicit wealth 2%
ERP US
ERP India
will result in a sustained reduction 1%

in the ERP. But it is worth recalling 0%

2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
that a similar assessment was made
in the US after its ERP fell sharply in Source: Survey Calculations.
CO
the late 1990s-early 2000s. A few
years later, the technology bubble
collapsed, then the Global Financial Crisis occurred.
!! The ERP surged to new heights and still hasn’t reverted to its previous trough. Beyond ERPs,
sustaining current stock valuations in India also requires future earnings performance to rise to
meet still high expectations. And this outlook, in turn, depends on whether a significant economic
S

rebound is this time well and truly around the corner.

!! In sum, the Indian stock market surge is different from that in advanced economies in three ways:
growth momentum, level and share of profits, and critically the level of real interest rates. Low
GS

levels of the latter have been invoked to justify the high valuations in advanced economies. By that
token, India’s valuations should be much lower. So, what appears to be driving India’s valuations
are a fall in the ERP reflected in a massive portfolio re-allocation by savers towards equity in the
wake of policy-induced reductions in the return on other assets.
!! But sustaining these valuations will require future growth in the economy and earnings in line with
current expectations, and require the portfolio re-allocation to be semi-permanent. Otherwise,

9. How policy decisions affect various groups differently?

List the affects.

!! Policy decisions affect various groups differently. As a guide to readers, the table below lists
below the preferences of different groups in relation to interest and exchange rates, as well as the
underlying reasons. For example, strong exchange rates may be preferred by companies that sell

32 www.iasscore.in
 Economic Survey 2017-18 &

non-tradeables and rely on imports for their inputs: the classic case here is power companies that
sell electricity to domestic distribution companies and import their capital equipment. Conversely,
services exporters such as IT companies will be keen on competitive exchange rates because they
sell mainly abroad, while importing very little. A strong exchange rate is preferred by those who
equate currency strength with broader national strength.

Group Preference Reasons

Manufacturers, services Low interest rates, Profits increase, even if some inputs are imported,
exporters, and farmers weak currency since market share grows. This applies both to
exporters (clothing) and firms producing for
domestic market but competing with imports (steel,
aluminium). Software exporters with high domestic
value added will favor weak rupee.
Exception: Import-intensive No strong Weaker rupee increases export revenues but
manufacturers preference increases import costs
Infrastructure companies Strong currency, low Strong currency reduces costs without affecting
(especially power and interest rates revenues, which are earned in rupees. Costs fall

renewables)
Households
Equity investors – Domestic
Equity investors – Foreign
Bond investors – Domestic
Bond investors – Foreign
S
RE
because firms typically import capital equipment,
financed with dollar loans. Low interest rates reduce
debt service burden on domestic loans.
High interest rates Returns on savings increase. Household saving far
outweighs household borrowing.
Low interest rate Corporate profits increase, so returns rise.
CO
Low interest rates, Combination boosts dollar returns. Tension: low
strong currency rates typically lead to weaker currency.
Falling interest rates Generates capital gains. Banks prefer low rates; other
investors (such as LIC) prefer high rates.
High but falling Combination maximizes dollar returns. Tension:
interest rates, strong falling rates weaken currency.

currency
Government Low interest rates Low rates reduce debt service. Extra growth or
inflation increases revenues.
GS

Non-economic actors Strong currency Strong currency equated with national economic
strength.

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 2
Chapter

Is there a “Late Converger Stall” in

Economic Development? Can India
Escape it?

Introduction
The first order fact about the developing world today is that this is an era of unprecedented
prosperity and that is true about India too.
A major driver of these good times is “economic convergence.” Poorer countries have grown
faster than richer countries and closed the gap in standards of living. The convergence process
has been broadening and accelerating for the last 20-30 years. However, while fears of a middle-

countries such as India.

RE
income trap are overblown, could there be a slowdown in this process for lower-middle-income

The possibility of such a “Late Converger Stall” arises because of four possible headwinds in the
post-Global Financial Crisis era. These headwinds include:
CO
 The backlash against globalization which reduces exporting opportunities,
 The difficulties of transferring resources from low productivity to higher productivity sectors
(structural transformation),
 The challenge of upgrading human capital to the demands of a technology-intensive workplace,
and
S

 Coping with climate change-induced agricultural stress.

India has so far defied these headwinds but can continue to do so only if the challenges are
decisively addressed.
GS

1. What do you understand by terms middle income

trap and convergence with a vengeance in Economic
Development?What are the factors for late convergence
stall? Describe that in Indian context.

Before going in to actual answer let us have a look on some facts.

 The global “bads” – war, violence, deprivation and poverty – are at unprecedentedly low
levels.
 The global “goods” – standards of living, access to essential services, and material well-being;
have improved at a historically unprecedented pace to reach levels never witnessed in humanity’s
history.
Economic convergence is the process of poorer countries “catching-up” with richer countries and
closing gaps in standards of living.

34 www.iasscore.in
 Economic Survey 2017-18 &

Since the mid-1980s, the process of catch-up has broadened, as the number of poor countries
growing faster than advanced economies has substantially increased. Furthermore, the rate of catch-
up has also accelerated. In other words, there has been “convergence with a vengeance”.
(After this brief introduction process is being described in details as below.)
!! Middle income trap and convergence with a vengeance
 India’s move up in the development is instructive to track. In 1960, India was a low- income
country with a per capita income of $1,033. This was equivalent to about 6 percent of U.S. per
capita income at that time.
 India attained lower middle-income status in 2008 and today has a per capita income of $6,538,
which is 12 percent of the U.S. If per capita income in India grows at 6.5 percent per year, India
would reach upper-middle income status by the mid-to-late 2020s.
 But, recently doubts about the convergence process have been articulated around the notion
of a “middle income trap.” There was a genuine low-income “trap.” For a long time, many poor
countries were not catching up at all; they were growing more slowly than richer countries,
(termed as “Divergence Big Time.”)

RE
 Middle income trap should, have connoted that middle income countries would grow more
slowly than what would be expected.
 The reasons for the trap.
!! On the one hand, as countries attained middle income status, they would be squeezed out
of manufacturing and other dynamic sectors by poorer, lower-cost competitors.
CO
!! On the other hand, they would lack the institutional, human, and technological capital to
carve out niches.
!! Thus, pushed from below and unable to grasp the top, they would find themselves doomed
to, well, middle- income status.
 The poorest have been growing faster than lower middle income countries, which have been
growing faster than upper middle income countries that in turn have been growing faster than
S

the richest.
The developing world continues to catch up, so rapidly that one could call the process
“convergence with a vengeance”.
GS

!! Factors for late convergence stall

1. Hyperglobalisation repudiation
!! Developing countries that came late to convergence now face a very different global trading
environment from their predecessors. Japan, South Korea and China were all able to post
average export growth rates of over 15 percent for the thirty years of their convergence
periods.
!! But this globalization has led to a backlash in advanced countries reflected in the decline
in world trade-GDP ratios since 2011.
!! To the early convergers, specifically the ability to export at double digit rates of growth for
three to four decades consistently may no longer be available.
!! Basic gravity theory implies that smaller countries tend to trade more than larger ones.
!! World is becoming more equal in the distribution of the underlying output. That is the
consequence of convergence. Therefore, if there is convergence, there will also be increased
trade.
2. Thwarted structural transformation: good growth and sustainable growth
!! Successful development requires two kinds of structural transformations:
A shift of resources from low productivity to high productivity sectors. and

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 A larger share of resources devoted to sectors that have the potential for rapid
productivity growth.
!! Manufacturing as a critically important sector for ensuring successful transformations. This
sector exhibits unconditional convergence toward the world frontier, so that it can become
an escalator for rapid growth.
!! Richer countries attained higher levels of peak manufacturing and earlier in the development
process.
3. Human capital regression
!! In early convergence, based on manufacture was the alignment of human capital
endowment (educated but relatively unskilled labour) with the sector associated with
structural transformation, namely manufacturing, that allowed for the percolation and
spread of dynamism to the rest of the economy.
!! Shifts in labor, the so-called Lewisian transformation from farm to factory, were possible
because of this co-incidence: growth and structural transformation based on comparative
advantage

RE
!! The late convergers convergence of automation and the globalization are doubly
challenged. Not only have they failed to provide even the basic education necessary
for some structural transformation, that failure will prove increasingly costly because the
human capital frontier for the new structural transformation has probably shifted further
away.
CO
!! Technology will increasingly favor skilled human capital, where the requisite skills will
include adaptability and the ability to learn continually. One might argue that growth itself
will be based less on comparative advantage and more on some absolute human capital
attainment.
4. Climate change-induced agricultural stress
S

!! There has been divergence big time on agricultural productivity.

!! Growth rates for richer countries have been consistently greater than for developing
countries.
GS

!! For the poorest, these growth rates have even declined post-GFC.
!! That Indian agriculture is vulnerable to temperature increase and still heavily dependent
on precipitation. The analysis shows that if climate change raises temperatures and the
variability of rainfall, farmer revenues could decline by up to 20 percent to 25 percent in
non- irrigated areas.
!! Agriculture could yet come back to haunt the structural transformation fortunes of the late
convergers.

Conclusion
Since 1980, India has been rapidly catching up, posting an average per capita GDP growth rate of
4.5 percent, which is in the top quartile of countries over that period, and amongst the highest for
continuous democracies.
But this fast growth has occurred with limited transfer of labour resources from low productivity to
high productivity and dynamic sectors, and despite relatively modest agricultural growth. The risk
for India–as for the other late convergers–is that resources (especially labour) will move from low
productivity, informal sectors to other sectors that are marginally less formal and only marginally
more productive. That is the “late Converger stall” that India must avoid.

36 www.iasscore.in
 Economic Survey 2017-18 &

The Learning Poverty Count (LPC) and Learning Poverty Gap

(LPG) in Rural Primary Education
Great strides have been made in India’s primary school enrollment, which is
now nearly universal for both boys and girls at elementary level. Yet, both cross-
country evidence and evidence from India suggests that educational outcomes are
incommensurate with years of schooling: learning lags attending, as it were.
The LPC simply measures the number of children, who do not meet the basic
learning benchmark.
LPG additionally takes into account how far each student is from the benchmark.
In other words, the LPG measures the gap between the basic learning benchmark
and the average scores of those students who did not meet the benchmark.

RE
S CO
GS

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 3
Chapter

Investment and Saving Slowdowns

and Recoveries: Cross-Country
Insights for India

Introduction
India’s unprecedented climb to historic high levels of investment and saving rates in the mid- 2000s
has been followed by a pronounced, albeit gradual, decline. This current episode of investment
and saving slowdown is still ongoing.
Some findings shows that, investment slowdowns have an impact on growth but not necessarily

RE
saving; recoveries from investment slowdowns (especially those associated with balance sheet
difficulties--as in India) tend to be slow. Notably, mean reversion or some degree of automatic
bounce-back is absent so that the deeper the slowdown, the slower and shallower the recovery.
The policy conclusion is urgent prioritization of investment revival to arrest more lasting growth
impacts, as the government has done with plans for resolution of bad debts and recapitalization
of public sector banks.
CO
Data related to Investment & Saving
 The ratio of gross fixed capital formation to GDP climbed from 26.5 per cent in 2003, reached
a peak of 35.6 per cent in 2007, and then slid back to 26.4 per cent in 2017.
 The ratio of domestic saving to GDP has registered 29.2 per cent in 2003 to a peak of 38.3 per
cent in 2007, before falling back to 29 per cent in 2016.
S

 Such sharp swings in investment and saving rates have never occurred in India’s history not
during the balance-of-payments crises of 1991 nor during the Asian Financial Crisis of the late
1990s.
GS

 The cumulative fall over 2007 and 2016 has been milder for investment than saving, but
investment has fallen to a lower level.

1. Which are as are responsible for the saving or

investment decline in India? What can be way forward,
for India’s investment and country’s prospects of
reverting to sustained high growth rates? Explain in
light of Economic Survey 2017-18.

!! Following areas can be held responsible for saving or investment decline in India.
 Essentially, private investment and household/government saving are sectors which can be
held responsible for saving or investment decline in India.
 Based on the break-up of investment and saving, that is available up to 2015-16, private
investment accounts for 5 percentage points out of the 6.3 percentage point overall investment
decline over 2007-08 and 2015-16.

38 www.iasscore.in
 Economic Survey 2017-18 &

 The fall in saving, by about 8 percentage points over the same period, has been driven almost
equally by a fall in household and public saving.
 The fall in household saving has in turn been driven by a fall in physical saving, partly offset by
an increase in the holding of financial assets.
 Within the latter, there has been a shift from currency and bank deposits towards market
instruments, viz. shares and debentures.

Change in Investment Change in Saving

2004-05 to 2007-08 to 2004-05 to 2007-08 to
2007-08 2015-16 2007-08 2015-16
Total 9.1 -6.3 9.1 -7.7
Public 1.4 -1.3 3.9 -4.0
Private 7.6 -5.0 5.2 -3.8
Private corporate 8.9 -4.4 5.2 1.4
Household -1.3 -0.6 0.0 -5.2

RE
!! Way forward, for India’s investment and country’s prospects of reverting to sustained
high growth rates.
CO
 We can take cue from saving and investment slowdown episodes witnessed over the past 40
years in other countries.
 Hausmann, Rodrik, and Pritchett studied finds growth accelerations. Their results, among other
things, indicate that standard determinants of economic growth (viz. greater investment,
exports and a more competitive exchange rate) partly explain such accelerations.
S

 Rodrik (2000) examined cases in which countries underwent sustained saving transitions,
analyzing the relationship among saving, investment and growth during those periods.
 The way forward is that economic growth is aided by creating incentives for investment (rather
GS

than saving) and production.

2. Identify the issues in Investment & Saving Slowdowns

in India. What are saving versus investment related
growth consequences in India? How to resolve these
issues? Explain in light of issues of Investment and
saving slowdowns.

Understanding slowdown episode –

!! Investment and saving slowdowns can be understood using a specific set of conditions.
 First, a “shortfall” is defined as the difference between:
(a) The average of investment (saving) in the slowdown year and subsequent two years;
and
(b) The average of the previous five years.

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  Then, a “slowdown year” is defined as one where the shortfall in that year exceeds a certain
threshold. If there are two or more consecutive slowdown years, this counts as a “slowdown
episode”.
 Second: The average investment rate for the 5 years prior to the slowdown year is at least 15
percent of GDP.
!! Issues in Investment and Saving Slowdowns
 The thresholds considered are of 2, 3 and 4 percentage points. Lower the threshold, the greater
the risk of capturing episodes of temporary volatility rather than more enduring slowdowns.
But because India’s current investment (saving) slowdown has been so gradual it is best
captured in the 2 per cent threshold. Moreover, in most cases, the results for the 3 and 4 per
cent thresholds also hold for the 2 per cent case. (The effective span over which slowdowns
are captured is 1975 to 2014, with a sample of 55 countries).
 Studies reveals that investment episodes are more frequent than saving episodes, while
common episodes (where both investment and saving slow) are relatively unusual. This pattern,
however, has reversed after 2008, with saving episodes catching-up with investment

RE
episodes.
 Investment and saving slowdowns tend to be similar in duration. However, investment
slowdowns are greater in magnitude. Magnitudes are the shortfalls (as defined above),
cumulated over the entire slowdown episode. (Duration is a simple count of the number of
years that the shortfall in investment/saving exceeds the various thresholds).
CO
 There are notable differences between investment and saving slowdowns. Investment is more
prone to extreme events: there are 4 cases where the cumulative investment slowdown
exceeded 50 percentage points, whereas there are hardly any cases of saving slowdowns of
this magnitude. On the other hand, large saving slowdown episodes measuring between 30
and 50 percentage points tend to drag on for a year more on average than similarly-large
investment slowdowns.
S

!! International Experience in Slowdowns.

 Mauritius – along with Tunisia and Egypt – has experienced no less than 4 investment
GS

slowdowns over the past 40 years in the 2 percent threshold.

 Only Bangladesh in sample countries, since the early 1980s that has not suffered from any
slowdown.
 Most slowdowns in Latin America and Africa occurred during the 1980s, a period that became
known as the ‘lost decade’ in those continents.
 The investment and saving slowdown in Mexico following the debt crisis of 1982 is captured
in period is known as the East Asian crisis—though the phenomenon extended to countries
as far away as Turkey and Argentina.
 These economies are in the era of saving slowdowns, with the percentage of such countries at
its peak. The fraction of countries with investment slowdowns has also increased, though to a
limited extent. Curiously, this relationship between the two types of slowdown turns out to be
unusual from 1975 to 2007.
 Brazilian economy manifests as investment and saving slowdowns from the early 1980s to the
early 1990s.
!! How does India fit into this broader picture?
 Until recently, India had not experienced either type of slowdown. As a result, the current
slowdown – in which both investment and saving have slumped – is the first in India’s history.

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 Economic Survey 2017-18 &

 Because the investment decline has been so gradual, the magnitude of the shortfall so far is
relatively less severe – it remains a moderate 21 percentage points, well under the average
magnitude.
 India’s current investment/saving slowdown episode have been lengthy compared to other
cases – and it may not be over yet.
!! Saving versus Investment: Growth consequences
 The simultaneous slump in saving and investment gives rise to a question. Should policies that
boost investment be given greater priority over those that boost saving?
 The standard solution that is often prescribed is that both problems need to be tackled
simultaneously.
 Countries that experience growth transitions eventually see sustained higher rates of saving.
There is primacy to the role of investment over saving (profits).
 In India, relationship is significantly positive for investment episodes, but insignificant for saving.
 A one percentage point fall in investment rate is expected to dent growth by 0.4-0.7

RE
percentage points.
!! Solutions to get recover from ‘INDIA-TYPE’ Investment Slowdown.
 India’s investment slowdown is unusual in that it is so far relatively moderate in magnitude,
long in duration, and started from a relatively high peak rate of 36 percent of GDP.
CO
 It has a specific nature, in that it is a balance sheet-related slowdown. Many companies have
had to curtail their investments because their finances are stressed, as the investments they
undertook during the boom have not generated enough revenues to allow them to service the
debts that they have incurred.
 What tends to happen to investment rates in the aftermath of ‘balance sheet’ episodes?
Episodes of crises and balance sheet effects in emerging economies. India is now 11 years past
S

its investment peak, investment rates are measured as deviations from peak levels for years 11,
14, and 17 after the peak dates.
GS

 Investment declines flowing from balance sheet problems are much more difficult to reverse.
In these cases, investment remains highly depressed, even 17 years after the peak, whereas in
case of non-balance-sheet slowdowns the shortfall is smaller and tends to reverse.
 India’s investment decline so far (8.5 percentage points) has been unusually large when
compared to other balance sheet cases.
 Accordingly, the experience of countries with similar investment declines is examined.
Specifically, cases in which the rate of investment has fallen by at least 8.5 percentage points
from its peak over a 9 year period are considered. The questions then asked is: what is the
investment rate 11, 14 and 17 years after the peak?
 The median country reverses only about 25 percent of the decline 14 years after the peak, and
about 40 percent of the decline 17 years after the peak. If India conforms to this pattern, the
investment-GDP ratio would improve by 2.5 percentage points in the short run. Of course, this
is the median: if India situates itself in the upper quartile, it can recover by more than 4
percentage points. But India is already 11 years past the peak, and its current performance
puts it below the upper quartile
 Between 2007 and 2016, rate of real per-capita GDP growth has fallen by about 2.3 percentage
points—that is lower than the above 3 percent decline in growth noticed, on average, in
episodes in other countries that have registered investment declines of similar magnitudes and
from roughly a similar peak (about 36 percent).

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 Conclusion
It is clear that investment slowdowns are more detrimental to growth than saving slowdowns.
So, policy priorities over the short-run must focus on reviving investment. Mobilizing saving, for
example via attempts to unearth black money and encouraging the conversion of gold into financial
saving or even courting foreign saving are, to paraphrase John Maynard Keynes, important but
perhaps not as urgent as reviving investment.
India’s investment slowdown is not yet over although it has unfolded much more gradually than
in other countries, keeping the cumulative magnitude of the loss – and the impact on growth – at
moderate levels so far.
But this leads to the third question: how will the investment slowdown reverse, so that India can
regain 8-10 per cent growth? There is both a bleak and a hopeful pointer from similar episodes
in other countries. India’s investment decline seems particularly difficult to reverse, partly because
it stems from balance sheet stress and partly because it has been usually large.
Taken together, the results suggest policy agenda which the government has launched; first with

RE
the since 2015-16; and now, given the constraints on public investment with policies to decisively
resolve the TBS (Twin Balance Sheet) challenge.
In addition, creating a conducive environment for small and medium industries to prosper and
invest will help revive private investment. The focus of investment-incentivizing policies has to be
on the big and small alike.
S CO
GS

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4 Economic Survey 2017-18 &

Reconciling Fiscal Federalism

and Accountability: Is there a Low
Equilibrium Trap

Introduction
Long-run institutional development co-evolves with fiscal accountability involving, perhaps
requiring, a low and declining dependence on devolved resources and a high and rising share of
direct taxes in total taxes.
India’s second and third tiers of government tend to under-perform relative to these standards.

RE
The extent of tax and functional devolution to these tiers is one possible explanation.
However, one key finding is that these tiers under-collect direct taxes even relative to the powers
that they have. Whether this could lead to a low equilibrium trap of weak direct tax collection
leading to inadequate service delivery provision, back to weak collection and accountability, needs
to be actively discussed.
CO
1. “Taxation is not just a vehicle for raising state revenue.
It can also be critically important for economic and
S

political development”. Elucidate.

GS

There is a social contract between citizens and the state.

The state’s role is to create the conditions for prosperity for all by providing essential services and
protecting the less well-off via redistribution. The citizen’s part of the contract is to hold the state
accountable when it fails to honor that contract.
But a citizen’s stake in exercising accountability diminishes if he does not pay in a visible and direct
way for the services the state commits to provide.
 If a citizen does not pay, he becomes a free rider (using the service without paying), and cannot
complain if the state provides a poor quality service.
 If he exits (not using the service at all), he loses interest in holding the state accountable. Only
if he pays and uses the service will he try to hold the state accountable.
 “Taxation is the economic glue that binds citizens to the state in a necessary two-way
relationship”
 But does this glue rely on taxation broadly or on direct taxation in particular?
 It seems that a citizen’s stake would be greater the more it “hurts” to pay taxes, taxes feel
more like expropriation because they reduce citizens’ disposable income, the earnings that
they get to keep.

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  With indirect taxes, citizens are burdened but that sense is leavened to the extent that citizens
feel they are exercising choice.
!! Taxation critical for development at General Government level.
 Economic and political development has been associated with a rising share of direct taxes in
total taxes.
 Advanced countries collect a substantially higher proportion of their taxes as direct taxes than
emerging markets do.
 India has the lowest share of direct taxes in total taxes.
 India’s reliance on direct taxes seems to be declining, a trend that will be intensified if the
Goods and Services Tax (GST) proves to be a buoyant source of revenue.
!! Direct taxation and development: Sub-federal levels
 Fiscal decentralization is often embraced as not just a desirable economic but also as a political
and philosophical principle, as Tagore envisaged.
 Spending and tax decisions must reflect local preferences as far as possible.

resources.

RE
 Finance Commission has opinion that resources are NOT ‘devolved’ resources but ‘shared‘

 GST provides a sharp contrast in that it is clearly more “shared” because decisions and tax
administration are done by both.
O
 India’s rural local governments (RLGs) reliance on own resources is just 6 percent compared to
40 percent for third-tier governments in Brazil and Germany.
 Panchayats raise about 4 percent of their overall resource envelope in the form of direct taxes,
SC

compared with about 19 and 26 percent in Brazil and Germany respectively.

 India’s urban local governments (ULGs) are much closer to international norms. Their own
revenues as a share of total revenues are actually higher than Brazil and Germany, while their
direct tax share (about 18 percent of total revenues) is only marginally lower than Brazil (19
percent).
GS

 ULGs have emerged more fiscally empowered than RLGs in India.

2. Is the current system of revenue generation with respect to

local governance in India is appropriate, and if not, can it
be changed? What do you understand by low equilibrium
trap, how to resolve it? Elaborate your answer in light of
facts given in Economic Survey 2017-18.

!! Some facts about local governments.

 73rd Amendment to the Constitution (1992) recognized Panchayats as institutions of self-
government. The simultaneous 74th Amendment bestowed the same status on urban local
governments.
 Constitution listed 29 matters which could be the focus of their governance, such as agriculture
and land reforms, minor irrigation, small scale industries, rural communication, drinking water,
poverty alleviation programme.

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 Economic Survey 2017-18 &

 RLGs or Panchayats were mandated to have three tiers (at the district, intermediate and village
levels) in states with population of over 20 lakh.
!! Expenditure patterns of different tiers of government
 The central and state governments spend on an average 15-20 times more per capita than do
RLGs. ULGs spend about 3 times more. More importantly, this gap has persisted over time
despite per capita spending by RLGs increasing almost four-fold since 2010-11.
Per capita Expenditure at Central, State and RLG levels (In rupees)

2500
0

20,84
2000 0
0

1500 15,50
0 7

1000

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0
5,76 5,61 5,99
7 2 8
500
0

99
0 9
2010- 2011-12 2012-13 2013-14 2014-15 2015-
11 16
2016-17
O
 ULGs seem to be doing much better in terms of own revenue generation. They generate about
44 per cent of their total revenue from own sources.
SC
 RLGs, rely overwhelmingly (about 95 per cent) on devolution.
 Per capita own revenue collected by ULGs is about 3 per cent of the urban per capita income
while the corresponding figure is only 0.1 per cent for RLGs.
 In many states, RLGs and ULGs have not been devolved enough taxation powers. Successive
Devolution Reports of the Ministryof Panchayati Raj (MoPR) show that the share of revenues
GS

assigned to local governments in many states are much less vis-à-vis expenditure assignments.
(However, it is seems that several states-notably Kerala, Maharashtra, Karnataka, Gujarat and
West Bengal are consistently improving on this front).
!! How it can be improved
 States supposed to constitute a quinquennial State Finance Commission (SFC) to determine
the share of their financial resources going to the local tiers, analogous to the Finance
Commissions at the union level.
 ULGs and RLGs were mandated to prepare and implement plan(s) for economic development
and social justice. Over the past two decades, local governments have gained prominence as
institutions with substantial ‘say’ in grassroots development issues, albeit with significant
spatial variations, and spaces of intense political contestability. However, the tied nature of a
considerable part of resource flow constrains spending autonomy in RLGs.
!! A Low Equilibrium Trap
 State and local governments in India rely much more on devolved resources and much less on
their own tax resources and they collect less direct taxes. And the reason does not seem to be
so much that they don’t have enough taxation power. Rather, the bigger problem is that they
are not fully utilizing the taxation powers they already possess.
 There is little reason to collect more taxes if they cannot be spent efficiently.

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  Equilibrium desired by all actors with higher tiers (both Centre and states) using their devolution
powers to control and influence lower levels; and the latter, unable and unwilling to tax their
proximate citizens, need outside resources even if they are not always untied. But this is a low-
equilibrium, perhaps even a trap.
!! Resolution of Low Equilibrium Trap
 For unless the underlying problems are identified and solved, local governments could remain
stuck in a low equilibrium trap. That is, the fiscal model of the states and third tier institutions
could forever be based on outside resources (like foreign aid and natural resources or other
forms of redistributive resource transfers).
 In the context of growing decentralization of economic and political power, how to break this
equilibrium could well be one of the more pressing issues confronting fiscal federalism going
forward.
 Breaking self-reinforcing cycle of inadequate delivery low direct taxes, -weak accountability-
inadequate delivery is the heart of the governance challenge in India. Govenment should work
for removal of the above said issues.

Conclusion
RE
The 73rd and 74th amendments to the Constitution in the early 1990s were watershed developments
in India’s federal structure, its governance and accountability. But twenty years on, it is necessary
CO
to realistically evaluate their performance.
S
GS

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3. RE
Economic
CO

Sectors
S
GS

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Chapter
1
ECONOMIC SECTORS

AGRICULTURE SECTOR
Introduction
 Agriculture and allied sector has a critical role in ensuring food security, reducing poverty and
sustaining growth in India.
 To improve productivity in agriculture the focus has been on the critical inputs like irrigation,
seeds, fertilisers and mechanization.

RE
 The dynamics of agricultural growth reflect a reduction in the share of crop sector and an
increase in the share of agricultural sub-sectors. As agriculture entails risks related to production,
weather, prices and policy, capitalizing the structural changes in the agriculture sector by
diversifying income generating activities can mitigate the risks and sustain growth of the
economy.
O
Data Related to Agriculture

 Growth Rate- The growth rates of agriculture & allied sectors have been fluctuating at 1.5 per
SC

cent in 2012-13, 5.6 per cent in 2013-14, (-) 0.2 per cent in 2014-15, 0.7 per cent in 2015-16 and
4.9 per cent in 2016-17.
 Gross Capital Formation in Agriculture and Allied Sector - The Gross Capital Formation in
agriculture and allied sectors as a proportion to the total GCF showed a decline from 8.3 per
cent in 2014-2015 to 7.8 per cent in 2015-16.This decline can be attributed to reduction in
private investment.
GS

 Production of Crops 2016-17- India achieved a record production of food grains estimated
at 275.7 million tonnes.
 The production of rice is estimated at 110.2 milliontonnes. Production of wheat, estimated at
98.4 million tonnes. Production of pulses which is estimated at 23.0 million tonnes. This increase
in production of food grains and other crops is mainly on account of very good rainfall during
monsoon 2016-17 and various policy initiatives taken up by the Government.

1. ‘Structural changes and changing cropping pattern

that are being witnessed by the agriculture sector in
India ecessitate re-orientation in policies towards this
sector with gender-specific interventions’. Discuss.

In recent past India is witnessing gradual structural changes in agriculture sector. Changing cropping
pattern had put focus on special need of this sector. With growing rural to urban migration by
men, there is ‘feminisation’ of agriculture sector. This necessitates government to re-orient policies

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towards this sector with gender-specific interventions. Hence discussing the structural changes seen
and steps taken for that.
!! The structural changes witness by Agriculture sector.
 The agricultural growth in India has been fluctuating since more than 50 per cent of agriculture
in India is rainfall dependent. Share of crops had declined from 65% to 60 %.
 This sector has been witnessing following a gradual structural change in recent years.
 The share of livestock in GVA in agriculture has been rising gradually.
 In 2002-03 the share of livestock in total farm incomes was just 4 per cent which increased to
13 per cent by 2012-13.
 India is the largest producer of milk in world. Several measures have been initiated by the
Government to increase the productivity of livestock, which has resulted in increasing the milk
production significantly.
 The poultry production in India has taken a quantum leap in the last four decades, emerging
from an unscientific farming practice to commercial production system with state-of-the-art

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technological interventions. The total poultry population in our country is 729.21 million (as per
19th Livestock Census) and egg production is around 82.93 billion during 2015-16.
 India is the second largest producer of fish and also the second largest producer of fresh water
fish in the world.
These are the structural changes India is witnessing in recent past. So that policy makers should focus
O
on increasing share of crop in GVA along with necessary interventions for Allied sector.
!! Gender-specific interventions - Policy for Women Farmers.
 Women play a significant and crucial role in agricultural development and allied fields including
SC
in the main crop production, livestock production, horticulture, post-harvest operations, agro/
social forestry, fisheries, etc.
 For sustainable development of the agriculture and rural economy, the contribution of women
to agriculture and food production cannot be ignored. As per Census 2011, out of total female
main workers, 55 per cent were agricultural laborers and 24 per cent were cultivators.
GS

 However, only 12.8 per cent of the operational holdings were owned by women, which reflect
the gender disparity in ownership of landholdings in agriculture Moreover, there is
concentration of operational holdings (25.7 per cent) by women in the marginal and small
holdings categories.
 With growing rural to urban migration by men, there is ‘feminisation’ of agriculture sector, with
increasing number of women in multiple roles as cultivators, entrepreneurs, and laborers.
 Rural women are responsible for the integrated management and use of diverse natural
resources to meet the daily household needs.
 This requires that women farmers should have enhanced access to resources like land, water,
credit, technology and training which warrants critical analysis in the context of India. In
addition, the entitlements of women farmers will be the key to improve agriculture productivity.
The differential access of women to resources like land, credit, water, seeds and markets needs
to be addressed.
The following measures need to be or taken to ensure mainstreaming of women in agriculture
sector:
1. Earmarking at least 30 per cent of the budget allocation for women beneficiaries in all ongoing
schemes/programmes and development activities.
2. Initiating women centric activities to ensure benefits of various beneficiary-oriented programs/
schemes reach them.

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 3. Focusing on women self-help group (SHG) to connect them to micro-credit through capacity
building activities and to provide information and ensuring their representation in different
decision-making bodies.
4. Recognizing the critical role of women in agriculture, the Ministry of Agriculture and Farmers
Welfare has declared 15th October of every year as Women Farmer’s Day.
With women predominant at all levels- production, pre-harvest, post-harvest processing, packaging,
marketing- of theagricultural value chain, to increase productivity in agriculture, it is imperative to
adopt gender specific interventions. And ‘inclusive transformative agricultural policy’ should aim
at gender-specific interventions to raise productivity of small farmholdings, integrate women as
active agents in rural transformation, and engage men and women in extension services with gender
expertise.
!! Cropping pattern in Indian agriculture
 India ranks first, with 179.8 MHA (9.6 percent of the global net cropland area) of net cropland
area according to United States Geological Survey 2017.
 The pattern of cropping is determined by various factors like agro-climatic conditions, farm
size, prices, profitability and government policies.

shocks and production/ harvest losses.

RE
 A diversified cropping pattern will help in mitigating the risks faced by farmers in terms of price

 The Index of Crop Diversification has been computed for major States and All India to examine
whether there have been major changes in the cropping patterns across States. The index value
CO
ranges between 0 and 1 and higher the value, greater the diversification.
 There is a declining inter-temporal behaviour in crop diversification for the States like
Chhattisgarh, Haryana, Madhya Pradesh, Odisha, Punjab and Uttar Pradesh. Among these
States, the decline in the index has been sharp for Odisha.
 Two of the States Himachal Pradesh and Jharkhand have shown increasing values in crop
diversification.
S

 Crop diversification needs to be encouraged to improve soil health, productivity and thereby
profitability of cultivation. There is a need to diversify into high value crops and horticulture
crops for which Government has taken several measures.
GS

Conclusion

The agriculture sector in India is experiencing structural changes which are opening up
new challenges and opportunities. The central priority of the government will be to provide
opportunities for farmers to diversify their income generating opportunities to reduce the various
risks by facilitating the development of agricultural sub-sectors like livestock and fisheries.

2. What are the critical inputs required to enhance

agriculture productivity and how can they be managed?
Do you think education is one of them? Elaborate your
answer by giving substantial data.

Agricultural productivity is determined by the appropriate use of critical inputs like irrigation,
seeds, fertilisers, credit, machines, and technology and extension services. Managing the inputs

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in appropriate combinations for specific crops can improve the productivity in agriculture without
losing soil fertility and causing environmental damages. These critical inputs and there management
have been discussed below:
1. Irrigation
 The all India percentage of net irrigated area to total cropped area was 34.5 per cent, which
makes a large segment of cultivation dependent on rainfall.
 There is tremendous potential to increase the coverage of irrigated area for which the
Government has launched the Prime Minister’s Krishi Sinchayee Yojana (PMKSY) in 2015.
2. Seeds, fertilisers
 As reported in Input Survey, out of total operational holding only 9.4 per cent used certified
seeds while 27 per cent used seeds of notified variety and only 9.8 per cent used hybrid
seeds.
 Small and marginal farmers use these inputs, with more than 80 per cent of agricultural
holdings in the marginal size category using organic manure which increases soil fertility.

RE
 During 2016-17, total breeder seed production in field crops has been 1.2 lack quintals. In
order to promote Seed Replacement Rate (SRR) and Varietal Replacement Rate (VRR), Seed
Project entitled, “Seed Production in Agricultural Crops” is being implemented.
 However, the use of fertilizers and hybrid seeds can bring about better yields if there is adequate
coverage of irrigation since agriculture in India is largely rainfed.
CO
3. Agricultural Mechanization
 According to the World Bank estimates percentage of agricultural workers of total work force
would drop to 25.7 per cent by 2050 from 58.2 per cent in 2001. Thus, there is a need to
enhance the level of farm mechanization in the country.
 Farm mechanization and crop productivity has a direct correlation as farm mechanization saves
S

time and labour, reduces drudgery, cut down production cost in the long run, reduces post-
harvest losses and boosts crop output and farm income. Use of improved implements has
potential to increase productivity up to 30 per cent and reduce the cost of cultivation up to 20
per cent.
GS

 Small farm holdings pose difficulties in mechanization. There is predominance of small

operational holdings in Indian agriculture. It is,therefore, needed to consolidate the land
holdings to reap the benefits of agricultural mechanization.
 There is a need to innovate custom service or a rental model by institutionalization for high
cost farm machinery such as combine harvester, sugarcane harvester, potato combine, paddy
transplanter, laser guided land leveller, rotavator etc. to reduce the cost of operation and it
canbe adopted by private players or State or Central Organizations in major production hubs.
4. Crop insurance
 The NSSO Report (July 2012 – June 2013) had indicated that a very small share of agricultural
households engaged in crop production activities was insuring their crops.
 In respect of wheat and paddy, the two most harvested cereals in the country, less than 5
percent of the cultivating agricultural households insured their crops.
 Reasons for not insuring: Not aware about crop insurance; Not aware about availability of
facility, Not interested/not felt the need to insure; Insurance facility not available; Lack of
resources for premium payment; Complex procedures; Delay in claim payment.
 Pradhan Mantri Fasal Bima Yojana (PMFBY), which is a yield index based crop insurance scheme
launched in 2016, has made substantial progress with more ground coverage compared to
erstwhile schemes.

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  During 2016-17, the target of 30 percent of the Gross Cropped Area (GCA) in the country for
PMFBY has been achieved.
5. Agricultural credit and marketing initiatives
 Credit is a critical input in achieving high productivity and overall production in the agricultural
sector. A sum of Rs.20,339 crore has been approved by the Government of India in 2017-18 to
meet various obligations arising from interest subvention being provided to the farmers on
short term crop loans, as also loans on post-harvest storages meets an important input
requirement of the farmers in the country especially small and marginal farmers who are the
major borrowers.
 This institutional credit will help in delinking the farmers from non-institutional sources of
credit, where they are compelled to borrow at usurious rates of interest. Since the crop insurance
under Pradhan Mantri Fasal Bima Yojana (PMFBY) is linked to availing of crop loans, the farmers
would stand to benefit from both farmer oriented initiatives of the Government, by accessing
the crop loans.
 The electronic National Agriculture Market (e-NAM) that was launched by Government on

RE
April, 2016 aims at integrating the dispersed APMCs through an electronic platform and enable
price discovery in a competitive manner, to the advantage of the farmers.
6. Agriculture research
 Agricultural R&D is the main source of innovation, which is needed to sustain agricultural
productivity growth in the long-term.
CO
 The actual expenditure of in agriculture research has increased. The compound annual growth
rate of expenditure has been 4.2 percent over the years and in recent years’ expenditure has
been on higher side.
7. Education
 Even education can be considered as critical input for development of agriculture. As educational
S

level of farmers has a significant impact on the capacity of farmers to adopt and inculcate new
methods of cultivation and input management.
 As per Input Survey 2011-12 there are only 1.3 per cent technical diploma holders below
GS

degree level and 2.1 per cent graduates and above are operational holders.
 30 per cent among marginal and small farmers were illiterate.

Conclusion

The agriculture sector in India is experiencing structural changes which are opening up new challenges
and opportunities. The transformation of agriculture and allied sector is imminent by way of appropriate
policy interventions related to prices, trade, adoption of Climate Smart Agriculture, increased focus on
small, marginal and women farmers. Though the share of agriculture and allied sectorin GVA is on the
decline, in the quest for inclusive economic development in India, agriculture sector will remain an
engine of broad based growth which will reduce inequalities and provide food security.

Policy to Promote Climate Smart Agriculture (CSA)

Climate change incidence on agriculture can be in the form of increased variability in

temperature and rainfall and intensity of extreme weather events like drought and food
ultimately creating disturbance to agro-ecosystems,thereby impacting farmers and farming

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community. This necessitates the need to address adaptation and rural development in an
integrate dmanner, so as to achieve climate resilient development. It is in this context that
there is emergence of the concept and significance of ‘Climate Smart Agriculture (CSA).
Climate Smart Agriculture (CSA) is an approach that helps to guide actions needed to
transform and reorient agricultural systems to effectively support development and ensure
food security in a changing climate.
CSA aims to tackle three main objectives: sustainably increasing agricultural
productivity and incomes; adapting and building resilience to climate change and reducing
and/or removing greenhouse gas emissions wherever possible.
CSA is an approach for developing agricultural strategies to secure sustainable food security
under climate change. CSA provides the means to help stakeholders identify agricultural
strategies suitable to their local conditions.

RE
Industry and Infrastructure
Industry
CO
Promoting inclusive employment-intensive industry and building resilient infrastructure are vital
factors for economic growth and development. Apart from structural reforms like Goods and
Services Tax, Insolvency and Bankruptcy Code and measures to facilitate Ease of Doing Business,
the Government has initiated sector specific reforms in Steel, Apparel, Leather and Power sectors to
address specific challenges associated with each of these sectors.
There has been considerable progress in Roads, Railways, Metro Rail, Shipping, Civil Aviation, Power
S

and Logistics Infrastructure Sectors that is expected to step up the growth momentum in the short
term.
GS

Data Related to Industry

 India has leapt 30 ranks over its previous rank of 130 in the World Bank’s latest Doing
Business Report 2018.
 Index of Industrial Production (IIP): The Index of Industrial Production (IIP) is another
measure of industrial performance, released by Central Statistics Office (CSO). CSO revised the
base year of IIP in May, 2017 from 2004-05 to 2011-12. The latest series with base year 2011-12
is more representative of the current structure of the industrial sector.
 IIP registered a 25 month high growth of 8.4 per cent with Manufacturing growing at 10.2
per cent in November 2017.
 Eight Core Industries: The Index of Eight Core Industries measures the performance of eight
core industries i.e. Coal, Crude Oil, Natural Gas, Petroleum Refinery Products, Fertilizers, Steel,
Cement and Electricity. In line with the base year change in IIP, Department of Industrial Policy
and Promotion, revised the base year of Index of Eight Core Industries from 2004-05 to 2011-
12. The industries included in the eight core industries comprise about 40 per cent weight in
the IIP.
 Foreign Direct Investment: FDI policy reforms announced in 2016 brought most of the sectors
under automatic approval route, except a small negative list. Total FDI inflow grew by 8 per
cent i.e. US$ 60.08 billion in 2016-17 in comparison to US$ 55.56 billion of the previous year.

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 3. What are the key initiatives taken by government to
boost industrial performance in recent years? Specify
sector wise issues and initiatives.

Key initiatives in industrial sector are:

1. Make In India:
!! The ‘Make in India’ programme was launched on 25th September 2014 which aims at
making India a global hub for manufacturing, research & innovation and integral part of
the global supply chain.
!! The Government has identified ten ‘Champions sectors’ that have potential to become
global champion, drive double digit growth in manufacturing and generate significant
employment opportunities.

RE
!! Make in India version 2.0 focuses on including Capital goods, Auto and Auto Components,
Defence & Aerospace, Biotechnology, Pharmaceuticals and Medical Devices, Chemicals,
Electronic System Design & Manufacturing (ESDM), Leather & Footwear, Textiles &
Apparels, Food Processing, Gems & Jewellery, New & Renewable Energy, Construction,
CO
Shipping and Railways.
2. Intellectual Property Rights (IPR) Policy
!! National Intellectual Industry and Infrastructure property Rights (IPR) policy to lay future
roadmap for intellectual property. This aims to improve Indian intellectual property
ecosystem, hopes to create an innovation movement in the country and aspires towards
S

“Creative India; Innovative India”.

!! Subsequent to the approval of this policy and creation of Cell for Intellectual Property
Rights Promotion and Management (CIPAM), there has been a substantial improvement
GS

in the IPR and Patent handling matters.

3. Start-up India
!! The initiative aims to create an ecosystem that is conducive to growth of Startups. Government
has acknowledged the need to reduce the regulatory burden on Startups and have allowed
them to self-certify compliance under 3 labour laws and 6 environment laws.
!! Startup India hub has been developed as a single point of contact for the entire Startup
ecosystem and enables knowledge exchange along with access to funding.
!! In order to provide support, a Fund of Funds for startups (FFS) with a corpus of Rs.10,000
crores has been created and is being managed by SIDBI.
!! With an aim to foster and facilitate Bio-entrepreneurship, Bio-clusters, Bio Incubators,
Technology Transfer Offices (TTOs) and Bio-Connect, offices are being established in
research institutes and universities across India. Seed Fund and Equity Funding support
is also provided to bio-tech Startups under the initiative.

SECTOR WISE ISSUES AND INITIATIVES

 Steel Sector
!! In the backdrop of a slowing world economy and over capacity in production of steel, India
witnessed rising imports of cheap steel from countries like China, South Korea and Ukraine
into Indian markets at low prices since early 2014-15.

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!! This dumping of cheaper steel imports adversely affected domestic producers. In order
to address this, apart from raising customs duty and imposition of anti-dumping duty,
Minimum Import Price (MIP) on a number of items was introduced in February 2016 with
a sunset clause of one year. These measures helped the domestic producers and exports
recovered since February 2016 until March 2017.
 MSME Sector
!! The share of MSME Sector in the country’s Gross Value Added (GVA) is approximately 32 per
cent. MSMEs in India play a crucial role in providing large scale employment opportunities
at comparatively lower capital cost than large industries and also in industrialization of
rural & backward areas. As per the National Sample Survey (NSS) 73rd round, for the
period 2015-16, there are 633.8 lakh unincorporated non-agriculture MSMEs in the country
engaged in different economic activities providing employment to 11.10 crore workers.
!! The MSME sector faces a major problem in terms of getting adequate credit for expansion of
business activities. The MSME received only 17.4 per cent of the total credit outstanding.
The major schemes implemented for the development of MSME sector are as follows:

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(a) P
rime Minister’s Employment Generation Programme (PMEGP) is aimed at
generating self-employment opportunities through establishment of micro-enterprises
in the non-farm sector by helping traditional artisans and unemployed youth.
(b) Credit Guarantee Scheme for Micro and Small Enterprises covers collateral free credit
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facility (term loan and/or working capital) extended by eligible lending institutions
including Non-Banking Financial Company (NBFC) to new and existing micro and
small enterprises up to Rs. 200 lakh per borrowing unit.
(c) Credit Linked Capital Subsidy Scheme (CLCSS) aims at facilitating technology
upgradation of the MSME sector.
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(d) The Government has also initiated the Pradhan Mantri Mudra Yojana for development
and refinancing activities relating to micro industrial units. The purpose of Micro
Units Development and Refinance Agency (MUDRA) is to provide funding tothe non-
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corporate small business sector. The Government has also set up the MUDRA Bank.
5. Textiles and Apparels
!! The Textiles and Apparels sector has tremendous potential for growth in exports
and employment, particularly, women’s employment. The sector witnesses a historic
opportunity with China losing market share in clothing exports due to rising labour costs.
However, India has not been able to leverage this opportunity due to India’s competitors
(i.e. Bangladesh, Vietnam, Ethiopia) having duty free access to markets of EU and USA; high
domestic taxes on manmade fabrics vis a vis cotton fabrics; stringent labour laws; and high
logistics cost.
!! To address some of these constraints, the Cabinet announced a Rs. 6000 crore package
for the apparel sector.
!! The Government has in December 2017 approved the Scheme for Capacity Building in
Textile Sector (SCBTS). The scheme will be applicable from 2017-2018 to 2019-2020 with
an outlay of Rs. 1,300 crore.
6. Leather sector
!! The global demand for footwear is moving towards non leather footwear, while Indian
tax policies favour leather footwear production. India also faces high customs tariffs in a
number of developed country markets of leather goods and non-leather footwear.

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 !! A scheme for promotion of employment in the leather & footwear sector has been recently
approved similar to that of the textile sector, with an outlay of Rs.2600 crore over three
financial years 2017-18 to 2019-2020.
7. Gems and Jewellery
!! India is one of the largest exporters of gems and jewellery. The industry is found to play a
vital role in the contribution to total foreign reserves of the country. It is one of the fastest
growing sectors and is export oriented and labour intensive. As per the 68th round of NSSO
Survey, the sector employed 20.8 lakh persons in 2011-12.
!! In view of the tremendous scope in gems and jewellery sector, following programs may be
taken up for promoting employment.
Public Private Partnership models could be explored for training in jewellery designing.
The jewellery training institutes may be affiliated with the Gems and Jewellery Sector Skill
Council.
Setting up infrastructure such as refineries, hallmarking centers etc., to promote jewellery
manufacturing in rural areas.

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Creation of multiple jewellery parks (accommodating manufacturers, shared services,
testing, banking, and logistic support) so as to promote production in a more organized
environment.
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Infrastructure
DATA RELATED TO INFRASTRUCTURE
!! Around US$ 4.5 trillion worth of investments is required by India till 2040 for developing
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infrastructure to improve economic growth and community wellbeing.

!! The current trend shows that India can meet around US$ 3.9 trillion infrastructure investment out
of US$ 4.5 trillion. The cumulative figure for India’s infrastructure investment gap would be around
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US$ 526 billion by 2040.

4. Enlist the sector wise issues and initiatives in

infrastructure sector, as mentioned in economic survey
2017-18.

SECTOR WISE ISSUES AND INITIATIVES

1. Road sector
 Road transport is the dominant mode of transport in India, both in terms of traffic share and in
terms of contribution to the national economy. Apart from facilitating the movement of goods
and passengers, road transport plays a key role in promoting equitable socio-economic
development across regions of the country. Easy accessibility, flexibility of operation, door-to-

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door service and reliability have earned road transport a greater significance in both passenger
and freight traffic vis-à-vis other modes of transport. India has one of the largest road networks
of over 56.17 lakh km comprising National Highways, Expressways, State Highways, Major
District Roads, Other District Roads and Village Roads.
 Stalled Projects and NPAs in Road Sector: Some of the projects under different phases of
National Highway Development Program are delayed mainly due to problems in land acquisition,
utility shifting, and poor performance of contractors, environment / forest/wild life clearances,
Road Over Bridge (ROB) & Road Under Bridge (RUB) issue with Railways, public agitations for
additional facilities, and arbitration/contractual disputes with contractors etc.
 Measures taken for revival of stalled projects on NHs: The Ministry of Road Transport &
Highways and National Highway Authority ofIndia (NHAI) have been monitoring the stalled
projects. Wherever physical completion is established, one-time fund infusion by NHAI is being
done to revive stalled projects. The funds are being arranged through the common fund
available with NHAI for development of roads.
 Bharatmala Pariyojana

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Bharatmala Pariyojana is a new umbrella program for the highways sector that focuses on
optimizing efficiency of freight and passenger movement across the country by bridging
critical infrastructure gaps through effective interventions like development of Economic
Corridors, Inter Corridors and Feeder Routes, National Corridor Efficiency Improvement, Border
and International connectivity roads, Coastal and Port connectivity roads and Green-field
expressways.
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2. Railways Sector
 The share of Indian Railways in freight movement has been declining over a period of time
primarily due to non-competitive tariff structure. While the passenger fare had remained more
or less flat, the freight fare has increased sharply over the year.
 To make rail transportation attractive and arrest the declining trend of rail share, various
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initiatives were taken in 2016-17, which includes tariff rationalization, classification of new
commodities, new policy guideline forstation to station rates, expansion of freight basket
through containerization, withdrawal of dual freight policy for export of iron ore, rationalization
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of coal tariff, policy guidelines of Merry Go Round System, discount for loading of bagged
consignment in open and fat wagons, new delivery models like Roll-on Roll-off services, re-
introduction of short lead concession and reduction in minimum distance for charge, digital
payment for freight business, Long Term Tariff Contract Policy (which provides tariff stability
and attractive rebate in freight to customers), and Liberalised Automatic Freight Rebate scheme
for traffic loaded in empty flow directions etc.
3. Civil Aviation
 India is the 3rd largest and the fastest growing domestic aviation market in the world in terms
of number of domestic tickets sold.
 Recent Initiatives taken for the growth of the Civil Aviation sector are as follows:
(a) Regional Connectivity Scheme – ‘Ude Desh ka Aam Naagrik’ (RCS-UDAN): To make
flying accessible and affordable for the masses in the regionally important cities, the RCS-
UDAN scheme was launched in October 2016. This is a first-of-its-kind scheme globally
to stimulate regional connectivity through a market based mechanism.
(b) Airport Development: Provision of Rs. 4,500 crore for revival of 50 unserved and
underserved airports/air strips has been taken up with budgetary support of Government
to be completed by December 2018. Revival of airstrips/airports will be ‘demand driven’,
depending upon firm commitment from airline operators as well as from the State
Governments.

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4. Shipping
 Shipping is an important indicator of commodity trade of any country. Around 95 per cent of
India’s trade by volume and 68 per cent in terms of value are transported by sea.
 Government has taken following initiatives to improve the performance of Major Ports:
!! Major Ports have been benchmarked to international standards and 116 initiatives were
identified of which 86 initiatives have been implemented and remaining will be implemented
by 2019.
!! Major Ports Authorities Bill, 2016 (to replace Major Ports Trust Act, 1963) to modernise the
institutional structure of Major Ports has been introduced in the Parliament.
!! Radio Frequency Identification System (RFID) to reduce dwells time, transaction time and
ease congestion has been operationalized in 9 Major Ports. The remaining Major Ports are
in the process of operationalising RFID.

Sagarmala programme

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The Sagarmala programme is the flagship programme of the Ministry of Shipping to
promote port-led development in the country through harnessing India’s 7,500 km long
coastline, 14,500 km of potentially navigable waterways and strategic location on key
international maritime trade routes. The main vision of the Sagarmala Programme is
to reduce logistics cost for international and domestic trade,with minimal infrastructure
investment. Under the Sagarmala Programme, 508 projects at an estimated investment
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of more than Rs.8 Lakh Crore have been identified for implementation over the next 20
years.

5. Telecom
 Telecom sector is going through a stress period with growing losses, debt pile, price war,reduced
revenue and irrational spectrum costs.
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 Government is in the process of formulating the New Telecom Policy, targeted to be released
in July, 2018, after holding wide range of consultations with various stakeholders. The major
themes that new Telecom Policy shall try to address issues including Regulatory & Licensing
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frameworks impacting the sector, Connectivity for All, Quality of Services, Ease of Doing
Business and Absorption of New Technologies including 5G and Internet of Things. Telecom
Regulatory Authority of India (TRAI) has also recommended new policy on ‘Net Neutrality’
which prohibits discriminatory tariffs for data services. As per the policy, the service providers
should be restricted from entering into any arrangement, agreement, or contract, with any
person, natural or legal, that has the effect of discriminatory treatment based on content,
sender or receiver, protocols or user equipment.
6. Power
 There were 18542 un-electrified census villages reported by the states as on 1st April, 2015.
 In order to enhance power supply in rural areas, Deen Dayal Upadhyaya Gram Jyoti Yojana
was launched in December 2014 to extend financial assistance for capital expenditure by
distribution companies (discoms) for strengthening and augmenting distribution infrastructure,
including metering, in rural areas. The estimated outlay for the scheme is Rs. 43033 crore. In
addition, the approved outlay of Rs. 39275 crore of erstwhile Rajiv Gandhi Grameen Vidyutikaran
Yojana (RGGVY) has been carried forward to this scheme. The scheme is being implemented by
the States and their discoms with support from Central Government to the tune of 60 per cent
in ‘General Category’ States and 85 per cent in ‘Special Category’ States.
 A new scheme, Saubhagya (Pradhan Mantri Sahaj Bijli Har Ghar Yojana), was launched in
September 2017 to ensure electrifcation of all remaining willing households in the country in

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rural and urban areas with an outlay of Rs. 16320 crore. The scheme envisages electrification of
around 4 crore households that do not have electricity connection by March 2019. For
unelectrified households located in remote and inaccessible areas, solar photo voltaic based
standalone systems with power packs of 200-300 Watt battery backup are to be provided to
allow maximum of 5 LED Lights, one DC fan, one DC power plug along with repairment and
maintenance for five years. The prospective beneficiary households would be identified using
Socio Economic Caste Census (SECC) 2011.
7. Petroleum & Natural Gas
 Shortfall in production of natural gas has been attributed to decline of production from old
and marginal fields, under-performance of wells, delay in getting multiple clearances, land
acquisition, Right of Use (RoU) permission issues and resistance from local groups for
development projects and unplanned shutdown of wells, processing platforms/plants and
pipelines.
 Some of the important new initiatives taken to transform hydrocarbon sector in India are :
!! Complete mapping of sedimentary basins: India has 26 sedimentary basins covering an
area of 3.14 Million Sq. Km spread over onshore, shallow water and deep water. An area

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of about 1.502 Million Sq. Km i.e. 48 per cent of total sedimentary basin area does not
have adequate geo-scientific data. As a base to launch future Exploration and Production
(E&P) activities, appraisal of all un-appraised areas has been approved and would be
instrumental in increasing investments in domestic production of oil and gas. The project
is being implemented by Oil India Limited (OIL) and Oil and Natural Gas Corporation
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(ONGC) at an estimated cost of Rs. 2932.99 crore.
!! National Gas Grid: Government has envisaged developing an additional 15,000 km long
pipeline network to have an ecosystem of National Gas Grid in the country. The Government
has approved partial capital grant of Rs.5,176 Crore (40 per cent of the estimated capital
cost of Rs. 12,940 Crore) in September 2016 to GAIL for constructing 2650km Jagdishpur-
Haldia & Bokaro-Dhamra Pipeline (JHBDPL) natural gas pipeline project, popularly known
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as Pradhan Mantri Urja Ganga of Eastern India. This project will connect Eastern part of the
country with National Gas Grid and will ensure the availability of clean and eco-friendly
fuel, Natural Gas, to the industrial, commercial, domestic and transport sectors in the States
of Uttar Pradesh, Bihar, Jharkhand, Odisha and WestBengal. These pipeline Projects would
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support there vival of three Fertilizer Plants namely Gorakhpur (U.P.), Barauni (Bihar) and
Sindri (Jharkhand) along the route of these pipeline projects.

Service Sector
The service sector with a share of 55.2 per cent in India’s gross value added continued to be the key
driver of India’s economic growth contributing almost 72.5 per cent of gross value added growth in
2017-18. While the growth of this sector in 2017-18 is expected to be at 8.3 per cent, the growth in
services exports and net services were robust at 16.2 per cent and 14.6 per cent respectively.

DATA RELATED TO SERVICE SECTOR

!! As per the latest World Trade Organization (WTO) data for the first half of 2017, services export
growth for the World was 4.3 per cent and robust at 9.9 per cent for India.
!! As per the World Investment Report 2017, published by United Nations Conference on Trade
and Development (UNCTAD), global FDI flows fell by 2 per cent in 2016, to US $1.75 trillion, amid

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 weak economic growth.The service sector accounted for two thirds of global FDI stock in 2015.
The share of services in total value of announced Greenfield projects increased to 58.2 per cent in
2016 from 54.1 per cent in the previous year.
!! FDI: The share of services 65.8 per cent of FDI equity inflows during 2017-18.
!! FDI equity inflows to the services sector(top 10 sectors including construction) declined by 0.9
per cent to US$ 26.4 billion, though the overall FDI equity inflows grew by 8.7 per cent. However,
during 2017-18 (April-October), the FDI equity inflows to these services sector grew by 15.0 per
cent, as compared to 0.8 per cent growth in total FDI equity inflows, mainly due to higher FDI in
two sectors i.e. Telecommunications and Computer Software and Hardware.
!! India’s Services Trade: India remained the eighth largest exporter of commercial services in the
world in 2016 with a share of 3.4 per cent, which is double the share of India’s merchandise
exports in the world at 1.7 percent. Moreover, the ratio of services exports to merchandise exports
increased from 35.8 per cent in 2000-01 to 58.2 per cent.
!! Services exports recorded a robust growth of 16.2 per cent during April-September 2017-18, with
a turnaround in some major sectors like travel and software services.

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!! India’s services imports exhibited growth of 17.4 per cent in April-September 2017-18 as payments
on transport sector increased by 15.0 per cent. Among the other major services import, travel
grew by 12.0 per cent and business services by 11.3 per cent.
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5. ‘The service sector with a share of 55.2 per cent in
India’s gross value added continued to be the key
driver of India’s economic growth”. In this context,
throw some light on performance of service sector and
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policies with respect to it.

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The growth of services sector in 2017-18 is expected to be high . The Government has taken many
initiatives in the different services which include digitization, e-visas, infrastructure status to Logistics,
Start-up India, schemes for the housing sector, etc. which could give a further fillip to this sector.

SECTOR WISE PERFORMANCE AND SOME RECENT POLICIES

1. Tourism
 In India, the Tourism sector has been performing well with Foreign Tourist Arrivals (FTAs)
growing at 9.7 per cent to 8.8 million and Foreign Exchange Earnings (FEEs) at 8.8 per cent to
US$ 22.9 billion in 2016.
 Various initiatives have been taken by the Government to promote tourism. Recent measures
include the introduction of the e-Visa facility under three categories of Tourist, Medical and
Business for the citizens of 163 countries; launch of Global Media Campaign for 2017-18 on
various Channels; launch of ‘The Heritage Trail’ to promote the World Heritage Sites in India,
launch of International Media Campaign on various international TV channels; Celebration, of
‘Paryatan Parv’ having 3 components namely ‘Dekho Apna Desh’ to encourage Indians to visit
their own country, ‘Tourism for All’ with tourism events at sites across all states in the country,
and ‘Tourism & Governance’ with interactive sessions & workshops with stakeholders on varied
themes.

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2. IT –BPM Services
 India’s Information Technology - Business Process Management (IT-BPM) industry grew by 8.1
per cent in 2016-17 to US$ 139.9 billion (excluding e-commerce and hardware) from US$ 129.4
billion in 2015-16, as per NASSCOM data.
 The share of ICT in total services exports for India declined marginally during the decade (2006-
2016), while the ICT share in total services exports has increased in economies like China, Brazil,
Russia, Philippines, Israel and Ukraine indicating increasing competition for India from these
countries.
 To further promote this sector, many initiatives have been taken. These include the establishment
of BPO Promotion and Common Services Centres, preparing the draft open data protection
policy law; besides long-term initiatives like Digital India, Make in India, Smart Cities,
e-Governance, push for digital talent through Skill India, drive towards a cashless economy and
efforts to kindle innovation through Start-up India.
3. Real Estate and Housing
 The share of real estate sector which includes ownership of dwellings accounted for 7.7 per

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cent in India’s overall GVA in 2015-16.
 The growth of the construction sector which includes buildings, dams, roads, bridges, etc. has
decelerated to 1.7 per cent in 2016-17 from 5.0 per cent in 2015-16.
 FDI into construction development sector declined to US$ 107 million in 2016. The reason for
the substantial and continuous decline in FDI investments in this sector over the past five years
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was that the offshore investors have been deploying majority of their funds through debt or
structured debt route. This protects their investments by providing certain fixed returns on the
debt provided to developers and at the same time reduces the risk of investments.
 Real estate and construction together, is the second largest employment provider in the
country, next only to agriculture. It employed over 40 million workforce in 2013, and as per
projections is slated to employ over 52 million workforce by 2017, and 67 million workforce by
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2022. This implies that it will generate over 15 million jobs over the next five years, which will
translate to about three million jobs annually.
 Some of the recent reforms and policies related to Real Estate sector include the Pradhan
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Mantri Awas Yojana (PMAY) with the government sanctioning over 3.1 million houses for the
affordable housing segment in urban regions till November 2017. Of this, about 1.6 million
houses have been grounded and are at various stages of construction, and about 0.4 million
houses have been built under the mission.
4. Research and Development
 According to the Global Competitiveness Report 2017-18, India’s capacity for innovation has
been lower than that of many countries like the USA, the UK, South Korea, but better than
China. In terms of University– Industry collaboration on R&D, India ranks better than all other
BRICS countries and in terms of availability of scientists and engineers, it ranks better than
other BRICS countries except China. However, in terms of patents applications per million
population, India significantly lags behind other BRICS countries and in terms of company
spending on R&D, India ranks marginally below China.
 The government has taken many initiatives to promote the R&D sector in India, which include
among others establishing the Atal Innovation Mission (AIM) in the National Institution for
Transforming India (NITI) Aayog. Some other initiatives related to R&D include the following.
(a) The agreement between India and Israel in 2016 to enhance bilateral cooperation in
science and technology provides US$ 1 million from each side in the next two years
to support new R&D projects in the areas of big data analytics in healthcare and cyber
security.

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 (b) The Ministry of Environment, Forest and Climate Change (MoEFCC) has announced
an R&D initiative to develop next generation sustainable refrigerant technologies as
alternatives to the currently used refrigerant gases like hydrofluorocarbons (HFCs), in
order to mitigate its impact on the ozone layer and climate.
5. Space Services
 Indian Space Programme contributes to national development, through the application of
space technology, comprising communication, navigation and earth observation to address
issues related to societal development and strategic requirements. Satellite based mapping
and launching services are the two areas in which India is making a mark and has huge potential
for the future.

Conclusion
The growth of India’s services sector is expected to improve in 2017-18. The prospects
look bright with good performance of sub sectors like Tourism, Aviation, and Telecom.

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The downward risk, however, lies in the external environment for software and business
services.
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4.
Sustainable
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Development
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 1
Chapter

Sustainable Development,
Energy & Climate Change

Introduction
 The UN Sustainable Development Goals (SDGs) adopted by the international community in
September 2015 comprehensively cover social, economic and environmental dimensions
and build on the Millennium Development Goals (MDGs).
 The SDG 11 states “make cities inclusive, safe, resilient and sustainable”. India is now
embarking on a fast rural to urban transition. The need of the hour is the provision of public

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services by the cities to its residents. However, raising resources of the magnitude that is
required for a sustainable urban transformation is going to be a daunting challenge.
 Domestically, India has launched various policies and set up institutional mechanisms to
advance its climate actions. Government of India is implementing the National Action Plan on
Climate Change (NAPCC), which includes eight national missions covering solar, energy
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efficiency, agriculture, water, sustainable habitat, forestry, Himalayan eco system and
knowledge, apart from various other initiatives. These actions reflect its commitment to
address climate change.
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1. “SDGs are more comprehensive than MDGs in design

and implementation.” Discuss.What are the challenges
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in their implementation at national level?

The United Nations General Assembly (UNGA) in its 17th session in September, 2015, has
announced a set of 17 SDGs and 169 targets which will stimulate action over the next 15 years.
SDGs comprehensively cover social, economic and environmental dimensions and build on the
Millennium Development Goals (MDGs). SDGs cover the following broad themes:
 Ending poverty and hunger.
 Improving health and education.
 Making cities more sustainable.
 Combating climate change and protecting oceans and forests.
The agenda highlights poverty eradication, combating inequalities, promoting gender equality and
the empowerment of women and girls as the ambient goals and has at its core the integration
of the economic, social and environmental dimensions of sustainable development. This also calls
for an invigorated global partnership for sustainable development, including multi-stakeholder
partnerships, in addition to enhancing capacities of stakeholders in better quality measurement and
compilation of data or information on sustainable development. One of the core elements of the

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outcome document of the SDGs is an effective follow-up and review architecture which is crucial for
supporting the implementation of the new agenda.
In comparison to the MDGs, the SDGs have very comprehensive targets and finding indicators for each
of the 169 targets will be a challenge. Moreover, financing and adequate monitoring mechanisms will
pose other major challenges. Taking leads from its progress on the MDGs, India will have to prioritize
its SDGs, as it will be difficult to target each goal.
National SDG indicators are being developed by Ministry of Statistics & Programme
Implementation with inputs from Central Ministries and various other stakeholders and are now at
an advanced stage of finalization. Going forward, a monitoring and reporting system will be set up to
regularly take stock of the implementation process and generate credible information and evidence
on progress on SDG agenda. The National Institution for Transforming India (NITI) Aayog’s
role will be to collect, validate, and document best practices in implementation of SDGs for wider
dissemination.

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2. “Sustainable Cities are a key to achieve sustainable
Development.” Discuss. What are the key challenges
in making Indian cities more sustainable?
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Key Statistics
 According to the UN World Cities Report 2016, by 2030, India is expected to be home to seven
mega-cities with population above 10 million.
 According to Census 2011, 377.1 million Indians comprising 31.16 per cent of the country’s
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population live in urban areas.

 India’s urban population is projected to grow to about 600 million by 2031.
The SDG 11 states: “make cities inclusive, safe, resilient and sustainable”. India is now embarking
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on a fast rural to urban transition. As cities are the centres of economic activities, how cities deliver
on a number of basic services will determine the path and progress of sustainable development.
Achieving the sustainability of cities entails integration of four pillars –
 Social development,
 Economic development,
 Environmental management, and
 Effective urban governance.
Many Indian cities are now struggling with multiple problems of poverty, inadequate provision
of urban services, congestion, air pollution, sizeable slum population, lack of safety measures,
and challenges in terms of garbage removal, sewage system, sanitation, affordable housing, and
public transport. Government of India has undertaken several measures to improve sustainability
of cities, which include the Smart Cities Mission, AMRUT, HRIDAY, Housing for All, National
Urban Housing & Habitat Policy (2007), Swachh Bharat Mission (Urban), and management of
Municipal Solid Waste (MSW) etc.
According to the High Powered Expert Committee appointed by the Ministry of Housing and
Urban Affairs, about Rs. 39 lakh crore (at 2009- 10 prices) was required for creation of urban
infrastructure over the next 20 years. Raising resources of this magnitude is going to be a daunting
challenge. Besides the average cost recovery is less than 50 per cent in most of the Urban Local
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The way forward is to encourage the ULBs to raise resources through various innovative financial
instruments such as municipal bonds, PPPs, credit risk guarantees, etc. Example of one such
instrument that has been experimented in India worth highlighting is that of municipal bonds.
However, the ULBs and the state governments have to bring operational efficiency and financial
viability in urban projects.

3. “International solar alliance not only brings together

solar rich countries but also provide an opportunity
to Indian manufacturing”. Critically analyse the
statement?

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ISA is a coalition of solar resource rich countries lying fully or partially between the Tropics
of Cancer and Capricorn. Vision and mission of the International Solar Alliance is to provide
a dedicated platform for cooperation among solar resource rich countries where the global
community, including bilateral and multilateral organizations, corporates, industry, and other
stakeholders, can make a positive contribution to assist and help in achieving the common goals of
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increasing the use of solar energy in meeting energy needs of prospective ISA member countries in
a safe, convenient, affordable, equitable and sustainable manner.
The Paris Declaration establishing ISA states that the countries share the collective ambition to
undertake innovative and concerted efforts for reducing the cost of finance and cost of technology
for immediate deployment of solar generation assets. This will help pave the way for future solar
generation, storage and good technologies for each prospective member country’s individual
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needs by mobilizing more than US $1 trillion dollars in investments that will be required by 2030.
Government of India has made a provision of Rs. 100 crore as one-time fund for ISA Fund corpus.
The Government of India has earmarked around US $2 billion Line of Credit (LoC) to the African
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countries for implementation of solar and related projects out of its total US $10 billion LoC under
the Indian Development and Economic Assistance Scheme.
ISA is a trillion-dollar opportunity in solar. Economy and industry in turn can benefit from the business
opportunities available across 121 ISA member countries. India has already included Renewables
sectors including Solar Photo voltaic as one of the champion sectors within Make in India Agenda.
ISA countries could provide a big market to Indian industries. This is important because post Global
Financial Crisis , India’s exports to western economies have gone down and ISA countries are mostly
developing countries in Asia, Africa and Latin America which could provide alternate market for
export diversification.

Air Pollution in Northern India-Possible Solutions

In recent years, the National Capital Delhi and adjoining areas have experienced alarmingly
poor air quality starting winters. In fact, a number of reasons cause the massive spike in
suspended particulate matter (PM 2.5, being the most dangerous) during winter in this
part. The reasons are:
Crop residue, biomass burning - The farmers mainly from Northern India set their

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paddy fields on fire after harvesting. The resultant smoke, however, gets carried by winds
all the way to Delhi and beyond, adding to the existing suspended particulate matter (SPM)
and noxious substances.
Vehicular emissions and redistributed road dust from trucks, buses, cars, three-
wheelers and two-wheelers.
Massive construction, power plants, industry, and other activities.
Winter temperature inversion, humidity and (absence of) wind - Falling air
temperature and inversion that locks particulates near the ground, compounded by relative
absence of wind.
Possible Solutions
Short-Term Emergency Plan (when 24-hourly PM2.5 exceeds 300-400 mg/m3): Strict
enforcement through heavy penalties on agricultural waste burning using satellite based
tools detecting fires, and mobile based applications in NCR; and incentive payments to
farmers, coordinated across states and NCR.

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Medium and Long-Range Actions: Implement congestion pricing for vehicles, expand
and improve public buses on large scale to reduce private vehicle use, and for connectivity to
and beyond metro. Phase-out old vehicles, accelerate BS-VI (already notified and to be
commenced from 2020), and expand modernized bus fleets. Use technologies to convert
agricultural waste into usable concentrated fodder or bio-fuels, develop and implement
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business models with private sector and communities and incentivize shift to non-paddy
crops. In other words, explore the business cases for finding uses for the crop residues such as
manure to reduce fertilizer cost, generate power so that economic values could be assigned.
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4. Critically analyze the impact of Climate change on

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Indian sub-continent. Discuss adaption and mitigation

measures taken in this regard at national level?

The direct impact of climate change on Indian subcontinent is through two channels:
 Increase variability in temperature and rainfall.
 Increase in incidence of extreme weather events like drought, flood etc.
This has serious implication for India’s agriculture based economy with 50% of its population dependent
on it. The Global Climate Risk Index 2018 has put India amongst the six most vulnerable countries
in the world. Given that a sizeable population under poverty live in areas prone to climatic shifts
and in occupations that are highly climate-sensitive, future climate change could have significant
implications for living standards.
In this context, it is no surprise that India takes the challenge of climate change seriously. India
has always engaged constructively at the multilateral level under the United Nations Framework
Convention on Climate Change (UNFCCC) and India is now actively engaged in the efforts towards
developing guidelines for effective implementation of the Paris Agreement on Climate Change.

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 India’s INDC: Climate Change Contributions at COP 21
!! To reduce the emissions intensity of its GDP by 33 to 35 per cent of the
2005 level by 2030.
!! To achieve about 40 per cent cumulative electric power installed capacity from
non-fossil fuel based energy resources by 2030 with the help of transfer
of technology and low cost international finance including from the Green
Climate Fund (GCF).
!! To create an additional carbon sink of 2.5 to 3 billion tonnes of CO2
equivalent (CO2 eq.) through additional forest and tree cover by 2030.
!! To better adapt to climate change by enhancing investments in development
programmes in sectors vulnerable to climate change, particularly agriculture,
water resources, the Himalayan region, coastal regions, health and disaster
management.

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!! To mobilize domestic and new and additional funds from developed countries for
implementing these mitigation and adaptation actions in view of the resources
required and the resource gap.

Domestically, India has launched various policies and set up institutional mechanisms to advance its
actions. Government of India is implementing the National Action Plan on Climate Change, which
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includes eight national missions covering solar, energy efficiency, agriculture, water, sustainable
habitat, forestry, Himalayan ecosystem and knowledge, apart from various other initiatives. Key
initiatives including adaption and mitigation measures are as follow :
 As part of the mission on strategic knowledge on climate change, India has established 8
Global Technology Watch Groups in the areas of Renewable Energy Technology, Advance
Coal Technology, Enhanced Energy Efficiency, Green Forest, Sustainable Habitat, Water,
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Sustainable Agriculture and Manufacturing.

 32 States and Union Territories have put in place the State Action Plans on Climate Change
attempting to mainstream climate change concerns in their planning process.
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 Climate Change Action Programme, launched in 2014 with an objective of building and
supporting capacity at central & state levels, strengthening scientific & analytical capacity
 For climate change assessment, establishing appropriate institutional framework and
implementing climate related actions has been extended for the period 2017-18 to 2019-20
with a budget outlay of 132.4 crore.
 National Adaptation Fund on Climate Change established in 2015 to support concrete
adaptation activities which are not covered under on-going activities through the schemes of
State and Central Government, continues till 31st March, 2020, with financial implication of Rs.
364 crore.
 India is one of the few countries where, despite ongoing development, forest and tree cover
has increased transforming country’s forests into a net sink owing to national policies aimed at
conservation and sustainable management of forests.
 Pradhan Mantri Krishi Sinchayee Yojana has been formulated with the vision of extending
the coverage of irrigation and improving water use efficiency.
 In the Union Budget 2017, government indicated to increase the coverage under the Pradhan
Mantri Fasal Bima Yojana (PMFBY) from 30 per cent to 40 per cent in 2017-18 and 50 per
cent in 2018-19.

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Climate, Climate Change,

& Agriculture

Introduction
 Indian agriculture is witnessing the harsher prospects of its vulnerability to long-term climate
change.
 The last few seasons have witnessed a problem of plenty: farm revenues declining for a number
of crops despite increasing production and market prices falling below the Minimum Support
Price (MSP). But in the medium to long term, the ghost of Malthus looms over Indian agriculture.

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Productivity will have to be increased, and price and income volatility reduced, against the
backdrop of increasing resource constraints.
 Shortages of water and land, deterioration in soil quality, and of course climate change-induced
temperature increases and rainfall variability, are all going to impact agriculture. Thus analysing
the impact of climate change on agriculture is must.
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1. Why Agriculture sector is still relevant in India and
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discuss the present performance scenario of it?

GS

Agriculture matters for economic reasons because it still accounts for a substantial part of GDP (16
percent) and employment (49 percent).
Poor agricultural performance can lead to inflation, farmer distress and unrest, and larger political
and social disaffection—all of which can hold back the economy.
The performance of agriculture sector has been dismal. Real agricultural growth since 1960 has
averaged about 2.8% in India. Before Green Revolution it was less than 2% and 3% in following
period until 2004. In the period after the global agricultural commodity surge, growth increased to
3.6%.
China’s annual agricultural growth over the long run has exceeded that of India by a substantial 1.5
percentage points on average.
The volatility of agricultural growth in India has declined substantially over time: from a standard
deviation of 6.3 percent between 1960 and 2004 to 2.9 percent since 2004. In particular, production
of cereals has become more robust to drought.
But levels of volatility continue to be high and substantially higher than in China where the ups and
downs have been virtually eliminated.
An important contributing factor is that agriculture in India even today continues to be vulnerable

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to the vagaries of weather because close to 52 percent (73.2 million hectares area of 141.4 million
hectares net sown area) of it is still un-irrigated and rainfed.
Thus the growth of agriculture sector has to be doubled for the prosperous development of the
nation because Economic development is always and everywhere about getting people out of
agriculture and of agriculture becoming over time a less important part of the economy (not in
absolute terms but as a share of GDP and employment). The reason why agriculture cannot be the
dominant, permanent source of livelihood is its productivity level as it cannot be matched with those
in manufacturing and services. That, of course, means that industrialization and urbanization must
provide those higher productivity alternatives to agriculture. All good and successful economic and
social development is about facilitating this transition in the context of a prosperous agriculture
and of rising productivity in agriculture because that will also facilitate good urbanization and rising
productivity in other sectors of the economy.

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2. Discuss the impact of weather on agricultural
productivity?
CO
!! With significant implications in the context of looming climate changes is that the impact of
temperature and rainfall is highly non-linear and felt almost only when temperature increases and
rainfall shortfalls are extreme.
!! These extreme shocks affects almost twice in un-irrigated areas than irrigated areas.
S

!! Chart shows percentage decline in response to temperature increase and rainfall decrease.

Extreme Temperature Shocks Extreme Rainfall Shocks

Average Kharif 4.0% 12.8%
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Kharif, Irrigated 2.7% 6.2%

Kharif, Un-irrigated 7.0% 14.7%
Average Rabi 4.7% 6.7%
Rabi, Irrigated 3.0% 4.1%
Rabi, Un-irrigated 7.6% 8.7%

!! Key finding is that these impacts are significantly more adverse in un-irrigated areas (and hence
rain-fed crops such as pulses) compared to irrigated areas (and hence crops such as cereals).
!! Temperature increases have been particularly felt in the North-East, Kerala, Tamil Nadu, Kerala,
Rajasthan and Gujarat. Parts of India, for example, Punjab, Odisha and Uttar Pradesh have been
the least affected.
!! Increase in precipitation in Gujarat and Odisha and also Andhra Pradesh.

CROP IMPACTS:
 Crops grown in rain-fed area pulses in both kharif and rabi are vulnerable to weather shocks
while the cereals both rice and wheat are relatively more immune.
 1°C increase in temperature reduces wheat production by 4 to 5%.

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 In the last decade (2004-2014), the impact of rainfall shocks in yields remains unchanged, but
the effect of temperature shock increases threefold (relative to the first decade).
 However, since there is no secular trend in this impact, it cannot be ascertained whether the
findings for the last decade are a one–off, or the start of a new longrun trend with dramatically
adverse consequences for Indian agriculture.

IMPACT ON FARM REVENUE:

 Extreme temperature shocks reduce farmer incomes by 4.3% and 4.1% whereas extreme rainfall
shocks reduce incomes by 13.7% and 5.5% during kharif and rabi respectively.
 In a year where temperatures are 1°C higher farmer incomes would fall by 6.2% during the
kharif season and 6% during rabi in un-irrigated districts.
 Similarly, in a year when rainfall levels were 100 mm less than average, farmer incomes would
fall by 15% during kharif and by 7% during the rabi season.
 A study by the IMF, finds that for emerging market economies a 1°C increase in temperature
would reduce agricultural growth by 1.7%, and a 100 mm reduction in rain would reduce

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growth by 0.35%.
 Inter-governmental Panel on Climate Change (IPCC), predict that temperatures in India are
likely to rise by 3-4° C by the end of the 21st century.
 Models of climate change also predict an increase in the variability of rainfall in the long-run,
with a simultaneous increase in both the number of dry-days as well as days of very high
CO
rainfall.
 Farmer income losses from climate change could be between 15 % and 18 % on average, rising
to anywhere between 20 % and 25 % in un-irrigated areas.
 In the long-run, we may be able to change technologies or alter the crops they grow in response
to sustained increases in temperature and changes in precipitation. Further it is possible that
irrigation networks might expand, mitigating to some extent the adverse impacts of climate
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change.

Hence the key findings are:

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 A key finding—and one with significant implications as climate change looms—is that the
impact of temperature and rainfall is felt only in the extreme; that is, when temperatures are
much higher, rainfall significantly lower, and the number of “dry days” greater, than normal.
 A second key finding is that these impacts are significantly more adverse in unirrigated areas
(and hence rainfed crops such as pulses) compared to irrigated areas (and hence crops such as
cereals).
 Applying IPCC-predicted temperatures and projecting India’s recent trends in precipitation,
and assuming no policy responses, give rise to estimates for farm income losses of 15 percent
to 18 percent on average, rising to 20 percent-25 percent for unirrigated areas. At current
levels of farm income, that translates into more than Rs. 3,600 per year for the median farm
household.
 Policy implications and recommendations
 India needs to spread irrigation – and do so against a backdrop of rising water scarcity and
depleting groundwater resources. In the 1960s, less than 20 % of agriculture was irrigated;
today this number is in the mid-40s.
 The challenge is that the spread of irrigation will have to occur against a backdrop of extreme
groundwater depletion, especially in North India. India pumps more than twice as much
groundwater as China or United States.

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  The Indo-Gangetic plain, and parts of Gujarat and Madhya Pradesh are well irrigated. But parts
of Karnataka, Maharashtra, Madhya Pradesh, Rajasthan, Chattisgarh and Jharkhand are still
extremely vulnerable to climate change on account of not being well irrigated.
 Fully irrigating Indian agriculture, that too against the backdrop of water scarcity and limited
efficiency in existing irrigation schemes, will be a defining challenge for the future.
 Technologies of drip irrigation, sprinklers, and water management captured in the “more crop
for every drop” campaign hold the key future to Indian agriculture.
 Further the power subsidy needs to be replaced by direct benefit transfers so that power use
can be fully costed and water conservation furthered.
 Climate change will increase farmer uncertainty, necessitating effective insurance. Building on
the current crop insurance program (Pradhan Mantri Fasal Bima Yojana), weather-based models
and technology (drones for example) need to be used to determine losses and compensate
farmers within weeks (Kenya does it in a few days).
 According to Subramanianit is vital to make a clear distinction between two agricultures in
India:

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!! The well-irrigated, input-addled, and price & procurement supported cereals grown in
Northern India. Were the challenge is for policy to change the form of the very generous
support from prices and subsidies to less damaging support in the form of direct benefit
transfers.
!! Another agriculture (broadly, non-cereals in central, western and southern India) where the
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problems are very different: inadequate irrigation, continued rain dependence, ineffective
procurement, and insufficient investments in research and technology (non-cereals such as
pulses, soyabeans, and cotton), high market barriers and weak post-harvest infrastructure
(fruits and vegetables), and challenging non-economic policy (livestock).
!! The cooperative federalism “technology” of the GST Council that brings together the Center and
States could be promisingly deployed to further agricultural reforms and durably raise farmers’
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incomes.
GS

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5.
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Social
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Development
S
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Chapter
1
Social Infrastructure,
Employment & Human
Development

Introduction
Investment in human capital like education and health are the key ingredients for economic
development. Much of the impoverishment in India today can be addressed by enhancing
human capital by investing in nutrition, health, education, and by providing appropriate skills

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for employment. Though India’s social policies have focussed on the welfare of the people and
also human development, challenges remain in overcoming social and economic barriers to
advance the capabilities of the marginalised, women, and other weaker sections of the society.
The Government has been enhancing the expenditure on human capital along with adopting
measures to improve the efficiency of expenditure by convergence of schemes. Several labour
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reform measures including legislative ones, are being implemented for creation of employment
opportunities and for providing sustainable livelihoods for the population who are largely engaged
in the informal economy. With India poised for higher growth anchored on a knowledge
economy, there are benefits to be reaped by investing in human capital.
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1. Discuss the trends in social sector expenditure of

India. Is India an outlier in Social sector expenditure
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vis-a-vis world? Which steps have been taken in recent

times to ensure higher social sector outcomes?

Public investment in social infrastructure like education and health is critical in the development of
an economy. However, the expenditure on social services by the Centre and States as a proportion
of GDP has remained in the range of 6 per cent during 2012-13 to 2017-18.
Trends in Social Services Expenditure by the Government (Centre and States),
As percentage to GDP)

Items 2012-13 2013-14 2014-15 2015-16 2016-17 RE 2017-18 BE

Total Expenditure 27.1 26.7 26.4 24.7 26.7 26.4
Expenditure on Social Services 6.6 6.6 6.2 5.8 6.5 6.6
i) Education 3.1 3.1 2.8 2.4 2.6 2.7
ii) Health 1.3 1.2 1.2 1.1 1.5 1.4
iii) Others 2.2 2.3 2.1 2.2 2.4 2.6

R.E. - Revenue Estimates, B. E. - Budget Estimates

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However, the expenditure on social sector, Health and Education, is significantly less than world
average. (Table 2.)

Expenditure as a % of GDP
Year Education Health
2014 India World (average) India World (average)
2.8 4.8 1.2 6.2
Source: Economic Survey, World Bank, WHO
Nonetheless, government is making effort to steadily increase expenditure on social sectors. Following
announcement have been made in the budget to enhance public expenditure on social sector.
 Government’s estimated schematic budgetary expenditure on health, education and social
protection for 2018-19 is Rs. 1.38 lakh crore in BE 2017-18.
 The focus would be on improving learning outcome in school education. Learning outcomes
have been defined and a National Survey of more than 20 lakh children has been conducted to
assess the status on the ground. This will help in devising a district-wise strategy for improving

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quality of education.
 The budget proposed to increase the digital intensity in education and move gradually from
‘‘black board’’ to ‘‘digital board’’. Technology will also be used to upgrade the skills of
teachers through the recently launched digital portal ‘‘DIKSHA’’.
 Every block with more than 50% ST population and at least 20,000 tribal persons, will have
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an Ekalavya Model Residential School which would provide best quality education to the
tribal children in their own environment.
 Two major initiatives as part of ‘‘Ayushman Bharat’’ programme shall be launched which
aimed at making path breaking interventions to address health holistically, in primary, secondary
and tertiary care system covering both prevention and health promotion. 1.5 lakhs Health
and Wellness Centres would be set up as the foundation of India’s health system. Government
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also announced a flagship National Health Protection Scheme to cover over 10 crore poor
and vulnerable families (approximately 50 crore beneficiaries) providing coverage upto 5
lakh rupees per family per year for secondary and tertiary care hospitalization. This will
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be the world’s largest government funded health care programme.

A higher public investment in the social sector, including education and health, is critical for India,
but being a developing economy “there is not enough fiscal space” to increase the expenditure.
Hence, there is a need to increase tax revenues to inject resources into Social sector.

2. Critically assess the effectiveness and inclusiveness

of the schooling system in India. Discuss some of the
indicators in this regard.

Sustainable Development Goal (SDG-4) for education states that “Ensure inclusive and quality
education for all and promote lifelong learning”, the goal has to be achived by the year 2030.
With a view to achieve the goal of universalization of elementary education, the Right to Free &
Compulsory Education (RTE) Act, 2009 had been enacted in 2010 that provides a justiciable legal

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framework entitling all children between the ages of 6-14 years free and compulsory admission,
attendance and completion of elementary education.
India has made significant progress in quantitative indicators such as enrolment levels, completion
rates and other physical infrastructure like construction of school buildings/class rooms, drinking
water facilities, toilet facilities and appointment of teachers etc. at elementary school level.
However, the quality of education also needs to be monitored and assessed. Towards improving the
learning outcomes at elementary school level, Central Rules under the RTE Act have been amended
in February, 2017 to include the defined class-wise, subject-wise learning outcomes.
The RTE Act, 2009 lays down the guidelines for maintaining the norms and standards relating inter alia
to Pupil Teacher Ratios (PTRs), buildings and infrastructure, school-working days, teacher-working
hours in both primary and upper primary schools. The impact of PTR on learning achievement is
widely discussed with some studies claiming that school participation and grade attainment are
positively influenced by Student Classroom Ratio (SCR) and PTR. In this context, following are the
achievement so far:
 SCR is defined as average number of pupils (students) per classroom in a school in a

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given school-year. The ideal size should be at 30 students per classroom. At all India level,
percentage of schools with SCR greater than 30 students declined from 43 per cent in
2009-10 to 25.7 per cent in 2015-16. Though, SCR improved in almost all of the States, there
are variations in the improvement across States.
 PTR is defined as Pupil Teacher Ratio. Data from the UNESCO Institute of Statistics on PTR
in primary schools shows that India has a national PTR comparable to countries with similar
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socio- economic indicators.
 Gender Parity Index (GPI) in education is a valuable indicator which reflects the
discrimination against girls in access to educational opportunities. In higher education,
gender disparities still prevail in enrolment for which continuous efforts are being made by the
Government to improve net intake rate for women in higher education. With consistent efforts
by the Government through programmes like Beti Padhao, Beti Bachao, the GPI has improved
S

substantially at the primary and secondary levels of enrolment.

Significant efforts have been made to improve effectiveness and inclusiveness of school education
GS

in India. However, improving quality of learning outcomes is still a challenge. In this context, more
resources need to be channelled into training and improving capacity of teachers and increasing
digital intensity of learning.

3. Critically analyze the importance of labour reforms in

unleashing the true potential of Indian economy. Give
an account of policy initiatives in this regard?

One of the long-pending reforms to unleash the Indian economy for labour-intensive manufacturing
is rationalising the plethora of labour laws applicable to the organised sector, which are perceived as
biased against employers, affecting investment in the sector. In fact, some of the punitive clauses of
labour laws, such as compulsory and prior government approval in the case of layoffs for firms
employing 10 or more persons (Industrial Disputes Act, 1947), consent of the employees to
change the nature of the job (Contract Labour-Regulation and Abolition-Act, 1970), allowing

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outsiders to become office bearers of trade unions (Trade Union Act, 1926) etc, hamper labour-
intensive manufacturing, adopting new techniques of production and cordial industrial relations.
The Government is in the process of rationalizing 38 Central Labour Acts by framing relevant
provisions of existing laws into 4 labour codes viz Code on Wages, Code on Safety and Working
Conditions, Code on Industrial Relations, and Code on Social Security and Welfare. The
codification of the labour laws is expected to remove the multiplicity of definitions and authorities
leading to ease of compliance without compromising wage security and social security to the
workers.
Further, government has undertaken numerous technology enabled transformative initiatives
such as Shram Suvidha Portal, Ease of Compliance to maintain registers under various Labour
Laws/Rules. The Universal Account Number have been devised in order to reduce the complexity
in compliance and to bring transparency and accountability for better enforcement of the labour
laws. Further, the Government initiated the National Career Service Portal (www.ncs.gov.in) by
linking all employment exchanges of the country to facilitate online registration and posting of
jobs for job-seekers and to provide employment related services like career counselling, vocational
guidance, information on skill development courses and internships.

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Further, the Employee’s State Insurance (ESI), Act has been extended to all 325 complete districts as
well as 93 district headquarters area. The scheme is also partially available in centers in 85 districts.
Arrangements are being made for further extension of the scheme across the country by 2022.
The above mentioned initiatives are steps towards realizing the dream of “Make in India” and
thus making a global hub of manufacturing. Secondly, labour reforms are necessary for providing
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formal sector jobs to ever increasing labour force due to demographic dividend. However, pace of
implementing these reforms need to be expedited.

Gender Gap in Labour Force Participation Rate and Earnings:

Global Comparison
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The lower participation of women in economic activities adversely affects the growth potential
of the economy. The Government has been taking measures to increase the participation of
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women in productive economic activities by schemes to provide support services to working

women and also through legislative measures to enhance maternity benefits.
Women workers are the most disadvantaged in the labour market as they constitute a very
high proportion among the low skilled informal worker category, and are engaged in low-
productivity and low paying work. Owing to this, women earn very low wages, mostly piece
rates in highly insecure jobs. India had the
largest gender gap in median earnings of
full time employees in 2015, as can be seen Figure 6: Gender Gap in Median Earnings for full
in Figure 1, in comparison to countries like time Employees 2015 (per cent)
South Africa, Brazil, and Chile. Latvia
Chile
For economic empowerment of women israel
through promoting the spirit of creating Brazil
Japan
self-employment ventures, Mahila E-Haat, Estonia
an initiative for meeting aspirations and Indonasia
needs of women entrepreneurs has been South Korea
South Africa
launched with the objective to provide India
an e-marketing platform by leveraging 0.0 20.0 40.0 60.0
technology for showcasing product
made/manufactured/sold by women Source: The Pursuit of Gender Enquity: An Uphill
entrepreneurs/SHGs/NGOs. Battle, OECD 2017

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 4. Increase in Out of Pocket Expenditure in case of health
is a concern and a challenge. Do you agree? In this
context, enumerate the policy initiatives to address
the issue?

Ensuring healthy lives and promoting the well-being for all at all ages is essential to sustainable
development (SDG-3). India’s commitment to achieve the targets under SDG-3 with some of them
also aligned with the National Health Policy 2017, will help in strengthening health delivery systems
and in achieving universal health coverage.
Figure 2 shows that expenditure by the Government healthcare providers accounted for about 23
percent of the Current Health Expenditure (CHE) as per National Health Accounts, 2014-15, that
reflects the prominence of private hospitals and clinics among health care providers. In a developing

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country like India, incurring higher levels of Out of Pocket Expenditure (OoPE) on health adversely
impacts the poorer sections and widens inequalities.
Limited affordability and
access to quality medical
services are among the major 16.7 23.1
challenges contributing to
O
delayed or inappropriate
responses to disease control
and patient management. 28.9
SC

The findings of Household 31.3

Health Expenditure Survey
in India indicate that about Government
10 per cent of out of pocket Private
expenses on health were spent
by households on diagnostics Pharmacies
GS

(including medicines and Others

diagnostic test).
Source: National Health Accounts, Estimates for India, M/o
There is a need to prioritize
H& FW
standardization of rates by
devising appropriate quality Figure 2. Expenditure on Healthcare
assurance framework and
regulatory mechanism. Though, the Government has already enacted Clinical Establishments
(Registration and Regulation) Act, 2010 and notified the Clinical Establishments (Central
Government) Rules, 2012 to regulate the clinical establishments across the country, presently,
the Act is applicable in 10 States/UTs, which needs to be taken up by remaining States while
ensuring strict compliance as well. The steps taken by the Government to regulate prices of Drugs
and Diagnostics are as follow:
 Under National Health Mission (NHM), Government is supporting States through National Free
Diagnostic Service Initiative to provide essential diagnostic services in public health facilities.
 National Free Drug Initiative under NHM aims at expanding the availability of free drug
provision in all public health facilities.
 Medical Council of India (MCI) has amended the Indian Medical Council (Professional
Conduct, Etiquette and Ethics) Regulations, 2002, which stipulates that ‘every physician
should prescribe drugs with generic names.

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5. Give an account of changing burden of diseases in

India. Discuss the role of Swachh Bharat Mission in
improving health outcomes.

 The report ‘India: Health of the Nation’s States’, 2017, provides the first comprehensive set
of findings for the distribution of diseases and risk factors across all States from 1990 to 2016.
The concept of Disability Adjusted Life Years (DALYs) provides a framework for analyzing
the disease burden and risk factors. DALYs is the sum of years of potential life lost due to
premature mortality and the years of productive life lost due to disability. One DALY
represents the loss of the equivalent of one year of full health. Using DALYs, the burden of
diseases that cause premature death but little disability can be compared to that of diseases
that do not cause death but do cause disability.

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 Few trends which emerge from the report are as follow (Fig 3.):
!! There has been significant improvement in the health status of the individual as Life
Expectancy at Birth (LEB) has increased by approximately 10 years during the period
1990 to 2015.
O
!! The per person disease burden measured as DALYs rate dropped by 36 per cent from
1990 to 2016 in India, after adjusting for the changes in the population age structure
during this period. Of the total disease burden in India measured as DALYs, 61 per cent
was due to communicable, maternal, neonatal, and nutritional diseases (CMNNDs) in
SC
1990, which dropped to 33 per cent in 2016.
!! In 2016, malnutrition still remains the most important risk factor (14.6 percent) that
results in disease burden in the country though the disease burden due to it has dropped
in India substantially since 1990. Neonatal disorders and nutritional deficiencies as well as
diarrhoea, lower respiratory infections, and other common infections are manifestation of
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maternal and child malnutrition.

Malnutrition
Malnutrition
Air Pollution
11.5 WaSH
14.6 Dietary Risks
3.9 Air Pollution 22
35.5
High Blood
4.4
Dietary Risks Pressure
4.5 1990 2016 9.8
Tobacoo Use High fasting
11.1 High Blood 5.9 plasama
Pressure 8.9 glucose
6.0
12.8 8.5
Others Tobacoo Use
Others

Fig 3. Change in DALYs number and rate attributable to risk factors in India (per cent)

 The contribution of air pollution to disease burden remained high in India between 1990
(11.1 per cent) and 2016 (9.8 per cent), with the levels of exposure remaining among the
highest in the world.
 The behavioural and metabolic risk factors associated with the rising burden of Non
Communicable Diseases (NCDs) have become quite prominent in India. In 2016, the dietary
risks, which include diets low in fruit, vegetables, and whole grains, but high in salt and fat, were
India’s third leading risk factor, followed closely by high blood pressure and high blood sugar.

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 Unsafe Water, Sanitation, and Handwashing (WaSH) was the second leading risk factor in
1990, but its ranking has dropped to seventh position in 2016. Around 5 per cent of health
loss is still attributable to this factor which is being addressed successfully by the government
through the Swachh Bharat Mission (SBM).
The efficiency in the use of resources along with measures for preventive and curative health care
is necessary to translate enhanced expenditure into improved health outcomes. Moreover, the
health of the population is closely related to the quality of life indicators like access to sanitation,
safe drinking water and the like which can decrease the disease burden of the population.
Therefore, focus of the Government on improving access to sanitation through Swachh Bharat
Mission (SBM) gains special significance.
So far, 296 districts and 307,349 villages, all over the India, have been declared as Open
Defecation Free (ODF). The quality of hygiene and sanitation has significant impact on improving
the health outcomes which is a well-established fact. The non-ODF districts have lower percentage
of population with secondary education, reflect higher levels of diarrhoea, stunting, wasting and
BMI owing to behavioural inertia. However, in ODF areas, with higher percentage of population with
secondary education, there has been a clear cut evidence of behavioral shift of the individuals due

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to larger presence and proactive work undertaken by local bodies. Moreover, a higher proportion
of mothers of ODF areas in the ‘normal’ BMI category (62.9 per cent) as compared to that of
non-ODF areas (57.50 per cent) shows that not only children but mothers were also healthier
in the ODF areas.
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Chapter
Economic Survey 2017-18 &

Gender & Son Meta-Preference:

Is Development Itself an
Antidote?

Introduction
Over the last 10-15 years, India’s performance on the indicators of women’s agency, attitudes,
and outcomes has improved. The improvement has been such that India’s situation is comparable
to that of a cohort of countries after accounting for levels of development. However, on several

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other indicators, notably employment, and use of reversible contraception, and son preference,
India has some distance to traverse because development has not proved to be an antidote.
Within India, there is significant heterogeneity, as the North-Eastern states (a model for the rest
Generally of the country) consistently out-performing others though they are not richer. Generally
Hinterland states are lagging behind but the some southern states do less well than what their
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development levels would suggest.
The challenge of gender is long-standing, probably going back millennia, so all stakeholders are
collectively responsible for its resolution. India must confront the societal preference, even meta-
preference for a son, which appears inoculated to development.
The skewed sex ratio in favor of males led to the identification of “missing” women. But there
S

may be a meta-preference manifesting itself in fertility stopping rules contingent on the sex of the
last child, which notionally creates “unwanted” girls, estimated at about 21 million.
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1. Is India the land of the empowered woman or the

helpless, oppressed woman?

As the advanced world grapples with the fallout from the endemic harassment of women, and as the
evidence grows about the intrinsic and instrumental value in raising the role and status of women in
society, it is time to ask: How is India faring and how much progress has been made?
The assessment has been done on the basis of:
 Agency related to Women’s ability to make decisions on reproduction, spending on themselves,
spending on their households, and their own mobility and health.
 Attitudes about violence against women/wives, and the ideal number of daughters preferred
relative to the ideal number of sons.

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  Outcomes related to son preference (measured by sex ratio of last child), female employment,
choice of contraception, education levels, age at marriage, age at first childbirth, and physical
or sexual violence experienced by women.
Findings of the Economic Survey
 On 14 out of 17 indicators relating to agency, attitude, and outcomes, India’s score has
improved over time. On seven of them, the improvement is such that in the most recent period
India’s performance is better than or at par with that of other countries, accounting for the level
of development.
 The progress is most notable in the agency women have in decision-making regarding,
household purchases and visiting family and relatives. There has been a decline in the
experience of physical and sexual violence. Education levels of women have improved
dramatically but incommensurate with development.
 On 10 of 17 indicators, India has some distance to traverse to catch up with its cohort of
countries. For example, women’s employment has declined over chronological time, and to a
much greater extent, in development time. Another such area is in the use of female

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contraception: nearly 47 percent of women do not use any contraception, and of those who do,
less than a third use female controlled reversible contraception. These outcomes can be
disempowering, especially if they are the consequence of restrictions on reproductive agency.
 While there is considerable variation within the Indian states and across dimensions, the broad
pattern is one of the North-Eastern states doing substantially better than the hinterland
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states even in development time; hinterland states are lagging, some associated with their
level of development and some even beyond that; surprisingly, some southern states such as
Andhra Pradesh and Tamil Nadu fare worse than expected given their level of development.
 Perhaps the area where Indian society (and this goes beyond governments to civil society,
communities, and households) needs to reflect on the most is what might be called “son
preference” where development is not proving to be an antidote. Son preference giving rise
S

to sex selective abortion and differential survival has led to skewed sex ratios at birth and
beyond, leading to estimates of 63 million “missing” women.
 But there is another phenomenon of son meta-preference which involves parents adopting
GS

fertility “stopping rules” – having children until the desired number of sons are born. This
meta-preference leads naturally to the notional category of “unwanted” girls which is estimated
at over 21 million. In some sense, once born, the lives of women are improving but society still
appears to want fewer of them to be born.
 Collective self-reflection by Indian society on son preference and son meta-preference is
necessary. Initiatives such as Beti Bachao Beti Padhao and Sukanya Samridhi Yojana and the
mandatory maternity leave rules inaugurated by this government are important steps focused
on addressing the underlying challenge.
PERFORMANCE OF THE INDIAN STATES
To shed some light on this, the scores of the Indian states across all the dimensions are average. The
variables are calibrated such that the maximum score is 100 percent.
Findings:
(a) Most North-Eastern states (with the exception of Tripura and Arunachal Pradesh) and
Goa are the best performer.
(b) Kerala
is the next best performer.
(c) The lagging performers are Bihar, Rajasthan, Madhya Pradesh, Uttar Pradesh, Jharkhand
and, surprisingly, Andhra Pradesh.

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(d) Delhi’s performance actually worsens in a decade.

(e) The worst Indian score is 57.6 (Bihar) and the best is 81 (Sikkim) with most of India
scoring between 55 and 65 (about 40 per cent away from the frontier). Indian states have
some distance to traverse to reach the theoretical frontier.
(f) The North-Eastern states have much better gender scores given their levels of income
(they are well above their line of best ft). On the other hand, accounting for their levels of
income, Andhra Pradesh, Haryana, Bihar and Tamil Nadu perform less well.
(g) Since not many women use methods of reversible contraception, they have little control
over when they start having children, but only seem to have control over when they stop
having children. This could affect other milestones early on in a woman’s life; for example,
women may not get the same access to employment that men do.
(h) Increased incomes of men allows Indian women to withdraw from the labor force, thereby
avoiding the stigma of working; higher education levels of women also allow them to
pursue leisure and other non-work activities all of which reduce female labor force
participation.

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(i) The structural transformation of Indian agriculture due to farm mechanization results in
a lower demand for female agricultural laborers.
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2. Do you think that the huge number of ‘unwanted girls’
(0-25 age group) in the population currently, is a direct
outcome of the ‘son meta preference’? What steps are
needed to control the menace?
S

!! Issues relating to son preference are a matter for Indian society as a whole to reflect upon.
GS

Because it is a long-standing historical challenge, all stakeholders are collectively responsible for
its existence and for its resolution.
!! The biologically determined natural sex ratio at birth is 1.05 males for every female. Any
significant deviation from this is on account of human intervention – specifically, sex-selective
abortion. In the case of China, the one-child policy interacted with the underlying son-preference
to worsen the sex ratio from 1070 in 1970 to 1156 in 2014. India’s sex ratio during this period
also increased substantially even without the one-child policy from 1060 to 1108 whereas if
development acted as an antidote, it should have led to improvements in the sex ratio.
!! Most striking is the performance of Punjab and Haryana where the sex ratio (0-6 years) is
approaching 1200 males per 1000 females, even though they are amongst the richest states.
!! The stock of missing women as of 2014 was nearly 63 million and more than 2 million women go
missing across age groups every year (either due to sex selective abortion, disease, neglect, or
inadequate nutrition).
Son “meta” preference: Sex Ratio of Last Child (SRLC) and “Unwanted” girls
!! While active sex selection via fetal abortions is widely prevalent, son preference can also manifest
itself in a subtler form. Parents may choose to keep having children until they get the desired
number of sons. This is called son “meta” preference. A son “meta” preference – even though
it does not lead to sex-selective abortion – may nevertheless be detrimental to female children
because it may lead to fewer resources devoted to them.

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!! The important thing to note is that this form of sex selection alone will not skew the sex ratio
– either at birth or overall. Therefore, a different measure is required to detect such a “meta”
preference for a son. One indicator that potentially gets at this is the sex ratio of the last child
(SRLC). A preference for sons will manifest itself in the SRLC being heavily skewed in favor of boys.
On the other hand, an SRLC for households that have strictly more than 1 child is 1.07. Similarly,
0.86 is the sex ratio of the second child among families that had strictly more than 2 children.
!! For India, the sex ratio of the last child for first-borns is 1.82, heavily skewed in favor of boys
compared with the ideal sex ratio of 1.05. This ratio drops to 1.55 for the second child for families
that have exactly two children and so on.
What does data implies?
Families where a son is born are more likely to stop having children as compared to families where
a girl is born. This is suggestive of parents employing “stopping rules” – having children till a son is
born and stopping thereafter. The only exception to this pattern is with regards to the first child. Even
parents who have a first-born son are likely to continue having children, which reflects a pure family
size preference – Indian parents, on average, want to have at least two children.

Inferences from the data

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!! It shows the patriarchal attitude of our Society - where a boy is preferred over
a girl.
!! It also shows that, how lack of education among the masses has created gender
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inequality.
!! It shows that our country is still lacking modern and liberal thinking when it
comes to gender.
!! It shows our country has high gender gap.
S

Reasons for Son preference

GS

The reasons on for such a son preference, includes patrilocality (women having to move to husbands’
houses after marriage) patrilineality (property passing on to sons rather than daughters) dowry (which
leads to extra costs of having girls), old-age support from sons rituals performed by sons.
Such meta preference gives rise to “unwanted” girls (girls whose parents wanted a boy, but instead
had a girl).

Amartya Sen’s concept of missing women

The term “missing women” indicates a shortfall in the number of women
relative to the expected number of women in a region or country. It is most
often measured through male-to-female sex ratios, and is theorized to be caused by
sex-selective abortions, female infanticide, and inadequate healthcare and nutrition
for female children. It is argued that technologies that enable prenatal sex selection,
which have been commercially available since the 1970s, are a large impetus for
missing female children.

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The phenomenon was first noted by the Indian Nobel Prize–winning economist
Amartya Sen in an essay in The New York Review of Books in 1990. Sen originally
estimated that more than a hundred million women were “missing.”These
effects are concentrated in countries typically in Asia, the Middle East and northern
Africa. However, the disparity has also been found in Chinese and Indian immigrant
communities in the United States, albeit to a far lesser degree than in Asia. An
estimated 2000 Chinese and Indian female unborn children were aborted between
1991 and 2004, and a shortage can be traced back as far as 1980.

Way forward
 Encouragingly, gender outcomes exhibit a convergence pattern, improving with wealth to a
greater extent in India than in similar countries so that even where it is lagging it can expect to
catch up over time.

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 As the challenge is historical and longstanding, no one stakeholder is responsible for creating
it or solving it. On gender, society as a whole (civil society, communities, households) and not
just any government must reflect on a societal preference, even meta-preference for a son,
which appears inoculated to development.
 The state and all stakeholders have an important role to play in increasing opportunities
CO
available for women in education and employment.
 Understanding the importance of its role, the government has launched the Beti Bachao Beti
Padhao and Sukanya Samridhi Yojana schemes. It has also made 26 weeks maternity leave
mandatory for women employed in the public and private sectors. Further, every establishment
that has more than 50 employees is now required to offer creche facilities. These steps will offer
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support to women in the workforce. In this somewhat unequal contest between the irresistible
forces of development and the immovable objects that are cultural norms, the former will need
all the support it can get – and then some more.
GS

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 6. RE
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Reforms
Needed
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1 Economic Survey 2017-18 &

‘Ease of Doing Business’

Next Frontier: Timely Justice

Introduction
The government’s efforts to make business and commerce easy have been widely acknowledged.
Alongwith that next frontier to be gained on the ease of doing business is addressing pendency,
delays and backlogs in the appellate and judicial arenas. These are hampering dispute resolution
and contract enforcement, discouraging investment, stalling projects, hampering tax collections
but also stressing tax payers, and escalating legal costs. This chapter recommends how to handle
the issue of pendency of cases.

1.
RE
India jumped thirty places to break into the top 100 for the first
time in theWorld Bank’s Ease of Doing Business Report, however,
CO
it continues to lag on the indicator on enforcing contracts. Why
strong contract enforcement regime is needed. What steps have
been taken by the government for improving the situation?

Introduction
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 India jumped thirty places to break into the top 100 for the first time in the World Bank’s Ease
of Doing Business Report (EODB), 2018. The rankings reflect the government’s reform
measures on a wide range of indicators. India leaped 53 and 33 spots in the taxation and
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insolvency indices, respectively, on the back of administrative reforms in taxation and passage
of the Insolvency and Bankruptcy Code (IBC), 2016. It also made strides on protecting
minority investors and obtaining credit, and retained a high rank on getting electricity, after a
70 spot rise in EODB, 2017 due to the government’s electricity reforms.
 This striking progress notwithstanding, India continues to lag on the indicator on enforcing
contracts, marginally improving its position from 172 to 164 in the latest report, behind
Pakistan, Congo and Sudan.
Importance of strong contract enforcement regime
 The importance of an effective, efficient and expeditious contract enforcement regime to
economic growth and development cannot be overstated.
 Economic activity is being affected by the realities and long shadow of delays and pendency
across the legal landscape.
 A clear and certain legislative and executive regime backed by an efficient judiciary that fairly
and punctually protects property rights, preserves sanctity of contracts, and enforces the rights
and liabilities of parties is a prerequisite for business and commerce.
Data
 Delays and pendency of economic cases are high and mounting in the Supreme Court, High

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 Courts, Economic Tribunals, and Tax Department, which is taking a severe toll on the economy
in terms of stalled projects, mounting legal costs, contested tax revenues, and reduced
investment more broadly.
 Delays and pendency stem from the increase in the overall workload of the judiciary, in turn
due to expanding jurisdictions and the use of injunctions and stays; in the case of tax litigation,
this stems from government persisting with litigation despite high rates of failure at every
stage of the appellate process.
Actions by the Courts and government acting together can considerably improve the
situation.
Steps taken by government to improve the contract enforcement regime:
 The Government: Scrapped Over 1000 Redundant Legislations.
 Rationalized Tribunals.
 Amended the Arbitration And Conciliation Act, 2015.
 Passed the Commercial Courts, Commercial Division And Commercial Appellate Division Of

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High Courts Act, 2015.
 Reduced Intra-Government Litigation.
 Expanded The Lok Adalat Programme to reduce the burden on the judiciary.
 The government has also advanced a prospective legislative regime to ensure legal consistency,
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reducing chaos due to unpredictable changes in regulations.
 The judiciary has simultaneously expanded the seminal National Judicial Data Grid (NJDG) and
is close to ensuring that every High Court of the country is digitized, an endeavor recognized
in EODB, 2018.
S
GS

2. Elaborate the reasons for the pendency of high

economic cases at the High Courts and Tribunals.
What are the associated costs for this pendency?

Delays and pendency of economic cases are high and mounting in the Supreme Court, High Courts,
Economic Tribunals, and Tax Department, which is taking a severe toll on the economy in terms
of stalled projects, mounting legal costs, contested tax revenues, and reduced investment more
broadly.

Data
 The average age of pending cases across these tribunals is 3.8 years.
 The creation of tribunals at different points in time did not alter pendency at the High Courts
of the country nor their ability to deal with other economic cases.
 Delays and pendency stem from the increase in the overall workload of the judiciary, in turn
due to expanding jurisdictions and the use of injunctions and stays; in the case of tax litigation,
this stems from government persisting with litigation despite high rates of failure at every

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stage of the appellate process.

 Actions b y the Courts and government acting together can considerably improve the
situation.
 The volume of economic cases is smaller than other case categories, their average duration of
pendency is arguably the worst of most cases, nearly 4.3 years for 5 major High Courts.
 The average pendency of tax cases is particularly acute at nearly 6 years per case.

Reasons for Pendency

 High Courts: Burden from Expansion of Discretionary Jurisdictions: One reason for the rising
pendency of economic cases at the High Courts could simply be the generalized overload of
cases. Further, economic and commercial cases are usually complex, require economic expertise
in their handling and disposal, and hence, require more judicial time. In some instances,
however, this increased overload is due to the expansion of discretionary jurisdictions by Courts,
without any countervailing measures that either balance the scope of other jurisdictions or
improve overall administration and efficiency.

RE
For example, Articles 226 and 227 of the Constitution of India empower High Courts with
carefully circumscribed writ jurisdiction. In practice, however, High Courts have permissively and
expansively interpreted this provision over a period of time, which has resulted in a substantial
increase in Article 226 cases.

Average Pendency of Civil Suits in Bombay and Delhi

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Court Name Pending Cases Average Pendency (in years)
Delhi High Court 19,470 5.8
Delhi Lower Judiciary 15,223 3.7
Bombay High Court 16,099 6.1
Maharashtra Lower Judiciary* 1,02,931 5.6
S

 High Courts: Burden from Original Side Jurisdiction: Some High Courts of the country
retain a unique original jurisdiction, under which the High Court, and not the relevant lower
GS

court, transforms into the Court of first instance for some civil cases. These cases occupy a
significant share of the Court’s docket. The Delhi and Bombay High Courts have original
jurisdictions that occupy nearly 10-15% of their workload.
 Supreme Court: Expansion of Special Leave Petition (SLP) Jurisdiction: The Supreme Court,
like the High Courts, has less capacity to deal with mounting economic cases because of rising
overall pendency. In the case of the SC, the burden derives in part from Special Leave Petitions
under Article 136 of the Constitution of India, which empowers any party to approach the
Supreme Court directly from any court or tribunal. Initially invoked only in “exceptional
circumstances”, SLPs are now overwhelming features of practice at the Supreme Court.
 Recourse to Injunctions and Stays: Rising pendency also results from the injunction of cases
by Courts. Lengthy interim orders, ex parte ad interim stays, increasing rate of pendency of
cases at final arguments, and few final judgments in IPR cases are common traits of IPR practice
across different High Courts. Nearly 50% of these cases are pending at the stage of pleadings,
which is the stage at which parties are required to complete formal requirements before
hearing.
Costs of delay
 For example: The project costs (stocks) of stayed projects—at the time they were originally
stayed—amounted close to 52,000 crores in six infrastructure ministries that are currently
stayed by court injunctions, as well as the average duration of their stays. (as shown)

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  The overall impact of rising pendency at Appellate Tribunals, High Courts and the Supreme
Court, coupled with the rising use of injunctions and other blunt instruments has led to spiraling
legal expenses of Corporate India.
Stayed Projects-Stock (6 Ministries, as on 31.10.2017)

Ministry Stayed Projects Total Value (Rs. Crores) Duration of Stay (Years)
Shipping 2 2620 5.9
Power 11 23,913 3
Road 30 11,216 3
Pertroleum 2 342 0.9
Mines 12 106 4.5
Railways 12 13,882 3
Total 52 52,081 4.3

CONCLUSION

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Total spending on Administration of Justice by States and the Centre constitutes approximately
0.08- 0.09% of GDP which is low when compared to other countries, especially common law
countries.
The Government may consider including efforts and progress made in alleviating pendency in the
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lower judiciary as a performance-based incentive for States.
Further, expenditure may be prioritized for fling, service and other delivery related issues that tend
to cause the maximum delays.
However, building additional judicial capacity may not be effective unless existing capacity is fully
utilized. The higher judiciary is currently operating at 63.6% of existing capacity.
S

Hence better utilisation of present resources are must to reduce pendency of cases.
GS

3. Discuss the steps needed for reforming the present

judicial system to combat pendency issue.

Pendency, delays and injunctions are overburdening courts and severely impacting the progress of
cases, especially economic cases, through the different tiers of the appellate and judicial arenas. The
Government and the Courts need to both work together for large scale reforms and incremental
improvements to combat a problem that is exacting a large toll from the economy.
Some of the following steps may be considered:
1. Expanding judicial capacity in the lower courts and reducing the existing burden on the High
Courts and Supreme Court;
!! For a smooth contract enforcement regime, it may be imperative to build capacity in the
lower judiciary to particularly deal with economic and commercial cases, and allow the High

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Courts to focus on streamlining and clarifying questions of law. For the same, amendments
to the Code of Civil Procedure, Commercial Courts Act and other related commercial
legislations should be considered. These measures must be buttressed by efforts to train
judges, particularly in commercial and economic cases by judicial academies.
!! Downsizing or removing original and commercial jurisdiction of High Courts, and enabling
the lower judiciary to deal with such cases. Early results from the Delhi High Court suggest
that reducing the size of original side jurisdiction in 2016 allowed the court more time to
reduce its overall pendency.
!! Courts may revisit the size and scale of their discretionary jurisdictions and avoid resorting
to them unless necessary, to reclaim the envisaged constitutional and writ stature of the
higher judiciary.
!! Existing judicial capacity ought to be fully utilized.
2. The tax department exercising greater self restraint by limiting appeals, given its low success
rate. This could either take the form of ex ante rules limiting appeals, for example, to no

RE
more than one in four High Court verdicts or no more than one in three arbitration cases; or,
given the long shadow of the 3 Cs (CBI, CVC, and CAG) in inducing bureaucratic risk-aversion,
perhaps an independent Panel could be created to decide on further appeals of tax verdicts
against the Department. Further, the number of tiers of scrutiny may be limited to three
forums for taxation cases.
CO
3. Substantially increasing state expenditure on the judiciary, particularly on their modernization.
The Government may consider incentivizing expenditure on court modernization and
digitization. This needs to be supported with greater provision of resources for both
tribunals and courts. Moreover, legislations (and perhaps even judicial decisions that expand
or introduce new jurisdictions) should be accompanied by judicial capacity and public
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expenditure memorandums, which adequately lay out the necessary provisions required to
address increasing judicial requirements, and ensure their adequate funding. The amounts
required may be negligible but the returns enormous.
GS

4. Building on the success of the Supreme Court in disposing tax cases, creating more subject-
matter and stage-specific benches that allow the Court to build internal specializations and
efficiencies in combating pendency and delay.
5. Reducing reliance on injunctions and stays. Courts may consider prioritizing stayed cases,
and impose stricter timelines within which cases with temporary injunctions may be decided,
especially when they involve government infrastructure projects.
6. Improving the Courts Case Management and Court Automation Systems. To free up judicial
time, initiatives like the Crown Court Management Services of the UK that are dedicated to
the management and handling of administrative duties, may be considered.
Recent experience with the GST has shown that vertical cooperation between the center and states-
-Cooperative Federalism--has brought transformational economic policy changes. Perhaps there is
a horizontal variant of that-- one might call it the Cooperative Separation of Powers--that could be
applied to the relationship between the judiciary on the one hand, and the executive/legislature
on the other. There are, of course, clear lines of demarcation and separation of powers between
the two to preserve independence and legitimacy. Even while respecting these lines, it should be
possible and desirable for these branches to come together to ensure speedier justice to help overall
economic activity.

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 Example

Format of special-sized benches in Supreme Court

The Supreme Court is the highest court of the land that deals with a wide array of cases.
When not dealing with substantial questions of law or constitutional issues requiring
the constitution of special-sized benches, the Court sits in benches comprising of two
judges to decide cases from High Courts and other forums of the country. The benches
are expected to hear and decide cases from a wide range of subject matters inter alia
constitutional law, criminal law, civil law, commercial law, and taxation. However, the
Court’s recent experiment with constituting an exclusive bench for taxation produced
impressive results, which may be replicated for other subject matters, and emulated by
other High Courts that do not have special rosters for daily hearings.
Besides reducing pendency and backlog, this phase of the Supreme Court saw a large
number of judgments on law, and permitted the Court to discharge its envisaged role of

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clarifying and settling legal questions.
There are other profound benefits of dedicated subject- matter benches. Such benches
ensure that the Supreme Court speaks in one voice, and there is continuity and consistency
of legal jurisprudence. Further, they create efficiencies by allowing the judge to focus on
the specialized branch of law placed before her. The model may be replicated for other
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commercial and economic areas of law as and when necessary at the Supreme Court, and
should be replicated by every High Court of the country.
S
GS

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Chapter
Economic Survey 2017-18 &

Transforming Science and

Technology in India

Introduction
Innovations in science and technology are integral to the long-term growth and dynamism of any
nation. The pursuit of science also creates a spirit of enquiry and discourse which are critical to
modern, open, democratic societies.
However, India under-spends on research and development (R&D), even relative to its level of

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development. A doubling of R&D spending is necessary and much of the increase should come
from the private sector and universities. To recapture the spirit of innovation that can propel it
to a global science and technology leader from net consumer to net producer of knowledge,
India should invest in educating its youth in science and mathematics, reform the way R&D is
conducted, engage the private sector and the Indian diaspora, and take a more mission-driven
approach in areas such as dark matter, genomics, energy storage, agriculture, mathematics, and
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cyber physical systems. Vigorous efforts to improve the “ease of doing business” need to be
matched by similar ones to boost the “ease of doing science.”
This chapter discusses about the status of R&D in India and steps needed to boost the “ease of
doing science.”
S
GS

1. ‘Science, technology, and innovation have instrumental

and intrinsic value for society’. Explain.

 Science, technology, and innovation have instrumental and intrinsic value for society. They are
key drivers of economic performance and social well-being. But they are also important for
deeper reasons: a scientific temper, with its spirit of enquiry, the primacy accorded to facts and
evidence, the ability to challenge the status quo, the adherence to norms of discourse and the
elevation of doubt and openness.
 The open spirit of inquiry that is fundamental to science can provide a bulwark against the
darker forces of dogma, religious obscurantism, and nativism that are threateningly resurfacing
around the world.
 Independent India has chalked up many accomplishments: from the nuclear energy program,
the hybrid seeds program that underpinned the Green Revolution to the space program,
including the Mangalyaan mission which highlighted India’s niche of doing cost-effective,
high-technology research. Most recently, India’s important participation (involving three major
Indian research institutions) in the Laser Interferometer Gravitational-wave Observatory (LIGO)

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 experiment successfully detected the existence of gravitational waves. And India’s vaccines and
generic-drugs have saved millions of lives the world over.
 However, given the dizzying pace and expansion of scientific research and knowledge on the
one hand, and a generally higher importance given to careers in engineering, medicine,
management and government jobs amongst India’s youth on the other, India needs to rekindle
the excitement and purpose that would attract more young people to the scientific enterprise.
Doing so would lay the knowledge foundations to address some of India’s most pressing
development challenges in addition to maintaining a decent, open society.
 Further, as India emerges as one of the world’s largest economies, it needs to gradually move
from being a net consumer of knowledge to becoming a net producer.

2. In India, the government is not just the primary source

of R&D funding but also it’s the primary user of these

Technology sector.
RE
funds. Discuss the status of funding in Science and

The status of Science and Technology sector in India can be analysed under two heads:
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Inputs
 Investments in Indian science, measured in terms of Gross Expenditure on R&D (GERD), have
shown a consistently increasing trend over the years. GERD has tripled in the last decade in
nominal terms – from Rs. 24,117 crores in 2004-05 to Rs. 85,326 crores in 2014-15 and an
estimated Rs.1,04,864 crores in 2016-17 – and double in real terms. However, as a fraction of
S

GDP, public expenditures on research have been stagnant – between 0.6-0.7 percent of GDP
– over the past two decades.
 About three-fifths of the public investment is spread over the key government science funding
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agencies like Atomic Energy, Space, Earth Sciences, Science and Technology, and
Biotechnology.
 India’s spending on R&D (about 0.6 percent of GDP) is well below that in major nations such
as the US (2.8), China (2.1), Israel (4.3) and Korea (4.2). In most countries, the private sector
carries out the bulk of research and development even if government must play an import
funding role. However, in India, the government is not just the primary source of R&D funding
but also it’s the primary user of these funds. Government expenditure on R&D is undertaken
almost entirely by the central government. There is a need for greater State Government
spending, especially application oriented R&D aimed at problems specific to their economies
and populations.
 Private investments in research have severely lagged public investments in India. India has no
firms in five of the top ten R&D sectors as opposed to China that has a presence in each of
them.
 In India, universities play a relatively small role in the research activities of the country.
Universities in many countries play a critical role in both creating the talent pool for research
as well generating high quality research output. However, publicly funded research in India
concentrates in specialized research institutes under different government departments. This
leaves universities to largely play a teaching role – a decision that goes back to the 1950s. It is
now widely acknowledged that whatever the merits of the decision at the time, this disconnection
has severely impaired both teaching as well as the research enterprise in the country.

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 East Asian countries like China, Japan, and Korea, have seen dramatic increase in R&D as a
percentage of GDP as they have become richer. India, on the other hand, has only seen a slight
increase. In fact, in 2015, there was a sizeable decline in R&D spending even as GDP per capita
continued to rise. At its current rate, India would just barely reach GERD of 1 percent of GDP
by the time it gets as rich as the USA.
 Indian Ph.D. students obtain their degrees either within India or abroad, especially in the US.
Outputs
 In 2013, India ranked 6th in the world in scientific publications. Its ranking has been increasing
as well. Between 2009-2014, annual publication growth was almost 14 percent. This increased
India’s share in global publications from 3.1 percent in 2009 to 4.4 percent in 2014 as per the
Scopus Database. However, there is a downside to the increase in publications.
 The Nature Index (which publishes tables based on counts of high-quality research outputs in
the previous calendar year covering the natural sciences) – ranked India at 13 in 2017. But
there is still a considerable lag in levels between India and the other two large countries, and
the rate of improvement in China between 2001 and 2011 is dramatically better than India’s.

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 According to the WIPO, India is the 7th largest Patent Filing Office in the World. However, India
produces fewer patents per capita. Unless there is a greater focus on R&D, rising income alone
will not allow India to catch up in the near future.
 India’s patent applications and grants have grown rapidly in foreign jurisdictions, the same is
not true at home. Residential applications have increased substantially since India joined the
international patent regime in 2005. However, the number of patents granted fell sharply post
CO
2008 and has remained low. While Indian residents were granted over 5000 patents in foreign
offices in 2015, the number for resident filings in India was little over 800.
 Reasons for decrement in grants
!! The decrease in grants could have been due to a stricter examination process. But evidence
suggests that there is a severe backlog and high rate of pendency for domestic patent
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applications.
!! Due to manpower shortage, there is a backlog of almost 2 lakh patents pending examination.
In 2016-2017, there were only 132 examiners for all patent applications in India. This has
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meant that patent examination and granting can take 5 or more years.
!! Given the rapid rate of technological obsolescence, the inordinate delay in processing
patents penalizes innovation and innovators within the country.
!! Addressing patent litigation issues will also be crucial to ensuring that the patent system
effectively rewards innovation.

3. What are the steps needed in enhancing R&D in

India?

India needs to redouble its efforts to improve science and R&D in the country first and foremost by
doubling national expenditures on R&D with most of the increase coming from the private sector and
universities. But the metrics also need to go beyond papers and patents to a broader contribution
to providing value for society.

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Thus steps needed are:
 Improve math and cognitive skills at the school level: No country can create a vibrant
superstructure of R&D with weak foundations of primary and secondary education for so many
of its young. Thus there is a need to improve math and cognitive skills at the school level.
 Encourage Investigator-led Research: India needs to gradually move to have a greater share
of an investigator-driven model for funding science research. A step in this direction occurred
in 2008, with the establishment of the Science and Engineering Research Board (SERB), a
statutory body of DST. This body has sanctioned about three and half thousand new R&D
projects to individual scientists. It is a promising start that needs to expand with more resources
and creative governance structures.
 Increase funding for research from private sector as well as from state governments: The
private sector should be incentivized to both undertake more R&D but to also support STEM
research through CSR funds. Efforts like the 50:50 partnership with SERB for industry relevant
research under the Ucchatar Avishkar Yojana (UAY) is a good example of what could help make
such partnerships fruitful.

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State governments too need to recognize the need to invest in application oriented research
aimed at problems specific to their economies and populations. This would both strengthen
state universities as well as provide much needed knowledge in areas such as crops, ecology
and species specific to a state.
 Link national labs to universities and create new knowledge eco-systems: Universities have
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students but need additional faculty support, while research institutes have qualified faculty but
are starved of bright young students brimming with energy and ideas. A closer relationship
between the two in specific geographic and spatial settings would help nurture research in areas
reflecting the fields of science in which the national research centers have strengths.
SC

 Take a mission driven approach to R&D:

a. National Mission on Dark Matter: India needs at least one mission that is directed
towards the basic sciences. India is one of the leading countries in high energy physics
and relevant mathematics.
The payoffs from this research will have implications on space missions of the future,
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quantum computing, newer solutions to energy problems etc. This mission can build on
the strong foundation of astronomy and astrophysics research institutes in the country.
Furthermore, research in this area has some of the strongest international collaborative
possibilities including those stemming from India’s ongoing participation in the LIGO,
Neutrino, CMS/LHC projects.
b. National Mission on Genomics: Genomic research lies at the heart of the future of the life
sciences. Currently several countries have launched ambitious national genomic research
projects, e.g., UK Biobank Study; Finnish Birth Cohort Study; Partners HealthCare Bioban;
China Kadoori Biobank. These studies are collecting detailed phenotype information, as
well as blood and tissue samples, to study the determinants and life-course of biological
pathways and disease. India already has a strong foundation of life science research
institutes which together can make significant contributions in this area.
c. National Mission on Energy Storage Systems: Renewable energy is the future and India
has made a major commitment to investment in renewable energy. India has lagged in
manufacturing renewal energy generation systems. Substantial investments in energy
storage systems will ensure that India can be a leader in manufacturing energy storage
systems.
d. National Mission of Mathematics: It will improve mathematics teaching at all levels of
higher education, seek to establish five institutes of mathematical sciences within existing

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institutions, conduct annual district, state and national math Olympiad competitions with
sizeable scholarships for all winners, with the overall goal of rapidly increasing India’s
human capital and research profile in mathematics within a decade.
e. National Mission on Cyber Physical Systems: The term Cyber Physical System (CPS)
refers to machine based communication, analysis, inference, decision, action, and control
in the context of a natural world (“Physical” aspect). This is hugely multidisciplinary area
including deep mathematics used in Artificial Intelligence, Machine Learning, Big data
Analytics, Block Chains, Expert Systems, Contextual Learning going to integration of all
of these with intelligent materials and machines, control systems, sensors and actuators,
robotics and smart manufacturing. Together these are the building blocks of future industry
that will throw up both new challenges and opportunities.
f. National Mission on Agriculture: Improving Indian agricultural productivity, which still
lags other countries such as China, as well as creating resilience to the looming challenges
in terms of rising temperatures, variable precipitation, water scarcity, increase in pests and
crop diseases, requires a major thrust in agricultural science and technology. A national
mission could help overcome the weaknesses in existing institutions of agricultural research

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and technology.
 Leverage scientific diaspora: There are today more than 100,000 people with PhDs, who
were born in India but are now living and working outside India (more than 91,000 in the U.S.
alone). However, with the strength of India’s economy and growing anti-immigrant atmosphere
in some Western countries, India has an opportunity to attract back more scientists. There has
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been an increase in the number of Indian scientists returning to work in India during the last
five years, but the numbers are still modest. There are a number of government programs such
as the Ramanujan Fellowship Scheme, the Innovation in Science Pursuit for Inspired Research
(INSPIRE) Faculty Scheme and the Ramalingaswami Re-entry Fellowship, that provide avenues
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to qualified Indian researchers residing in foreign countries, to work in Indian institutes/
universities, and the Visiting Advanced Joint Research Faculty Scheme (VAJRA). These schemes
could be enhanced to take advantage of opportunities to recruit in a way to build whole
research groups; the inducements should be such as to allow them to do good research
(laboratory resources, ability to hire post-docs, housing etc.) rather than financial, to ensure
that home grown talent has a level playing field.
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 Improve the culture of research: Indian science and research institutes need to inculcate less
hierarchical governance systems that are less beholden to science administrators and encourage
risk-taking and curiosity in the pursuit of excellence. Hence, it is imperative that there be greater
representation of younger scientists in decision making bodies in their areas of expertise.
 Greater public engagement of the science and research establishment: If science is to
garner greater support from society, it will require scientists to engage more vigorously with
society. Much of science is – and should be – a public good, and hence that will always require
substantial public funding. This will require much greater efforts at science communication
whether through the media or through regular tours and lectures for school and college
students as well the general public. Scientists need to create broad public support for their
work and not treat it as an entitlement, given the many claims on the public purse.

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