Raus IAS Prelims Compass 2020 Budget and Economic Survey PDF

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CONTENTS
INTRODUCTION TO ECONOMIC SURVEY 01 ►CHAPTER 5:
CREATING JOBS AND GROWTH BY SPECIAL-
IZING TO EXPORTS IN NETWORK PRODUCTS 12
Section-1 ►OPPORTUNITIES FOR INDIA FOR AN EXPORT LED GROWTH
12
Volume-I ►INDIA'S EXPORT PERFORMANCE 12

►REASONS FOR INDIA'S LACK LUSTRE EXPORT
02
PERFORMANCE VIS-A-VIS CHINA 13
►SUGGESTIONS FOR EXPORT LED GROWTH FOR INDIA 13
►CHAPTER 1: ►CATEGORIES OF INDUSTRIES CLASSIFIED AS NETWORK

PRODUCTS 14
WEALTH CREATION 02
►INDIA'S POTENTIAL IN NETWORK PRODUCTS (NP) 14
►KEY TERMS FROM THE CHAPTER 02
►COMPOSITION OF INDIA'S NP EXPORTS 14
►INDICES 03
►PATTERN OF ENTRY 14
►POTENTIAL GAINS IN EMPLOYMENT AND GDP 14
►CHAPTER 2: ►FREE TRADE AGREEMENTS 15
ENTREPRENEURSHIP AND WEALTH CREATION ►LIST OF INDIA'S TRADE AGREEMENTS 15
AT THE GRASSROOTS 05
►CHAPTER 6:
►CHAPTER 3: TARGETING EASE OF DOING BUSINESS IN INDIA
PRO-BUSINESS VERSUS PRO-CRONY 06 16
►EASE OF DOING BUSINESS INDEX 16
►AUTHORISED ECONOMIC OPERATORS (AEO) 16
►CHAPTER 4:
►CHAPTER AT A GLANCE 17
UNDERMINING MARKETS: WHEN GOVERNMENT
INTERVENTION HURTS MORE THAN IT HELPS 07
►CHAPTER 7:
1. INDEX OF ECONOMIC FREEDOM 07
GOLDEN JUBILEE OF BANK NATIONALISATION
2. INDEX OF GLOBAL ECONOMIC FREEDOM 07
►STATE OF PUBLIC SECTOR BANKS IN INDIA 17
►ESSENTIAL COMMODITIES ACT, ECA 1955 08
►DWARF SIZE OF INDIA'S BANKS 18
►DRUG PRICES REGULATIONS (COVERED IN ECONOMY
►CHALLENGES OF PSBS 18
COMPASS) 08
►BENEFITS OF NATIONALISATION 18
►GOVERNMENT INTERNVENTION IN GRAIN MARKETS 08
►ADVANTAGES OF PSBS 18
►DEBT WAIVERS 09
►SURVEY MAKES TWO SUGGESTIONS THAT CAN MAKE
►LEGISLATIVE CHANGES REQUIRED TO REDUCE
PSBS MORE EFFICIENT 18
GOVERNMENT INTERVENTIONS 10
►CHAPTER 8: ►CHAPTER 1:
FINANCIAL FRAGILITY IN THE NBFC SECTOR 20 STATE OF ECONOMY 27
►SHADOW BANKING 20 ►CONTRIBUTION OF DIFFERENT COUNTRIES TO $ 86
►CONCEPTUAL FRAMEWORK OF ROLLOVER RISK 20 TRILLION WORLD GDP 27
►WHAT IS ROLLOVER RISK? 21 ►MAJOR DRIVERS OF WORLD ECONOMY IN 2019-20 28
►DIFFERENCE BETWEEN HFCS AND RETAIL-NBFCS 21 ►TRENDS IN WORLD'S GDP GROWTH RATES 29
►RISK FROM ASSET LIABILITY MISMATCH 21 ►INDIA'S GDP SIZE AND TRENDS IN GDP GROWTH RATES 29
►RISKS FROM INTERCONNECTEDNESS 21 ►TRENDS IN CONTRIBUTION OF DIFFERENT SECTORS TO

►CREDIT RATIONING 21 INDIA'S GDP 29
►HEALTH SCORE INDEX 21 ►MAJOR DRIVERS OF INDIA'S GDP IN 2019-20 29
►POLICY IMPLICATIONS 21 ►DECODING PRESENT ECONOMIC SLOWDOWN 30
►DECODING INVESTMENT SLOWDOWN 31
►CHAPTER 9: ►TRENDS IN GROSS SAVINGS 31
PRIVATISATION AND WEALTH CREATION 22

►STRATEGIC DISINVESTMENT 22 ►CHAPTER 2:
►EXPERIENCE OF STRATEGIC DISINVESTMENT IN INDIA 22
FISCAL DEVELOPMENTS 31
►EVOLUTION OF DISINVESTMENT POLICY OF INDIA 23
►OVERVIEW OF PUBLIC FINANCES 32
►BENEFITS OF PRIVATISATION 23
►RECOMMENDATIONS OF ECONOMIC SURVEY 32
►WAY FORWARD 23
►DEBT POSITION OF THE GOVERNMENT 32
►EXTERNAL DEBT OF INDIA 33
►CHAPTER 10:
►TRENDS IN CENTRE'S DEBT-TO-GDP RATIO 34
IS INDIA’S GDP GROWTH RATE OVERSTATED?
►15TH FINANCE COMMISSION 34
NO! 23
►TRENDS IN TRANSFER OF FINANCES FROM CENTRE TO
►CONCEPTS RELATED TO GDP CALCULATION 23
STATES 35
►REAL GDP 24
►CORPORATE TAX CUT 35
►NOMINAL GDP 24
►GDP DEFLATOR 24
►CHAPTER 3:
►NATIONAL INCOME AGGREGATES 24
EXTERNAL SECTOR 36
►METHODS TO CALCULATE GDP 25
►TRENDS IN BALANCE OF PAYMENT (BOP) 36
►NEW METHODOLOGY FOR GDP ESTIMATION 25
►STANDING COMMITTEE ON ECONOMIC STATISTICS (SCES) ►MERCHANDISE EXPORTS FROM INDIA 37
25 ►MERCHANDISE IMPORTS INTO INDIA 38
►COMMITTEE FOR SUB-NATIONAL ACCOUNTS 26 ►TRENDS IN MERCHANDISE TRADE DEFICIT 38
►TRENDS IN CURRENT ACCOUNT DEFICIT (CAD) 38
►CHAPTER 11 26 ►NET TERMS OF TRADE (NTT) 39
►THALINOMICS 26 ►INDIA'S TOP TRADING PARTNERS 39
►NET INTERNATIONAL INVESTMENT POSITION (NIIP) 40
Section-2 ►TRENDS IN NIIP 40
►TRADE IN SERVICES 40
Volume-II ►BREAKDOWN IN THE WTO DISPUTE SETTLEMENT

MECHANISM 41
27
►MAJOR SCHEMES FOR EXPORT PROMOTION 41
ii
►CHAPTER 4: ►CHAPTER 7:
MONETARY MANAGEMENT AND FINANCIAL AGRICULTURE AND FOOD MANAGEMENT 54
INTERMEDIATION 42 ►TRENDS IN CONTRIBUTION OF AGRICULTURE SECTOR TO
►TYPES OF MONETARY POLICIES 42 INDIA'S GDP 54
►REGULATION OF COOPERATIVE BANKS 42 ►TRENDS IN GROWTH RATE OF INDIAN AGRICULTURE 54
►PARTIAL CREDIT GUARANTEE FUND SCHEME 43 ►TRENDS IN GROSS CAPITAL FORMATION IN AGRICULTURE
55
►FOREIGN EXCHANGE SELL/ BUY SWAP 43
►TRENDS IN CROPPING PATTERN 55
►MONETARY DEVELOPMENTS DURING 2019-20 MONETARY
POLICY 43 ►TRENDS IN CROP PRODUCTION 55
►POOR MONETARY POLICY TRANSMISSION IN INDIA 43 ►LARGEST PRODUCERS OF MAJOR CROPS 56
►EXTERNAL BENCHMARKING OF LOANS 43 ►TRENDS IN OPERATIONAL LANDHOLDINGS 56
►HEALTH OF THE BANKING SECTOR: IMPORTANT ►AGRICULTURE PRICING POLICY AND MSP 57
HIGHLIGHTS 44 ►MECHANISATION OF INDIAN AGRICULTURE 57
►NON-BANKING FINANCIAL SECTOR (NBFCS) 44 ►MICRO-IRRIGATION IN INDIAN AGRICULTURE 58
►INSURANCE SECTOR 45 ►AGRICULTURAL TRADE 58
►ALLIED SECTORS: ANIMAL HUSBANDRY, DAIRYING AND
FISHERIES 58
► CHAPTER 5:
►FOOD MANAGEMENT 59
PRICES AND INFLATION 45
►INCREASE IN THE FOOD SUBSIDY BILL 60
►INFLATION TRENDS IN INDIAN ECONOMY 45
►RECENT CHANGES IN THE PRADHAN MANTRI FASAL BIMA
►FACTORS THAT HAVE CONTRIBUTED TO INFLATION IN YOJANA 60
2018-19 AND 2019-20 46
►DIVERGENCE BETWEEN WPI AND CPI 47
►DIVERGENCE BETWEEN CPI-RURAL AND CPI-URBAN 47
►CHAPTER 8:
►COBWEB PHENOMENON IN PULSES 47 INDUSTRY AND INFRASTRUCTURE 61

►DRUG PRICING 47 ►TRENDS IN CONTRIBUTION OF INDUSTRIAL SECTOR 61
►CHANGE IN INFLATION DYNAMICS POST 2012 48 ►TRENDS IN INDEX OF INDUSTRIAL PRODUCTION (IIP) 62
►GROSS CAPITAL FORMATION IN INDUSTRIAL SECTOR 63

►EASE OF DOING BUSINESS (EODB) 63
► CHAPTER 6: SUSTAINABLE DEVELOPMENT
►START-UP INDIA 63
AND CLIMATE CHANGE 49
►SECTOR WISE ISSUES AND INITIATIVES 63
►INDIA'S PROGRESS ON SUSTAINABLE DEVELOPMENT
GOALS (SDGS) 49 ►INFRASTRUCTURE 64
►ABOUT SDG INDIA INDEX 49 ►ROAD SECTOR 64
►INDIA’S PERFORMANCE 49 ►RAILWAYS 64
►SDG NEXUS: A NEW PARADIGM APPROACH 49 ►CIVIL AVIATION 64
CLIMATE CHANGE 50 ►SHIPPING 64
►INDIA'S GREENHOUSE GAS INVENTORY 50 ►TELECOM SECTOR 65
►INTERNATIONAL FINANCIAL MECHANISMS FOR DEALING ►PETROLEUM AND NATURAL GAS 66

WITH CLIMATE CHANGE 52 ►POWER 66
►HIGHLIGHTS OF STATE OF FORESTS REPORT 2019 52 ►MINING SECTOR 66
►AGRICULTURAL RESIDUE BURNING – A MAJOR CONCERN ►HOUSING AND URBAN INFRASTRUCTURE 66
53
►INDIA’S INITIATIVES AT THE INTERNATIONAL STAGE 53
iii
►CHAPTER 9: ►OVERVIEW 76
SERVICES SECTOR 67
►TRENDS IN CONTRIBUTION OF SERVICES SECTOR 67 ►COMPONENTS OF THE BUDGET 76
►FDI INFLOWS INTO SERVICES SECTOR 68
1. ANNUAL FINANCIAL STATEMENT 76
►TRADE IN SERVICES SECTOR 68
2. DEMAND FOR GRANTS 77
MAJOR SERVICES: SUBSECTOR WISE PERFORMANCE AND
3. FINANCE BILL 77
RECENT POLICIES 68
4. DOCUMENTS MANDATED UNDER FRBM ACT 77
►TOURISM SECTOR 68
►INFORMATION TECHNOLOGY AND BUSINESS PROCESS

MANAGEMENT (IT-BPM) SERVICES 68 ►PROCEDURE 78
►PORT AND SHIPPING SERVICES 69
►SPACE SECTOR 69
TERMS RELATED TO BUDGET 78
GOVERNMENT DEFICITS 78
►CHAPTER 10: ►FISCAL DEFICIT 78
SOCIAL INFRASTRUCTURE, EMPLOYMENT AND ►REVENUE DEFICIT 78
HUMAN DEVELOPMENT 69 ►GROSS PRIMARY DEFICIT 78
►TRENDS IN SOCIAL SECTOR EXPENDITURE 69 ►BUDGETARY DEFICIT 78
►HUMAN DEVELOPMENT 70 ►EFFECTIVE REVENUE DEFICIT 78
EDUCATION FOR ALL 70 ►SOURCE OF DEFICIT FINANCING 78
►PROGRAMMES AND SCHEME FOR SCHOOL EDUCATION ►FISCAL POLICY 78
70
►MONETARY POLICY 78
►PROGRAMMES AND SCHEMES IN HIGHER EDUCATION 71
►CAPITAL BUDGET 78
►SKILL DEVELOPMENT 71
►REVENUE BUDGET 78
STATUS OF EMPLOYMENT IN INDIA 72
►FINANCE BILL 78
►IMPORTANT TERMS TO UNDERSTAND 72
►VOTE ON ACCOUNT 79
►FORMALISATION OF JOBS WITHIN INDIAN ECONOMY 72
►EXCESS GRANTS 79
►STEPS TAKEN TOWARDS FORMALISATION OF THE LABOUR
►REVISED ESTIMATES 79
MARKET 72
►RE-APPROPRIATIONS 79
►DIFFERENT CATEGORIES OF WORKERS 73
►OUTCOME BUDGET 79
►FEMALE PARTICIPATION IN LABOUR MARKET 73
►GUILLOTINE 79
►REASONS FOR DECLINE IN FEMALE LFPR 74
►INITIATIVES TO IMPROVE FEMALE WORK PARTICIPATION

74 BUDGET 2020-21 AT A GLANCE 79
►HEALTH FOR ALL 74 ►BUDGET ESTIMATES FOR 2020-21 79
►HOUSING FOR ALL 75
►TRENDS IN IMPORTANT MACRO-ECONOMIC

INDICATORS 80
Section-3 1. GDP GROWTH RATE 80
2. DEFICITS AS A % OF GDP 80
Budget 2020-21 3. INFLATION 80
4. CURRENT ACCOUNT DEFICIT 80
76
iv
►THEME 81 PILLAR II: GOVERNANCE 88
 THEME I: ASPIRATIONAL INDIA 81 1. INTRODUCTION OF TAX CHARTER UNDER THE INCOMETAX

ACT 88
1. AGRICULTURE, IRRIGATION AND RURAL DEVELOPMENT 81
2. RECRUITMENT OF NON-GAZETTED POSTS 88
2. WELLNESS, WATER AND SANITATION 83
3. NATIONAL POLICY ON OFFICIAL STATISTICS 88
3. EDUCATION AND SKILLS 84
 THEME II: ECONOMIC DEVELOPMENT 85
1. INDUSTRY, COMMERCE AND INVESTMENT 85 IMPORTANT TAXATION PROPOSALS 88

2. INFRASTRUCTURE 86 1. SIMPLIFIED INCOME TAX REGIME 88
3. NEW ECONOMY 87 2. REMOVAL OF DIVIDEND DISTRIBUTION TAX 89
THEME III: CARING SOCIETY 87 3. TAX CONCESSION TO SOVEREIGN WEALTH FUND 89
1. WOMEN & CHILD, SOCIAL WELFARE 87 4. BOOST TO START UPS 89
2. CULTURE AND TOURISM 87 5. VIVAD SE VISHWAS SCHEME 89
PILLARS 87
PILLAR I: FINANCIAL SECTOR 87
1. INCREASE IN THE DEPOSIT INSURANCE COVERAGE 87
2. STEPS TO DEEPEN BOND MARKET 87

3. MSME 88
4. INTERNATIONAL BULLION EXCHANGE 88
INTRODUCTION TO ECONOMIC SURVEY
Economic Survey, presented in the Parliament ahead of the Union Budget, is the Ministry of Finance’s flagship
document. The Economic Survey detailed information about the Indian economy over the past year. The
Economic Survey also offers glimpses into the current state of the economy, and occasional insights into the
economic outlook. Although the Constitution does not bind the government to present the Economic Survey,
over the years, it has become common practice for every government to present the Economic Survey before
the Union Budget.
Who authors the Economic Survey?
The Economic Survey is prepared under the guidance of Chief Economic Advisor and is presented in both the
houses of Parliament, a day before the announcement of the Union Budget.
Significance of Economic Survey
The Economic Survey holds significance as it apprises common people about the state of economic affairs of
the country and makes them aware about the key economic decisions of the government which impact their
lives in a considerable way. The Economic Survey also recommends policy changes to the government, which
are, however, not binding but only act as a guide in framing national policies. It contains forecasts about the
economic growth of the country and the reasons outlining the projection.
A brief history of the Economy Survey
• The first Economic Survey was presented in the year 1950-51.
• Until 1964, it was presented along with the Union Budget, but later it was disjointed from the Union
Budget to give a better understanding of the budget proposals.
• As the Economic Survey contains a detailed analysis of the economic development of the country and a
lot of data related to various sectors of the economy, it works as a useful tool providing background
knowledge.
Interestingly, the former Chief Economic Advisor Arvind Subramanian in 2018 had for the first time released
the document in pink colour. The idea waa to support women who suffer violence and to push for more gender
equality. Not just the colour of the document, he revamped the whole document by making it more interesting
with quotes and additional information. This was the first time that the Economic Survey used data generated
by GST Network and the Indian Railways to see the flow of goods and people across states within India.
SECTION 1
V OLUME-I
►CHAPTER 1:
WEALTH CREATION
►KEY TERMS FROM THE CHAPTER
• It emphasises on the importance of 'Ethical Wealth Creation', as the key to making India $5 trillion
economy by 2025.
Wealth • Hence the ultimate measure of wealth in a country is the GDP of the country.
creation • But according to Economic Survey, Wealth creation in the economy must ultimately enhance the
livelihood of the common person by providing him/her greater purchasing power to buy goods and
services.
• It is a term used to denote to an economic system in which transactions between private parties are
devoid of any form of government intervention such as regulation, privileges, imperialism, tariffs and
Invisible Hand
subsidies.
• The evidence since 1991 shows that enabling the invisible hand of markets, i.e., increasing economic
openness, has a huge impact in enhancing wealth both in the aggregate and within sectors.
The Survey introduces the idea of “trust as a public good that gets enhanced with greater use”. It has three
main characteristics:
Non-Excludability:
• Trust can be conceptualized as a public good with the characteristics of non-excludability i.e., the citizens
can enjoy its benefits at no explicit financial cost.
Non-Rival:
Hand of trust
• Trust also has the characteristics of nonrival consumption i.e., the marginal cost of supplying this public
good to an extra citizen is zero.
Non-rejectable
• It is also non-rejectable i.e., collective supply for all citizens means that it cannot be rejected.
• According to Economic Survey, Trust grows with repeated use and therefore takes time to build (Unlike
other public goods).
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• Lack of trust reprresents an ex xternality where decision makers are not responssible for som
me of the
conse
equences of thheir actions.
A key contributor to ancient

a India’ss prosperity was
w internal and
a external trade
t which was
w dependen
nt on two
Uttara Path
major hig
ghways:
an
nd
1. Uttara
apatha (the Northern Road
d)
Dakshina Path
h
2. Daksh
hinapatha (the
e Southern Ro
oad)
• The Survey aims to

o put a numbe er what a com
mmon man pa
ays for a dece
ent meal, or a Thali as it is k
known in
commmon lingo, acro
oss the counttry.
Th
halinomics
• The Economic Surv vey says the a
absolute price
e of a vegetarian Thali has decreased sig
gnificantly sin
nce 2015-
16 acrross India and
d the four reg
gions; though the price incrreased during
g 2019-20
►INDICES
Co
orruption pe
erception ind
dex (Transparrency Interna
ational)
Pe
erception of Corruption
C ha
as gone down in India in pa
ast decade:
• The corruptiion perception index, which Transparen ncy International tracks acrross countriess, shows India
a at its lowest point in
recent yearss in 2011. Sincce 2013, India has improved significantlyy on this index. The phenomenon of trust deficit thatt
developed inn India duringg this period is also reflecte
ed in many otther measuress.
In
ndia’s perform
mance on Corru
uption Percepttion Index: hig
gher the score = lower the peerception of Co
orruption
IMPORTANT TENDS
Ind
dia’s GDP (curreent US$ tn) (19
960-2018) India’s GDP per capita
a (current US$
$) (1960-2018)
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Historically ports along India’s long coastline traded with among competing opportunities. This principle is
Egypt, Rome, Greece, Persia and the Arabs to the west, and fundamental to a market economy.
with China, Japan and South East Asia to the east ο Where as in India we have been following active
The instruments for wealth creation: government interventions in the market through
• Invisible hand and hand of trust command and control approach:
ο Already discussed.  The command and control approach contends that

the price of a good should be regulated. Our
• Entrepreneurship
economy still has some of the regulatory relics of the
ο New firm creation is rapidly growing, and India ranks pre-liberalisation era.
three in number of new firms created
ο Example:
ο New firm creation in services is significantly higher than
 Unlike in command economies where prices are
that in manufacturing, infrastructure or agriculture.
determined by the government, in a market
ο Equal opportunity for new entrants is important economy, price of a good is determined by the true
because a 10 per cent increase in new firms in a district demand and supply mechanism.
yields a 1.8 per cent increase in Gross Domestic District
ο The survey finds that enabling the economic freedom
Product (GDDP).
for markets augments wealth creation.
• Pro-business policies
• Creating Jobs and Growth by Specializing to Exports in
ο A key dimension of wealth creation depends on how Network Products
opportunity is distributed among new entrants and
ο Since resources are limited, a nation has to make
incumbents (Old and big businesses).
choices.
ο “pro-business” policies would mean an economy that
 For example, given its demographic dividend, should
enables fair competition for every economic participant.
India focus on labour-intensive industries or on
ο Advantages with the incumbents: capital intensive industries?
 Incumbents are likely to be powerful, influential, and ο Hence one of the important aspects of wealth creation
have a voice that is heard in the corridors of power is the allocation of resources to ensure their optimal
ο Advantages with new entrants: use.
 They bring path-breaking ideas and innovation that ο The survey finds that by integrating “Assemble in India
not only help the economy directly but also indirectly for the world” into Make in India, India can create 4
by keeping the incumbents on their toes. crore well-paid jobs by 2025 and 8 crore by 2030.
ο What problems does pro-crony policies create? ο Our trade policy must be an enabler because growth in
 These policies create influence of incumbents in exports provides a much-needed pathway for job
extracting rents from their incumbency and creation in India.
proximity to the corridors of power, which • Targeting Ease Of Doing Business In India
corresponds to “pro-crony” economy. ο India performance
ο Therefore, the vibrancy of economic opportunities is  The ease of doing business has increased
defined by the extent to which the economy enables fair substantially in the last five years from reforms that
competition, which corresponds to a “pro-business” provided greater economic freedom.
economy.
 India made a substantial gains in The World Bank’s
• Reducing governments intervention in the market Doing Business rankings from 142 in 2014 to 63 in
ο Government intervention is bad because it distorts 2019.
the play of the market  The Doing Business 2020 report has recognized India
 The freedom to choose is best expressed in an as one of the ten economies that have improved the
economy through the market where buyers and most.
sellers come together and strike a bargain via a price
ο But where is India lacking?
mechanism.
India continues to trail in parameters such as:
 in the scenario of scarcity of resources, the market
 Ease of Starting Business,
offers the best mechanism to resolve the choice
 Registering Property,
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 Paying Taxes, compared to the change in the price of HPCL (no
 Enforcing Contracts. privatization) over the same period demonstrates
that stock market agrees that its performance is
ο A holistic assessment and a sustained effort to ease
going to increase.
business regulations and provide an environment for
 Economic survey asserts thatfollowing parameters of
businesses to flourish would be a key structural reform
the privatized CPSEs, on an average, have increased
that would enable India to grow at a sustained rate of 8-
significantly in the post-privatization period
10 per cent per annum.
compared to the peer firms
• Increasing efficiency of Public Sector Banks
 net worth
ο Why are banks so important?
 net profit
 An efficient financial sector is extremely crucial for  return on assets
enhancing efficiency in the economy.
 This improved performance holds true for each CPSE
 A large economy needs an efficient banking sector to taken individually as well.
support its growth.
 Hence Economic survey recommends active
 Historically, in the last 50 years, the top-five privatization of CPSEs.
economies have always been ably supported by their
banks.
ο What is the share of countries in the list of top ►CHAPTER 2:
global banks?
 China: The top four largest banks globally are all ENTREPRENEURSHIP AND
Chinese banks.
 The largest bank in the world—Industrial and
WEALTH CREATION AT THE
Commercial Bank of China—is nearly two times
as big as the 5th or 6th largest bank, which are
GRASSROOTS
Japanese and American banks respectively. • This chapter examines the content and drivers of
 India: India has only one bank in the global top 100 – entrepreneurial activity at the bottom of the administrative
same as countries that are a fraction of its size: pyramid – over 500 districts in India.
Finland (about 1/11th), Denmark (1/8th), Norway • The analysis employs comprehensive data on new firm
(1/7th), Austria (about 1/7th). creation in the formal sector across all these districts from
 This shows that India’s banking sector is the Ministry of Corporate Affairs (MCA)-21 database.
disproportionately under-developed given the size of Few key takeaways from the chapter are:
its economy • New firm creation is rapidly growing, and India ranks
ο What role do Public Sector Banks play in India’s three in number of new firms created:
economy? ο World Bank’s Data on Entrepreneurship has been
 As PSBs account for 70 per cent of the market share utilized, this chapter confirms that India ranks third in
in Indian banking, the onus of supporting the Indian number of new firms created.
economy and fostering its economic development ο The same data shows that new firm creation has gone
falls on them. Yet, on every performance parameter, up dramatically in India since 2014. While the number of
PSBs are inefficient compared to their peer groups. new firms in the formal sector grew at a cumulative
ο Economic survey suggests that there is a need to make annual growth rate of 3.8 per cent from 2006-2014, the
PSBs more efficient so that they are able to adeptly growth rate from 2014 to 2018 has been 12.2 per cent.
support the nation in creating wealth commensurate As a result, from about 70,000 new firms created in
with a $5 trillion economy. 2014, the number has grown by about 80 per cent to
• Privatisation about 1,24,000 new firms in 2018.
ο Why privatization? • New firm creation in services is significantly higher

than that in manufacturing, infrastructure or
 According to economic survey a significant change in
agriculture.
performance of Central Public Sector Enterprises
(CPSEs) have been observed after privatization. ο It reflects India’s new economic structure, i.e.
comparative advantage in the Services sector as
 For example: The increase in the stock prices of
compared to Agriculture and manufacturing. s
BPCL (post announcement of its privatization) when
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• Entrepreneurship at the bottom of the administrative into more productive processes.
pyramid has a significant impact on wealth creation: PRO BUSINESS POLICIES:
ο Grassroots entrepreneurship is not just driven by • Firms compete on a level playing field
necessity as a 10 percent increase in registration of new
• Resource allocation in the economy is efficient
firms in a district yields a 1.8 percent increase in GDDP.
Thus, entrepreneurship at the bottom of the • Citizens welfare is maximised
administrative pyramid – a district – has a significant PRO-CRONY POLICIES:
impact on wealth creation at the grassroot level. This
• Some incumbent firms (old and dominant) may receive
impact of entrepreneurial activity on GDDP is maximal
preferential treatment
for the manufacturing and services sectors.
• Resource allocation in the economy may not be efficient
• There is a reginal disparity across India in terms of
new firms created https://t.me/UPSC_PDF • Citiens welfare may not be maximized
ο Birth of new firms is very heterogeneous across Indian Pro-crony policies, in contrast to probusiness ones, erode
districts and across sectors. Moreover, it is dispersed wealth in the economy as cronyism fosters inefficiencies by
across India and is not restricted to just a few cities. inhibiting the process of creative destruction
• Literacy and education in the district foster local RENT EXTRACTION:
entrepreneurship significantly. Rent seeking (or rent-seeking) is an economic concept that
ο For instance, the eastern part of India has the lowest occurs when an entity seeks to gain added wealth without
literacy rate of about 59.6 per cent according to the any reciprocal contribution of productivity. Typically, it
census of 2011. This is also the region in which new firm revolves around government-funded social services and
formation is the lowest. In fact, the impact of literacy on social service programs.
entrepreneurship is most pronounced when it is above
RISKLESS RETURN: (WILFUL DEFAULT)
70 per cent. ¬ Sixth, the level of local education and the
quality of physical infrastructure in the district influence • The primary reason of any investment is that high
new firm creation significantly. expected rewards come with high risk, but many Indian
firms have found a peculiar way to reap rewards without
• Ease of doing business directly impacts new firm
commensurate risk.
creation
• What they do is that they enjoy profits in good times but
ο Policies that enable ease of doing business and flexible
labour regulation enable new firm creation, especially in often rely on the state or their financiers to bail them out
the manufacturing sector. in bad times.
ο As the manufacturing sector has the greatest potential • Wilful default occurs when firms take loans, divert the
to create jobs for our youth, enhancing ease of doing proceeds out of the firm for the personal benefit of
business and implementing flexible labour laws can owners, default on loans and declare bankruptcy, thereby
create the maximum jobs in districts and thereby in the expropriating a range of stakeholders – lenders, minority
states. shareholders, employees, regulators and state coffers.
Literacy, education and physical infrastructure are the other WHAT ARE PRO-BUSINESS POLICIES?
policy levers that district and state administrations must
• Pro-business policies increase competition, correct market
focus on foster entrepreneurship.
failures, or enforce business accountability
• Pro-business policies make it easy to start a business,
►CHAPTER 3: register property, enforce contracts, obtain credit, bid for
natural resources, get permits, and resolve insolvency help
PRO-BUSINESS VERSUS firms to function effectively and thereby enable
competitive.
PRO-CRONY • Making it easy to do business in a jurisdiction furthers the
Key terms: eventual goal of maximizing social welfare. Reforms aimed
in this direction must continue.
CREATIVE DESTRUCTION
WHAT ARE PRO-CRONY POLICIES?
• This refers to the process of how capitalism leads to a
constantly changing structure of the economy. Old • Such policies may promote narrow business interests and
industries and firms, which are no longer profitable, close may hurt social welfare because what crony businesses
down enabling the resources (capital and labour) to move may want may be at odds with the same.
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• Pro-crony policies as reflected in discretionary allocation of
natural resources till 2011 led to rent-seeking by
►CHAPTER 4:
beneficiaries while competitive allocation of the same
resources post 2014 have put an end to such rent
UNDERMINING MARKETS:
extraction. WHEN GOVERNMENT
• Similarly crony lending that led to wilful default, wherein
promoters have collectively siphoned off wealth from INTERVENTION HURTS
banks, led to losses that dwarf subsidies directed towards
rural development.
MORE THAN IT HELPS
CAN WE SUBSTANTIATE THE DIFFERENCE THROUGH AN Government intervention, sometimes though well intended,
EXAMPLE often ends up undermining the ability of the markets to
support wealth creation and leads to outcomes opposite to
• For example, crony businesses may lobby the government
those intended.
to limit competition in their industry, restrict imports of
competing goods or reduce regulatory oversight. These STRENGTHS OF MARKET MARKETS CANNOT
initiatives enhance the lobbying group’s income but
undermine markets and reduce aggregate welfare. Thus, • Keep prices in check • Provide public goods
pro-crony policy can inadvertently end up being hurtful to • Use resources efficiently • Prevent abuse of monopoly
businesses in general. • Encourage innovation power
• Catering to the needs of crony businesses alone without • Increase consumer • Internalize externalities
regard for other businesses and the remaining choice • Overcome information
stakeholders in the economy may end up benefitting the • Create wealth asymmetry
preferentially treated firms at the expense of other firms,
• Maximise aggregate • Distribute wealth equitably
market efficiency and social welfare.
welfare • Ensure ethical practices
HAS “CREATIVE DESTRUCTION” TAKEN PLACE IN INDIA?
• Yes, economic eventssince 1991 provide powerful
evidence supporting this crucial distinction. 1. INDEX OF ECONOMIC FREEDOM
• Viewed from the lens of the Stock market, which captures Released by Heritage Foundation
the pulse of any economy,creative destruction has PARAMETERS USED
increased significantly after reform. • It measures economic freedom based on 12 quantitative
ο Before liberalization, aSensex firm expected to stay in it and qualitative factors, grouped into four broad categories
for 60 years, which decreased to only 12 years of economic freedom:
afterliberalization. Every five years, one-third of Sensex 1. Rule of Law (Property rights, government integrity, judicial
firms are churned out, reflecting thecontinuous influx of effectiveness)
new firms, products and technologies into the economy. 2. Government Size (Government spending, tax burden,
WHEN DID INDIAN ECONOMY ACTUALLY START fiscal health)
PROMOTING COMPETITION? 3. Regulatory Efficiency (Business freedom, labour freedom,
• The liberalization of the Indian economy which mainly monetary freedom)
began in 1991 unleashed competitive markets. 4. Open Markets (Trade freedom, Investment freedom,
• It enabled the forces of creative destruction, generating financial freedom)
benefits that we still witness today. India was ranked 120 on the index. First Rank was attained by
India’s aspiration to become a $5 trillion economy depends Singapore.
critically on promoting “pro business” policy that unleashes

the power of competitive markets to generate wealth, on the 2. INDEX OF GLOBAL ECONOMIC
one hand, and weaning away from “pro-crony” policy that FREEDOM
may favor specific private interests, especially powerful
• Released by Fraser Institute, Canada.
incumbents, on the other hand.
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• This index measures degree of economic freedom present 3. Conviction rate under the act is abysmally low and raids
in 5 major areas: have no impact on prices
1. Size of government 4. It only seems to enable rent seeking and harassment
2. Legal system and security of property rights 5. Anti-hoarding provisions of ECA discourage open
3. Sound money reporting of stock holdings, storage capacities, trading and
carry forward positions.
4. Freedom to trade internationally
WAY FORWARD
5. Regulation
1. Supporting development of commodity futures market
India was ranked 79. Hong Kong was most economically free
would help efficient discovery of market expected future
country according to this index.
prices, which can provide a better basis for private storage
Indian economy is replete with examples where Government decisions and avoid peaks and troughs in prices.
internvention undermines markets unnecessarily ie even in
2. Development of effective forecasting mechanisms, stable
areas where there are no market failures. This Chapter shows
trade policies, and increasing integrations of agricultural
this 4 case studies which show that government inervention
markets can serve the purpose of stabilising prices of
leads to outcomes opposite to what it actually intended to
agricultural markets more efficiently than government
achieve.
intervention using ECA.
1. Essential Commodities Act
3. There is a need for aggregated total private storage
2. Drug Price Control Order capacity available in the country, which would enable
3. Government Intervention in Food Grain Markets policymakers to assess impact of any production shocks
4. Debt Waivers on prices.
4. Investment needs to be made in modern storage facilities
►ESSENTIAL COMMODITIES ACT, ECA and in market intelligence, to help make accurate
forecasts.
1955
5. ECA needs to be repealed and
This act was enacted to control the production, supply and
distribution of and trade and commerce in, certain goods
considered as essential commodities.
►DRUG PRICES REGULATIONS
MAJOR COMMODITIES GROUPS INCLUDED IN THE ACT (COVERED IN ECONOMY COMPASS)
ARE: The regulation of prices of drugs, through the DPCO 2013,
1. Petroleum and its products, including petrol, diesel, has led to increase in the price of the regulated
kerosene, Naphtha, solvents etc. pharmaceutical drug vis-à-vis that of a similar drug whose
price is not regulated. The increase in prices is greater for
2. Food stuff, including edible oil and seeds, vanaspati,
more expensive formulations than for cheaper ones and for
pulses, sugarcane and its products like, khandsari and
those sold in hospitals rather than retail shops. These
sugar, rice paddy.
findings reinforce that the outcome is opposite to what DPCO
3. Raw jute and jute textiles
aims to do - making drugs affordable.
4. Drug prices of essential drugs are still controlled by DPCO
5. Fertilisers - the Fertiliser Control Order prescribes
►GOVERNMENT INTERNVENTION IN
restrictions on transfer and stock of fertilisers apart from
prices GRAIN MARKETS
6. Onion and Potato Government has sought to achieve food security while
ensuring remunerative prices to producers and safeguarding
7. Seeds from food crops, fruits and vegetables, cattle
interest of consumers by making supplies available at
fodder, jute seeds and cotton seeds.
affordable prices. State tries to control input prices such as
CRITICISM OF THE ESSENTIAL COMMODITIES ACT:
those of fertiliser, water, and electricity, sets output prices,
1. It was an act passed in an era when India worried about undertakes storage and procurement through as
famines and shortages. Today's India has surplus administrative machinery and distributes cereals through
production in most areas. PDS.
2. Considerable administrative efforts goes into the Food Corporation of India was set up in 1965 under Food
enforcement of Essential Commodities Act. Corporations Act, 1964 with the primary duty to purchase,
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store, move/transport, distribute and sell food grains and income's rise for population. However, at the same time
other foodstuffs. The main objectives are: production of rice and wheat have reached record levels.
1. Procurement of foodgrains from farmers at MSP This trend of decreasing demand and increasing supply
means that farmers are deriving their signals not from
announced by Government
markets but from Government policies of procurement
2. Distribution of foodgrains to consumers through PDS, and distribution.
particularly vulnerable sections of society at affordable
WAY FORWARD
prices.
1. India has moved from being a food scarce country to a
3. Maintenance of buffer stock of foodgrains for food
food surplus country with a substantial increase in
security and price stability.
production and has emerged as a net exporter of cereals.
Government has emerged as the single largest procurer and The current food grain economy needs to be incentivised
hoarder of foodgrains. Government procures around 40-50% for diversification and environmentally sustainable
of total market surplus of rice and wheat emerging as the production.
dominant buyer of these grains. In states like Punjab and 2. Food grain markets should be opened for active
Haryana, this share of purchase of Government reaches as participation of private players with Government as an
high as 80-90%. Government as the single largest buyer of equal player, competition would lead to more efficiency in
rice and wheat is virtually a monopsonist in the domestic operations and development of adequate infrastructure in
grain market and is a dominant player crowding out private storage and warehousing.
trade. This disincentivizes private sector to undertake long- 3. Investments in agriculture needs to be increased and
term investments in procurement, storage and processing of subsidies trimmed for improving long term viability and
these commodities. sustainability of Indian agriculture.
CONCERNS 4. Farmers need to be empowered through DBT and cash
1. Secular increasing trend in MSP prices announced have trasnfers, which are crop neutral and do not interfere with
incentivised farmers to move to crops which have an cropping decisions.
assured procurement. (Wheat, Rice, Sugarcane etc) 5. Coverage of NFSA needs to be restricted to bottom 20%
2. Market prices do not offer remunerative options for and issue prices for other could be linked to the
farmers and MSPs have, in effect, become maximum procurement prices.
prices rather than floor prices - opposite of the intended 6. DBT could also be given to consumers. Internationally,
aim. there is a move towards conditional cash transfers, aimed
3. Government has also emerged as single largest hoarder of at tacking problems of food insecurity and poverty and for
rice and wheat. nudging people towards improved health and education
levels. Ex. BolsaFamiliia (Brazil); Oportunidades (Mexico);
4. Economic cost of FCI for acquiring, storing and distributing
PantawidPamilyang Pilipino Program (Phillipines).
food grains is about 40% more than procurement price,
current mix of policies of assured procurement (at MSPs), 7. Transition should be made from allowing physical
storage (through a monopolist administrative government handling and distribution of foodgrains to cash
organisation) and distribution under TPDS have transfer/food coupons/smart cards.
contributed to building up of a high cost food grain 8. Agricultural marketing, trade (both domestic and foreign)
economy. Inefficiency of FCI increases with increasing and distribution policies need to be aligned so that
level of stocks. farmers receive correct signals for diversification into
5. Burgeoning of food subsidy which largely covers remunerative and sustainable production.
procurement cost of FCI and distribution and carrying
costs of FCI. ►DEBT WAIVERS
6. Growth in public investments in agriculture is negatively
Government intervention in credit markets, in the form of full
correlated to increases in food subsidy outlay. As
or partial, conditional or unconditional, debt relief has
investments are the crucial input to increase in
become increasingly common at the state level in India.
productivity, the increasing focus on subsidies is harming
the growth of agricultural sector in the long-run. BENEFITS OF DEBT WAIVERS
7. According to NSS 73rd round on consumer expenditure, 1. Borrowers especially farmers suffer from the problem of
share of cereals in Monthly Per Capita Expenditure has Debt Overhang. This refers to a situation where all current
fallen by 33% in rural India and about 28% in urban India income gets used up in repaying accumulated debt,
from 2004-05 to 2011-12. Also expenditure on food items leaving little incentives to invest either in physical or
is decreasing while that on non-food items is increasing as human capital. Any incremental benefit of such
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investment in physical or human capital is likely to go to • Flow of bank credit to waiver beneficiaries declines after
lenders in the form of repayment of existing obligations waivers.
and not the farmer. • There is no increase in agricultural productivity and
2. Such borrowers are unlikely to receive new funding, either investment post debt waiver. There is little impact on
equity or debt, as the ability of the borrower to repay consumption as well.
additional loans or grow his/her business/farm is in An unconditional and blanket debt waiver is a bad idea. It
question. Debt overhang, therefore, leads to does not achieve any meaningful real outcomes for the
abandonment of benefcial investment and hence reduces intended beneficiaries while the costs to the exchequer are
social welfare. significant. There is a case for a limited relief only when
3. Debt waiver helps the borrowers to come out of the debt distress can be identified credibly. Thus, a waiver can at best
trap as it cleans their balance sheet and reduces the be an emergency medicine to be given in rare cases after a
burden of debt servicing. This clean-up of borrowers’ thorough diagnosis and identification of illness and not a
balance sheet is likely to lead to both new investments as staple diet. In most cases, its side effects, the unintended
well as fresh fund rising as borrowers’ repayment capacity consequences, far outweigh any plausible short term
increases even if there is no change in income. benefits.
ARGUMENTS AGAINST DEBT WAIVERS:
Negative affect on credit markets ►LEGISLATIVE CHANGES REQUIRED
• Waivers lead to increased loan defaults on future loans TO REDUCE GOVERNMENT
and no improvement in wages, productivity or
INTERVENTIONS
consumption.
Survey gives a list of legislative changes to be done to make
• Loan performance deteriorates most in areas that are
markets more efficient in India
headed for election, indicating strategic default in
anticipation of waiver.
Capital Issues Government decided which company could raise how much Repealed and replaced by SEBI Act, 1992
(Control) Act, 1947 capital, control over the amount as well as pricing of shares led
to ineffective valuation of capital
Oil and Natural Gas ONGC was created to plan, promote, organise and implement In 1993, ONGC act was repealed and it
Commission Act, programs for development of petroleum resources - Created a was converted into a company
1959 Government monopoly in this field
Banking companies Acquisition and transfer of the undertakings of certain banking Merger of Public Sector banks
(Acquisition and companies created – created 27 nationalized announced to reduce them from 27 to
Transfer of banks – Private sector banks were allowed only after 1994. 12.
Undertakings) Act of
1970, State Bank of
India Act, 1955
Monopolies and MRTPC constituted to prevent concentration of economic Repealed and replaced by Companies
Restrictive Trade power, control of monopolies, prohibition of monopolistic Act, 2002.
Practices (MRTP) Act, practices, prohibition of restrictive and unfair trade practices.
1969 Restricted companies to grow and led to proliferation of small
companies
Coking coal mines Government took over management of coking and non-coking Repealed in 2018. Private firms have
(Nationalisation) Act, coal mines been permitted to enter commercial coal
1972 and Coal Mines mining industry. Mines will be auctioned
(Nationalisation) Act, to firms offering highest per tonne price.
1973 Broke the monopoly of Coal India limited
over commercial mining.
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Nationalisation of Acquisition and transfer of shares of Indian insurance IRDAI Act, 1999 enacted to open the
Life Insurane, 1956 companies and undertakings of other existing insurers to insurance sector. This was a journey
and General create LIC and GIC - led to cheap mobilisation of resources in from nationalisation to creation of a
Insurance Business sectors decided by government monopoly to opening up to private
(Nationalisation) Act, competition.
1972
Foreign Exchange Imposed restriction on foreign equity in companies to 40% and Repealed and replaced by Foreign
Regulation Act, 1973 permission was needed from RBI to operate, if their Exchange Management Act (FEMA), 1999.
shareholding was higher. This restricted access to foreign Under FERA, everything was prohibited
capital and technology. unless special permissions were
received, while under FEMA, everything
was permitted unless specifcally
restricted or regulated to enable
development of forex market.
Maruti Limited Aimed to modernise automobile industry and ensure higher Government exited the company
(Acquisition and production of motor vehicles through a two stage process: rights
transfer of issues of Rs 400 crore followed by sale of
undertakings) Act, its existing shares through a public issue.
1980
Air Corporations Act, Nationalise 9 airlines from Air India and Indian Airlines. A Replaced by Air Corporations Act, 1994
1953 market driven, service oriented, consumer centric business where private operators were allowed to
was nationalised. provide air transport services.
Urban Land Ceiling Imposition of a ceiling on acquisition of vacant land in urban Repealed in 1999
and Regulation Act, agglomerations for the acquisition to prevent concentration of
1976 urban land in the hands of few and bring equity to subserve
common good. Led to distortion of land markets in urban
areas, rise in slums, creation of artificial land scarcity and
skyrocketing land prices.
Sick Industrial Timely detection of sick and potentially sick companies and Act was repealed in 2004. BIFR was
Companies Act, 1985 speedy determination of preventive, ameliorative, remedial replaced by Insolvency and Bankruptcy
and other measures by Board of Industrial and Financial Code, 2016.
Reconstruction (BIFR). It put in place a debtor-friendly regime,
in which defaulting borrowers could delay resolution for long
periods of time and str
ACTS WHICH NEED TO BE REPEALED/AMENDED
Factories Act, 1948 Regulated occupational safety and Proposed to be subsumed with Occupational Safety,
health in factories and docks. Gives Health and Working Conditions Code, 2019
prosecutor powers to a chief inspector
- Raises cost of such entitlements and
may nudge capital away from labour.
Essential Commodities Act, Enables government to regulate These acts owe their origin in times of shortage and
1955 production, supply and distribution of inefficient linking of markets. With enhanced production
'essential' commodities such as drugs, and integration of markets, these Acts have become an
oils, kerosene, coal, iron, steel and instrument of coercion and inhibit proper functioning of
Prevention of Black
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marketing and Maintenance pulses. Imposes stock limits which markets of these essential commodities.
of Supplies of Essential discourages large scale private
Commodities Act, 1980 investments in agricultural markets.
Food Corporation of India, It was created to purchase, storage, With a comfortable production scenario of foodgrains,
1965 transport, distribution and sale of food role of FCI with a total storage capacity of more than 80
grains and other foodstuff to million tonnes, must be re-examined. Procurement
safeguard interests of farmers, operations of wheat, paddy and rice need to be given to
maintain buffer stocks for food states. FCI should focus on creating competition in every
security and make grains accessible at segment of foodgrain supply chain, from procurement to
reasonable prices to weaker and stocking to movement and finally distribution in TPDS.
vulnerable through Public Distribution This would reduce costs and plug leakages in food
System. management system.
Sick textile undertakings To acquire sick textile units, reorganise Land of textile units has been monetised to create offices
(Nationalisation) Act, 1974 and rehabilitate them. 103 sick textile and residential buildings in Mumbai's Lower Parel Area.
mills were nationalised and transferred However, nationalisation of these mills failed to achieve
to National textile corporation. desired objectives of rehabilitating or reorganising them
and failed to deliver yarn, cloth, fair prices or jobs. This
act needs to be repealed and NTC should be divested.
Recovery of debts due to Led to establishment of Debt Recovery After the introduction of Insolvency and Bankruptcy code
banks and financial Tribunals (DRT) for expeditious to fix the problem of non-performing assets, Debt
institutions, 1993 adjudication and recovery of debts due Recovery Tribunals can be phased out or integrated with
to banks and financial institutions. IBC.
Right to Fair Compensation Regulates land acquisition with 80% of The act tilts balance in favour of land owners who need
and Transparency in Land the land to be acquired through to be made an equal partner in development of land and
Acquisition Rehabilitation negotiations, with government share the benefits and costs with the developer/acquirer.
and Resettlement Act, 2013 stepping in only for the balance 20% ;
for PPP project it is 70%.
CONCLUSION
Each department and ministry in government must
TO EXPORTS IN NETWORK
systematically examine areas where government needlessly PRODUCTS
intervenes and undermines markets.
There are several areas in Indian economy where
government needlessly intervenes and undermines markets.
►OPPORTUNITIES FOR INDIA FOR AN
Interventions that were apt in a different economic setting, EXPORT LED GROWTH
possibly because the market failures were severe then, may
1. US-China trade war is causing major adjustments in Global
have lost their relevance in a transformed economy where
Value Chains and firms and now looking for alternative
market failures are not severe. Eliminating such instances of
locations for their operations.
needless government intervention will enable competitive
2. China is experiencing labour shortages and increases in
markets thereby spur investments and economic growth.
wages reducing its competitiveness.
3. India is the only country which can match China in its
►CHAPTER 5: abundance of presence of labour.
CREATING JOBS AND ►INDIA'S EXPORT PERFORMANCE

GROWTH BY SPECIALIZING Post the 1991 LPG reforms, India's share in merchandise
(goods) exports has grown at 13.2% per annum and our
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share in world exports has increased from 0.6% in 1991 to measured by the sectoral ratio of foreign value added to
1.7% in 2018. (China's market share is 12.8%). Merchandise gross exports, leads to higher absolute levels of gross
exports as a percentage of GDP remained consistently lower exports, domestic value added and employment. Thus,
for India compared to world average by significant margin. India can reap rich dividends by adopting policies aimed at
Imports of merchandise have grown faster (at 14.9% per strengthening its participation in GVCs. Concerns are
annum during 1992-2018) than exports, resulting in raised that by participating in Global Value Chains low
increasing trade deficits. On the other hand, exports of wage countries would remain perpetually stuck at lower
services generally grew faster than imports, providing some end of production process. Case studies from India's
cushion to current account deficit. automobile sector shows that such apprehensions are
unwarranted.
►REASONS FOR INDIA'S LACK Conceptual Framework for Gains from 'Assembling in
India' as part of 'Make in India'
LUSTRE EXPORT PERFORMANCE VIS-
A-VIS CHINA
1. China-India gap in world market share is almost fully
driven by the effect of specialisation. However, India is
catching up with China in terms of diversification across
products and markets. High diversification combined with
low specialisation implies that India is spreading its
exports thinly over many products and partners, leading to
lackluster performance compared to China. If India wants 2. Focus industries: Given India's comparative advantage in
to become a major exporter, it should specialise more in labour intensive activities and the imperative of creating
areas of its comparative advantage and achieve significant employment for a growing labour force, India should focus
quantity expansion. on following two groups of industries
2. Low levels of participation by India in Global Value Chains: • There exists unexploited export potential in India's
3. Low market penetration in high income countries: There traditional unskilled labour intensive industries such as
has been a disproportionate shift in India's geographical textiles, clothing, footwear and toys. The Global Value
direction of exports from traditional rich country markets Chains in these industries are controlled by buyer driven
to other destinations. High income OECD markets networks wherein the lead firms that are based in
accounted for 49.7% of China's exports in 2018 while developed countries concentrate in higher value added
corresponding figure for India was 40.2%. Developing activities such as design, branding and marketing. Physical
countries, especially those with low level of participation in production is carried out, through sub-contracting
GVCs, find it extremely difficult to export capital intensive arrangements, by firms in developing countries. Ex.
products to the quality/brand conscious markets in richer Walmart, Nike, Adidas etc.
countries. In contrast to capital intensive products, high- • India has huge potential to emerge as hub for final
income countries generally provide relatively larger market assembly in products, referred to as 'network products'.
for India's unskilled labour intensive products. Global Value Chains in these industries are controlled by
leading multi-national enterprises such as Apple, Samsung,
►SUGGESTIONS FOR EXPORT LED Sony etc. within producer driven networks. These products
are not produced from start to finish within a given
GROWTH FOR INDIA
country, instead, countries specialise in particular tasks or
1. Participation in Global Value Chains: A higher level of stages of good's production sequence. Within the
participation in GVCs implies that, for any given country, production network, each country specializes in a
the share of foreign value added in gross exports in higher particular fragment of the production process; this
than when most inputs are sourced locally. However, specialization is based on the country’s comparative
owing to scale and productivity effects of selling in the advantage. Labour abundant countries specialise in low
world markets, participation in GVCs can lead to higher skilled labour-intensive stages of production such as
absolute levels of domestic value added and domestic job assembly while the richer countries specialise in capital
creation. Scale effect creates millions of jobs and is and skill-intensive stages such as R&D. Thus, the lead firms
therefore particularly suited for implementation in a labor- retail skill and knowledge intensive stages of production in
intensive economy such as India. Participation in GVCs as high-income headquarters but locate assembly related
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activities in low wage countries. Network Products into its Main category of NP exported by India is Road vehicles with a
two main - Parts & components (P&C) and assembled end share of 4.9% in its total exports in 2018. In contrast,
products (AEP). electrical machinery which accounts for largest share in
• Network Products account for nearly 30% of world exports export basket of China and Korea accounts for less than 3%
in 2018, with the share of Electrical Machinery being of India's total exports.
highest at 10.4%. World exports of Network Products Automobile Industry: Several leading automobile
increased from $2 trillion in 2000 to $5 trillion in 2018. companies have established assembly plants in India and
Average share of AEP exports in total NP exports increased some of them have begun to use India as an export base
from about 59% during 2000-2016 to about 72% during within their production networks. Since early 2000s, India's
last two years. Asia's share in world exports of Network exports of assembled cars have increased at a much faster
Products increased phenomenally from about 37% in 2000 rate than automobile parts. While assembled motor vehicles
to 51% in 2018 while share of Europe and North America constitute the bulk of India’s automobile exports, parts and
declined with East Asia accounting for the bulk of Asian accessories account for the lion’s share of total automobile
exports and rest of Asia (South, Central and Western Asia) imports.
accounting for just 3% of total Asian exports. Mobile Phone Industry: MNEs that have set up productions
bases in India's electronics and electrical goods industries
►CATEGORIES OF INDUSTRIES have been mainly involved in production for domestic
market. India toppled Vietnam to become 2nd largest
CLASSIFIED AS NETWORK PRODUCTS
manufacturer of mobile phone globally following China in
1. Office machines and automatic data processing machines 2018 with a world share of 11%.
2. Telecommunication and sound recording equipment While assembled motor vehicles constitute the bulk of India’s
3. Electrical machinery automobile exports, parts and accessories account for the
4. Road Vehicles lion’s share of total automobile imports.
5. Professional and scientific equipment

6. Photographic Apparatus
►PATTERN OF ENTRY
The pattern of entry, rise, survival, and relative decline of
countries in the export market for NP is consistent with the
►INDIA'S POTENTIAL IN NETWORK
“wildgeese flying model” formulated by Japanese economist
PRODUCTS (NP) KanameAkamatsu during the1960s. The frst Asian country to
India's export of NP increased from about $2 billion in 2000 enter the export market for NP was Japan followed by a
to about $32 billion in 2018, its participation in this market number of East and Southeast Asian countries. Japan, the
remains miniscule compared to that of other Asian countries. lead goose, provided capital, technology and managerial
NP exports accounts for 10% share in India's export basket. knowhow to “follower geese” countries in East and Southeast
In contrast, these products account for about one half of total Asia. “Wild geese fly in orderly ranks forming an inverse V,
national exports of China, Japan and Korea. Among the major just as airplanes fly in a formation”.
Asian countries, India and Indonesia are the only ones with a
trade deficit in NP. India's import value of $68 billion in 2017 ►POTENTIAL GAINS IN EMPLOYMENT
is higher than that of Thailand and Phillippines even as the
later two countries record significantly higher level of exports
AND GDP
than India. India's import basket mostly consists of By integrating “Assemble in India for the world” into Make in
electronics and electrical machinery, primarily meant for India, India can raise its export market share to about 3.5
domestic final use. percent by 2025 and 6 per cent by 2030, which is feasible.
India would create about 4 crore well-paid jobs by 2025 and
about 8 crore by 2030. The incremental value added in the
►COMPOSITION OF INDIA'S NP
economy from the target level of exports of network
EXPORTS products, which is expected to equal $248 billion in 2025,
Four product groups recorded an increase in 2018 as would make up about one-quarter of the increase required
compared to 2000: Road vehicles, Electrical Machinery, for making India a $5 trillion economy by 2025.
Telecommunication and sound recording equipment, Given our vast manpower with relatively low skill, India’s
Professional and scientific equipment. current strength lies primarily in assembly of NP. While the
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short to medium term objective is the large scale expansion differential effect on overall merchandise exports as
of assembly activities by making use of imported parts & compared to the manufacturing subset is not surprising as
components, giving a boost to domestic production of parts several primary products are usually included in the
& components (upgrading within GVCs) should be the long negative/sensitive list of the trade agreements. Therefore,
term objective. Assembly is highly labour intensive, which can a majority of the trade agreements exerted no effect on
provide jobs for the masses, while domestic production of overall merchandise exports.
parts & components can create high skill jobs. 4. Even as some of the agreements led to increase in
Way forward to become an attractive assembly economy: imports, for most of the cases, the percentage increase in
1. Import tariff rates for intermediate inputs must be zero or exports is higher than the percentage increase in imports.
neglible 5. Overall impact on India’s exports to the partners, with
2. Create an ecosystem that will result in realignment of which the agreements have been signed, is 13.4 per cent
India's specialisation patterns towards labour intensive for manufactured products and 10.9 per cent for total
processes and product lines. merchandise.
3. Greater flexibility in labour market.

4. Pro-active FDI policy: MNEs are vehicles for country's entry ►LIST OF INDIA'S TRADE
into global production networks while local firms play a AGREEMENTS
role as subcontractors and suppliers of intermediate
inputs to MNEs. 1. BIMSTEC Bangladesh, Bhutan, India, Myanmar,
5. Assembly processes require not only trainable low-cost Nepal, Sri Lanka, Thailand
unskilled labour but also a lot of middle-level supervisory
manpower. 2. Srilanka India, Sri Lanka
6. Low level of service link costs (costs related to

3. Afghanistan India, Afghanistan
transportation, communication, and other tasks involved
in coordinating the activity in a given country with what is
4. Thailand India, Thailand
done in other countries) is a pre-requisite for countries to
strengthen their participation in GVCs.
5. Singapore India, Singapore
7. Policy measures should focus on reducing input tariffs,
implementation of key factor market reforms, providing an
6. Bhutan India, Bhutan
enabling environment for the entry of lead frms into the
country and reducing the service link costs.
7. SAFTA Afghanistan, Bangladesh, Bhutan, India,
Maldives, Nepal, Pakistan, Sri Lanka
►FREE TRADE AGREEMENTS
8. Chile India, Chile
Recent debate about India joining RCEP have raised
questions about generally efficacy of free trade agreements.
9. MERCOSUR India, Argentina, Brazil, Paraguay,
There is an apprehension that most of FTA's India has signed
Uruguay
in the past did not work India's favor. There is a perception
that these agreements led to worsening of India's trade
10. Nepal India, Nepal
deficit with partner countries.
1. The above way is mercantilist way of looking at gains from
11. Korea India, Korea
trade. Basic trade theory opines that a country's gains
from free trade arise due to more efficient allocation of a
12. ASEAN India, Brunei, Cambodia, Indonesia, Lao,
country's resources. Malaysia, Myanmar, Philippines,
2. Data suggests that, manufactured products from India has Singapore, Thailand, Vietnam
clearly benefitted from 8 out of 14 trade agreements. 4
agreements had no effect on exports of manufactured 13. Malaysia India, Malaysia
products while bilateral agreements with Japan and Korea
exerted a negative effect. 14. Japan India, Japan
3. Only four trade agreements (MERCOSUR, Nepal,
Singapore, and Chile) show a positive impact. The
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VOLUME - I
►CHAPTER 6: Nigeria, Pakistan, Russia and USA) where data are also
collected for second largest business city.
TARGETING EASE OF DOING • Among the parameters, India was lowest ranked in
Enforcing Contracts and Registering properties.
BUSINESS IN INDIA • Among the parameters, India was highest ranked in
Protecting Minority Investors and Getting Electricity.
►EASE OF DOING BUSINESS INDEX • According to Ease of Doing Business Index 2020, India's
It is a project of the World Bank. It was launched in 2002. It rank improved to 63. India is the highest ranked economy
looks at domestic small and medium size companies and in South Asia.
measures the regulations applying to them through their life SUBNATIONAL RANKINGS
cycle.
Ease of Doing Business subnational rankings are also
INDIA'S RANKING IN EASE OF DOING BUSINESS INDEX released for 17 Indian cities: Ludhiana (I), Hyderabad (II),
2015 2017 2018 2019 2020 Bhubaneshwar (III) are top three cities in Ease of doing
business in India.
142 130 100 77 63
• Continuous improvement in India's rankings in Ease of

►AUTHORISED ECONOMIC
Doing Business. OPERATORS (AEO)
• Parameters used for ease of doing business score and It is a program under the aegis of World Customs
ranking: Organisation (WCO) SAFE Framework of Standards to secure
and facilitate Global Trade. It aims to enhance international
Parameters of Ease of Doing Rank of India in the
supply chain security and facilitate movement of goods.
Business Ranking parameter
SALIENT FEATURES
1. Starting a Business 136 1. Under this program, an entity engaged in international
trade is approved by Customs as compliant with supply
2. Dealing with construction permits 27 chain security standards and granted AEO status. An entity
with 'AEO status' is considered a 'secure' trader and a
3. Getting Electricity 22
reliable trading partner.
4. Registering Property 154 2. It is a voluntary program. It enables Indian Customs to

enhance and streamline cargo security through close
5. Getting Credit 25 cooperation with the principle stakeholders of the
international supply chain - importers, exporters, logistics
6. Protecting Minority Investors 13 providers, custodians or terminal operators, custom
brokers and warehouse operators, who benefit from
7. Paying Taxes 115
preferential treatment from customs authorities.
8. Trading Across borders 68 3. There are three tiers of certification in the new AEO
program for importers and exporters:
9. Enforcing Contracts 163 • AEO T1 - Verified on the basis of documents submission
only
10. Resolving Insolvency 52
• AEO T2 - In addition to document verification, onsite
• Two more parameters are measured by Doing Business verification is also done.
report: Employing Workers and Contracting with the • AEO T3 - AEO T2 holders who have enjoyed the status for
Government, which are not included in the ease of doing two years only on the basis of document verfication and
business score and ranking. for AEO T2 holders who have not enjoyed the status
• Most indicators sets refer to a case scenario in the largest continuously or have introduced changes to business,
business city of each economy. However, for 11 economies applicant is subjected to physical verification.
that have a population of more than 100 million as 2013 For logistics providers, custodians or terminal operators,
(Bangladesh, Brazil, China, India, Indonesia, Japan, Mexico, custom brokers and warehouse operators there is only
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VOLUME - I
one tier: AEO LO: Onsite verification is done in addition to of the Ministry of Commerce and Industry, the Central
document verification. Board of Indirect Taxes and Customs, Ministry of Shipping
4. Anyone involved in international supply chain the and the different port authorities. The simplifcation of the
undertakes Customs related activity in India can apply for Ease of Doing Business landscape of individual sectors
AEO status irrespective of size of business. such as tourism or manufacturing, however, requires a
more targeted approach that maps out the regulatory and
5. Eligibility for AEO status: Any legal entity that undertakes
process bottlenecks for each segment. Once the process
Customs related work can apply for AEO program if they
map has been done, the correction can be done at the
fulfil following conditions:
appropriate level of government - central, state or
• Have handled 25 Import or Export documents in last
municipal.
Financial Year. Have been in business for last three
Financial year.
• Applicant must not be issued a show cause notice ►CHAPTER 7:
involving fraud, forgery, outright, smuggling, clandestine
removal of exercisable goods or cases where Service Tax
GOLDEN JUBILEE OF BANK
has been collected from
6. Customs department, under Central Board of Indirect NATIONALISATION
Taxes and Customs has issued a circular in 2016 to provide
statutory framework for the AEO program. ►STATE OF PUBLIC SECTOR BANKS
BENEFITS IN INDIA
1. Expedited clearance times • Modern Banking system in India has its roots in colonial
2. Fewer examinations era starting in the 1800s. India's PSBs are essentially legacy
banks from colonial period that were subsequently
3. Improved security and communication between supply
nationalised. For ex. India's largest PSB was founded as
chain partners
Bank of Calcutta in 1806, took the name Imperial Bank of
India in 1921 and became state-owned in 1955.
►CHAPTER AT A GLANCE • Remaining PSBs in India were formed through two waves
• India has jumped 79 positions in World Bank’s Doing of nationalisations, one in 1969 and other in 1980. After
Business rankings, improving from 142 in 2014 to 63 in the 1980, PSBs had a 91% share in national banking
2019. However, it continues to trail in parameters such as market with remaining 9% held by 'old private banks' that
Ease of Starting Business (rank 136), Registering property were not nationalised.
(rank 154), Paying taxes (rank 115), Enforcing Contracts • Currently, PSBs hold 70% . They also hold about Rs 20 lakh
(rank 163). crore of government debt, a large part of it driven by
• Enforcing a contract in India takes on average 1,445 days requirements for a minimum 'statutory liquidity' ratio. The
in India compared to just 216 days in New Zealand. Paying decline in PSBs has been largely absorbed by new private
taxes takes up more than 250 hours in India compared to banks (NPBs) which were licensed in the early 1990s after
140 hours in New Zealand. a liberalisation of licensing rules that earlier regulated
• Setting up and operating a services or manufacturing bank entry.
business in India faces a maze of laws, rules and • In 2019 PSBs reported gross and net NPAs of Rs 7.4 lakh
regulations. crore and 4.4 lakh crore respectively (80% of the NPA's of
• Case studies of merchandise exports found that logistics is India's banking system) (Gross NPAs of PSBs amount to
inordinately ineffcient in Indian sea-ports. The process 11.5% of their gross advances).
flow for imports, ironically, is more effcient than that for • PSBs account for 93% of cases of frauds, a large majority
exports. were related to advances, suggesting poor quality of
• Case studies of merchandise exports found that logistics is screening and monitoring process in PSBs.
inordinately ineffcient in Indian sea-ports. The process • Every rupee invested in PSBs fetches a market value of 71
flow for imports, ironically, is more effcient than that for paise. Whereas every rupee invested in a non PSB banks
exports. fetches a market value of Rs 3.71, more than 5 times as
• The streamlining of the logistics process at sea-ports much value as that of rupee invested in PSBs.
requires close coordination between the Logistics division
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VOLUME - I
• PSBs perform poor on metrics such as Return on Assets, 2. Both rural deposit mobilisation, number of rural bank
Return on equity and indicators like Total capital adequacy branches and rural credit increased significantly. It was
ratio. significant correction to the undersupply of credit to
• During the high growth period of Indian economy PSBs farmers
grew their loan portfolios but this credit growth was of 3. Significant reduction in poverty in financially less
suspect quality. When the economy slowed, the banking developed states.
system saw a dramatic increase in NPAs. However, at the same time there were large poverty
• Credit growth in PSBs has been much lower than NPBs for alleviation programs such as Integrated rural development
last several years. program (IRDP). Also, studies have shown that branch
expansion program of similar intensity existed even before
nationalisation and hence 1977-1991 period is not special in
►DWARF SIZE OF INDIA'S BANKS
terms of branch expansion. Also despite nationalisation a
India's banks are disproportionately small compared to the significant portion of poor remained unbanked till 2014.
size of its economy. India's economy is the 5th largest in the Financial inclusion in large part took place after the launch of
world, despite India's largest bank - State Bank of India - is PM Jan DhanYojana.
ranked a lowly 55th in the world and is the only bank to be
Suggestions of Survey to Improve functioning of PSBs are:
ranked in Global top 100. India has only one bank in global
top 100. We should have at least 6 banks in global top 100 Key drivers of growth of Indian economy are a highly
banks. If India reaches $5 trillion GDP, we should have at favourable demographic (35% of India's population is
least 8 banks. between 15 and 29 years of age), modern digital
infrastructure (JAM trinity of financial inclusion) and a uniform
indirect taxation system (GST) to replace a fragmented,
►CHALLENGES OF PSBs complex state level system. India's growth path depends on
1. PSBs enjoy less strategic and operating freedom because how quickly these growth levers can be translated into results
of majority government ownership. by a well-developed financial system.
2. Government exercises significant control over all aspects of
PSBs operations ranging from policies on recruitment and ►ADVANTAGES OF PSBs
pay to investments and financing and bank governance
1. Local market insights
including board and top management appointments.
2. Relationship based on operating histories spanning many
3. Implicit promise of bailout of bank liabilities which is an
decades
implicit cost to the tax payer.
3. Vast geographic footprint
4. PSB officers are subjected to extra scrutiny by the Central
Vigilance Commission and CAG. Officers are wary of taking 4. PSBs can therefore exploit the data rich environment to
risks in lending or in renegotiating bad debt, due to fears boost their capabilities.
of harassment under the veil of vigilance investigations. Committees created to enhance the efficiency of Public
5. High operating costs Sector Banks:
6. Disjointed process flows from manual operations and 1. Narasimhan Committee 1991, 1997
subjective decision making
7. Employees of PSBs are currently paid salaries which 2. RaghuramRajan Committee 2007
resemble debt contracts in the sense that they are fixed
pay outs made by banks. Thus, employees rely 3. P J Nayak Committee 2014
government to meet salaries and post-retirement benefits
in the event of bank distress. This 'inside debt' induces
conservatism and preference for safety over risk-taking. ►SURVEY MAKES TWO SUGGESTIONS
8. Recruitment processes of PSBs hinder them from campus
THAT CAN MAKE PSBs MORE
hiring.
EFFICIENT
►BENEFITS OF NATIONALISATION 1. USE OF FINTECH
1. Allocation of banking resources to rural areas, agriculture • Because of favourable demographics and JAM trinity,
and priority sectors increased. growth in digital transactions has been significant.
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VOLUME - I
Exponential increase in use of direct benefit transfers has 2. FINTECH HUB FOR PSBs (PUBLIC SECTOR BANKING
helped to bring both credit and deposits into the banking NETWORK)
system across all geographies. These new programs have • PSBs will be able to enhance their effciency by fulflling
resulted in formalisation of Indian economy and this their role of delegated monitors if all the PSBs can pool
inclusion is backed by digital infrastructure that generates their data into one entity. This would have the additional
and stores high quality structured data on all economic benefit of reducing the costs of screening and monitoring
aspects of firms and individuals.
• As the Government is the owner of all the PSBs, it can
• Analytics based on market data are capable of providing mandate the PSBs to share this data so that economies of
accurate prediction of corporate distress. Data available scale can be utilized to make the necessary investments in
both in structured (credit information and credit scores undertaking analytics using Artificial Intelligence and
based on loan grants and repayments held in credit Machine Learning (AIML). The survey proposes
registries and bureaus) and unstructured (such as micro- establishment of a GSTN like entity, called PSBN (PSB
data available in text, image, geo-tagged data, social Network), to use technology to screen and monitor
network data) can be leveraged. PSBs need to invest in borrowers comprehensively and at length.
analytics and modelling skills, credit recovery
• PSBN would utilize other Government sources and service
infrastructure and specialist human capital with an
providers to develop AI-ML ratings models for corporates.
orientation towards analytics.
The AI-ML models can not only be employed when
• Metrics used for early identification of corporate distress: screening the corporate for a fresh loan but also for
1. Poor accounting quality of firms which default constantly monitoring the corporate borrower so that
2. Systematic differences in the disclosure of related party PSBs can truly act as delegated monitors.
transactions, pledging of promoter shares, large loans to BENEFITS
related parties between wilful defaulters and non- 1. Take advantage of data that all PSBs have during the last
defaulters and wilful defaulters and non-defaulters. 50 years to create better underwriting solutions.
1. Poor quality of audit of firms 2. Better decision making on credit underwriting would lead
2. Better information sharing on firms among banks to reduce NPAs
3. In the retail loans sector, use of data and credit analytics, 3. Would help in fraud prevention
such as consumer credit bureau data, has boosted growth 4. High operating cost of each PSB would decrease helping
in retail lending. India has now caught up the OECD them automate end to end process of lending
countries in the proportion of population covered using
5. Quick decision making, processing of loan application will
credit bureau data. NPAs in retail loans has been less than
be swift, and reduce turn-around times.
5% during 2016-19.
6. Help PSBs compete better with New Private Banks. Infact,
EXAMPLES OF LEVERAGING DATA TO PROTECT CREDITORS'
PSBN can provide informational advantages that NPBs are
COLLATERAL:
unlikely to be able to match.
1. Use of geo-tagging can help lenders keep track of location
3. EMPLOYEE STAKES IN PSBS
of assets. Geo-tagging can also help verify the value of
pledged land or property. Armed with the exact location of Employees should be enabled to become owners in banks
land, lenders are better placed to evaluate the market and thereby incentivise them to embrace risk-taking and
value of these assets, the bulk of whose value derives from innovation, a portion of government stake can be transferred
their location. to employees exhibiting good performance through
Employee Stock Option Plans (ESOPs). Benefits:
2. GPS devices, when affxed to collateralized equipment or
machinery, can alert lenders if these assets are moved out • It will reduce agency problems as share owning
of the plant. Such tracking systems ensure that the asset employees are incentivised to increase market value of
never leaves the lender’s sight. equity, since their direct compensation depends of share
values.
3. Integrated data on collateral across all lenders in a
geography may be particularly useful in curbing double- • Change of mindset from that of an employee to that of an
pledging of collateral. owner
However, while using these technologies borrowers • Employees can constitute one of the blocks of new owners
privacy should be maintained. of PSBs through an employee stock ownership plan
(ESOP).
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• Proportionate representation on boards proportionate to At the most fundamental level, the root cause of the liquidity
the block of shares held by employees should be given. crisis in the NBFC sector can be traced to the over-
4. NEED FOR BEST TALENT AND ORGANISATIONAL dependence of NBFCs on the short-term wholesale funding
VERTICALS BASED ON TECHNOLOGY market. This factor works through two channels, a direct
channel and an indirect channel.
PSBs need to enable cutting edge recruitment practices that
allow lateral entry of professionals and recruitment of • First, an increase in short-term wholesale funding causes a
professionally trained talent at the entry level. With a large direct effect by increasing the amount of funding that is
ownership stake available for employees, attracting the best subject to frequent repricing, and therefore, Rollover Risk.
talent in the industry may not be a constraint, as it is • Second, there are indirect effects in that an increase in
currently. The advances in FinTech and data science may short term wholesale funding influences the two key
even call for entirely new verticals such as innovation labs, drivers of Rollover Risk - it worsens the ALM mismatch
accelerators, venture arms, and sandboxes for problem and increases the degree of interconnectedness
experimentation, that take stakes in and empower smaller of the NBFC sector with the LDMF sector.
entrepreneurial ventures. • In addition, if the NBFC’s balance sheet strength is suspect,
Rollover Risk is further exacerbated. In short,
overdependence on short-term wholesale funding has
►CHAPTER 8: direct and indirect impact on Rollover Risk.
Redemptions pressures in the LDMF sector are exacerbated
FINANCIAL FRAGILITY IN when NBFCs face an asset-side shock and experience an ALM
THE NBFC SECTOR problem, which gets compounded due to interconnectedness

and lack of balance sheet resilience. Faced with redemption
►SHADOW BANKING pressures, the LDMF sector is reluctant to roll over loans to
the NBFC sector (Rollover Risk), causing a liquidity crunch in
• Shadow banking comprises a set of activities, markets,
the NBFC sector.
contracts and institutions that operate partially or fully
SCHEMATIC SHOWING ROLLOVER RISK IN NBFC SECTOR
outside the traditional commercial banking sector and are
either lightly or not regulated at all. A shadow banking
system can be composed of a single entity that
intermediates between end-suppliers and end-users of
funds, or it could involve multiple entities forming a chain.
Shadow banks do not have explicit access to central bank
liquidity. It is highly levered with risky and illiquid assets
while its liabilities disposed to bank runs.
• Shadow banking sector has grown significantly in India and
accounts for a significant proportion of financial
intermediation especially in those segments where
traditional banking sector is unable to penetrate.
• Three important segments of shadow banking system in
►WHAT IS ROLLOVER RISK?
India: NBFCs raise capital in the short-term (1-3 months)
1. Non-Banking Housing Finance Companies (HFCs) commercial paper (CP) market at a lower cost, as compared
2. Retail Non-Banking Financial Companies (Retail-NBFCs) to the long term (5-10 years) nonconvertible debenture (NCD)
3. Liquid Debt Mutual Funds (LDMFs) market but face the risk of rolling over the CP debt at short
• Driven by liquidity crisis in India's shadow banking system. frequencies of a few months. The frequent repricing exposes
This chapter investigates key drivers of rollover risks of the NBFCs to the risk of facing higher financing costs and, in the
shadow banking system of India.
worst case, credit rationing. Such refinancing risks are
referred as Rollover Risk.
►CONCEPTUAL FRAMEWORK OF
ROLLOVER RISK
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►DIFFERENCE BETWEEN HFCS AND for extreme tail events. Thus, low levels of cash holdings in
the LDMF sector, on average, diminish the ability of the
RETAIL-NBFCS LDMF sector to absorb redemption pressures.
HOUSING FINANCE RETAIL NON-BANKING

COMPANIES (HFCS) FINANCE COMPANIES ►CREDIT RATIONING
(NBFC) Liquidity crunch in debt markets often leads to credit
rationing. Credit rationing results when firms with robust
• Hold much longer duration • Hold medium term assets financial and operating performance get access to credit
assets • Typically provide loans of while the less robust ones are denied credit. Firms with
• Face a greater gap shorter duration in the robust financial and operating performance can withstand a
between average maturity form of working capital
prolonged period of liquidity crunch if they choose not to
of their assets and loans to MSMEs,
raise funds from debt mutual funds.
liabilities. automobile financing loans
• Asset side shocks cause or gold loans.
significant deterioration in • Asset side shocks induce ►HEALTH SCORE INDEX
the asset liability mismatch less of an adverse impact SALIENT FEATURES
of the HFCs on asset liability mismatch
of Retail NBFCs. 1. It ranges from -100 to +100 with higher scores indicating
higher financial stability of the firm/sector.
• HFCs relatively less rely on • Retail NBFCs rely much 2. Health Score of 0 is a neutral score, not risky, but not too
short term wholesale more on short term safe either. A benchmark of 50 is used, above which the
funding market wholesale funding market individual HFC/Sector may be deemed to be sufficiently
• HFCs are less exposed to • More exposed to safe.
interconnectedness risk interconnectedness risk. 3. It employs information on key drivers of refinancing risk
• HFCs face significant • The Rollover Risk such as Asset Liability Management (ALM) problems,
rollover risk due to their stemming from ALM excess reliance on short-term wholesale funding
ALM mismatch problem • mismatch is, therefore, (Commerical Paper) and balance sheet strength of the
lower for Retail NBFCs. NBFCs.
PARAMETERS USED
►RISK FROM ASSET LIABILITY 1. Asset Liability Management profile: ALM Profile is
measured by difference between assets and liabilities in
MISMATCH
each cash flow bucket normalised by total assets of the
This risk arises in most financial institutions due to a HFC. (50 Point)
mismatch in the duration of assets and liabilities. Liabilities
2. Short term volatile capital: Measured by Commercial
are of much shorter duration than assets which tend to be of
Paper as a percentage of borrowings of HFC. (20 Points)
longer duration, especially loans given to the housing sector.
3. Asset Quality: Measured by ratio of retail loans to the
overall loan portfolio (5 Points)
►RISKS FROM
4. Short term liquidity: Measured by percentage of cash to
INTERCONNECTEDNESS total borrowings of HFC. (5 Points)
• Interconnectedness Risk is a measure of the transmission 5. Provisioning Policy: Measured by difference between
of systemic risk between an NBFC and the LDMF sector provision for bad loans made in any financial year and
that arises from two factors. First, if the LDMF sector, on gross NPA in the subsequent financial year.
average, holds concentrated positions in the CPs of a 6. Capital Adequacy Ratio: Sum of Tier I and Tier II capital
specifc stressed NBFC, it may lead to a greater redemption held by the HFC as a percentage of Risk-Weighted-Assets.
risk from their own investors who fear rise in default
probabilities due to deterioration of asset quality of the
NBFC. This factor is measured by the LDMF sector’s
►POLICY IMPLICATIONS
average exposure to CP issued by the NBFC. Firms in the NBFC sector are susceptible to rollover risk when
• Second, LDMFs are subject to run risk or redemption risk they rely too much on the short-term wholesale funding
from their investors if their cash holdings do not account market for financing their investments in the real sector. To
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VOLUME - I
arrest financial fragility of shadow banking system following • PSUs falling under low priority are covered for strategic
are suggested by Economic Survey: disinvestment.
1. Regulators can employ Health Score methodology to • In principle approval for Strategic Disinvestment for
detect early warning signals of impending rollover risk Central Public Sector Enterprises is given by Cabinet
problems in individual NBFCs. Downtrends in the Health Committee on Economic Affairs.
Score can be used to trigger greater monitoring of an • Cabinet Committee on Economic Affairs has given
NBFC. approval to the Alternative Mechanism to facilitate
2. When faced with a dire liquidity crunch situation, Strategic Disinvestment. The Alternative Mechanism
regulators can use Health Score as a basis for optimally consists of Finance Minister, Minister for Road Transport &
directing capital infusions to deserving NBFCs to ensure Highways and Minister of Administrative Department of
efficient allocation to scarce capital. the PSU which is to be strategically divested. It will decide
3. Prudential thresholds can be set on the extent of matters relating to terms and conditions of the sale from
wholesale funding that can be permitted for firms in the the stage of inviting of Expression of Interests (EOI) till
shadow banking system. Such a norm would be consistent inviting of financial bid. It will also decide quantum of
with macro-prudential regulations that are required to shares to be transacted, mode of sale and final pricing of
internalise systemic risk concerns arising due to an transaction or lay down principles/guidelines for such
individual NBFC's financing strategy. These norms could be pricing and selection of strategic partner, terms and
counter-cyclically adjusted because seeds of a liquidity conditions of sale. This will facilitate quick decision making
crunch are sown during good times. and obviate the need for multiple instances of approval by
CCEA for the same CPSE.
• Recent approval of strategic disinvestment of BPCL led to
►CHAPTER 9: an increase in value of shareholders' equity of BPCL by
Rs33,000 crore when compared to HPCL. This reflects an
PRIVATISATION AND increase in the overall value of anticipated gains from
improvements in efficiency of BPCL relative to HPCL which
WEALTH CREATION will continue under Government control.
►STRATEGIC DISINVESTMENT ►EXPERIENCE OF STRATEGIC

• It involves sale of majority stake of Government of India DISINVESTMENT IN INDIA
and transfer of management control. It is guided by basic • Performance of the privatized CPSE and its peers is quite
economic principle that Government should discontinue in similar till the year of privatization. However, post
sectors, where competitive markets have come of age and privatization, the performance of the privatized entity
economic potential of such entities may be better improves significantly when compared to the change in the
discovered in the hands of strategic investor due to factors peers’ performance over the same time period.
such as:
• A comparative analysis of the before-after performance of
1. Infusion of capital 11 CPSEs that had undergone strategicdisinvestment from
2. Technological upgradation 1999-2000 to 2003-04 reveals that net worth, net profit,
3. Efficient management practices return on assets(ROA), return on equity (ROE), gross
revenue, net profit margin, sales growth and gross profit
• Success of transaction depends on prevailing market
per employee of the privatized CPSEs, on an average, have
conditions and investors' interest.
improved significantly in the post privatization period
• Government follows a policy of strategic disinvestment of compared to the peer firms.
CPSEs, which are not in 'priority sectors'. For this purpose,
• The ROA and net profit margin turned around from
NITI Aayog has been mandated to identify such CPSEs as
negative to positive surpassing that ofthe peer firms which
high priority or low priority based on criteria of
indicates that privatized CPSEs have been able to generate
1. National Security more wealthfrom the same resources.
2. Sovereign function at arm's length • The analysis clearly affirms that disinvestment (through
3. Market imperfections and public purpose. the strategic sale) of CPSEs unlockstheir potential of these
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VOLUME - I
enterprises to create wealth evinced by the improved management in the selected CPSEs for which the Cabinet
performance afterprivatization. has given in-principle approval.
• Strategic disinvestment needs to focus on exit from non-
►EVOLUTION OF DISINVESTMENT strategic business and directed towards optimising
economic potential of these CPSEs. This would unlock
POLICY OF INDIA
capital for use elsewhere, especially in public
1. Disinvestment through minority stake sale in listed CPSEs infrastructure like roads, power transmission lines, sewage
to achieve minimum public shareholding norms of 25%. systems, irrigation systems, railways and urban
While pursuing disinvestment of CPSEs, Government will infrastructure. This will lead to creation of fiscal space and
retain majority shareholding ie at least 51% and improve the efficient allocation of public resources.
management control of the Public Sector Undertakings.
• Privatisation or disinvestment program should aim at
2. Listing of CPSEs to facilitate people's ownership and maximisation of Government's equity stake value. The
improve the efficiency of companies through learning from the experience of Temasek Holdings
accountability to its stakeholders. Company in Singapore may be useful in this context. The
3. Strategic Disinvestment Government can transfer its stake in the listed CPSEs to a
4. Buy back of shares by large PSUs having huge surplus. separate corporate Entity. This entity would be managed
by an independent board and would be mandated to
5. Mergers and acquisition of PSUs in the same sector.
divest the Government stake in these CPSEs over a period
6. Launch of exchange traded funds (ETFs) - an equity of time. This will lend professionalism and autonomy to
instrument that tracks a particular index. The CPSE ETF is the disinvestment program which, in turn, would improve
made up of equity investments in India’s major public the economic performance of the CPSEs.
sector Companies.
7. Monetization of select assets of CPSEs to improve their
balance sheet/reduce their debts and to meet part of their ►CHAPTER 10:
capital expenditure requirements.
IS INDIA’S GDP GROWTH
►BENEFITS OF PRIVATISATION
RATE OVERSTATED? NO!
1. Average privatisation affects are significantly positive but
these vary across countries and time periods. There is This chapter deals with the issue of accuracy of India's GDP
significant positive impact for better quality firms and in estimation.
better macroeconomic and institutional environments. ►CONCEPTS RELATED TO GDP
2. Strong positive effect of labour productivity and overall
CALCULATION
efficiency of PSU's in India.
Depreciation: It is an accounting concept. No real
3. Improved capital allocation and economic efficiency
expenditure may have actually been incurred each year yet
4. Cost reductions depreciation is annually accounted for. All the capital goods
5. Privatisation has multiplier effect on other sectors of the produced in a year does not constitute an addition to the
economy. capital stock already existing. A significant part of current
6. Enhanced Competitiveness output of capital goods goes in maintaining or replacing part
of the existing stock of capital goods. This is because already
7. Professionalism in management of CPSEs
existing capital stock suffers wear and tear and needs
Case studies: Increased customer satisfaction in form of
maintenance and replacement. A part of the capital goods
reduction in tariffs, increased data usage etc in the
produced this year goes for replacement of existing capital
telecommunication sector and reduced air fares comparable
goods and is not an addition to the stock of capital goods
to high end consumers in the railways.
already existing and its value needs to be subtracted from
gross investment for arriving at the measure for net
►WAY FORWARD investment. This deletion, which is made from the value of
gross investment in order to accommodate regular wear and
• Aggressive disinvestment should be undertaken to bring in
tear of capital, is called depreciation.
higher proftability, promote effciency, increase
competitiveness and to promote professionalism in
23
VOLUME - I
►REAL GDP Market prices are prices as paid by

Real GDP is calculated in a way such that the goods and consumers Market prices also include
product taxes and subsidies. Factor cost
services are evaluated at some constant set of prices (or
refers to prices of products as received
constant prices)
by the producers. Thus, factor cost is
equal to market prices, minus net
►NOMINAL GDP indirect taxes. GDP at factor cost
measures money value of output
Nominal GDP is simply the value of GDP at the current produced by the firms within the
prevailing prices. domestic boundaries of a country in a
year.
►GDP DEFLATOR
3. Net This allows policy-makers to estimate
In the calculation of real and nominal GDP of the current
Domestic how much the country has to spend just
year, the volume of production is fixed. Therefore, if these Product at to maintain their current GDP. If the
measures differ it is only due to change in the price level Market country is not able to replace the capital
between the base year and the current year. The ratio of Prices stock lost through depreciation, the GDP
nominal to real GDP is a well known index of prices. This is will fall:
called GDP Deflator. NDPmp= GDPmp-Depreciation
CONCERNS WITH GDP
1. GDP does not give an idea about distribution of incomes 4. NDP at It is the income earned by the factors in
factor Cost the form of wages, profits, rent,
(Inequality of income is hidden)
interests etc within domestic territory of
2. Non-monetary exchanges such as domestic services of a country
women and barter exchange are not captured in GDP.
NDPfc= NDPmp-Net Product Taxes - Net
(Leads to underestimation by GDP) Production taxes
3. Externalities: Externalities refer to the benefits (or
harms) a firm or an individual causes to another for which 5. Gross GNPmp is the value of all final goods
they are not paid (or penalised). Externalities do not have National and services that are produced by the
any market in which they can be bought and sold. Product at normal residents of India and is
Market measured at market prices, in a year.
• Externalities can be positive: Improvement of health and
Prices It refers to all the economic output
happiness of people (Leads of overestimation of GDP)
produced by a nation's normal
• Externalities can be negative: Environmental Degradation residents, whether they are located
etc (leads to underestimation of GDP) within the national boundary or abroad.
Everything is valued at market prices.
►NATIONAL INCOME AGGREGATES GNPmp=GDPmp + Net factor
income from abroad
1. Gross It is market value of all final goods and
Domestic services produced within a domestic 6. Gross It measures value of output received by
Product at territory of a country measured in a National the factors of production belonging to a
Market year. Product at country in a year.
Prices All production done by the national Factor Cost GNPFC =GNPFC - Net Product Taxes -
residents or non-residents in a country Net ProductionTaxes
gets included, regardless of whether
that production is owned by a local
7. Net This is a measure of how much a
company or foreign entity.
National country can consume in a given period
Everything is valued at market prices Product at of time. NNP measures output
GDP= Consumption + Investment Market regardless of where that production has
+ Government + Export - Import Prices taken place (in domestic territory or
abroad).
2. GDP at It is gross domestic product at market NNPmp= GNPmp-Depreciation
Factor Cost prices, less net product taxes. NNPmp=NDPmp+Net Factor Income
24
VOLUME - I
CHANGES IN THE METHODOLOGY
From Abroad
1. Base year for GDP calculation was changed from 2004-05
8. Net Maximum amount of goods and to 2011-12.
Disposable services the domestic economy has at 2. New data series was used for the organised private sector
Income its disposal. Current transfers from the - MCA-21. It included the data of all the companies
rest of the world include items such as registered with the ministry of corporate affairs, and each
gifts, aids etc.
company was given a unique 21-digit code, hence MCA-21.
Net National Product at market prices + Thus, the new methodology uses balance sheet of about
Other current transfers from the rest of 5,00,000 firms is used.
the world.
3. In the previous method, IIP or factory output was the main
feature to calculate manufacturing and trading activity.
9. Private = Factor income from net domestic
Income product accruing to the private sector + The limitation was, that this only counted volume and did
National debt interest not give an idea about value. For instance,
The Economic Survey has used Difference in Difference
Methodology to estimate that the GDP figures using the new
►METHODS TO CALCULATE GDP methodology are correct. There is no overestimation as
1. Product or Value Added Method: In this method, predicted by Arvind Subramaniam.
aggregate annual value of goods and services produced is The Difference in Difference Method is the same method
calculated. Net contribution made by a firm is called its which is used by drug companies to estimate the
value added. Value added of a firm is, value of production effectiveness of a new drug as compared when no drug is
of the firm value of intermediate goods used by the firm. administered to a patient.
The value added of a firm is distributed among its four REASONS FOR HIGHER GROWTH RATE IN NEW GDP
factors of production namely labour, capital, ESTIMATES
entrepreneurship and land. Therefore wages, interest,
1. There is evidence of new firm creation in the formal sector
profits and rents paid out by firm must add up to the value
across 504 districts in India. A 10% increase in new firm
added of the firm. Value added is a flow variable.
creation increases district level GDP growth by 1.8%. As the
2. Expenditure Method: This method calculates GDP by pace of new firm creation in the formal sector accelerated
looking at the demand side of the products. In this significantly more after 2014, the resultant impact on
method, final expenditures that each firm makes is district level growth and thereby country level growth must
aggregated. Final expenditure be accounted for in any analysis.
3. Income Method: Sum of final expenditures in an economy 2. Improvement in India's indicators in access to nutrition
must be equal to the incomes received by all factors of and electricity might explain higher growth rate in Indian
production taken together (final expenditure is spending GDP post the methodological change.
on final goods, it does not include spending on
3. New firm creation in the Services Sector is far greater than
intermediate goods). Revenues earned by all firms put
that in manufacturing, infrastructure or agriculture.
together must be distributed among factors of production
Relative importance of Services sector is much higher in
as salaries, wages, profits, interest earnings and rents.
Indian economy.
4. There is a need to invest in ramping up India's statistical
►NEW METHODOLOGY FOR GDP infrastructure. Ministry of Statistics and Program
ESTIMATION Implementation has set up 28 member Standing
Committee on Economic Statistics (SCES) headed by India's
Base Year of GDP series was revised from 2004-05 to 2011-12
former Chief Statistician Pronab Sen.
after adaptation of sources and methods in line with the
System of National Accounts (SNA) 2008 of the United
Nations. Change in base year is done to better capture ►STANDING COMMITTEE ON
structural changes in the economy. ECONOMIC STATISTICS (SCES)
For the purpose of global standardisation and comparability,
Ministry of Statistics and Program Implementation has set
countries follow SNA evolved the UN. SNA 2008 is the latest
up SCES under the Chairmanship of Pronab Sen (India's first
version of the international statistical standard for national
Chief Statistician)
accounts, adopted by the UN Statistical Commission in 2009.
25
VOLUME - I
It will aim at: • Thali prices are constructed for 25 States/UTs taking into
1. Taking stock of all economic statistics with the aim to account the prices for cereals (rice or wheat), sabzi
maintain consistency between various data sets. (vegetables plus other ingredients), dal (pulses with other
ingredients) as well as cost of fuel that goes into making a
2. Review key data sets that track economic activity and
meal in household.
labour force participation trends
• For rationed items, the prices for the centres are weighted
3. It will look into the datasets such as - Periodic Labour Force
average prices, the weights being the proportion of the
Survery, Annual Survey of Industries, Annual Survey of
quantity available through Public Distribution System and
Unorganised Sector Enterprises, Time Use Survey, Index of
quantity procured from the open market in different
Service Production, Index of Industrial Production,
centres in relation to base year (2001) requirements of an
Economic Census and other surveys or statistics brought
average working class family.
before it. https://t.me/UPSC_PDF
• Two types of Thalis are analysed: A Vegetarian Thali and a
4. It will also work on developing survey methodology
non-vegetarian one. Vegetarian Thali comprises of a
including sampling frame, design, oversee the finalisation
serving of cereals, sabzi and dal and the non-vegetarian
of reports of surveys and conduct pilot surveys before
Thali comprises of cereals, sabzi and a non-vegetarian
finalising schedules for data collection.
component.
5. It will also study the availability and compilation of related
• The evolution of prices these two Thalis during period
administrative statistics and identify data gaps, if any, and
from 2006-07 to October, 2019-20 is analysed.
then suggest appropriate strategy.
• Price data from Customers Price Index for Industrial
It will subsume four existing committees:
Workers is used.
1. Standing Committee on Labour Force Statistics
RESULTS
2. Standing Committee on Services Sector
1. Both across India and four regions - North, South, East and
3. Standing Committee on Industrial Statistics West - the absolute prices of a vegetarian Thali have
4. Standing Committee on Services Sector and decreased since 2015-16 though it increased in 2019.This
Unincorporated Sector Enterprises is due to moderation in prices of vegetables and dal from
Prior to the formation of the above panel, Advisory 2015-16 when compared to previous trend of increasing
Committee on National Accounts Statistics (ACNAS) had the prices.
mandate to review the database and advice on data 2. After 2015-16, the average household gained `10887 on
collection related to national account statistics. average per year from the moderation in prices in the case
of vegetarian Thali. Similarly, an average household that
►COMMITTEE FOR SUB-NATIONAL consumes two non-vegetarian Thalis gained around
`11787 on average per year during the same period.
ACCOUNTS
3. Affordability of Thalis vis-a-vis a day's pay for a worker has
Ministry of Statistics and Program Implementation has improved over time indicating improved welfare of the
created a committee under the Chairmanship of Ravindra common person. Affordability of vegetarian Thalis has
Dholakia to review the preparation of State Domestic Product improved over time period from 2006-07 to 2019-20 by
(SDP) and District Domestic Product (DDP). 29% and that for non-vegetarian thalis by 18%.
►CHAPTER 11
►THALINOMICS
Food and beverage constitute around 45.9 percent in the
Consumer Price Index.
• It is an attempt to quantify what a common person pays
for a Thali across India.
• Based on dietary guidelines for India issued by National
Institute for Nutrition in 2011, the price of Thalis are
constructed. Requirements for an adult male engaged in
heavy work is taken.
26
SECTION 2
V OLUME-II
►CHAPTER 1: Further, from this chapter, one needs to make a note of
important trends in growth of macro-economic parameters such

STATE OF ECONOMY as GDP, Investment Rates, Savings Rate. Questions can also be
asked with respect to trends in the contribution of different
This chapter of Economic Survey analyses the recent growth sectors to India's GDP and so on.
trends of the Global and Indian Economy. It identifies the major
factors which have contributed to the present economic ►CONTRIBUTION OF DIFFERENT

slowdown. It has further laid a special emphasis on decoding COUNTRIES TO $ 86 TRILLION WORLD
India's economic slowdown through the concept of lagged effect GDP
According to World Bank, the total Nominal GDP of the World
of decline in Investment.
as on September 2019 is around $ 86 trillion. The share of
With respect to UPSC Prelims, one needs to be aware of basic
different countries to World's GDP (as on Sep 2019) has been
concepts related to National Income such as Real GDP, Nominal
shown in figure below:
GDP, Calculation of National Income and so on.
27
VOLUME - II
• By end of 2019-20, with nominal GDP size of $ 2.9 trillion,
India has become the fifth largest economy in the world by
overtaking UK and France.
• Top 5 countries by end of 2019-20: USA, China, Japan,
Germany and India.
►MAJOR DRIVERS OF WORLD

ECONOMY IN 2019-20
The world Economy is expected to grow by 2.9% in 2019-20.
As shown below, the major drivers of the World economy are
China, USA and India.
28
VOLUME - II
►TRENDS IN WORLD'S GDP GROWTH

RATES ►TRENDS IN CONTRIBUTION OF
According to World Economic Outlook published by IMF, DIFFERENT SECTORS TO INDIA'S GDP
there has been consistent decline in the global GDP growth 2009-10 2014-15 H1:
rates- 3.8% (2017), 3.6% (2018), 2.9% (2019). The GDP growth to to 2018-19 2019-
rate of 2.9% in 2019-20 is considered to be the lowest since 2013-14 2018-19 20
the global finance crisis of 2007-08. As shown in the figure Agriculture, 18.3 17.4 16.1 13.9
forestry & fishing
below, it is the developing economies led by India and China
Industry 32.3 29.6 29.6 28.3
that have majorly contributed to increase in global GDP.
Mining & Quarrying 3.2 2.4 2.4 2.1
Manufacturing 17.5 16.6 16.4 15.4
Electricity, Gas, 2.4 2.6 2.8 2.9
Water supply &
other utility
services
Construction 9.2 8.0 8.0 8.0
Services 49.4 52.9 54.3 57.8
Trade, Hotel, 17.5 18.3 18.3 18.1
Transport, Storage,
Communication
and services
related to
broadcasting
Financial, Real 19.2 20.9 21.3 24.5
Reasons for the Global Economic slowdown: estate &
Professional
• Weak consumer demand
services
• Decline in manufacturing activity Public 12.7 13.7 14.7 15.2
• Decline in exports due to global trade war. Administration,
Defence and other
services
►INDIA'S GDP SIZE AND TRENDS IN Source: National Statistical Office
GDP GROWTH RATES IMPORTANT OBSERVATIONS
The Real GDP (GDP at base year prices) has increased from Contribution of different sectors: Services (57.8%); Industry
123 lakh crores in 2016-17 to 147 lakh crores in 2019-20. (28.3%), Agriculture, forestry and fishing (13.9%)
Similarly, the nominal GDP (GDP at current market prices) has Decline in contribution of agriculture sector: As the Indian
increased from 153 lakh crores in 2016-17 to 204 lakh crores economy is undergoing structural transformation, there has
in 2019-20. (In order to become $ 5 trillion economy by 2024- been consistent decline in the share of agriculture sector.
25, Nominal GDP would have to increase to 375 lakh crores.) Decline in contribution of Industry: The decline in the
Even though the Real and Nominal GDP have increased in share of agriculture sector has not been accompanied by
absolute terms, the rate of increase in GDP growth has been increase in share of Industries. This is so because the share of
declining as shown below: manufacturing sector has remained stagnant at 16% since
1991 reforms. The Government intends to increase the share
of manufacturing sector to 25% of GDP.
Increase in share of service sector: Consistent increase in
the share of service sector from 50% in 2009-10 to 58% in
2019-20.
►MAJOR DRIVERS OF INDIA'S GDP IN

2019-20
• According to Expenditure method, GDP is calculated as
C+G+I+ (X-M) where C denotes Private final consumption
29
VOLUME - II
expenditure (PFCE), G denotes Government Final
consumption Expenditure (GFCE), I denotes Investment, X
denotes Exports and M denotes Imports. As shown in the ►DECODING PRESENT ECONOMIC
figure below, the PFCE accounts for the highest SLOWDOWN
contribution followed by Investment.
• The Economic survey 2018-19 had recommended for
• As shown below, the present decline in the GDP growth
sustaining virtuous economic cycle of higher investment-
rate is attributed to the decline in the PFCE and
Investment, both of which are considered to be major higher GDP growth- higher consumption in order to realise
drivers of India's GDP. the vision of $5 trillion economy.
• The increase in Investment rates leads to greater

employment creation, increase in production and exports
leading to higher GDP growth rates. The higher GDP
growth rates leads to increase in disposable income levels
of the people leading to increase in consumption
expenditure. The higher demand for goods and services, in
turn incentivises greater amount of private sector
Investment leading to virtuous economic cycle.
TWO IMPORTANT POINTS
1. Increase or decrease in Investment does not immediately

impact the Economic growth. Usually, the impact of either
increase or decrease in Investment on the GDP growth is
seen after a period of 4 years. This is known as lagged
effect of Investment on GDP Growth rates.
2. Similar to lagged effect of Investment on GDP growth,

there is a lagged effect of economic growth on
Consumption. The impact of increase or decrease in the
GDP growth on the consumption is usually seen after a
period of 2-3 years.
IMPORTANT OBSERVATIONS
The Investment rate within Indian Economy started declining

from 2012-13. However, in spite of decline in Investment, the
Indian economy continued on higher GDP growth trajectory
for the next 4 years. Ultimately, the decline in Investment led
to decline in GDP growth rates from 2016-17 i.e. after a
period of 4 years due to lagged effect.
The decline in the GDP growth rate from 2016-17 did not
immediately impact the consumption. The Consumption
expenditure started declining only in first quarter of 2019-20
due to lagged effect of 2-3 years. The decline in consumption
expenditure has in turn led to decrease in Investment rates.
Hence, the present economic slowdown can be traced to

2012-13 when the Investment rate started declining. Thus,
30
VOLUME - II
Ind
dia is facing economic slow
wdown becau
use of its inab
bility to s
sustain virtuous economic cycle.
►DECODIN
NG INVES
STMENT The Gross sav
T vings is contributed by ma ainly 3 sectorss- Public,
P
Private Corpoorate and Ho ousehold secttor. As shown below,
SL
LOWDOW
WN
the Household d sector accounts for the highest
h share of Gross
TRE
ENDS IN INVESTMENT RA
ATES S
Savings follow
wed by private corporate sector. The financial
Thee Total Inveestment rate e within Ind dian Econommy has s
savings of the
e householdss majorly inclludes the deposits of
decclined from 34% in 2011 1-12 to 28.5% % in 2017-188. The the household ds with the Baanks and fina ancial Institutiions. The
Household sector is one of the dom minant sourcces of P
Physical savings include savvings in the fo
orm of land, bbuildings,
Inv
vestment. Howwever, the sha
are of househhold Investme
ent has h
home etc.
red
duced from 166% in 2011-122 to 10.5% in 2017-18. The
e share
Table 3:
3 Gross Savin
ngs as percen
ntage of GDP
P
of Private corpo
orate sector and
a Public se
ector has rem
mained 2011- 2014- 20155- 2016- 2017-
stagnant at 11% and 7% respectively. 12 15 16 17 18
Gross savings
G 34.6 32.2 31.1
1 30.3 30.5
C
Comparison i Investmen
in nt rates betw
ween 2011-12 and
P
Public 1.5 1.0 1.2
2 1.7 1.7
20
017-18
P
Private 9.5 11.7 11.9
9 11.5 11.6
20
011-12 2017-18 c
corporate
Hoousehold Secttor 16% 10.5%
% H
Household 23.6 19.6 18.0
0 17.1 17.2
Prrivate Corporaate s
sector
11% 11%
Sector N financial
Net 7.4 7.1 8.1 6.3 6.6
Public Sectorr 7% 7% s
savings
Tootal Investmeent P
Physical 16.3 12.5 9.9
9 10.8 10.6
34% 28.5%
% s
savings
Rate
S
Source: Centrall Statistics Officce
REA
ASONS FOR DECLINE
D IN IN
NVESTMENT
There has be
T een consisten nt decline in Gross Savinngs from
Household sec ctor: Maximu um Investme ent in Real estate 3
34.6% in 2011-12 to 30.5% in 2017-18 8. The declin
ne in the
secctor. The poo or financial poosition of Ban nks and NBFCs has G
Gross Savingss is basically
y on accountt of decline in Gross
led to decline inn household Investment in n Real estate sector. s
savings of hou
usehold secto or.
(Drrag of Financia
al sector on Rea
al Estate Secto
or)
Private Corpo orate Sectorr: Stagnant Private corrporate
Inv
vestment due e to higher NPAs
N of Bank
ks (Drag of Fin
nancial ►
►CHAP
PTER 2:
2
secctor on Corporate Investment)
The ese two facto
ors highlight that
t the Investment cycle within F
FISCAL
L DEVE
ELOPMENTS
Ecoonomy would d kick in only
y when the financial
f posittion of
TThis chapter of the Economic Survey seekks to provide tthe bird's
Ban nks and NBFCCs improve. This
T is quite crritical to susta
ain the
e
eye view of the
t Public Fin
nances.It begiins with discu
ussion of
virttuous econommic cycle.
C
Central Governnment financees over the reccent years, folllowed by
a
analysis of thee fiscal perforrmance duringg the current financial
►TRENDS IN GROS
SS SAVIN
NGS y
year.
31
RAU’S IAS
SFOCUS SPEC
CIAL EDITION
N) for CSE 20
020
VOLUME - II
In order to get comprehensive picture of this chapter, it is target has been revised upwards for financial year 2019-20
advisable for the students to read this chapter after going from 3.3% to 3.8%. Further, the FD target for financial year
through the summary of the Budget provided in this booklet. The 2020-21 has also been revised upwards from earlier 3% to
analysis of this chapter does not include those aspects which are 3.5%.
already covered in the Budget.
• Thus, even though, the Economic survey had
recommended for relaxation in FD only for the financial
►OVERVIEW OF PUBLIC FINANCES year 2019-20, the Budget 2020-21 has relaxed the FD
PRESENT STATE OF PUBLIC FINANCES target for both the financial years 2019-20 and 2020-21.
The Financial year 2019-20 saw slowdown in the GDP growth ECONOMIC SURVEY'S RECOMMENDATIONS FOR EFFICIENT
rates. Hence, in order to boost the Economy, the Government MANAGEMENT OF PUBLIC FINANCES
announced a host of measures. One of the most prominent In order to counter the present economic slowdown, there is
measure was the reduction in the corporate tax rate to 22% a need to increase the total expenditure which can boost
leading to revenue loss of around Rs 1.4 lakh crores. Further, consumption and investment within the Indian Economy.
the weaker demand within the economy has also led to Accordingly, the total expenditure as % of GDP has increased
reduction in the GST collections. Hence, there has been from 12.2% in 2018-19 to 13.2% in 2019-20.
overall decline in the tax-GDP ratio from 10.9% (2018-19) to
However, this 1% expenditure in the expenditure is mainly
10.6% (2019-20).
accounted by the increase in the revenue expenditure. The
However, the decline in the tax collection has been revenue expenditure has increased from 10.6% in 2018-19 to
compensated to a certain extent in mainly 2 ways: 11.6% in 2019-20. The capital expenditure as % of GDP has
• Increase in the transfer of dividend from the RBI to remained stagnant at 1.6% in 2019-20 as compared to 2018-
Government from Rs 68,000 crores (2018-19) to Rs 1.76 19.
lakh crores (2019-20) Hence, there is a need to enhance the capital expenditure in
• Increase in disinvestment receipts to Rs 68,000 crores. order to boost consumption and investment within the
IMPLICATIONS economy. The Government must take the following measures
to do so:
The Government had targeted to reduce the Fiscal Deficit to
3.3% of GDP (Rs 7.03 lakh crores) for the financial year 2019- 1. Rationalization of Subsidies to reduce the Revenue
20. However, due to economic slowdown, the fiscal deficit for Expenditure. (The Economic survey has given number of
the first 7 months of financial year (April-October) has already recommendations to reduce the Food subsidy Bill which
increased to Rs 7.20 lakh crores which is 104% higher than has been discussed in the Chapter of Agriculture and Food
the targeted Fiscal Deficit. Management)
2. Relaxation in the FD target under the FRBM act to boost
►RECOMMENDATIONS OF ECONOMIC the capital expenditure.
SURVEY
►DEBT POSITION OF THE
• The FRBM act provides for the relaxation in the Fiscal
deficit target by 0.5% on number of grounds such as
GOVERNMENT
national security, war, collapse of agriculture, structural The Fiscal deficit represents the Government's borrowings for
reforms and decline in the GDP growth rate. The Economic a single financial year. However, the Public Debt represents
survey has recommended that the Government should the total accumulated borrowings which have not been
use this escape clause of the FRBM act for the financial repaid back so far.
year 2019-20 i.e. the government should target to reduce The Debt position of the central Government can be analyzed
Fiscal deficit to 3.8% of GDP(0.5% higher than the earlier by looking at the total liabilities of the Central Government.
target of 3.3%). The Total liabilities of the Central Government include debt
• Such a recommendation of the Economic survey has been contracted against the Consolidated Fund of India, technically
accepted by the Government as seen in the Budget 2020- defined as Public Debt, as well as liabilities in the Public
21. According to the Budget 2020-21, the Fiscal deficit Account.
32
VOLUME - II
Thee Total liabilitties of the cen

ntral Governm ment as on 20 019-20 Dated Securitties. It is follo
D owed by Securities issued
d against
stands at 46.5% of India's GD DP. The liabilitties are categ
gorized N
NSSF.
undder two head ds- Public De ebt and Liab bilities under Public
Acccount of Indiaa.
►
►EXTERN
NAL DEB
BT OF IND
DIA
Depending upon n the source of
o Governmen nt's borrowings, the
The External debt include
T es the total money owed d by the
Pub
blic Debt is ca
ategorized into Internal and
d External Debt.
U
Union Government, State e Governmen nts, Corpora ations or
Som
me of the ma
ajor sources of Internal Debt
D are: Indian Citizen
ns to foreign creditors. The
T Foreign C Creditors
• Treasury
T Billls: Instrumentts to raise sho
ort-term loanss c
could be Foreign Government, Multilate eral Institution
ns (World
• Dated Securiities: Used for raising long
g term loans B
Bank, IMF etc)), private commercial bankss etc.
• W
Ways and means advanc ces (WMA): Borrowings fro om the • Durattion of loan- Short-term (less than
RBI to meet immediate cash requireme ents which can arise 1 yeaar) and long g-term (more e than 1
d to tempo
due orary mismatcches in receipts and expenditure. Categorisatiion
year)
• S
Sovereign Gold Bon nds: Goverrnment seccurities of External
• Soverreign Debt (Government) a and Non-
d
denominated
d in terms of Gold.
G Debt
Soverreign Debbt (Other than
• Bank Recap pitalization Bonds: Bonds issued b by the Goverrnment, including private ssector)
G
Government to raise loanss for undertak
king recapitalization
o Public Secttor Banks (PSB
of Bs) • Multilateral Debtt: Debt fro om the
• S
Securities isssued agains st NSSF: The money co ollected multillateral institu
utions such a
as World
under various small savin ngs schemes such as Postt office Bank, IMF, ADB etcc.
Deposits, Nattional Savingss Certificate, PPF
P etc. is depposited • Bilate
eral Debt: Debt
D from ssovereign
under National Small Savings
S Fundd (NSSF) wh hich is Major Headss
counttries such as Japan, Germany etc.
maintained asa part of Public Accoun nt of India. C
Certain under
External Deb
bt • Tradee Credits/Expo
ort Credits: Lo
oans and
percentage of funds under the NSSF is used to invesstment
creditts extended for
f imports diirectly by
in special G-Secs and d hence considered tto be
overseas supplier, bank and financial
G
Government' s borrowings.
institu
utions
Important Notte: Presently, major part of Internal d
debt is
• Extern
nal Commerccial Borrowing
gs: loans
dom
minated by market borrrowings i.e. Treasury Bills and
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As shown in above figure, the overall debt of the centre was
from commercial banks, other
around 55% in 2004-05. By end of 2018-19, the debt has
commercial financial institutions
reduced to 45% of India's GDP.
• Cumulative External Debt: At end of On the other hand, the overall GDP-GDP ratio of the states
June 2019, India’s external debt was has increased from 22.6% in 2012-13 to 25% in 2019-20.
placed at US$ 557.4 billion (19.8% of the
GDP). ►15th FINANCE COMMISSION
• Composition of Debt: Non-Sovereign • The 15th Finance Commission headed by Mr. N.K. Singh
Present status Debt (Non-Government Debt) : 16% of has recently submitted its recommendations. Usually, the
of External the GDP; Sovereign Debt (Government Finance Commission recommendations are valid for a
Debt Debt): 3.8% of the GDP. period of 5 years.
• Duration of Debt: Long term debt (80% • However, this time, the 15th Finance Commission
of total external debt); remaining 20% is recommendations would be valid for a period of 6 years.
short term debt Now, the 15th Finance Commission has submitted its first
• Denomination of Debt: US dollar (50%); set of recommendations which will be applicable for the
remaining in Rupee, Yen, SDR and Euro. financial year 2020-21. The next report which would be
submitted by October 30 would be applicable for 2021-26
period.
►TRENDS IN CENTRE'S DEBT-TO-GDP IMPORTANT RECOMMENDATIONS OF 15TH FINANCE
RATIO COMMISSION
Targets under the FRBM act Vertical Devolution of Taxes: The share of states in the
centre’s taxes is recommended to be decreased from 42%
• Reduce Fiscal Deficit to 3% of GDP by end of 2021.
during the 2015-20 period to 41% for 2020-21. The 1%
• Reduce General Government debt to below 60% by end of
decrease is to provide for the newly formed union territories
2024-25. (Central Government: Below 40%; State
of Jammu and Kashmir, and Ladakh from the resources of the
Governments: Below 20%).
central government.
CRITERIA FOR THE HORIZONTAL DISTRIBUTION OF TAXES
AMONG THE STATES
th th
Criteria 14 Finance 15 Finance
Commission Commission
Income Distance 50 45
Population (1971 17.5 Not Considered

Census)
Population (2011 10 15
census)
Demographic Not Considered 12.5

Performance
Forest Cover 7.5 Not Considered
Forest and Not Considered 10

Ecology
Area 15 15
Tax Effort Not considered 2.5
Total 100 100
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ANALYSIS OF THE CRITERIA USED BY THE 15TH FINANCE post-devolution. To make up for this deficit, the
COMMISSION Commission has recommended revenue deficit grants
Income Distance: It is calculated as the difference between worth Rs 74,000 crore to these 14 states.
per-capita income of a particular state and state with the • Grants to local bodies: The total grants to local bodies for
highest per-capita income. If the income distance is larger, it 2020-21 has been fixed at Rs 90,000 crore. This allocation
would mean that a particular state is poorer and hence it is 4.31% of the divisible pool.
would get higher share of taxes. If the income distance is • Sector-specific grants: Grant of Rs 7,375 crore for
smaller, it would mean that a particular state is richer and nutrition in 2020-21. Sector-specific grants for the sectors
hence it would it would get lesser share of taxes. will be provided in the final report.
Demographic Performance: If the fertility rate in a particular • Disaster risk management: The Commission
state is lower, it would mean that such a state has taken recommended setting up National and State Disaster
substantial efforts to reduce its population growth rate and Management Funds (NDMF and SDMF) for the promotion
accordingly it would get a higher share. of local-level mitigation activities.
Forest and ecology: This criteria has been arrived at by • Special grants: In case of three states, the sum of
calculating the share of dense forest of each state in the devolution and revenue deficit grants is estimated to
aggregate dense forest of all the states. decline in 2020-21 as compared to 2019-20. These states
Tax effort: Reward states with higher tax collection are Karnataka, Mizoram, and Telangana. The Commission
efficiency. Computed as the ratio of the average per capita has recommended special grants to these states.
own tax revenue and the average per capita state GDP during
the three-year period between 2014-15 and 2016-17.
►TRENDS IN TRANSFER OF FINANCES
GRANTS-IN-AID
FROM CENTRE TO STATES
The Terms of Reference of the Finance Commission require it
As shown in the figure below, 3 modes for transfer of
to recommend grants-in-aid to the States. These grants
finances:
include: (i) revenue deficit grants, (ii) grants to local bodies,
• Devolution of States' share in taxes
and (iii) disaster management grants. https://t.me/UPSC_PDF
• Finance Commission Grants
• Revenue Deficit Grants: The 15th Finance Commission
has estimated that 14 states would face revenue deficit • Transfers for Centrally sponsored schemes.
FIGURE: Central Government transfers to States
IMPORTANT OBSERVATIONS ►CORPORATE TAX CUT

• Consistent increase in the transfer of finances from Centre The Corporate Tax is a form of direct tax to be paid by
to states. companies on their income. Both Domestic as well as foreign
• Highest share accounted by devolution of states' share in companies are liable to pay corporate tax in India. While a
taxes domestic company is taxed on its universal income, a foreign
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company is only taxed on the income earned within India. For The following can be considered as income of the company:
the purpose of calculation of taxes under Income tax act, the • Profits earned from the business
types of companies can be defined as under:
• Capital Gains
Domestic Company: Domestic Company is one which is • Income from renting property
registered under the Companies Act of India and also
• Income from other sources like dividend, interest etc.
includes the company registered in the foreign countries
having control and management wholly situated in India. The Government has decided to reduce the corporate tax
rates in order to boost investment and counter the present
Foreign Company: Foreign Company is one which is not
slowdown. The table given below compares the new tax
registered under the companies act of India and has control
regime with the older tax regime.
& management located outside India.
Old New Surcharge on net income Surcharge on net Secondary and

Type of Company Corporate Corporate greater than Rs 1 Crore income greater Higher Education
Tax Rate tax rate and less than Rs 10 Crores than Rs 10 Crores Cess
Domestic Company with

annual turnover less 25% 22% 7% 12% 4%
than Rs 400 Crores
Domestic Company with

annual turnover more 30% 22% 7% 12% 4%
than Rs 400 Crores
Foreign Company 40% 40% 2% 5% 4%
IMPORTANT ANNOUNCEMENTS previous year questions, broadly the questions are asked from
• Corporate Tax Relief: The Corporate tax rate for all the mainly 3 distinct dimensions of the chapter-
domestic companies has been cut to 22% provided they do • Concepts about External Sector- Components of Balance of
not avail of any exemptions. The effective tax rate for the Payment (BoP), Rupee Appreciation and Depreciation-
domestic companies will now be 25.7%, inclusive the Reasons and Impact, International Institutions such as IMF,
surcharge and cess. Further, such company shall not be WTO etc.
required to pay MAT. • Current developments- Important international agreements
• Boost to Make in India: Companies incorporated in India under WTO which were in news, Important initiatives of Govt.
after 1st October 2019 and beginning production by 31st for promotion of External sector, Important economic terms in
March 2023 will enjoy an even lower tax rate of 15%, news etc.
provided they do not avail of any other incentives. The • International Reports and Indices.
Effective tax rate for these companies will be 17%
It is advisable for the students to read this chapter after going
inclusive of surcharge and cess.
through the Section 5- External Sector and Section 8-
• Reduction in MAT: A company which does not opt for the International Organizations from the Prelims Economy Compass
concessional tax regime and avails the tax Magazine.
exemption/incentive shall continue to pay tax at the pre-
amended rate. However, these companies can opt for the
concessional tax regime after expiry of their tax
►TRENDS IN BALANCE OF PAYMENT
holiday/exemption period. Further, in order to provide (BOP)
relief to companies which continue to avail • The balance of Payment (BoP) is a record of economic
exemptions/incentives, the rate of Minimum Alternate Tax transactions between residents and non-residents for a
has been reduced from existing 18.5% to 15%. period of 1 year. The BoP comprises of Current Account
and Capital Account.
• Current Account includes Balance of Trade (BoT) and
►CHAPTER 3: Balance of Invisibles (BoI). The BoT covers only trade in
merchandise goods while BoI covers trade in Services. The
EXTERNAL SECTOR BoI includes net value of Services, Income (Profits/
Interest/ Dividend) and Transfers (Gift, Donation,
The Chapter of External Sector is an important chapter from the Remittances).
perspective of UPSC Prelims. Based upon the analysis of the
36
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• T
The capital account
a inclu
udes Foreign Direct Invesstment • The figure below showss the compon nents of BoP and the
(
(FDI), Foreig
gn Portfolioo Investmen nt (FPI), Ex xternal recent trends in BoP ove
er a period of 4 years.
C
Commercial Borrowings (ECBs),Loanss from multilateral
Institutions, NRI
N deposits with
w Banks etcc.
►MERCHA
ANDISE EXPORTS
E S FROM Table 4: Merchandise
e Exports as per cent of G
GDP
2009-14 2014-19 2018-1
19 2019
9-20 H1
IN
NDIA
15.7 12.7 12.1 1
11.3
F
FIGURE: Indiia’s share in
n World Exp
ports, Share
e of Manufactured & No
on-Manufac
ctured Item
ms in India’ss Total
Meerchandise Exports
Sourcce: Trademap
p.org.
Note:: The years
mentiioned are callendar
years.
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• Total Merchandise Exports: In the year 2018-19, the total • Total Merchandise Imports: In the year 2018-19, the total
merchandise exports from India was around $ 337 billion merchandise imports into India was around $ 517 billion
accounting for around 12% of India's GDP. accounting for 19% of India's GDP.
• Trends in Merchandise Exports: Between 2009-14, the • Trends in Merchandise Imports: Between 2009-14, the
merchandise exports accounted for 16% of GDP. However, merchandise imports accounted for 24.3% of GDP.
since then the merchandise exports as % of GDP has However, since then the merchandise imports as % of GDP
steadily declined to 11.3% of GDP in first half of 2019-20. has steadily declined to 17.6% of GDP in the first half of
• Trends in India's share of World's exports: As shown in 2019-20.
the figure, India's share in the world's exports has REASONS FOR THE DECLINE IN MERCHANDISE IMPORTS AS
remained stagnant at 1.6% in the last decade. % OF GDP
• Increase in share of manufactured exports: The • Decline in the International Crude oil prices (Crude oil
merchandise exports from India could be categorized into accounts for 26% of India's imports)
Manufactured and Non-Manufactured Exports. Increase in • Slowdown in the Indian Economy on account of declining
the share of manufactured exports would denote the demand has also led to decline in imports.
success of Make in India. As shown in the figure, there has
Top 5 Import Commodities: Crude Oil, Gold, Petroleum
been consistent increase in the share of Manufactured
Products, Coal and Coke, Pearl and Precious stones.
exports from India. This is on account of 2 main reasons:
Top 5 Exporters to India: China, USA,UAE, Saudi Arabia, Iraq.
o Success of Make in India
o Integration of Indian Economy into Global value Chains
(GVCs)
►TRENDS IN MERCHANDISE TRADE
• Top 5 Export commodities: Petroleum Products, Pearls
DEFICIT
and Precious Stones, Drug Formulations, Gold Jewelry, Iron Table 2: Merchandise Trade Balance as per cent of GDP
and Steel. 2009-14 2014-19 2018-19 2019-20 H1
• Top 5 Export Destinations for India: USA, UAE, China, -8.6 -6.0 -6.8 -6.3
Hongkong and Singapore. Source: Department of Commerce & Central Statistics Office
(CSO).
Total Merchandise Trade Deficit: As highlighted before, in
►MERCHANDISE IMPORTS INTO INDIA
2018-19, the total value of merchandise imports was $ 517
billion while the value of merchandise exports was $ 337
Table 8: India’s Merchandise Imports as percent of GDP
billion. This led to trade deficit of $ 180 billion in the year
2009-14 2014-19 2018-19 2019-20-H1 2018-19.
24.3 18.7 18.9 17.6 Trends in Merchandise Trade Deficit: As shown in the
Source: Department of Commerce & Central Statistics Office figure, India's merchandise trade deficit has consistently
(CSO). improved in the last decade from -8.6% in 2009-14 to -6.3% in
the first half of 2019-20. However, the improvement in trade
Table 9: Share of POL Import in Total Imports and Crude deficit is not on account of increase in exports. Rather, it is on
Oil Price (Indian Basket) account of following 2 reasons:
2009- 2014- 2018- 2019-
Item • Decline in International crude oil prices
14 19 19 20-H1
Share of POL imports • Decline in overall imports due to slowdown in Indian
in total imports (per 32.1 25.2 27.4 26.3 Economy
cent)
Crude oil price of
Indian Basket 96.0 60.8 69.9 64.7
►TRENDS IN CURRENT ACCOUNT
(US$/bbl.) DEFICIT (CAD)
Merchandise Imports • An increase in CAD would mean that the surplus on the
24.3 18.7 18.9 17.6
as percent of GDP Balance of Invisibles (BoI) is lower than deficit on Balance
Source: Department of Commerce and Ministry of Petroleum
of Trade (BoT) leading to deficit in the current account of
and Natural Gas.
BoP. Increase in CAD would have adverse impact on BoP
and Forex reserves.
38
VOLUME - II
FIGURE:: Current Acccount Deficitt (CAD) as pe

ercent of GDP
P
• In case of Inddia, we usually face CAD. However, as shown index of its imports. It is calculatted in the ffollowing
in the figure, the CAD has consistently improved in tthe last manner:
d
decade from -3.3% in 20009-14 to -1.5%
% in the first half of • (Px/ Py) * 100
1 wherein Px denotes Price
P Index off Exports
2
2019-20. This is attributted to impro ovement in India's and Py denotes Price Ind
dex of Imports.
merchandise trade deficit.
• If a counttry receives higher prices for its exports as
compared to its im mports, then n there wo ould be
►NET TER
RMS OF TRADE
T (N
NTT) improvemeent in the term
ms of trade.
• T
The terms off trade is defined as the ra atio of the prrices of • On the otheer hand, if a country
c receiv
ves lower pricces for its
its exports to
o the prices of o its importss. Since a parrticular exports as compared to o its imports, then there wwould be
c
country trad
des in multtiple commo odities, it caan be deterioratio
on in the term
ms of trade.
c
considered ass ratio of price
e Index of its exports to the price
FIG
GURE: Terms of Trade (Baase Year 199
99-2000)
Source: Diirectorate Geeneral

of Commeercial Intelligeence
and Statisstics (DGCI&SS),
Kolkata.
►INDIA'S TOP
T TRA
ADING PA
ARTNERS
S FIGURE: To
op 10 Tradinng Partners of
o India in 2019-20
Tak
king into acco
ount, the total value of both
h imports and
d (April- Nove
ember) (in Peercent)
exp
ports traded between
b India
a and other co
ountries, India
a's top
5 trrading partne
ers are:
USA
A, China, UAE
E, Saudi Arabia
a and Hong Kong (in the
desscending orde
er).
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As can be seen in the table below, among the major trading trade deficit. India's trade deficit with China was as much as $
partners, India enjoys trade surplus with USA and UAE. 54 bn in 2018-19.
However, with all other major trading partners, India has
TABLE : Bilateral Trade Surplus/Deficit (Sorted on Year: 2018-19)
(Values in US$ Billion)
Country 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 (April-
November)
USA 20.63 18.55 19.90 21.27 16.86 10.91
Trade Surplus
United Arab
Countries 6.89 10.87 9.67 6.41 0.34 0.25
Emirates
China PRP -48.48 -52.70 -51.11 -63.05 -53.57 -35.32
Saudi Arabia -16.95 -13.94 -14.86 -16.66 -22.92 -14.32
Iraq -13.42 -9.83 -10.60 -16.15 -20.58 -13.98
Germany -5.25 -5.00 -4.40 -4.61 -6.26 -3.09
Trade Deficit
Korea RP -8.93 -9.52 -8.34 -11.90 -12.05 -7.80
Countries
Indonesia -10.96 -10.31 -9.94 -12.48 -10.57 -6.99
Switzerland -21.06 -18.32 -16.27 -17.84 -16.90 -11.97
Hong Kong 8.03 6.04 5.84 4.01 -4.99 -3.88
Singapore 2.68 0.41 2.48 2.74 -4.71 -3.15
►NET INTERNATIONAL INVESTMENT ►TRENDS IN NIIP

POSITION (NIIP) Table: Net IIP (End Period)
The balance of payments shows transactions between Item 2009-14 2014-19 2018-19 2019-20 H1
residents and non-residents of an economy for a period of NIIP ($US -340.8 -436.8 -436.8 -436.7
one year. These economic transactions may lead to two billion)
NIIP/GDP -18.4 -16.1 -16.1 -15.7
results:
Source: Reserve Bank of India
1. Residents from India owning assets in other countries
(such as Foreign Investment, Equities, Debt, Deposits etc in
other countries) --> Assets for Indian Economy FIGURE: Net IIP/GDP
2. Residents from other countries owning assets in India such

as FDI, FPI, Deposits etc. --> Liabilities for Indian Economy
• Due to these past transactions recorded on BoP, a

particular economy builds up stock of external financial
assets and liabilities.
• Thus, NIIP has been introduced in order to measure the

total stock of external financial assets and liabilities. It is
Source: Reserve Bank of India
calculated as (Assets owned by residents in other countries
Worsening of NIIP in terms of absolute value: As shown
- Assets owned by non-residents within India).
above, the NIIP has worsened from 2009-14 to 2019-20. This
• Positive NIIP indicates that Indian residents own more is mainly on account of increase in net FDI inflows into the
assets abroad as compared to assets owned by non- Indian Economy.
residents in India. While Negative NIIP indicates that a Improvement in NIIP as % of GDP: There has been
country's residents own less assets abroad than the assets improvement in NIIP as % of GDP in last 5 years.
of non-residents.
• The NIIP is expressed both in absolute value as well as % ►TRADE IN SERVICES

of GDP. The higher the ratio of NIIP to GDP, the more • Export of services: The export of services from India have
vulnerable an economy becomes to the developments in remained stable between 7.4% to 7.7% in the last decade.
international markets. • Composition of Service Exports: The composition of

service exports has remained largely unchanged over the
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years. Software services constitute the bulk of it at around Settlement Body has to accept or reject the appeals report
40-45 per cent, followed by business services, travel and and rejection is only possible by consensus.
transportation. PRESENT CONTROVERSY
• Import of Services: The import of services has • The sanctioned strength of the Appellate Body (AB) is
consistently increased to 4.6% of GDP leading to pressure seven members and these members are appointed
on BoP. through consensus among the member countries. The AB
• Composition of Service Imports: The relative shares of must have quorum of 3 judges to hear a particular case.
the various constituents of service imports have also not • The US Government believes that AB is biased against it
varied much. Business services account for the highest and has criticised it for being "unfair". Consequently, US
share of service imports. has so far been blocking appointment of members to the
NET REMITTANCES Appellate Body (AB).
• An increase in net remittances improves the BoP position. • Since December 10, 2019, the AB has been left with only 1
Net remittances from Indians employed overseas has Judge and the quorum required to hear a case is minimum
increased with the amount received in the first half of 3 judges. Hence, the WTO appellate body has become
2019-20 being more than 50 per cent of the total dysfunctional.
receivables in 2018-19.
• The Migration Report 2019 released by the United Nations ►MAJOR SCHEMES FOR EXPORT
has placed India as the leading country of origin of
PROMOTION
international migrants in 2019 with a diaspora strength of
• Merchandise Exports from India Scheme (MEIS):
17.5 million.
Introduced in 2015 to benefit the exporters. The scheme
• Further, as per the October 2019 report of World Bank, incentivizes exporters in terms of Duty Credit Scrips at the
India remained the top remittance recipient country in rate 2, 3, 4, 5, 7 per cent of value of exports. These scrips
2018 followed by China. https://t.me/UPSC_PDF are transferable and can also be used to pay certain
Central Duties/ taxes including customs duties. The
scheme covers exports of more than 8000 tariff lines.
►BREAKDOWN IN THE WTO DISPUTE
• Services Exports from India Scheme (SEIS): The scheme
SETTLEMENT MECHANISM incentivizes exporters in terms of Duty Credit Scrips just
The WTO appellate body has recently become defunct after like in the case of MEIS.
USA consistently blocked the appointment of Judges to the • Export Promotion Capital Goods (EPCG) Scheme: This
appellate body. The break down in the dispute settlement Scheme allows exporters to import capital goods at zero
mechanism is a huge blow to the role of WTO which is facing customs duty. In return, the exporters are required to fulfil
the threat of trade war and rising protectionist policies of the export obligation to the tune of six times the import
developed economies. duties saved within a period of 6 years.
UNDERSTANDING DISPUTE SETTLEMENT MECHANISM • Advance Authorization Scheme: Advance
Settling disputes is the responsibility of the Dispute Authorization (AA): It is issued to allow duty free import
Settlement Body (DSB) which consists of all WTO members. of inputs, which are physically incorporated in export
products.
• First stage: Consultation (up to 60 days) to settle the trade
• Interest Equalization Scheme (IES): This scheme is being
disputes through conciliation.
implemented by the DGFT through Reserve Bank of India
• Second stage (up to 1 year): Failure of consultations leads (RBI) for pre and post Shipment Rupee Export Credit.
to formation of Dispute Panel by the DSB. The report of Under the Scheme, interest equalization @ 3 per cent per
the panel can be rejected only through consensus among annum has been made available to eligible exporters. (5%
the members of the DSB. for the exports by the MSMEs).
• Appeal Stage: Either side can appeal a panel’s ruling. Each • Export Oriented Units (EOU)/Electronic Hardware
appeal is heard by three members of a permanent seven- Technology Park (EHTP)/Software Technology Parks
member Appellate Body set up by the Dispute Settlement (STP)/Bio-Technology Parks (BTP) Scheme: The units
Body. The members of the Appellate Body have four-year undertaking to export their entire production of goods and
terms. The appeal can uphold, modify or reverse the services (except permissible sales in Domestic Tariff
panel’s legal findings and conclusions. The Dispute area(DTA)) may be set up under the schemes. Under this
scheme, the EOUs etc. are permitted to import fromDTA
without payment of customs duty.
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• Deemed Exports Scheme: Deemed Exports refers to the economy. policy rates by rates.
those transactions in which the goods supplied do not taking into
leave the country and the payment for such supplies is account the
received either in Indian rupees or in free foreign macroeconomic
exchange. Under the scheme of deemed exports, conditions.
exemption/ refund of duties on the goods manufactured
and supplied to specified categories of deemed exports as Under this Under this stance, Under this stance,
given under the Foreign Trade Policy (FTP) is provided to stance, policy key policy rates key policy rates
ensure a level playing field to domestic manufacturers. The rates normally would move in either remain
benefits under the Scheme are duty exemption, refund of decrease. either direction. unchanged or
terminal excise duty, refund of duties suffered by the increase. Decrease
inputs utilized in manufacture and supply of the goods to in policy rates is
the specified categories of deemed exports. ruled out.
Usually, this Usually, this policy Usually, this policy

►CHAPTER 4: policy is adopted is adopted when is adopted when
when there is the inflation rate there are
MONETARY MANAGEMENT slowdown in the is stable. concerns of

economy. higher rate of
AND FINANCIAL inflation.
INTERMEDIATION
►REGULATION OF COOPERATIVE
The Chapter of Monetary Management and Financial
BANKS
Intermediation is an important chapter from the perspective of
• The Cooperative Banking Structure comprises of Rural and
UPSC Prelims. In previous year Prelims, questions have been
asked both from Static part as well as current developments in Urban Cooperative Banks. The Rural Cooperative Banks
the field of Banking and Finance. are further classified as Primary Agricultural Credit
With respect of static part, one needs to be aware about Societies (PACS), District Central Co-op Banks and State Co-
Monetary Policy Tools, types of Monetary Policies, types of money op Banks. The Urban Cooperative Banks are known as
supply, terms related to banking and finance, BASEL Norms etc. Primary Urban Co-op Banks.
Some of the current developments which become quite
• Though the Banking Regulation Act came in to force in
important for the Prelims are External benchmarking of Loans,
1949, the banking laws were made applicable to
Operation Twist, Foreign Exchange Swaps, LTROs, Insolvency and
Bankruptcy Code, Recapitalization Bonds, Partial Credit cooperative societies only in 1966 through an amendment
guarantee fund scheme, regulation of Cooperative banks (in the to the Banking Regulation Act, 1949. Since then there is
event of PMC Bank Crisis) etc. duality of control over these banks with banking related
In order to get holistic understanding of this Chapter of Economic functions being regulated by the Reserve Bank and
Survey, it is advisable for the students to read and revise the management related functions regulated by respective
Banking Chapter from the Economy Prelims Compass Magazine. State Governments/Central Government.
• Presently, the Primary Agricultural Credit Societies (PACS)

►TYPES OF MONETARY POLICIES are outside the purview of Banking Regulation Act and
DIFFERENT MONETARY POLICY STANCES OF THE RBI hence not regulated by RBI. The RBI has the power to
regulate the District Central Co-op Banks and State Co-op
Accommodative Calibrated
Neutral Stance Banks. However, the RBI has delegated this authority to
Stance Tightening
NABARD.
Accommodative Neutral stance Calibrated
• With respect to Primary Urban Co-op Banks, there is dual
stance means means the RBI Tightening stance
RBI may reduce would have the means the RBI control and regulation by both RBI ( Banking related
the policy rates flexibility to either would either keep operations) and Registrar of Co-op Societies ( Management
to increase the increase or the rates constant related functions).
money supply in decrease the or increase the
42
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►PARTIAL CREDIT GUARANTEE FUND ►MONETARY DEVELOPMENTS

SCHEME DURING 2019-20 MONETARY POLICY
• Introduced in the Union Budget 2019-20 to address the • Due to the prevailing economic condition, the MPC has
Asset-Liability Mismatch in the NBFC Sector reduced the repo rate by 110 basis points from 6.25 per
• Provides for the purchase of the highly rated assets of the cent in April 2019 to 5.15 per cent in October 2019.
NBFCs and HFCs by the Public Sector Banks. • Further, it has also changed its monetary policy stance
from neutral to accommodative. However, in December
• Under the Partial Credit Guarantee Scheme, the Public
2019, MPC decided to keep the repo rate unchanged at
Sector Banks would purchase highly rated assets of the
5.15 per cent due to increase in CPI. Considering the fact,
NBFCs and HFCs in order to address the temporary
the Indian Economy is facing slowdown, the RBI is
liquidity crunch.
monitoring the liquidity situation and if needed, the RBI
• The Government has agreed to provide 10% first loss may go for rate cut in future.
guarantee to assets, amounting to total of Rs. 1 lakh crore. • The RBI has also used Foreign Exchange Buy/Sell Swap,
Here it is important to note that the limit of Rs. 1 lakh crore Open Market Operations (OMOs) and Long-Term Repo
refers to the total amount of assets against which Operations (LTROs) in order to inject liquidity into the
guarantee will be extended and not the total amount of economy.
guarantee.
• The maximum exposure that the Government will take ►POOR MONETARY POLICY
under the Scheme is ₹ 10,000 crores (10% of ₹ 1 lakh TRANSMISSION IN INDIA
crore). The Monetary policy transmission in India can be analysed
from perspective of 3 distinct dimensions- Rate Structure,
Quantity of Credit and Term Structure.
►FOREIGN EXCHANGE SELL/ BUY
• Rate Structure: In spite of reduction in repo rate by 135
SWAP basis points, the Weighted Average Lending Rate (WALR) of
• Introduced by RBI in March 2020 to Inject dollars into the SCBs has not declined at all in 2019. Even though Repo
Economy and Check Rupee Depreciation. rate has declined to 5.15% in October 2019, the WALR has
remained quite higher at 10.40%. The credit spread
• Under the swap, RBI would buy sell dollars to the banks
(difference between repo rate and WALR) is at the highest
and simultaneously agree to buy the same amount of US
level in this decade.
dollars at the end of the swap period. This particular
• Term Structure: Ideally, the Reduction in the Repo rate
mechanism shall involve mainly 2 steps:
should lead to reduction in both short-term and long-term
o In the first leg of the transaction, the bank will buy US rates of Interest. However, in case of India, even though,
Dollars from the Reserve Bank at prevailing exchange there has been marginal reduction in rate of interest on
rate. short-term loans. However, the rate of Interest on long-
term loans has remained quite higher. In order to address
o In the second leg of transaction, the Bank would be
this problem, the RBI has carried out the Operation Twist
required to sell the same amount of dollars in order to
to bring down the rate of Interest on long term loans.
get back the Rupee.
• Credit growth: Despite a decrease in policy rates, the
• Works as a swap mechanism wherein the dollars with the
credit growth in the economy has been declining since the
RBI would be swapped with Indian rupees with the Banks beginning of this year. Bank Credit growth (YoY)
for a specified duration. moderated from 12.9 per cent in April 2019 to 7.1 per cent
• RBI's Plan: USD/INR Sell/Buy swap of USD 2 billion for as on December 20, 2019.
tenor of 6 months
Important note: The Foreign Exchange Buy/ Sell Swap is ►EXTERNAL BENCHMARKING OF
different from Foreign Exchange Sell/Buy Swap. The RBI had LOANS
used the Foreign Exchange Buy/Sell Swap in March 2019 in • The RBI has introduced the External benchmarking of
order to suck out dollars and inject rupee liquidity into the loans mandating the banks to link all new floating rate
Economy. retail and MSE loans to any of the 4 external benchmarks.
43
VOLUME - II
These external benchmarks could be Repo Rate, Yield rate Russia 6.6 6 6 6.7 8.3 9.4 10 10.1 - -
of Treasury Bill (T-91), Yield rate of T-182 or any reference
market rate of Interest published by Financial Benchmark South 4.7 4 36 3.2 3.1 2.9 2.8 3.7 3.8 3.7
India Private Ltd (FIBIL). Africa
• The banks are free to decide the spread over the external Turkey 2.6 2.7 2.6 2.7 3 3.1 2.8 3.7 3.8 41
benchmark. The Interest rate under the regime shall be
• Provisioning Coverage Ratio (PCR): The provision
reset at least once in 3 months.
coverage ratio (PCR) of all Scheduled Banks improved to 61
per cent by end of September 2019
►HEALTH OF THE BANKING SECTOR: • Leverage Ratio (LR): The leverage ratio of Scheduled
IMPORTANT HIGHLIGHTS Banks was at 6.6 per cent, above the prescription of 3 per
• Decline in Gross and Net NPA: For the first time in the cent by the Basel Committee on Banking Supervision
last 7 years, the Gross NPAs of the Scheduled Banks has (BCBS).
declined to 9.3% by the end of September 2019.Similarly, • Banking Frauds: The Public sector Banks (PSBs)
the net NPAs has declined to 3.7% in September 2019. The accounted for the bulk of the banking frauds reported in
decrease in the Gross NPAs and Net NPAs can be 2018-19 accounting for almost 55% of the total cases
attributed to success of the Insolvency and Bankruptcy pending.
Code (IBC).
Most of the NPAs are concentrated in the larger borrower ►NON-BANKING FINANCIAL SECTOR
accounts ( exposure of Rs 5 crore or more) which account
(NBFCs)
for almost 82% of the GNPAs.
Decline in Credit Creation: The NBFC sector has come
• Decline in SMA: In 2018-19, scheduled Banks recorded
under immense strain due to Asset-Liability mismatch leading
decline in all the special mention accounts (SMA-0, SMA-1
to decrease in credit creation. The growth of loans from
and SMA2) which points to the broad-based improvement
NBFCs declined from 27.6 per cent in September 2018 to 9.9
in asset quality. However, in the first half of 2019-20, there
per cent at end September 2019.
has been increase in the number of SMA accounts.
Capital Adequacy of NBFCs: As against the regulatory
requirement of 15 per cent, the Capital to risk weighted
assets ratio (CRAR) of NBFC sector remained at 19.5 per cent
at end of September 2019.
Gross NPAs: The gross NPAs ratio of NBFC sector increased
from 5.8 per cent at end March 2018 to 6.3 per cent at end
September 2019.
Major Policy changes related to NBFC Regulation/
Supervision:
• Liquidity Risk Framework for NBFCs: Introduction of
Liquidity Coverage Ratio (LCR) for all non-deposit taking
NBFCs (with asset size of Rs 5,000 crore and above) and
India's NPAs worst among the Emerging Economies:
all deposit taking NBFCs irrespective of size to maintain
2011 ‘12 ‘13 ‘14 ‘15 ‘16 ‘17 ‘18 ’19:Q1 ‘19:Q2 sufficient High Quality Liquid Assets (HQLA) to survive any
acute liquidity stress. The LCR will be progressively
Brazil 3.5 3.4 2.9 2.9 3.3 3.9 3.6 3.1 3.1 3.1
increased to 100 per cent by December 1, 2024.
China 1 1 1 1.2 17 1.7 1.7 18 1.8 1.8 • Review of Limits for NBFC-Micro Finance Institutions
India 2.7 3.4 4 4.3 5.9 9.2 10 9.5 8.9 9.2 (NBFC-MFIs): The household income limits for borrowers
of NBFC-MFIs have been raised from the current level of Rs
Indonesia 2.1 1.8 1.7 2.1 2.4 2.9 2.6 2.3 2.4 2.4 1,00,000 for rural areas and Rs 1,60,000 for urban/semi
Malaysia 2.7 2 1.8 1.6 1.6 1.6 1.5 1.5 1.5 1.6 urban areas to Rs 1,25,000 and Rs 2,00,000, respectively,
along with increase in lending limit from Rs 1,00,000 to Rs
Mexico 2.1 2.4 3.2 3 2.5 2.1 2.1 2.1 2 2.1 1,25,000 per eligible borrower effective November 8, 2019.
Philippines 2.6 2.2 2.4 2 1.9 1.7 1.6 1.7 2 2
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• Housing Finance Companies: The regulation of Housing o To increase the quantum of penalties that the Reserve
Finance Companies (HFCs) has been transferred from Bank may impose.
National Housing Bank (NHB) to the RBI.
• Amendment to the RBI Act, 1934: This has been done to ►INSURANCE SECTOR
strengthen the Regulation and Supervision of the NBFC
• The potential and performance of the insurance sector are
Sector vesting additional powers with the RBI. Following
generally assessed on the basis of two parameters, viz.,
powers are vested with the RBI:
insurance penetration and insurance density.
o Raise the minimum net owned fund requirement for
• The insurance penetration is measured as the percentage
NBFCs up to Rs 100 crore (from existing Rs 2 crore);
of insurance premium to GDP, while insurance density is
o Remove Director of an NBFC from the office (other than calculated as the ratio of premium to population
Government companies); (measured in US$ for convenience of international
o Supersede the Board of Directors of NBFC (other than comparison).
Government companies);
TABLE 8: Penetration in Life Insurance
Particulars 2011 2012 2013 2014 2015 2016 2017 2018
Insurance Penetration (in per cent) 3.40 3.17 3.10 2.60 2.72 2.72 2.76 2.74
Insurance Density (in US$) 49.0 42.7 41.0 44.0 43.2 46.5 55.0 55.0
Source: SwissRe, Sigma various issues.
TABLE 9: Penetration in Non-Life Insurance
Particulars 2011 2012 2013 2014 2015 2016 2017 2018
Insurance Penetration (in per cent) 0.70 0.78 0.80 0.70 0.72 0.77 0.93 0.97
Insurance Density (in US$) 10.0 10.5 11.0 11.0 12.0 13.2 18.0 19.0
Source: SwissRe, Sigma various issues.
Note: Globally insurance penetration and density were 3.31 reasons for the increase in the rate of Inflation in 2019-20. It has
per cent and US$ 370 for the life segment and 2.78 per cent further explained the reasons for the divergences between WPI
and CPI, CPI-Urban and CPI-Urban etc.
and US$ 312 for the non-life segment respectively in 2018. As
can be seen from above figure, both Insurance Penetration It is advisable for the students to first read and revise the Chapter
and density (Life and Non-Life) in India is much below the of Inflation from the Prelims Economy Compass before reading
global average. this chapter from the Economic Survey.
With respect to UPSC Prelims, focus should be on both Static part
and current developments from this chapter. Make a note of
► CHAPTER 5: important trends in Inflation Indices, major drivers of Inflation,
Steps taken to reduce Inflation and so on.
PRICES AND INFLATION
This chapter of Economic Survey provides us with the analysis of ►INFLATION TRENDS IN INDIAN
the Inflation trends in the Indian Economy. It highlights the ECONOMY
Table 1: General inflation based on different price indices (in per cent)
2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2018-19* 2019-20*
WPI 5.2 1.2 -3.7 1.7 3.0 4.3 4.7 1.5 (P)
CPI - C 9.4 5.9 4.9 4.5 3.6 3.4 3.7 4.1 (P)
CPI - IW 9.7 6.3 5.6 4.1 3.1 5.4 4.9 7.6
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VOLUME - II
CPI - AL 11.6 6.6 4.4 4.2 2.2 2.1 1.7 7.3
CPI - RL 11.5 6.9 4.6 4.2 2.3 2.2 1.9 7.1
IMPORTANT OBSERVATIONS • Increase in Food Inflation: The CPI rate of Inflation has
• Decline in rate of Inflation till first half of 2019-20: The basically increased on account of Food Inflation which
rate of Inflation in 2013-14 was on higher side as evident in stood at 13.6% in Jan 2020. The Prices of vegetables have
higher WPI and CPI. However, since then, the rate of increased by almost 50% while the prices of Pulses have
Inflation has consistently reduced until the first half of increased by 16%.
financial year 2019-20. NOTE: CPI-IW, CPI-AL and CPI-RL are published by Labour
• Increase in rate of Inflation in Second half of 2019-20: Bureau under the Ministry of Labour. The MGNREGA
In Jan 2020, the WPI rate of Inflation has increased to 3.1% wages are presently linked to CPI-AL and the government's
and CPI rate of Inflation has increased to 7.59%. The CPI proposal is to link it to CPI-RL. Further, the Dearness
inflation is considered to be highest in the last 5 years. Allowance (DA) ispresently linked to CPI-IW.
►FACTORS THAT HAVE

CONTRIBUTED TO INFLATION IN 2018-
19 AND 2019-20
FIGURE 12: Contributions to CPI-C inflation in 2018-19 (April to December) and 2019-20 (April to December)
IMPORTANT OBSERVATIONS of Fuel and Light has not contributed to Inflation on account of
Major Inflation drivers in 2018-19: Miscellaneous category, decline in International Crude oil Prices)
Housing, Fuel and Light, Food and Beverages, Clothing and MAJOR REASONS FOR FOOD INFLATION IN 2019-20
Footwear. • Supply side shocks: Untimely rains in states such as
Major Inflation drivers in 2019-20: Food and Beverages, Gujarat, Maharashtra, Karnataka etc. led to decline in the
Miscellaneous category, Housing. (Please note that the category supply of fruits and vegetables, particularly Onion and
Tomato.
46
VOLUME - II
• Lower Sowing g of Pulses duue to decline in prices of Pulses As shown abo
A ove, Prior to Ju
une 2017, the
e CPI-Rural ussed to be
last year. ( Re
eferred to ass Cobweb Phe enomenon w which is h
higher than CPI-Urban.
C Hoowever, since
e June 2017, the CPI-
d
discussed late
er). U
Urban has bee
en higher than CPI-Rural.
• Poor Marketting Infrastru
ucture leadin
ng to post-h
harvest R
REASONS
losses. • The Urban
n areas are facing highe
er Food Inflation as
compared to
t Rural Areass.
►DIVERGE
ENCE BETWEEN WPI
W AND
D CPI • Fall in grow
wth of real wages
w in the rural
r areas le
eading to
F
FIGURE: CPI and
a WPI infla
ation decline in demand.
d
►
►COBWE
EB PHENOMENON
N IN PULSES
Data Source: National

N Statisstical Office an
nd Departmentt for
Promotioon of Industry and Internal Trade
T (DPIIT)
As shown in the figure abov ve, there is growing
g divergence
bettween CPI an nd WPI rates of Inflation. For instance, in Jan
202
20, the CPI ra ate of Inflation
n is around 7.59%.
7 Howevver, the
WPPI rate of Inflation is much lower at 3.1%%.
REA
ASONS
• C
CPI gives hiighest weigh htage to Foo od and Bevverages
This phenome
T enon seeks to
o explain large scale fluctu
uations in
c
category, whiich has registtered highestt rate of Inflation in
2
2019-20. the prices of Pulses in Inddian Market. The Farmerss usually
d
decide whether to grow a particular crrop or not de epending
• W
WPI gives highest weightage
w to Manufa
actured
u
upon the prices which rece
eived in the previous
p year.. If prices
C
Commodities s category, th
he prices of which have mostly
w
were higher in the previouus year, more number off farmers
remained stable.
w
would sow such a crop in the
t current ye ear leading to
o its over-
• W
Weak marketting infrastruccture leading to lower who
olesale
p
production annd subsequennt decline in th
he prices.
prices and hig
gher retail prices.
The lower prrices in turn disincentivisse the farme
T ers from
• Domination of middlemen and Inte ermediaries in the
g
growing crop
p in the nex xt season. This
T leads too lower-
a
agricultural marketing le eading to diivergence be
etween
p
production an
nd subsequen nt increase in the prices in the next
w
wholesale and retail pricess.
y
year. So, the cycle
c keeps repeating
r leadding to fluctuations in
the prices.
►DIVERGEENCE BETWEEN CPI-RURA
C AL
H
HOW TO PREV
VENT COBWE
EB PHENOME
ENON IN PUL
LSES?
AN
ND CPI-U
URBAN • Protect the e farmers from Price Vo
olatility through Price
FIGURE: CPI Rurall and Urban inflation
i Stabilisation Fund (PSF)
• Increase th
he coverage of
o farmers un
nder the PMF
FBY, PM-
AASHA
• Allow free export
e of Pulsses.
• Provide Warehouses,
W Improve t
transportation
n, price
discovery th
hrough e-NAM
M etc.
►
►DRUG P
PRICING
• Drug Price
e Control Orrders (DPCO)) are issued d by the
Sou
urce: NSO. Governmennt in exercise of the powerrs conferred u
under the
47
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VOLUME - II
Essential Co ommodities Act, 1955, for enabling the IMPORTANT OBSERVATIO
O ONS MADE BY
Y ECONOMIC SURVEY
G
Government to declare a ceiling price
p for life
esaving • The fixation
n of Maximumm Retail Price (MRP) has re
esulted in
medicines so o as to enssure that the ese medicine es are a large sa aving of 12,,447 crores to the pub blic after
a
available at a reasonable price
p to the ge
eneral public. implementa ation of DPCO
O, 2013.
• Price controls are appliccable to “Scheduled drugs” or • There is 26
6 per cent increase in the
e sales of the
e cardiac
“
“Scheduled fo
ormulations” i.e. those medicines
m which are stents in the
t Indian market
m in the
e post price capping
listed out in the Schedulee I of DPCO, also referred
d to as period (2017).
National List of
o Essential Medicines
M (NLE
EM).
• The indigenous manufa acturers have e benefited ffrom the
• T
The National Pharmaceutical Pricing Au uthority (NPPA A) fixes price cappping as their share in the producttion has
t
the prices of o controlled drugs and formulation ns and increased by
b 10 per centt in post price
e capping periiod.
e
enforces pricces and availlability of thee medicines in the
c
country. It is to be noted that
t the NPPA A not only fix
xes the
prices of Esse ential Medicin
nes, but it alsso ensures thhat the
►CHANG
► GE IN INF
FLATION DYNAMIICS
prices of P
POST 201
12
• tthe non-sche
eduled drugs do not incre
ease by more than The Inflation dynamics se
T eeks to understand the im mpact of
10% every yea
ar increase in priices of Food Commodities
C on Headline a and Core
Inflation. Un ndoubtedly, increase in n prices o of Food
HOOW ARE THE PRICES
P OF TH
HE ESSENTIAL
L MEDICINES
C
Commodities leads to Incrrease in Head dline Rate of Inflation.
FIX
XED?
B what happ
But pens then? Would
W the Core Inflation Inccrease to
• T
The prices of the medicin nes are fixed d based on M Market
m
match Headlin ne Inflation Or
O Would Hea adline Inflation reduce
pricing model. The ceiling price
p of the Essential drugss is the
to match Core e Inflation aftter certain du
uration of time. In this
f
fixed by calcculating the simple
s average price of all the
r
regard, the Economic
E Surrvey has high hlighted that there is
brands having g at least 1% of the markett share.
c
change in Infla
ation dynamiccs post 2012.
• Further, unde er Paragraph 19 of DPCO, the NPPA has been
INFLATION DYNAMICS
D PR
RIOR TO 2012
g
given the follo
owing exceptiional powers:
The increase in Food Commodities had the primary effect of
T
• Fix the prices of even thosse drugs that are
a not listed under
increasing thee Headline ra ate of Inflatio
on. This in turrn led to
NLEM. Examp ple: In pursuaance of these
e powers, the
e NPPA
increase in the Household inflation expectations whe erein the
has fixed the e ceiling pricces of Cardia
ac Stents and
d Knee
H
Households expected th hat since the prices o of Food
implants.
c
commodities have incre eased, the prices of n non-food
• Increase or decrease
d the prices of the drugs listed under c
categories wo
ould increase e. The increase in the Ho ousehold
NLEM. In pu ursuance of these powe ers, the NPPPA has Inflation expeectations led d to increase e in the wa ages and
recently incre
eased the pricces of the 21 essential med
dicines increase in thhe prices of non-food com mmodities (ccost-push
by almost 50%%. Inflation). Hen
nce, the incre ease in the Headline
H Infla
ation had
the secondary y effect of incrrease in the Core
C Inflation as well.
48
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INFLATION DYNAMICS POST 2012 • Classification criteria based on SDG India Index score is as
However, post 2012, the Increase in the Headline Inflation follows:
has not had the secondary effect of Increase in the Core o Aspirant: 0–49
Inflation. This is so because the Increase in the Headline o Performer: 50–64
Inflation has not led to increase in the Household Inflation
o Front Runner: 65–99
Expectations due to the adoption of Inflation targeting by RBI.
o Achiever: 100
Now, the households believe that the headline rate of
Inflation may have increased but RBI would take all the
necessary steps to keep the Inflation below 4%. Hence, the ►INDIA’S PERFORMANCE
increase in headline rate of Inflation has not led to increase in • India’s composite score has improved from 57 in 2018 to
Core Inflation. 60 in 2019, thereby showing noticeable progress.
• All three states that were in the ‘Aspirant’ category (with
► CHAPTER 6: score/s in the range of 0–49)—Uttar Pradesh, Bihar and

Assam—have graduated to the ‘Performer’ category (50–
SUSTAINABLE 64). Thus, presently, there are no states in the Aspirant

category.
DEVELOPMENT AND • Top Performing States: Kerala, HP, Andhra Pradesh,
Telangana and Tamil Nadu.
CLIMATE CHANGE • Bottom ranked States: Bihar, Jharkhand, Arunachal
This chapter of Economic Survey highlights India's progress on Pradesh, Meghalaya and UP.
meeting Sustainable Development Goals (SDGs). It also highlights • Top Performing UTs: Chandigarh, Puducherry, Dadra and
various initiatives taken by the Government to combat Climate Nagar Haveli.
change.
►SDG NEXUS: A NEW PARADIGM

►INDIA'S PROGRESS ON APPROACH
SUSTAINABLE DEVELOPMENT GOALS There are linkages among the various SDGs and have strong
(SDGS) impacts on reinforcement of policies. In this regard, the
The year 2020 marks the fifth anniversary of adoption of ‘nexus’ approach employs the principles of integrating
2030 Agenda for Sustainable Development. India's progress management and governance across sectors and scales. This
on 17 SDGs is quite critical since India accounts for 1/6 of the demands greater co-ordination across institutions at local,
global population. In order to track India's progress on national and international levels.
meeting SDGs, the NITI Aayog had unveiled SDG India Index EXAMPLES OF NEXUS IN SELECT SECTORS
in 2018. • Education and Electricity Nexus: It has been observed
that basic infrastructure like electricity, separate toilets for
►ABOUT SDG INDIA INDEX girls and boys in schools create a healthy and positive
• Developed by NITI Aayog in collaboration with the Ministry environment at schools. It is observed that with electricity,
of Statistics and Programme Implementation (MoSPI), the schools’ access to modern methods and techniques of
United Nations in India, and Global Green Growth teaching helps holistic development of students and
Institute. increase their attraction towards learning. Globally it is
observed that schools with electricity outperform the non-
• The 2019 Index spans 16 out of 17 SDGs with a qualitative
electrified schools in terms of staff-retention, drop-outs
assessment on Goal 17. This marks an improvement over
and other educational indicators. It is observed that States
the 2018 Index, which covered only 13 goals. Additionally,
with lower literacy rates have low electricity rates at the
this year, the SDG India Index report has a new section on
schools and vice-versa.
profiles of all 37 States and UTs.
• Health and Energy Nexus: There is a positive relationship
• If a State/UT achieves a score of 100, it signifies it has
between the electricity consumpt`ion and fall in the Infant
achieved the 2030 national targets. The higher the score of
Mortality Rate (IMR) in the country. Many of the health
a State/UT, the closer it is towards achieving the targets.
improvement schemes- providing paediatric care, new-
born emergency services, and successful vaccination rely
49
VOLUME - II
heavily on the availability of electricity at the health ►INDIA'S GREENHOUSE GAS
centres.
INVENTORY
CLIMATE CHANGE
IMPORTANT OBSERVATIONS • 40% electricity from non-fossil fuels by 2030.

• Distribution of GHG Emissions by Sector: Energy • Increase forest cover and create additional carbon sink
accounts for the highest share followed by Agricultural equivalent to 2.5 to 3 billion tons of Carbon dioxide.
sector. India's efforts for combating Climate Change
• Distribution of Emissions by Gas: Carbon dioxide As a Party to the UNFCCC, India submitted its Second Biennial
accounts for the highest share followed by Methane and Update Report (BUR) to the UNFCCC towards fulfilment of the
Nitrous Oxide. reporting obligation under the Convention. As per the BUR,
RELATIVE CONTRIBUTION OF SECTORS the emission intensity of India’s GDP has reduced by 21 per
• Energy accounts for highest share of carbon-dioxide cent over the period of 2005-2014 which is the result of
emissions. India’s proactive and sustained actions on climate change.
• Agriculture sector accounts for highest share of methane • National Action Plan on Climate Change (NAPCC):
and Nitrous oxide emissions. Launched in 2008, India’s National Action Plan on
• Industrial process and Product use (IPPU) accounts for the Climate Change (NAPCC) identifies a number of
highest share of emissions of fluorinated gases (HFCs/ measures that simultaneously advance the country’s
PFC/ Sulphur Hexafluoride). development and climate change related objectives of
adaptation and mitigation through focused National
India's Nationally Determined Contributions under Paris
Missions.
Agreement
• National Mission for Enhanced Energy Efficiency
• Reduce Emission Intensity of GDP by 33 to 35% below 2005
(NMEEE): Under it, The Perform, Achieve and Trade (PAT)
levels by 2030.
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VOLUME - II
scheme was designed on the concept of reduction in translating to energy savings of about 300 Billion Units by
Specific Energy Consumption. 2030 and peak demand reduction of over 15 GW in a year.
• National Solar Mission: It aims to increase the share of Schemes like UJALA for LED bulb distribution has crossed 360
solar energy in the total energy mix. Under the total million whereas under streetlight national program, 10
target of 100 GW, 32.5 GW of solar electric generation million conventional streetlights have been replaced by LED
capacity has been installed. street lights thus cumulatively saving 43 million tons of CO2
emission.
• National Water Mission: It focuses on monitoring of
ground water, aquifer mapping, capacity building, water Promotion of Electric Vehicles: National Electric Mobility
quality monitoring and other baseline studies. It seeks to Mission Plan (NEMMP) 2020, Faster Adoption and
increase water use efficiency by 20%. Manufacturing of (Hybrid &) Electric Vehicles in India (FAME
India) scheme was formulated in 2015 to promote
• National Mission for a Green India : It seeks to
manufacturing and sustainable growth of electric and hybrid
increase tree and forest cover by 5 mha. It also seeks to
vehicle technology
increase the quality of existing forests by additional 5
mha. Promotion of Bio-fuels: The National Bio-fuels Policy 2018
targets 20 per cent blending of ethanol in petrol and 5 per
• National Mission on Sustainable Habitat: It is being
cent blending of biodiesel in diesel by 2030.
implemented through three programmes: Atal Mission
on Rejuvenation and Urban Transformation, Swachh Separate Fund for Climate Change: National Adaptation
Bharat Mission, and Smart Cities Mission. Energy Fund on Climate Change (2015) supports concrete adaptation
Conservation Building Rules 2018 for commercial activities for the States/UTs that are particularly vulnerable to
buildings has been made mandatory. the adverse effects of climate change and are not covered
under on-going schemes. The Scheme has been taken as
• National Mission for Sustainable Agriculture: It aims
Central Sector Scheme with National Bank for Agriculture and
at enhancing food security and protection of resources.
Rural Development (NABARD) as the National Implementing
Key targets include covering 3.5 lakh hectare of area
Entity.
under organic farming, 3.70 under precision irrigation,
4.0 lakh hectare under System of Rice Intensification, National Voluntary Guidelines (NVGs) on Social,
3.41 lakh hectare under diversification to less water Environmental and Economic Responsibilities: The Indian
consuming crop, 3.09 lakh hectare additional area under Institute of Corporate Affairs in 2011 developed a concept of
plantation in arable land and 7 bypass protein feed NVG for adoption by the corporate sector. In 2012, the
making. The mission has resulted in the formation of Securities and Exchange Board of India (SEBI), mandated the
National Innovations on Climate Resilient Agriculture, a Annual Business Responsibility Reporting (ABRR), a reporting
network project. framework based on the National Voluntary Guidelines
(NVGs) on Social, Environmental and Economic
• National Mission for Sustaining the Himalayan
Responsibilities of Business released by the Ministry of
Ecosystem : It aims to evolve suitable management and
Corporate Affairs. These guidelines serve as a driver to
policy measures for sustaining and safeguarding the
pursue sustainable management practices.
Himalayan Ecosystem.
Green Bonds: Green bonds are debt securities issued by
• National Mission on Strategic Knowledge for Climate
financial, non-financial or public entities where the proceeds
Change: It seeks to build a knowledge system that would
are used to finance 100 per cent green projects and assets.
inform and support national action for ecologically
India has the second largest Emerging green bond market
sustainable development. Key achievements include
after China. A number of Government agencies have
setting up of 11 Centres of Excellence and 10 State
contributed to issuance: Indian Renewable Energy
Climate Change Centres.
Development Agency (IREDA) and the Indian Railway Finance
Climate Change Action Program (CCAP): Central sector Corporation (IRFC). In 2018, the SBI entered the market with
scheme to build and support capacity at central and state an US$ 650 million Certified Climate Bond.
levels, strengthening scientific and analytical capacity for International Platform on Sustainable Finance (IPSF): The
climate change assessment, establishing appropriate IPSF acknowledges the global nature of financial markets
institutional framework and implementing climate actions. which has the potential to help finance the transition to a
Energy Efficiency Measures: Energy Conservation Building green, low carbon and climate resilient economy by linking
Code (ECBC) 2017 prescribes energy performance standards financing needs to the global sources of funding.India joined
for new commercial buildings to be constructed across India the International Platform on Sustainable Finance (IPSF) in
to achieve a 50 per cent reduction in energy use by 2030 October 2019.
51
VOLUME - II
►INTERNATIONAL FINANCIAL DEFINITION OF FOREST COVER
MECHANISMS FOR DEALING WITH • ‘Forest cover’ term used by FSI includes all tree patches
which have canopy density more than 10% and area of 1
CLIMATE CHANGE ha or more in size, irrespective of their legal status and
GREEN CLIMATE FUND species composition.
• Set up in 2010 under UNFCCC. • On the contrary, the term ‘Recorded Forest Area’ is used
• Channel funding from developed to developing countries for all such lands which have been notified as forest under
to mitigate impact of climate change. any Government Act or Rules or recorded as ‘forest’ in the
• Target: Mobilize $ 100 bn a year by 2020. Government records. Recorded forest area may or may
not have forest cover. Thus, the forest cover & recorded
GLOBAL ENVIRONMENT FACILITY (GEF)
forest area overlap with each other, but they are not
• Set up during the Rio earth Summit (1992) to provide
coterminous with each other.
grants to combat climate change.
TABLE 2.2: Forest cover classified in terms of canopy
• Financial mechanism for 5 International Conventions
density classes
ο UNFCCC
Class Description
ο Convention on Biological Diversity (CBD)
Very Dense All lands with tree canopy density of 70
ο UN Convention to combat Desertification
Forest percent and above.
ο Stockholm Convention on Persistent Organic Pollutants
Moderately All lands with tree canopy density of 40
ο Minamata convention on Mercury
Dense Forest percent and more but less than 70 percent.
ADAPTATION FUND
All lands with tree canopy density of 10
• Established under the Kyoto Protocol to finance Open Forest
percent and more but less than 40 percent.
adaptation projects and programmes in developing
Forest lands with canopy density less than
countries. Scrub
10 percent.
• The Adaptation Fund is financed with a share of proceeds
from the clean development mechanism (CDM) project Lands not included in any of the above
Non-forest
activities classes. (includes water)
LEAST DEVELOPED COUNTRIES FUND (LDCF) HIGHLIGHTS OF SFR 2019

• Established to assist Least Developed Country Parties • Total Forest Cover: 21.67%; Total Tree Cover: 2.89%; Total
(LDCs) to carry out the preparation and implementation of Forest and Tree cover: 24.56%.
national adaptation programmes of action (NAPAs) • Increase in Forest Cover: As compared to the assessment
• Operated by Global Environment Facility (GEF) of 2017, there is an increase of 5,188 sq. km in the total
SPECIAL CLIMATE CHANGE FUND (SCCF) forest and tree cover of the country. Out of this, the
increase in the forest cover has been observed as 3,976 sq
• This fund is managed by the GEF and finances projects
km and that in tree cover is 1,212 sq. km.
relating to adaptation; technology transfer and capacity
building • Largest Forest Cover
ο Area-wise: Madhya Pradesh, Arunachal Pradesh,
Chhattisgarh, Odisha and Maharashtra
►HIGHLIGHTS OF STATE OF FORESTS
ο Percentage-wise: Mizoram (85.41%), Arunachal
REPORT 2019
Pradesh (79.63%), Meghalaya (76.33%), Manipur
ABOUT STATE OF FOREST REPORT 2019 (75.46%) and Nagaland (75.31%).
• Published biennially by Forest Survey of India (FSI) SHARE OF DIFFERENT TYPES OF FORESTS
• The ISFR 2019 is the 16th report in the series, the first
TABLE 1: Forest and Tree cover of India in 2019
being the report of 1987.
Class Area (sq km) Percentage of
• In a first ever attempt, FSI has carried out a rapid
Forest Cover Geographical
assessment of biodiversity by using ShanonWienner Index.
Area
This index gives species richness along with the relative
abundance of various tree species in different forest types Very Dense Forest 99.278 3.02
of India. Moderately Dense 3.08.472 9.38
52
VOLUME - II
Forest • Use of agricultural machineries like Happy seeders can
help farmers to sow the seeds of the next crop without any
Open Forest 3.04.499 9.26
problem associated with residues of the previous crops
Total Forest Cover* 7,12,249 21.67 and also without affecting the crop productivity.
Tree Cover 9S.027 2.89 • Create markets for crop residue-based briquettes and
Total Forest and Tree 8,07,276 24.56 mandate nearby thermal power plants to undertake co-
Cover firing of crop residues with coal.
Scrub 46,297 1.41 • Create special credit line for financing farm equipment
and working capital for private sector participation
Non-Forest" 25,28,923 76.92
• Pollution control as a parameter for deciding incentives
Total Geographic Area 32,87,469 100.00 and allocation to States/UTs.
• Includes 4,975 sq km under Mangrove Cover
* Non-forest includes Tree Cover (Percentage rounded off) ►INDIA’S INITIATIVES AT THE
MANGROVES INTERNATIONAL STAGE
• Total Mangrove Cover: 4,975 sq km (0.15% of total area). INTERNATIONAL SOLAR ALLIANCE (ISA)
Net Increase in mangrove area as compared to previous • ISA is the first treaty based intergovernmental organization
assessment. headquartered in India. With 83 signatory countries, ISA
• States/UTs with highest mangrove cover: West Bengal, creates a multi-stakeholder ecosystem where sovereign
Gujarat, A&N Islands, Andhra Pradesh, Maharashtra. nations, multilateral organizations, industry, policymakers
and innovators work together to promote the common
and shared goal of meeting energy demands of a secure
►AGRICULTURAL RESIDUE BURNING –
and sustainable world.
A MAJOR CONCERN
• The ISA aims to pave the way for future solar generation,
The burning of the agricultural crop residue in northern
storage and technologies for Member countries’ needs by
States of Punjab, Haryana, UP, and Rajasthan has led to
mobilizing over US$ 1000 billion by 2030.
increase in the particulate matter (PM 2.5) pollution in
COALITION FOR DISASTER RESILIENT INFRASTRUCTURE
metropolitan cities such as Delhi. Some of the initiatives
taken by the Government to reduce Stubble Burning • launched on the side lines of UN Secretary General’s
incidents include: Climate Action Summit in 2019
National Policy for Management of Crop Residue: NGT has • International partnership of national governments, UN
directed and prohibited agricultural residue burning in any agencies, multilateral development banks, private sector to
part of Delhi, Rajasthan, Punjab, Uttar Pradesh and Haryana. promote the resilience of new and existing infrastructure
Burning crop residue is a crime under Section 188 of the IPC systems to climate and disaster risks.
and under the Air and Pollution Control Act of 1981. • Envisions enabling measurable reduction in infrastructure
Promotion of Agricultural Mechanization for In-Situ losses from disasters, including extreme climate events.
Management of Crop Residue: Under scheme, the INDIA AND UNITED NATIONS CONVENTION TO COMBAT
agricultural machines and equipment for in-situ crop residue DESERTIFICATION (UNCCD)
management such as Super Straw Management System for • India hosted 14th session of the Conference of Parties
Combine Harvesters, Happy Seeders, Hydraulically Reversible (COP 14) to the United Nations Convention to Combat
MB Plough, Paddy Straw Chopper, Mulcher, Rotary Slasher, Desertification (UNCCD) in September, 2019. The
Zero Till Seed Drill and Rotavators are provided with 50 per commemoration of World Day to Combat Desertification
cent subsidy to the individual farmers and 80 per cent 2019 envisaged the release of COP 14 Logo with the Slogan
subsidy for establishment of Custom Hiring Centres. “Restore Land, Sustain Future”.
These efforts have led to decrease in the stubble burning • As a party to the UNCCD, India has voluntarily committed
incidents over the years. Some of the other steps which the to raise its ambition of the total area that would be
Government should take include: restored from its land degradation status, from 21 million
• Promote the practice of conservation of agriculture to 26 million hectares between now and 2030. India has
with low lignocellulosic crop residues like rice, wheat, also announced to set up a centre for excellence in India at
maize etc. the Indian Council of Forestry Research and Education; and
53
VOLUME - II
has offered its resources in space and remote sensing mechanization and micro-irrigation techniques to improve
technology to member countries who wish to manage agricultural productivity. Further, this chapter has laid due
their land degradation programmes through cutting-edge emphasis on the increasing food subsidy bill and accordingly has
technology. recommended the government to reduce the food subsidy bill to
• COP 14 adopted the New Delhi Declaration: Investing in make our food grain management sustainable.
Land and Unlocking Opportunities. Based on the analysis of previous year UPSC Question papers,
from this chapter, broadly questions are asked related to
Cropping pattern, MSP, Agricultural Trade, Food Management,
►CHAPTER 7: Important trends and Government schemes/ Policies.
It is advisable for the students to read and revise the Agriculture
AGRICULTURE AND FOOD Chapter from the Prelims Compass magazine of Govt. Schemes
and Programmes before reading this chapter.
MANAGEMENT
This Chapter presents an analysis of various aspects of Indian
►TRENDS IN CONTRIBUTION OF
agriculture such as its contribution to GDP, important trends in
cropping pattern, operational landholdings, agricultural trade AGRICULTURE SECTOR TO INDIA'S
etc. It has also emphasized on the need to focus on agricultural GDP
TABLE : Share of Agriculture and Allied Sectors in total GVA of the Country at Current Prices
YEAR
ITEMS
2014-15 2015-16* 2016-17# 2017-18@ 2018-19** 2019-20$
GVA of agriculture and allied sectors (Rs.
2093612 2227533 2496358 2670147 2775852 3,047,187
in Crore)
Share of GVA of agriculture & allied
sectors in GVA of total economy (per cent) 18.2 17.7 17.9 17.2 16.1 16.5
Share of crops 11.2 10.6 10.6 10.0 - -

Share of livestock 4.4 4.6 4.8 4.9 - -
Share of forestry & logging 1.5 1.5 1.4 1.2 - -
Share of fishing 1.0 1.1 1.1 1.1 - -
IMPORTANT OBSERVATIONS 2015-16* 8.0 0.6

• Steady decline in the share of agriculture sector from
2016-17# 7.9 6.3
18.2% in 2014-15 to 16.5% (2019-20)
• Share of different allied sectors in decreasing order: Crops 2017-18@ 6.9 5.0
> Livestock > Forestry > Fishing. 2018-19** 6.6 2.9
2019-20$ 4.9 2.8

►TRENDS IN GROWTH RATE OF Source: CSO, MoSPI
INDIAN AGRICULTURE
TABLE: Agriculture sector – Key indicators of Growth at • The growth rate of Indian agriculture has always been
constant (2011-12) prices (in per cent) lower than the growth rate of Indian Economy.
Growth of GVA • The growth rate of Indian agriculture has seen fluctuating
Growth of GVA of
Year of agriculture & trend in the last 4-5 years. This is a cause of concern since
total economy
allied sectors in order to double the income levels of farmers by end of
2013-14 6.1 5.6 2022, the agriculture sector must register a nominal
growth of around 14%.
2014-15 7.2 -0.2
54
VOLUME - II
►TRENDS IN GROSSS CAPIT

TAL
FO
ORMATIO
ON IN AG
GRICULTUURE
TA
ABLE: Gross Capital
C Form
mation (GCF) in
i Agriculturre and Allied Sectors relattive to Gross
s Value Added
d (GVA) at co
onstant
(2011-12) prrices
GCF of agric
culture & allied GVA
A of agricultu
ure & allied GCF off agriculture & allied secttor as
Year
sector (Rs. in Crore) sector (Rs. in
n Crore) perceentage of GVA A (in percenttage)
2
2012-13 2,5
51,094 15,24,2
288 16
6.5
2
2013-14 2,8
84,424 16,09,198 17
7.7
2
2014-15 2,7
72,663 16,05,7
715 17
7.0
2
2015-16* 2,3
37,648 16,16,146 14
4.7
2016-17# 2,6
67,836 17,17,4
467 15.6
20
017-18@ 2,7
73,755 18,03,0
039 15.2
IMPORTANT OB
BSERVATIONS
S • Stagnation in percentage of area und
der Rice and W
Wheat in
• T
The GCF in aggriculture and
d allied sectorrs relative to GVA in the last deccade.
t
this sector ha
as been showwing a fluctuatting trend from m 16.5 • Increase in the percenta
age of area un
nder Pulses from 13%
per cent in 20
012-13 to 15.2
2 per cent in 2017-18
2 (2007-08) to
o 16% (2017-1
18)
• T
The GCF as percent of agricultural
a GDP(15.2%) is much • Decrease in the percen ntage of areaa under nutrri-cereals
lower than the GCF of In
ndian Econommy (around 330% of from 15% (2
2007-08) to 13% (2017-18)
India's GDP).
• Further, out of
o total GCF of
o 15.2%, the private
p sectorr alone ►
►TREND S IN CRO
OP PROD
DUCTION
a
accounts for 13% and public sector acco ounts for rem
maining
2
2.2%. The Government's
G s expenditure on agriccultural
s
subsidies is much higher at 8.2% off agriculturall GDP.
Hence, the governmen nt needs to o rationalise e the
a
agricultural s
subsidies and
d money saved should th hen be
used for enha ancing public sector investtment in agricculture,
particularly fo
or expanding irrigation and
d R&D.
►TRENDS IN CROP
PPING PA
ATTERN
IMPORTANT OBSERVATIO
O ONS
• Consistent increase in th
he production
n of all food grrains.
IMPORTANT OB
BSERVATIONS
S • Consistent increase in the
t productio
on of Rice annd Wheat
• Rice and wh heat account for the la
argest area under inspite of stagnation
s in the percentagge of area un
nder Rice
c
cultivation. and Wheat..
55
RAU’S IAS
SFOCUS SPEC
CIAL EDITION
N) for CSE 20
020
VOLUME - II
• Despite decrease in the percentage of area under nutri-
Nutri-cereals Rajasthan, Karnataka and Maharashtra
cereals, there has been increase in the production of nutri-
cereals.
Total Pulses MP, Rajasthan and Maharashtra
• Increase in the production of all Pulses except Lentil
(Masur).
Total Food grains UP, MP and Punjab
• Increase in production all oilseeds except Soybean and
Sunflower. Groundnut Gujarat, Rajasthan and Andhra Pradesh
Important Note: Since 1951, there has been increase in the
per capita net availability of all food grains except Pulses. The Rapeseed and Rajasthan, Haryana and MP
per capita availability of Pulses has reduced from 22 kgs per Mustard
year (1951) to 20 kgs per year (2018)
Soybean MP, Maharashtra and Rajasthan
►LARGEST PRODUCERS OF MAJOR

Sunflower Karnataka, Bihar and Odisha
CROPS
Total Oilseeds MP, Rajasthan and Gujarat
Crop Top 3 Largest Producing States (In
descending Order)
Sugarcane UP, Maharashtra and Karnataka
Rice West Bengal, Punjab and UP

Cotton Gujarat, Maharashtra and Telangana
Wheat UP, Punjab and Madhya Pradesh

Jute West Bengal, Bihar and Assam
Maize Karnataka, Maharashtra and MP
►TRENDS IN OPERATIONAL
LANDHOLDINGS
FIGURE: Operational Land Holdings (Number & Area Operated in Ha)
Source: Agriculture Census

2015-16.
Note: NLH: Number of
Operational Land Holdings,
AH: Area Operated by
Operational Land Holdings.
Note: Based on landholdings, the farmers are categorized • Small (1-2 ha)
into • Medium (2-4 ha)
• Marginal (Less than 1 ha) • Large (More than 4 ha)
56
VOLUME - II
IMPORTANT OBSERVATIONS Rationale:
Share of different categories of farmers • Incentivize farmers to invest in agriculture
• Share of Small and marginal farmers in 2015-16 was 86.2% • Prevent distress sale by the farmers
out of which Marginal farmers (68.5%) and Small farmers
HOW IS MSP FIXED?
(17.7%).
• Increase in the share of marginal farmers from 62.9 in Different approaches:
2000-01 to 68.5% in 2015-16 • A2 Method: Expenditure on various inputs paid by farmers
• Decline in the share of the small and large farmers from such as Seeds, Fertilizers, Pesticides etc.
2000-01 to 2015-16.
• A2+ FL Method: Expenditure on various Inputs + Implied
Percentage of land cultivated by different categories of cost of Family labor
farmers
• C2 Method: A2+FL+ Implied cost of rent of land + all other
• Percentage of land cultivated by small and marginal
implied cost. (Recommended by M.S. Swaminathan
farmers in 2015-16 was 47.4% out of which marginal
farmers (24.2% and small farmers (23.2%). Committee)
• Area operated by small and marginal farmers increased Present Method: A2+FL Method (1.5 times the production
from 38.9% in 2000-01 to 47.4% in 2015-16. cost)
• Area operated by large farmers decreased from 37.2% in COVERAGE OF COMMODITIES
2000-01 to 20% in 2015-16.
• 7 Cereals: Paddy, Wheat, Maize, Jowar (Sorghum), Bajra
(Pearl Millet), Barley and Ragi.
►AGRICULTURE PRICING POLICY AND
• 5 Pulses: Gram, Tur, Moong, Urad and Lentil
MSP
• 7 Oilseeds: Groundnut, Rapeseed/ Mustard, Soybean,
What is Minimum Support Price? Announced by the
Sesamum, Safflower, Nigerseed.
Cabinet Committee on Economic Affairs (CCEA) based upon
the recommendations of Commission on Agricultural Costs • 3 Commercial Crops: Copra, Cotton, Raw Jute (Sugarcane
and Price (CACP). covered under FRP)
COMPARISON OF INCOME SUPPORT SCHEMES FOR THE FARMERS

KALIA SCHEME RYUTHU BANOHU SCHEME PM-KISAN SCHEME
Government Odisha Telangana Centre
• Small and Marginal Farmers
• Landless Agricultural
Households All the Land holding
Coverage All the Farmers
• Vulnerable Agricultural Farmers
Household
• Sharecroppers
Sharecroppers
Yes No No
included?
Assistance Rs 4,000 per acre per season (No Cap
Differs for different Categories Rs. 6,000 per year
Provided on the acres owned by Farmers)
Life Insurance
Rs. 2 Lakhs Not Provided Not Provided
Support
Interest Free Loans up to Rs 50,000 @ Not Provided Not Provided
Crop Loan 0% interest
Note: Mukhya Mantri Krishi Ashirwad Yojana of Jharkhand ►MECHANISATION OF INDIAN

provides all the small and marginal farmers of the State, who AGRICULTURE
have arable land up to a maximum of 5 acres with a grant-in-
NEED FOR AGRICULTURAL MECHANIZATION IN INDIA
aid at the rate of Rs 5000 / - per acre per year.
• Committee on Doubling Farmers’ Income: Reduce input
costs by 25 per cent and rise in productivity by 20 per cent,
57
VOLUME - II
thereby affecting an increase in farm income, to the extent • Energy saving from 10 to 17 per cent;
of 25-30 per cent. • Saving of labour cost from 30 to 40 per cent;
• Growing Feminisation of Indian Agriculture • Saving of fertilizers from 11 to 19 per cent;
• Address the needs of small and marginal farmers • Increase in crop production from 20 to 38 per cent;
PRESENT STATUS OF AGRICULTURAL MECHANIZATION • Increase in net annual income of the farmer beneficiaries
• Farm power availability: Government has decided to GOVERNMENT INITIATIVES
enhance farm power availability from 2.02 kW per ha
Pradhan Mantri Krishi Sinchayee Yojana (PMKSY):
(2016-17) to 4.0 kW per ha by the end of 2030. Growing
• Har Khet Ko Paani: Providing end-to-end solutions in
farm mechanization market: Farm mechanization
market in India has been growing at a CAGR of 7.53 per Irrigation supply chain.
cent during 2016-2018. • Per Drop More Crop: Promotion of Drip Irrigation and
Sprinkler Irrigation.
• Farm Mechanization in India: 40-25%.
• Farm Mechanization in other countries: USA (95%); Micro-Irrigation Fund (MIF):
Brazil (75%); China ( 57%). • Managed by NABARD with corpus of Rs 5000 crore.
• Even though India is the largest producer of tractors, a • States can avail the fund to in order to subsidise the
significant share of production is exported. farmers for adoption of micro-irrigation techniques
• Regional Disparities: Northern India has higher levels of
mechanization compared to other regions. (Rice and ►AGRICULTURAL TRADE
Wheat crops having the largest extent of mechanization) • Since the economic reforms of 1991, India has remained
GOVERNMENT INITIATIVES consistently a net exporter of Agri-products, touching Rs
Sub-Mission on Agricultural Mechanization (2014): 2.7 lakh crore exports and imports at Rs 1.37 lakh crore in
2018-19.
• Assistance to the Farmers for procurement of agricultural
machineries • India's share in global trade: 2.15 per cent of the world
agricultural trade.
• Custom Hiring Centres
• Top Agricultural Exports: Basmati Rice, Spices, Non-
• Demonstration of Newly Developed Agricultural/
Basmati Rice, Cotton, Oil Meals
Horticultural Equipment
• Top Agricultural Imports: Vegetable Oils, Pulses, Fresh
Promotion of Agricultural Mechanisation for in-situ
fruits, Cashew, Spices.
Management of Crop residue
• Major export destinations: USA, Saudi Arabia, Iran, Nepal
• Implemented in Punjab, Haryana, UP and NCT of Delhi
and Bangladesh.
• Setting of Custom hiring centres
CYBER AGRO-PHYSICAL SYSTEMS (CAPS)
• Financial Assistance to the farmers for buying environment
• Digital agricultural platform developed by ICAR
friendly agricultural machinery
• Integrates the use of sensors with computers, satellite
imagery, supercomputing facility for research.
►MICRO-IRRIGATION IN INDIAN
• Helps in reducing uncertainty and risk in agriculture
AGRICULTURE operations through Artificial Intelligence enabled farmers’
NEED FOR PROMOTING MICRO-IRRIGATION advisories for critical agricultural operations and climatic
• Over-consumption: Share of Water used in Indian events.
Agriculture (85%)
• Area under Irrigation: Net Sown Area- 141 M ha; Irrigated ►ALLIED SECTORS: ANIMAL
Area- 68 M ha; 52% Agricultural land- Rainfed (3 times
HUSBANDRY, DAIRYING AND
lower yield as compared to irrigated area)
FISHERIES
• Committee on doubling farmers’ Income: Micro-irrigation
• Present Status: India continues to be the largest producer
Benefits- 40% Water Savings, 45% increase in crop
of milk in the world. Milk production in the country was
productivity and 50% increase in income.
187.7 million tonnes in 2018-19 and registered a growth
BENEFITS OF MICRO-IRRIGATION
rate of 6.5 per cent over the previous year. The per capita
• Saving of irrigation water from 20 to 48 per cent;
58
VOLUME - II
a
availability off milk has reached a level of 394 gram
ms per
d during 20
day 018-19.
Inittiatives in 20
019-20
• National Animal Disease
e Control Pro
ogramme (N
NADCP)
f
for control of Foot & Mouth Disease (FMD D) and
Brucellosis: Complete control
c of FM
MD by 20255 with
v
vaccination and its eventu
ual eradication by 2030. Th
his will
result in increased dome estic producttion and increased
e
exports of milk and livestock products.
FIS
SHERIES
• Present Stattus: It accounts for 6.58 pe

er cent of GDP from V
VARIOUS COM
MPONENTS OF
O FOOD MAN
NAGEMENT
a
agriculture, forestry and fishing.
f It pro
ovides liveliho
ood to P
Procurement
t: The cost inccurred by FCII for the proccurement
a
about 16 milllion fishers and
a fish farm
mers at the p
primary of food grainss is referred to
o o as Economiic Cost of Foo
od grains.
level and alm
most twice the
e number alo
ong the value chain. Itt comprises of 3 comp ponents - Po ooled cost o of grains
Recognising the
t importancce of the secttor, an indepe
endent (wweighted MS SP of stock k of food grains),
g Proccurement
Department of
o Fisheries ha
as been creatted in 2019. incidentals (La
abour charge es, Transport charges, storrage cost
e
etc.) and cost of distribution.
• Total
T Produc
ction: The tottal fish production in the ccountry
The States have also bee
T en encourage ed to underrtake the
s
stood at 13.4
42 million me
etric tonnes during 2018--19. Of
p
procurement of food grains on their own thro ough the
t
this, the marrine fisheries contributed 3.71 million metric D
Decentralised procuremen nt scheme. It has been inttroduced
t
tonnes and the
t inland fissheries contrributed 9.71 million to reduce the transportatio
on and storage costs of FCI.
metric tonness. Food grain stocking norm
F ms: The Government of India has
• Largest Prod es: Gujarat, A
ducer of Marine Fisherie Andhra r
revised the Buffer Norm ms w.e.f. January, 2015 and the
Pradesh, Tam
mil Nadu. n
nomenclature e of Buffer Norms
N has be
een changed to Food
g
grain Stockin
ng Norms. The buffer of Food g grains is
• Largest Prod
ducer of Inla
and Fisheries: Andhra Prradesh,
m
maintained to
o meet the prescribed minimum stockin ng norms
W
West Bengal, UP. f food security, to ensurre monthly re
for eleases of foo
od grains
• Largest prod
ducer of Fisheries (Both Inland and M
Marine) f
for supply thhrough the TPDS/
T Other Welfare Sche emes, to
: Andhra Prad
desh, West Be
engal, Gujarat. meet emerge
m ency situationns arising outt of unexpeccted crop
f
failure, natura
al disasters ettc. and to use
e the food gra
ain stock
• Fisheries and
d Aquaculturre Infrastruc
cture Develop
pment
in the Central Pool for mark ket intervention to augmennt supply
Fund: The FID
DF provides concessional
c f
finance/ loan to the s as to help moderate
so m the open markett prices.
Eligible Entities (EEs), inclu
uding State Governments/
G /Union
Itt has 2 compo
onents:
T
Territories (U
UTs) and State entities fo
or development of
• Operational Stocks: Fo
or meeting monthly
m distrributional
identified fisheries in
nfrastructure facilities. The requiremen
nt under TPDS
S and other welfare
w schemmes.
c
concessional finance under the FIDF is provided by the
• Strategic Reserves: To T meet em
mergency situations.
Nodal Loanin
ng Entities (NLEs)
( name
ely (i) NABAR
RD, (ii) (Presently it is 5 MT)
National Coo
operatives De
evelopment Corporation
C ((NCDC)
N
Note: The norrms are defin
ned for a qua
arter of finan
ncial year
a (iii) All sch
and heduled Bank
ks. i..e. how much
h buffer has to
t be maintained for each
h quarter
o financial year.
of
►FOOD MA
ANAGEM
MENT D
Distribution of Food grains: The Natio onal Food Seccurity Act
2013 providess for coverage
2 e of up to 755 per cent of the rural
The
e nodal age
ency which undertakes procuremen
nt and p
population an
nd up to 50 peer cent of the
e urban popullation for
sto
orage of food grain is the Food Corporration of India
a (FCI). rreceiving food grains under Targetedd Public Disstribution
The
e distribution of food grain
ns is primarily
y under the Na
ational S
System (TPDS), thus cov
vering aboutt two thirdss of the
Foo
od Security Acct, 2013 (NFSA
A) and other welfare schem
mes of population of the country for
p f receiving food
f grains att the rate
the
e Government and is gove
erned by the
e scale of allo
ocation o Rs 1/2/3 per
of p kg for nu utri-cereals/wh
heat/rice resp
pectively.
Identification of beneficiaries under the Act is un nder two
and
d its offtake by
b the beneficiaries.
c
categories- h
households covered
c und
der Antyodayya Anna
59
RAU’S IAS
SFOCUS SPEC
CIAL EDITION
N) for CSE 20
020
VOLUME - II
Yojana (AAY) and Priority Households. Priority Households • Higher coverage of beneficiaries under NFSA as compared
are entitled to receive 5 kg per person per month, AAY to erstwhile TPDS
households, which constitute the poorest of the poor, • Increase in MSP (Increase of one unit in real MSP leads to
continue to receive 35 Kg of food grains per household per 0.48 unit increase in real economic cost procurement)
month. • Higher procurement of food grains as against the stocking
Note: The Central Issue Price is the price at which centre norms (due to Open Ended procurement Policy)
allocates food grains to the states. It can be considered as • Increase in storage cost
the price at which food grains are sold through the network
Problems with Central Issue Price (CIP)
of fair price shops. For instance, it is Rs 1/2/3 per kg for nutri-
• The CIP for NFSA beneficiaries has not been revised from
cereals/wheat/rice respectively. However, the central Issue
Rs 200/quintal in case of wheat and Rs 300/quintal in case
Price (CIP) is defined in terms of Quintals (not in terms of Kg).
of rice. These rates were fixed under the Act initially for a
Under the NFSA, the CIP is Rs 200/quintal in case of wheat
period of three years from the date of commencement of
and Rs 300/quintal in case of rice.
the Act and thereafter were to be fixed by the Central
GOVERNMENT INITIATIVES TO IMPROVE FOOD Government from time to time, while not exceeding the
MANAGEMENT minimum support price. However, it has not been revised
• State Governments, particularly those undertaking since 2013. This has resulted in widening of the gap
Decentralized Procurement (DCP), are encouraged to between the economic cost and CIP
maximize procurement of wheat and rice. • Uniform CIP for BPL and APL households
• Strategic reserves of 5 million tonnes of food grains over STORAGE
the operational stocks are maintained to be used in The storage capacity available with the FCI, a part of
extreme situations. warehousing capacity available with the Central Warehousing
• Sale of wheat and rice is undertaken through Open Market Corporation (CWC) and State Warehousing Corporations
Sale Scheme (OMSS) (Domestic) so as to check inflationary (SWCs) and capacity hired from private sector are used for
storage of food grains procured for central pool. The total
trend in prices of food grains.
capacity available with FCI and State Agencies for storage of
• PDS reforms such as One Nation - One Ration Card, food grains was 750.00 LMT, comprising covered godowns of
Aadhaar authenticated distribution through e-POS 617.60 LMT and Cover and Plinth (CAP) facilities of 132.40
machines LMT.
Private Entrepreneurs Guarantee Scheme (PEG): To
►INCREASE IN THE FOOD SUBSIDY augment the existing storage capacity, construction of
godowns has been undertaken in PPP mode in 22 States
BILL
under Private Entrepreneurs Guarantee (PEG) Scheme
WHAT CONSTITUTES FOOD SUBSIDY? through private sector as well as CWC and SWCs
• Food subsidy comprises of (i) subsidy provided to FCI for Construction of Steel Silos: Government of India has also
procurement and distribution of wheat and rice under approved an action plan for construction of steel silos in the
NFSA and other welfare schemes and for maintaining the country for a capacity of 100 LMT in Public Private
strategic reserve of food grains and (ii) subsidy provided to Partnership (PPP) mode for modernizing storage
States for undertaking decentralized procurement. The infrastructure and improving shelf life of stored food grains.
acquisition and distribution costs of food grains for the
Online Depot Management System (ODMS): FCI is
central pool together constitute the economic cost.
implementing an Online Depot Management System (ODMS)
• The Food subsidy bill is calculated as the difference to automate the entire process of depot operations including
between Economic cost of Food grains and Central Issue receipt of food grains at the depot, storage, maintenance
price (CIP). https://t.me/UPSC_PDF activities and issue of food grains.
INCREASE IN FOOD SUBSIDY BILL
The food subsidy bill has increased from 1.2 lakh crores in ►RECENT CHANGES IN THE PRADHAN
2014-15 to 1.7 lakh crores in 2018-19. In order to pay the
food subsidy bill, the Government has been borrowing from
MANTRI FASAL BIMA YOJANA
National Small savings Fund (NSSF) through the issuance of WHAT IT DOES?
special G-Secs. It provides insurance coverage and financial support to the
REASONS FOR INCREASE IN FOOD SUBSIDY BILL farmers in the event of failure of any of the notified crop as a
Increase in Economic Cost of Food grains result of natural calamities, pests & diseases.
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PREMIUM • Higher share of centre's contribution in North-Eastern
• The Premium to be paid by Farmers: Kharif Crops: 2%, Rabi States: Presently, the centre and state make equal
Crops : 1.5%, Commercial and Horticultural Crops: 5%. The contribution(50:50) in all the states (including NE States)
balance premium will be paid by the Government to under the scheme. As per revised guidelines, in case of NE
provide full insured amount to the farmers against crop states, the centre would enhance its contribution to 90%
loss on account of natural calamities. The subsidy is and remaining 10% contribution would have to be made
divided equally between the State and Central by NE State.
government. Please note that presently there is no limit on • Separate scheme for the water stressed districts: As
the premium to be paid by Centre and states. per the revised guidelines, the Government has stated that
• For example, if the total insurance cover for Kharif Crop is it would work out a new insurance scheme for the benefit
Rs 1 lakh and the premium is 40% ( Rs 40,000). Then the of farmers in 151 water stressed districts of India.
farmer would contribute 2% • Alternative Risk Mitigation Programme: The revised
• (Rs 2000). The remaining premium of 38% (Rs 38,000) guidelines state that the Government would prepare state
would be shared by centre and state equally wherein both specific, alternative risk mitigation programme in the areas
of them would contribute Rs 19,000 each. which have higher insurance premium rates.
COVERAGE • Timely payment of Insurance premium by States: The

revised guidelines seek to ensure timely payment of
The scheme covers loanee farmers (those who have availed
premium by the concerned state governments. As per the
of institutional loans), non-loanee farmers (those who avail of
new changes, States would not to be allowed to implement
insurance cover on a voluntary basis), sharecroppers and
the Scheme in subsequent Seasons in case of considerable
tenant farmers (those who farm on rented land). Presently,
delay in payment of premium in previous season.
PMFBY is compulsory for loanee farmers.
NOTE: National Crop Insurance Porta is a web-based
CHANGES INTRODUCED BY THE UNION CABINET
integrated IT platform that provides interface among all
• Limit on the Centre's Premium: The Union Cabinet has stakeholders to access/enter data relating to insured
decided to put a limit on the premium to be paid by the farmers under PMFBY and Restructured Weather Based
centre. As per the revised guidelines, the Centre would Crop Insurance Scheme (RWBCIS).
contribute the premium amount, provided the premium is up
to 30% for unirrigated areas/crops and 25% for irrigated
areas/crops. If the premium is above the threshold, then the
►CHAPTER 8:
centre would not provide the additional premium amount. So,
in that case, the additional premium amount would be borne
by the respective state government.
INDUSTRY AND
NOTE: Districts having 50% or more irrigated area will be INFRASTRUCTURE
considered as irrigated area/district
Industrial sector performance is critical to achieving the
• Voluntary enrolment of farmers: Earlier, the scheme was ambitious goal of making India a five-trillion economy. The
mandatory for the loanee farmers i.e. who avail sector plays a decisive role in determining the overall growth
institutional loans from the Banks, while non-loanee of national output and employment through its backward
farmers had the option to either enrol or opt out of the and forward linkages with the other two sectors of the
scheme. The recent changes have made the enrolment economy. It contributes close to 30 per cent of total gross
under the scheme voluntary even for the loanee farmers. value added (GVA).
►TRENDS IN CONTRIBUTION OF
INDUSTRIAL SECTOR
TABLE 1: Growth rate of Gross Value Added (GVA) in Industry at Constant Prices (in per cent)
Share in GVA* 2017-18 2018-19 2019-20 2019-20 (1st

(PE) AE)
Q1 Q2
Mining & Quarrying 2.4 5.1 1.3 2.7 0.1 1.5
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Manufacturing 16.4 5.9 6.9 0.6 -1.0 2.0
Electricity, Gas, Water Supply & other 2.8 8.6 7.0 8.6 3.6 5.4
Utility Services
Construction 8.0 5.6 8.7 5.7 3.3 3.2
Industry 29.6 5.9 6.9 2.7 0.5 2.5
Source: NSO
IMPORTANT OBSERVATIONS • Decline in the demand

• The Industrial Sector contributes around 30% of the GVA. • Global uncertainty due to trade war.
Out of 30%, the manufacturing sector contributes around • Slower credit flow due to poor financial position of banks
16%. and NBFCs.
• Decline in the growth rate of Industrial sector to 2.5% due
to contraction in manufacturing activity wherein it
►TRENDS IN INDEX OF INDUSTRIAL
registered -1% growth rate in Q2 of 2019-20.
PRODUCTION (IIP)
REASONS FOR THE INDUSTRIAL SLOWDOWN
TABLE 2: Index of Industrial Production (IIP) Growth Rates (in per cent)
2018-19 2019-20
Weight 2015-16 2016-17 2017-18 2018-19
(April-November) (April-November)
General Index 100.0 3.3 4.6 4.4 3.8 5.0 0.6
Sectoral Classification
Mining 14.4 4.3 5.3 2.3 2.9 3.7 -0.1
Manufacturing 77.6 2.8 4.4 4.6 3.9 4.9 0.9
Electricity 8.0 5.7 5.8 5.4 5.2 6.6 0.8
Use Based Classification
Primary goods 34.0 5.0 4.9 3.7 3.5 4.8 0.1
Capital goods 8.2 3.0 3.2 4.0 2.7 7.2 -11.6
Intermediate goods 17.2 1.5 3.3 2.3 0.9 0.7 12.2
Infrastructure/ 12.3 2.8 3.9 5.6 7.3 8.3 -2.7

construction goods
Consumer durables 12.8 3.4 2.9 0.8 5.5 7.8 -6.5
Consumer non-durables 15.3 2.6 7.9 10.6 4.0 4.0 3.9
IMPORTANT OBSERVATIONS Index of Eight Core Industries: It measures the

• Decline in the growth rate of IIP in 2019-20. performance of eight core industries i.e. Coal, Crude Oil,
Natural Gas, Refinery Products, Fertilizers, Steel, Cement and
• Contraction in the mining sector.
Electricity. These Eight Core Industries comprise 40.27
• As per the use-based classification of IIP, the growth of percent weight in the IIP.
capital goods and consumer durables declined by 11.6 per
The IIP is measured by National Statistical Office whereas the
cent and 6.5 per cent respectively during the current
Index of Eight core Industries is measured by Office of
financial year 2019-20
Economic Advisor, Ministry of Commerce and Industry. The
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VOLUME - II
growth of Eight Core Industries stood flat during the current • Self-certification regime for six labour laws and three
financial year. environmental laws;
• Start-up India Hub as ‘One Stop Shop’ for the start-up
►GROSS CAPITAL FORMATION IN ecosystem.
INDUSTRIAL SECTOR
►SECTOR WISE ISSUES AND
TABLE 4: Growth rate of GCF by Industry (at 2011-12
constant prices) (in Per cent) INITIATIVES
Steel: India stood at second position in the production of
2015-16* 2016-17# 2017-18@
crude steel. It is also the third largest consumer of the
Industry 11.1 -0.7 7.6 finished steel after China and USA. However, its per capita
consumption was only 74.1 kg during 2018-19.
Mining & Quarrying -19.6 16.4 7.1
COAL: In the current year 2019-20, all India coal production
Manufacturing 11.4 1.3 8.0 was 410.5 MT with a growth rate of (-) 5.3 per cent which is
attributable to heavy and unseasonal rains. The gap between
Electricity, Gas, 22.4 -12.9 6.1
demand and supply of coal in the country is currently being
Water Supply &
met through coal imports by consuming sectors. 126 MT of
Other Utility Services
coal was imported during April 2019 to September 2019.
Construction 2.6 10.1 8.4 MSMEs: The Govt. has announced 12 key announcements for
Source: NSO. the sector
• In-principle approval for loans up to Rs. 1 crore within 59
minutes through online portal.
The rate of growth of Gross Capital Formation (GCF) in
• Interest subvention of 2 per cent for all GST registered
industry has registered a sharp rise from (-) 0.7 per cent in
MSMEs on incremental credit up to Rs. 1 crore.
2016-17 to 7.6 per cent in 2017-18.
• All companies with a turnover of more than Rs. 500 crore
to be mandatorily on TReDS platform.
►EASE OF DOING BUSINESS (EODB)
• All CPSUs to compulsorily procure at least 25 per cent from
India has improved to 63rd position among the 190 countries MSEs instead of 20 per cent of their total purchases.
in the World Bank’s Doing Business 2020 Report. This is a
• Out of the 25 per cent procurement mandated from MSEs,
jump of 14 ranks over its previous rank of 77. India has
3 per cent reserved for women entrepreneurs.
improved its rank in 7 out of 10 indicators and has moved
closer to international best practices. • All CPSUs to compulsorily procure through GeM portal.
• 20 Technology Centres (TCs) and 100 Extension Centres
(ECs) to be established at the cost of Rs. 6,000 crore.
►START-UP INDIA
• Government of India to bear 70 per cent of the cost for
• As on January 2020, 27,084 start-ups were recognized
establishing Pharma clusters.
across 551 districts, 55 per cent of which are from Tier I
cities, 45 per cent from Tier II and Tier III cities. • Returns under 8 labour laws and 10 Union regulations to
be filed once in a year.
• Top Performers: Maharashtra, Karnataka and Delhi are
the top three performers in terms of State-wise • Establishments to be visited by an Inspector will be
distribution of recognized start-ups in India. decided through a computerized random allotment.
• Industry-wise distribution: IT Services accounted for • Single consent under air and water pollution laws.
highest followed by Healthcare and Life Sciences and • For minor violations under the Companies Act,
education. entrepreneurs no longer have to approach court but can
STEPS TAKEN BY GOVERNMENT correct them through simple procedures.
• Easing regulations such as exemptions from Income tax on Textile and Apparels: Textiles contributed 18.0 per cent of
investments raised by start-ups; manufacturing and 2.0 per cent of GDP in 2017-18.
• Implementation of 32 regulatory reforms to improve Ease • Exports: The share of textiles and clothing in India’s
of Doing Business for start-ups; exports was 12 per cent in 2018- 19.
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VOLUME - II
• Employment: The sector is the biggest employer after ►RAILWAYS
agriculture and it employs 4.5 crore people directly and 6
• Indian Railways (IR) with over 68,000 route kms is the third
crore people in allied sectors.
largest network in the world under single management.
During the year 2018-19, Indian Railways carried 120 crore
►INFRASTRUCTURE tonnes of freight and 840 crore passengers making it the
• Investment in Infrastructure is necessary for growth. To world’s largest passenger carrier and 4th largest freight
achieve the GDP of $5 trillion by 2024-25, India needs to carrier
spend about $1.4 trillion (Rs 100 lakh crore) over these • Modernization of stations: A dedicated SPV, Indian
years on infrastructure. To draw up the National Railway Station Development Corporation (IRSDC) Limited
Infrastructure Pipeline (NIP) for each of the years from FY has been set up to carry out modernization of railway
2019-20 to FY 2024-25, an inter-ministerial Task Force was stations. IRSDC is working on modernization of many
set up. stations on PPP mode.
• The Finance Minister released the Report of the Task Force • Rail Safety: During 2018-19, consequential train accidents
on National Infrastructure Pipeline (abridged version) on decreased from 73 to 59 in comparison to the
31.12.2019. The NIP has projected total infrastructure corresponding period of the previous year.
investment of Rs 102 lakh crore during the period FY 2020
to 2025 in India.
►CIVIL AVIATION
• Energy (24 per cent), Roads (19 per cent), Urban (16 per
• India is the third largest domestic market for civil aviation
cent), and Railways (13 per cent) amount to over 70 per
in the world. India has 136 commercially-managed airports
cent of the projected capital expenditure during the said
by Airports Authority of India (AAI) and 6 under Public
period.
Private Partnerships (PPP) for Operation, Maintenance and
• As per the NIP, Central Government (39 per cent) and State
Development of airports.
Government (39 per cent) are expected to have equal
• UDAAN SCHEME: A total of 43 airports have been
share in funding of the projects followed by the Private
operationalized since Udaan scheme was taken up.
Sector (22 per cent).
• CAPACITY EXPANSION: To ease the strain on existing
airport capacities, 100 more airports are to be made
►ROAD SECTOR
operational by FY 2023-24.
• SHARE OF ROAD SECTOR: The share of transport sector in
the GVA for 2017-18 was about 4.77 per cent of which the
►SHIPPING
share of road transport is the largest at 3.06 per cent,
followed by the share of the Railways (0.75 per cent), air • Present scenario: Around 95 per cent of India’s trade by
transport (0.15 per cent) and water transport (0.06 per volume and 68 per cent in terms of value is transported by
cent). sea.
• Similarly, as per the National Transport Development • Shipping Tonnage: India’s shipping tonnage was only 1.92
Policy Committee Report, as of 2011-12, road transport is lakh Gross Tonnage (GT) on the eve of independence. It
estimated to handle 69 per cent and 90 per cent of the increased gradually thereafter, but was practically
countrywide freight and passenger traffic, respectively. stagnant at around 70 lakh GT till the beginning of 2004-
05. However, the tonnage tax regime introduced by the
• ROAD LENGTH IN INDIA: India has a road network of
Government of India in that year boosted the growth of
about 59.64 lakh km. The total length of National Highways
the Indian fleet as well as its tonnage.
is around 1.32 lakh km.
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VOLUME - II
• Ports Sector: The Major Ports in the country have an handled traffic of 699.09 MT during 2018-19.
installed capacity of 1,514.09 MTPA as in March, 2019 and
►TELECOM SECTOR
FIGURE: Total telephone connections from 2014-15 to 2019-20 (April-September) (in lakh)
Source: Department of Telecommunication
• Share of telephony: The wireless telephony now to 9.8 GB in June 2019. The cost of data has also reduced
constitutes 98.27 per cent of all subscriptions whereas substantially, enabling affordable internet access for
share of landline telephones now stands at only 1.73 per millions of citizens.
cent. TELECOM INFRASTRUCTURE AND CONNECTIVITY
• Tele density in India: The overall tele-density in India • BharatNet: The Government is implementing the flagship
stands at 90.45 per cent, the rural tele-density being 57.35 BharatNet Programme in a phased manner for providing
per cent and urban tele density being 160.71 per cent at broadband connectivity to all the 2.5 lakh Gram
the end of September 2019. Panchayats (GPs) in the country. The broadband
• Share of Public and Pvt Sector: The private sector infrastructures created under the project would be
dominates with a share of 88.81 per cent while the share available to all categories of service providers on non-
of public sector was 11.19 per cent. discriminatory basis.
• Increase in broadband connection: Total broadband • Public Wi-Fi Access: Public Wi-Fi hotspots ensure last-mile
connections increased by about ten times, from 610 lakh delivery of broadband to users and are much easier to
in 2014 to 5,946 lakh in June 2019. This has accelerated the scale than adding new mobile towers.
growth in internet traffic, with data usage touching the CHALLENGES
highest ever level of 462 lakh terabytes in the year 2018.
For the quarter ending June 2019, the price of data was Rs 7.7
• Increase in Internet usage: India is now the global leader per GB as compared to Rs 200 per GB in June 2016. The
in monthly data consumption, with average consumption Average Revenue Per User (ARPU) for GSM based mobile
per subscriber per month increasing from 62 MB in 2014
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VOLUME - II
services has also gone down substantially from Rs 126 in June • Power generation capacity (fuel-wise): Thermal (62.9%),
2016 to Rs 74.30 in June 2019. Renewable Energy (22.8%), Hydropower (12.4%), Nuclear
Hence, the price war among the telecom service providers (1.9%)
(TSPs) has led to substantial losses in the telecom sector. • Power generation capacity (sector-wise): Private
The Government has drawn up a plan to revive BSNL and (46.4%), State (28.4%), Centre (25.1%)
MTNL. The revival plan consists of several measures including • lndia has improved its ranking to 76th position in the
reduction of staff cost through Voluntary Retirement Scheme, Energy Transition Index published by the World Economic
allotment of spectrum for 4G services, monetization of Forum (WEF)
land/building, tower and fiber assets of BSNL/MTNL, debt • Pradhan Mantri Sahaj Bijli Har Ghar Yojana
restructuring through sovereign guarantee bonds and ‘in- (Saubhagya): Launched to achieve universal household
principle’ approval for merger of BSNL and MTNL. electrification by providing last mile connectivity by
31.03.2019. All the States have reported electrification of
►PETROLEUM AND NATURAL GAS all households on Saubhagya portal except few
• Decline in Oil Production: India is the third largest energy households in LWE affected Bastar region of Chhattisgarh.
consumer in the world after USA and China. India’s oil

production is one of the lowest among the major ►MINING SECTOR
economies of the world and has been declining over a
• India produces as many as 95 minerals which include 4
period of time. The reduction in crude oil production may
hydrocarbon energy minerals (coal, lignite, petroleum &
be attributed to natural decline in ageing and matured
natural gas), 5 atomic minerals (ilmenite, rutile, zircon,
fields and no major discoveries.
uranium, and monazite), 10 metallic, 21 non-metallic and
• Increase in Oil Reserves: The decline in reserves till 2018 55 minor minerals.
has seen a reversal in 2019, with reserves rising from 594
• Contribution: Mining and quarrying sector contribution
MMT in 2018 to 619 MMT in 2019.
(at current price) to GVA accounted for about 2.38 per cent
• This may be the result of the major reforms undertaken by during 2018-19.
Ministry of Petroleum and Natural Gas in exploration and
• Increase in production: The production of major minerals
licensing policy to enhance exploration activities, attract
during the year 2018-19 has recorded a growth of 25 per
domestic and foreign investment and accelerate domestic
cent when compared to last year in terms of value
production of oil and gas from existing fields.
• Refining Capacity: India with a refining capacity of 249.4

►HOUSING AND URBAN
MMTPA is the fourth largest in the world after the United
States, China and Russia. However, refinery capacity INFRASTRUCTURE
utilisation fell to 103.9 per cent in 2018-19, compared to There were about 37.7 crore people residing in the urban
107.7 per cent in 2017-18.There is a need to augment habitats of India (Census 2011), comprising about 31 per cent
refining capacity to meet growing demand for petroleum of the total population which is expected to reach 60.6 crore
fuels and petrochemicals. by 2030.
Pradhan Mantri Awas Yojana Urban (PMAY-U): Provides

►POWER pucca houses to the eligible families to achieve the goal of
• Installed Capacity: The installed capacity has increased ‘Housing for All’ by 2022.
from 3,56,100 MW in March 2019 to 3,64,960 MW in

October 2019.
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VOLUME - II
FIGURE: Different verticals of PMAY(U)
Source: Ministry of Housing

and Urban Affairs.
Funding of PMAY-U: Over and above the year-on-year Trade, hotels, 18.3 7.8 6.9 5.9 7.1 4.8
budgetary provisions, a separate mechanism through transport,
creation of National Urban Housing Funds (NUHF) has been communication
& services
approved by Union Cabinet to mobilise resources through
related to
Extra Budgetary Resources (EBR) to the tune of Rs 60,000 broadcasting
crore for funding PMAY(U).
Financial, real 21.3 6.2 7.4 6.4 5.9 5.8
Government has also created an Affordable Housing Fund estate &
(AHF) in the National Housing Bank (NHB) with an initial professional
corpus of Rs 10,000 crore using priority sector lending services
shortfall of banks/financial institutions. The fund is used for Public 15.6 11.9 8.6 9.1 8.5 11.6
administration,
micro financing of the HFCs and NBFCs which provide loans
defence &
at reduced interest rate to the individual borrowers for other services
promoting home ownership.
• Among the various sub-sectors, the Financial, real estate

►CHAPTER 9: and professional services account for the highest share of
21% of India's GVA.
SERVICES SECTOR • Decline in the growth rate of service sector from 8.1% in
The services sector’s significance in the Indian economy has 2017-18 to 6.8% in Q2 of 2019-20.
continued to increase, with the sector now accounting for
• Sector-wise growth: Decline in growth rate of financial
around 55 per cent of total size of the economy and GVA
growth, two-thirds of total FDI inflows into India and about 38 services, real estate, professional services, trade, hotels,
per cent of total exports. transport and communication & broadcasting services.
Increase in growth rate of public administration, defence &
►TRENDS IN CONTRIBUTION OF other services witnessed acceleration.
SERVICES SECTOR Note: The services sector now accounts for more than 50
TABLE: Services Sector Performance in GVA per cent of the Gross State Value Added (GSVA) in 15 out of
Share in the 33 states and UTs. Chandigarh and Delhi stand out with a
GVA Growth (per cent YoY)
(percent)
particularly high share of services in GSVA of more than 80
Sector 2019- 2019-20 per cent while Sikkim’s share remains the lowest at 26.8 per
2017- 2018-
2019-20 20 cent.
18 19
(1st AE) (1st Q1 Q2
(RE) (PE)
AE)
Total Services 55.3 8.1 7.5 6.9 6.9 6.8
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VOLUME - II
►FDI INFLOWS INTO SERVICES incurred by Indian students traveling abroad for education
purposes on tuition, room and boarding, reaching about US$
SECTOR
3 billion in 2018-19
• Gross FDI equity inflows into the services sector witnessed
a strong recovery during April-September 2019 following a
decline in 2018-19. During this period, the Gross FDI equity MAJOR SERVICES: SUBSECTOR
inflows jumped by 33 per cent to reach US$ 17.58 billion,
accounting for about two-thirds of the total gross FDI WISE PERFORMANCE AND
equity inflows into India.
RECENT POLICIES
• The jump in FDI equity inflows was driven by strong
inflows into subsectors such as ‘Information & ►TOURISM SECTOR
Broadcasting’, ‘Air Transport’, ‘Telecommunications’, • India ranked 22nd in the world in terms of international
‘Consultancy Services’ and ‘Hotel & Tourism tourist arrivals in 2018, improving from the 26th position in
2017. India now accounts for 1.24 per cent of world’s
international tourist arrivals and 5 per cent of Asia &
►TRADE IN SERVICES SECTOR
Pacific’s international tourist arrivals. India ranks 13th in
According to WTO data, India’s share in world’s commercial
the world and 7th in Asia & Pacific in terms of tourism
services exports has risen steadily over the past decade to
foreign exchange earnings, accounting for close to 2 per
reach 3.5 per cent in 2018, twice the share in world’s
cent of the world’s tourism foreign exchange earnings.
merchandise exports at 1.7 per cent. India now ranks 8th
• Foreign tourists from the top 10 countries visiting India -
among the world’s largest commercial services exporters and
Bangladesh, USA, UK, Sri Lanka, Canada, Australia,
continues to register strong growth performance relative to
Malaysia, China, Germany and Russia - accounted for 65
the other major services-exporting countries as well as world
per cent of the total foreign tourist arrivals in India in 2018.
services export growth
• Among the foreign tourists, 62.4 per cent tourists visited
EXPORTS
for leisure, holiday and recreation, 16.3 per cent for
• Total Exports: India’s service exports have however
business purposes, and 13.5 per cent was Indian diaspora.
consistently hovered between 7.4 to 7.7 per cent of GDP.
• Top five states attracting domestic tourists are Tamil Nadu,
• Composition: The composition of service exports has
Uttar Pradesh, Karnataka, Andhra Pradesh and
remained largely unchanged over the years. Software
Maharashtra, accounting for nearly 65 per cent of the total
services constitute the bulk of it at around 40-45 per cent,
domestic tourist visits in the country in 2018.
followed by business services at about 18-20 per cent,
• The top five states attracting foreign tourists are Tamil
travel at 11-14 per cent and transportation at 9-11 per
Nadu, Maharashtra, Uttar Pradesh, Delhi and Rajasthan,
cent.
accounting for about 67 per cent of the total foreign
IMPORTS
tourist visits in the country in 2018.
• Total Imports: The import of services has consistently
increased to 4.6% of GDP leading to pressure on BoP.
►INFORMATION TECHNOLOGY AND
• Composition of Service Imports: The relative shares of
the various constituents of service imports have also not
BUSINESS PROCESS MANAGEMENT
varied much. Business services account for the highest (IT-BPM) SERVICES
share of service imports. • Contribution of sub-sectors: IT services constituted 51
NET EXPORTS OF SERVICES per cent of the IT-BPM sector in 2018-19, followed by
Software & Engineering Services (20.6 per cent share) and
The Net exports of services increased from US$ 38.9 billion
BPM Services (19.7 per cent share)
during April-September 2018 to US$ 40.5 billion during April-
September 2019. The services trade surplus, largely driven by • Export driven: A significant part (about 83 per cent) of the
the surplus in software services, financed about 48 per cent IT-BPM industry (excluding hardware) continues to be
of India’s merchandise deficit. export driven, with export revenues in excess of US$ 135
billion in 2018-19. IT services accounted for 55 per cent of
Note: Besides software services, India runs a small trade
the exports, and BPM and Software Products &
surplus in travel, insurance and financial services. However, Engineering services accounted for the remaining 45 per
within travel services, India persistently runs a trade deficit in cent with each accounting for almost half of the share.
education services with education imports, i.e., expenditure
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VOLUME - II
• Export Market: USA accounts for the bulk of exports, liquid, cryogenic and semi-cryogenic propellants; and (v)
amounting to US$ 84 billion which is 62 per cent of total Production of electronic packages, Testing & Evaluation for
ITBPM exports (excluding hardware) in 2018- 19. This is avionics and satellite subsystems.
much larger than the share of exports going to UK, which
is the second largest export market for IT-BPM services,
with a share of around 17 per cent. ►CHAPTER 10:
►PORT AND SHIPPING SERVICES SOCIAL INFRASTRUCTURE,
• Port capacity: India has 13 major ports and about 200
EMPLOYMENT AND HUMAN
non-major ports. The total cargo capacity of Indian ports
stood at 1,452.64 Million Tonnes Per Annum (MTPA) at the DEVELOPMENT
end of March 2019, more than doubling from 628.03 MTPA
This chapter highlights the government’s interventions in the field
at the end of March 2010.
of social sector i.e. Education, Health, Skills, Employment creation
• Decline in turnaround time: The turnaround time of
etc. It also highlights India's progress on HDI. This chapter has
ships, which is a key indicator of efficiency of the ports laid due emphasis on the growing formalisation of jobs within
sector, has been on a continuous decline, almost halving Indian economy. Further, it has raised concerns with respect to
between 2010-11 and 2018-19 to 2.48 days. As per the declining Female LFPR.
latest UNCTAD data, the median ship turnaround time
In order to get holistic understanding related to this chapter, it is
globally is 0.97 days, suggesting that India has room to
advisable to read and revise the Prelims Compass Magazine on
further improve upon the efficiency at ports. Government schemes and programmes with a special focus on
schemes related to Education, Health, Skill Development,
►SPACE SECTOR Employment creation and so on.
• India spent about US$ 1.5 billion on space programmes in

2018. However, India’s government space expenditure still ►TRENDS IN SOCIAL SECTOR
lags behind that of the major players in the space sector, EXPENDITURE
such as USA (13 times more than India), China (7 times
TABLE: Trends in Social Service Sector Expenditure by
more than India).
General Government (Combined Centre and States)
• India has launched around 5-7 satellites per year in the 2018 2019
2014 2015 2016 2017
recent years with no failures, barring one in 2017. On the Item -19 -20
-15 -16 -17 -18
other hand, Russia, USA and China dominate the satellite RE BE
launching services with 20, 31 and 39 satellites respectively As percentage to GDP
in 2018
Expenditur 6.2 6.6 6.8 6.7 7.6 7.7
• Focus areas e on Social
ο Satellite communication with INSAT/GSAT system as the Services
backbone to address the needs for telecommunication,
of which
broadcasting and satellite-based broadband
i) Education 2.8 2.8 2.8 2.8 3.1 3.1
infrastructure.
ο Earth observation and using space-based information ii) Health 1.2 1.3 1.4 1.4 1.5 1.6
for weather forecasting, disaster management, national 3.0 3.0
iii) Others 2.1 2.5 2.6 2.4
resource mapping and governance.
ο Satellite-aided navigation including GAGAN and NavIC. As percentage to social services
i) Education 46.1 42.8 41.8 42.4 40.1 40.7

• Attracting private sector Investment: Keeping in mind
emerging global practices, ISRO has been pursuing the ii) Health 19.4 19.1 20.5 21.4 20.2 20.5
policy of engaging Indian private sector in delivering space
iii) Others 34.6 38.0 37.7 36.2 39.7 38.8
related goods and services. The following areas have been
identified for attracting private investments in the space IMPORTANT OBSERVATIONS
sector: (i) Production of Polar Satellite Launch Vehicle
• Increase in the combined expenditure of Centre and States
(PSLV); (ii) Satellite integration and assembly; (iii)
in Social Sector as percentage of GDP from 6.2% in 2014-
Production of composite materials; (iv) Production of solid,
15 to 7.7% in 2019-20.
69
VOLUME - II
• Expenditure in Education: 3.1% of GDP (Lower than Expectancy at birth • Expected years of
targeted 6%). • Education Index: Quality-adjusted school:
• Expenditure in Health: 1.6% of GDP (Lower than targeted Measured by Expected Measured by both
2.5%). Years of Schooling and Quantity and Quality of
Mean Years of Schooling Education
• Education accounts for 40% of the social services.
• Standard of Living: • Health environment:
Measured by Per Capita Measured by Adult
►HUMAN DEVELOPMENT Survival Rate and Rate of
Income
DIFFERENCE BETWEEN HUMAN DEVELOPMENT INDEX stunting of Children
(HDI) AND HUMAN CAPITAL INDEX (HCI) under the age 5
HUMAN DEVELOPMENT • India's Performance in HDI: India’s rank in the Human
HUMAN CAPITAL INDEX
INDEX (HDI) Development Index (HDI) improved to 129 in 2018 from
 Measured by World 130 in 2017, out of a total of 189 countries. The value of
 Measured by UNDP HDI for India reached to 0.647 in 2018.
Bank
• Trends in India's performance: With 1.34 per cent
• The Human Development • It measures the amount
average annual HDI growth, India is among the fastest
Index (HDI) is a summary of human capital that a
improving countries, and ahead of China (0.95), South
measure of average child born today can
Africa (0.78), Russian Federation (0.69) and Brazil (0.59)
achievement in key expect to attain by age
dimensions of human 18.
development: a long and • Thus, it is more of a EDUCATION FOR ALL
healthy life, being potential or future level Sustainable Development Goal (SDG)- 4 seeks ‘to ensure
knowledgeable and have a of Human Development inclusive and equitable quality education and promote
decent standard of living. expected from lifelong learning opportunities for all’ by 2030. There has
• Thus, it measures the investment in Education been consistent improvement in the Gross Enrolment ratio
present level of Human and Health. (GER) at all stages of education- Primary, Secondary, Sr.
Development Secondary and Higher.
3 Parameters: 3 Parameters:
• Life Expectancy Index: • Survival: Measured by
Measured by Life under 5 mortality.
FIGURE: Gross Enrolment Ratio (GER) at all India level (in percent)
►PROGRAMMES AND SCHEME FOR Madhyamik Shiksha Abhiyaan, Teacher Education. The
new integrated scheme envisages school education as a
SCHOOL EDUCATION continuum from pre-school to senior secondary level and
• SAMAGRA SHIKSHA: It subsumes three erstwhile centrally aims to ensure inclusive and equitable quality education.
sponsored scheme i.e. Sarva Shiksha Abhiyaan, Rashtriya States and UTs are supported for strengthening of existing
70
VOLUME - II
government schools, and for creation and augmentation HIGHER EDUCATION FINANCING AGENCY (HEFA):
of infrastructure facilities based on proposals received • What it does?: Provide loans for the creation of capital
from respective States/UTs. The scheme also envisages an assets in Educational Institutions.
annual recurring composite school grant varying from Rs
• Coverage: Premier higher Educational Institutes; School
25,000/- to Rs 1,00,000/- per annum depending upon the
Education.
enrolment of students, for all government schools
• Funding: Rs 1 lakh crores by the end of 2022
• Focus on Learning Outcomes: To further focus on quality
National Educational Alliance for Technology (NEAT)
education, the Central RTE Rules have been amended to
scheme: Promotes use of Artificial Intelligence to make
include reference on class-wise and subject-wise Learning
Outcomes. The RTE Act, 2009 was amended in 2017 to learning more personalised and customised as per the
requirements of the learner.
ensure that all teachers acquire the minimum
qualifications prescribed under the Act. Education Quality Upgradation and Inclusion Programme
• Navodaya Vidyalaya Scheme: Provides for opening of (EQUIP): A five year vision plan aiming at ushering
transformation in India’s higher education system by
one Jawahar Navodaya Vidyalaya (JNV) in each district of
implementing strategic interventions in the sector over the
the country to bring out the best of rural talent.
next five years (2019-2024).
• NISHTHA: National Initiative for School Heads’ and
SWAYAM 2.0: Offer online degree programmes with
Teachers’ Holistic Advancement under the Centrally
enhanced features and facilities by top ranking universities.
Sponsored Scheme of Samagra Shiksha in 2019- 20 is
being launched to improve learning outcomes at the
elementary level. The aim of this training is to motivate ►SKILL DEVELOPMENT
and equip teachers to encourage and foster critical • Under the Skill India Mission, the Government implements
thinking in students, handle diverse situations and act as the Pradhan Mantri Kaushal Vikas Yojana (PMKVY) 2016-20
first level counsellors which enables large number of prospective youth to take
• Pradhan Mantri Innovative Learning Program (DHRUV) up Short Term Training (STT) and Recognition of Prior
: It was launched to identify and encourage talented Learning (RPL) through empanelled training centres
students to enrich their skills and knowledge. /training providers (TCs/TPs) throughout the country.
• DIKSHA Platform: To broad base technology aided • According to the Periodic Labour Force Survey (PLFS) 2017-
teaching and learning, States and UTs are being actively 18 only 13.53 per cent of the workforce in the productive
involved to contribute and use the Digital Infrastructure age-group of 15-59 years has received training (2.26 per
for Knowledge Sharing (DIKSHA) platform. cent formal vocational/technical training and 11.27 per
cent informal training).
►PROGRAMMES AND SCHEMES IN • Reforms under Apprenticeship Rules 1992
HIGHER EDUCATION ο Increasing upper limit for engaging apprentices from 10

to 15 per cent of total strength of establishment;
PANDIT MADAN MOHAN MALAVIYA NATIONAL MISSION
ON TEACHERS AND TEACHING (PMMMNMTT) ο Decreasing the size limit of an establishment with
mandatory obligation to engage apprentices from 40 to
It aims at building a strong professional cadre of teachers by
30;
setting performance standards and creating top class
institutional. ο Payment of stipend for 1st year has been fixed rather
than linking it to minimum wages;
COMPONENTS
ο 10 to 15 per cent hike in stipend for 2nd and 3rd year of
• Creation of new Institutional Arrangements: Schools of
apprenticeship;
Education; Centres of Excellence in Science and
Mathematics Education; Teaching Learning Centres; ο Duration of apprenticeship training for optional trade
Faculty Development Centres can be from 6 months to 3 years.
• Individual Oriented: Innovations, Awards. ο The minimum amount of stipend prescribed ranges
from Rs 5,000 per month - for school pass outs between
• Networks and Alliances: Subject Networks for Curricular
Class 5th- 9th, to Rs 9,000 per month to graduate or
Renewal and Reforms
degree apprentices in any stream
• Academic Leadership: Institutes of Academic Leadership
and Education Management.
71
VOLUME - II
STATUS OF EMPLOYMENT IN Formal workers (49%); 2011-12: Formal workers (45%);

Informal workers (51%) Informal workers (55%)
INDIA 2017-18: Formal workers (49%);
Informal workers (51%)
►IMPORTANT TERMS TO
UNDERSTAND Share of workers in Share of workers in Unorganised
The enterprises are categorised are two types: Unorganised sector: sector:
Formal Workers (0.74%); 2011-12: Formal workers (0.4%);
• Unorganised Sector: As per National Commission for
Informal workers Informal Workers (99.6%)
Enterprises in Unorganized Sector (NCEUS) classification,
(99.26%) 2017-18: Formal Workers (0.74%);
“The unorganised sector consists of all unincorporated
Informal workers (99.26%)
private enterprises owned by individuals or households
engaged in the sale and production of goods and services IMPORTANT OBSERVATIONS
operated on a proprietary or partnership basis and with
• Increase in the share of employment in the Organized
less than ten total workers". Usually, these enterprises
remain outside the purview of Government's laws, rules sector from 17% in 2011-12 to 19% in 2017-18.
and regulations. • Increase in the total share of formal workers from 8% in
• Organised Sector: Employ 10 or more employees and are 2011-12 to 10% in 2017-18.
registered with the Government.
• Increase in the share of Formal workers in the Organized
The workers are categorised are into two types: sector from 45% in 2011-12 to 49% in 2017-18.
• Informal Workers: These workers do not enjoy
• Decrease in the share of Informal workers in the
employment security ( Contractual workers), work security
Organized Sector from 55% in 2011-12 to 51% in 2017-18.
(not entitled to compensation on account of any accident
or disability during work) or social security benefits ( lack of
access to pension, insurance etc). The Informal workers ►STEPS TAKEN TOWARDS
may be employed in both organised and unorganised
FORMALISATION OF THE LABOUR
sector.
MARKET
• Formal Workers: These workers enjoy employment
• For portability of Provident Fund accounts, EPFO launched
security, work security and social security benefits. These
workers may be employed in both organised and a “Universal Account Number” service for contributing
unorganised sector. members.
• Government is paying 12 per cent of employer

►FORMALISATION OF JOBS WITHIN contribution to EPFO in respect of the new employees
INDIAN ECONOMY drawing salary up to Rs 15,000 per month for the first
three years of their employment, under Pradhan Mantri
PRESENT SHARE OF TRENDS IN SHARE OF
RozgarProtsahan Yojana (PMRPY). The scheme has ended
EMPLOYMENT (2017- EMPLOYMENT
on 31st March, 2019.
18)
• Mandatory wage ceiling of subscription to EPS increased
• Unorganised sector Sector wise trend
from Rs 6,500 to Rs 15,000 per month.
(81%); Organised • 2011-12: Unorganised sector
Sector (19%) (83%); Organised sector (17%) • MUDRA and STAND-UP India for creating formal credit to
• Informal workforce • 2017-18: Unorganised sector businesses.
(90%); Formal (81%); Organised Sector (19%)
• Rate of ESI contribution reduced from 6.5 per cent to 4 per
Workforce (10%) Worker wise trends
cent with effect from 1st July, 2019. Employer's share of
• 2011-12: Informal Workers
contribution reduced from 4.75 per cent to 3.25 per cent
(92%); Formal workers (8%)
• 2017-18: Informal Workers and employees’ share from 1.75 per cent to 0.75 per cent.
(90%); Informal Workers (10%) • National Career Service (NCS) Project launched in 2015,
provides a host of career-related services such as dynamic
Share of workers in Share of workers in Organised
Organised sector: sector: job matching, career counselling, job notifications and
72
VOLUME - II
information on skill development courses and rich career power to anyone else in return for wage. Own account
content on a digital platform. workers include those who operated their enterprises on
their own account without hiring any labour during the
►DIFFERENT CATEGORIES OF reference period while employers are those own account
WORKERS workers who ran their enterprise by hiring labourers.
The NSO data classifies the workers on the basis of However, unpaid family labourers/helpers included those
employment status into three categories i.e. self-employed who were engaged in their household enterprises
workers; regular wage/salaried employees; and casual • Regular wage/salaried employees are those who receive
labourers. predetermined wages/salary on regular basis.
• The self-employed category (consists of employers, own • Casual worker includes those who are hired for very short
account workers and unpaid family labour) includes those time period on daily or monthly basis.
who work for themselves and do not sell their labour
IMPORTANT OBSERVATIONS FIGURE: Female Labour Force Participation Rate (ps+ss,

• Share of different categories: Self-employed (52%); 15-59 ages) by Location (percent)
Casual Workers (25%); Regular wage (23%)
• Largest share: Own account workers account for the
largest share of workers (36%) followed by casual workers
(25%) and Regular wage/Salaried workers (23%)
• Regular wage/ Salaried Workers: Increase in the share of
Workers from 18% in 2011-12 to 23% in 2017-18.
• Self-Employed Category: Proportion of Self-employed
workers remained unchanged at 52% Increase in share of
Own account workers and Employers; Decline in Unpaid
Family Labourers;
• Casual Workers: Decrease in the Share from 30% to 25% • Labour Force Participation Rate in 2017-18: Total- 49.8%;
Male- 75%; Female- 25.3%.
►FEMALE PARTICIPATION IN LABOUR • Female LPFR in Rural Areas (26.6%) higher as compared to
Urban Areas (22.3%)
MARKET
73
VOLUME - II
• Decline in the total Female LPFR from 45.2% in 1993-94 to psychological support and temporary shelter to women
25.3% in 2017-18. affected by violence.
• Decline in Female LPFR sharper in Rural areas (from 52% in • Female Entrepreneurship: To promote female
1993-94 to 26.6% in 2017-18) as compared to Urban areas entrepreneurship, the Government has initiated schemes
(from 25.1% in 1993-94 to 22.3% in 2017-18). like MUDRA, Stand Up India and Mahila e-Haat.
• RashtriyaMahilaKosh : Provides micro-credit at
►REASONS FOR DECLINE IN FEMALE concessional terms to poor women for various livelihood
and income generating activities.
LFPR
• Prime Minister’s Employment Generation Programme
SUPPLY SIDE DEMAND SIDE (PMEGP): Under the scheme, women entrepreneurs are
provided 25 per cent and 35 per cent subsidies for the
• Higher Enrolment of • Structural Transformation:
project set up in urban and rural areas respectively.
Females in higher Decline in agriculture not
• DeendayalAntyodaya Yojana- National Rural
Educational Institutions. accompanied by creation
Livelihoods Mission (DAY-NRLM) - seeks to reach out to
• More number of Women of jobs for women in other
8-9 crore rural poor households and organize one-woman
opting for Household sectors.
member from each household into affinity-based women
duties due to increase in • Decline in Labour
SHGs and federations at village and at higher levels.
household incomes. Intensive Industries in
• Cultural factors- Social Urban areas.
Constraints and • Significant wage gap ►HEALTH FOR ALL
Patriarchal norms. between males and The National Health Policy, 2017 provides for universal access
females to good quality health care services. The focus of healthcare
is on four important pillars - preventive healthcare, providing
affordable healthcare, building medical infrastructure and
►INITIATIVES TO IMPROVE FEMALE mission mode interventions for maternal health, child health
WORK PARTICIPATION and to combat communicable and non-communicable
• Safety of Women at Workplace: The Sexual Harassment diseases.
of Women at Workplace (Prevention, Prohibition and PREVENTIVE HEALTH CARE
Redressal) Act, 2013 covers all women, irrespective of their • To promote preventive healthcare, one and half lakh
age or employment status and protects them against Ayushman Bharat Health & Wellness Centres (AB-HWCs)
sexual harassment at all workplaces both in public and are proposed to be set up by 2022.
private sector, whether organized or unorganized. The Act
• Under Mission Indradhanush, 3.39 crore children and
mandates all the workplace having more than 10 workers
87.18 lakh pregnant women in 680 districts across the
to constitute Internal Complaint Committee (ICC) for
country have been vaccinated.
receiving complaints of sexual harassment. Similarly, the
• Adoption of a multi-sectoral approach and increasing
appropriate Government is authorized to constitute Local
synergy with other Mission Mode initiatives of the
Complaint Committee (LCC) in every district which will
Government such as Eat Right & Eat Safe, Fit India,
receive complaints from organizations having less than 10
Anaemia Mukt Bharat, Poshan Abhiyan and Swacch Bharat
workers or if the complaint is against the employer
Abhiyaan etc.
himself.
HEALTH CARE AFFORDABILITY
• Mahila Shakti Kendra Scheme: Empowers rural women
through community participation. • The National Health Policy, 2017 recommends to spend at
least two third of Government’s health expenditure on
• Women Helpline Scheme (WHL): Provide 24 hours
primary healthcare (which accounts for 52.1 % of India’s
emergency and non-emergency response to women
current public expenditure on health)
affected by violence through referral and information
about women related government schemes/programmes • Initiatives like Ayushman Bharat- Pradhan Mantri Jan
across the country through a single uniform number (181). Arogya Yojana (PM-JAY), Free Drugs Service, Free
Diagnostics Service , Pradhan Mantri Bharatiya Jan
• One Stop Centre (OSC): facilitates access to an integrated
AushadiPariyojana (PMBJP) and Pradhan Mantri National
range of services including police, medical, legal,
Dialysis Programme (PMNDP) addresses the issue of high
74
VOLUME - II
out of pocket expenditure (OoPE) on account of drugs and Obstetric Care, Life Saving Anesthesia Skills and
hospital care. Laparoscopic Surgery.
• As per the National Health Accounts (NHA) 2016-17, the MISSION MODE INTERVENTIONS
out of pocket expenditure (OoPE) as a percentage of total • Ayushman Bharat targets universal health coverage by
health expenditure has declined from 64.2 % in 2013-14 to focusing on preventive, promotive and palliative care apart
58.7 % in 2016-17. from ambulatory care; and by providing protection against
MEDICAL INFRASTRUCTURE catastrophic health expenditure for secondary and tertiary
• The doctor-population ratio in India is 1:1456 against the hospital care. It recognizes and addresses the emerging
WHO recommendation of 1:1000. To address the shortage challenges of NCDs due to changing epidemiology and also
of doctors, the government has embarked on an ambitious targets to sustain the efforts for RMNCH+A and
programme for upgradation of district hospitals into communicable diseases through initiatives such as
medical colleges. asSurakshitMatritvaAashwasan (SUMAN), Social Awareness
and Action to Neutralise Pneumonia Successfully (SAANS)
• Pradhan Mantri Swasthya Suraksha Yojana (PMSSY) was
and TB HaregaDeshJeetega.
launched to augment the tertiary healthcare capacity in
clinical care, medical education and research in • Several states have also initiated the use of digital
underserved areas of the country, under which AIIMS like platforms such as ECHO for continuous capacity building
institutions are built and Government Medical Colleges are of the primary health team.
upgraded by setting-up Super Speciality Blocks.
• National Medical Commission Act, 2019 was promulgated ►HOUSING FOR ALL
to enable constitution of National Medical Commission As per recent NSO survey on Drinking Water, Sanitation,
along with introduction of a common entrance test NEET- Hygiene and Housing Condition in India 2018, about 76.7 per
UG for admission to all MBBS courses including AIIMS and cent of the households in the rural and about 96.0 per cent in
JIPMER. the urban areas had the house of pucca structure. Pradhan
• Multi-skilling of doctors at strategically located facilities Mantri Awaas Yojana-Gramin (PMAY-G) and Pradhan Mantri
identified by the States where there is shortage of Awaas Yojana-Urban (PMAY-U) are two important schemes
specialists e.g. MBBS doctors are trained in Emergency for achieving the target of housing for all by 2022.
75
SECTION 3
B UDGET 2020-21
►OVERVIEW • Budget Estimates for ensuing year: i.e. estimated
receipts and expenditure for the period 1st April 2020 to
The Union Budget is a policy tool of the government to serve 31st March 2021
the objectives of fiscal policy. Primarily it is a financial • Revised Estimates for the current year i.e. 2019-20: It
statement showing receipts and expenditure of the central captures the deviation from the budgetary estimates done
government but not limited to it. last year. Remember the budget is presented on 1
st
NATURE OF BUDGET February before the completion of the current year

In a government budget the expenditure is factored in first • Actual receipts and expenditure made in 2018-19
and then the receipts are planned. Thus by the very structure The various items in the annual financial statement are
government budgets are deficit-oriented which are financed classified under 2 heads including
by borrowings (which is why the term ‘receipts’ is used
i. Revenue budget
instead of ‘revenue’). A balanced budget is the one in which
• Towards day-to-day activities
an incremental increase in expenditure is met out by
incremental increase in receipts. • Includes
• Revenue receipts
ο It does not cause a liability in the future
►COMPONENTS OF THE ο Categorised as tax and non-tax revenue
BUDGET • Revenue expenditure

ο Recurring expenses mostly used for maintenance
Various documents that are mandatorily presented during
the Union Budget include ii. Capital budget
1. Those mandated under Constitution include Annual • Towards building assets that has an effect in the future
Financial Statement, Demand for Grants and Finance Bill (pay/earn an interest)
2. Those mandated under FRBM Act including Macro- • Includes

Economic Framework Statement and Medium-Term Fiscal • Capital receipts
Policy cum Fiscal Policy Strategy Statement ο They can be debt-creating or non-debt creating
1. ANNUAL FINANCIAL STATEMENT ο Debt-creating causes a liability of interest payment in
It is the financial statement showing the future
76
BUDGET 2020-21
ο Non-debt creating are interest payments received over Note: The classification of items under various components
past capital investments of the revenue and capital account is important for
• Capital expenditure preliminary test and is given in the figure below.
ο non-recurring expenses used to build assets
Further the money that comes in and goes out is accounted • Thus it provides for the details of imposition, abolition,
for in 3 accounts namely remission, alteration or regulation of various tax proposals
a) Consolidated Fund of India in the Budget.
b) Public Account of India • It is a Money Bill as defined in Article 110 of the

Constitution.
c) Contingency Fund of India
4. DOCUMENTS MANDATED UNDER
2. DEMAND FOR GRANTS
• The expenditure from consolidated fund of India is
FRBM ACT
required to be approved by the Lok Sabha. For this • The Fiscal Responsibility and Budgetary Management Act is
purpose they are presented in the form of demand for a roadmap for maintaining fiscal prudence in the economy
grants by each Ministry. in order to achieve inter-generational equity. Accordingly it
• Every demand is towards a particular service. It may provides for deficit reduction targets as current
include ‘revenue expenditure’, ‘capital expenditure’, grants borrowings should not burden the future generations.
to states and UTs and loans and advances towards that • In this direction the 2012 amendment to FRBM act also
service. made it mandatory for the government to present
3. FINANCE BILL ο Macro-Economic Framework Statement and

ο Medium-Term Fiscal Policy cum Fiscal Policy Strategy
• According to Article 265 of the constitution no tax is levied
Statement as a part of the budget.
without the authority of law. Accordingly proposals of tax
revenue under the revenue receipts are presented in the
form of Finance Bill.
77
BUDGET 2020-21
►PROCEDURE exceed capital receipts, it leads to capital account deficit.

Budgetary deficit is usually expressed as a percentage of
GDP.
PRESENTATION OF THE BUDGET
ª ►EFFECTIVE REVENUE DEFICIT

GENERAL DISCUSSION It is the difference between revenue deficits and the grants
for creation of capital assets.
ª
SCRUTINY BY STANDING COMMITTEES
►SOURCE OF DEFICIT FINANCING
ª
1. Market borrowings (Government securities + treasury bills)
VOTING ON DEMAND FOR GRANTS
2. Securities against small savings
ª 3. State Provident Funds
PASSING OF APPROPRIATION BILL 4. Other receipts (Reserve Fund, Deposits and Advances)
ª 5. External debt
PASSING OF FINANCE BILL 6. Draw down of cash balance
►FISCAL POLICY
TERMS RELATED TO It is the government actions with respect to aggregate levels
BUDGET of revenue and spending. Fiscal policy is implemented though

the budget and is the primary means by which the
government can influence the economy.
GOVERNMENT DEFICITS
►MONETARY POLICY
►FISCAL DEFICIT
This comprises actions taken by the central bank (i.e. RBI) to
• Difference between total revenue and total regulate the level of money or liquidity in the economy, or
expenditure of the government change the interest rates.
• It is an indicator of the total borrowings by the
government. ►CAPITAL BUDGET
• Generally fiscal deficit takes place either due to revenue
The Capital Budget consists of capital receipts and payments.
deficit or a major hike in capital expenditure.
It includes investments in shares, loans and advances granted
by the central Government to State Governments,
►REVENUE DEFICIT Government companies, corporations and other parties.
The excess of expenses over receipts on revenue account is
called revenue deficit. Revenue deficit = Revenue Expense - ►REVENUE BUDGET
Revenue Receipts.
The revenue budget consists of revenue receipts of the
Government and it expenditure. Revenue receipts are divided
►GROSS PRIMARY DEFICIT into tax and non-tax revenue. Tax revenues constitute taxes
It is Gross Fiscal Deficit less interest payments. Net Primary like income tax, corporate tax, excise, customs, service and
Deficit is Net Fiscal Deficit minus net interest payments. Net other duties that the Government levies. The non-tax revenue
interest payment is interest paid minus interest receipt. sources include interest on loans, dividend on investments.
►BUDGETARY DEFICIT ►FINANCE BILL

It is the sum of revenue account deficit and capital account The Bill produced immediately after the presentation of the
deficit. If revenue expenses of the government exceed Union Budget detailing the Imposition, abolition, alteration or
revenue receipts, it results in revenue account deficit. regulation of taxes proposed in the Budget.
Similarly, if the capital disbursements of the government
78
BUDGET 2020-21
►VOTE ON ACCOUNT ►GUILLOTINE

The Vote on Account is a grant made in advance by the Parliament, unfortunately, has very limited time for
parliament, in respect of the estimated expenditure for a part scrutinising the expenditure demands of all the Ministries. So,
of new financial year, pending the completion of procedure once the prescribed period for the discussion on Demands
relating to the voting on the Demand for Grants and the for Grants is over, the Speaker of Lok Sabha puts all the
passing of the Appropriation Act. outstanding Demands for Grants, Whether discussed or not,
to the vote of the House. This process is popularly known as
'Guillotine'.
►EXCESS GRANTS
If the total expenditure under a Grant exceeds the provision
allowed through its original Grant and Supplementary Grant, BUDGET 2020-21 AT A
then, the excess requires regularization by obtaining the
Excess Grant from the Parliament under Article 115 of the GLANCE
Constitution of India. It will have to go through the whole
process as in the case of the Annual Budget, i.e. through ►BUDGET ESTIMATES FOR 2020-21
presentation of Demands for Grants and passing of • Total Receipts: Rs. 30 lakh crore;
Appropriation Bills.
ο Revenue Receipts: Rs 20 Lakh Crore, Capital Receipts:
Rs 10 lakh crore
►REVISED ESTIMATES ο Highest to Lowest
Revised Estimates are mid-year review of possible  Receipts: CR – Capital Receipts, RR- Revenue Receipts
expenditure, taking into account the rest of expenditure, New
 Borrowings and other liabilities (Debt-creating CR) >>
Services and New instrument of Services etc. Revised
Corporate taxes (Tax RR)>> GST (Tax RR)>> Income
Estimates are not voted by the Parliament, and hence by
Tax (Tax RR)>> Non-tax revenue>> Union excise duty
itself do not provide any authority for expenditure. Any
(Tax RR)>> Customs (Tax RR)
additional projections made in the Revised Estimates need to
be authorized for expenditure through the Parliament's
approval or by Re-appropriation order.
►RE-APPROPRIATIONS
Re-appropriations allow the Government to re-appropriate
provisions from one sub-head to another within the same
Grant. Re-appropriation provisions may be sanctioned by
acompetent authority at any time before the close of the
financial year to which such grant or appropriation relates.
The Comptroller & Auditor General and the Public Accounts
Committee reviews these re- appropriations and comments
on them for taking corrective actions.
PRELIMS TITBITS
• The increasing or decreasing order of tax revenue is
►OUTCOME BUDGET
important for prelims examination. In case a question is
From the fiscal year 2006-07, every Ministry presents a asked on the same please note you need to consider the
preliminary Outcome Budget to the Ministry of Finance, order of the current year i.e. 2019-20 (revised estimates)
which is responsible for compiling them. The Outcome and not the above figures which are budgetary estimates
Budget is a progress card on what various Ministries and for 2020-21.
Departments have done with the outlays in the previous
• Decreasing order of tax revenue for 2019-20 is given below
annual budget. It measures the development outcomes of all
Government programs and whether the money has been • GST>> Corporate Tax>>Income Tax>>Union Excise
spent for the purpose it was sanctioned including the Duty>>Custom Duty
outcome of the fund usage. TOTAL EXPENDITURE: Rs 30 Lakh Crore
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BUDGET 2020-21
Revenue Expenditure: Rs. 26 Lakh Crore: Capital 2. DEFICITS AS A % OF GDP
Expenditure: Rs. 4 Lakh Crore
3. INFLATION
►TRENDS IN IMPORTANT
MACRO-ECONOMIC
INDICATORS
1. GDP GROWTH RATE
4. CURRENT ACCOUNT DEFICIT
80
BUDGET 2020-21
►THEME 2. Economic Development: keeping in mind the

st
technological readiness for 21 century and more space to
The budget 2020-21 was presented at a time when India was private sector to take the lead
undergoing an economic slowdown with 2nd quarter of 2019- 3. Caring Society: with emphasis on the needs of last-man
20 registering the lowest growth rates in six and a half years standing (most vulnerable sections) in the spirit of
at 4.5%. Accordingly the budget focuses on reviving the Antyodaya or Gandhi’s Talisman or Theory of Justice of
growth by accelerating the consumption in the economy by John Rawls.
enhancing ‘ease of living’ for all sections of the society.
The pillars identified by the budget to support achieve these
In order to facilitate ‘ease of living’ the budget identifies 3 key objectives include
dominant themes as
1. Corruption-free good governance
1. Aspirational India: which entails better standards of living
2. Clean and sound financial sector
ensuring access to health, education and higher incomes.
This will inturn boost consumption expenditure thereby
enhancing demand that drives economic growth.
 THEME I. ASPIRATIONAL 16-POINT ACTION PLAN

1. BOOST TO AGRICULTURAL CREDIT
INDIA
• The budget has allocated Rs.15 Lakh Crore towards
1. AGRICULTURE, IRRIGATION AND agricultural credit.
RURAL DEVELOPMENT • Besides it has also extended the benefit of Kisan Credit
Card Scheme to those farmers eligible under PM-KISAN
• The total allocation towards Agriculture and allied
income guarantee scheme.
activities, Irrigation and Rural Development in the budget
2020-21 is Rs. 2.83 lakh crore (Agriculture, Irrigation & 2. ENCOURAGE STATES TO ADOPT MODEL CENTRAL LAWS
allied activities – Rs. 1.60 lakh crore and Rural • The budget encourages the state governments to adopt
development & Panchayati Raj - 1.23 lakh crore) Model Central Laws in Agriculture.
• In pursuance of the government’s objective of doubling • This is because agriculture is a state subject under the
farmer’s income by 2022 and to boost rural demand, the Constitution.
budget has adopted a 16-point action plan for the MODEL LAWS ENCOURAGED TO BE ADOPTED INCLUDE
agriculture sector.
A. Model Agricultural Land leasing Act, 2016
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BUDGET 2020-21
• It seeks to facilitate formalization of land leasing of • The budget proposes to build a seamless national cold
agricultural land to landless farmers. supply chain for perishables (including vegetables, fruits,
• Under this a written contract is signed between the land milk, meat and fish)
owner and cultivator to recognise the actual cultivator as • Under this the Indian Railways will set up a “Kisan Rails” in
the farmer. PPP mode
Advantages • National cold supply chain for perishables
• Ensure landless cultivators are recognised as farmers COMPONENTS
• Provide access to institutional credit to landless farmers 1. Refrigerated Parcel Vans
B. MODEL AGRICULTURAL PRODUCE AND LIVESTOCK • For transportation of highly perishable parcel traffic
CONTRACT FARMING AND SERVICES (PROMOTION AND • These vans function on round-trip basis, and are charged
FACILITATION) ACT, 2018 at 1.5 times the normal freight.
• To enable contract farming practices in India 2. Reefer (Ventilated Insulated) Rail Containers
Advantages • Procured through CONCOR
• It will eliminate middlemen in agri-supply chain • For movement of fruits and vegetables
• Better price realisation to farmers 3. Setting up of Cold Storage Facilities for Perishables
• Boost to food processing industry 4. Kisan Rail
3. EXPANSION OF PM-KUSUM SCHEME 7. KRISHI UDAN
• It seeks to enhance the status of the farmer from • Scheme to transport agricultural products by air.
‘annadata’ to ‘urjadata’.
• It will be launched on international and national routes.
• PM-KUSUM was launched in 2019 to
• It will help improve value realisation on agricultural
a. solarise the agricultural pumps and reduce the products.
dependence on diesel/kerosene-run water pumps
• It will be integrated with the Udan Scheme of Ministry of
b. to set up solar power projects Civil Aviation
• Now the scheme has been expanded to 20 lakh farmers. 8. BOOST TO HORTICULTURE SECTOR
• In addition incentives will be provided to 15 lakh farmers • The budget proposes to adopt a cluster based approach in
to set up the solar power plants on the fallow/barren land horticulture sector.
and sell the power generated to the DISCOMs.
• Further the states are advised to adopt ‘one product one
4. BOOST AGRICULTURAL WAREHOUSING district’ scheme for horticulture.
Need ADVANTAGE
• Though agricultural production is high in India, there is a • Horticulture crops are called high value crops due to
severe shortage of warehousing facility to the tune of 70- higher productivity (Rs. 1.42 lakh per hectare as compared
80 Million Tonne of production leading to post-harvest to cereal crops’ productivity of Rs. 41,000 per hectare)
losses of both food grains and perishables.
• Thus high value crops are a necessary switch to double
Steps taken farmer’s income
• The budget has proposed to create additional warehouses 9. BOOST TO INTEGRATED FARMING
at the block/taluk level in PPP mode.
• The budget seeks to expand integrated farming systems in
5. VILLAGE STORAGE SCHEME rainfed areas.
• Under this scheme, women run SHGs would set up • Further it seeks to include multi-tier cropping, bee-keeping,
warehouses in the rural areas. solar pumps, solar energy production and Zero-Budget
• On one hand it would benefit the farmers by enabling Natural Farming under integrated farming in India.
them to store their agricultural commodities and reduce WHAT IS INTEGRATED FARMING?
their logistics cost on the other hand, it would enable the
• Integrated farming is a kind of farming that integrates crop
women run SHGs to make more profits.
cultivation with live stock rearing.
6. KISAN RAIL UNDER NATIONAL COLD SUPPLY CHAIN FOR
• It is adopted to ensure waste from one source is used as
PERISHABLES
an input for another.
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BUDGET 2020-21
• For example, the crop residue may act as the fodder for 14. CREATION OF SHGS UNDER DEENDAYAL ANTYODAYA
the livestock and the animal wastes may in turn be used as YOJANA
an organic manure to enhance the fertility of the soil. • Under Deen Dayal Antyodaya Yojana, the Government has
ADVANTAGES OF INTEGRATED FARMING been organising the poor people into SHGs (58 lakh
• Reduction in input costs currently) in order to alleviate poverty and improve their
income levels.
• Optimal utilisation of the agricultural land
• Taking this forward, the Finance Minister has announced
• Diversification of risks
the expansion of number of SHGs under this scheme.
• Higher return
15. COMPREHENSIVE FRAMEWORK TO ADDRESS WATER
10. INTEGRATION OF NEGOTIABLE WAREHOUSING STRESS
RECEIPTS WITH E-NAM
The government will soon come up with a comprehensive
WHAT IS NEGOTIABLE WAREHOUSING RECEIPTS? framework for 100 water stressed districts.
• Whenever the farmers store their agricultural produce 16. BALANCED USE OF FERTILIZERS
with the warehouses, the warehouses issues them with
the Negotiable Warehousing receipts.
2. WELLNESS, WATER AND
• These receipts can be used by the farmers to either sell
the stored agricultural commodities to traders or they can SANITATION
use the receipts as collateral to borrow loans from the HEALTH AND WELLNESS
banks. The allocation for health sector is Rs. 69,000 crores including
• These negotiable warehousing receipts are governed the following main initiatives
under the Warehousing (Development and Regulation) Act, 1. MISSION INDRADHANUSH (For details refer to Pg 16
2007. Prelims Compass 2020 on Government Schemes)
• Now these receipts would be integrated with e-NAM • Mission Indradhanush has been expanded to cover 12
meaning which the NWRs can be sold on the e-NAM diseases, including five new vaccines.
platform.
• Mission Indradhanush is basically a ‘catch up campaign’ to
11. LIVESTOCK SECTOR cover all unvaccinated or partially vaccinated children
• The government has set a target to eliminate Foot and under the current immunisation programme by 2020.
Mouth disease, brucellosis in cattle and also peste des DISEASES COVERED
petits ruminants (PPR) in sheep and goat by 2025.
• Nationally 9 diseases - Diphtheria, Pertussis, Tetanus,
• Besides coverage of artificial insemination shall be
Polio, Measles, Rubella, severe form of Childhood
increased from the present 30% to 70%. Tuberculosis, Hepatitis B and Meningitis & Pneumonia
12. BLUE ECONOMY caused by Hemophilus Influenza type B.
• The government proposes to put in place a framework for • Sub-nationally 3 diseases - Rotavirus diarrhoea,
development, management and conservation of marine Pneumococcal Pneumonia and Japanese Encephalitis
fishery resources.
2. COMMITMENT TO END TUBERCULOSIS
13. BOOST TO FISH PRODUCTION: SAGAR MITRAS AND
• The budget proposes to strengthen efforts to End TB by
FPOs
2025 by putting impetus on “TB Harega Desh Jeetega”
• Currently the annual fish production in India is around 120 campaign that was launched in September 2019.
lakh tonnes. (65% - Inland sector and 50% Cultured
ABOUT TB HAREGA DESH JEETEGA
fisheries)
• Nationwide TB control campaign to improve and expand
• Now the Government has targeted to increase the fish
the reach of TB care services by 2022 Includes both
production to 200 lakh tonnes by the end of 2022-23.
preventive and promotive approaches
• Accordingly the government has proposed to identify
• 3 Pillars: Clinical approach, Public health component and
coastal unemployed youths as "Sagar Mitras" and
Community participation
organise them under Fish farmer producer organisations
• Supporting Elements: Private sector engagement for
(FFPOs).
better detection diagnosis and treatment and Mass media
• This will enable them to increase their bargaining power
and communications campaign to generate awareness
for agriculture credit and enhance collective fish
about the free treatment services available.
production.
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BUDGET 2020-21
• Elimination of TB: Target year 2025 (global target 2030) • They will be provided compensation of 2% of total sales or
OTHER INITIATIVES actual loss against expiry of medicines.
• India has partnered with the Global Fund to launch JEET • Ease credit is extended against postdated cheques.
(Joint Effort for Elimination of TB) which is a private sector 5. PUSH TO SWACCH BHARAT MISSION TO MAINTAIN ODF
engagement program. STATUS
• Nikshay Poshan Yojana • Recently India was declared Open Defecation Free with
• Direct benefit transfer scheme to provide nutritional sanitation coverage to almost 99% of the districts.
support to TB patients. • The challenge is how to sustain the ODF status.
• DBT of Rs. 500 per month for the entire duration of • In this direction the budget has provided impetus on ODF+
treatment. and ODF++ activities.
NOTE: For details on NATIONAL STRATEGIC PLAN FOR TB WHAT ARE ODF+ AND ODF++ ACTIVITIES?
ELIMINATION 2017-2025 refer to Pg 17 Prelims Compass • ODF+: Activities aimed at maintenance of toilet facilities
2020 on Government Schemes like water availability, making it fly-proof, maintenance etc.
3. EXPANSION OF AYUSHMAN BHARAT • ODF++: Activities aimed at safe collection, conveyance,
• Currently under PM Jan Arogya (PMJAY) there are about treatment and disposal of all faecal sludge and sewage
20,000 empanelled hospitals. 6. JAL JEEVAN MISSION
• The budget proposes to expand the network of PMJAY • The budget has allocated Rs. 11,500 crore to the mission.
empanelled hospitals in Tier-2 and Tier-3 cities.
ABOUT JAL JEEVAN MISSION
• In districts with no hospitals, a Viability Gap funding
• Aims to provide piped water supply to all households
window will be established for setting up hospitals in the
• It also emphasises on augmenting local water sources,
PPP mode starting with Aspirational Districts.
recharging existing sources and will promote water
• Note: For details on Ayushman Bharat refer to Pg 11 Prelims harvesting and de-salination.
Compass 2020 on Government Schemes
Note: For details on Jal Jeevan Mission please refer Pg 78,
4. JAN AUSHADHI KENDRA SCHEME
Prelims Compass 2020 on Government Schemes
The budget 20-21 seeks to expand Jan Aushadhi Kendra
Scheme to all districts offering 2000 medicines and 300
surgicals by 2024.
3. EDUCATION AND SKILLS
ABOUT PRADHAN MANTRI BHARTIYA JAN AUSHADI India is bestowed with a huge chunk of working-age
PARIYOJANA population of about 51% as per 2011 census which is
expected to increase to about 59% by 2041.
• Scheme to provide quality generic medicines at affordable
prices to poor. Allocation: In order to harness the demographic dividend
the budget has allocated Rs.99,300 crore for education sector
• Implementation agency: Bureau of Pharma PSUs of India
and Rs. 3,000 crores for skill development.
(BPPI) under Department of Pharmaceuticals, Ministry of
IMPORTANT INITIATIVES
Chemicals& Fertilizers.
KEY FEATURES 1. NEW EDUCATION POLICY will be announced soon. The
draft education policy was formulated based on the inputs of
• Objective: Under the scheme Bharatiya Jan Aushadi
Kasturirangan Committee.
Kendras are set up to provide generic drugs.
2. FOCUS ON HIGHER EDUCATION
• Eligibility: State Governments, reputed NGOs, Private
I. The budget seeks to diversify sources of financing higher
hospitals, Doctors, Unemployed pharmacist/ are eligible
education by leveraging External Commercial Borrowings
to open a Jan Aushadi Store
and FDI in higher education.
BENEFITS PROVIDED TO JAN AUSHADI KENDRAS
II. Full-fledged degree-level courses through online education
• Jan Aushadhi stores established in Government hospital programme.
premises are provided free space.
The courses shall be offered only by institutions ranked
• One-time assistance upto Rs. 2.50 lakh is provided for within top 100 under the National Institutional Ranking
capital expenses. framework.
• 20% trade margin shall be included in MRP for retailers 3. PUSH TO STUDY IN INDIA PROGRAMME
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BUDGET 2020-21
About Study in India Campaign • FOCUS AREAS
• Launched in 2018 by Ministry of HRD to reverse brain ο According to Economic Survey the recent economic
drain and make India a global hub of higher education. slowdown in India is driven by low investment position
Objectives reflected in the IIP figures. While it is important to tackle
the slowdown in the short-term, it is important for India
• To improve the soft power of India with focus on the st
to invest in technologies of 21 century to become
neighbouring countries
competitive in the changing global manufacturing space
• To boost the number of inbound International students in th
driven by the 4 Industrial revolution. Accordingly the
India
budget 2020-21 focuses on the following key areas
• To double India’s market share of global education exports 1. INVESTMENT CLEARANCE CELL
from less than 1% to 2%
• The budget proposes to set up a portal to provide “end to
KEY FEATURES end” facilitation and support for investments in India.
• The students are tested through an entrance exam called • The services include pre-investment advisory, information
IND-SAT conducted by National Testing Agency. related to land banks and facilitating clearances at Centre
• Fee waivers is extended to meritorious foreign students and State level.
with following criteria: 2. 5 NEW SMART CITIES
ο 100% waiver of tuition fees for top 25% students • The budget proposes to develop 5 new smart cities in PPP
ο 50% waiver for the next 25% students mode under the Smart City Mission launched in 2015.
ο 25% waiver for the next 25% students • The smart cities will be developed as investment hubs
• The budget proposes to conduct Ind-SAT in Asian and through convergence of (1) economic corridors (2)
African countries manufacturing and (3) Technology.
4. BOOST TO SET UP MEDICAL COLLEGES IN DISTRICT 3. NETWORK PRODUCTS

HOSPITALS The budget puts impetus on ‘network products’ to create jobs
• The budget proposes to attach a medical college to an and revive growth.
existing district hospital in PPP mode. WHAT ARE NETWORK PRODUCTS?
• States willing to allow the facilities of a hospital to the • Network Products are those products that are part of
medical college would be able to receive Viability Gap global supply chain across their product lifecycle.
Funding. • The production processes of these products are globally
5. ENHANCING THE SKILL SET OF TEACHERS, NURSES AND dispersed and led to MNCs
CARE GIVERS • Eg: Computers, electronic and electrical equipment,
• Special bridge courses would be designed for para-medics telecommunication equipment etc.
6. NATIONAL LEVEL UNIVERSITIES IN POLICING • Network products enable a country to gain from the trade
• A National Police University and a National Forensic integration with high income markets.
Science University are being proposed 4. BOOST TO ELECTRONICS MANUFACTURING
7. PUSH TO APPRENTICESHIP • Given that electronics is a network product, India is set to
• Mandatory apprenticeship is proposed for students in the gain from achieving specialisation and hence the budget
general stream to improve their employability. gives a push to electronics manufacturing industry
• Further Urban Local Bodies will provide 1-year • The budget proposes to announce a scheme boost
apprenticeship to engineering graduates domestic manufacturing of mobile phones, electronic
equipment and semi-conductor packaging. (yet to be
formulated)
 THEME II: ECONOMIC 5. NATIONAL TECHNICAL TEXTILES MISSION
DEVELOPMENT • Though India is one of the largest exporters of
conventional textiles, it is a major importer of technical
1. INDUSTRY, COMMERCE AND textiles, it is a major importer.
INVESTMENT • The share of technical textiles in the overall textile industry
• ALLOCATION: Rs. 27,300 crore is hardly around 12%
85
BUDGET 2020-21
• `In order to reverse this trend the budget proposes a • The insurance cover is extended to both pre and post-
National Technical Textiles Mission to be implemented shipment credit.
from 2020-21 to 2023-24. 8. EXPANSION OF GOVERNMENT e-MARKETPLACE (GeM)
WHAT ARE TECHNICAL TEXTILES? • The budget proposes to increase the turnover of GeM
• Technical textiles are products that are used for functional platform to Rs. 3 lakh crores
purposes in multiple areas such as aerospace, shipping, ABOUT GeM
sports, agriculture, defence and health care.
• A one stop portal for online procurement of goods &
• Eg: Fishing nets, Floor and wall coverings, hoardings, services required by government organisations.
mattress and pillow, stuffed toys, baby diapers, sanitary
• It enables procurement through e-bidding, e-auction and
napkins, seat belts, helmets, bullet proof jackets etc.
demand aggregation.
6. “ZERO DEFECT-ZERO EFFECT”
• The main aim of this scheme is to ensure that the MSMEs
produce the manufactured goods with zero defects and 2. INFRASTRUCTURE
with zero effect on the environment. 1. NATIONAL INFRASTRUCTURE PIPELINE
• The Quality Council of India rates the MSMEs based on the • Mega infrastructure investment of Rs 100 lakh crore to be
standards. invested in the next 5 years
• The budget requires adoption of mandatory technical • Funded jointly by Centre, states and the private sector in
standards by all the MSMEs. the proportion of 39:39:22 respectively
• Note: For details on ‘TECHNOLOGY UPGRADATION AND • The projects will include housing, safe drinking water,
QUALITY CERTIFICATION’, refer to page 80 Prelims clean and affordable energy, healthcare, educational
Compass 2020 on Government Schemes institutes, modern railway stations, airports, bus terminals,
7. NIRVIK SCHEME metro and railway transportation, logistics and
warehousing, irrigation projects, etc.
• The budget launched the NIRVIK scheme to provide higher
export credit to small exporters. • National Skill Development Agency is responsible for
imparting infrastructure-focused skills
• Called as the Export Credit Insurance Scheme under
NIRVIK insurance cover of up to 90% of the principal and • NOTE: Remember highest to lowest priority sectors under
interest is extended the plan as given in the pie chart. Energy>> Road>>Urban.
2. NATIONAL LOGISTIC POLICY focus on employment, skills and making MSMEs

• India will soon have a National Logistics Policy that will competitive.
create a single window e-logistics market with special
86
ANSWER KEY
3. ROAD SECTOR A database about schools which is developed by Ministry of
• Accelerated development of highways HRD and maintained by National Informatics centres.
• In order to revive the debt-ridden NHAI Government is 3. LIKELY INCREASE IN MARRIAGEABLE AGE FOR WOMEN
exploring an investment model known as "Toll-Operate- • The government seeks to set up a taskforce to study the
Transfer" (ToT). possibility of increasing the marriageable age of women in
• Under the ToT model the NHAI will allocate a built national India.
highway to a private sector bidder which would operate • Women’s age of marriage was increased from fifteen years
and collect the toll and in turn maintain the National to eighteen years in 1978, by amending erstwhile Sharda
Highway. The money so obtained by NHAI will further be Act of 1929.
used to build new National Highways. 4. The budget has allocated Rs. 35600 crore for nutrition-
• Now ToT model will be implemented to monetise highways related programmes for the financial year 2020-21.
of over 6000 Km before 2024. NOTE: For details on ‘POSHAN ABHIYAAN’, refer to page 05
4. RAILWAYS SECTOR Prelims Compass 2020 on Government Schemes
• Recently government has been pushing for PPP in Indian
railways wherein the private sector would be encouraged 2. CULTURE AND TOURISM
to set up railway stations, lay down railway tracks,
• 5 archaeological sites would be developed as iconic sites
manufacture the rolling stock i.e. wagons and engines etc.
with onsite Museums.
st
• 'Tejas Express": 1 corporate train of India to be run by
• They are: Rakhigarhi (Haryana), Hastinapur (Uttar Pradesh)
IRCTC, a subsidiary of Indian railways.
Shivsagar (Assam), Dholavira (Gujarat) and Adichanallur
5. INLAND WATERWAYS (Tamil Nadu) https://t.me/UPSC_PDF
Government of India has declared 111 inland waterways
• A maritime museum would be set up at Lothal - the
across 24 states as National Waterways (NWs) under the
Harrapan age maritime site near Ahmedabad, by Ministry
National waterways act, 2016.
of Shipping
6. NATURAL GAS BASED ECONOMY
• The share of Natural Gas in India’s energy mix is 6%.
• The government seeks ti increase the share of gas to 15% PILLARS
by 2025.
• Presently, most of the Gas Pipelines are lopsided towards
PILLAR I: FINANCIAL SECTOR
Western and Northern parts of India. Thus the budget
seeks to expand the national gas grid from the present 1. INCREASE IN THE DEPOSIT
16200 km to 27000 km
INSURANCE COVERAGE
• The bank deposits in India are provided with a deposit
3. NEW ECONOMY insurance upto Rs.1 Lakh per depositor.
1. National Mission on Quantum Technologies and • The Deposit Insurance and Credit Guarantee Corporation
Applications (details not yet published) (DICGC) provides for insurance cover of Rs 1 lakh per
2. Setting up of data centre parks in PPP mode to boost depositor for deposits in commercial banks, regional rural
Industrial Revolution 4.0 driven by IoT, Big Data, AI, 3-D banks, local area banks (LABs) and cooperative banks.
Printing, DNA storage etc. (NBFCs are not covered )
• The premium for insurance is paid by the banks.
• The budget has increased the deposit insurance cover in
THEME III: CARING SOCIETY scheduled commercial banks to Rs 5 lakh per depositor
1. WOMEN & CHILD, SOCIAL WELFARE from the current Rs 1 lakh.
1. SUCCESS OF BETI BACHAO BETI PADHAO

2. STEPS TO DEEPEN BOND MARKET
NOTE: For details on ‘Beti Bachao Beti Padhao’, refer to page
03 Prelims Compass 2020 on Government Schemes a. Increased FPI limit: The limit for FPI in corporate bonds, is
increased to 15% from the current 9% of outstanding stock
2. U-DISE (UNIFIED DISTRICT INFORMATION SYSTEM FOR
EDUCATION)
87
ANSWER KEY
b. Launch of a new Debt-based ETF based on government BENEFIT
securities. • On-shoring trading of Gold; Boost to IFSC in GIFT City;
This is in addition to the recently launched Bharat Bond ETF Efficient price discovery
which was based on bonds of PSUs. • Currently bullion trading happens at International
NOTE: For details on ‘Bharat Bond ETF, refer to page 38 Financial Centres- London, New York, Singapore as a result
Prelims Compass 2020 on Indian Economy of which India is unable to dictate the International Gold
prices.
3. MSME
a. Enable NBFCs to extend invoice financing to the MSMEs PILLAR II: GOVERNANCE
through TReDS Platform.
1. INTRODUCTION OF TAX CHARTER
WHAT IS TReDS PLATFORM?
UNDER THE INCOME TAX ACT
• TRADE RECEIVABLES DISCOUNTING SYSTEM
The tax charter would clearly mention rights and obligation of
• An electronic platform for facilitating the financing /
the tax payers thereby reducing the scope for dispute.
discounting of trade receivables of MSMEs through
multiple financiers.
• These receivables can be due from corporates and other 2. RECRUITMENT OF NON-GAZETTED
buyers, including Government Departments and Public POSTS
Sector Undertakings (PSUs).
The budget seeks to set up National Recruitment Agency to a
conduct a computer-based Common Eligibility Test for all
non-gazetted posts
3. NATIONAL POLICY ON OFFICIAL

STATISTICS
The budget proposes to introduce a National Policy of Official
Statistics in order to leverage the AI to estimate reliable
growth rates.
IMPORTANT TAXATION
b. New scheme to provide subordinated debt for MSMEs
• The new scheme will enable banks to extend subordinated
PROPOSALS
debts to MSMEs 1. SIMPLIFIED INCOME TAX REGIME
• It shall be in the form of quasi-equity which gives banks a • The budget has introduced a new income tax regime for
certain amount of stake in the MSME. individual tax payers who forgo exemptions and
WHAT ARE SUBORDINATED DEBTS? deductions.
• Loans raised by the companies are classified as • Currently there are more than 100 exemptions that are
subordinated and non-subordinated debts. provided under the Section 80 C of the Income Tax Act
• In case of failure of the company, the non-subordinated such as for investments made under National Pension
debts are serviced before the subordinated debts. Scheme, Provident Fund, health insurance etc.
• Accordingly subordinated debts are riskier and thus yield • The new proposal seeks to simplify the tax regime by
higher rate of interest. incentivizing the individual tax payers to forgo tax
exemptions by reduced tax cuts. (see tax slabs below)
4. INTERNATIONAL BULLION • However it should be noted that the tax regime is optional
in nature and thus individuals may opt for the new regime
EXCHANGE or continue with the old one.
The budget seeks to set up an International Bullion Exchange
at IFSC, GIFT City, Gujarat.
88
ANSWER KEY
BENEFITS • The main objective is to earn a return on surplus funds
• Due to reduced tax rates it will boost consumption with the government.
expenditure • The fund could be maintained either in domestic or
• Simplification of tax regime reserve currency.
• Reduces the dependence of tax-payers on professionals • Commonly they are foreign currency funds of the
sovereign governments set up in order to invest in global
CHALLENGES
equities, real estate, infrastructure (oil), corporate debt etc.
• Reduced savings and Investment rate
• Revenue Foregone: Rs 40,000 crores
4. BOOST TO START UPS
• Increase in number of tax slabs would lead to tax evasion
In order to make Start-ups attractive the budget has relaxed
• Confusion among the tax-payers leading to higher
the tax burden on the employees by deferring the tax
dependence on professionals for filing IT returns
payment on Employee Stock Options by five years or till they
Taxable Income Slab Existing Tax New Tax Rates leave the company or when they sell their shares, whichever
(Rs.) Rates is earliest.
0-2.5 Lakh Exempt Exempt
WHAT ARE EMPLOYEE STOCK OPTIONS?
2.5-5 Lakh 5% Exempt
• In order to retain the talented employees Start-ups
5-7.5 Lakh 20% 10%
generally use Employee Stock Option Plan (ESOP) as a
7.5-10 Lakh 20% 15%
component of compensation
10-12.5 Lakh 30% 20%
• Under ESOP the companies given an option to the
12.5-15 Lakh 30% 25%
employees to buy the shares of the company at rate which
Above 15 Lakh 30% 30%
is below the market value.
2. REMOVAL OF DIVIDEND 5. VIVAD SE VISHWAS SCHEME

DISTRIBUTION TAX • It is a direct tax counterpart of Sabka Vishwas Scheme to
The budget seeks to remove the Dividend Distribution Tax reduce litigations in direct taxes
paid by the companies to investors. • Under this, a taxpayer would be required to pay only the
WHAT IS DDT? amount of the disputed taxes and will get complete waiver
• DDT is a tax on dividends paid to the shareholders of a of interest and penalty provided he pays by 31st March,
company. 2020.
• It was required for the companies to pay DDT thus putting

an additional burden on them besides tax payable on their
profits.
• Besides the shareholder also needs to pay a tax on
dividend as it is included in his/her taxable income.
• This led to double taxation of dividends
• Thus DDT was removed to make Indian Equity Market
more attractive
3. TAX CONCESSION TO SOVEREIGN

WEALTH FUND
The budget has announced 100% tax exemption to the
interest, dividend and capital gains income of Sovereign
Wealth Funds invested in the Indian infrastructure sector
and other sectors that will be notified.
WHAT ARE SOVEREIGN WEALTH FUNDS?
• It is a fund set up by government to invest its surplus in
financial instruments like bonds, stocks, gold etc.
89

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Volume-I ►INDIA'S EXPORT PERFORMANCE 12

►SUGGESTIONS FOR EXPORT LED GROWTH FOR INDIA 13

►CHAPTER 1: ►CATEGORIES OF INDUSTRIES CLASSIFIED AS NETWORK

ENTREPRENEURSHIP AND WEALTH CREATION ►LIST OF INDIA'S TRADE AGREEMENTS 15

►WHAT IS ROLLOVER RISK? 21 ►MAJOR DRIVERS OF WORLD ECONOMY IN 2019-20 28

►RISKS FROM INTERCONNECTEDNESS 21 ►TRENDS IN CONTRIBUTION OF DIFFERENT SECTORS TO

►HEALTH SCORE INDEX 21 ►MAJOR DRIVERS OF INDIA'S GDP IN 2019-20 29

►POLICY IMPLICATIONS 21 ►DECODING PRESENT ECONOMIC SLOWDOWN 30

►DECODING INVESTMENT SLOWDOWN 31

►CHAPTER 9: ►TRENDS IN GROSS SAVINGS 31

PRIVATISATION AND WEALTH CREATION 22

►NET INTERNATIONAL INVESTMENT POSITION (NIIP) 40

Section-2 ►TRENDS IN NIIP 40

Volume-II ►BREAKDOWN IN THE WTO DISPUTE SETTLEMENT

►REGULATION OF COOPERATIVE BANKS 42 ►TRENDS IN GROWTH RATE OF INDIAN AGRICULTURE 54

►POOR MONETARY POLICY TRANSMISSION IN INDIA 43 ►LARGEST PRODUCERS OF MAJOR CROPS 56

►EXTERNAL BENCHMARKING OF LOANS 43 ►TRENDS IN OPERATIONAL LANDHOLDINGS 56

►COBWEB PHENOMENON IN PULSES 47 INDUSTRY AND INFRASTRUCTURE 61

►GROSS CAPITAL FORMATION IN INDUSTRIAL SECTOR 63

►ABOUT SDG INDIA INDEX 49 ►ROAD SECTOR 64

►INDIA’S PERFORMANCE 49 ►RAILWAYS 64

►SDG NEXUS: A NEW PARADIGM APPROACH 49 ►CIVIL AVIATION 64

CLIMATE CHANGE 50 ►SHIPPING 64

►INDIA'S GREENHOUSE GAS INVENTORY 50 ►TELECOM SECTOR 65

►INTERNATIONAL FINANCIAL MECHANISMS FOR DEALING ►PETROLEUM AND NATURAL GAS 66

►INDIA’S INITIATIVES AT THE INTERNATIONAL STAGE 53

►INFORMATION TECHNOLOGY AND BUSINESS PROCESS

►INITIATIVES TO IMPROVE FEMALE WORK PARTICIPATION

►TRENDS IN IMPORTANT MACRO-ECONOMIC

►THEME 81 PILLAR II: GOVERNANCE 88

 THEME I: ASPIRATIONAL INDIA 81 1. INTRODUCTION OF TAX CHARTER UNDER THE INCOMETAX

 THEME II: ECONOMIC DEVELOPMENT 85

1. INDUSTRY, COMMERCE AND INVESTMENT 85 IMPORTANT TAXATION PROPOSALS 88

3. NEW ECONOMY 87 2. REMOVAL OF DIVIDEND DISTRIBUTION TAX 89

THEME III: CARING SOCIETY 87 3. TAX CONCESSION TO SOVEREIGN WEALTH FUND 89

1. WOMEN & CHILD, SOCIAL WELFARE 87 4. BOOST TO START UPS 89

2. CULTURE AND TOURISM 87 5. VIVAD SE VISHWAS SCHEME 89

1. INCREASE IN THE DEPOSIT INSURANCE COVERAGE 87

2. STEPS TO DEEPEN BOND MARKET 87

INTRODUCTION TO ECONOMIC SURVEY

Who authors the Economic Survey?

houses of Parliament, a day before the announcement of the Union Budget.

Significance of Economic Survey

A brief history of the Economy Survey

• The first Economic Survey was presented in the year 1950-51.

A key contributor to ancient

• The Survey aims to

ο Already discussed.  The command and control approach contends that

ο Why privatization? • New firm creation in services is significantly higher

critically on promoting “pro business” policy that unleashes

ACTS WHICH NEED TO BE REPEALED/AMENDED

CREATING JOBS AND ►INDIA'S EXPORT PERFORMANCE

5. Professional and scientific equipment

3. Greater flexibility in labour market.

6. Low level of service link costs (costs related to

• Continuous improvement in India's rankings in Ease of

4. Registering Property 154 2. It is a voluntary program. It enables Indian Customs to

THE NBFC SECTOR problem, which gets compounded due to interconnectedness

HOUSING FINANCE RETAIL NON-BANKING

►STRATEGIC DISINVESTMENT ►EXPERIENCE OF STRATEGIC

►REAL GDP Market prices are prices as paid by

►CHAPTER 1: Further, from this chapter, one needs to make a note of