Posted in Indian Economy, UPSC

GS 1 Prelim 2019/7 (Solved)

updated on June 6th, 2019

GS 1 Prelim 2019/7 (Solved)

7. Which of the following is not a sub-index of the world Bank’s ‘Ease of Doing Business Index?

(a) Maintenance of law and order

(b) Paying taxes

(c) Registering property

(d) Dealing with construction permits

Answer is ‘A’

The eleven evaluated parameters for evaluating ease of doing businsess are as follows :

  1. Starting a business,
  2. Dealing with construction permits,
  3. Getting electricity,
  4. Registering property,
  5. Getting credit,
  6. Protecting minority investors,
  7. Paying taxes,
  8. Trading across borders,
  9. Enforcing contracts,
  10. Resolving insolvency, and
  11. Labour market regulation.

Hence maintenance of law and order is not on the list .

For further reading

Questions on the same topic asked previously

2016 Prelims

So we can see reading previous year questions are important

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Posted in General Studies 3, Indian Economy

Index of Industrial Production

  • This is compiled by CSO – Central statistical organization .
  • It is published after six weeks end of reference month .
  • The Eight Core Industries comprise nearly 40.27% of the weight of items included in the Index of Industrial Production (IIP). These are Electricity , steel, refinery products, crude oil, coal, cement, natural gas and fertilisers.

Eight Core Industries

The eight core industries are important from Prelims point of view so mug up there percentages

  1. Coal production (weight: 10.33per cent)
  2. Crude Oil production (weight: 8.98per cent)
  3. Natural Gas production (weight: 6.88per cent)
  4. Petroleum Refinery production (weight: 28.04per cent)
  5. Fertilizers production (weight: 2.63 per cent
  6. Steel production (weight: 17.92per cent)
  7. Cement production (weight: 5.37per cent)
  8. Electricity generation (weight: 19.85per cent) 

The numbers below are just to make u understand how the matrix works , no need to remember them

SectorWeight2012-132013-142014-152015-162016-172017-18Apr-Jan 2017-18Apr-Jan 2018-19
Coal10.3335103.2104.2112.6118.0121.8124.9117.0125.3
Crude Oil8.983399.499.298.497.094.593.794.290.7
Natural Gas6.876885.674.570.567.266.568.468.969.3
Refinery Products28.0376107.2108.6108.8114.1119.7125.2125.1129.3
Fertilizers2.627696.798.199.4106.4106.6106.6107.0106.7
Steel17.9166107.9115.8121.7120.2133.1140.5139.1146.1
Cement5.3720107.5111.5118.1123.5122.0129.7126.9144.2
Electricity19.8530104.0110.3126.6133.8141.6149.2149.7158.3
Overall Index100.0000103.8106.5111.7115.1120.5125.7124.7130.3

Growth Rates(in per cent)

SectorWeight2012-132013-142014-152015-162016-172017-18Apr-Jan 2017-18Apr-Jan 2018-19
Coal10.33353.21.08.04.83.22.61.87.1
Crude Oil8.9833-0.6-0.2-0.9-1.4-2.5-0.9-0.7-3.8
Natural Gas6.8768-14.4-12.9-5.3-4.7-1.02.93.50.5
Refinery Products28.03767.21.40.24.94.94.64.73.4
Fertilizers2.6276-3.31.51.37.00.20.03-0.7-0.3
Steel17.91667.97.35.1-1.310.75.65.75.0
Cement5.37207.53.75.94.6-1.26.34.013.6
Electricity19.85304.06.114.85.75.85.35.35.7
Overall Index100.00003.82.64.93.04.84.34.14.5

Performance of Eight Core Industries

Monthly Index & Growth Rate

Base Year: 2011-12=100

Index

SectorCoalCrude OilNatural GasRefinery ProductsFertilizersSteelCementElectricityOverall Index
Weight10.33358.98336.876828.03762.627617.91665.372019.8530100.0000
Jan-18149.593.867.6135.4105.5145.0140.6149.5132.5
Feb-18143.286.162.1120.9102.2141.7138.0136.1123.2
Mar-18184.995.869.8130.3107.0153.2149.6156.7138.5
Apr-18118.891.867.1119.193.1138.1149.1153.7124.3
May-18125.294.868.7131.6106.6142.8145.3164.7131.9
Jun-18120.090.967.4133.8108.3143.8150.7159.9131.2
Jul-18108.191.268.5134.1110.0140.3136.0162.1129.2
Aug-18103.891.670.2127.7109.4144.5134.5167.2128.8
Sep-18109.888.167.6125.8108.0143.2133.9162.9127.2
Oct-18132.990.970.3133.8103.3150.2148.4166.0134.8
Nov-18138.487.668.9128.9102.7145.5136.5147.2128.4
Dec-18144.190.272.2126.6109.4155.8151.0150.3132.2
Jan-19152.189.771.8131.9116.6157.0156.1149.0134.8

Growth Rates (in per cent)

SectorCoalCrude OilNatural GasRefinery ProductsFertilizersSteelCementElectricityOverall Index
Weight10.33358.98336.876828.03762.627617.91665.372019.8530100.0000
Jan-183.8-3.2-1.211.0-1.61.719.67.76.2
Feb-181.3-2.4-1.87.85.25.023.04.65.4
Mar-189.1-1.61.01.13.24.713.56.04.5
Apr-1815.2-0.85.72.74.63.021.92.14.7
May-1812.0-2.9-1.44.98.4-0.113.04.14.1
Jun-1811.5-3.4-2.712.11.04.214.28.47.8
Jul-189.8-5.4-5.212.31.36.911.26.77.3
Aug-182.4-3.71.05.1-5.34.014.67.64.7
Sep-186.4-4.2-1.72.52.53.211.88.24.3
Oct-1811.3-5.0-0.91.3-11.52.418.410.94.8
Nov-183.7-3.50.52.3-8.15.88.85.13.4
Dec-181.1-4.34.2-4.8-2.412.911.64.42.7
Jan-191.7-4.36.2-2.610.58.211.0-0.41.8

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Posted in General Studies 3, Indian Economy, Polity

Corporate Governance

updated on April 25th, 2019

Corporate Governance

  • India has the largest number of listed companies in the world( A fact for objective exams ), and the efficiency and well being of the financial markets is critical for the economy in particular and the society as a whole
  • . It is imperative to design and implement a dynamic mechanism of corporate governance, which protects the interests of relevant stakeholders without hindering the growth of enterprises.
  • Corporate governance involves a set of relationships amongst the company’s management, its board of directors, its shareholders, its auditors, and other stakeholders.
  • These relationships, which involve various rules and incentives, provide the structure through which the objectives of the company are set, and the means of attaining these objectives as well as monitoring performance are determined.
  • Thus, the key aspects of good corporate governance include transparency of corporate structures and operations, the accountability of managers and the boards to shareholders and corporate responsibility towards stakeholders.

Principles of Corporate Governance

A company should:

  1. Recognize and publish the respective roles and responsibilities of board and management
  2. Have a board of an effective composition, size, and commitment to adequately discharge its responsibilities and duties
  3. Actively promote ethical and responsible decision-making
  4. Have a structure to independently verify and safeguard the integrity of the company’s financial reporting
  5. Promote timely and balanced disclosure of all material matters concerning the company
  6. Respect the rights of shareholders and facilitate the effective exercise of those rights
  7. Establish a sound system of risk oversight and management and internal control
  8. Fairly review and actively encourage enhanced board and management effectiveness
  9. Ensure that the level and composition of remuneration is sufficient and reasonable and that its relationship to corporate and individual performance is defined
  10. Recognize legal and other obligations to all legitimate stakeholders

Legal Framework

The corporate governance legal framework in India primarily consists of the following legislation and regulations:

  1. The Companies Act, 2013 The new Companies Act of 2013 has replaced the earlier Companies Act of 1956. The new Act seeks to bring corporate governance and regulation practices in India at par with the best global practices. The corporate sector has been given more flexibility in regulating their affairs, subject to full disclosure and accountability of their actions, with minimum government approvals. The Act provides more opportunities for new entrepreneurs and enables the wide application of Information Technology in the conduct of affairs by corporates. The other salient features of this legislation include provisions with regard to more accountability of audit, Corporate Social Responsibility, stricter action in case of fraud related offences and protection of interests of investors.
  2. The Securities Contracts (Regulation) Act, 1956 This Act covers all types of tradable government paper, shares, stocks, bonds, debentures, and other forms of marketable securities issued by companies. The SCRA defines the parameters of conduct of stock exchanges as well
    as its powers.
  3. The Securities and Exchange Board of India Act, 1992 This Act established the independent capital market regulatory authority, SEBI, with the objective of protecting the interests of investors in securities, and promote and regulate the securities market.
  4. The Depositories Act, 1996 This Act established to share and securities depositories and created the legal framework for dematerialization of securities.
  5. Listing Agreement of Stock Exchanges This agreement defines the rules, processes, and disclosures that companies must follow to remain as listed entities. A key element of this Agreement is Clause 49, which states the corporate governance practices that listed companies must follow.

Institutional Framework

1. National Foundation for Corporate Governance In 2003, the Ministry of Corporate Affairs has set up a National Foundation for Corporate Governance (NFCG) as a not-for-profit Trust to provide a platform to deliberate upon issues relating to good corporate governance and to sensitise corporate leaders on the importance of good corporate governance practices, to facilitate exchange of experiences and ideas between corporate leaders, policy makers, regulators, law enforcing agencies and non-government organisations.

The NFCG has been sponsoring orientation programmes for Directors through the various Institutes of Excellence and has been organizing seminars and conferences to propagate the need for following good corporate governance practices.

2. Indian Institute of Corporate Affairs The Indian Institute of Corporate Affairs (IICA) has been set up as a registered society under the Ministry of Corporate Affairs in 2008. Its objectives are:

(i) Develop capacity for undertaking holistic study and harmonized treatment of all issues impacting governance and corporate functioning with a global perspective
(ii) Set-up a state-of-the-art Knowledge Management (KM) system for constant creation, collation, and dissemination of knowledge to internal and external stakeholders on all issues affecting the corporate sector
(iii) Act as a think-tank to advise government holistically on all issues impacting on corporate functioning
(iv) Training and capacity building for officials of the ministry and all stakeholders

3. Serious Fraud Investigation Office The Serious Fraud Investigation Office (SFIO) has been set up in 2003 by the Government of India in the Ministry of Corporate Affairs by way of a resolution. This office investigates corporate frauds of serious and complex nature. It carries out an investigation under the provisions of the Companies Act and files prosecutions for the violations of the provisions of the Companies Act as well as the Indian Penal Code (IPC).

The SFIO takes up investigation of corporate frauds characterized by (a) complexity and having inter-departmental and multi-disciplinary ramifications (b) substantial involvement of public interest to be judged by size either in terms of monetary misappropriation or in terms of persons affected and (c) the possibility of investigation leading to or contributing towards a clear improvement in systems, laws or procedures.

Committees on Corporate Governance

These are not very important unless you have Economics optional or you are planning of RBI exams 

  1. CII Code Committee (1998) The Confederation of Indian Industry (CII), India’s largest industry and business association, set up a committee to examine corporate governance issues, and recommend a voluntary code of best practices. The committee was driven by the conviction that good corporate governance was essential for Indian companies to access domestic as well as global capital at competitive rates. Its code (Desirable Corporate Governance: A Code) was released in 1998. The code was voluntary, contained detailed provisions, and focused on listed companies.
  2. Kumar Mangalam Birla Committee (1999) In 1999, the SEBI set up a committee under Kumar Mangalam Birla to promote and raise the standards of good corporate governance. The SEBI board had accepted and ratified key recommendations of this committee, and these were incorporated into Clause 49 of the Listing Agreement of the Stock Exchanges.
  3. Naresh Chandra Committee (2002) The Naresh Chandra Committee was appointed in 2002 by the Ministry of Corporate Affairs to examine various corporate governance issues. The Committee made recommendations regarding an auditor-company relationship, prohibition on audit firms to provide non-audit services, compulsory audit partner rotation, auditor’s disclosure of qualifications, CEO and CFO certification of annual audited accounts,  percentage of independent directors, minimum board size of listed companies, disclosure on the duration of board meetings, etc.
  4. Narayana Murthy Committee (2003) The Narayana Murthy Committee was set up by SEBI to review Clause 49 and suggest measures to improve upon corporate governance standards. The major recommendations of the committee primarily related to audit committees, audit reports, independent directors, related party transactions, risk management, directorships and director compensation, code of conduct and financial disclosures.
  5. J.J. Irani Committee (2005) An Expert Committee on Company Law was constituted by the Ministry of Corporate Affairs in December 2004 under the chairmanship of Dr Jamshed J. Irani. The committee submitted its report in May 2005. It took a comprehensive view in developing a perspective on changes necessary in the Companies Act, 1956 in the context of the present economic and business environment. It also aimed at making India globally competitive in attracting investments from abroad, by suggesting systems in the Indian corporate environment which are transparent, simple and globally acceptable.
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Posted in Environment, General Studies 2, General Studies 3, Indian Economy, Polity

Integrated Watershed Management Programme

updated on April 27th, 2019

Integrated Watershed Management Programme

Area Development Programmes

The Integrated Watershed Management Programme (IWMP) was launched in 2009. The IWMP was formed by the merger of three pre-existing Area Development Programmes, viz.,
(i) Drought Prone Areas Programme (DPAP)
(ii) Desert Development Programme (DDP)
(iii) Integrated Wastelands Development Programme (IWDP)

The DPAP was launched in 1973–74 to tackle the special problems of areas constantly affected by severe drought condition. The DDP was launched in 1977–78 for hot desert areas of Rajasthan, Gujarat, Haryana and cold desert areas of Jammu & Kashmir and Himachal Pradesh. In 1995–96, the
coverage of DDP was extended to six districts of Karnataka and one district of Andhra Pradesh. The IWDP was launched in 1989 for development of wastelands on a watershed basis. The guidelines for these three programmes were revised in 2003 and renamed as Hariyali Guidelines.

Objectives

The consolidation of the above three separate programmes into a single IWMP is for optimum use of resources, sustainable outcomes, and integrated planning. The main objectives of the IWMP are to restore the ecological balance by harnessing, conserving and developing degraded natural resources such as soil, vegetative cover, and water. The outcomes are the prevention of soil erosion, regeneration of natural vegetation, rainwater harvesting and recharging of the groundwater table. This enables multi-cropping and the introduction of diverse agro-based activities, which help to provide sustainable livelihoods to the people residing in the watershed area.

Features

The salient features of IWMP are mentioned below:

1. The activities to be taken up under IWMP are spread over three phases. The Preparatory Phase (one to two years) mainly involves preparation of DPR, Entry Point Activities and Institution & Capacity Building. The Watershed Works Phase (two to three years) involves the Watershed Development Works, Livelihood Activities for the assetless persons and Production System & Micro Enterprises. The Consolidation and Withdrawal Phase (one to two years) involves the consolidation and completion of various works.

2. The cost norm for IWMP is 15000 per ha for hilly & difficult areas, 12000 per ha for other areas and up to 15000 per ha for IWMP projects in the Integrated Action Plan (IAP) Districts.

3. The funding pattern under the scheme is in the ratio of 90: 10 between the Centre and the states.

4. The projects under IWMP undertake a cluster of micro-watersheds of the area about 5000 ha in rainfed/degraded areas having no assured irrigation.

5. The programme lays emphasis on meticulous planning and capacity building, by providing a special provision of 1% for preparation of Detailed Project Report (DPR) and 5% for Institution and Capacity Building.

6. Nine per cent of the project cost is earmarked for the development of sustainable livelihood options for assets people whereas 10% of the project cost is dedicated for productivity enhancement and development of microenterprises for small and marginal farmers.

7. The programme emphasizes utilizing the information technology, remote sensing techniques, GIS facilities, with spatial and non-spatial data, into planning, implementation, monitoring, and evaluation of the projects.

Comparison with Hariyali

Now, we will compare the provisions under IWMP with that of the provisions under Hariyali Guidelines in the following table:

Hariyali Vs. Integrated Watershed Management Programme

S. No. Contents Provisions Under Hariyali (2003) Provisions Under IWMP
(2009)
1. Programmes Three programmes
(IWDP, DPAP, DDP)
Single Programme (IWMP)
2. Project Area One micro-watershed
(500 ha average size)
A cluster of micro-watersheds
(1000 ha to 5000 ha)
3. Selection of
Watershed
Project area did not exclude assured irrigation area Assured irrigation area excluded from the project area
4. Cost per ha. ₹ 6,000 12,000 for plains and 15,000 for difficult and hilly areas.
5. Central Share
and State Share
75: 25 for DPAP and DDP, 92: 8 for IWDP 90: 10 for IWMP
6. Project Period Five years Four to Seven years
7. Number of
Installments
Five (15%, 30%, 30%, 15%, 10%) Three (20%, 50%, 30%)
8. Fund Allocation Training and Community
Mobilization 5% Admin. 10%
Works 85%
Institution and Capacity building 5%
Monitoring and Evaluation 2%
Admn. 10%
Works and Entry Point
Activities 78%
Consolidation 5%
9. Institutional
Support
Weak Institutional arrangements Dedicated Institutional
Structures at Central, State, District, Project and Village level
10. Planning No separate component 1% for DPR Preparation with scientific inputs
11. Monitoring and
Evaluation
No separate budget provision for mid-term & final evaluation 2% of project cost earmarked for Monitoring and Evaluation.  Provision for evaluation after
every phase of the project.
12. Sustainability Weak mechanism with WDF as a tool Consolidation Phase with WDF and livelihood component as a tool
13. Livelihood Not included Included as a component


Neeranchal ***

  • Neeranchal is a World Bank assisted National Watershed Management Project. Neeranchal is designed to further strengthen and provide technical assistance to the Watershed Component of PMKSY, in particular, and all components of PMKSY, in general, to enhance its delivery capacity. The programme is being implemented in nine participating states – Andhra Pradesh, Chattisgarh, Gujarat, Jharkhand, Madhya Pradesh, Maharashtra, Odisha, Rajasthan and Telangana.
  • For achieving the major objectives of the Watershed Component of the Pradhan Mantri Krishi Sinchayi Yojana (PMKSY) and for ensuring access to irrigation to every farm (Har Khet Ko Pani) and efficient use of water (Per Drop More Crop), Neeranchal is primarily designed to address the following concerns:
  • bring about institutional changes in watershed and rainfed agricultural management practices in India
  • build systems that ensure watershed programmes and rainfed irrigation management practices are better focussed, and more coordinated, and have quantifiable results
  • devise   strategies   for   the   sustainability   of   improved   watershed. management practices in programme areas, even after the withdrawal of project support
  • through   the  watershed   plus   approach,   support   improved   equity, livelihoods, and incomes through forward linkages, on a platform of inclusiveness and local participation.
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Mahatma Gandhi National Rural Employment Guarantee Act

updated on April 27th, 2019

Mahatma Gandhi National Rural Employment Guarantee Act

The Ministry of Rural Development is the nodal Ministry for implementing the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA). This flagship programme of the Government of India touches the lives of the rural poor and promotes inclusive growth.

It was first proposed by PM PV Narasimha Rao in the year 1992.

What are the Objectives of MNREGA?

  • The MGNREGA with its legal framework and rights-based approach was notified in the year 2005. It aims at enhancing livelihood security by providing at least 100 days of guaranteed wage employment in a financial year to every rural household whose adult members volunteer to do unskilled manual work. The Act covered 200 districts in its first phase and was extended to all the rural districts of the country in phases.
  • The MGNREGA is the first ever law, internationally, that guarantees wage employment at an unprecedented scale. The primary objective of the Act is meeting the demand for wage employment in rural areas. The works permitted under the Act address causes of chronic poverty like drought, deforestation and soil erosion so that the employment generation is sustainable. The Act is also a significant vehicle for strengthening decentralization and for deepening the processes of democracy by giving a pivotal role to local governance bodies, that is, the Panchayati Raj Institutions.

 What are the Features of MNREGA

The salient features of the Act are as follows:

  1. Rights-based Framework For adult members of a rural household willing to do unskilled manual work.
  2. Time-bound Guarantee Fifteen days for the provision of employment, else unemployment allowance to be paid.
  3. Guaranteed Employment Up to 100 days of guaranteed wage employment in a financial year per household, depending on the actual demand.
  4. Labour-intensive Works 60: 40 wage and material ratio for permissible works at the Gram Panchayat; no contractors/machinery.
  5. Decentralized Planning In this context, the following points can be noted:
    (i) Gram Sabhas to recommend works
    (ii) At least 50% of works by Gram Panchayats for execution
    (iii) The principal role of PRIs in planning, implementation, and monitoring 
  6. Work-site facilities Crèche, drinking water, first aid and shade provided at work sites.
  7. Women empowerment At least one-third of beneficiaries should be women.
  8. Transparency and Accountability Proactive disclosure through wall writings, citizen information boards and Management Information System (MIS) and Social Audits.
  9. Funding Hundred per cent cost towards unskilled wages and 75% towards skilled, semiskilled and material is borne by the Central Government and 25% of skilled, semi-skilled and material costs are contributed by states. In addition, 6% of administrative expenses are borne by the Centre for effective implementation of the Act.

Recent Initiatives

Over the last few years, based on reports from the field and research inputs on implementation issues and challenges, the Ministry has taken the following initiatives to strengthen the programme implementation at the grass-root level:

1. The Fourth edition of MGNREGA Operational Guidelines, 2013 has been released in February 2013. The revised guidelines have attempted to meet important implementation challenges, viz., accurate capturing of demand for the scheme, delays in wage payment, issues of transparency and accountability.

The list of permissible works under MGNREGA was expanded in May 2012 to:
(i) strengthen the synergy between MGNREGA and rural livelihoods, particularly agriculture, and create durable quality assets;
(ii) respond to the demands of states for greater location-specific flexibility in permissible works;
(iii) help improve the health and ecological situation in rural India, with a particular focus on sanitation.

3. The contribution from MGNREGA for construction of individual toilets under Total Sanitation Campaign, now renamed as Nirmal Bharat Abhiyan, has been increased to 4500 from 1200.

4. Appointment of Ombudsman at the district level for expeditious redressal of grievances on implementation of MGNREGA.

5. Social Audits The MGNREG Act requires that Gram Sabhas shall monitor the execution of works within the Gram Panchayat (GP). The Gram Sabha shall conduct regular social audits of all projects taken up under the scheme within the GP. Social Audit is not only a management tool but also a platform for public and primary stakeholders of MGNREGA to scrutinize the resources (both financial and non-financial) used for development initiatives. The MGNREGA Audit of Schemes Rules 2011 clearly provides that Social Audit Unit shall facilitate the conduct of Social Audit of the works taken up under the Act in every GP at least once every six months in the manner prescribed under the rules.

6. Grievance Redressal To effectively address issues of concern on implementation of the MGNREGA and leakages in the Scheme, the Ministry has formulated the Standard Operating Procedure (SOP) for redressing complaints. This was realized during September 2012. The new mechanism delineates procedures for managing various types of complaints that will streamline the redressal procedures.

7. CAG Audit Performance audit of MGNREGA by the Comptroller and Auditor General (CAG) is in progress and a detailed report is expected soon.

8. CA Audit at GP Level The objective is to make certification of MGNREGA accounts at the GP level by chartered accountants compulsory over time, starting with 10% GPs in the identified highest spending district in each state in 2012–13.

New Guidelines

The highlights of the Fourth Edition MGNREGA Operational Guidelines, 2013 are mentioned below:

  1. Constitution of Cluster Facilitation Teams (CFTs), State Employment Guarantee Mission and Management Team and National Management Team.
  2. Dedicated Programme Officers (PO): Blocks that have a high concentration of SC/ST/landless labourers and are likely to have more demand for MGNREGA works should have a dedicated PO for MGNREGA. The dedicated PO should not be assigned responsibilities not directly related to MGNREGA.
  3. Register applications for work through telephones including mobile phones and this should feed indirectly into NREGASoft. Ensuring convenience to illiterate workers through Interactive Voice Response System (IVRS) and voice-enabled interactions.
  4. The network of Capacity Building Institutions for building the capacity of MGNREGA functionaries.
  5. Baseline survey to assess the quantum and timing of demand for work.
  6. Habitation level as the unit of planning and identification of project.
  7. The priority of works to be decided by Gram Panchayat in meetings of the Gram Sabha and the Ward Sabha.
  8. The 60: 40 ratio for wage and material costs should be maintained at GP level for all works to be taken up by GP and for works to be taken by all other agencies it should be maintained at the Block/Intermediate Panchayat level.
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Public Debt

updated on April 29th, 2019

Public Debt

  • Public debt is an instrument of resource mobilization by the modern government.
  • The revenue raised through taxation and other sources is not sufficient to meet the increased expenditure of the government. Revenue from taxation cannot be raised beyond a certain limit while the deficit financing becomes inflationary when it crosses the safe limit.
  • Hence the government has to resort to public debt to accelerate the process of development.
  • Public debt denotes borrowing by the government from the people, banks, financial institutions and so on. It is the debt incurred by the government in mobilizing resources in the form of loans, which are to be repaid at a future date with interest.

Classification

Public debt is classified in the following ways:

Internal and External

  • the government borrows within the country, it is called internal debt. When the government, on the other hand, borrows from outside the country, it is called external debt.
  • Internally, the government borrows from individuals, business establishments, financial institutions, commercial banks, and the central bank. Externally, it borrows from foreigners, foreign banks, foreign governments, and international institutions. Unlike internal debt, external debt involves material loss to the debtor country.

 

Voluntary and Compulsory

  • When the government borrows by issuing securities to which people are free to subscribe, it is called voluntary debt. When the government, on the other hand, enforces borrowing through legal compulsion, it is called compulsory debt. Generally, public debts are voluntary in nature. The government resorts to compulsory loan under extraordinary circumstances like war, famine, or to curb inflation.

 

Productive and Unproductive

  • Productive debt is one which is incurred for those projects which yield income to the government. For example, the debt incurred to meet expenditure on power projects, irrigation projects, public enterprises, and railways. The income derived from these assets is used to pay the interest and the principal of the debt. Unproductive debt, on the other hand, is one which neither yields any income to the government nor creates an asset. For example, debt incurred to cover any budgetary deficit or to finance war, earthquake, famine, and drought. Hicks called these two types of debts as active debt and dead weight debt respectively.

Funded and Unfunded

Funded debt is a long-term debt, payable after a year, while unfunded debt is short-term debt, payable within a year. The former is incurred to create a permanent asset, whereas the latter is incurred to meet the temporary gap in the budget. Unfunded debt is also known as floating debt and includes treasury bills, ways and means advances from the central bank and so on.

Redeemable and Irredeemable

When the government borrows money with a promise to pay off in the future at a specified date, it is known as redeemable debt. When the government, on the other hand, borrows without any intention to repay the same in the future, it is known as irredeemable debt. However, the government continues to pay interest on such loans. The redeemable and irredeemable debts are also known as terminable and perpetual debts.

A situation in which borrowings have to be resorted to just keep up with the servicing of debt is known as ‘debt trap’. Debt servicing denotes payment of interest on debts as well as repayment of instalments of debts. The debt trap could be both internal and external.

Redemption

Redemption of public debt means repayment of public debt. There are various methods of redemption of public debt:

  1. Refunding In this method, the government issues new bonds and securities in order to repay the matured loans. In other words, matured or old debts are replaced by new debts. Hence, the money burden of the debt is not relinquished. Rather, it is accumulated due to the postponement of debt repayment.
  2. Terminable Annuities In this method, public debt is repaid in equal instalments. The government repays a part of the debt every year by issuing terminable annuities. Thus, the debt goes on diminishing annually and finally, it vanishes.
  3. Conversion When the rate of interest falls, the government converts the old loan into a new loan and thus reduces its interest payments. It may be compulsory or voluntary. Unlike refunding, conversion involves changes in terms of the loan including the rate of interest. Dalton called this conversion process a ‘Partial repudiation.’
  4. Sinking Fund, It connotes a ‘debt redemption fund’. It involves the creation and the gradual accumulation of a separate fund by the government every year from its revenues to repay the debt. Although it is the most systematic method of redemption, it is a slow process and the government may encroach upon it during a financial crisis.
  5. New Taxation In this method, the government imposes new taxes and raises money for the repayment of old debts. It transfers the resources from tax-payers to the bondholders and thus causes the redistribution of income and wealth in the community.
  6. Capital Levy, It connotes a special ‘redemption levy’. Under this method, there will be single but very heavy taxation on the property and wealth of individuals; levied once for all for the clearance of the debt. It is usually levied after a war to repay the unproductive war debts. Its merit is that the country is thereby freed from the burden of interest payment in the future.
  7. Surplus Budget Under the surplus budget (income exceeding expenditure), the government is left with some money which can be used for the clearance of debts. A surplus budget can be realized in two ways: (a) through heavy taxation, or (b) through the reduction in government expenditure.
  8. Surplus BOP The repayment of external debt requires a surplus balance of payments (BOP). Hence, the government should accumulate the necessary foreign exchange by creating an export surplus and by reducing imports. Temporarily, the external debt can be repaid through the floating of new external loans.
  9. Currency Expansion Under this method, the government prints more currency to repay the debts. This results in inflation and destroys the value of fixed money claims. This method was used by Germany after the First World War (1914–1918).
  10. Repudiation In this method, the government refuses to pay the interest or principal or both. In other words, the government does not recorecognize obligation to repay the loans taken by it. In 1917, USSR repudiated all its debts, both internal and external.
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Posted in General Studies 3, Indian Economy

National LED Programme

National LED Programme:

The Government of India, in January 2015, launched the 100 cities National LED Programmes with the aim of promoting the use of the most efficient lighting technology at affordable rates. This programme has two components: (i) DELP (Domestic Efficient Lighting Programme) aims to replace incandescent bulbs (77 crores) with LED bulbs (by providing LED bulbs to domestic consumers). (ii) SLNP (Street Lighting National Programme) aims to replace conventional streetlights (3.5 crores) with smart and energy-efficient LED streetlights by March 2019.

The programme is supposed to bring in multiple benefits to the economy:

(i) Demand reduction in electricity by around 21,500 MW with a monetary savings of Rs. 45,500 crore to domestic consumers and urban local bodies.
(ii) To help in mitigating climate change by cutting CO2 emission by 85 million tonnes annually. India has committed to reducing its emission intensity per unit GDP by 33-35 percent below 2005 levels by 2030 (under its Intended Nationally Determined Contribution-INDC).
(iii) To encourage and support domestic manufacturing of LED bulbs, making it consistent with the ‘Make in India’ policy.

Besides, the government also approved the establishment of a National Smart Grid Mission (NSGM) in the power, sector to plan and monitor implementation of policies and programmes related to smart grid activities in India.

AT&C Losses: Due to lack of adequate investment on ‘transmission and distribution’ (T&D) works, the T&D losses have been consistently on the higher side, and reached to the level of 32.86 Percent in the year 2000-01. The reduction of these losses was essential to bring economic viability to the state utilities (SEBs). As the T&D loss was not able to capture all the losses in the network, the concept of Aggregate Technical and Commercial (AT&C) loss was introduced. AT&C loss captures technical as well as commercial losses in the network and is a true indicator of total losses in the system.

High technical losses in the system are primarily due to inadequate investments over the years for system improvement works, which has resulted in unplanned extensions of the distribution lines, overloading of the system elements like transformers and conductors, and lack of adequate reactive power support.

The commercial losses are mainly due to:
(i) low metering efficiency
(ii) theft, and
(iii) pilferages

This may be eliminated by improving metering efficiency, proper energy accounting & auditing and improved billing & collection efficiency. Fixing of accountability of the personnel/feeder managers may help considerably in the reduction of AT&C loss.

In December 2014, the GoI launched a new programme – IPDS (Integrated Power Development Scheme) – a centrally sponsored scheme (CSS) with a Central grant between 60 to 85 per cent. Its core aim is to attain 24×7 the power supply in the country – to be achieved by strengthening sub-transmission network, metering, IT application, Customer Care Services, provisioning of solar panels, reduction in the AT&C of the state DISCOMs. This scheme subsumed the existing scheme, R-APDRP (Restructured Accelerated Power Development and Reforms Programme) of 2008.

Posted in Indian Economy

Universal Basic Income

updated on May 6th, 2019

Universal Basic Income

Introduction

In the last few years, we have seen several experts suggesting for a universal basic income (UBI) for India. The idea got strengthened when the Economic Survey 2016-17 proposed for the same—articulating very sound logic in its favour. By March 2017 the Government announced that such a scheme may be piloted by late-2017 and implemented to a limited scale by the year 2018- Although, before going for such a scheme the Government of India (GoI) needs to settle several concerns involved with it.

An Effective Idea

We find the idea of UBI gaining ground among several countries across democracies and nondemocracies— right from France to Finland to China (where a similar scheme, the dibao, is implemented). Such a scheme is generally proposed as a non-targeted one in which a fixed the sum of cash is periodically transferred to all on an individual basis. The idea is to ensure that every person in society has the means to live with a certain freedom and dignity, independent of capacity to earn or availability of employment. The idea really looks attractive as it has the potential to reduce both poverty and inequality.

India already piloted such a scheme in Madhya Pradesh by 2010. The Economic Survey 2016-17 proposed an amount of Rs 7,620 a year to be transferred into the bank accounts of the beneficiaries of the UBI. Though it is well short of what anyone might need to lead a life of leisure, it would cut absolute poverty from 22 per cent to less than 0.5 per cent. Theoretically, the UBI is proposed to be financed through recycling funds from around 950 welfare schemes (costing around 5 per cent of the GDP) presently run by the GoI aimed at offering subsidised food, water, fertilisers and many other things. A big part of Government’s subsidies is enjoyed by the rich people in the country (as per the Economic Survey 2015-17) which can also be rejigged for this purpose.

Working Out The Scheme

There are several important issues to be settled before India launches such a scheme. A brief survey of the major issues involved with it is given below:

Financial model: The first and foremost issue is mobilising adequate fund for it. If we go into the proposal of the ‘Economic Survey 2016-17’, the advice is to recycle the funds of the existing central sector and centrally sponsored schemes run by the GoI. But such schemes cannot be shut down to start UBI. This could be done in phased way only. Till then the GoI needs to mobilise additional funds for it through budgetary or non-budgetary sources. Given the projection that once the proposed GST is implemented from July 2017, the shortfall in the tax collections is estimated to remain around Rs 66,000 crore (due to curtailment of many cesses and surcharges), budgetary support does not look a very viable option.

Though certain other positive measures are also in the pipeline, such as increased tax compliance due to the emphasis on less-cash, the proposed ceiling on cash transactions, linking Aadhar to PAN for filing income tax returns and linking Aadhar to transactions, etc., the implementation of the GST is supposed to increase tax collections (though in medium term) together with checking the evasion of direct and indirect taxes.

Selecting the beneficiaries: Clues from the name suggest it to be applying on all. But as per the Survey as well as the GoI expressions, the scheme is proposed to be launched partially. In this case, the target population may be taken from the lower strata of the below poverty line. The NITI Aayog CEO has proposed it for the bottom 20 per cent of the BPL population at the time of its launch. This could be linked to the general policy framework of social justice also. This will not only keep the financial requirements on lower side but also give some time to the government to recycle the funds from several welfare schemes it either runs or sponsors. A suggestion came from the GoI in favour of transferring the cash into the accounts of women head of the family (which will promote the ideas of inclusive growth and women empowerment also).

The amount of transfer: How much money should be transferred though is guided by the availability of resources, it should look sizeable to show an impact on the beneficiaries. As a proposal, the NITI Aayog CEO has proposed a sum of Rs 1,000 on a monthly basis while the survey proposed (more as an example) a sum of Rs 7,620 monthly. Normally, it is believed that without transferring a sizeable amount of money (which may bring in comfort to the beneficiaries), the scheme may not remain effective. Though, to begin with, even a lower sum of transfer also looks good.

Financial inclusion, inclusion and exclusion, regulation and assessment, etc. are the other involved issues related to it. The scheme looks under examination and study of the GoI in present time. Once it is announced only then these concerns will settle down.

The Benefits

The welfare schemes India has been implementing have been faced with certain common problems, misallocations of funds, wastage and seepage, inclusion and exclusion factors, ghost beneficiaries, corruption, the cost of operating them, etc. being the major ones. For this and other reasons, it has been argued to give serious consideration to the idea of the UBI. This will have several merits in it missing the current redistribution schemes, such as:

(i) It will be given from above minimising several maladies of existing schemes.
(ii) It is less likely to be prone to exclusion errors.
(iii) By directly transferring money to bank accounts, and bypassing multiple layers of bureaucracy, the scope for ‘out of system’ leakages (in case of the PDS running up to 45 per cent) will be quite lower.

Conclusion

There are considerable challenges of implementation, which will have to be debated and addressed properly before going for the UBI. But the challenges are not insurmountable; besides several possible ways are available to address them. As the support for the idea has come from a broad ideological spectrum, it looks as if the time for such a scheme has arrived in the country. We should think proactively in the direction.

Right now Rahul Gandhi has come out with NYAY basic universal Income . More will be added to this article once any concrete development takes place .

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Posted in Indian Economy

Demonetisation

Introduction

Early November 2016, the Government announced a historic measure, with profound implications for the economy—the largest denomination currency notes, Rs 500 and Rs 1000, were demonetised. Eighty-six per cent of the cash in circulation thus became invalid. According to the Government, this was aimed to serve four objectives:

(i) Curbing corruption;
(ii) Counterfeiting of currencies;
(iii) Checking terrorism (as they use high denomination notes); and
(iv) Preventing accumulation of black money.

This action followed a series of earlier efforts to curb such illicit activities: the creation of the Special Investigative Team (SIT) in 2014, the Black Money and Imposition of Tax Act 2015, Benami Transactions Act 2016, the information exchange agreement with Switzerland, changes in the tax treaties with Mauritius, Cyprus and Singapore, and the Income Disclosure Scheme. This was not an unprecedented action as there were two previous instances of it—in 1946 and 1978, the latter not having any significant effect on cash.

There have been reports of job losses, declines in farm incomes, and social disruption, especially in the informal, cash-intensive parts of the economy. However, a systematic analysis is not possible yet due to the paucity of data. The benefits of demonetisation can be only felt in coming years— the move was more aimed at long-term goals than short-term. We may have a brief review of the impact of demonetisation on the economy and behavioural aspects in the following way.

Long-term benefits: It is too early to quantify the direction and magnitude of long-term changes. It will take several years to see the impact of demonetisation on illicit transactions, on black money, and on financial savings. But there are some signs pointing to change.
(a) Digitalisation: One intermediate objective of demonetisation is to create a less-cash or cash-lite economy. This will not only channelise more saving into the financial system but it will improve tax compliance also. Currently, India is far away from this objective: the Watal Committee has recently estimated that cash accounts for about 78 per cent of all consumer payments. According to Pricewaterhouse Coopers (2015), India has a very high predominance of consumer transactions carried out in cash relative to other countries (accounting for 68 per cent of total transactions by value and 98 per cent by volume).
People prefer cash transaction due to many reasons. It is convenient, accepted everywhere, its use is costless for ordinary people (though not of course for society at large), is anonymous, helps preserve privacy, which is not bad till it is not illicit or designed to evade tax. Digitalisation can broadly impact the three sections of society—the poor, who are largely outside the digital economy; the less affluent, who are becoming part of the digital economy has acquired Jan-Dhan accounts and RuPay cards; and the affluent, who are fully digitally integrated via credit cards.
(b) Real estate: This sector could have a profound impact. In the past, much of the black money accumulated was ultimately used to evade taxes on property sales. A reduction in real estate prices is desirable as it will lead to affordable housing for the middle class, and facilitate labour mobility across India currently impeded by high and unaffordable rents.

Short-term impact: Demonetisation will impose short-term costs on the economy, which remain difficult to measure by now due to lack of the right data set. As the process has created a large structural shock, the underlying behavioural parameters of the past will be imperfect indicators of future behaviour and hence the outcomes. Although a framework of the short-term impact may be outlined:

(a) Impact on Gross Domestic Product (GDP): Economic activities have been affected adversely. Thus, national income will get hit also, but it will be only temporary. The GDP might be lower by 0.25 to 0.5 per cent (coming to around 7 per cent). The implementation of GST, follow-up to demonetisation and other structural reforms should put the growth to the 8–10 per cent range that India needs.
(b) Redistribution of income: It will redistribute resources also having following effects on the fiscal accounts of the Government:

  • RBI/Government may receive some gains from the unreturned cash— wealth gains.
  • Income taxes could go up as black money was deposited in bank accounts.

Against this, there are three negative effects. First, costs of printing new notes; secondly, costs of sterilising the surge in liquidity into the banking system (via the issuance of Market Stabilisation Scheme bonds); and thirdly, if nominal GDP growth declines, corporate and indirect tax revenues of the centre could decline but so far there is no clear evidence.

Tapping The Prospects

The Government needs to maximise the longterm benefits and minimise short-term costs of demonetisation. For this purpose, the following measures look beneficial:

(i) Remonetisation process should be faster.

(ii) Any windfall revenue arising from ‘unreturned notes’ should be used for capital-type expenditures and not revenue ones. As this income will be one-off, its use should be one-off.

(iii) Digitalisation must continue in medium term, though neither it is a panacea nor cash economy is bad. Balancing benefits and costs of both forms of payments will be sensible. The transition to digitalisation must be gradual and inclusive, too. Digitalisation must be incentivised and the incentives favouring cash neutralised. The cost of incentivisation must be borne by the public sector (Government/RBI) and not the consumer or financial intermediaries.

(iv) Efforts to collect taxes on newly disclosed (and undisclosed) wealth should not lead to tax harassment by officials at all rungs of the hierarchy. A shift is needed to greater use of data, smarter evidencebased scrutiny, more reliance on online assessments with less interactions between tax payers and tax officials. Non-punitive means should be evolved to enhance tax compliance.

(v) So that demonetisation indeed proves a catalyst for long-run changes in behaviour, it will be required to complement demonetisation with other non-punitive, incentive-compatible measures that reduce the incentives for tax evasion. Demonetisation was a potentially powerful stick that now needs carrots as complements. A five-pronged strategy could be adopted:

(a) GST should include activities that are sources of black money creation— land and other immovable property;
(b) Individual income tax rates and real estate stamp duties could be reduced;
(c) Income tax net could be widened gradually and, consistent with constitutional arrangements progressively encompass all high incomes;
(d) The timetable for reducing the corporate the tax rate could be accelerated; and
(v) To reduce discretion and improve accountability, tax administration needs improvement.

Conclusion

The actual cost of demonetisation will be known by the end of the fiscal 2016-17 only. While the short-term gains of it will be limited in nature, the success of this move will be mainly known for its long-term effects. However, to maximise the gains out of this, the Government needs to take several other timely and rational steps to complement it. Thus, the momentum generated should not get reduced so that economy can realise the gains from demonetisation.

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Posted in Indian Economy

Universal Healthcare

Universal Healthcare

Introduction

It was the 12th Plan, the first official document, which advised in favour of universal healthcare, estimating a total allocation of around 2.5 per cent of the GDP. The idea could not be implemented as the Government of the time could not commit itself to the required funds (estimated to allocate a maximum of 1.6 per cent of the GDP). At present, the total government expenditure (centre plus states) on healthcare is 1.4 per cent of the GDP (Economic Survey 2016-17). The healthcare-related sufferings in the country have been always a matter of high concern—out of pocket expenditure is one of the highest in the world (at over 70 per cent since many decades). The idea has been a major issue of the public debate. During the last General Elections, the idea kept resonating across the promises of the political parties.

The Challenges

Committing to the cause of universal healthcare at the practical level has been a daunting task for the Government, given the scarcity of resources.

To implement such a policy, the Government needs to put in place a great many physical and non-physical support systems, such as the number of hospitals, an adequate number of personnel, medical colleges, nursing institutes, health insurance, public deliveries of vaccines and medicines; etc. naming the major ones. To implement such a policy mobilising the required financial resources has been the biggest challenge for the governments. Developing a financial model was the need of the hour.

Going For The Idea

After almost two years of consultations with various stakeholders, the Government of India, finally took the final call in the direction of ‘universal healthcare’ when the National Health Policy 2017 was announced by mid-March 2017. The policy focusses “Preventive and Promotive Health Care and Universal access to good quality healthcare services”. The major highlights of the policy4 have been discussed below.

Primary aim: The primary aim of the policy is to inform, clarify, strengthen and prioritise the role of the Government in shaping health systems in all its dimensions— investment in health, organisation and financing of healthcare services, prevention of diseases and promotion of good health through cross-sectoral action, access to technologies, developing human resources, encouraging medical pluralism, building the knowledge base required for better health, financial protection strategies and regulation and progressive assurance for health. The policy emphasises reorienting and strengthening the Public Health Institutions across the country, to provide universal access to free drugs, diagnostics and other essential healthcare.

Approach change: The policy denotes important change from very selective to comprehensive primary healthcare package which includes geriatric healthcare, palliative care and rehabilitative care services. The policy advocates allocating major proportion (up to two-thirds or more) of resources to primary care followed by secondary and tertiary care. The policy aspires to provide at the district level most of the secondary care which is currently provided at a medical college hospital.

Broad principle: The broad principle of the policy is centred on Professionalism, Integrity and Ethics, Equity, Affordability, Universality, Patient Cantered & Quality of Care, Accountability and Pluralism.

Affordability: It seeks to ensure improved access and affordability of quality secondary and tertiary care services through a combination of public hospitals and strategic purchasing in healthcare deficit areas from accredited non-governmental healthcare providers, achieve significant reduction in out of pocket expenditure due to healthcare costs, reinforce trust in public healthcare system and influence operation and growth of private healthcare industry as well as medical technologies in alignment with public health goals.

Pluralistic design: To leverage the pluralistic healthcare legacy, the policy recommends mainstreaming the different health systems. Towards mainstreaming the potential of AYUSH the policy envisages better access to AYUSH remedies through co-location in public facilities. Yoga would also be introduced much more widely in school and work places as part of promotion of good health.

Focus on pre-emptive care: The policy affirms the commitment to pre-emptive care (aimed at preempting the occurrence of diseases) to achieve optimum levels of child and adolescent health. The policy envisages school health programmes as a major focus area as also health and hygiene being made a part of the school curriculum.

Funding: The policy proposes raising public health expenditure to 2.5 per cent of the GDP in a time bound manner. It aims at providing larger package of assured comprehensive primary healthcare through the HWCs (Health and Wellness Centres).

Private participation: The idea of universal healthcare is very realistic to the time as it has decided to enhance the participation of the private sector in a positive and proactive way in achieving the goals of the policy. It envisages private sector collaboration for strategic purchasing, capacity building, skill development programmes, awareness generation, developing sustainable networks for community to strengthen mental health services, and disaster management. The policy also advocates financial and non-incentives for encouraging the private sector participation.

Quantitative targets: The policy assigns specific quantitative targets aimed at reduction of disease prevalence/incidence, for health status and programme impact, health system performance and system strengthening. It seeks to strengthen the health, surveillance system and establish registries for diseases of public health importance, by 2020. It also seeks to align other policies for medical devices and equipment with public health goals.

Regulatory mechanism: The policy advocates extensive deployment of digital tools for improving the efficiency and outcome of the healthcare system and proposes establishment of National Digital Health Authority (NDHA) to regulate, develop and deploy digital health across the continuum of care.

Voluntary support: The policy supports voluntary service in rural and under-served areas on pro-bono (free of charge) basis by recognised healthcare professionals under a ‘giving back to society’ initiative.

Background: The Government of India adopted an elaborate procedure for formulation of the health policy. Its Draft was placed in public domain on 30th December 2014. After detailed consultations with stakeholders and State Governments, it was further fine-tuned. Finally, by late February 2016 it received the endorsement of the Central Council for Health & Family Welfare (the apex policy making body). Since the last health policy was announced in 2002, the country has seen much socio-economic and epidemiological changes. Besides, there are some burning current challenges as well as emerging ones. To address these issues in holistic and effective way, the Government needed to come out with a newly designed and contemporary kind of health policy—the outcome is the NHP 2017.

The newly announced (in the Union Budget 2018-19) National Health Protection Scheme (NHPS) is a historic step in this regard. The scheme aims to cover over 10 crore poor and vulnerable families (approximately 50 crore beneficiaries) providing coverage up to Rs. 5 lakh per family per year for secondary and tertiary care hospitalisation.

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