Are you Ready for Insta 75 Days Revision Plan (UPSC Prelims - 2020)?
SYNOPSIS: Insights Secure Q&A May 12, 2016
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General Studies – 1;
Topic: Changes in critical geographical features (including waterbodies and ice-caps) and in flora and fauna and the effects of such changes.
How is India’s Agriculture vulnerable to climate change?
- Bundelkhand region –
- experienced drastic variation in climate in recent times. It faced a drought from 2003 to 2010, then floods in 2011, delayed monsoons in 2012 and 2013, and drought again since 2014. .
- Farmers tried everything to adapt — growing a mix of dry crops during the kharif ,rabiwheat with cash crops like chickpea and mustard but effort went in vain.
- The past two winters, with hailstorms and unseasonal rain, destroyed crops leading to farmer suicides and mass migration.
- India is uniquely vulnerable to rising temperatures .It ranks in the top 20 in the Climate Change Vulnerability Index. India’s average surface temperature, over the past four decades, has risen by 0.3° Celsius
- With the majority of all landholdings in India measuring less than a hectare, marginal farmers face a steep decline in household income and a concomitant rise in household poverty through exacerbated droughts.
- Climate change would impact soil health, with increasing surface temperatures leading to higher CO2 emissions and reducing natural nitrogen availability.
- Mitigating this by increasing chemical fertilizer usage could impact long-term soil fertility, leaving the soil open to greater erosion and desertification.
- Meanwhile, migration patterns, farmer suicides and stagnating rural incomes, along with increasingly ad hoc land acquisition in the name of public goods, have politicised the idea of climate mitigation. Marginal farmland will increasingly be useless for agriculture.
- Regional crop patterns assume a specific range of weather variability, failing to cope with the recent high periods of heavy rainfall with long dry intervals.
- In 2013, large crops of wheat, gram, lentils and mustard, weeks away from harvesting, were destroyed in untimely rains.
- India’s flood-affected area has doubled since Independence, despite generous state spending on flood protection schemes.
- Research has highlighted the deleterious impact of climate change on crop production.
- Limited temperature rises could lead to a 22 per cent decline in wheat yield in the rabiseason, while rice yield could decline by 15 per cent.
- Other staple crops sorghum, groundnut, chickpea could see a sharp decline.
- it is estimated that without rising temperatures and rain variability, India’s rice production over the past four decades could have been 8 per cent higher.
- India is home to the largest hungry population — falling agricultural yields will only make matters worse.
- Climate change will impact the entire food production chain, affecting food security.
- Livestock production, often considered to be a substitute to farming for marginal farmers, would face reduced fodder supplies given a decline in crop area or production.
Policy prescriptions for safeguarding farmers against climate change effects :-
- National Commission on Farmers suggested that a rural spending plan, focussed on investments in agriculture infrastructure, particularly in irrigation, rainwater harvesting and a national network of soil-testing laboratories is needed.
- Simple water harvesting and conservation measures (micro-irrigation, watershed management and insurance coverage) can reduce the majority of the potential loss due to drought
- conservation farming and dryland agriculture should be promoted.
- Each village should be provided timely rainfall forecasts along with weather-based forewarnings regarding crop pests and epidemics in various seasons.
- Drought strategies should be extended to the village level — for example, each village should have a village pond, created under the Mahatma Gandhi National Rural Employment Guarantee Scheme.
- Afforestation, should be encouraged to help modify regional climates and prevent soil erosion.
- adoption of drought-tolerant breeds can help reduce production risks by nearly a third, while offering attractive returns to breeders.
- Changing planting dates could have a significant impact; research highlights that planting wheat earlier than usual can help reduce climate change-induced damage.
- Zero tillage and laser-based levelling can also help conserve water and land resources.
- Crop planning can be conducted as per the climatic zones of different regions, while utilising better genotypes for rain-fed conditions.
- Focus on expanding formal credit system to reach all marginal farmers.
- Insurance coverage should be expanded to all crops while reducing the rate of interest to nominal levels, with government support and an expanded Rural Insurance Development Fund.
- The Centre and States should launch an integrated crop, livestock and family health insurance package while instituting an Agriculture Credit Risk Fund to provide relief in the aftermath of successive natural disasters.
- A debt moratorium policy on drought-distressed hotspots and areas facing climate change calamities should be announced, waiving interest on loans till farming incomes are restored.
- systemic support for irrigation, infrastructure and rural institutions can help move India beyond climate change-induced food insecurity, strengthening our stressed food production systems.
Topic: Distribution of key natural resources across the world (including South Asia and the Indian subcontinent
2) While India has adequate freshwater, its spatial and temporal distribution is very skewed, and usage inefficient and wasteful. Discuss how inefficiently fresh water is managed and how it can be efficiently managed in India. (200 Words)
Inefficient freshwater management in India :
- The ministry of water resources has estimated that with 2.5% of global landmass, India has 4% of the world’s freshwater resources. This has however come under increasing demographic stress since India is home to about 16% of world population and the distribution of freshwater is skewed spatially and temporally.
- Most rainfall is received over a relatively short duration during the monsoon. This leads to temporary flooding. Huge amounts of surface water quickly drain into the sea.
- The biggest culprit is agriculture that accounts for 80% of all freshwater usage. Flood irrigation, prevalent in more than 95% of the irrigated area, damages both ecology and farm economics.
- Farmers at the tail end of major command systems receive delayed and deficient supplies, while those upstream use the grossly underpriced water wastefully.
- humans have only recently developed the technology to tap deep aquifers. This can completely empty them within a relatively short period of time as is visible currently in Maharashtra.
- Groundwater depletion
- In urban areas is largely due to poor piped drinking water supply.
- In rural areas, regions away from river systems are constrained to fall back on groundwater for agricultural expansion, as in large parts of western, central and peninsular India.
- These are mostly areas of dry land cultivation, where agricultural productivity has expanded in recent times through massive, unsustainable exploitation of deep aquifers.
- The drilling rig and electric pump revolution has permanently depleted groundwater reserves in several areas, with water and power subsidies compounding the problem through inefficient use of a scarce resource.
- Excessive drawal has also led to increasing concentration of toxic elements such as fluoride, arsenic and salinity in several areas.
- Several states are considering legislation to regulate the use of groundwater. Such efforts have however met with limited success as it has been impossible to monitor the large numbers of tube wells that have proliferated all over the country.
- Subsurface water resources belong to the property owner. Where private property sits on a deep aquifer, the owner is within his rights to drain the entire aquifer that may extend far beyond the boundaries of his property. This creates a huge problem.
Measures needed to improve :
- The Central Water Commission estimated that the Ganga-Brahmaputra-Meghna basin with 33% of the landmass had 60% of total water flows. The controversial river-linking scheme to transfer water from surplus to deficit basins was mooted to address this spatial imbalance.
- time-bound plan to bring the entire cropped area under controlled irrigation (sprinklers, underground pipes and other water conservation devices) should be undertaken.
- The pace of the run-off can be reduced through inter-basin transfers, new storage reservoirs, desilting, reviving traditional water storage structures such as ponds, dissemination of groundwater recharge technologies, and water harvesting structures such as check dams, open draw wells and rooftop devices.
- Modern science and technology can be leveraged to artificially increase the rate of recharge of aquifers, thereby enhancing the sustainable exploitation of deep aquifers.
- It is imperative to have a good database updated in real time on the size and sustainable levels of exploitation of our freshwater resources. The beginning made through the National Hydrology Project needs to be extended and made more comprehensive, including through mapping of deep aquifers in the country and determining rates of recharge.
- Landowners should be free to tap the annually rechargeable phreatic water table through open wells on their property, but deep aquifers need to be treated as a common resource.
- Policy coordination is essential to improve the management of the country’s scarce water resources.
- In the US, all water issues are handled by the department of agriculture
- In India, water falls between several stools.
- Agriculture,is outside the purview of the ministry of water resources that frames the national water policy.
- Drinking water falls within the domains of the ministries of rural development, urban development and Panchayat Raj. This departmental fragmentation of water management needs to change, both in the centre and the states.
- A major legislative change which puts water on par with other natural resources is needed.
General Studies – 2
Topic:Important aspects of governance
3) Do you think populism, personality cult and freebie culture in politics which is often witnessed during elections in states such as Tamil Nadu is good for economic growth and development? Critically comment. (200 Words)
Yes, these characteristics harm the economic growth and development:
- In Tamilnadu
- rampant populism, autocratic administrations and widespread corruption all endemic to state politics are antithetical to economic growth and human development.
- The economy is also showing signs of strain. According to an India Spend analysis of state budgets, Tamil Nadu has seen the maximum increase in debt over the past five years, an unhealthy trend even if its debt to gross state domestic product (GSDP) ratio remains below the national average at 20%.
- Likewise, the ratio of its interest payments to revenue expenditure has risen from 10.5% in 2012-13 to 11.6% in 2014-15 one of the few states to show an increase.
- It has also posted a revenue deficit for the third year in a row now 0.7% of GSDP the longest such streak in a decade.
- Because of freebies growth and development had been eluding the state.
- With the amount spent on freebies, the AIADMK government could have built 25,000 schools and 11,000 primary health centres during the last five years.
- What is appalling is that rough calculations reveal that the freebies announced could well cost anywhere between Rs 50,000 and 250,000 crores to the exchequer; so much so that, given the precarious state of the finances of the state, analysts have termed these promises as impossible to be delivered.
- This model depends on freebies, feeds on corruption and brazenly encourages crony capitalism.
- Dismantling of subsidies brought transparency and efficiency in policymaking and helped the banking sector become vibrant and responsive to market needs.
- In Tamilnadu further, vested interests feed on this political-business model. After all, when free television sets were promised in 2006, the cable and channel business carried on by the family members were the biggest beneficiaries.
- The programs and plans implemented with short term vision, apart from resulting in wastage of money also result in negative impact on the society and the attitude of the people.
- The culture of expecting more from the government is snowballing and people’s desire to ‘work hard’ is getting diminished. It is agreeable that some subsidies are inevitable for poor. But without weeding the implementation hurdles, the purpose will not be solved.
- In implementing the freebie schemes, currently there is no transparency or honesty, they being overshadowed by corruption and selfishness. Because of this the purpose is not served. If this trend continues sustainable and productive service will remain a utopian dream.
- If a country needs to grow, its people stand on their feet and see a strong economic growth, it cannot depend on freebies and subsidies alone
It helps in economic growth and development also:
- Despite all the concerns Tamil Nadu has the second largest economy among all states and the third highest per capita income.
- Its human development index is not quite commensurate the Institute of Applied Manpower Research’s 2014 report put it at seventh among the states and yet it is comfortably more than the national average and has trended steadily upwards since 2000.
- Dravidian movement’s creed of rationalism and social egalitarianism created a markedly different form of caste politics than seen elsewhere mobilizing Dalits and other backward castes, undercutting hierarchies and transforming social indicators.That had obvious implications for economic advancement, as per the endogenous growth theory.
- Imperious style of functioning, distasteful as it is in a democratic set-up, has also meant a streamlined decision-making process. And their exalted status in the state’s political life means that Tamil Nadu has remained essentially a two-party system, promoting policy and economic stability. The notorious freebie culture is the flipside when politicians are treated as near-deities, munificence is expected.
- Targeted Subsidies can really help an economy. Giving people free electricity or fuel or gas, however, is targeted at increasing their spending. Spending produces ripples in an economy and more transactions are always good.
- directed, focussed subsidies are part of a welfare state that seeks to uplift the poor, give them access to the essentials of life, which includes not only food, clothing and shelter, but also education, health care, hygiene and increasingly, connectivity.
- By bringing more people into the “market”, by having discretionary spending power, you create a bigger market, which then becomes a virtuous cycle.
- On a world level, that is one reason why rich countries provide aid to needy ones. Not only human upliftment but also to create bigger markets.
Topic: India and its neighborhood- relations.
How India and China’s relationship will have global consequences:
- Their sheer size influences global markets in commodities
- China’s stock market gyrations have already begun to have knock-on effects around the world.
- As two nuclear-armed states with long-term unfinished territorial business between them and a good amount of mutual suspicion, diplomatic missteps between India and China risk nuclear escalation.
- This closeness between Beijing and Islamabad, coupled with a deepening skepticism in Washington over the wisdom of its own relationship with Pakistan, has pushed India and the United States closer to each other overcoming decades of mutual suspicion as the regional dynamics change underfoot.
Has the relationship matured ?
The two largest, most populous, most durable Asian countries, for most of their collective history, have lived alongside each other with an almost studied indifference to the military, economic and cultural activities of the other. This dynamic began to change in the postcolonial period, but slowly, unevenly and with as much backtracking as forward progress.
- The recent news that Delhi and Beijing may be establishing a military hotline has shown how much the Sino-Indian relationship has expanded and matured in recent years
- The last decade has seen a flurry of Sino-Indian diplomacy, trade and exchange
- China and India are also members of the World Trade Organization (WTO)—India as a founding member and China since 2001.
- The reduction and elimination of trade barriers has helped to stimulate economic exchange. Since 2000, trade between China and India has grown nearly twice as fast as each country’s trade with the rest of the world, and since 2001,
- Indeed, both China and India recently signed deals with the Maldives, for investment and defence cooperation, and India has been expanding its diplomacy in Iran, traditionally an outpost of Chinese influence in the Middle East.
- China and India are now both independent, prosperous and mostly at peace at the same time as each other, in a regional environment that is mostly secure, for the first time since the late 18th century.
- Chinese capital could help India accelerate its infrastructure revolution
- BRICS cooperation and the participation by two in the formation of new development Bank
- India being part of China’s initiatives like Asian infrastructure investment bank, BCIM corridor, Silk Road project, all show the maturity in the relationship
- Trade has similarly intensified. Barely $2 billion fifteen years ago, it was worth a combined $80 billion last year, and continues to increase.
No,there are still concerns:
- their lack of deep ties allowed disputes to escalate, culminating in the 1962 Sino-Indian War, which left them with diplomatic differences until the early 1990s.
- geography was the primary reason that the two countries maintained a diplomatic distance, keeping their interests separate and avoiding substantial political and economic exchanges.
- The two are likewise engaged in an ongoing proxy struggle around the Indian Ocean and Arabian Sea, shoring up relationships with other partners.
- Unlike trade, levels of investment between China and India remain relatively low.
- Though an estimated 100 companies from each country have offices in the other, cumulative bilateral FDI is less than $500 million.
- A major obstacle to bilateral investment that needs to be bridged is one of lingering distrust stemming from the brief war of 1962 and unresolved border disputes
- Cross-border investment remains low because Chinese and Indian companies are still in the early stages of learning how to operate and succeed in each other’s economies
- Anti dumping measures and banning of Chinese mobiles by India show the mistrust is still prevailing.
- military tensions between the two remain substantial. The occasional border skirmish and bilateral interaction are tainted by their divergent views on relations with Pakistan, still-archrival of India and an increasingly close ally of China.
- Growing defence equipment and spending show the itch in the relationship
- The aggressive pursuit of string of pearls strategy by China and it trying to develop port of Gwadar and Djibouti are a concern to India.
- The disputes in South China Sea where china has territorial problems also makes it difficult for India to trust China.
- Other issues:
- A joint move by China and Pakistan to thwart India’s bid to designate Jaish-e-Mohammed leader MasoodAzhar
- Indian visa for Dolkun Isa, exiled Uighur-Chinese leader
- Stamping visa problem
- Dalai Lama problem all show the concerns in the relationship
- the fact that both countries see hotline as necessary underscores how much tension remains in the relationship.
Topic: Issues relating to development and management of Social Sector/Services relating to Education, Human Resources.
5) Since independence many commissions and committees have recommended that Indian public expenditure on education must be 6% of gross domestic product (GDP). Critically comment on the state of public expenditure on education in India. (200 Words)
The present State of public expenditure on education in india is not enough because of the following reasons:
- The Education Policy of 1968, based on the recommendations of the Kothari commission (1964-66), decided that Indian public expenditure on education must be 6% of gross domestic product (GDP). This goal was reaffirmed in the New Education Policy of 1986 and its revision in 1992, with a suggestion that every attempt must be made to go beyond 6%. There has been no comprehensive education policy articulated since then
- India has never reached even near this goal. The closest it has come was in 2001, when this number hit 4.4%.
- When India is compared with the Organisation for Economic Co-operation and Development (OECD) countries as a group and with Brazil. educational attainment on all dimensions of these countries are better off than India, e.g. on school completion rates, learning levels, gender equity and inclusion.
- As against the 3.8% number of India, the public expenditure on education in the OECD is 5.4% and in Brazil 5.8%.
- This large difference is not particular to the current period, but seems to stretch across decades. In reality, this headline number vastly understates India’s shortfall.
- Investment issues:
- India is way short of its actual need of (e.g.) secondary schools, colleges and teachers.
- There are some critical parts of the education system where we have hardly invested, most notably in teacher education, physical & social sciences, humanities and vocational education.
- In this investment and build-up phase, India needs more money than countries that are done with the build-up, but India is significantly short of them.
- This large cumulative investment gap stunts the system and its capacity structurally, i.e. this is a structural investment gap.
- Even on teachers, many states underfund the actual system requirement, by not appointing teachers and by hiring teachers at much lower salaries with short-term contracts.
- Almost every expenditure head is ludicrously underfunded, e.g. school budgets for teaching-learning material, training for teachers and principals,research in colleges and universities.
- each child is supposed to get a nutritious mid-day meal at school for Rs.3.4. And this number has hardly been revised in the face of soaring food inflation.
- This operational funding gap makes ineffective, whatever we have built structurally, and eventually erodes it.
- Lack of infrastructure:
- cannot ensure quality without reasonably good infrastructure,
- Schools with only girl students are more likely to be deficient in basic facilities, including toilets and fans in classrooms, and teaching aids.
- sufficient numbers of trained and adequately compensated teachers, other amenities and teaching aids, including access to new technologies that are becoming an essential part of contemporary life.
- Demography problem:
- the proportion of population that the education system has to serve is in the age group of 6 to 21. This number is about 29% for India, 18% for OECD and 23% for Brazil.
- With that high a proportion of the population to be educated India needs proportionately more money.
- India cannot escape this basic capacity gap.
- Primordial differences:
- The failure of the Indian state more than six decades after Independence to provide universal access to quality schooling and to ensure equal access to higher education among all socio-economic groups and across gender and region must surely rank among the more dismal and significant failures of the development project in the country.
- institutions in backward areas and in educationally backward States tend to be both underfunded and of poorer quality than institutions in metros or in more educationally developed States.
- Rural schools are often worse than urban schools and schools catering to elite or middle-class children tend to be better than schools for the urban poor serving slum children or rural schools serving the children of agricultural labourers.
- Schools with dominantly upper-caste children also tend to provide better services than schools mostly catering to Scheduled Caste or Scheduled Tribe or Muslim children.
- Literacy problem:
- The low spending on education is clearly reflected in India’s low literacy rate in India.
- The literacy rate has steadily improved, but too many people are still illiterate
It’s clear that India needs sustained public spending much in excess of what we have done, probably way over 6% of GDP.
Despite less spending on education Indian governments have made many efforts to ensure quality and access of education to everyone through the following:
- Focus on Universal primary education according to Sarva Shiksha Abhiyan
- higher education funding with scholarships
- implementing Right to Education act
- Nai Manzil Scheme is an integrated Education and Livelihood Initiative for the Minority Communities. The scheme aims to benefit the minority youths who are school-dropouts or educated in the community education institutions like Madrasas, by providing them an integral input of formal education (up till Class VIII or X) and skill training along with certification
- Mid day meal schemes
- Saakshar Bharat
What needs to be done ?
- Improve India’s poor tax-to-GDP ratio, which stands at about 18%, compared to about 35% for OECD and for Brazil.
- Emulating success of states:
- Thus Kerala, which is generally acknowledged to have a good government schooling system, has one of the highest per capita spending values.
- The highest was found in Himachal Pradesh, which is one of the great recent success stories of school education; it has achieved universal and good-quality school education despite being a relatively less wealthy State .
- to ensure quality, raising the level of public expenditure in education is absolutely essential.
- Since the government is expected to focus on skill development, the challenge is to improve the education infrastructure and monitor outcomes. While we have witnessed some success stories from states in terms of outcomes in primary education, there is still a long way to go.
General Studies – 3
Topic: Economic growth – employment
- India will have a new bankruptcy law that will ensure time-bound settlement of insolvency, enable faster turnaround of businesses and create a database of serial defaulters.
- It will be critical in resolving India’s bad debt problem, which has crippled bank lending.
- It leads to the establishment of the new regulator the Insolvency and Bankruptcy Board (IBB), the focal point of the IBC.
- The IBB will need to establish a feedback loop of identifying gaps in the bankruptcy process, and use a sound regulation-making process to revise the regulations. IBB will also be the regulator for the two new regulated industries—information utilities and insolvency professionals.
- The ministry of finance has designed a ‘task force’ process for creating new institutions, an innovation compared with the traditional government approach of hiring a few wise men to do the job.
- Conventional government techniques of setting up a tribunal will collapse under this load. This calls for utilising the business process re-engineering that has been devised by Justice N.K. Sodhi and his team in the Task Force for the Financial Sector Appellate Tribunal.
- Financial Sector regulators such as the Reserve Bank of India (RBI), Securities and Exchange Board of India (Sebi) and for Insurance Regulatory Development Authority (Irda) will need to review and revise their regulations to ensure rapid resolution of default under the IBC.
- An example is the asset classification and provisioning norms specified by the RBI for banks. This should now switch to the global standards about how banks treat a firm where the bankruptcy process has begun.
- Similarly, Sebi’s norms for mergers and acquisitions, closure of listed firms, and debt to equity conversions will need review, as will similar provisions under the Companies Act, 2013.
- The new code will replace existing bankruptcy laws and cover individuals, companies, limited liability partnerships and partnership firms. It will amend laws including the Companies Act to become the overarching legislation to deal with corporate insolvency. It will also help creditors recover loans faster.
- The move is also expected to help India move up from its current rank of 130 in the World Bank’s ease of doing business index, since all reforms undertaken by 31 May are incorporated in the next ranking.
- On the parameter of resolving insolvency, India is ranked 136 among 189 countries. At present, it takes more than four years to resolve a case of bankruptcy in India, according to the World Bank. The code seeks to reduce this time to less than a year.
- The bill proposes the creation of a new class of insolvency professionals that will specialize in helping sick companies. It also provides for creation of information utilities that will collate all information about debtors to prevent serial defaulters from misusing the system.
- It also proposes to use the existing infrastructure of National Company Law tribunals and debt recovery tribunals to address corporate insolvency and individual insolvency, respectively.
- The bankruptcy code has provisions to address cross-border insolvency through bilateral agreements with other countries.
- It also proposes shorter, aggressive time frames for every step in the insolvency process right from filing a bankruptcy application to the time available for filing claims and appeals in the debt recovery tribunals, National Company Law Tribunals and courts.
- Bankruptcy applications will now have to be filed within three months; earlier, it was six months.
- To protect workers’ interests, the code has provisions to ensure that the money due to workers and employees from the provident fund, the pension fund and gratuity fund shouldn’t be included in the estate of the bankrupt company or individual
- There are also provisions that disqualify anyone declared bankrupt from holding public office, thereby ensuring that politicians and government officials cannot hold any public office if declared bankrupt.
- The government now needs to create state capacity for the four pillars of institutional infrastructure required for the Code to work. And it needs to plan a transition from existing provisions of laws, pending cases and financial regulations.
- Fore pillars are:
- new regulated industries of “information utilities and insolvency professionals agencies” like stock exchanges to brokers
- information repositories like stock depositories
- a new regulator, without the failings of existing regulators
- a high quality adjudication infrastructure
- without which the IBC caseload will collapse under the inefficiencies of courts and tribunals.Unless these four pillars are in place, the Code will fail.
- The Code provides for a National Company Law Tribunal (NCLT) for corporate insolvency resolution and Debt Recovery Tribunals (DRT) for individual insolvencies. The NCLT and NCLAT (the appeals body) are yet to become operational.
- Even when they do, they are going to be a common forum for two major laws, the Companies Act and the IBC. This means that the NCLT will have the case load of the Company Law Board (CLB), the high courts and the Board for Industrial and Financial Reconstruction.
- CLB had 5,862 cases pending as of March 2014. The high courts had 4,814 winding up cases and 231 cases of amalgamations under Section 394, pending as of March 2014. The BIFR had 871 pending cases in March 2013. Further, many of the banks’ existing non-performing asset (NPA) accounts might find themselves as new cases under the IBC.
- Multiple cases dealing with recovery actions by lenders, resolution and winding up are pending at present. A transition plan must be created ahead of time, put up for public inputs and finalised. New institutions, arrangements and funds must be put into place before the new law comes into force. Without this, the transition process will be chaotic.
- The IBC interacts with numerous laws. For example, the Code visualises rapid closure of firms in liquidation. However, earlier attempts to do the same have run into conflict with labour laws and the Industrial Disputes Act, 1947.
- In summary, enacting the IBC will be a great step forward for Indian economic reforms. But the gains for the economy will come only after an exercise in complex project management covering eight areas:
- Creation of the regulator
- Creation of an adequate National Company Law Tribunal
- Creation of an adequate Debt Recovery Tribunal
- Creation of Information Utilities
- Creation of Insolvency Professionals
- Drafting a transition process for existing cases
- Ensuring interoperability with existing laws
- Modifying financial sector regulations
- Failure on any of these could mean failure to achieve the objective of the Code—a sound bankruptcy process.
Topic: Resource mobilization
7) What do you understand by double taxation? Why countries like Mauritius have become tax havens for tax evaders? Also discuss how will the recent amendment to India’s bilateral Double Taxation Avoidance Agreement with Mauritius benefit India. (200 Words)
- A taxationprinciple referring to income taxes that are paid twice on the same source of earned income. Double taxation occurs because corporations are considered separate legal entities from their shareholders.
- Indiahas comprehensive Double Taxation Avoidance Agreements with 88 countries. This means that there are agreed rates of tax and jurisdiction on specified types of income arising in a country to a tax resident of another country.
- Under the Income Tax Act 1961 of India, there are two provisions,
- Section 90 and Section 91, which provide specific relief to taxpayers to save them from double taxation.
- Section 90 is for taxpayers who have paid the tax to a country with which India has signed DTAA
- while Section 91 provides relief to tax payers who have paid tax to a country with which India has not signed a DTAA. Thus, India gives relief to both kinds of taxpayers.
- According to a UN paper (UNCTAD), double taxation most often occurs when both the source country and the country of residence concurrently exercise their taxing right without providing full relief for the other country’s tax. Countries enter into double tax treaties to minimize the double taxation arising out of this intersection and the resulting unfairness.
Why countries like Mauritius have become tax havens for tax evaders?
- opacity of using tax havens means they are a breeding ground for parking bribe money, circulating money laundering proceeds or other movements of international crime money like Panama.
- A tax haven is a country that offers foreign individuals and businesses little or no tax liability in a politically and economically stable environment.
- Tax havens also provide little or no financial information to foreign tax authorities.
- Individuals and businesses that do not reside in a tax haven can take advantage of these countries’ tax regimes to avoid paying taxes in their home countries.
- Tax havens do not require that an individual reside in or a business operate out of that country in order to benefit from its tax policies.
- In Panama, there are firms that can help set up a company within 48 hours and provide nominee directors/shareholders
- ease of setting up companies/trusts/foundations, , the possibility to hide beneficial ownership
Benefits of the recent amendments to DTAA of Mauritius :
- Amendment to the 1983 India-Mauritius treaty, which will come into force on 1 April 2017, will also apply to the India-Singapore treaty,shutting two lucrative investment routes preferred by foreign investors
- The amended India-Mauritius double taxation avoidance treaty has also provided for a limitation of benefit clause that will ensure that only genuine Mauritius-based companies get the benefit of the bilateral tax treaty.
- The government said the amendment has been designed to curb treaty abuse, tax evasion and round-tripping of funds
- changes in the tax treaty will complement the government’s efforts to plug tax evasion and tax avoidance and its fight against black money—untaxed, unaccounted wealth hidden away by Indians.
- Under the amended treaty, only those Mauritius-based companies that have a total expenditure of more than Rs.27 lakh in the preceding 12 months will be able to benefit from the tax treaty.
- Curb revenue loss, prevent double non-taxation, streamline the flow of investment and stimulate the flow of exchange of information between India and Mauritius
- It is also expected to discourage speculators and non-serious investors, and thereby reduce volatility in the market.
- The practice of setting up companies in Mauritius merely to take advantage of the DTAA and the prevailing low tax rates there will now be rendered pointless.
- The DTAA amendment will also ensure India’s conformity to the Organisation for Economic Cooperation and Development and G20-led guidelines on combating base erosion and profit shifting.
- For a country keen to play a greater role in global decision-making, the move to seal a key route for the round-tripping of capital generated out of tax-dodging enterprises will help boost both revenue and confidence in the rule of law in India.
- With the tax arbitrage possibility doused, it can be expected that foreign portfolio investment data would improve in quality as it is likely to reflect faith in the strength of India’s macroeconomic fundamentals.
- It is beyond doubt that ensuring a level playing field for all international investors, irrespective of domicile, can only serve to enhance India’s attractiveness as an investment destination in the long run.
General Studies – 4
Topic: Information sharing and transparency in government; strengthening of ethical and moral values in governance
8) Recently the government released detailed income tax data which has generated debate on its implications for the economy. But what are the moral and ethical issues this data has given rise to? Examine. (150 Words)