SECURE SYNOPSIS: 31 January 2017
NOTE: Please remember that following ‘answers’ are NOT ‘model answers’. They are NOT synopsis too if we go by definition of the term. What we are providing is content that both meets demand of the question and at the same time gives you extra points in the form of background information.
General Studies – 1;
Topic: Poverty and developmental issues
1) Do you think enforcing the minimum wage law, releasing funds on time for MGNREGS and similar such measures are effective in removing inequality and poverty than introducing universal basic income (UBI) or direct cash transfer schemes? In the light of proposal to introduce UBI, critically discuss. (200 Words)
The idea of a universal basic income (UBI) has been gaining ground globally. While Switzerland held a referendum on it last year (it was voted down), Finland introduced it earlier this month. The government of India’s flagship Economic Survey this year has endorsed the UBI, setting the stage for its introduction.
The Universal Basic Income is a proposed form of social security that is designed to lift people above the poverty line, to protect citizens as automation lessens the number of available jobs, and to boost the economy by enabling citizens to spend more. The UBI system would be implemented on an unconditional basis, meaning that every citizen would receive it without having to submit to a means test.
The UBI debate in India has been a narrow one — restricted, for the most part, to financial viability. Its advocates argue that it is a more efficient way of delivering welfare, while its opponents hold that the fiscal burden would be too much.
Efficient welfare measures v/s UBI
- MGNREGA has shown to uplift women, SCs and STs, and according to WB, it has brought millions out of poverty.
- Oxfam report on inequality has time and again stressed on importance of minimum wage laws to combat inequality.
- Fiscal deficit: Estimates of 11-12% GDP for UBI v/s 4-4.5% for present welfare system.
- Issue of misuse: UBI could lead to misuse of money on alcohol, drugs, etc. while a targeted welfare mechanism (minimum wage law, timely payments in MGNREGA) can prevent this and lead to asset creation as well.
- Work also serves the purpose of boosting self-confidence and dignity which is not the case with UBI
At the same time,
- Pilot projects in MP has shown UBI to improve nutritional outcomes, increase girl child enrolment in schools, encourage greater work ethic among citizens, and so on
- This augurs well for UBI. However, at the same time, it is essential to ensure adequate tax revenue collection given the costs of UBI and 100% financial inclusion for fool-proof cash transfers.
- Its non-market distorting: No challenge by WTO and better for signing FTA’s.
- It will boost private consumption led demand creating better opportunities in the private sector. This would revive capital formation in this sector.
- It will save lot of administrative and bureaucratic capital which can be invested in productive activities.
- We can eradicate poverty at a faster pace and provide better livelihood to crores of Indians.
Proponents of various welfare schemes within India have often argued for their proposed policy on the basis of social experiments carried out within a district or a town where the scheme has been successful. Yet they must realize that a “one size fits all” policy has often failed in India because of the country’s diversity. Small pilot successes do not signal readiness for an all-India implementation. At the same time automation, less job growth, and a burgeoning youth population are social realities as well. If youths are not offered employment, the government has to ensure that they are taken care of or face a serious social problem in the long term.
It is in this respect that UBI must be understood and implemented, if it is to be acted upon. UBI cannot be a remedy for all problems, but if implemented right, it may be able to provide certain answers.
Topic: Changes in critical geographical features (including waterbodies and ice-caps) and in flora and fauna and the effects of such changes.
The changes in land use have deep impact on the climate change in following ways:-
- Weather & Climate-Deforestation or urbanization may influence the nature of the heat fluxes and availability of water vapor. Deforestation in central Africa and South America may have played a role in the shifting of the thunderstorms associated with the ITCZ. Since most of the world’s thunderstorms occur over land so when spatial differences in thunderstorms occur, it can affect the atmospheric circulation systems and affect weather and climate.
- Ecosystem services & livelihood-Interventions like converting agricultural land for housing or industry, filling up ponds and building housing complexes on lake beds, etc. impact ecosystem services and climate adaptation. These especially affect the poor who are largely reliant on ecosystems for their livelihoods
- Albedo-According to World Meteorological Organization’s-“Land-use changes (e.g. cutting down forests to create farmland) have led to changes in the amount of sunlight reflected from the ground back into space (the surface albedo).
- GHG-Tropical deforestation, which changes evapotranspiration rates, effects of agriculture, groundwater, soil moisture etc is there when the land is disturbed since the stored carbon dioxide along with methane and nitrous oxide is emitted, re-entering into the atmosphere and hence contributing to global warming
- Heat Island-Urban unsustainable sprawl has lead to the increased amount of heat released within a densely populated area known as the urban heat island effect which has altered precipitation patterns, and more frequent and extreme weather events.
- Dams hinder the flow of silt and formation of river deltas causing the loss of valuable wetlands.
- Concretization retard the absorption of rainwater thereby aggravating the ground water table, choking of storm drains, flooding of high density urban areas etc
- Unwise shifting to cash crops like sugarcane in water deficient areas like Marathwada has terribly exhausted the ground water and consequently the water availability plummets so much that the land may not be able to sustain the growth of even hardy crops which could otherwise have done well even with scanty rainfall
- Concretization of river banks deters the inundation of neighbouring farms and fields with fertile silt and the percolation of mineral rich water which help in bumper harvest
More sustainable and more inclusive growth utilizing the ecosystem services, renewable energy, more R&D, following Paris agreement, kyoto protocol 2, CDM, Green climate fund & local awareness is the need of the hour. One should understand earth doesn’t belong to us but we do belong to earth.
Topic: population and associated issues,
3) The recent executive order by Donald Trump clamping down on immigration from seven predominantly Muslim nations is aimed at bolstering national security. How does immigration affect an economy? Critically examine. (200 Words)
US President Donald Trump’s first steps to tighten American border policy have, unsurprisingly, courted controversy. His executive order clamping down on immigration from seven predominantly Muslim nations is aimed at bolstering national security. The issue that had dominated his campaign trail and much of the first week of his presidency—stopping illegal immigration from Mexico—is a different matter. The driving impulse here, even if obfuscated by unfortunate rhetoric and a border wall solution that is essentially a boondoggle, is economic.
- It will reduce the burden on national resources and exchequer which can be further used to serve its own citizens.
- Security of employment for the citizens will reduce the country’s unemployment rate and prevailing social inequality.
- More land availability to provide the housing facility and basic amenities to its citizens.
- Its easy to maintain consensus and social solidarity in less diverse society with the common roots of origination.
- It will reduce the burden on legal, judicial, administrative institutions.
- It is against the spirit of globalization and freedom of labor migration.
- It is not ethically and morally valid and violate basic human rights of secured life and dignity.
- Migrated population increase the proportion of tax payers.
- Availability of labor reduces the need of automation drive, the prices of labor intensive goods, thus check inflation.
- Competitive spirit promotes with the migration of skilled and literate workers from other parts of world.
- Promote harmony and brotherhood in the world when they unitedly stand to support immigrated people.
- It may sometimes promote radicalization and growth of terrorist activities as can be seen in European nations.
Economists generally agree that the effects of immigration on the U.S. economy are broadly positive. Immigrants, whether high- or low-skilled, legal or illegal, are unlikely to replace native-born workers or reduce their wages over the long-term, though they may cause some short-term dislocations in labor markets. Indeed, the experience of the last few decades suggests that immigration may actually have significant long-term benefits for the native-born, pushing them into higher-paying occupations and raising the overall pace of innovation and productivity growth. Moreover, as baby boomers have begun moving into retirement in advanced economies around the world, immigration is helping to keep America comparatively young and reducing the burden of financing retirement benefits for a growing elderly population. While natives bear some upfront costs for the provision of public services to immigrants and their families, the evidence suggests a net positive return on the investment over the long term.
General Studies – 2
Topic: Effect of policies and politics of developed and developing countries on India’s interests, Indian diaspora.
4) The American President Trump believes Russia is no longer the U.S.’s principal global rival. Do you think it will be easy for his administration to reset America’s ties with Russia? If it succeeds, will it be a good news for India? Discuss. (200 Words)
The election of Mr Trump as American president has brought the possibilities of cooperation between cold war rivals, USA and Russia. Any such resetting of ties would have long lasting impact not only on the future of these two countries but for the whole world.
Reasons for Mr Trump’s friendly attitude towards Russia-
- The new American president has shown soft stance towards Russia since his election campaigns. This stance is result of different factors like, an ideological opposition towards what he calls “radical Islamic terrorism”, improving ties with Russia, and taking on China. These three themes are somehow interlinked.
- Trump believes Russia is no longer the U.S.’s principal global rival. In his world view, China is rising to that stature. To be sure, Russia, with its enormous land and natural resources and strategically important geography and military might, remains a key geopolitical power. But its economy is inherently weak, a shadow of the Soviet economic power. Though Russia retains huge influence in its backyard, it’s doubtful whether it alone could pose a long-term strategic threat to the U.S.
- On the other side, China is an economic powerhouse that wields enormous influence around the world. But China’s force-projection capabilities are limited as its seafront remains vulnerable. The U.S. has massive military presence in the Chinese sphere of influence. But if Russia and China come together — which has actually been taking place in recent years, be it in trade and economic ties or the collaboration at the United Nations on global conflicts — that would pose a potential threat to long-term American interests. Mr. Trump would like to use his overtures to Russia to drive a wedge between Moscow and Beijing.
Difficulties for Mr Trump to reset America’s ties with Russia-
- Improving relations will only be successful if the sanctions on Russia imposed by US (alleging the former of human rights violations in Crimea and Syria) are lifted. This step however could further alienate the Russianphobic officials and public from his administration and Nation.
- The issue of NATO impinging on the front door of Russia has to be addressed. Russia and its allies have always been critical about NATO’s presence in the region and Mr Putin may have to force Mr Trump to free the Russian neighbor lands. Though trump himself has been criticizing NATO but still USA’s exit will raise the eyebrows from Europe as well.
- Moscow in bargain with USA. Trump’s policies of putting America First might need some new dimensions if he has to see this partnership flourish.
US-RUSSIA friendly ties will also have a huge implication on Indian interests-
- Having good relation with both the countries India will gain huge diplomatic support as well as increased trade and defense deals.
- It will further boost India’s chance of UNSC and NSG membership.
- India would not have to balance both the countries in a bid not to antagonize any one of them.
- It could help to counter both Pakistan and China on various fronts like Military, Terrorism, Economics and Geopolitics.
- However this might also result in heightened tensions with China which thereby might result in disturbing the peace and diplomatic ties between the two countries.
It would be too early to conclude that Mr Trump would reset the American ties with Russia in an amicable manner. Any such attempt would surely benefit India. However the actual policies of Mr Trump would have to observe to carefully before coming to any definite conclusion.
Topic:Effect of policies and politics of developed and developing countries on India’s interests, Indian diaspora.
Mr Trump has won the presidential elections on the promise of ‘America First’ policy. This implies that the new President would revive America’s economic prospect at any cost. This could affect countries like India who have dependent heavily on USA for its export, particularly in services sector.
How economic nationalism of Trump would affect India?
- There is anxiety that the Trump policy apropos H1-B visas for all foreign citizens seeking employment in the US will adversely impact Indian information technology professionals.
- Further, outsourcing of work from USA like BPOs may get reduced which had created large-scale employment in developing countries like India.
- Trump has called for reducing of corporate taxes in US so that business gets revived. This may hamper countries like India as investments and businesses may get shift back to USA.
- The trade protectionism of Mr Trump would shrink the market for exports of India. The USA has been the proponent of free trade till present. But sudden shift from its established policy would hamper the trade prospects of India.
- Mr Trump has withdrawn America from the regional trade agreement like TPP. India was kept out of TPP making it difficult for India to trade with countries involved in TPP. However the withdrawal of USA has made the future of TPP uncertain, relieving India’s worry.
Though trade and commerce opportunities are under threat, India can always work out solutions for this.
- India offers one of the biggest markets for American goods. Thus India can leverage its market advantage for opening of American market for export of Indian services sector in particular.;
- The other important step is to diversify export markets so that any chances of shrinking of market in particular country should not affect overall business opportunities.
- India trade protectionism by USA can be contested at WTO as USA has many times compelled India to open its market taking the help of WTO.
- India could sign separate trade deals with USA with the objective of mutual benefit and keeps Indian business in America as usual.
With the increasing globalization and integration of economies, it would be difficult for Mr Trump to revert to the economic nationalism unilaterally. However in such cases other nations will have to change their policies and adjust to the new change.
General Studies – 3
Topic: Economic growth and development; Resource mobilization
6) What do you understand by a ‘bank run’ or a ‘run on the bank’? How is RBI ensuring financial stability and pre-emption of bank runs? In the light of recent demonetization, critically examine. (200 Words)
A bank run occurs when a large number of customers of a bank or another financial institution withdraw their deposits simultaneously due to concerns about the bank’s solvency. As more people withdraw their funds, the probability of default increases, thereby prompting more people to withdraw their deposits. In extreme cases, the bank’s reserves may not be sufficient to cover the withdrawals.
A bank run is typically the result of panic rather than true insolvency on the part of the bank. However, the bank does risk default as more individuals withdraw funds; what began as panic can turn into a true default situation. A bank run triggered by fear that pushes a bank into actual insolvency represents a classic example of a self-fulfilling prophecy.
How Bank Runs Happen?
Because banks typically keep only a small percentage of deposits as cash on hand, they must increase cash to meet depositors’ withdrawal demands. One method a bank uses to increase cash on hand is to sell off its assets, sometimes at significantly lower prices than if it did not have to sell quickly. Losses on selling the assets at lower prices can cause a bank to become insolvent. A bank panic occurs when multiple banks endure runs at the same time.
Example- The stock market crash of 1929 precipitated a spate of bank runs across the country, ultimately culminating in the Great Depression.
Steps taken by the RBI to ensure Financial Stability
- Strict reporting –It laid down guidelines for new reporting standards, and classification of NPA’s which prevented masking of ‘stressed assets’ by banks and ultimately leading to higher provisioning requirement to improve safeguard.
- Too big to fail –Classifying biggest banks as Domestically Systematically important Banks (D-SIB) and mandating additional reserve requirement for them.
- Thrust on Digital Banking –To prevent excessive withdrawals due to panic created by demonetization, it is encouraging banks to adopt cost-effective digital way (UPI mechanism), also has reduced online charges.
- Others –Credit Rationing (PSL), Variation of Margin requirements, Moral Suasion, Digital and Financial Awareness program
Eg- In a bid to limit the banking sector’s exposure to highly leveraged corporates, RBI would allow banks to charge higher interest rates on borrowings (High risk -> High rate).
- Innovative measures like ‘Bad Bank’– advising government to infuse more capital into better performing PSB’s.
- Basel 3 implementation –Mandated Increase in Capital Adequacy Ratio (CAR) of banks and re-orientation of Risk Weighted assets (RWA).
- Reserve ratios –CRR (4%) and SLR (20.5%) requirement in India is on much higher side in global front, which has made banks much capable to absorb global shocks.
- Caps on external debt –Reduced fluctuations in Indian interest rates compared to more open emerging markets.
- Adequate information –Conducts regular stress tests, and releases the FSB report half-yearly, and also provides monthly monetary and credit information of banks
Further measures needed
- Low on stress test –Banking system is apparently not even prepared for the withdrawal of 10% of depositor’s funds.
- Overhaul of PSB working –Heavy burden of priority sector lending and Govt. interference in policy matters have led to operational bottlenecks and high NPA (Bank Board Bureau, Indradhanush would lead to better policy formulation – Nayak Comm.).
- Reduce heavy concentration of borrowings –Many large corporate are excessively leveraged and Banks to them are also very high, resulting into less diversification of portfolio & high NPA.
- Need to decrease reserve ratios (CRR and SLR)as such stringent provisioning requirements eats away Bank’s profits, and leverage the increase in deposits owing to demonetization
Banks act as a lifeline of the economy and act as leading indicator of economy, where increase in lending leads to increase in business environment and higher GDP growth. Demonetization may push the economy towards ‘digitization’ which would be boon for banking system, however it should be supplemented with other measures – reducing delay in infra projects, lessening black money etc