Are you Ready for Insta 75 Days Revision Plan (UPSC Prelims - 2020)?
SECURE SYNOPSIS: 18 February 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: Urbanization – problems and remedies
Urban planning is the need of hour for Indian cities as the heavy population is crumbling the urban infrastructure. The Indian cities have attracted economic activity being a growth pole and thus home to the 31.6% of the country’s population.
According to a survey by UN State of the World Population report in 2007, by 2030, 40.76% of country’s population is expected to reside in urban areas. The huge divide that exists between varied strata in cities leads to the social tension that ultimately leads to the violence. Issues ranges from unemployment, inhumane living conditions, hunger and psychological distress due to getting separated from main stream due to abject poverty.
Following are the potential areas where urban planning can improve the conditions
- Slums and ghettos are the most sensitive areas in urban ecology. The abject nature of poverty broods the criminal activities and forces young mind to involve into violence. Planning should be done for slum improvement.
- In order to manage the migrated population long term planning should be done to improve the conditions in surrounding areas. The development of rural urban fringe is equally important as the development of city.
- Proper implementation of Street vendor’s bill can solve the issue to large extent. Planning is essential to chalk out proper vendor’s zone in order to ensure employment and social security for urban poor.
- It is not just that poor are involved in violence. There are always the chances of disturbances created by issues such as caste and communal issues, migration, sexual offence etc. In order to tackle such problems urban body has to plan for resilient police system and rapid response team to control mob.
- Cybercrime and Cyber security challenges are peculiarly related to the urban areas. Efficient cyber cell and cyber police is the immediate need of time.
- Under the smart city plan the urban transport system can be improved to the large extent so that the usage of private vehicles can be reduces over a period of time.
- Planning for sustainable urban waste management plays key role in maintaining Health profile of urban residents.
- Sexual violence is one aspect of urban violence and this can be tackled by security measures such as CCTV, panic button in buses, digital apps like Himmat of Delhi police.
- Urban local governance should be empowered to handle issues in autonomous way. Local grievance redresal mechanisms such as lok adalat , family courts can play very vital role in effective justice delivery
Limitations for urban planning:
- There are some areas in urban establishments which have gone beyond the scope of planning as such and thus needs corrective and improvement measures. Core areas of metropolitan cities mainly fall into this category.
- There is dire need of Decongestion process in mega polis such as Delhi and Mumbai. The policy for decongestion is not yet clear.
- High land prices and poor conditions of land records make it tough to utilize land in efficient manner.
- Lack of financial strengths and revenue generation powers to urban local bodies.
The true spirit of 74rd amendment lies in the creating and maintaining a sustainable and smart urban space that caters the needs of all sections of society without any form of discrimination. This can be done by synergetic policy that involves planning, rehabilitation, modernization, decongestion and technological up gradation of Indian cities.
Topic: Role of women and women’s organization, population and associated issues
While lack of sanitation and hygiene affects all people living in such surrounding, it affects women more severely than men. A rapid study conducted in 2016 by WASH Institute and Sambodhi for this Economic Survey 2016-17 provides some insight on how women are more disadvantageous than men.
How women are disproportionately affected than men?
- For the majority of households without toilets, the Rapid Survey suggests some worrisome trends. 76 percent of women had to travel a considerable distance to use toilet facilities. The percentage is 77 in rural areas and 55 in urban areas.
- 33 percent of the women have reported facing privacy concerns and assault while going out in the open. The percentage varies from 34.1 in rural to 32.8 in urban areas.
- In the face of above considerable risks, the number of women who have reduced consumption of food and water are 33 percent and 28 percent respectively of the sample. Apart from illnesses, disruptions and deficiencies in the short -term, reduced food and water intake also causes severe long-term debilitating impacts on health, and impedes in cognitive development of girls and infants.
- Further women and men going out into the open have to cope also with exposure to natural elements, snakebites etc.
- Many girl students are reluctant to go to school or drop out of school due to absence of toilets in school.
- Work places which do not provide adequate sanitation and toilet facilities for women usually hamper their work efficiency.
In 2011, the Census reported that more than half of the country’s population defecated in the open. However there is gradual improvement in the situation. More recent data shows that about 60 percent of rural households up from 45% and 89 per cent of urban households have access to toilets – a considerably greater coverage than reported by the Census 2011.
In households with toilets women report far greater use of these in-home facilities than men, suggesting that there may be a greater demand amongst women. This pattern of usage suggests that women and girl-children could take a key leadership role to play in Swachh Bharat’s objective of creating defecation free communities, by nudging men and boys of the household to change their own defecation behaviors.
The first step to tackling this issue is to acknowledge the problem. This means generating more information on a topic that is socially considered taboo or ignored. Second, recognizing the positive behavioral patterns that women demonstrate upon obtaining access to sanitation services is critical. Equally, when these services are denied, they face considerable insecurity and nutritional risks. For this reason, ensuring safe and adequate sanitation, water security and hygiene—the objectives of Swachh Bharat—as part of a broader fundamental right to privacy must become a serious policy issue.
Women’s personal hygiene is therefore important not just for better health outcomes but also for the intrinsic value in conferring freedom that comes from having control over their bodies, a kind of basic right to physical privacy. Put differently, impeded access may well be creating “gender-based sanitation insecurity.”
General Studies – 2
Topic: Structure, organization and functioning of the Executive and the Judiciary
3) Judicial review of executive action is an essential aspect of the system of checks and balances in a constitutional democracy. Is the principle of judicial review under threat, especially in USA and India? Critically examine. (200 Words)
Judicial review is a process under which executive and (in some countries) legislative actions are subject to review by the judiciary. A court with judicial review power may invalidate laws and decisions that are incompatible with a higher authority; an executive decision may be invalidated for being unlawful or a statute may be invalidated for violating the terms of a written constitution. Judicial review is one of the checks and balances in the separation of powers: the power of the judiciary to supervise the legislative and executive branches when the latter exceed their authority.
Is the principle of judicial review is under threat in USA?
Recent face-off between executive and judiciary over the presidential order of banning immigration from 7 Muslim majority countries has created perception of distrust between the two. The present American president has criticized judiciary of opening up the country to ‘potential terrorists’ thereby compromising national security. This criticism is not just a matter of disagreeing with the correctness of the respective courts’ reasons for the orders. Rather, they are a direct attack on the legitimacy of the courts themselves. While previous American presidents have disagreed with judges on matters of policy and interpretation of the Constitution, they maintained the legitimacy of judiciary.
Though the conflict btw the executive and Judiciary is not a new experience but the fact that the recent example has doubted the judicial review of federal court, this reflects the new dimension of conflict.
But this could not put the judicial review under the threat owing to the supremacy granted to the judiciary, rigid constitutional amendment feature and security of tenure of judges which grants them autonomy and capacity to limit the executive decision. What we can say from recent incidences that The US may be about to enter an era of unprecedented conflict between the judiciary and the executive.
Is the principle of judicial review is under threat in India?
Although doctrine of judicial review is not explicitly mentioned in the constitution of India, judiciary derives this authority from art 32 in case of Supreme Court and art 226 in case of state high courts. In India too there have been many incidences of undermining judicial supremacy. Some of them are constitutional amendments 25th (1971) and 42nd (1976) to nullify doctrine of judicial review, during Indira Gandhi era judges were chosen and promoted for their adherence to the ruling party’s line, and not for their independence or ability and more recently decision of supreme court banning jallikattu sport has been overruled by promulgating ordinance by executive.
These incidences do show the growing friction between two important pillars of state. However it should be taken into account that institution of judiciary is evolving in India. In fact judiciary has taken number of steps to maintain its independence and power of judicial review like promulgating doctrine of basic structure (keswanand bharti case,1973), only senior-most judge of supreme court to become chief justice of India (second judges case, 1993), scrapping government’s decision of setting up of NJAC. Moreover some friction and healthy debates and discussions between executive and judiciary would only help in strengthening Indian institutions.
Effective functioning of executive, judiciary and legislature is important for healthy state of democracy. Maintaining the dignity and respecting the sovereignty of each other would determine the progress of Indian democracy. Discrete incidences in India or in USA are unlikely to jeopardize the authority of judicial review in both the countries.
Topic: Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests
4) “With other mega regional trade agreements like the Trans–Pacific Partnership in uncertainty, trade treaties like the Regional Comprehensive Economic Partnership will acquire greater significance beyond their original ASEAN-centred grouping.” Discuss. (200 Words)
The USA elections and Brexit phenomenon at global platform has led to the various changes in global trends and thus the Trade related aspects cannot be exception to this. RCEP has the very purpose to create an alternative trade agreement that includes the China and India which has been left by the TPP.
About Regional Comprehensive Economic Partnership (RCEP)
It is a proposed free trade agreement (FTA) between the ten member states of the Association of Southeast Asian Nations (ASEAN) (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam) and the six states with which ASEAN has existing free trade agreements (Australia, China, India, Japan, South Korea and New Zealand).
RCEP negotiations were formally launched in November 2012 at the ASEAN Summit in Cambodia.
RCEP potentially includes more than 3 billion people or 45% of the world’s population, and a combined GDP of about $21.3 trillion, accounting for about 40 percent of world trade.
RCEP and further prospects
- As India and china are the part of this mega block it has the huge potential to rise up at global level and set an example for the comprehensive economic partnership.
- Recognizing the centrality of ASEAN in Asia, the RCEP was supposed to take regional economic integration to another level. It might now become a venue for Asian powers.
- This agreement has the potential to diversify the trade basket due to variations in the trade compositions in countries involved in this mega trade block. The strengths and weaknesses of each other can be positively utilized to cater the needs of trade.
- RCEP involves many components along with goods, such as trade in services, investment, economic and technical co-operation, intellectual property, competition, dispute settlement and other issues.
- It is generally pursued that the failure of WTO has led to the formation of regional mega blocks such as RCEP , but simultaneously one has to make a point that the document of RCEP has provision to stick to the WTO rules and thus can act parallel with WTO for more liberal trade.
- There is probability that after the series of successful negotiations , RCEP can be expanded and include other countries as well . The founding document of RCEP has the provision for the further expansion.
Challenges for RCEP :
- The mere fall down of TPP will not led to rise of RCEP , as at international level , many aspects play a crucial role in successful functioning of mega trade block such as RCEP.
- The global sentiments about protectionism and anti-globalization may have its impact on Asian countries as well.
- Issues related with intellectual property rights needs a clear documentation from all stakeholders.
- Regional securities such as maritime security and south china sea disputes can create hindrance in the fruitful dialogue among the members.
One can say that it is too early to predict about success and failure of RCEP at this stage . it will take its own course of time. RCEP Negotiations will cover the four pillars of promotion, protection, facilitation and liberalization. Open dialogues , information exchange , Barrier free trade are the key aspects to enhance cooperation in the field of trade liberalization .
General Studies – 3
Topic: Role of external state and non-state actors in creating challenges to internal security
5) Critically examine the causes of increasing number of violence against Sufi shrines by jihadists in Pakistan. Also critically comment on the Pakistan’s role in allowing the ideology of jihad to flourish. (200 Words)
WHAT JIHAD IS –
- The Arabic word “jihad” is often translated as “holy war,” but in a purely linguistic sense, the word” jihad” means struggling or striving.
- The arabic word for war is: “al-harb”.
- In a religious sense, as described by the Quran and teachings of the Prophet Muhammad (s), “jihad” has many meanings. It can refer to internal as well as external efforts to be a good Muslims or believer, as well as working to inform people about the faith of Islam.
WHAT JIHAD IS NOT –
- Jihad is not a violent concept.
- Jihad is not a declaration of war against other religions. It is worth noting that the Koran specifically refers to Jews and Christians as “people of the book” who should be protected and respected.
- All three faiths worship the same God. Allah is just the Arabic word for God, and is used by Christian Arabs as well as Muslims.
Terrorism in Pakistan has been growing since last two decades. Jihadi groups once nurtured by Pakistan for short term gains are today seen as severe internal security threat to Pakistan. Terror groups like ISIS and other jihadi factions has been targeting Shias and other Muslim sects primarily for religious objectives of purification of Islam and establishment of Caliphate of Sunni sects .
CAUSES which have led to increasing crimes against Sufi shrines by Jihadists in Pakistan are:
- Political instability in Pakistan- Pakistan is dominated by many power centres like military, civilian govt. and other small fundamental factions which keep govt of day in hold; ISI has been nurturing Jihadis for decades for short term gains which seem to have back fired now.
- Rising fundamentalism world over- emergence of IS terror group which has presence in Pakistan has caused terror attacks in subcontinent targeting shias, sufis and other sects with sole objective of establishing IS version of Islam.
- The voiceless minority in a theocratic country– Sufism is a liberal form of Islam which is derided by fundamentalists. It enjoys little freedom due to political apathy.
- Failure of state – money laundering and easy availability of weapons in Pakistan is another reason which helps such jihadist-attacks to take place successfully. Growing bases of Radical Islamist groups- which tactically were allowed to flourish by the Pakistani Army.State apparatus does not consider jihadis as the enemy in the same manner as they pursue secular Baloch and Muhajir political activists or other critics of Pakistan’s policies. Failure of intelligence agencies and state forces to prevent suicide bombings and terrorist attacks.
- Jihadi justification – The jihadis justify their violence against Sufi shrines as attacks against ‘impure’ manifestations of the Islamic faith. Killing ‘unbelievers,’ ‘heretics’ and ‘deviants’ is an integral part of their plan to create a purer Islamic state.
Role of Pakistan in allowing the ideology of Jihadists to flourish:
- For decades Pakistan has seen jihadi groups as levers of its foreign and security policy. Every step against jihadis is followed by one in the opposite direction. Thus, the much publicized ‘Operation Zarb-e-Azb’ targeted out-of-control Pakistani Taliban in Waziristan but spared groups based in Punjab and Karachi. Hafiz Saeed’s recent detention was accompanied by blocking action against him and Masood Azhar at the U.N. with Chinese support.
- Its policy of differentiating between good and bad Terrorist has backfired- though it still sticks to the same (as seen in its reiteration of the same in the Moscow meet recently)
- Allowing Jihadists to flourish to spread cross border terrorism and use them in the proxy war against India has emboldened them.
- Its role in keeping areas such as Sindh and Balochistan as under developed has backfired which now has become the safe havens for such jihadist groups to flourish.
- In the process of securing strategic advantage, Pakistan has unleashed ideologically motivated groups on its soil that have morphed and mutated over time. While groups such as Hafiz Saeed’s Jamaat-ud-Dawa speak of Pakistan’s national interest, other groups such as Jamaat-ul-Ahrar have an ideological perspective that is not limited by the concept of modern nation states. For them, Pakistan is as dispensable as other states for the restoration of an Islamic caliphate and they have a God-given right to kill those they consider un-Islamic.
- Pakistan’s priority doesn’t seem to lie in the elimination of terrorism as much as it does in the maintenance of its geo-political stance and its national image. Pakistan has as always put the blame of these attacks on the Indian intelligentsia and the Afghanistan forces denying any responsibility on its part. Pakistanis spend more energy defending themselves against U.S. and Indian criticism over safe havens for the Afghan Taliban than they do on figuring out how to rid Pakistan of the cancer of jihadi terrorism.
Pakistan is now reaping what it has sown. Pakistan’s tolerance for terror groups undermines the country. It corrodes stability and civilian governance, damages the investment climate, and inflicts death and injury on thousands of innocent Pakistani citizens. In the light of recent attacks in Pakistan towards its own people, Pakistan must take action in reversing this extremist trend by delegitimizing its support to terror organizations and taking strong steps to uproot fundamentalist groups from its soil. International organizations like UN and other west powers must intervene and persuade Pakistan govt to stop its policy of jihadist nurturing to stop the Frankenstein monster. Pakistani authorities — specifically the country’s military leaders, who control its foreign and security policies — need to take a comprehensive approach to shutting down all Islamist militant groups that operate from Pakistani territory, not just those that attack the Pakistani state.
Topic: Achievements of Indians in science & technology; indigenization of technology and developing new technology.
Indian govt organizations are renowned for corruption, red-tapism, slow decision making, poor infrastructure etc. But, Indian Space Research Organization is breaking the global records in the space and raising up the India’s image at global level. ISRO’s ambitious missions – SCRAMJET, RLV, IRNSS, CARTOSAT MOM, CHANDRAYAAN, etc. are the few among many. The recent record breaking feat of ISRO of sending 104 satellites into space with a single rocket is an example to the world, which expresses the level of innovation potential in India. It also serves as an example to other PSUs of the country, to work effectively to overcome the shortcomings in administration and providing quality products to the population.
Factors contributing to ISRO’s success:
- Autonomy– Instead of reporting to a line ministry, ISRO directly reports to the PMO thus giving it the real autonomy which other government organizations seem to lack. In line ministries, ministers and bureaucrats have a tendency to micromanage their turf, and this includes autonomous bodies, agencies and enterprises. There is a senior official along with a set of junior officials who have direct charge of supervising the affairs of an agency. ISRO does not have to face this.
- Geographical location– headquartered in Bangalore, ISRO is less vulnerable to the impediments & political influence faced by other organizations located in Delhi (vulnerable to the diktats of the parent ministry and the slow-moving, cautious culture of an omnipresent bureaucracy); Bangalore is India’s science and technology hub with major institutions such as Indian Institute of Science, Indian Institute of Astrophysics, etc. located there. It has the right ecosystem to attract talent and build its knowledge capabilities more than most government agencies do.
- Importance of private sector– effective coordination with private sector, picking up the best facilities outside government setup.
- Staffing & human capital– ISRO recruits specialists right from its technocratic top management unlike generalists (bureaucrats) staffing the top management of other government organizations.
- Ability to learn from past failures– Before launch of Chandrayaan-1 mission, ISRO studied more than 51 projects, 60% of which had failed in their mission. Other PSEs can also emulate a similar approach for their projects.
- Organizational structure– ISRO has a separate wing for research & development (Vikram Sarabhai space center), separate commercial arm (Antrix), human resource development (Indian institute of space technology) making it self-sufficient to an extent.
(ISRO) as a role model for other public sector enterprises –
- The stellar success of ISRO has thus shown that it is feasible for the government to build high performing agencies of top quality.
- By being such a beacon of excellence, ISRO can help being an example to other PSUs to improve their administration practices, to provide better services to the citizens. Other PSUs can also start thinking about out-of-the-box trends to achieve the desired goals of quality maintenance.
- Cutting-edge research and development in spheres where there may not be ready profits is one area the government should focus on building ISRO-like institutions. Defence could be one such. A completely reformed Defence Research and Development Organization.
- The creation of high performing government bodies requires starting from scratch and focusing on a few basics: real autonomy from ministries, right geographical location/appropriate ecosystem, a team of specialists, partnership with the private sector and operating only in spheres where there is no alternative to government. The creation of a handful of such agencies could have a trans formative effect.
- Creation of such robust and high performing agencies will not only bring along the much needed economic growth, but will also help in strengthening India’s position on the international platform.
- The investment inflow through private sector, by way of Corporate Social responsibility, can also be managed effectively, in developing new production processes and better products.
In such a way ISRO can be a role model for rest of the public sector, and help in building a better public sector infrastructure in the country.
Topic: money-laundering and its prevention
Indian democracy is the largest democracy in the world. This requires periodic elections which are managed by ECI . But free and fair election is a distant dream because of black money involved in politics.
Political funding is one of the biggest sources of black money. Businessmen, big industrial houses, drug-traffickers, mafias, etc. route their money through anonymous funding to parties and convert into white.
Generation or Sources –
- POLITICAL PARTIES – To win election most of political parties themselves stock the black money from corruption. Many times party tickets are sold to party candidates.
- BUSINESS HOUSES – Many businessmen who may have earned by evading taxes.
- CONTRACTORS- Civil contractors also fund them to get contracts.
- FORIEGN ENTITIES- Many foreign firms as subsidiary Indian companies, NRI, PIO.
- SHADOW POLITICAL PARTIES- Many political parties which are not contesting any election but are registered as parties and converting black money into white.
According to factual data, an MLA asset has increased over 1000% from the earlier election.
Based on the analysis of consulting firm McKinsey & Company in 2013, shadow economy share is approx. 26% of nation’s GDP.
75% of political parties funding is from anonymous sources.
Black money in politics is used for various purposes as follows –
- ELECTION CAMPAIGN- Today every party is spending unduly high amounts on online campaigning and advertisements.
- INFLUENCING ELECTORAL- This Money is used for buying Votes. Example- around 300crore were caught by Election commissioner in 2014 Lok Sabha election.
- BUYING LEGISLATOR- This is also used for buying vote when party is falling in Majority to form government, election for Rajya sabha etc.
Ill effects –
- It is the root cause of corruption, social and economic inequalities, regional growth disparities, low tax/GDP ratio, less job market and failure of delivery of essential services to the public etc.
- POLITICAL/CORPORATE NEXUS- Party in Power will follow the policies of corporate sector.
- POLITICAL/CRIMINAL NEXUS- The funding from criminals makes criminalization of Politics and Politicization of Criminals.
- CORRUPTION – After spending money in elections, politicians try recovering the money through corrupt routes thus increasing corruption.
- UNFAIR ELECTIONS – Serious candidates cannot fight because of money and muscle power involved in election thus affecting right to equality of a citizen to take part in elections.
WAY OUT –
1) Formulating policies and regulations for the transparency of funding-
- De-register political parties which are proxy parties not fighting in election.
- Limit on the party expenditure.
- Cashless donations should be prioritized and limit on amount of total cash donations received by a particular party, such as only 25% of total donations can be in cash.
- State funding of election is a good idea but not ripe for implementation. Hence should opt for partial state funding.
- Mandatory ITR and strict actions in case of non-compliance.
- FCRA stringent regulation and strict compliance to block the foreign funding route.
- Bringing parties funding under RTI ambit and regular audit and compulsory Tax return filing under prescribed time limit.
2) Awareness campaign towards the ill effects of black money.
3) Restructuring and reforming tax system.
4) Measures like Demonetization – It directly attacks BLACK MONEY hoarded by Politician, bureaucrats, Naxals, etc.
Politics is not supposed to be money making business rather it is a service to country. One should follow ethical values & guidelines. Clean politics and free and fair election will ultimately strengthen the democracy and will promote socioeconomic development and will create an inclusive society.
Topic: Indian economy – growth and development
8) In recent years, the role of ratings agencies has increasingly come into question. Examine why. Do you think the poor rating of India by these rating agencies truly reflect India’s present economic reality? (200 Words)
A credit rating agency (CRA, also called a ratings service) is a company that assigns credit ratings, which rate a debtor’s ability to pay back debt by making timely interest payments and the likelihood of default. An agency may rate the creditworthiness of issuers of debt obligations, of debt instruments, and in some cases, of the servicers of the underlying debt, but not of individual consumers.
Why in recent years the role of rating agencies is being questioned?
Credit Rating Agencies (CRAs) (namely the tree major ones: Fitch Ratings, Moody’s Investors Service and Standard & Poor’s) have been under a lot of criticism in the recent credit crisis. Indeed, not only have CRAs been accused of making errors of judgment in rating structured debt securities, but also of operating a biased business model in an oligopolistic market.
- Critics maintain that this rating, out looking, and watching of securities has not worked nearly as smoothly as agencies suggest. They point to near-defaults, defaults, and financial disasters not detected by the rating agencies’ post-issuance surveillance, or ratings of troubled debt securitiesnot downgraded until just before (or even after) bankruptcy. These include the 1976 New York City fiscal crisis, the 1994 Orange County default, the Asian and Russian financial crises, 2001 Enron and WorldCom bankruptcies, and especially the 2007–8 subprime mortgage crisis.
- There exist an inherent methodological shortcomings and flaws in the functioning of CRA’s.
- The ratings process relies on subjective judgments. This means that governments, for example, that are being rated can often inform and influence credit rating analysts during the review process.
- The rating agencies’ interest in pleasing the issuers of securities, who are theirpaying customers and benefit from high ratings, creates a conflict with their interest in providing accurate ratings of securities for investors buying the securities.
- The functional use of ratings as regulatory mechanisms may inflate their reputation for accuracy.
Do ratings reflect India’s true economic conditions-?
One of the big three Standard & Poor’s in November 2016 ruled out the scope for a ratings upgrade for some considerable period, mainly on the grounds of its low per capita GDP and relatively high fiscal deficit.
- It takes almost half a century for country to move from lower middle income to upper middle income. Thus a criterion like per capita GDP really does not hold much significance.
- India is presently the fastest growing economy (among major economies) in the world (IMF) and therefore, its per capita incomes are set to rise gradually, relative to emerging market economies.
- India’s commitment to fiscal discipline exhibited over the last three years suggests that its deficit and debt ratios are likely to decline significantly over the coming years. Even if this scenario does not materialize, India might still be able to carry much more debt than other countries because it has an exceptionally high “willingness to pay”, as demonstrated by its history of not defaulting on its obligations.
- Political stability in India and its strong democratic credentials are set to strengthen economic foundations and propel its economy towards sustainable growth.
- India’s strong foreign exchange and resilient banking sector and efforts towards financial inclusion and digitization seem to put India into higher growth trajectory.
Hence credit ratings by these agencies seem to be biased. Let’s consider example of china, which launched an historic credit expansion, leading to credit-GDP ratio rise by an unprecedented about 63 percentage points of GDP, much larger than the stock of India’s credit-GDP ( High credit-to-GDP seriously increases the vulnerability of the economy.). At the same time, Chinese growth has slowed from over 10 percent to 6.5 percent. This has potential to create serious risk for china and also for the world. Still in December 2010, it increased China’s rating from A+ to AA- and it has never adjusted it since, even as the credit boom has unfolded and growth has experienced a secular decline.
In contrast, India’s ratings have remained stuck at the much lower level of BBB-, despite the country’s dramatic improvement in growth and macro-economic stability since 2014. Thus credit rating agencies have either ignored Indian growth trajectory or have failed to recognize it.
Disadvantages of credit rating-
- Biased rating and misrepresentations: In the absence of quality rating, credit rating is a curse for the capital market industry, carrying out detailed analysis of the company, should have no links with the company or the persons interested in the company so that the reports impartial and judicious recommendations for rating committee.
- Static study: Rating is done on the present and the past historic data of the company and this is only a static study. Prediction of the company’s health through rating is momentary and anything can happen after assignment of rating symbols to the company. Dependence for future results on the rating, therefore defeats the very purpose of risk indicativeness of rating. Many changes take place in economic environment, political situation, government policy framework which directly affects the working of a company.
- Concealment of material information: Rating Company might conceal material information from the investigating team of the credit rating company. In such cases quality of rating suffers and renders the rating unreliable.
- Rating is no guarantee for soundness of company: Rating is done for a particular instrument to assess the credit risk but it should not be construed as a certificate for the matching quality of the company or its management. Independent views should be formed by the user public in general of the rating symbol.
- Human bias: Finding off the investigation team, at times, may suffer with human bias for unavoidable personal weakness of the staff and might affect the rating.
- Difference in rating of two agencies: Rating done by the two different credit rating agencies for the same instrument of the same issuer company in many cases would not be identical. Such differences are likely to occur because of value judgment differences on qualitative aspects of the analysis in two different agencies.
Topic: Indian economy – growth and development
9) When it comes to India’s reformist and market oriented credentials, the latest economic survey argues that India is not yet following the standard development model. In what ways is India different? Analyse. (200 Words)
Economic Survey 2016-2017, Chapter 2 (Page 42)
Since about 1980, India’s growth performance has been robust, especially for a democracy. This has been backed up by policy reforms that have made India more open to flows of goods and capital and have reduced the size of the public sector, both in micro-efficiency and macro-fiscal terms. Yet, there are serious challenges that might impede further rapid progress which emanate in part from the fact that India started out as a poor democracy with deep social fissures. These long – standing challenges can be classified as ambivalence about property rights and the private sector, deficiencies in state capacity, especially in delivering essential services, and inefficient redistribution. Meeting these challenges is not just a matter of overcoming vested interests; it may also require broader societal shifts in ideas and narratives.
In what ways India is different from standard development model?
- Ambivalence about private sector and property rights– Given the socialist model of economic development in the initial phase after independence, there has been distrust towards private sector. Thus there exists ambivalence towards private sector in India and it appears that India has distinctly antimarket beliefs relative to others.
The symptoms of this ambivalence toward the private sector manifest in multiple ways. The most well-known example is the difficulty of privatizing public enterprises, even for firms where economists have made strong arguments that they belong in the private sector. Eg Civil Aviation sector, Banking sector, fertilizer sector etc.
A similar legacy from the past circumscribes property rights. Initially the right to property was inscribed as a “fundamental right” in the Constitution. But during the socialist era the 44th Amendment removed Articles 19 (1) (f) and Article 31 and replaced them with Article 300-A, thereby downgrading property to that of a “legal right”. The ramifications of this decision continue to be felt to this day, in such issues as retrospective taxation.
Although the attitude towards private property is changing it will take long time to accept private property as mainstay of economic growth.
- Weakness of State capacity– A second distinctive feature of the Indian economic model is the weakness of state capacity, especially in delivering essential services such as health and education. While competitive federalism has been a powerful agent of change in relation to attracting investment and talent it has been less evident in relation to essential service delivery. Although there are some exceptional examples like improvement of the PDS in Chhattisgarh and Bihar, the incentivizing of agriculture in Madhya Pradesh, the kerosene-free drive in Haryana, and the efficiency of social programs in Tamil Nadu, however, on health and education in particular, there are insufficient instances of good models that can travel widely within India and are seen as attractive political opportunities.
Weakness of state policy has also created two more problems. 6 First, there is now adherence to strict rules—for example auctions of all public assets—that may not necessarily be optimal public policy. Second, there is abundant caution in bureaucratic decision-making, which favours the status quo.
Thus capacity of state must be strengthened to provide basic services like health and education, to end policy paralysis and to fulfill the promise of good governance.
- Inefficient redistribution- Effective redistribution must be carried out in country like India in order to minimize the inequalities. However redistribution by the government is far from efficient in targeting the poor in India. According to economic survey 2016-17 welfare spending suffers from considerable misallocation. The districts with the most poor suffer from the greatest shortfall of funds. This leads to: exclusion errors (the deserving poor not receiving benefits), inclusion errors (the non-poor receiving a large share of benefits) and leakages (with benefits being siphoned off due to corruption and inefficiency).
According to economic survey 2016-17 probable reasons of India’s such present condition are: India, at independence, was a very poor democracy with a per capita GDP of just $617 measured in purchasing power parity prices. At the same time, India was also a highly cleavaged society. Historians have remarked how it has many more axes of cleavage than other countries: language and scripts, religion, region, caste, gender, and class. Further India granted voting rights to all sections of population which made fiscal and economic development a tough task.
India has come a long way in terms of economic performance and reforms. But there is still a journey ahead to achieve both dynamism and social justice. All the obstructions and hurdles are lessons for inefficient redistribution, and the legitimacy of the private sector and the state that may prove crucial as India moves along on the next stage of its economic journey.
Topic: Indian economy – growth and development
On November 8, 2016, the government announced a historic measure, with profound implications for the economy. The two largest denomination notes, Rs 500 and Rs 1000, were “demonetized” with immediate effect, ceasing to be legal tender. At one fell stroke, 86 percent of the cash in circulation was thereby rendered invalid.
Objectives of the demonetization move-
- To unearth the accumulated black money.
- To curb corruption.
- To arrest the circulation of counterfeit notes.
- To curb the use of higher denomination notes for terrorist activities.
Observations of economic survey on the objectives of demonetization move-
- Tax on black money- Those with black money faced three difficult choices. They could:
- Declare their unaccounted wealth and pay taxes at a penalty rate;
- Continue to hide it, not converting their old notes and thereby suffering a tax rate of 100 percent;
- Launder their black money, paying a cost for converting the money into white.
Anecdotal evidence suggests there was, indeed, active laundering. One laundering mechanism seems to have been to “re-time” the accrual of income, by constructing receipts that made it seem as if the black money had just been earned in the period immediately before November 8th, 2016. Such schemes might have allowed black money to have been deposited in bank accounts, but only if the income was reported and taxes paid on it. In this way, demonetisation would have brought black money into the tax net. Other schemes would have required black money holders to pay a percentage to private intermediaries as a price for converting it into white. In all these cases, black money holders still suffered a substantial loss, in taxes or “conversion fees”. Moreover, bank accounts are still being screened for suspicious transactions, which mean that those who engaged in laundering run the risk of punitive taxes and prosecution, in addition to the fees or taxes already paid.
- Tax compliance – Demonetization move is demonstration of the state’s resolve to crack down on black money, showing that tax evasion will no longer be tolerated or accepted as an inevitable part of life. Since this action has commanded support amongst the population, demonetization shows that black money will no longer be tolerated by the wider public, either. These two sanctions – financial penalty and social condemnation – could have a powerful and long-lasting effect on behavior, especially if they were combined with other incentive-compatible measures. In this case, evaders might decide in the years to come that it would be better to pay a moderate regular tax, rather than risk having to pay a sudden penal tax. Corruption and compliance could be permanently affected.
- Tax on informal savings- This move will channel savings into the formal financial system. Even most of the deposited cash would be taken out of the banks, some of the new deposits will surely remain in the banks, where they will provide a base for banks to provide more loans, at lower interest rates.
Along with these, survey has observed early evidences of long term impact of this move-
- Digitalization- One intermediate objective of demonetisation is to create a less-cash or cash-lite economy, as this is key to channeling more saving channeled through the formal financial system and improving tax compliance. The Watal Committee has recently estimated that cash accounts for about 78 percent of all consumer payments. In the wake of the demonetisation, the government has taken a number of steps to facilitate and incentivize the move to a digital economy. These include:
- Launch of the BHIM (Bharat Interface for Money) app for smartphones. This is based on the new Unified Payments Interface (UPI) which has created inter-operability of digital transactions. By January 10 2017, over 1 million transactions had been conducted.
- Launch of Aadhaar Merchant Pay, aimed at the 350 million who do not have phones. This enables anyone with just an Aadhaar number and a bank account to make a merchant payment using his biometric identification.
- Reductions in fees (Merchant Discount Rate) paid on digital transactions and transactions that use the UPI.
As people have started to use such e-payment systems, they have discovered that it is more convenient to conduct financial activities electronically. And they are finding that such transactions are feasible in many more places, because demonetisation is creating network effects: as first movers embrace e-payments, others find it worthwhile joining them; and as more households participate, more firms are participating as well. That said, the security features of these e-payment systems will need to inspire trust, to ensure this trend continues.
- Real estate- Decrease in proportion of black money and increase in electronic transactions would help in reducing real estate rates. It has been observed that weighted average price of real estate in eight major cities, which was already on a declining trend fell further after November 8, 2016.
Effects of recent demonetisation move-
|Sector||Short term effect||Long term effect|
|Money/interest rates||Cash declined sharply, Bank deposits increased sharply, Interest rates on deposits, loans, and government securities declined; implicit rate on cash increased.||Cash will recover but settle at a lower level, Deposits will decline, but probably settle at a slightly higher level, Loan rates could fall further, if much of the deposit increase proves durable.|
|Financial System Savings||Increased||Increase, to the extent that the cash deposit ratio falls permanently.|
|Unaccounted income/black money||Stock of black money fell, as some holders came into the tax net||Formalization should reduce the flow of unaccounted income|
|Private Wealth||Private sector wealth declined, since some high denomination notes were not returned and real estate prices fell.||Wealth could fall further, if real estate prices continue to decline|
|Public Sector Wealth||No effect.||Government/RBI’s wealth will increase when unreturned cash is extinguished, reducing liabilities|
|Formalization/ digitilisation||Digital transactions amongst new users (RuPay/ AEPS) increased sharply; existing users’ transactions increased in line with historical trend.||Some return to cash as supply normalises, but the now-launched digital revolution will continue.|
|Real estate||Prices declined, as wealth fell while cash shortages impeded transactions.||Prices could fall further as investing undeclared income in real estate becomes more difficult; but tax component could rise, especially if GST imposed on real estate.|
|Broader economy||Job losses, decline in farm incomes, social disruption, especially in cash-intensive sectors.||Should gradually stabilize as the economy is remonetized.|
|GDP||Growth slowed, as demonetisation reduced demand (cash, private wealth), supply (reduced liquidity and working capital, and disrupted supply chains), and increased uncertainty.||Could be beneficial in the long run if formalization increases and corruption falls.|
|Tax collection||Income taxes rose because of increased disclosure.||Indirect and corporate taxes could decline, to the extent growth slows.|
|Uncertainty/ Credibility||Uncertainty increased, as firms and households were unsure of the economic impact and implications for future policy Investment decisions and durable goods purchases postponed.||Credibility will be strengthened if demonetisation is accompanied by complementary measures. Early and full remonetisation essential. Tax arbitrariness and harassment could attenuate credibility.|