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.
Economy
Q1. Fintech innovation can make digital payments and lending more efficient and more accessible. In this regard, explain how technological innovations can lead to inclusive growth. Also, enumerate the steps taken by the government in this regard. 15M
Introduction
The Financial Stability Board of RBI defines Fintech as “technology-enabled innovation in financial services” that could result in “new business models, applications, processes or products”. For Instance, the United Payments system whose transaction value in India crossed $100 billion for the first time.
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Fintech innovation can make digital payments and lending more :
- Enhanced Security: The use of technologies like VPN and firewalls ensure that hackers are not able to gain access to your financial data.
- Faster Processing: P2P (Peer-2-Peer) transaction methods offered by Amazon, Google, Apple, and other companies have resulted in almost zero waiting periods.
- Adoption of Cloud Computing: The cost of setting up financial architecture reduces considerably by availing cloud computing. This allows companies to transfer the benefit to their customers.
- Customer-friendly Payments: The use of Touch-ID, Face Recognition, and Voice Commands to perform functions on smartphones has increased over the years.
- Accessible through mobile phones: The Reserve bank of India (rbi) has launched UPI123pay which allows individuals even with a basic phone(without internet connections) to make instant payments.
- Benefits rural areas: Domestic Money Transfer Service, Aadhaar Enabled Payment System, Mini ATM, and other services serve to make up for the lack of bank/ATM branches in some locations.
Technological innovation and inclusive development
- Agriculture: Agri-FinTech startups in Asia are now offering support to smallholder farmers in accessing potential markets, affordable credit, capital for agricultural equipment, and other financial services.
- g farMart and Jai Kisan,.
- Health: Fintech solutions (mobile-based financial services, medical loans/insurance, etc.) are capable of increasing the accessibility and affordability of medical care for people earning low to moderate-income.
- A fintech called PaySense has medical loans and personal loans to help ensure that they are handled and disbursed on time.
- Services:
- Remittance services:Both outbound and inbound remittance transactions are being taken up by start-ups including FX, Instarem, Remitly and others
- Personal finance and loans:Several websites, Loanbaba among them, have come up that are helping people access quick loans within 24 to 72 hours.
- Payment services:g. Paytm, Phonepe.
- Equity funding:crowdfunding platforms are also proliferating and adding to the finance community initiatives; for example, Start51 and Wishberry.
- Reduce poverty: Access to financial services will enhance livelihood.
- With open banks, rural poverty has reduced by 14% to 17% points, as per the World Bank.
- Providing Financial Assistance to the MSMEs: According to the IFC Report, the total addressable credit gap in the MSME segment is estimated to USD 397.5 billion.
- With several FinTech start-ups offering easier and quicker access to loans, MSMEs are no longer required to go through the tedious process of documentation, paperwork and multiple visits to a bank.
- SHG: The National Bank for Agriculture and Rural Development (Nabard) has forged a partnership with fintech firm Arthimpact Digital Loans (ARTH) for providing end-to-end fintech solutions including skilling, micro financial services and forward linkage support to self-help group members across Uttar Pradesh impacting 2500 households.
Steps taken by the government
- Jan Dhan-Aadhar-Mobile (JAM) Trinity: The combination of Aadhaar, PMJDY(Pradhan Mantri Jan-Dhan Yojana), and a surge in mobile communication has reshaped the way citizens access government services. The government has also launched many flagship schemes to promote financial inclusion, these include the
- Pradhan Mantri Mudra Yojana
- Stand-Up India Scheme,
- Pradhan Mantri Jeevan Jyoti Bima Yojana,
- Pradhan Mantri Suraksha Bima Yojana, and
- Atal Pension Yojana.
- Expansion of financial services in Rural and Semi-Urban Areas: Reserve Bank of India (RBI) and National Bank for Agriculture and Rural Development (NABARD) have taken initiatives to promote financial inclusion in rural areas.
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- These include the opening of bank branches in remote areas.
- Issuing Kisan Credit Cards (KCC)
- Linkage of self-help groups (SHGs) with banks.
- Increasing the number of automated teller machines (ATMs)
- Business correspondents model of Banking, etc.
- Promotion of Digital Payments
- With the strengthening of the Unified Payment Interface (UPI)by NPCI, digital payments have been made more secure, compared to the past.
- The Aadhar-enabled payment system (AEPS) enables an Aadhar-enabled bank account (AEBA) to be used at any place and at any time, using micro ATMs.
- Enhancing Financial Literacy: The Reserve Bank of India has undertaken a project titled “Project Financial Literacy” to disseminate information to various target groups, including, school and college going children, women, rural and urban poor, defence personnel and senior citizens.
- Boosting the fintech ecosystem:
- The RBI has come up with Regulatory Sandbox (RS) framework that allows FinTech startups and other innovators to conduct live experiments in a controlled environment under a regulator’s supervision.
- Startup India initiative to build a strong eco-system for nurturing innovation and startups in the country.
Conclusion
Inclusive and equitable growth can be targeted through innovative partnerships of tech and finance with the help of international organisations, civic society, and private firms
Q2. What is off-budget borrowing? Analyze the reasons for the rise in such borrowings in recent years? Also, explain its impact on the revenue and fiscal deficit of the government? 15M
INTRODUCTION
Off-budget borrowings are loans that are taken not by the government directly, but by another public institution which borrows on the directions of the government. Such borrowings are used to fulfill the government’s expenditure needs.
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Instruments of off-budget borrowings
- Utilizing savings:
- In the Budget presentation for 2020-21, the government paid only half the amount budgeted for the food subsidy bill to the Food Corporation of India. The shortfall was met through a loan from the National Small Savings Fund.
- Borrowing:
- For instance, public sector oil marketing companies were asked to pay for subsidized gas cylinders for PM Ujjwala Yojana beneficiaries in the past.
- Bank sources:
- For example, loans from PSU banks were used to make up for the shortfall in the release of fertilizer subsidies.
- Issuance of Bonds:
- The government can ask an implementing agency to raise the required funds from the market through loans or by issuing bonds.
Reason for the rise
- The slowdown in tax revenue
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- The government’s net direct tax collections have missed the downward revised target for 2019-20 by Rs 1.42 lakh crore. The overall collection stood at Rs 10.27 lakh crore.
- This is a decline of over 8% from the previous year’s receipts.
- High share of committed expenditure on salaries, pension etc
- India’s fiscal deficit for 2020-21 zoomed to 9.5 per cent of GDP, as against the 3.5 per cent budgeted.
- Rising subsidy burdens
- The government has allocated more than Rs 2.06 lakh crore towards food subsidy expenses to the Food Corporation of India and to state government owned agencies in 2021-22
- Election-year spending pressures, as well as revenue slippages on account of the slow growth of goods and services tax (GST) collections, have constrained government finances.
- Constrained revenue growth: due to the pandemic-induced slowdown and increasing revenue expenditure have led to these states’ fiscal deficits rising to close to 4% of their respective GSDP, well above the historical level of 2-3% seen for most part of the last decade.
- High debt to GDP ratio
- The Union government’s debt has risen from6% to 58.8%of the gross domestic product in the fiscal year.
Affects the fiscal deficit and revenue deficit:
Off-budget borrowings are loans used to fulfill the government’s expenditure needs.
- Escape budget controls: Governments use this to escape budget controls. Since the liability of the loan is not formally on the Centre, the loan is not included in the national fiscal deficit. This helps keep the country’s fiscal deficit within acceptable limits.
- Increase in Fiscal deficit: The budget has pegged fiscal deficitat 9.5 per cent for FY21 and 6.8 per cent for FY22 excluding the off-budget borrowings respectively if we included then deficit numbers would rise by 70 basis points to 2 per cent for FY21 and 6.9 per cent of GDP for FY22, according to an SBI Research report.
- Impact on future borrowings: Off-balance sheet borrowings by states may have reached a decadal high of about 4.5% of gross domestic product (GDP), or about Rs 7.9 trillion, in FY22, according to a study by Crisil Ratings.
- Negative Impact on state revenue: Since the responsibility for repayment lies with states, it adversely impacts their revenue deficit.
- Reducing capital spending: Around 4-5% of the revenue of state government will go towards servicing such guarantee obligations in 2022, partially reducing the ability of state governments to fund capital expenditure.
- Impacts fiscal discipline: As such financing tends to hide the actual extent of government spending, borrowings and debt and increase the interest burden.
Way forward
- The government should put in place a policy framework for off-budget financing.
- The framework should specify the rationale and objective of off-budget financing, quantum of off-budget financing and sources of funds, among others.
- Disclosing the details of off- budget borrowings through disclosure statements in Budget as well as in accounts
Conclusion
Off budget borrowing is the Instrument used only in difficult circumstances, recurring usage leads to problems in parliamentary control over the budget and affects to reach the goal of FRBM act 2003 and degrades the sovereign credit ratings.
Ethics:
Q3. Do laws and regulations guide us in ethical decisions making? Examine with examples the role of laws and regulations in shaping a collective conscience? 10M
Introduction
Laws and regulations are the two sources of guidance by which human beings can judge the morality of their actions. These sources are particularly important to public administrators in offering clear and practical guidance.
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Laws and regulations are rules that are established by the central, state, or local government or their appropriating agency. Regulations are engaged to clarify laws, they are specific in nature. Eg: licensing laws and licensing regulations; Health insurance laws, and their regulations
Yes, laws and regulations guide us in ethical decision making
Laws and regulations abide individuals to act ethically and morally.
- Dictates moral behavior: Law is the public codification of morality which dictates the moral way of behaviour for every member of society.
- Eg: The Scheduled Castes and the Scheduled Tribes (Prevention of Atrocities) Act, 1989 prevents atrocities and hate crimes against scheduled castes and scheduled tribes.
- Common good: As laws and regulations are made for the common good and by legal authority, they are enacted by considering all humans helping individuals to respect other rights and to act ethically.
- Eg: The Prohibition of Child Marriage Act, 2006 prohibits the solemnization of marriage of a boy who is less than 21 years of age arid a girl who is less than 18 years of age
- Ensures citizens follow them: They ensure that each individual must follow certain guidelines and if he/she ends up breaking any of those rules and laws, they will face consequences no matter their social standing or position in society.
- Eg: Dowry Prohibition Act, Indian law, enacted in 1961 makes taking dowry illegal. If any person gives or takes dowry, he shall be punishable with imprisonment which may extend to six months or fine.
- Natural laws: They conform to natural law i.e, moral laws that are derived from human-centric perceptiveness and conform to human behaviour.
- Laws and regulations help to shape individual and societal morality and consequently build ethics in society.
Emile Durkheim defines Collective conscience as “the totality of beliefs and sentiments, common to the average member of the same society”. The collective conscience is external and coercive over individuals.
Role of Laws and regulations in shaping collective conscience.
- Laws and regulations impose fines and punishment for their violations. This helps an individual’s conscience, and attitude to be in line with the collective conscience.
- Ex – Death penalty for rapists of girls below the age of 12.
- Individuals’ conscience can be different over the same subject but collective conscience will be same for the society. In this manner, they act as external regulatory mechanisms.
- Ex – Fundamental duties of the constitution.
- They also act as guidelines for what to do or what not to do for the welfare of society.
- Ex – Tax payment laws impose individuals to pay the tax. Anti-terrorism acts prohibited any form of terrorism that threatens national security.
- Law sanctions moral behaviours.
- Ex – the Whistleblower Protection Act aims to protect those who expose corruption in public office.
The corporate social responsibility act promotes private participation in the welfare of society.
- Laws also prohibit certain orthodoxy societal beliefs, and sentiments and help society to change their beliefs that are in line with modernity, respecting other rights.
- Ex – Ban of sati system; Dowry prohibition act.
Conclusion
Neither the external nor internal sources can alone provide a perfect solution for ethical conduct in a society. It is the combination of multiple factors that became sources of ethical guidance that should individuals and society need to understand.
Case Study: 20M
Q4. There have been increasing accidents on the section of a major state highway. The major cause for this is the highway cutting through lands involved in animal husbandry. There is a tendency for farm animals to run towards the highway and end up being an obstruction to the drivers. An engineering firm has been appointed to study the issue in detail. It’s a reputed firm with lots of relevant experience. They have submitted the report to the government and suggested a few remedial measures. The report emphasizes building an underpass for animals as a short-term solution and as a long-term solution, they suggest an alternate route that involves tunneling through the nearby mountain. It’s a good option too but involves de-routing the highway for about 3km. The Government is keen on the long-term solution. Even the environmental impact assessment is cleared and the engineering firm which had completed the study is given the contract of implementing the project. There have been protests from the people of the region as the new project would add a toll booth to the highway to recover the increased costs.
Tejas is the additional secretary at the public works department and has a reputation for his competence, integrity, and dedication. He has been asked to review the report of the engineering by his senior. On review, Tejas found the report to be technically correct. But, he feels that the data has been manipulated for arriving at such a technical conclusion, and an underpass for animals can be a long-term solution too. He wants another firm to study the issue and report. The senior officer has laughed off his concerns and asked him not to get over suspicious about the firm or overthink the issue. He has asked Tejas to just report on technical accuracy and clear the study. Upon discussing with other colleagues Tejas came to know that the engineering firm belongs to the son-in-law of a powerful politician and that the senior officer is close to the politician. Tejas is now confused as he had good relations with the senior officer and found him to be an honest person.
Given the situation,
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- Q) What are the options available for Tejas? Would reporting just on the technical accuracy hold any merit? Give your reasons.
- Q) Differentiate between values of transparency, honesty, and integrity? Even though the issue seems to be dealt transparently why does it raise suspicion? Is Tejas over suspicious? Give your reasons.
- Q) Explain the significance of interpersonal relations in an organization? How can Tejas persuade his senior officer to change his mind?
Recently Chief Justice N V Ramana said he has a lot of reservations about the way bureaucracy is behaving, particularly, flagging the alleged nexus between politicians and the bureaucrats.
The above situation is the same too, where the possible friendship between an officer and politician is raising doubts. It also involves locals for whom the project would be a white elephant. The involvement of an engineering firm with close political nexus raises suspicion too.
1) Tejas has the following options available to him:
Reporting just on the technical accuracy doesn’t hold any merit. Because it violates the principles of good governance. According to the 2nd Administrative Reforms Commission (ARC), core principles for making Governance citizen-centric involve;
- Rule of Law – Zero Tolerance Strategy: Here there is doubt about the manipulation of the data used and the firm belongs to a prominent politician, raising suspicions of nepotism.
- Making Institutions vibrant, responsive and accountable: Tejas has to respond to the situation with proper analysis and evidence.
- Ethics in governance: It’s against the principles of Integrity, as Tejas has serious doubts.
As Narendra Modi said, “Good governance is putting people at the center of the development process”. Here, people are protesting against the newly planned road. Their concerns can only be addressed by the honest and efficient report of Tejas.
2) Moral values pave the path for all our decisions in life, without these, we may feel directionless. Transparency, honesty and integrity are a few such values that guides our thoughts, behavior and decisions.
Honesty is being truthful, sincere and open. It does not imply that a person adheres to a moral code. For instance, a person doing illegal business can be honest with his boss. Honesty mostly deals with words not actions.
Integrity is the quality of being honest and having strong moral principles. It deals with the actions of a person not just his words. Integrity is a guarantee of honesty.
- For instance, Mahatma Gandhi called off the Non-Cooperation movement after the Chauri-Chaura violence. It reflects its strong belief in non-violence.
Transparency is widely recognised as a core principle of good governance. It means sharing information and acting in an open manner. Information, however, must be timely, relevant, accurate and complete for it to be used effectively. It requires both honesty and integrity from a person to be transparent.
- For instance, Holders of public office have a duty to declare any private interests relating to their public duties and to take steps to resolve any conflicts arising in a way that protects the public interest.
The issue may seem to be dealt with transparently, but Good governance is not just being transparent it’s about being accountable too. It requires the administrator to hear the concerns of the people and act accordingly if they are genuine.
According to me, Tejas isn’t over suspicious. Spirit of inquiry requires a basic degree of suspicion. Many issues raise suspicion.
- Lack of Tendering: The engineering firm which had completed the study is given the contract of implementing the project without any process of tendering.
- Lack of consultation: A toll booth on the highway to recover the increased costs is burdensome on locals. There seems to be a lack of consultation with them.
- Undue pressure on Tejas: The senior officer has laughed off his concerns and asked him not to get over suspicious about the firm or overthink the issue. He just wants Tejas to report on technical accuracy.
- Lack of data sources: Tejas feels data is manipulated as the sources of data may be unclear.
- Possibility of a politician and bureaucratic nexus: engineering firm belongs to the son-in-law of a powerful politician and the senior officer is close to the politician.
Tejas isn’t overly suspicious. He is trying to clear his doubts. Good governance requires both transparency and accountability. Feedback from locals is a must for such projects.
3) Interpersonal relationship refers to a strong association among individuals working together in the same organization. Employees working together ought to share a special bond for them to deliver their level best. It also helps in the development of the following skills.
Dr. APJ Abdul Kalam took great care of his colleagues. A co-worker had promised his kids that he would take them to the science museum after returning from work, and obtained the prior permission of Mr. Kalam to leave early. The colleague was so engrossed in his work that it was well into the evening when he realised that he had made a promise to his kids. On rushing back home, he came to know from his wife that Mr. Kalam had come earlier and taken his kids to the museum. A healthy interpersonal relationship eventually creates positive ambience at the workplace
Tejas can persuade his senior officer in the following ways:
- Clarity of thought: Here there is a strong suspicion that the data is wrong. Tejas has to work on it and find out more about it. He has to do a primary analysis of the data. Being clear about his suspicion helps to convince his senior with facts.
- Listening to his concerns on the issue: As George Washington said “You have only one way to convince others, Listen to them”.
- Outlining the issues: Outlining the issues in the present situation clearly. Show him that the primary analysis raises suspicion.
- Making it easy for my senior to say yes:
- Clearing the senior’s concerns and apprehensions with Tejas’s primary analysis.
- Present him with the pros and cons: of just going with the situation. The cons would be that if Tejas’s suspicion is wrong he would be delaying the construction of a parallel road but if he is right he would save crores of money and the department would be known for accountability and transparency. It would also help stop the protests.
- Appealing to his conscience: As Tejas found the senior to be honest. He could appeal to his moral conscience.
“You can’t convince anyone of anything. You can only give them the right information so that they can convince themselves”. In this case too, Tejas has to first acquire the right information and present it in a clear and articulate manner. This would help him build a compelling case against just going with the technical review.
