DHATRI REDDY IPS -AIR–233-CSE-2018

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 ABOUT DHATRI REDDY IPS
I am Dhatri Reddy. I am AIR 233 of UPSC CSE 2018 and got allotted to the IPS. I am a
graduate of IIT Kharagpur. I worked with Deutsche Bank in their Corporate Finance
and Investment Banking Division before deciding to quit and prepare for the Civil
Services Examination. I managed to clear the exam in my second attempt and first
mains. You can find my marksheet here.

I hail from Hyderabad and prepared for the exam from the comfort of my home
(except for the brief period where I took coaching in Delhi). I followed the blogs of
several previous toppers during my preparation and found them useful as I took
notes, guidance and even motivation from those blogs during my times of solitude. I
decided to put together this blog after some aspirants reached out to me regarding my
notes and approach. I also hope to share my experiences during training and later
work through this medium.

To make a candid confession, I expected a better rank (much better, if you will) than
what I have. However, I have been blessed with the service that I always wanted. May
be things do fall in place if you give your best. So shed all your apprehensions and give
it all you got.
All the very best to whoever is reading this! :)

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 BLANK PAGE

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 1. Syllabus:

Technology, Economic Development, Bio diversity, Environment, Security and Disaster

Management
Economy:
1. Indian Economy and issues relating to planning, mobilization of
resources, growth, development and employment.
2. Inclusive growth and issues arising from it. (Vision handout)
3. Government Budgeting. (RS has everything!)
4. Effects of liberalization on the economy, changes in industrial policy and their effects on
industrial growth. (RS will do+Vaji)
5. Infrastructure: Energy, Ports, Roads, Airports, Railways etc. (EN is peace)
6. Investment models (Vaji)

Agri
 Major crops cropping patterns in various parts of the country, different types of irrigation
and irrigation systems storage, transport and marketing of agricultural produce and issues and
related constraints; e-technology in the aid of farmers
 Issues related to direct and indirect farm subsidies and minimum support prices; Public
Distribution System- objectives, functioning, limitations, revamping; issues of buffer stocks and
food security;
 Technology missions; economics of animal-rearing.
 Food processing and related industries in India- scope and significance, location, upstream
and downstream requirements, supply chain management.
 Land reforms in India.
S&T
 Science and Technology- developments and their applications and effects in everyday life
 Achievements of Indians in science & technology; indigenization of technology and developing
new technology.
 Awareness in the fields of IT, Space, Computers, robotics, nano-technology, bio-technology
and issues relating to intellectual property rights.
Env, DM
 Conservation, environmental pollution and degradation, environmental impact assessment
 Disaster and disaster management.
Security
 Linkages between development and spread of extremism.
 Role of external state and non-state actors in creating challenges to internal security.

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  Challenges to internal security through communication networks, role of media and social
networking sites in internal security challenges, basics of cyber security; money-laundering and
its prevention
 Security challenges and their management in border areas; linkages of organized crime
with terrorism
 Various Security forces and agencies and their mandate

PYP
Growth and Resource mobilization
1. Among several factors for India’s potential growth, savings rate is the most effective one. Do
you agree? What are the other factors available for growth potential? 2017
2. Account for the failure of manufacturing sector in achieving the goal of labour-intensive exports
rather than capital-intensive exports. Suggest measures for more labour-intensive rather than
capital-intensive exports. 2017
3. What are the salient features of ‘inclusive growth’? Has India been experiencing such a growth
process? Analyze and suggest measures for inclusive growth. 2017
4. Pradhan Mantri Jan-Dhan Yojana (PMJDY) is necessary for bringing unbanked to the
institutional finance fold. Do you agree with this for financial inclusion of the poorer section of
the Indian society? Give arguments to justify your opinion. 2016
5. Comment on the challenges for inclusive growth which include careless and useless manpower
in the Indian context. Suggest measures to be taken for facing these challenges. 2016
6. The nature of economic growth in India in described as jobless growth. Do you agree with this
view? Give arguments in favour of your answer. 2015
7. Craze for gold in Indians have led to a surge in import of gold in recent years and put pressure
on balance of payments and external value of rupee. In view of this, examine the merits of Gold
Monetization Scheme. 2015
8. Capitalism has guided the world economy to unprecedented prosperity. However, it often
encourages shortsightedness and contributes to wide disparities between the rich and the poor.
In this light, would it be correct to believe and adopt capitalism driving inclusive growth in India?
Discuss. 2014
9. With a consideration towards the strategy of inclusive growth, the new companies bill, 2013 has
indirectly made CSR a mandatory obligation. Discuss the challenges expected in its
implementation in right earnest. Also discuss other provisions in the bill and their implications.
2013
10. “Success of ‘Make in India’ programme depends on the success of ‘Skill India’ programme and
radical labour reforms.” Discuss with logical arguments. 2015

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 11. While we found India’s demographic dividend, we ignore the dropping rates of employability.
What are we missing while doing so? Where will the jobs that India desperately needs come
from? Explain. 2014
Economy: Budget
1. One of the intended objectives of Union Budget 2017-18 is to ‘transform, energize and clean
India’. Analyse the measures proposed in the Budget 2017-18 to achieve the objective. 2017
2. Women empowerment in India needs gender budgeting. What are the requirements and status
of gender budgeting in the Indian context? 2016
3. In what way could replacement of price subsidy with Direct Benefit Transfer (DBT) change the
scenario of subsidies in India? Discuss. 2015
4. What are the reasons for introduction of Fiscal responsibility and Budget Management (FRBM)
act, 2003? Discuss critically its salient features and their effectiveness. 2013
5. What is meaning of the term tax-expenditure? Taking housing sector as an example, discuss
how it influences budgetary policies of the government. 2013
6. Discussion the rationale for introducing Good and services tax in India. Bring out critically the
reasons for delay in roll out for its regime. 2013
Economy: Investment and Infrastructure
1. Examine the developments of Airports in India through Joint Ventures under Public-Private
Partnership(PPP) model. What are the challenges faced by the authorities in this regard. 2017
2. What are ‘Smart Cities? Examine their relevance for urban development in India. Will it
increase rural-urban differences? Give arguments for Smart Villages’ in the light of PURA and
RURBAN Mission. 2016
3. Justify the need for FDI for the development of the Indian economy. Why there is gap between
MOUs signed and actual FDIs? Suggest remedial steps to be taken for increasing actual FDIs
in India. 2016
4. There is a clear acknowledgement that Special Economic Zones (SEZs) are a tool of industrial
development, manufacturing and exports. Recognizing this potential, the whole instrumentality
of SEZs requires augmentation. Discuss the issues plaguing the success of SEZs with respect
to taxation, governing laws and administration. 2015
5. The right to fair compensation and transparency land acquisition, rehabilitation and
resettlement act, 2013 has come into effect from 1 January 2014. What implication would it
have on industrialisation and agriculture in India? 2014
6. National urban transport policy emphasizes on moving people instead of moving vehicles.
Discuss critically the success of various strategies of the government in this regard. 2014
7. Explain how private public partnership agreements, in longer gestation infrastructure projects,
can transfer unsuitable liabilities to the future. What arrangements need to be put in place to
ensure that successive generations’ capacities are not compromised? 2014

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 8. Adaptation of PPP model for infrastructure development of the country has not been free from
criticism. Critically discuss the pros and cons of the model. 2013
Economy: Liberalization
1. “Industrial growth rate has lagged behind in the overall growth of Gross-Domestic-
Product(GDP) in the post-reform period” Give reasons. How far the recent changes in Industrial
Policy are capable of increasing the industrial growth rate? 2017
2. How globalization has led to the reduction of employment in the formal sector of the Indian
economy? Is increased informalization detrimental to the development of the country? 2016
3. Normally countries shift from agriculture to industry and then later to services, but India shifted
directly from agriculture to services. What are the reasons for the huge growth of services vis-a-
vis industry in the country? Can India become a developed country without a strong industrial
base? 2014
4. Foreign direct investment in the defence sector is now said to be liberalised. What influence
this is expected to have on Indian defence and economy in the short and long run? 2014
5. Examine the impact of liberalization on companies owned by Indian. Are the competing with the
MNCs satisfactorily? 2013
6. Discuss the impact of FDI entry into multi-trade retail sector on supply chain management in
commodity trade pattern of the economy. 2013
7. Though India allowed foreign direct investment (FDI) in what is called multi brand retail through
joint venture route in September 2012, the FDI even after a year, has not picket up. Discuss the
reasons. 2013

2. Infrastructure:

1. Investment Models
2. PPP
3. Draft National Urban Policy Framework
4. Draft National Logistics Policy

India needs an investment of 1.5$ trillion over next 10 years to bridge the infrastructure
gap
Deepak Parekh Committee on Infrastructure Financing

Investment Models and Related Problems

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Story of India’s stalled projects and way out for troubled PPP

Facts
1. As per the Economic survey India has close to 7% of GDP (8.8 lakh crore) worth
of projects pending
2. Out of 8.8 lakh crore, 7 lakh crore (80%) - private sector and 1.8 lakh crore (20%) -
public sector.
3. private sector mainly manufacturing and infrastructure projects
4. public sector mainly infrastructure projects are stuck.
5. Top heavy - clearing the top 100 projects by value will address the 83%
problem of the stalled projects.

Reasons for stalling of projects

1. Cost and time over-runs
2. Private projects are held up on account of poor market conditions and non-
regulatory factors
3. Majority of the public projects are stalled due to absence of regulatory clearances.
4. Manufacturing is stifled due to poor macro-economic environment. With poor
growth in demand from USA, Greece crisis in EU, slowing down of China etc
demand has decreased.
5. Electricity sector projects were hauled up due to lack of fuel and feedstock
problem.
6. Mining and construction activities have suffered on the hand of environmental
clearances.
7. High inflation, so tight monetary policy, hence lack of credit in the market
8. Land Acquisition problems
9. Complexities in PPP model of infrastructure development

Balance Sheet Syndrome effect on infrastructure

1. The high debt-equity ratio of the corporates is in relatively high growth of 6-

7% and also in a high inflation environment. Usually in developed countries debt
overhang develops with deflationary pressure.
2. Lack of exit mechanism – Preventing such institutions with high D/E ratio from
exiting
3. Debt is financed by banks and not bond market and hence high NPAs (Stressed
assets close to 12.5%-13%).
4. Lack of credit in market due to high NPAs and stressed assets

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 5. Risk aversion behavior in market due to high NPA and stalled projects, leading to
slowdown of economy

Need for public inv in infra

1. Due to balance sheet syndrome, corporate balance sheets are bloated and not in
the position to make new investment.
2. Similarly, PSBs NPA have been increasing and they are not willing to give fresh
loans.
3. Poor performance of PPP - Issues like land acquisition ect can be better handled
by govt
4. Critical but non-profitable areas have an underinvestment - like rural roads,
railways
5. Low savings ratio in India
6. Lower FDI and ECB borrowing – Ease of business issues

PROBLEMS WITH CURRENT PPP MODEL

 Infra projects are roughly one-third of the stressed assets in banks.

 Also pension and insurance sector are reluctant to invest in infrastructure due to
inherent risk in the projects.

Issues with PPP Model

1. More focus on Revenue for government rather than service for user leading to sub-
optimal services
2. Misallocation of Risk. Ex. traffic risk borne by developer of highways which is not
under their control
3. Lack of Renegotiation avenues and hence high number of
running litigations. Disincentive to bureaucrats to re-negotiate - fear of threat and
lack of rewards.
4. Excessive Overbidding by contractors leading to failure of projects
5. Limited Penalties for the private party in partnership - Usually govt can at max
terminate the contractor
6. Lack of fresh credit required in PPP model – High NPA of bank and poor corporate
debt market in India and pension & insurance sector not investing in infrastructure.
7. Poor rate of land acquisition and environment clearances due to red-tapism

Suggested framework (ES)

1. Construction and maintenance should be clubbed for better service quality

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 2. Proper allocation of risk - Govt should bear the risk of land acquisition, environment
clearance
3. Development of operating companies - This would free the balance sheet of
developer for new projects
4. Pension and Insurance should fund the long term projects - Asset-liability match
5. Credit rating of the project and developer both - for better risk evaluation
6. Amendment of PCA - for better renegotiation by bureaucrats
7. Frame a new National Policy on PPP [Kelkar committee Report]

Govt steps to revive the PPP model

1. Financial
1. New Exit policy - Developer would be allowed to exit highway projects after 2
years of construction
2. Restructuring of NPAs of banks
3. National Investment and Infrastructure Fund - 20,000 cr corpus
4. New investment products such as Infrastructure investment trust
5. Viability Gap Funding
2. New PPP models - such as Hybrid Annuity Model , Swiss Challenge Model

DRAFT NATIONAL URBAN POLICY FRAMEWORK

1. City Planning: master plans shd be dynamic, clear links to budget and participatory
2. Urban Economy: integrate informal sector, quarterly dashboard to show city-level investments,
GDP and emp levels
3. Physical infra: give performance based contracts (Eg Nagpur)
4. Social infra: DBT, GIS based heritage mapping
5. Housing and affordability: convert occupied public land into social rentals, create National
Housing Stock
6. Transport and mobility: Intelligent Transport Services, Street vending policy
7. Urban Finance: Local Bodies Finance list like State and Union list
8. Urban governance: Digitally enabled social audit
9. Urbanisation and Information system: build Integrated Command and Control Centres, Smart
metering, smart electricity grids, smart LED street lighting
10. Environmental sustainability: Extended Producer Responsbility

DRAFT NATIONAL LOGISTICS POLICY

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  Overall process of how resources are handled and moved across supply chain.
 Emp - 45m, growth 15%
 India spends 15% of GDP on logistics and transport (US 9%, EU 10%, Japan 11%)
 Issues - fragmented policy, high costs, modal imbalance (60% by road), cyber threat, env
 Govt initiatives - LEADS index, Logistics Efficiency Enhancement Program

Policy recos
 National Logistics e-marketplace
 Logistics data and analysis centre
 Model logistics corridors, multi modal logistics park
 Warehouse mgmt sys, IT enabled solutions
 Improve rank on WB's Logistics performance index
 green logistics - decrease carbon footprint

3. Ports:

1. PORTS
2. CENTRAL PORT AUTHORITY BILL
3. INLAND WATER WAYS
4. SAGARMALA
5. BLUE ECONOMY

Significance of Ports
1. 95% of trade by volume and 70% by value is maritime (ES 2016-17)
2. Allows India to develop as blue economy
3. Employment opportunities
4. India has 7500Km coastline, and 14500Km inland waterway
5. 12 major and 205 non-major ports

Bottlenecks
1. High turnaround time at Indian ports (India - 4 days, China - 12 hours, Singapore
- 4 hours)
2. Poor connectivity of ports with hinterland through roads and railways
3. Low capacity of Indian ports compared to the demand

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 4. Poor Mechanization and warehousing facility - Ex Paradip Port(?)
5. Large vessels cannot enter in Indian ports. They dock at Sri Lanka, and send cargo
via smaller vessels.
6. Siltation and dredging requirements - Haldia Port
7. Domestic ship industry and maritime construction industry is underdeveloped -
Indian ships carry less than 10% of Indian cargo to foreign countries.
8. Underutilization of Physical Infra - Cochin Airport
9. Rakesh Mohan Committee stated that performance of Indian ports
has deteiorated over time and need comprehensive reform

WF
1. Increase competition through easing cabotage - leading to foreign vessels not taking
permission from Director-General Shipping to carry cargo from one port to another (relax
cabotage laws till Indian vessels develop capacity so that EoDB increases for now)
2. Need for deep water ports - avg. draft at Indian ports ranges from 8m to 12m, while
international is 12m to 23m. This reduces operational efficiency of ports, high turnaround times
3. Facilitate minor port connectivity to hinterland areas

CENTRAL PORT AUTHORITY BILL

1. Enable port to function like corporate entity

2. Functional Autonomy - Power to raise loans, issue securities for capital
expenditure
3. Lease land for port related development -> 40 years
4. Auditing and accounting standard as in companies act
5. CSR and Infra development in line with Companies Act

SOLUTION FOR PORT DEVELOPMENT

1. Mechanization of port
2. Port development in Landlord tenant Model -> Govt owner + regulator and private
players are operator
3. Trade Facilitation agreement - paper less transactions and faster clearance
4. Multi-modal development - Connectivity with rail, roads etc - Govt launched Port-rail
connectivity project

DRY PORT
Commerce Ministry announced overhauling of the infrastructure standards in Dry Ports or Inland
Container Depots (ICDs). They are inland terminal, directly connected to a seaport by rail or road.

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They are known to improve logistics, supply chain and reduce capacity constraints faced by sea
ports.
Issues :
1. Under-Utilisation
2. Near Government Monopoly - Nearly 70% of ICDs are owned by govt's Container Corporation
of India, a Navratna company
3. Location Issue - unevenly distributed
4. Poor Connectivity
5. Poor Investment Environment - largely dominated by domestic companies

INLAND WATER WAY

 India has about 14500Km long waterway and many of them are blessed with
perennial water flow. National Waterway Bill has been passed to utilize the NWs
 Inland water traffic amounts to only 0.17% of total inland traffic in India.
 Currently, the bulk of freight traffic is carried on three national waterways, NWs I, II, and III, and
the Mumbai and Goa waterways.
 “Jal Marg Vikas” project development of River Ganga stretch b/w Varanasi and Haldia
 Streamline the governance of inland waterways
 Develop measures for year-round navigation
 Ease restrictions on river-sea movement

Potential of waterways:
1. Cheaper - Water highways are cheaper than road and rail to develop and maintain.
2. Environment Friendly - minimal energy requirements,fuel efficient which makes
them more environment friendly
3. Problem of land-acquisition as observed in road-rail is prevented
4. Easier to obtain funding from international financial institutions like ADB, IBRD etc.
which are inclined towards environment-friendly projects
5. Tourism - it can also give a boost to tourism.
6. Industrial Growth - Linkages between port to waterways will help in trade facilitation
and industrial growth
7. Will generate employment for local people
8. Will help to boost connectivity and export with neighboring states like Bangladesh
9. Ease pressure on Roads and Railways - large and wide rivers available in India
esp. Northern India

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Challenges:-
1. Technical Challenges - Indian water channels do not have
1. adequate width, depth and air clearance to be operational year round and
carry heavy loads.
2. Silting is a problem.
2. High Capital Investment - Heavy investment will be needed
3. Lack of Interstate and Centre-state coordination
4. Environmental Issues - Riverine ecosystems may be affected due to oil-spills, noise
pollution etc.
5. Connectivity with road and railways - water highways will require more river ports
with their support infrastructure – road and rail connections, warehouses and other
services.

Way Forward:
1. Setting up a Waterways Disputes council in the lines of Inter-State Water Disputes
Council for expediting conflict-resolution
2. Financial - Market borrowings and tapping the National Clean Energy Fund and the
Central Roads Fund.
3. Multi-Modal Transport Policy - Linking Waterways development with Sagarmala
project, PMGSY etc. and including designs into the Draft Civil Aviation Policy
4. River linking project and water dispute solution is also needed for smooth working
of Waterways.

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Sagar Mala
“Sagar Mala” is a strategic, customer-oriented initiative of the Government of India
1. port led development - integrate the development of the Ports, the Industrial
clusters and hinterland
2. Port Modernization - world class Ports
3. efficient evacuation systems from ports through road, rail, inland and coastal
waterways
4. growth of coastal and inland shipping as a major mode of transport

In order to achieve its objectives, Sagar Mala has segregated the interventions into two
broad initiatives – the 1) Coastal Economic Regions (CERs) and 2) Promotion of
Coastal Shipping.

Coastal Economic Regions - a large region along the length of the state’s coast (300-
500 km) and 10- 30 km inland and into the sea

Other Benefits - Alligned with major schemes

1. Development of Smart Cities: For ex Vizag, Krishnapatnam are focal points of the
CER in AP
2. Ganga Waterway and Clean-up projects: Sagarmala also aims development of
inland waterway in an ecological way
3. Good governance: Use of IT and seamless transactions
4. Make In India: Will boost manufactured goods export, lower inventory cost with
reduced delays in ports
5. Reducing Transaction costs: Better export under FTP 2015-2020

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BLUE ECONOMY
 Blue Economy is the sustainable use of ocean resources for economic growth, improved
livelihoods, and jobs while preserving the health of ocean ecosystem.
 Fishing, ports, marine energy, tourism etc.
 Importance
o Oceans provide 30% of oil and gas resources.
o 90% of goods trade takes place through Oceans Sea of Line Communication
o Ocean contributes $2.5 trillion to world economy with around 60 million people are
employed in fisheries and aquaculture.
o Resources - PMNs
o Env - Mangroves and other vegetated ocean habitats sequester 25% of the extra CO2
o Disaster control / prevention
 Challenges
o Unsustainable development (FAO estimates that approximately 57% of fish stocks are
fully exploited and another 30% are over-exploited, depleted, or recovering.)
o CC, geopolitical issues, unfair trade practices, piracy, terrorism, oil spills etc.
 India as a blue economy
o spirit of ‘SAGAR-Security and Growth for All in the Region’ in Indian Ocean Region
o Sagarmala
o CEZ
o Resource exploitation - E.g. India has explored 75,000 sq km of Indian Ocean Seabed
o International relations and security - net security provider
 WF - global coop, effective implementation of the UNCLOS, tackle CC, capacity dev of coastal
communities.

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4. Energy:

1. Energy Sector Overview

2. Energy Pricing
3. COAL SECTOR (Mining, Thermal Plants etc.)
4. Govt Initiatives
5. Power Sector (UDAY, Smart Grid etc.)
6. Minerals
7. Nuclear Power
8. Electricity (Bill, Access etc.)
9. OIL and GAS

6. Renewable Energy

ENERGY SECTOR

STATS:

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 1. India ranks 87 on Global Energy Architecture Performance Index. Report notes that India is
“facing a vast array of challenges in the power sector in order to meet its growth targets“.
2. India now imports more than 80% of its crude oil and 40% of its natural gas requirement.
3. Decline of nuclear energy: globally, in 2016 - solar grew by 30%, wind by 14% but nuclear only by
1.4%.
4. Power sector:
1. Power min claimed recently (2017) that india was power surplus, yet Plant Load Factor (PLF)
has dropped consistently from 77% in 2016 to 59% in 2017. (as per Central Electricity
Authority)
2. NITI Aayog Draft National Energy Policy - India's annual per capita electricity consumption
to grow from 1075kWh in 2016 to 2900kWh in 2040. (close to triple). up by 2.7-3.2
times between 2012 and 2040 and thus import demand could increase from 31% in 2012
to 36-55% in 2040
3. As of now, 304 million Indians live without access to electricity
 25% rural HH have no access to elect
5. As per IEA - India is world’s 3rd largest energy consumer after US and China.
6. India has the world’s largest electricity access deficit followed by Nigeria and Ethiopia.
(PARADOX - India is also a power surplus country and net exporter in 2017)
7. To reduce cost due to air pollution - which cost 3% of GDP and 1.2M deaths every year
8. 500 million people, still dependent on solid bio-mass for cooking
9. Reduction in price of renewable energy technologies – Wind and solar prices have reduced by
60% and 52% respectively between 2010 and 2015
10. According to DDUGJY website, 99.8% of census villages have been electrified by February,
2018, while “intensive electrification” (household electrification) has been completed in around
80% of villages.

WAY FORWARD FOR ALL

Adopting Energy Plus approach as recommended by UNDP, which emphasizes on energy access
in combination with productive use of electricity for income generation and livelihood upliftment.

NITI Aayog's Draft Energy Policy :

 target to reduce oil imports by 10% from (2014-15 levels) by 2022

 sustainability - Adopting energy conservation building code for all new commercial constrution-
to bring down energy use by 50%

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  Cutting fossil fuel consumption through rail based, hybrid and electric vehicle transport
 energy efficiency - e.g NITI Aayog's 'State Energy Efficiency Preparedness Index',
expansion of PAT (Perform, Achieve and Trade) program
 Promoting renewable energy
 Removing subsidies on electricity - bring down cross-subsidy from industry
 Improving air quality
 Setting up Statutory Regulatory Authority (SRA) for coal, power and petroleum - regulation and
coord
 Compensation to customers through direct benefit transfer
 For economic growth - Conceiving suitable hedging mechanisms for ECBs, Promoting
investment - Viability Gap Funding, etc
 Corporatise CIL and increase competition

Importance of energy sector

 Achieving universal electrification with 24x7 electricity by 2022

 Increasing share of manufacturing in our GDP from 16% currently to 25%
 INDC targets, social justice, to decrease imports by 10% (of 2014) by 2022

Changes in sector - falling share of fossil fuels and increasing renewable energy shares, over
supply of O&G - prcies under control, more viable renewable energy tech (fall in prices - check
above), CC concerns

Improving Energy Efficiency:

1. Rationalization of prices and subsidies available in fuels and electricity like subsidies on electricity
2. Energy efficient buildings
3. Perform Achieve and Trade for industries
4. Installing super critical TPP which needs lesser coal for production of electricity
5. Shifting towards efficient means of transport like railways and shipping from road transportation ex
Sagar Mala and Railway modernization would help
6. Shifting to better fuels and engines like Bharat 6 asap

Energy Pricing:

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 1. Crude oil: market linked
2. Domestic gas: determined every 6 months as a weighted average of four international
benchmarks- US-based Henry Hub, Canada-based Alberta gas, UK-based NBP and Russian gas.
3. Fuel Administered Price Mechanism <was followed earlier> for petrol and diesel. It
followed cost plus formula - prices of all petroleum products are fixed on the basis cost of
procuring and refining crude oil. Cross subsidization among petroleum products was in existence
under the administered pricing mechanism. The prices of petrol and diesel subsidized the prices of
liquefied petroleum gas (LPG) and kerosene.
4. India lifted price control on diesel in 2014 and on petrol in 2010 allowing state companies to charge
market prices. At present, state companies review prices at the end of every fortnight depending on
the prevailing international prices.
o Problem: It would create an inequality of prices of fuel in different states. For Eg. The coastal
state fuel prices would reduce whereas the fuel prices of hinterland would rise after the
marketlinked pricing steps in + prob when prices rise steeply.
o Now Dynamic Fuel Pricing, to review prices daily is being considered.

Why do we need rationalization in prices?

1. Will lead customer to shift to more efficient usage and hence wastage will reduce for ex, better
electricity pumps in agriculture
2. Incentive for producers to invest and increase productions
3. Fiscal Deficit will be improved as cost to exchequer will reduce
4. Will prevent distortions in market and fuel demand and supply

Increase Production

1. More exploration of Oil and Gas in India

2. Shale and CBM Gas
3. Alternative fuel sources like Solar etc
4. TPP – super critical etc
5. Acquisition of raw material sources abroad

Fix wastage and Distribution Losses

1. Development of National Grid

2. De-politicization of power tariff setting
3. Better metering, use of IT

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 4. Implementation of Open Access policy to increase competition.

COAL SECTOR

3/4THS OF POWER NEEDS FROM COAL ITSELF

1. Stagnated production level – poor machinery, open cast mining.

2. Fuel supply agreement not signed by CIL – Higher uncertainty of fuels, hence power producers
don’t get credit
3. Lack of washeries capacity – Indian coal is poor, need enrichment
4. Need to import high quality coking coal (180MT)
5. Environmental constraints

Issues:

 Govt is aiming to have 175 GW of renewable energy by 2022 - the target is too ambitious given
the scale of investment it requires: $100bn.
 Due to poor and inadequate grid connectivity it would be difficult to absorb such a massive influx
of intermittent and variable power
 One step where we are lacking is in the sector of exploration. India’s exploration intensity is still
one of the lowest in the world.
 There is no clarity on pricing, fiscal and regulatory issues.

Following steps can be taken :

 An independent organisation - Proposal to set up 'Coal Regulator' for fostering

competition apart from advising Central govt. on forming principles and methods for price
determination, etc should be implemented
 Critical role of railways in coal distribution should be leveraged
 Using market mechanism to open coal-mining sector for commercial mining
 Employ more Coal-Handling and Preparation Plants (CHPP) - that wash coal before shipping,
increasing energy content by 10-20%

COMMERCIAL MINING IN COAL

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Coal India Ltd and its associates had monopoly over mining and selling of coal. It accounts for
over 80% of the country’s coal supply. Other players - Singareni Colleries Company and captive
mines to some pvt players for 'end-use' purposes like steel and power industries

Problems with present system :

1. CIL is unable to keep pace with demand from new power plants.
2. The companies which produce electricity for their own use have to purchase costlier imports
3. Monopoly also affected quality of coal. Indian coal has an average ash content of about 45%

What has been done?

1. Recently, govt has approved commercial mining in coal for Indian and foreign companies in the
private sector. Now, govt has allowed all private entities to enter into commercial mining without
end use or price restrictions
2. Efforts to bring transparency - SHAKTI (Transparent coal allocation policy for power
sector); Inter-company safety audit; Third-party sampling (for quality issues)

REVIVAL OF STRESSED THERMAL POWER PLANTS

 Post Electricity Act of 2003, aggressive capacity addition has led to a widening gap in demand
and supply
 Now again upsurge in demand due to Saubhagya, Deendayal Upadhyaya Gram Jyoti Yojana
(DDUGJY), Integrated Power Development Scheme (IPDS), Power for All, etc.

Reasons for stress in Power Sector

 Issues related to coal supply- After the cancellation of 204 coal mines by the Supreme Court in
2014
 projects were setup without firm coal linkages from Coal India Limited (CIL)
 slow growth in power demand
 Delayed paymeny by DISCOMs, non payment of penalties / Late Payment Surcharges
 Inability of the promoter to infuse equity and service debt

Recommendations of Empowered Committee:

1. power be sold through Discovery of Efficient Energy Price (DEEP) portal following a
transparent bidding process.
2. A generator should be able to terminate PPA in case of default in payment from the DISCOM
3. PSU like NTPC can act as aggregator by bulk procurement and then supplying to DISCOMS

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 4. high heat rate plants not complying with new environment norms may be considered for
retirement in a phased manner (w/o demand supply imbalance)
5. Late Payment Surcharge be mandatorily paid in the event of delay in payment by the DISCOM

GOVT. INITIATIVES:

1. Coal Mitra: web portal to facilitate coal swapping among government and private firms.
2. SHAKTI POLICY - Scheme to Harness and Allocate Koyla Transparently in India. aims
to auction long-term coal linkages to power companies.
3. HYDROCARBON EXPLORATION LICENSING POLICY (HELP)

Issues with NELP (New Exploration Licensing Policy) <Earlier policy>

1. Pricing was not linked to the market

2. Foreign interest over exploration has gone down over the years
3. Under Profit Sharing model, private parties inflated the cost resulting in lower profit to govt
4. Multiple Licenses for the different hydrocarbon energy sources

Features of HELP:

1. Unified Licensing - single unified framework for hydrocarbons oil, natural gas etc.
2. Revenue Sharing - between government and contractors
3. Competitive pricing based on the landed price - freeing-up of pricing. HELP will allow pricing
freedom for gas produced from deep water, ultra-deep water and high pressure high temperature
(HPHT) fields , subject to a ceiling determined by the landed price of alternative fuels, such as fuel
oil, imported coal and naphtha.
4. Open Acreage Licensing Policy
5. Graded Royalty System - Royalty decreases towards deep water

(The Rangarajan Committee had advocated a shift to RSC in 2013, while the Kelkar Committee had
advocated the continuation of PSC in 2014. )

Benefits:

1. It aims at improving the ease of doing business

2. reducing India’s import dependence by raising the output from domestic sources of oil and gas.
3. it is expected to create jobs and spur economic growth.
4. Reduce red tape and increase exploration -
5. Less litigation and stable revenue due to Revenue Sharing Model

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 6. would pave the way for a level playing field between domestic and imported gas, and create a
competitive gas market

Issues:

1. RSM will prevent full utilization of reserves in the field. (as cost of extraction goes up as reserves
decline)
2. The introduction of coal price into the calculation is problematic since gas cannot be a substitute
for coal for power generation
3. Freedom in gas pricing will put pressure on fertilizer and electricity cost when gas prices go up -
This will hurt farmers and poor the most

Government steps to promote hydrocarbon sector:

1. Pricing reforms: Fuel prices like petrol and diesel have been deregulated especially after the slump
of global oil prices. This has improved the profit margins of oil companies too.
2. HELP: Revenue-sharing, Unified licensing policy (Exploration of all possible hydrocarbons in a
block),Open acreage licensing (Bidders can select the exploration blocks on its own without waiting
for the formal bid round), Pricing and marketing freedom
3. Indian oil companies have also signed contracts to explore shale gas in the United States
4. Renegotiation of long-term projects with major gas suppliers
5. Planning of strategic reserves
6. Government has proposed to create an integrated public sector ‘oil major’ in Budget 2017-18. This
would enhance finances to bid for big-ticket foreign assets that see intense competition from major
international players.
7. Marginal Field Policy- Discovered Small Field Policy

POWER SECTOR:

National level DISCOM:

1. Grid failures due to states disregarding assigned quota.

2. Regional Inequality: While some regions have 24/7 power, other regions of the country have 12 hour
power-cuts.
3. tariffs vary widely.

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 4. Irrational pricing: Exigencies of state-politics often forestall an upward revision of low tariffs. This
makes State Electricity Boards loss making companies and encourages households to waste
precious power.
5. Inefficiency: It is seen that transmission losses are high and customer-satisfaction low with the State
Electricity Boards.
6. The union is empowered to create such a body because electricity is in concurrent list.

SMART GRID PROJECT

This is one of the initiative under Smart City Project. Delhi's NDMC will be the first to have smart grid.

1. An electricity network that uses digital and other advanced technologies

2. Reliable and efficient end-to-end 2 way delivery system from generating station to consumer

Benefits

1. Reduction of AT&C losses

2. Enable real time monitoring and control of power system
3. Will automatically manage peak load and avoid outage prevention
4. Seamless integration of power generated through renewable energy sources
5. Will give consumer control over their power bill and allow them to do real time troubleshooting

Challenges

1. Installing smart meter in each household

2. Replacing old equipment and cables
3. Developing software to improve the efficiency of electricity distribution

Draft National Electricity Plan (generation):

 For the period 2022-27, priority has been given to development of hydro and nuclear-based
projects for power generation.
 Coal based capacity addition will not be required in this period, as a capacity of 50 GW is already
under construction against a requirement of 44 GW.
 Estimated that Renewable energy generation will contribute about 20% and 24% of the total energy
requirement in 2021-22 and 2026- 27, respectively.
 Scaled down India's peak power demand over the next 10 years than the corresponding projections
made by 18th Electric Power Survey (EPS) report due to energy conservation measures.
 Suggested measures to improve energy efficiency:

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 o Energy code for buildings
o energy eff schemes for MSMEs
o energy efficient pump sets in agriculture
o regulatory instruments such as demand based pricing

Other govt. initiatives:

1. 24x7 power for all by 2029.

2. Saral Eindhan Vitaran Application (SEVA) App for increasing the Consumer Connect as well as the
transparency and accountability in coal dispatch.
3. Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY)
4. Garv ll app for real time tracking of electrification of all villages.
5. UDAY

DISCOM DEBT (UDAY)

 2015 (when scheme started) - 2.7 lk crores, 2017 - 1.5 lk crore, FY 20 - 2.64lk crore

UDAY

 improve the financial health and operational efficiency of DISCOMs

 tripartite agreement bw State, Min of Power and Discoms
 Based on conditions such as AT&C loss reduction, mandatory metering, power purchase
planning and performance monitoring - state govts took over 3/4ths of debts
 Discom debt was not included in fiscal deficit of states but interest payments were included in
FRBM

Issues - same old AT&C, not even tariff hikes etc.

WF

 Separate power planning cell in DISCOMs: support the demand forecasting exercise and
coordinate with other state nodal agencies.
 Streamlining the energy auditing process: all Distribution Transformers should be installed
with smart meters, which could record real-time data
 DISCOMs could also resort to power banking arrangements wherein the state could smoothen
the seasonal variations
 funds for dedicated police units which will be attached with the distribution companies, to
prevent theft etc.

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MINERALS

Mines and Minerals (Development and Regulation) (Amendment) Bill, 2016

• It would amend the Mines and Minerals (Development and Regulation) Act, 1957 to allow the transfer
of mining leases granted otherwise than through auction.

• This would facilitate banks and financial institutions to liquidate stressed assets where a company or its

captive mining lease is mortgaged.

• The transfer provisions will also allow mergers and acquisitions of companies and facilitate ease of
doing

business for companies to improve profitability and decrease costs of the companies dependent on
supply of mineral ore from captive leases.

• The transfer of captive leases would be subject to the consideration of enforcing Performance Security,
Mine Development and Production Agreement (MDPA), and realization of an appropriate amount, if any,
if found feasible at the time of framing terms and conditions.

Benefits

• This will help a lot of mines to come into production, which were earlier held up because the original
lease holder had difficulties in developing them and could not transfer to others.

• This would benefit a lot of mines that are at different stages of development.

• The existing restriction on transfer of mines not allotted through an auction had also led to lenders’
funds getting stuck in projects. The move to allow transfer of mines will speed up consolidation in the
industry.

TAMRA: a web portal and mobile application, to streamline the process of various statutory
clearances required for mining operations. Mining Surveillance System a satellite-based monitoring
system developed by Ministry of Mines aims to establish responsive mineral administration through public
participation

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NATIONAL MINERAL POLICY 2019

 replaces the extant National Mineral Policy 2008 in compliance with the directions of the
Supreme Court in Common Cause v/s Union of India & Others
 Based on recos of K Rajeswara Rao Committee
 Issues (need for new policy)
o Low rate of growth of Indian Mining sector- with just 1-2 per cent contribution to GDP over
the last decade
o Lack of focus on exploration- the production vs import of minerals is in the ratio of 1:10 in
India.
o Lack of incentive for pvt sector
o Illegal mining, env concerns, intergenerational rights
 Features
o Right of first refusal to Reconnaissance Permit and Prospecting License holders (RP/PL) -
to encourage private sector
o encourage M&A of mining entities and transfer of mining leases
o Dedicated mineral corridors
o Status of industry to mining activity
o Long term import export policy
o Exclusive Mining Zones, which will come with inprinciple statutory clearances for grant of
mining lease
o Auction unused reserved areas of PSUs - to pvt sector
o Inter generational equity
 (+): business friendly, sustainability focus
 (-): weak on env cons, doesn't talk about entire value chain

NUCLEAR POWER

Current status of India’s nuclear capacity:

 NPCIL is presently operating 22 commercial nuclear power reactors

 The total installed capacity in India is 6780 MWe, constituting 2.1% of the total installed capacity in
India.

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  The reactor fleet comprises of three types of reactor - PHWR, Boiling water reactor (BWR) and
PWR (Pressurized water reactor type)

*Recently govt. approved 10 PHWRs to double the current capacity.

Why India chose PHWR?

1. Availability of fuel - guaranteed as India has put most it’s PHWR under IAEA safeguards.
2. Uses natural Uranium - No need of establishing expensive enrichment facility.
3. Availability of indigenous technology, expertise and resources.
4. More energy-efficient than comparable Light Water Reactor.

Way forward:

 can invest in floating PP, like Russia did, less risky

ELECTRICITY SECTOR

ENERGY ACCESS AND CONSUMPTION

IEA defines energy access as household having reliable and affordable access to both clean
cooking facilities and to electricity

Challenges :

1. Finance - ever increasing energy demand, rising NPAs

2. Poor grid connectivity - need to improve for last mile connectivity
3. Quality of electricity access - load shedding not providing 24X7 power
4. Rural-Urban gap in access - in India only 71% HHs have electricity access with rural-urban
divide
5. Transmission and Distribution losses - around 20% in 2015-16

Steps taken by govt :

 Deen Dayal Upadhyaya Gram Jyoti Yojana - focuses on feeder separation (rural HHs and
agriculture)
 UDAY - improve finances of DISCOMs

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  Saubhagya Yojana - supply electricity to all HHs by Dec 2018
 UJALA - subsidised LED lamps
 PM Ujjwala Yojana - free LPG connections to women from BPL HHs

Way forward :

Policy push - encourage entry of new entrants with innovative ideas

Facilitate rural electricity access - with decentralized solution to the grid

Encourage private investment

Tapping renewable energy, energy efficient appliances, hybrid systems

OPEN ACCESS IN ELECTRICITY

Open access is a mechanism that allows generators to sell power to the highest bidders while
consumers can source their needs from the most economic seller (means can buy from other than
DISCOMs)

Issues with open access -

1. Frequent shifting of open access consumers - b/w discom and other source of power
2. Cross subsidy charge on open access consumer is not enough
3. Inadequate Transmission capacity - makes it difficult to procure electricity through open access
4. Load variability - makes load management tricky

WF-> at least need to fix for 24hours. 1st of all elec charges must be rationalised, too much cross-
subsidisation is wasteful

DBT IN POWER SECTOR

Proposed reforms :

 Targeted Approach - DBT would limit benefits to the needs of poorer sections of society
 Will make DISCOMs responsible - any disruption in electricity will be penalized post March
2019
 Improving consumer functions - by 100% metering to be achieved, reducing human
interference in metering, billing, collections
 Implementation - will be rolled out in a pilot project

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NPA IN POWER SECTOR

Reasons behind the rise of NPAs in Power Sector :

1. Non-availability of regular fuel supply arrangements

2. Lack of Power Purchase Agreement (PPA)
3. Aggressive bidding by developers in PPA
4. Delays in project implementations
5. loans extended w/o due prudence
6. coal block cancellations, shortage of coal

Tackling NPAs :

Pariwartan - Govt. has planned to warehouse stressed power projects under an Asset Management
and Rehabilitation Company (AMRC)

Parliamentary Standing Committee Recos

 Banks shd follow credit rating system for extending loans

 CIL shd supply coal consistently in time bound manner
 revisit National Elec Policy of 2005
 primarily use domestic coal, phase out outdated plants

NATIONAL POWER DISTRIBUTION COMPANY

A pan-India power distribution company that will support and guide the state discoms in electricity
distribution activities

will compete with private firms and contractors to bag contracts

Challenges :

Distribution activity is constitutional rights of states as electricity is in Concurrent list and

implementation of it is mainly in the hands of states.

Electricity tariffs still vary drastically across states and efforts to bring them on uniform scale will see
resistance from states

SAUBHAGYA YOJANA

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Objective - electricity to over four crore families in rural and urban areas

Funding Pattern - 60% by central grants, 30% by bank loans and 10% by states

Identification of beneficiaries - use Socio Economic and Caste Census (SECC)

Total Outlay - 16,320-crore scheme

DRAFT ELECTRICITY AMENDMENT BILL, 2018

 Three segments of the electricity sector in India (generation, transmission, and distribution)
were initially bundled together with the state owned electricity boards.
 In the 90s, the generation segment was opened up to the private sector and later a few states
restructured the system by segregating the three segments.
 Competition in the transmission and distribution segments has been limited
 Electricity (Amendment) Bill, 2014 was introduced to:
o (i) increase competition in the sector by segregating the distribution segment into
distribution and supply
o (ii) rationalise tariff determination
o (iii) promote renewable energy.

Key Features of the Bill

 Segregation of distribution network and retail supply of electricity

 Purchase and sale of power: all purchase and sale to be done through PPAs only.
 Tariff ceiling by CERC/SERC
 Subsidy reform: move towards direct subsidy, eliminate cross subsidy
 Renewable Energy definition, Renewable Purchase and Generation Obligation
 Provides for Smart grid and metering

Benefits

 Choice to customers - more than one electricity supplier in an area

 End Sectoral Bias due to cross subsidy
 Breaking the cycle of subsidy and losses: The DBT feature introduced has potential to eliminate
losses incurred by the DISCOMS
 24*7 Power supply - obligation and SERC can penalise DISCOM if it fails
 Violation of PPA to be penalised

Issues

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  Actual ability of consumers to shift between suppliers - unclear
 Setting up a new network requires significant capital investment and hence acts as an entry
barrier for new participants.
 Procurement exclusively via PPA: some companies might face unanticipated demand at times.
 Composition of Selection Committee for SERCs: only 1 rep from State, 5 from centre and
serving SC judge (rationale is unclear)
 Removing cross subsidies - might increase tariff for low paying customer and subsidy burden
on exchequer.

OIL AND GAS SECTOR

PRADHAN MANTRI UJJWALA YOJANA (PMUY)

 Beneficiaries -
1. all the BPL families under SECC 2011
2. all SC/ST households, beneficiaries of Antyoday Anna Yojana (AAY), PMAY (Gramin),
forest dwellers, most backward classes (MBC), Tea and Ex-Tea Garden Tribes, people
residing in Islands or rivers island.
3. All poor HHs who will identify themselves through self declaration
 Features
o aims to provide 8 crore deposit free LPG connections to women from BPL households by
2020.
o financial support of RS 1600/- subject to the condition that no LPG connection exists
o option to purchase gas stove and refills on EMI (zero interest)
 So far -> LPG penetration in India has risen from 56% in 2014 to 89% in Dec 2018. 3.8 / 5.8
beneficiaries are from SECC list.
 Challenges
o initial high cost as a major barrier for adoption
o no govt support in refilling stage
o Not enough data - whether they are continuing or not
o Long waiting time and sparse LPG distribution centres
 WF
o Demand-side intervention: use village-level ASHA workers to create awareness about the
ill-effects of traditional chulhas, which will create a bottom-up demand for cleaner fuels.

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 o Strengthening the supply chain
o diversify fuel options and make cylinders in different portable sizes and make door-to-door
refilling service available

12.3 OIL AND GAS IN INDIA

India has 0.5% of the oil and gas resources of the world and 15% of the world’s population. Thus,
heavy import dependence

Draft National Energy Policy target to reduce oil imports by 10% from (2014-15 levels) by 2022

12.3.1 OIL AND GAS EXPLORATION

Hydrocarbon Exploration and Licensing Policy (HELP)

HELP vs Pre-HELP :

Type of hydrocarbon - covers all conventional and unconventional oil and gas (NELP covered only
conventional oil and gas)

License - a single uniform license for exploration and extraction (separate license for conventional oil
and gas, etc)

Revenue Model - Revenue sharing model under which revenue will be shared with the govt
(Production sharing model)

Coverage - Open acreage licensing policy under which companies can apply to explore any block
not under exploration (Exploration was restricted to blocks opened for bidding)

Oil and gas pricing - Companies have the freedom to sell w/o govt intervention (Crude oil price
based on import parity, gas price was fixed by govt)

Royalty - Deep water 5%, Ultra deep 2%, Shallow waters 7.5% (Onshore 12.5% and Offshore 10%)

12.3.2 STRATEGIC OIL RESERVES

It is a storage of crude oil which would act as a cushion during any external supply disruptions or
supply demand mismatch shock.

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constructed in underground rock caverns

Construction of storage facilities are maintained by Indian Strategic Petroleum Reserves Limited

Located at Visakhapatnam (Andhra Pradesh), Mangalore (Karnataka), and Padur (Kerala)

12.3.3 EXPLORATION OF COAL BED METHANE (CBM)

Coal Bed Methane (CBM) is an unconventional form of natural gas found in coal deposits or coal
seams. It is formed during the process of coalification, the transformation of plant material into coal.

New amendment -> requirement of permission for exploration and exploitation has been done away
with for CIL and its subsidiaries.

12.3.4 LPG IMPORTS

India is set to surpass China as the biggest importer of liquefied petroleum gas

Recently India has signed a pact with Iran to import LPG. It is also importing LPG from USA and is in
talks with Bangladesh for the same.

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Petroleum, Chemicals and Petrochemicals Investment Region (PCPIR)

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Dhatri Reddy IPS, CSE 2018, AIR-233 [Link]
 5. Roads And Railways:

IMF in its 'World Economic Report' has highlighted the benefits of public investment in
infrastructure.
1. In the short run it boosts aggregate demand and crowd-in the private investment.
2. In the long run, it adds to the capacity and check the inflation by boosting the supply
side.
3. positive spillover effect - linked with the other sectors like manufacturing,
tourism, transportation etc.

TRANSPORT SECTOR
Challenges :
 Not planned holistically - leads to inefficient movement of people and goods
 Maintenance issues
 Modal imbalances - over time roadways has become dominant choice of transport rather than
railways inspite of economic and environmental benefits of latter. 30% freight by rail, 57% by
road, 6.5% by shipping
 Over 3 % of India’s GDP is lost to road accidents. (approx 1.5lakh deaths due to
accidents/year)
 Potholes

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  highly dependent on conventional sources of energy.

ROADS

 India has 2nd largest network of roads in the world.

 National highways are 2% of all roads adn carry 40% of all load

Road related problems in India

1. Infra wale points – clearances, lack of fund, land acquisition etc etc
2. Low road density in India (0.66 km per sq km)
3. High regional disparity in road density (3.75 km per sq km in Kerela and 0.1 km per sq km in
J&K)
4. Poor connectivity of roads for rural areas – Last mile connectivity is missing
5. Linkages of roads with railway and port networks are insufficient.
6. Largely unmetalled and unsurfaced roads. Width is also very less
7. Unscientific construction leading to frequent accidents
8. Same roads used by all kind of traffic like buses, trucks, two-wheelers – Leads to congestion,
slow mobility and accidents
9. Safety concern (1.5 lakh people died on Indian roads per year, a death every 3.5 minutes on
Indian roads)
10. Frequent check posts and state border post hampering mobility

WF
1. Increase connectivity - National Highways Development Program (NHDP), Bharatmala
Project, PM Gram Sadak Yojana (PMGSY)
2. Increase the coverage of Electronic Toll Collection (ETC) - ETC on Toll Plazas on National
Highways called FASTag. System used RFID tech for paying tolls
3. Improve maintenance

ROAD SAFETY
Planning Commission of India stated that over 3% of India’s GDP is lost to road accidents annually,
Report on Road Accidents in India 2016 -> a death every 3.5 minutes on Indian roads.
Road :
 [Link] Committee - highlighted the need for scientific study of road
infrastructure, rectification of accident hotspots.

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  Road Safety Action Plan - by Asian Development Bank stressed building of rush-hour lanes,
self-explained roads, optimal mobility of traffic
 Applied scientific study for roads - rather than widening and extending
People :
 Safe System Approach of WB - not just penalization but education and awareness for all strata
of society
 Pedestrians - have lack of walking environment and encroached footpaths. e.g 19% of all road
deaths are of pedestrians
Vehicles :
Use collision-avoidance systems, automatic braking systems and air cushioning tech
Govt : WF
1. KS Radhakrishnan - advocated Zero Tolerance policy towards drunk driving, accidents by
speeding
2. Good Transport and Nationa/l Freight Policy should be implemented
3. New policies to be based on Brasilia Declaration of 2015 - calls for more sustainable modes
of transport
4. Rakesh Mohan Committee - setting up of safety dept. within operating agencies
ensuring day-to-day compliance with safety standards
5. Steps taken - PM Surakshit Sadak Yojana

Government Initiatives:
1. Pradhan Mantri Gram Sadak Yojana
2. Bharat Mala Project – Road project under which Govt will be building a stretch of
o 5300 kms of road network from east to west of India.
o It will connecting all the land border areas and hence will strengthen the
border security
o connectivity to the NE region and hence will bring them into the mainstream
development fold
o It will facilitate trade along the borders as the network will be linked with the
inland highway network
o economic corridors, costal roads and port connectivity, greenfield expressways
3. The National Highway and Infrastructure Development Corporation Ltd. has been
created to expedite development of the highways in the North-Eastern region and
border areas.
4. Rashtriya Rajmarg Zila Sanjoyokta Pariyojana - Roads will be developed
to connect 100 districts across the country. 6600 kms of national highway do not

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 have uniform configuration across the length. These would be upgraded to ensure
better connectivity.

RAILWAYS

Issues?

Over the years investment in railways has remained almost stagnant. The
consequences of the under investment:
1. Capacity expansion of the railways has been severely hampered and increased
marginally. After 1990, China expanded it by 1.5 times.
2. Due to lack of capacity addition the share of railways in GDP has fallen to 1% in
recent years.
3. Stagnancy in speed and haulage capacity - lack of investment in wagon, engine
and track design
4. Shift to roads -> Sub-Optimal Use of Resources - Due to traffic congestion traffic
has shifted to roadways which is polluting and costly.
5. High congestion and hence reduction in competitiveness of industries - longer
delivery time, delay and more inventories holding by the companies due to
higher congestion
6. Poor safety and signaling infrastructure
7. Poor connectivity with ports and mines

Other issues
1. Politicization of the pricing of fares – Govt doesnot increase passenger fares due to
populist stance.
2. Cross subsidization of the passenger trains loss by charging higher freight rates,
which makes railway freight transportation costlier and uneconomic
3. Very poor performance – low operating ratio -> Currently performance of Railways
is very poor. Railways operating ratio is 91% i.e. railway spends 91 rupees for
every 100 rupees earned.
4. Safety – Highest number of fatalities in railways occur due to unmanned crossings.
[ Under and Overpass needs to be constructed ]
5. Finances – Declining share of internal revenue has led to more borrowing and
gross budgetary support

How can railways boost growth?

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 1. strong backward linkages - Increasing the railway output by 1 increase the
economy output by 3.3 and the effect is greatest on the manufacturing sector
- natural partner to ‘Make in India’
2. strong forward linkages too - multiplier is close to 2.5. This multiplier has
declined over time but this has been due to capacity constraint in railways caused
by under-investment in railways.

How can finances be arranged for railway expansion?

We should take a cue from China on how they expanded their network in last 20 years.
1. Investment in Chinese Railways comes from the collaboration between the
centre and the provincial government.
2. For specific freight projects major users such as coal mines, industries etc
contribute to the development of the project.
3. A part of the freight tariff is allocated to specific fund which is used only for
infrastructure capital spending. This eases the pressure on fiscal budget for
capacity expansion
4. Chinese railway has been corporatized and is allowed to raise loans in China
and in foreign markets.

FREIGHT SEGMENT

 share of railways in the total surface freight carried has declined from 86% to 35% between
1950-51 and 2011-12.
 Currently, freight fares in railways are kept high to cross-subsidize the passenger segment
 Rationalizing rail freight tariffs will divert cargo traffic from roads to railways, which is more
environmentally friendly
 Congested rail routes - due to high capacity utilization, operating at 100% capacity

RAILWAY SAFETY

Anil Kakodkar committee:

Reason Identified for accidents
1. Poor Infrastructure
2. Lack of resources and grim financial condition
3. Lack of empowerment at functional level
Recommendations made

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1. Adopt advanced signaling system
2. Getting away with all the manned-unmanned level crossings - Setu Bharatam Project has been
launched to make national highways free from railway crossings.
3. Use of LHB coaches (high technology coaches by German Company)
4. Empower employees at functional level
5. Set up a new railway safety authority and transfer safety commissioner under it
6. Set up Railway Research and Development Council
7. Mode of funding – Safety Cess from passengers, deferred dividend etc
WF:
 * Use tech like TRINETRA to reduce dependence on visual sight of driver
 * create a culture of safety as in aviation sector
 Achieve zero fatalities - Elimination of both manned and unmanned level crossings (Anil
Kakodkar Committee), upgrading rolling stock to be accident-resistant, e.g Center Buffer
Couplers (CBCs)
 Adopting new tech - Train Collision Avoidance System (TCAS), flood warning system at major
bridges
 Strengthen the institutional framework - creation of a separate department on safety and
security

BIBEK DEBROY COMMITTEE ON RAILWAYS

Recommendations:
1. Independent Regulator – Railway Regulatory Authority of India to regulate tariff,
safety, licensing and set technical standard.
2. Introduction of Commercial Accounting – Will improve financial allocation of
resources and bring efficiency in administration
3. Greater Decentralization of Power – Divisional GM should have more autonomy
and accountability too
4. Allowing the Entry of Private Sector
5. Focus on core areas – Shed the peripheral activities like locomotive manufacturing,
hospitals etc
6. Human Resources – Rationalize the manpower as pension + salaries form the
biggest expenses of railways. Also develop a performance assessment system .

Issues
1. Independent Railway Authority may face resistance from Railway Board
2. Rationalization of the manpower has been obstructed by the powerful union

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6. Aviation:

11.5 AVIATION SECTOR

India is the 3rd largest and fastest growing domestic aviation market in the world in
terms of no. of domestic tickets sold.
transported 85 million passengers in 2015-16
Issues : Falling rupee; Rising crude oil prices; Saturated demand in metro cities (flyer
base of 25-30 M in India); Lack of diversification of business models by airlines (Jet
Airways)
Liberalizing Air Services like India-Afghanistan Air freight Corridor; RCS-UDAAN;
Setting up 18 Greenfield airports; Reviving 50 unserved air strips
Key policies for development :
 Align excise duties on ATF to international levels - ATF accounts for ~40% of
airlines’ total costs. ATF costs in India are among the highest globally due to a host
of duties and taxes. ATF is not included in GST.
 Allow credit for aviation infrastructure under the GST - GST does not provide a tax
credit for input taxes on aviation infrastructure
 Tap unexplored areas like Tier 2 and Tier 3 towns, where demand exists (UDAAN);
Diversify business models (like hotels, etc); Spicejet example - better management

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UDAN 3.0
 Includes Tourism route in coord with Mo Tourism
 2 international flights from Guwhati under International Air Connectivity Scheme (no price
capping under this, free market)
 Inclusion of sea planes for connecting water aerodromes
 Northeast region flights
 Helicopters not included

National Civil Aviation Policy, 2016:

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  India’s aviation policy objectives of tripling passenger traffic by 2022 and
developing regional connectivity. Vision is to enhance ticketing from 8cr currently to
30cr by 2022 and 50 cr by 2030.
 Significance: India has the potential to be among the global top three nations in
terms of domestic and international passenger traffic. It has an ideal geographical
location between the eastern and western hemisphere, a strong middle class of
about 30 cr Indians and a rapidly growing economy. The growth in aviation will
create a large multiplier effect in terms of investments, tourism and employment
generation, especially for unskilled and semi-skilled worker. It can generate
additional revenues for the government through allied activities such as MRO
operations (severely underdeveloped), cargo carriage (less polluting and more
efficient both cost and time wise than road transport) etc.
Imp features:
 5/20 rule (20 domestic airlines for 5 years replaced by 20 flights/20% of fleet
domestically rule to be able to fly internationally
 Attempt to boost MRO operations (Maintenance, Repair and Overhaul) - this has
huge potential and 90% of India's MRO costs are spent abroad. Chance to be a
global MRO hub, which is Dubai currently.
 Regional Connectivity Scheme (Capping of fares, enhancing connectivity will lead
to an increase in the number of citizens who can fly and can take some burden off
railways)
 Bilateral Traffic Rights: to get into 'open sky' agreements
 Development of new Airports either by PPP or by AAI to follow hybrid-till
model instead of single till model being followed now
 Aviation Education and Skill Building
 Viability Gap Funding by govt. in 80:20 (centre:state)

Nov 16: Currently, AERA has a single-till model in place to determine aeronautical
charges at 20 major airports across the country, including Kolkata and Chennai. The
airports at Delhi, Mumbai, Bengaluru and Hyderabad follow a shared-till model. Under
the single-till model, both aeronautical and non-aeronautical revenues are taken into
account to calculate passenger fee. AERA wants to switch to the hybrid-till
model under which 30 per cent of the airport operator’s non-aeronautical revenue would
be used to subsidise airport costs in a bid to align its tariff determination model with the
National Civil Aviation Policy, 2016. HT Model might make travel expensive but
incentivises private investors to develop airports.

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 7. Renewable Resources:

1. Overview
2. Solar Energy
3. Financing
4. Hydro Power
5. Electric Vehicles

RENEWABLE ENERGY

1. National Clean Energy Fund

2. Renewable Energy Purchase Obligations

Though Green Energy is crucial to India’s energy security efforts, there is a

dearth of investment in the sector. Examine what efforts have been made by the
Union government to increase investments in green energy in India.
Green energy is vital for India’s energy security and to meet global climate change
commitment. This sector witness stagnancy due to huge cost incurred and thus requires
huge investments.
1. Union government has made multiple efforts for capital creation in green energy. At
national level two sub missions under NAPCC ie National Solar
Mission and National Mission on Enhanced Energy Efficiency get
regular budgetary allocation.
2. Various import reliefs and custom duty exemptions are given for import of solar
energy equipment. Semiconductor fabrication and R&D in solar technology is
promoted vehemently.
3. Central Regulatory Electricity Commission (CERC) has also got mandatory
procurement norms for renewable energy to develop its market. Wind and
Geothermal energy are promoted by private investment model.
4. Govt has set up National Clean Energy Fund, augmented by a coal cess, to fund
research and innovation in clean energy technologies
5. Viability Gap Funding
6. Tax free bonds for energy projects under infrastructure status like for solar power
7. PPP projects
8. CDM under Kyoto protocol
At global level, India is vehemently pursuing establishment of green climate fund .
Simultaneously, it collaborated with nation to bring their green investments. For

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example IREDA has signed agreement with USA to channelize its green funds.
With Japan a carbon offset treaty is in near completion.
India is also promoting itself as an attractive destination for Clean Development
Mechanism under UNFCCC. IREDA is working to issue Green Bonds to raise
domestic and foreign capital.
Green energy requires a continuous stream of fund for a period of time till it evolves into
a viable and cost effective technology. Till capital creation has to be an ongoing process
along with global collaboration.

SOLAR ENERGY IN INDIA

Remember:
 solar generation capacity eight times from 2,650 MW in 2014 to 28.18 GW on March 31, 2019
Solar power potential is 175W/m2 annually - its 7000 times the global power
consumtion
India has huge potential for renewable energy because -
1. Solar energy - India is a tropical country with high number of sunshine days
2. Wind Energy - Long Coastline of 7500 kms
3. Biomass energy - Being a agricultural country we generate large amount of
biomass - 120-150 million tonnes of surplus Biomass
India is currently having capacity of
1. 34 solar parks have been commissioned equivalent to 20000 MW.
2. 22000 MW through wind power and
3. 4800 through nuclear power, total amounting to close to 13% of electricity
generation capacity.
National Solar Mission - 100 gigawatt of solar energy capacity by 2022
Renewable Energy Target - 175 GW by 2022

Benefits which can be achieved with the more share of renewable energy are
1. Increased employment. Installation and management of solar power has generated
employment
2. Development of backward areas. As wind and solar energy are abundantly
available in India they can be strategically placed in the underdeveloped blocks
without the concern of raw materials
3. Energy Security, low CAD, low inflation and fiscal deficit.
4. Indigenous Technology development, which can later contribute to export basket
for the LDCs in Africa

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 5. Sustainable and clean environment
6. Power availability in remote areas – Will lead to MSME development and hence
higher export

Issues in Efficient Utilization of Solar Energy -

Technology
1. Solar energy production is technology intensive. India lacks cheap manufacturing
technology of photovoltiac chips
2. Battery Storage technology is expensive
3. Dependence on import for photovoltaic cells
Land: Competition for land space with other uses such as industrialization, agriculture
etc
Labour: Lack of appropriately skilled manpower for construction and commissioning
of solar units
Capital: Lack of funding - 100 GW of solar power installation would need 100 bio
dollars!!.
Natural resource: Incoming solar radiation which is intermittent and weather based
Supply chain: Connection with the grid: Photovoltaic cells generate DC which needs to
be converted to AC before connecting with the grid. This adds extra cost and
complicacy.

Steps which Govt should take to promote solar Energy in India

1. Promotion of R&D and signing of Technology transfer agreements to develop
photovoltaic and battery technologies in India
2. Tax Policy support to encourage local manufacturers
3. Connecting solar units with the grid and development of smart grid [improving
transmission lines]
4. Developing financial mechanism to fund the solar projects
5. Skilling of manpower to manage and run solar power units
6. To promote roof top solar innovative tariff model should be developed and net-
metering concept should be used. Already in use in AP

SOLAR MANUFACTURING
 India is still not a solar panel manufacturer.
 Issues
o 92% import dependency - because imports are much cheaper

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 o Lack of a manufacturing base for Poly-silicon Ingots/wafers (Indian companies engaged in
module assembly)
o Higher cost of production- due to lack of integrated set up
o High IR, EoDB, low skill etc.
o Govt efforts through Domestic Content Requirement was thwarted through WTO
o In 2018, India imposed a Safeguard Duty on imported solar panels -> While imposition of
this duty was aimed at incentivising domestic manufacturing, it led to an increase in tariffs,
resulting in the cancellation of many solar auctions
 Gvt initiatives
1. India’s Manufacturing Policy recognizes solar manufacturing as an industry with ‘strategic
importance’
2. 100% FDI allowed
3. Viability Gap Funding for solar plants that use the costlier Indian made modules
 WF - need a separate solar manufacturing policy, or an SEZ that focuses only on integrated
module manufacturing
o Ideas which can be adopted from China -> Develop ‘Solar Champions’- in a systematic
manner through massive subsidies, low interest loans, grants and easy access to land
and [Link] Technology Top Runner Program- which aims to achieve higher-
efficiency solar products for 1.5 GW of next-generation PV technology. Through such
targets, China is able to drive mass production of cells

INTERNATIONAL SOLAR ALLIANCE

India has launched ISA along with France to in Paris Climate conference. All the
countries between the Tropics have been invited to join.
Objective of the ISA
1. To promote solar technologies and investment in the sector
2. To promote employment through development of solar sector
3. To promote R&D and innovation in solar sector
4. To develop Financial Mechanism with international collaboration - Aim of 1 trillion
dollars
5. Capacity development of the member countries
6. expects to facilitate the addition of 1,000 GW of solar energy by 2030.

Benefits for India and World

1. National Solar Mission target of 100GW by 2022 can be achieved by gaining
technology and finance

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 2. Will help India to meet its INDC targets
3. India would emerge as leader in climate change talks in world
4. Innovation and R&D will further reduce the cost of technology
5. Energy security of India will be ensured
6. For World -Will help to arrange finance for solar power and indirectly for Climate
Change mitigation - Already World Bank and UNDP have agreed with ISA

Challenges for ISA (roughly similar to earlier challenges)

1. Cheap technology
2. Finance - doesn't address how capital will be provided
3. Skilled Manpower

ISSUES OF FINANCING IN RENEWABLE ENERGY

Facts -
1. India needs close to $ 200 billions for 175 GW renewable energy target by 2022
2. Investment in 2015 - $ 10.9 billions
Issues in Financing
1. Financing is mostly through banks which are short tenor and charge higher
interest rate - Shoots up the project cost making it unviable
2. Solar investment is crowding out investment on other renewable energy like
waste-to-energy, wind energy etc
3. Financing is diverted to large projects, making small projects like roof top solar
plant difficult to execute
4. Administrative delays increase the credit risk and make decrease the availability
of finance

Few steps taken by Govt to facilitate financing

Other Steps which needs to be Taken

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 1. Green Bonds - Increasing the depth of bond market in India
2. Reform and Diplomacy to push World Bank to increase its renewable portfolio to
15% of its total lending (currently 5%)
3. Red Tapism should be decreased

Wind Energy Mission

Govt is set to launch a Wind Energy Mission on the lines of Solar Energy Mission
under the NAPCCC. Mission aims to generate 100 GW by 2022 and assesses the
potential of 300 GW. Currently we have a installed capacity of 22 GW.
Under the mission MNRE would:
 Strengthen the grid infrastructure for wind power
 Identify the high wind power potential zones
 Ease land clearances for the project
 Regulate wind power rates
 Incentivize investment in the sector

HYDRO POWER
Recent Govt steps
1. Large hydropower projects (LHPs, i.e. >25 MW) as renewable energy projects.
2. Hydro Purchase Obligation as a separate entity within Non-Solar Renewable Purchase
Obligation for DISCOMS
3. Tariff rationalization measures for bringing down hydropower tariff
4. Budgetary support for funding flood moderation component of hydropower projects
5. Budgetary support to Cost of enabling infrastructure i.e. roads and bridges.
Renewable Energy share: 21% -> 35% (after including LHPs)
Hydro Energy share w/n RE: 6% -> 42% (after including LHPs)

Use of these steps

 Eligible for PSL lending
 generate emp for locals, help India achieve INDCs (175GW by 2022)
 creates infrastructure which lead to overall development of the area
 improve the ground water recharge (Ex groundwater levels have significantly improved after the
Indira Sagar Storage Project in Madhya Pradesh)

Issues faced by hydropower sector

 Lack of enabling infrastructure- such as roads, bridges to access remote areas

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  Delay due to land acquisition- for dam, power house etc.
 Delay due to environment and forest clearances
 Rehabilitation and Resettlement issues
 Cultural/ Religious Issues- sentiments attached with rivers
 Political will- lacks political traction due to long gestation period, Interstate issues, especially
over Riparian rights. E.g. Mullaperiyar Dam (between Kerala and Tamil Nadu)
 High Tariff of Hydro Projects - due to construction of complex structures which have long
gestation period, high IR loans etc.
 Financing Issues - lack of long tenure funding (10/16 Stalled hydro power projects are due to
financial constraints)
 Levying of water cess by the States- e.g. J&K

Recos of Standing Committee on Energy:

 Expedite land acquisition and R&R (Resettlement and Rehabilitation) process - provide fair
deal for the affected people as well as to fast track
 Establishment of special cell to monitor and expedite the matters pending in the Supreme Court
and National Green Tribunal (NGT)
 long term loan at cheaper interest rate
 Review the water cess imposed by the states - because there is already a provision for 12% of
free power to the respective States from the hydropower projects.
 Creation of enabling infrastructure - States should use programs like PMGSY.

ELECTRIC VEHICLES

 Steps by govt. -
o India’s Electric Vehicle (EV) Mission 2030 - all electric fleet of vehicles by 2030
o National Electric Mobility Mission (NEMM) - to achieve national fuel security by
promoting hybrid and electric vehicles, targets 6-7M sales y-o-y post 2020
o FAME-India - support the hybrid/electric vehicles; tech dev; demand creation; pilot
projects and charging infra
o Green Urban Transport Scheme - reduce the emission of harmful carbon gas
o Others steps - EVs -> 12% GST and no cess, while luxury vehicles and hybrids -> 43%;
EVs can be used for commercial purposes w/o permit;
 Concerns -
o Funding - high investment needed; already under pressure due to BS-VI from 2020
o High cost of Batteries - Li-Ion

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 o Available infrastructure - lack of charging infra
o Affordability - low purchasing power in country
o Other - time consuming to charge; chemical pollution (lack of eco-friendly waste disposal
of batteries)
 WF -> Battery swapping (reco of NITI Aayog); Alignment with National Solar Mission (EVs can
store power -> target of 100GW solar by 2022); encourage local manufacturing; tapping green
fund (Japan's Soft Bank)

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8. Reforms:

BoP Crisis:
 7th plan (1985-90) promoted relaxation of market regulations with heavy external borrowings to
increase exports. Industries couldn't pay back
 Further immediated by Gulf War (1991): crude oil prices increased + remittances stopped
 Fiscal deficit of 8% and hyper infaltion of 13%

IMF:
 Under Extended Fund Facility, got support
 Conditions laid down:
1. Devaluation of rupee by 22%
2. Drastic reduction in import tariff (130 - 30%)
3. Increase in excise duty (CENVAT) to compensate that
4. Govt expenditure to be cut by 10%

2 categories of measures:
1. Macroeconomic Stabilisation measures: to boost aggregate demand by increasing purchasing
power ie through gainful employment.
2. Structural Reform Measures: to boost aggregate supply of G&S, through inc in productivity

LPG:
 Liberalisation is the direction, Privatisation is the path and Globalisation is the goal
 Privatisation:
o means 100% transfer of State ownership to private sector (India never did a privatisation
drive - only Thatcher did it in UK 1980s)
o Disinvestment - <100% ownership transfer from State to pivate sector.
o All activities promoting pvt sector included under this - like delicensing, dereservation of
industries, foreign investment etc.

Generations of Economic Reforms: reform is a continuous process and needs fine tuning.
1. 1st gen (1991-2000):
o Promotion to pvt sector: dereservation, delicensing of indus and abolition of MRTP
limit, abolition of phased produtcion etc.
o Public sector reforms

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 o External sector reforms: abolished restrictions on import, floating currency regime, current
account convertibility, FEMA replacing FERA.
o Fin sector reforms: Committee on Fin sys (Narshimhan 1)
o Tax reforms: simplifying, broadbasing etc.
2. 2nd gen (2000-01)
o Factor market reforms: removed Administered price mechanism. Petroleum, sugar,
fertilizer, drug earlier administered. Now only kerosene, LPG and urea remain under APM.
o Public sector rforms, public institutions imporved, legal reforms
o Reforms in critical areas: such as infra, agri, edu, health.
o Strategic disinvestment - transfer of ownership. In 1st gen, only 'token disinvestment' was
taken up - ie negligible share trasnfer.
o Fiscal consolidation - FRBM act, gretaer devolution to States, focus on social sector
3. 3rd gen (2002-07): Announced in 10th plan - greate focus on PRIs for more inclusive growth
and development.
4. 4th gen (suggested by experts): to create 2 way connection bw economic reforms
and information technology.

Current situation:
 ES 2012: increased awareness of high profile corrpution scndals and welcome civil society
activism has been a sense of caution among civil servants in taking crucial decisions.
 Policy paralysis bw 2009-14: scandals couple with coalition
 ES 14-15 identifies 5 inter-related challenges: (Leading to Balance Sheet Syndrome with Indian
characteristics)
1. Weak profitability and over-indebtedness. (ICR<1) Debt to equity cover of top 500 firms
increasing and one of the highest in the world.
2. Difficulty of exit: stalled projects ~7-8% of GDP
3. Insititutional challenge: need to remodel PPP
4. Financing Challenge: NPA prob
5. Intertial decision making challenge: risk aversion in bureaucracy, especially in PSBs in the
light of NPA problem.

 Reforms received oppositon in the form of ‘Swadeshi Jagaran Manch’ etc.

 Reforms with the human face, 2003: so that it become inclusive

Assessment of reforms:

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  Since 1951, a study shows that inequality in rural areas declined while it increased in urban
areas in the post-reform period, particularly in the high growth period (Gaurav Datt, Martin
Ravallion and Rinku Murugai, “Growth, Urbanization and Poverty Reduction in India”, 2016).
 Pverty declined faster in the post-reform period, particularly in the 2004-2012 period as
compared to 1993-2005. In the post-reform period, overall poverty as defined by the Tendulkar
Committee declined faster from 45.3% in 1993-94 to 21.9% in 2011-12.
 World Bank Study (2016) mentioned above shows, poverty declined by 1.36 percentage
points per annum post-1991 compared to 0.44 percentage points per annum prior to
1991.

Socio:
 Dani Rodrik argued that if a country wants more of globalisation, it must give up either some
democracy or national sovereignty
 Niall Ferguson - trilemma bw committment to globalisation, social order and small state (ie
minimum state intervention). Ex. Re-emergence of protectionism.
9. Industries and services:

1. Industrial Policy
2. Disinvestment
3. MSME sector
4. SEZ
5. Electronics Sector
6. Textile Sector

INDUSTRY

For different industries, u can write points in the form of SWOT analysis

 Premature Deindustrialisation - shift towards services without peaking in manuf

 According to Global Infrastructure Outlook of G20, India has an infrastructure
investment need of USD 4.5 trillion by 2040, making it the second largest
infrastructure market in Asia after China.

INDUSTRIAL POLICY
Industrial Policy Resolution, 1948
 Mixed eco

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  Central, State list and rest open to pvt sector
Industrial Policy Resolution, 1956
 Reservation of Industries: 3 schedules -> Schedule A - monopoly of Centre,
Schedule B - States to take initiative and compulsory license but not monopoly,
Schedule C - open to pvt but need to comply with Industries Development and
Regulation (IDR) Act.
 Compulsory licencing -> License Quote Permit Raj
 Expansion of public sector, tackling regional disparity by opening in backward area
etc.
Industrial Policy Statement, 1969
 Monopolistic and Restrictive Trade Practices (MRTP) Act was passed - to regulate
the trading and commercial practices of the firms and checking monopoly and
concentration of economic power.
 MRTP Companies - means those with assets >25 cr had to take approval for
expansion, greenfield venture and takeover of other firms +MRTP commission
Industrial Policy Statement, 1973
 New classification - core industries such as iron and steel, cement, coal, crude oil,
oil refining and electricity.
 Some industries were put under the reserved list in which only the small or medium
industries could be set up.
 Concept of ‘joint sector’ was developed which allowed partnership among the
Centre, state and the private sector.
 FERA passed in 1973
Industrial Policy Statement, 1977
 Based on Gandhian Socialism
 Decreased foreign cap, decentralised dev - District Industries Centres (DICs) were
set to promote the expansion of small and cottage industries at a mass scale.
 Focus on village indus, small and cottage indus
Industrial Policy Resolution, 1980, 1985, 1986: overall bit liberal, many limits relaxed
New Industrial Policy, 1999
 De-reservation of the Industries: at present only 2 - Atomic/nuclear energy and
research, Railways
 De-licencing of the Industries: at present only 5 need compulsory licensing
1. Aero space and defence related electronics
2. Gun powder, industrial explosives and detonating fuse
3. Dangerous chemicals
4. Tobacco, cigarette and related products

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 5. Alcoholic drinks
 Abolition of the MRTP Limit: Competition Act, 2002 replaced MRTP
 Promotion of foreign investment: The indirect form of foreign investment (i.e., in the
assets owned by the Indian firms in equity capital) was called the portfolio
investment scheme (PIS) - 1994. Under the PIS the foreign institutional investors
(FIIs) having good track record are allowed to invest in the Indian security/stock
market.
 FERA Replaced by FEMA
 Location of Industries: polluting vs non polluting (can be located anywhere).
Polluting ones 25 Kms away from million cities.
 Compulsion of Phased Production Abolished
 Compulsion to Convert Loans into Shares Abolished: this used to be indirect route
to nationalisation. Where after banks were nationalised, if any firm couldn't repay
loan, they were asked to convert load to equity and hand over.

Parliamentary Standing Committee on Commerce report on ‘Industrial Policy in the Changing

Global Scenario’ 2019
 R&D - univ connect etc.
 IPR Framework - no need to be higher stds. than those included in TRIPS
 Reorient National Manufacturing Policy to promote smart manufacturing (zero emission, zero
incident, zerodefect manufacturing)
 Technology Acquisition and Development Fund (TADF) framework to enter the Fourth
Industrial Revolution.
 Focus investments in capital goods industries.
 Simplify labour laws, MSME, vocational, etc.

National Investment Manufacturing Zones (NIMZ)

 Integrated investment townships with objective to increase manufacturing
 Cluster approach
 Aim to develop as an industrial corridor (Ex 9 NIMZ identified along Delhi Mumbai
IC)
 Single Window Clearance through an SPV, NIMZ Board
 Central govt assured external infra like roads, railway, ports, telecom
 State govt assured internal infra like elec, water supply etc.
 Tax benefits specific to each NIMZ

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  Min area of 2500 ha (was 5k ha earlier) + 30% should be reserved for
manufacturing industries
 Viability Gap Funding by Centre -> both gap to be profitable and assurance to
creditors); but <20% of project cost.

DISINVESTMENT
 Token vs Strategic (means involves transfer of management control also)
 The C. Rangarajan Commission on Disinvestment of the Public sector Enterprises
(1991) went on to suggest the government on the issue in a highly systematic way,
taking empirical notes from the experiences of disinvestment around the world. The
government started the process of disinvestment in 1991 itself. In 1997 the
goverment did set up a Disinvestment Commission to advice upon the various
aspects of the disinvestment process.
 Against arguments:
1. Private ownership does not guarantee the efficiency (Rangarajan Committee
1993) - though he supported disinvestment
2. undervaluation of public assets and favouritism in bidding
3. overlook regional disparities in development
 Aruguments for:
1. Private prayers works out-of Red Tapism bureaucratic mentality and focus
on performance-driven culture and effectiveness (Disinvestment Commission
1996).
2. Trade unionism, political interference, disguised emp and outdated skills of
workforce, tech lag etc to be recovered
Current Disinvestment Policy:
1. Minority stake sale (2009)
o Listed PSUs to be taken first to comply to minimum 25% norm
o New PSUs to be listed which have earned net profit in three preceding
consecutive years
o ‘Follow-on’ public offers on case by case basis once capital investment needed
o DIPAM (Department of Investment and Public Asset Management) to identify
PSUs and suggest disinvestment
2. Strategic Disinvestment (2016)
o NITI Aayog to identify PSUs and advice

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 o Core Group of Secretaries on Disinvestment to consider the recommendations
of NITI Aayog to facilitate a decision by the CCEA (Cabinet Committee on
Economic Affairs) and to supervise/monitor the implementation process.
Proceeds of Disinvestment
 1991-2000: was used to meet fiscal deficit needs
 2000-03: used to reinvest in PSUs and social sector.
 2005: National Investment Fund set up outside CFI, to be managed by public
sector MFs (UTI, SBI Funds Management, LIC Mutual Fund). 75% to be used in
social sector and 25% to revive PSUs.
 2009-13: there was exception to use NIF due to global slowdown
 Current: 2013 - restructured NIF to create a permanent corpus under Public
Account to be utilised for the following purposes as decided in budget every yr:
1. Subscribing to the shares being issued by the CPSE including PSBs and public
sector insurance companies, on rights basis so as to ensure 51% government
ownership in them.
2. Preferential allotment of shares of the CPSE to promoters, so that government
shareholding does not go down below 51%
3. Recapitalisation of public sector banks and public sector insurance
4. Investment by the government in RRBs, IIFCL, NABARD, Exim Bank
5. Equity infusion in various metro projects
6. Investment in Bhartiya Nabhikiya Vidyut Nigam Limited and Uranium
Corporation of India Ltd.
7. Investment in Indian Railways towards capital expenditure

Budget 2019-20
 The target for disinvestment receipts has increased to Rs 1.05 trillion for FY20
 government’s stake in non-financial public sector units can go below the majority stake of 51
per cent. Instead of holding a direct stake of 51 per cent in PSUs, “government-controlled
institutions” (means govt shareholdig need not be direct) can chip in the remaining sum which
the government will look to divest.
 Processes of sale - strategic disinvestment, Exchange Traded Funds (ETFs) - PSUs grouped
together and an instrument is created (can club good and bad PSUs), Offer For Sale (OFSs) -
where the govt mandated pubic shareholding is not met.
 Indirect shareholding => more companies can be disinvested
 Air India WF - can retain a small company for core functions so that govt can retain executive
regultory authority w/o falling prey to regulatory capture.

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  NITI shared disinvestment plan - closure of 25 units and rest - mergers or strategic
disinvestment

Regulatory capture - private sector monopolies will make the sector monopolised and regulatory
bodies captured by these influential private companies, where regulatory bodies tend to act in their
interest instead of larger public interest.

Issues
 PSUs have massive assets such as landed assets etc. so investors show interest in take over
for this (Ex Vizag steel plant)
 They have many subsidaries, some cross subsidized so difficult to dispose
 Regulatory capture, private monopolises, foreign FDI arm twisting through international
media and embassies
 No real disinvestment - govt entities end up buying other entities
 union strikes, protests

Air India debt - 58k crore, 71 loss making PSUs - 31k crore net losses

MSME SECTOR
 MSMEs contribute 31% to GDP, 45% contri to exports and employees 12 cr ppl,
78% self funded
 80% of jobs in industry are from MSME with just 20% investment
 99% are micro, 0.52% small and 0.01% medium
 MSMEs contribute 33.4% of India's manufacturing output & 40% exports.
 Around 66% MSMEs are owned by socially backward groups (SC/ST/OBC). Higher
participation by women (20% women owned)
 Recently MSMED Act 2006 Amendment Bill introduced - Change in the basis of
classifying Micro, Small and Medium enterprises from ‘investment in plant &
machinery/equipment’ to ‘annual turnover’. (5Cr, 75Cr, 250Cr) - currently in RS
committee

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Issues faced : {Divide into Labour, capital, tech, market, policy sub-heads}
1. Access to capital - 40% small enterprises depend on informal sources of capital
 ES - MSMEs received only 70% of total credit (?)
2. Problem of delayed payments - cash/working capital crunch
3. Most MSMEs in informal sector
4. Lack of improved tech
5. Lack of basic infra - water, power supply, rail/road
6. Lack of availability of raw material and skilled labour
7. Getting multiple clearances - power, environment, etc
8. Divergence bw research instis and requirements of MSMEs
Govt. initiatives :
 Udyami Mitra Portal - improve access of capital
 MSME Samadhaan - to register cases of delayed payments
 PM Employment Generation Programme, Mudra Yojana
 MSE-CDP - cluster development program
 59-minute loan portal to enable easy access to credit for MSMEs
 Mandatory public procurement - 25% (out of which 3% from women led)

UK Sinha Committee on MSMEs

 Review of the legislative framework: MSME Development Act 2006 can be made into a
comprehesive code
 Change definition of MSME from investment based to turn over based, will remove bias
towards manuf enterprises too
 Strengthen procurement, use GeM Portal
 Make exit process easier for MSMEs - facilitate out of court settlements
 Cluster development
 Start Technology Mision, Industry specific Technology Centres
 Set up National Council for MSMEs under Chairmanship of PM
 Recos for financing
 Banks should develop customized products based on metrics like cash flows moving
away frm traditional forms of assessment.
 Set up Non-Profit Special Purpose Vehicle (SPV) to support crowd sourcing of
investments

Conclu - Replicate successful models of Competition by cooperation concept in Italy, Contract

Financing in Mexico and success stories of Shenzhen as a technology hub in China

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SEZ
 SEZs are geographically demarkated industrial areas that regarded as international territory for
the purposes of trade operations and duties and tariffs.
 223 Operational SEZs against 355 notified SEZs in the country
 Total Investment in SEZs (as on 31st March, 2018) amounted 4.75 lakh crore and it has
generated close to 20 lakh jobs.
 Exports from SEZs amounted nearly 5.81 lakh crore in 2017-18, which is higher from 5.23 lakh
crore in 2016- 17 and 4.67 lakh crore in 2015-16. <graph>

Challenges faced : identified by PAC and CAG

 Regional Disparity - 2/3rd SEZs in 5 states AP, TN, MH, KN, GJ
 Inter-Sector Disparities - 57% of SEZ cater to IT/ITES sector
 Industries show preference for urban agglomeration => no balanced regional growth
 Out of total land allocated, only 6% started operations. Developers apply for land and denotify
in a few years to benefit from price rise, they also mortgage SEZ lands to get loans.
 Land acquired under 'public purpose' category are being allocated for SEZs + low compenstion
to farmers.

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  Lack of Policy Predictability - due to change in fiscal regime. e.g earlier SEZs were exempted
from MAT but in 2012 18.5% MAT imposed
 Stiff Competition - by ASEAN countries due to FTA whereas SEZs have to pay full custom
duties for domestic sales.
 Rigid Labour Rules - hence could not match Chinese SEZs
 Lack of infra
 Multiple Models Of Operation - SEZ, NIMZ, Coastal Economic Zone, Delhi-Mumbai Industrial
Corridor, etc create confusion (Niti Aayog is going to “develop and master plan for industrial
clusters” in order to deal with this challenge.)
 Red Tapism
 Tax admn - SEZs are becoming tax havens
 Domestic sales of SEZs face a disadvantage as compared to ASEAN countries due to FTA
(suggested that the “best FTA rates” should be allowed for domestic sales, too.)
Way forward :
1. Measurable performance indicators - that reflect not only economic cost but also social and
ecological impact
2. Enforcement of good governance in the SEZs (better monitoring and data)
3. removal of MAT
4. fixed timeline to strengthen Internal audit of SEZs - full integration with ICEGATE system of
CBEC
5. Misc - promote sector specific SEZs, Improve infra, Cluster development, encourage
more greenfield FDI. exclude agri land from SEZ
6. align changed taxation regime under GST to the SEZ Rules.
7. simplification of the process of granting environment clearance by the Union environment
ministry and repeal of certain sections of the Urban Land Ceiling Act, 2007
8. grant infrastructure status to buildings of SEZs and industrial parks, permit external commercial
borrowing (ECB) for entire SEZ infrastructure

Baba Kalyani committee

 Reincarnation of SEZs as Employment and Economic Enclaves (3Es): migration from export
focus to economic and employment growth focus. For this to be achieved, incentives for the
manufacturing SEZs have to be based on specific parameters including demand, investment,
employment and technology, value addition and inclusivity.
 Flexibility to enable 3E units to seamlessly support business outside the zone.
 Supply of power directly to units from independent power producer (IPPs) at competitive rates
 Infrastructure status to 3E projects to make cheaper finance
 Connectivity to remote SEZs

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  tive power supply, like MAT and exemption from DDT, EoDB

Why China succeeded but India’s SEZ had limited success?

Unique location, large size, investment friendly attitudes towards non-resident Chinese, attractive
incentive packages, liberal Custom procedures, flexible labour laws, a strong domestic market and
decentralisation of power in favour of provinces and local authorities for administering the zones.
 geographic advantage with most of the SEZs located near the ports unlike the Indian SEZ’s
that are more in the mainland. Of the five SEZs, Shenzhen, Shantou and Zhuhai are in the
Guangdong province, adjacent to Hong Kong — the gateway to China.
 Each SEZ is well over 1,000 hectares, the minimum recommended area. In India, the EPZs
converted into SEZs are not even a third of this.
 unlike India where Policy impediments to sales in the domestic market hamper large domestic
market potential.
 While in China the thrust of SEZs has been to attract foreign investments and modern
technology, in India the emphasis has been on exports
 Provincial and local authorities were made partners and stakeholders, by delegating to them
powers to approve foreign investment.
 The hire-and-fire policy in SEZs has been one of the biggest attractions for foreign investors in
China. All jobs are on labour contract basis,

ELECTRONIC SYSTEM DESIGN AND MANUFACTURING (ESDM) <Can use SWOT

like this for other Qs>

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ELECTRONICS MANUFACTURING IN INDIA
India’s share in the global electronics market was a minuscule 1.6% of the market in 2015
Opportunity - India currently has 150% lower wages than China
Reasons for low export share of India :
 Inverted tax structure for electronic goods
 FDI in electronics is <1% of the total FDI - due to labour laws, delays in land-acquisition,
unstable tax regimes
 Cross border trade - works against Indian producers due to high costs of compliance. (For any
trade thingy - India ranks 146 in EoDB category Trading across broders)
 50-60% products and 70-80% components are imported at present. Need to control, otherwise
can overshoot oil import bill.
Govt. initiatives :
1. National Policy on Electronics, 2012 - achieve a turnover of USD 400 B by 2020
2. Priority sector under Make In India

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 3. Modified Special Incentive Package Scheme (MSIPs) - provides subsidy of 25% of capital
expenditure
4. Electronic Manufacturing Clusters Scheme - development in clusters, target of 200 clusters by
2020
5. Preference to domestically manufactured goods - in govt. procurement
6. Electronic Development Funds - for R&D and Innovation
7. States like AP, KN announced State Electronic Policies and cluster development

NATIONAL POLICY ON ELECTRONICS

Features
 positioning India as a global hub for Electronics System Design and Manufacturing - (ESDM)
 achieve a turnover of $400 billion and generate 1 crore jobs in the ESDM sector by 2025.
 Creating competitive ESDM eco-sys: promoting Defence Offsets and sub-sectors like semi-
conductor facilities, display fabrication units
 EoDB, Industry led innovation R&D, HRD etc.
 Promote Trusted Electronics Value Chain- to improve national cyber security
 Preferential Market Access - adopt public procurement through GeM
 acquiring mines of Rare Earth Metals in foreign countries (Africa, Australia)

Other initiatives in the sector:

1. Modified Special Incentive Package Scheme (M-SIPS) - subsidies
2. Electronics Manufacturing Clusters (EMC) Scheme - grants for greenfield and brownfield
ventures

TEXTILE SECTOR
 Biggest employer after agriculture employing 4.5 crore people directly
 Indian textile industry, the 2nd largest manufacturer and exporter in the world, contributes 12.65
% to manufacturing and 2.3 % to GDP.
 India has a share of 5% of the global trade in textiles and apparel
 The share of textile in India’s total exports stands at 12 per cent (2018- 19).
 Important role in social dynamics because it mostly employs women

Knowledge intensive services: US 33%, China 10% and India 2%.

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(FDI) equity inflows to India in 2018-19 contracted by 1%, according to the government’s own data.
After an increase of 22% and 35% in 2014-15 and 2015-16, respectively, FDI equity inflows began
tapering off since 2016-17 with the growth rate falling to 9% and then to 3% in 2017-18.

10. Investment Models:

Investment is the process of putting money in productive activities to earn income.

Investment models are means and tools by which GoI tried to mobilize funds for
planned development.

Phase 1 (1951-69):
 State-led development
 Focus on infra and social sector
 Glorification of PSU, PSUs were called 'temples of modern India'.
 Overall, GoI was able to raise huge funds to be able to start industrialisation from
scratch.
Phase 2 (1970-73):
 Industrial Policy of 1970
 GoI included private participation in planned development for the first time, though
in a restricted manner. Industrial activities remained closed to private entry till 1991.
Phase 3 (1974-1990):
 Foreign Exchange Regulation Act, 1973: Allowed foreign capital upto 26% of total
project value only through technology transfer route in those industries which were
open for private sector as per Industrial Policy Resolution, 1956. Govt tightened
flow of foreign currency to Indian private sector.
 This hampered adoption of technological upgradation, better work
culture, entrepreneurship and scarce foreign capital.
 By 1956-66 South Asian Economies such as Malaysia, Indonesia, South Korea and
Thailand had opened for foreign inv. both direct and indirect; soon to be
called Asian Tigers
 After 1985, 2 consecutive PCs recommended opening up for private sector.
 Limited degree of economic reforms were brought through Industrial Policies of
1985 and 86.
Summary (upto 1991):
1. Gov. main investor, delay in channelizing private investors in development.

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 2. Emphasis on PSUs with nationalisation drives in late 60s and early 80s.
3. Tax system structured to raise max. tax revenue, inc. tax evasion and burden on
citizens.
4. GoI continued cutting non plan expenditure (even education and health care) to
make room for planned expenditure.
5. Crowding out of funds: Excessive gov. dependence on financial system reduced
availability of funds for private sector.
6. Hampering of technological upgradation due to lack of foreign capital for private
sector.
7. Crisis due to lack of proper infrastructure.
8. Main sources of funds were gov's tax revenue, external and internal borrowings
and freshly printed currency.
Phase 4 (1991 onward):
 BoP crisis due to prolonged weak fundamentals of economics and Gulf War 1;
approached IMF for loan which needed opening up.
 FDIs were allowed in all sectors barring railways and nuclear power (latter two are
partially opened).
 PPP for development of infrastructure through private sector involvement, which
giving them confidence to enter the sector.
 Infrastructure development fund which provisions Viability Gap Funding (a grant
one-time or deferred, provided to support infrastructure projects that are
economically justified but fall short of financial viability. The lack of financial viability
usually arises from long gestation periods and the inability to increase user charges
to commercial levels)
 Expansion of social sector by increasing spending as a % of GDP. (1.37% on
1991 to 6.7% in 2014-15). Also Companies Act of 2013 enabled some additional
funds to flow in through CSR.
 Gov. started fiscal consolidation, restructure of tax structure etc.
 Investment requirements of general public: trying to maintain low interest rates, low
inflation and stable exchange rates.
 GoI aims to improve ease of doing business by putting together right kind of land
acquisition laws, companies law, tax laws, digitalisation of gov. processes etc.
 Gov. slowly taking the role of a regulator, facilitator and caretaker of marginalised
sections while letting private sector take over.

BOT-TOLL

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  ‘Build-Operate-Transfer-Toll’
 Bidder to share project cost (w govt), build, maintain, operate the road and collect
toll on the vehicular traffic.
 Bid was given to the private company offering to share maximum toll revenue to the
government.
 Private party bears all risks - related to land acquisition, construction
(damage), inflation, cost over-runs caused by delays and commercial.
 Govt responsible for only regulatory clearances.
 Drawback - unsustainable for the private bidder, undue delay in land acquisition
due to litigation, cost over-runs, inflation and uncertainties in traffic
movement (commercial risk) => economically unviable.

BOT ANNUITY
 Pvt party - share project cost, build, maintain and operate but no responsibility of
collecting toll.
 The private players were offered a fixed amount of money annually (called
‘annuity’) as compensation.
 Party bidding for the minimum ‘annuity’ gets the project.
 Toll collection was the responsibility of the Government => no commercial risk to
pvt player, but all other risks still there.

EPC MODEL
 Engineering Procurement Construction (EPC) Model
 Project cost fully covered by the Government + majority of the risks—land
acquisition, cost over-runs due to delay, inflation and commercial.
 Pvt party to design, construct and hand over the road projects to the government—
maintenance, operation and toll collection being the government’s responsibilities.
 Contract was given to the private player who offers to construct roads at the lowest
cost/price guaranteeing the desired quality levels => only exposed to the
construction-related risks

HYBRID ANNUITY MODEL

 Project costs shared - Govt provides 40% of project cost as funding and take
the land acquisition risks
 Rest 60% will be financed by the private developer. It will construct and hand over
to govt + maintain till end of annuity period.

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  NHAI would collect the toll and refund the investment of developer in annuity over
15-20 years.
 Most of the major risks are covered by the government— land acquisition,
clearances, operation, toll collection and commercial while the risks related to
inflation and cost over-runs are shared in ratio of the project cost sharing.
 private sector is still exposed to the construction and maintenance risks, delays in
land acq by gvt would also affect.
 Private partner responsibility - Designing, building, operating and transferring the
project at end of operating period

Swiss Challenge Model

 GoI 1st time used for redevelopment of railway stations in the country (by late
2015).
 Innovative proposal by a bidder is shared publicly, then counter proposals (ie to
improve the original bid) are invited. The best one is chosen.
 In 2009, the Supreme Court approved the method for award of contracts.

PPPP Model
 Public private people partnership model
 Been in use since 2000-01 itself by in agriculture sector to promote participatory
irrigation development in the Command Area Development Programme of 1974 in
which individual financial contributions come from the farmers (around 15 per cent
of the total cost) to develop field channels and drains.
 In future, the local bodies may be using this model to develop social and economic
infrastructure.

*Kelkar Committee on the PPP

11. Banking:

1. Stats
2. Financial Inclusion
3. RBI
4. Banking Reforms
5. NBFCs

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Banks are lifelines of economy and play a catalytic role in activating and sustaining growth.

STATS:
 DECREASED NPAs - from March 2018 to Dec 2018
o Gross NPAs of SCBs: 11.5% to 10%
o GNPAs of PSBs: 15.5% to 13.9%
 GNPA for NBFCs 6.5% as of Dec 2018
 NPA ratio overall is 11.6% in March 2018, while 15.6% in PSBs. (private is ~3-4%)
 Overall capital to risk-weighted assets ratio (CRAR) of the banking system also improved to
13.6 percent from 13.4% during 2017-18.
 Willful defaulters owe PSU banks a total of ₹.64, 335 crore or 21 per cent of total non-
performing assets (NPA).
 Even now, approx 18% indians have no access to banking services

RBI circular on Willful Defaulters deals with:

1. deliberate non-payment of the dues despite adequate cash flow and good networth, siphoning
off of funds to the detriment of the defaulting unit.
2. Assets and proceeds have been misutilised
3. Misrepresentation/falsification of records
4. Disposal/removal of securities without bank's knowledge
5. Fraudulent transactions by the borrower
Recommendations of standing committee on finance:
 make public the names of their respective top 30 stressed accounts involving wilful defaulters.
 This will act as a deterrent and enable banks to withstand pressure and interference
Fugitive Economic Offenders Bill 2017

FINANCIAL INCLUSION
 PMJDY Changes - Overdraft facility from 5k to 10k, no conditions on overdaft upto 2k. Upper
age inc from 60 to 65yr. Accidental insurance increased from 1lk to 2lk.
 Issues
o <10% of all commercial bank credit goes to rural area.
o Continued dependency on unsecured debt
o Internet connectivity issues in remote areas, difficult for BCs to work
o Increasing Cost of Business Correspondents
o Tackling unaccounted money deposited during Demonetisation

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  Acheivements
o 80% of adult Indians have bank accounts
o Financialisation of savings
o Diversification of financial products - such as insurance etc.
o Transition to electronic payments
o Helped Banking sector
 Improved their balance sheets
 Servicing Cost is not an issue forthe banks now- as the average deposit balance in
these accounts has increased.
o women empowerement
o DBT (23 per cent of these accounts received DBT)

Deepak Mohanty committee on issues with financial inclusion:

1. Gender Inequality:
2. stability of the credit system: A unique biometric identifier such as Aadhaar should be linked to
each individual credit account and the information shared with credit information companies
3. Last-mile service delivery: need mobile banking facility for maximum possible G2P payments.
4. application-based mobile phones as points of sale
5. graded system of certification of business correspondents from basic to advanced.
6. Land records: In order to increase formal credit supply. Digitisation + linked to Aadhar

WF
 Allowing them to build up a credit and transaction history
 first-time adopters are treated well at bank branches, know the grievance redressal
mechanisms
 awareness campaigns

RBI
 International Journal of Central Banking in 2014, RBI was listed as the least
independent among 89 central banks considered under the study.

Problems:
1. Having a period shorter than five years (Raghuram Rajan term ended in 3 years) does not
allow the governor sufficient time to implement his/her agenda and also politicizes the
extension of tenure.
2. Empty regional boards: There have been no new appointments to the local boards.

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 3. Vacancy in central boards: only three appointments to 10 positions appointed and the rest have
remained vacant.
4. Poor Monetary transmission - high IR, poor credit growth
5. Monetary Policy vs Fiscal Objective - ‘to achieve price stability vs govt.'s objective to achieve
growth'
6. conflict of interest in setting interest rates and selling govt bonds (Public Debt Management
Agency set up in Budget 2016, will become full fledged in 2019)
7. not enough capacity to act in times of crises

MONETARY POLICY
 Monetary Policy Committee of RBI in June 2019 effected a 25 basis points cut in repo rate in its
second bimonthly policy review of this financial year. After the cut, the repo rate now stands at
5.75 per cent. The MPC also changed policy stance to 'accommodative' from 'neutral'. This was
third rate cut in a row by the central bank.
 Issues
o RBI noted that rate transmission has only been upto 42%
o No assurance regarding fiscal deficit containment of govt.

Section 7 of RBI Act 1934 - Govt can issue an order to the RBI to take into account the government
instructions in the public interest.
Independence vs Accountability of RBI
 Why independence - prevent political influence, stable policy, policy implementation, focus on
economic stability, regulation etc.
 Accountability - because democracy, answerability, transparency, autonomous w/n framwork of
RBI act - und
WF
 FSLRC proposed to do away with the government’s power to give directions, while it sought to
make boards of regulators more accountable and transparent with agenda and minutes
of board meetings to be public.
 Balance both, review regulatory powers

Problems of banks
1. not enoug capital reserves => low lending
2. NPA - more NPA => more provisioning and hence less lending capacity
3. twin balance sheet problem

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 4. Poor Asset Quality - Gross Non Performing Asset (GNPA) of SCBs is 11.6% in March 2018,
while 15.6% in PSBs. (private is ~3-4%)
5. Capital adequacy - CRAR has declined steadily for Indian banks, especially for PSBs
6. Unhedged forex exposure of indian companies
7. Challenges to Digital Banking - Security Risks, Financial Literacy / Customer Awareness, Fear
Factor, Training
8. Such high NPAs => not enough provisioning by banks (acc to RBI)
9. Monetary policy transmission - data shows lag of at least 2-3 quarters
o Janak Raj Committee -> the transmission was uneven across borrowing categories.
asymmetric over monetary policy cycles

Why PSB NPA > Private

1. PSBs have more loan portifolio, they also get more deposits - more capacity to lend => more
risky
2. No robust risk analysis, performed by generalists. Whereas in pvt sector there are dedicated
teams
3. Reach of PSBs is inherently higher => more risk
4. Culture of PSBs - top down, pulls and pressures of extending loans

BANKING REFORMS

PSB Recapitalisation Plan:

 Indradhanush Plan for revamping PSBs in 2015 - capital infusion of 70k over 4 years (govt
infused ~54k crores through this)
 2018 -> further recap of 2.11 lakh (This will be to improve CRAR)
 1.35 lk crores from recap bonds, 18k crores from budget and rest through market borrowings of
banks
Why needed?
1. Govt is responsible for PSB health
2. To revive growth, credit supply and MSME
3. Decrease NPA and conform to Basel lll
4. Gross NPAs of PSBs rising
Problem?
1. Fiscal deficit, budget constraints
2. recap not = recovery
3. moral hazard

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Other reforms:
 Annual report card for each PSB, banking facility w/n 5Km radius
 EASE (Enhanced Access and Service Excellence) - 6 themes
1. Customer responsiveness:
 EASE for customer comfort - promote digital banking
 EASE in Grievance redressal - enabling real-time complaint status tracking
 EASE for Senior citizens and differently abled - doorstep banking, dedicated
counters
 Annual EASE ranking index on customer EASE - to measure bank’s customer
responsiveness and performance
2. Responsible Banking
 Clean lending and prudent asset managemen
 Improving governance for ensuring outcomes - board-approved strategic vision &
business focus plan
3. Credit take off
4. PSBs as Udyami Mitras
 EASE of bill realization for MSMEs
 EASE of financing for MSMEs
 Single-point MSME Relationship Officers
5. Deepening fin inclusion: near home banking, micro insurance, digital payments etc.
6. Digitisation and developing personnel for brand PSB
 Banks need to set up seperate monitoring committee for loans above 250 crore and seperate
vertical for NPAs
 Banks to have Min 10% of loans in consortium
 Consolidation of PSBs - to create 3-4 global-sized banks as per Narsimhan Committee report.
Would cater for the massive credit requirements of the growing economy, absorb shocks, etc.
Challenges - reduction in staff strength and exploring the right business synergy and work
culture
 Domestic- Systematically Important Banks (DSIBs) - Recently RBI declared HDFC as
DSIBs, 'Too Big To Fail' because of their size, cross-jurisdictional activities, complexity and lack
of substitute and interconnection.
 Linking SWIFT to CBS
 PCA
 Project Sashakt
 BBB, IBC

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PRIORITY SECTOR LENDING

 PSL is lending at market rate but aimed to reach targetted sectors. (Interest subvention
Scheme for farmers is different)
 Has long been used by developed as well as developing nations as an instrument to channel
credit at preferential rates to strategic sectors of the economy
 Targets - 40% of adjusted net bank credit (ANBC) for all banks with more than 20 branches
 Categories covered - Agriculture (18% of ANBC), MSME (7.5%), Export Credit, Education,
Housing, Social infra, Renewable Energy
Significance of PSL :
1. Promotes social equity and facilitates increase in employment
2. Results in social returns and improved lending portfolios of the banks
3. Credit Formalisation - increase in institutional credit to agi sector against non-institutional (like
money lenders, etc)
Issues :
1. Sectoral Issues - PSL been unable to make a greater impact, especially on Agriculture
sector. because banks tend to lend for short-term just to fulfil RBI norms (Economic Survey
2014-15).
2. Lethargy in Lending - PSB have been continuously underperforming on the total priority sector
target of 40% since 2012
3. Rising NPA - Second Narasimham Committee noted 47% NPAs came from priority sector
4. Targeting issues - misallocation of resources to non-priority sectors
5. Reluctance by govts - to scale down or discontinue the PSL
6. Costs - Direct, Indirect and if banks fall short in lending then need to contribute to Rural
Infrastructure Development Fund (RIDF). penalises banks and deters them from expanding
scale of lending. (like maintaining branches in remote areas to extend such loans)
7. Skewed lending - captured by big farmers, in agri no improvement in productivity because it
gets used for different uses
Way forward :
 Resetting PSL targets based on the business models of different types of banks – public sector,
private sector and foreign.
 Developing a risk minimization plan for agriculture
 Using innovative market driven instruments such as tradeable PSL certificates (Reco by
Raghuram Rajan Committee) - RBI introduced in 2016, need to improve
 Strengthening Cooperative Banks, Regional Rural Banks, and Microfinance Institutions
 Narasimham Committee also recommended reduction followed by phasing out of PSL
requirement. IMF also asked RBI to revise PSL and make it more flexible.

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  Using technology to reduce cost of delivery to priority sectors

INSOLVENCY AND BANKRUPTCY CODE (2ND AMENDMENT) ACT 2018

Based on recos of Injeti Srinivas Committee
 Persons inelligible to be resolution applicants
 Home buyers to be financial creditors
 Related parties (family members) barred
 Re-calibration of voting threshold: from 75 to 66%
 Allows withdrawal of application of 90% of creditors agree
 Protection of MSMEs - exempt from certain provisions like disqualification of promoters etc.

Mar 2018 Dec 2018

GNPAs for SCBs 11.5% 10.1%

GNPAs for PSBs 15.5% 13.9%

CRAR of SCBs 13.9% 14%

GNPAs of NBFC 6.1% 6.5%

What worked
 4Rs ->
1. Recognising: Asset Quality Review, Lender's Forum
2. Resolving and Recovering: IBC, Project Sashakt (to resolve NPAs through market led
approach)
3. Recapitalising: 2.11 lakh crore (Mission Indradanush)
4. Reform: EASE

NBFCs
o Company registered under Companies Act 1956. Engaged in business of loans and
advances, acqusition of shares/bonds, chit business etc.

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 o NBFC cannot accept demand deposit, no CRR but SLR, cant give cheques, deposit
insurance facility not available

Problems
 multiple regulators
 Asset liability mismatch, liquidity crunch
 Riskier lending, unsecured loans
 IL&FS issue (91,000 crore borrowing) - cascading
 Delayed projects - write all those issues

WF - better regulation (follow recos of FSLRC), timely project completion, securitisation of assets (as
reco by RBI)
RBI announced Partial Guarantee for PSBs for purchasing assets of systemically imp NBFCs
SEBI issued guidelines to improve quality of disclosures made to CRAs

12. ECO:

Budget:
"One of the great mistakes is to judge policies and programmes by their intentions rather than by
their results." - Economist Milton Friedman

Employment:

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  The median forecast put out by UN demographers suggests that there will be slightly more than
a billion people in the working-age cohort by 2050.
 By the end of this decade, India will have around 800 million people between 20 and 65 years
of age—or what can be loosely considered to be the potential labour force.
 Less than a third of Indian women are part of the labour force lower than compareable
economies. Indonesia, for example, has more than half its female population working outside
the kitchen.
 India has a great demographic opportunity because it will have a growing population in an
ageing world. It also risks social turmoil in case there are not enough jobs for the growing
labour force. The inability to manage the jobs challenge will mean that governments will be
forced to use fiscal tools to buy social peace
 Recent study by the McKinsey Global Institute presents a more positive story of structural
transformation. The number of people in agriculture fell by 26 million in the four years to 2015.
However, this was more than compensated for by the 33 million new jobs created in non-farm
sectors.
 6th economic census shows that the median economic unit in India is too small to either boost
productivity or hire more people => so jobs through self emp alone is doubtful

Block chain technology:

The Reserve Bank of India’s research arm has also developed proof of concepts with a few banks
on blockchain, and it said in its white paper that “the results are quite encouraging, giving comfort
and confidence in the implementability of blockchain technology”. Further, the State Bank of India
initiated a national blockchain bank consortium earlier this year to build and implement blockchain
solutions that can minimize fraud and improve the efficiency of the banking system.

REGIONAL DISPARITIES:
 Neoclassical Eco Theory: Catchup hypothesis - that there would be a catch up in large
federations and amongst countries. India is an outlier, not happening
 Reasons:
o Agglomeration and network: means that it is more productive for capital (and skilled
workers) to clump together rather than be thinly spread.
o Scholars like Arvind Subramaniam advocate that disparities are due to difference in
'goverance'
 Way forward: need “place-based” economic policies, which allow for divergence and
experimentation at the level of the States

BANKRUPTCY CODE:

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Loopholes:
 No safeguards to company
 Doesn't provide any opportunity for debtor to even make a representation (violates SC directive
in Maneka Gandhi vs UoI)
 No qualifications mentioned for Insolvency resolution professionals - scope for misue by
competitors and breach of confidentiality
 No scope of settlement, ie withdrawal of application provided

13. Growth:

1. Middle Income Trap

2. Indian Statistical System
3. GDP Estimates
4. $5 trillion economy

MIDDLE INCOME TRAP

 member of PM Economic Advisory Council (PMEAC) warned - India may be nearing a
structural slowdown and may soon get caught in the ‘middle income trap’ like Brazil and South
Africa.
 Middle Income Gap - refers to countries that have experienced rapid growth and thus quickly
reached middle-income status but then failed to further catch up with developed countries.
 (-): can't compete with low-income, low-wage economies in manufacturing, can't compete with
advanced economies in high skill innovations.
 Reasons for MI trap
o Inability to shift growth strategies: from resource-driven growth, with low-cost labor and
capital, to productivity-driven growth
o Skewed income distribution & stagnation in middle class population
o High inequality societies face - because top strate experience most of the growth
o Recurring boom-bust cycles & procyclical lending: as empirically observed in Latin
America
o GDP growth of India is mostly consumption driven, rather than export driven (this type of
model requires more ppl to leave lower strata to enter middle strata rather than inc in
income in upper strata) - need burgeoining middle class
 Less competitive goods due to increasing wages

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Why India
1. Backlash against globalization
2. Thwarted Structural Transformation: ‘pre-mature deindustrialization’
3. Human Capital Regression
4. Climate change-induced Agricultural Stress
5. Fall in private consumption, muted rise in fixed investment and sluggish exports
WF (to overcome)
 Transitioning from diversification to specialization in production: reap economies of scale and
offset the cost of disadvantages associated with higher wages (E.g. Electronics industry in
South Korea).
 Productivity led growth
 Opportunities for professional talent - safe and liveable cities
 Remove barriers to competition - IPR, bankruptcy laws, etc.
 Macro economic stability
 Changing orientation of social programmes that targets middle class besides poorer sections of
the society, which would propel the demand driven growth.

INDIAN STATISTICAL SYSTEM

 CSO and NSSO major agencies (these 2 are now merged and many are saying will lead to loss
of autonomy of NSSO - earlier attached office of MoSPI).

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  Prof PC Mahalanobis - father of Indian Statistical System
 Context -> group of 108 economists and social scientists called for restoration of "institutional
independence" and freeing critical data from "political interference"
Issues
 Data sources are not available directly (eg: agri prices frm mandis - may not be final data)
 Non-availability of critical fiscal data such as the data on pay and allowances.
 Capacity Building- the human and organisational resources
 Divergence in definitions and criteria (among indicators, agencies)
 Large unorganised sector - difficult to get accurate data
 Lack of transparency and reliability of fiscal data due to cash-based accounting
 Lack of continuous long-term series of fiscal data
 Time lag issue, politicisation of data, Erosion of institutional autonomy (Senior officials of
National Statistics Commission resigned recently)
Implications -> Trust, investors, ineffective policy response, absence of public accountability
WF
1. old series should be routinely linked to the new series for providing comparable data
2. India’s fiscal data system should be developed in the framework of ‘information’ federalism
3. Rangarajan Committee, the NSO should work as the nodal body for all core statistical
activities, but it should work under a separate body, which is directly answerable to the
Parliament, not the government. The body must be mandated the role by giving a statutory
status.

Draft National Policy on Official Statistics

 Core statistics: The draft policy proposes to focus on certain statistics of national importance
 National Statistical Commission (NSC) be reconstituted to regulate and audit core statistics
 National Statistical Appraisal and Assessment Organisation - conduct statistical audits
 National Statistical Development Council - under PM
 All India Statistical Service

GDP ESTIMATES
 Former Chief Economic Adviser - growth overestimated by around 2.5% between 2011-12 and
2016-17.


$5 TRILLION ECONOMY by 2024-25

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  Currently 2.8trillion, 6th largest
 ES drew a plan, 8% growth pa needed
 Contributing factors -> Demographic dividend, reforms initiated, Economic and social sectors
performing well, investments, political stability, EoDB
 Challenges
1. Too much focus on GDP growth - nelecting jobless growth, inequality and lagging social
sector
2. Goal stated in nominal GDP in $
3. Falling private investment
4. Labour reforms
5. Env vs development
6. Technological disruptions
7. Banking, agri and MSME sector issues
8. Protectionism, export pessimism
9. Energy security, lack of resources
 WF
o Focus on human capital
o R&D and Technology
o Inc investment
o Create jobs
o EoDB
o Reform taxation

Mr Piketty has, with Lucas Chancel, written a new paper entitled “Indian Income Inequality, 1922-
2014: From British Raj to Billionaire Raj?”.
top 1 per cent of earners in 2014 earned 22 per cent of Indian national income, the highest share
since 1922, when income tax was introduced. The share of the top 1 per cent fell sharply between
1951 and 1980, and then rose again in the period 1980-2014, particularly after the beginning of
economic liberalisation in 1991.
By contrast, while inequality certainly rose in the booming 2000s, 138m people were lifted above the
poverty line between 2004 and 2012, an Indian record. Inegalitarian liberalisation accomplished what
egalitarian socialism could not.
This is a counter to Pikkety

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Rapid growth provides opportunities, which can be more important than socialist levelling. The
Economic Survey 2010-11 provided consumption Gini coefficients — a measure of equality in which
0 is complete equality and 1 complete inequality — for Indian states. In every state, urban Gini
numbers were far higher than rural ones, yet all migration was from relatively egalitarian villages to
inegalitarian cities. People voted with their feet for opportunity over equality. The rural Gini (0.17)
was lowest in Bihar and Assam, but these were sloughs of despond and stagnation, not egalitarian
paradises. Biharis migrated in their millions to richer but more unequal states for work.

EASE OF LIVING
 Every minstry asked to prepare five-year plan for each ministry with well-defined targets and
milestones in sync with the people's mandate in the election to change the status quo and
improve quality of life.
 From roti, kapda, makhan to sadak, bijli, pani then edu, health now encompasses environment
etc. - progressively expanding
 WF
o States need capacity building, actual implementation should be ensured and monitered
o

14. Inclusive Growth:

Static notes in green book

1. Stats
2. Poverty / HDI
3. Inequality

 Ranked 62/103 in Inclusive Development Index (IDI) of World Economic Forum

 Oxfam report ‘Reward Work, Not Wealth’ -> 1% of India's richest cornered 73% of wealth last
year
 WB Digital Dividends Report 2016 - India can save 11bn$ by using Aadhaar in all welfare
schemes
 12th Five Year Plan titled – “Faster, sustainable and more inclusive growth”. (focus from then)

POVERTY

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  New Poverty lines of US$3.20 and US$5.50 per person per day, expressed in 2011 PPP
 UN’s Human Development Index (HDI) - 130/189
 Medium development category
 UNDP - In India, 271 million people moved out of poverty between 2005-06 and 2015-16, but
the country still has the largest number of people living in multidimensional poverty in the world
(364 million people)

1990 2017

HDI 0.4 0.6

Life expectancy 58 69

PPP $1733 $6353

Expected yrs of 7.6 12.3

Schooling

Issues:
 improvements have flowed to the top of the social pyramid
 improvements have flowed to the top of the social pyramid
 Gender - 12% parliamentarians, 39% secondary edu (64% men), LFPR 27% (79% men)

2 objctives of growth
1. reduce pov
2. reduce ineq - means raise std of living
both these objectives => Pro-poor growth
Inclusive growth is a specific pro-poor growth that ensures that poor are direct stakeholders and
contributors in growth.

Determining Poverty: NITI Aayog Task Force proposed four options to arrive at a poverty line
 Track progress over time of the bottom 30% of the population - along nutrition, drinking water
etc.
 Favoured Tendulkar line (21.9%) rather than Rangarajan (29.5%)
 Poverty line only to track progress not for deciding beneficiaries
 SECC data as suggested by Saxena and Hashim committee will be used for entitlements

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INEQUALITY

Oxfam Report 2018

 Top 26 richest people in the world hold more than poorest 50% of the world's populatin (3.8bn
people)
 In India top 9 people hold > 50% of India's population
 Top 10% of India's population holds 77% of total wealth

North East
Recently government released 'Digital North East:
Vision 2022', that aims to leverage digital
technologies to transform lives of people of the
northeastern states and enhance the ease of
living.

Steps taken:
1. NE Venture Fund
2. North East Vision 2020
3. Special Accelerated Road Development Program for North East, inland waterways, connectivity
through Railways.
4. DDU Grameen Kaushal Yojana (Roshini) and RKVY for skill dev
5. Make in North East
6. North East Region Community Resource Management Project
7. hill area development program based on composite infra index

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NITI Aayog recently pointed out that the digital
payments market in India is set to become a
trillion-dollar industry in the next five years, led by
growth in mobile payments which are slated to
rise to $190 billion by 2023 from $10 billion in 2017-
18.

15. Taxation and Budgeting:

1. Budgeting
2. Taxation
3. GST
4. Direct Tax Code
5. GAAR
6. Fiscal Council
7. Statistics (GDP Estimation)

TYPES OF BUDGETS

Zero Base Budgeting:

 US finance expert Peter Phyrr first to propose
 In practice in India since 1997, overall not very successful but some profit making
PSUs did well.
 It is the allocation of resources to agencies based on period re-evaluation of all
programmes justifiying the continuance or termination. An agency reassesses what
it is doing from top to bottom from a hypothetical zero base.
 3 features:
1. Conventional aggregate approach is not applied. Justification through cost
benefit analysis is needed.
2. Economy in public expenditure
3. Prioritising competing needs - objectively
 Limitations:
1. Some expenditures are beyong parli scrutiny like charged expenditure

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 2. Spending on defence, L&O, foreign realtions can defy traditional cost benefit
analysis
3. Scrutiny is subjective - scope for bias
4. Potential for fin min to become all powerful that dictated to other mins.

Results Framework Document (RFD):

 2009: Performance Monitoring and Evaluation Scheme (PMES) where each
department/ministry prepares an RFD.
 Result oriented instead of process oriented + objective basis to evaluate overall
performance
 RFD is an understanding bw a dep/min representing the people's mandate and the
head of the org, responsible for implementing this mandate.
 It would be evaluted mid year and year end.

Balanced Budget: when total public sector spending equals total govt. revenue;
basically 0 revenue deficit.

Gender Budgeting: Budget 2006-07 proposed an outlay of Rs 28,000 crores to th

cause of women. Created gender budgeting cells in 32 min and dept.

Outcome and Performance Budget:

 result oriented budgeting - both qualitative and quantitative progress measured
 outcome bdget presented by diff min/dep
 performance budget presnted by Min of finance
 introducd in 2006-07. Ealrier PC along with fin min did it.
 converts outlays into outcomes.

 Grandfather clause: a provision in any new law can be prevented from being
applicable to things that were previously exempted. Ex. if govt is bannng cats,
those already having cats can be allowed to continue to have them.
 Earth Trilemma: bw eco dev, energy exp and env issue
 Mundell's impossible trinity: says a country cannot simultaneously maintain free
capital flows, fixed exchange rate and independent monetary policy

ROLE OF PUBLIC INVESTMENT:

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Targeted public inv means govt. inv in those sectors which can generate the largest
multi dimensional spill over effects.
1. Link bw public and pvt inv, which can cause growth or fall. Ex CSO found that
boom in pvt corp inv growth phase of 2004-08 was accompanied by an increase in
public inv of 1.5%. Similarly decline in public inv by 1% in 2008-13 saw a decline of
pvt inv by over 8%.
2. World Economic Outlook Report 2014 by IMF points out that public inv effectsin 2
ways:
1. short run, boosts aggreagate demand and crowds in pvt inv - due to
complementary nature of infra services
2. long run, supply side effects kick in as infra increases productive capacity
3. Medium term public investment multiplier for developing economies is
estimated to be 0.5 to 0.9.
3. Challenges to pub inv - 1) resource mobilisation 2) implementation capacity. for this
sectors with max spill over effecs like Railways and Rural Raods need to be taken
up.
4. ES - 14 quotes survey by Asher and Paul 'The Employment Effects of Road
Construction in rural India' - where enhancing road connectivity through PMGSY,
National Highways Dev Project was found to have large spill overs.
5. Direct positive bearing on grwth prospects. Ex India's productivity surge in 1980s
6. Study by RBI found long run multiplier (of capital outlays on GDP) to be 2.4. *Study
also found effect of revenue expen on GDP fades out after 1st year => need to
reprioritise capital exp.

TAXATION

Importance of Taxation
Revenue generation, Reducing inequality, Resource Redistribution, Behaviour Discouragement
(Social re-engineering like sin goods tax), Protecting local industry, Improving Accountability of
govt, social contract
Issues
1. Individual taxpayers - 6cr, 4.9% of India's total population
2. Low no. of individual taxpayers - shows “regressive nature of our direct tax regime”
3. ES 2017-18 - decline in reliance on direct taxes, contributes only 35% of total taxes against
70% in Europe

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  Advantages of increasing tax base - higher tax to GDP ratio, fiscal consolidation, meet the
targeted tax collection, shift the revenue pressures from honest taxpayers maybe lead to
reduction in direct and indirect tax rates -> improve ease of doing business
 Tax payer base increased 46% over last 5 years (mainly due to demonetisation, Operation
clean money)
Ways to improve tax buoyancy
1. Promoting electronic payments - can be made mandatory in payment of salaries in some
sectors or some taxes etc.
2. ES - devolution of taxation powers to local govt. to collect more direct taxes
3. Implement Direct Taxes Code - Arbind Modi headed task force to review the Income-tax Act
4. Rationalise the tax slabs/rates
5. Parthasarathi Shome committee to improve tax base : AKA Tax Administration Reforms
Commission
1. Large farmers with income >50 lakh be taxed
2. Reinstate banking cash transaction tax (BCTT) and Fringe Benefit tax (FBT)
3. Bring new taxpayers - by targeting untaxed sectors , especially informal/unorganized
sector
4. Tax admn to be oriented more towards customers to improve voluntary compliance
5. presumptive tax schemes for small businesses to ease and encourage compliance
6. Extend scope of TDS for early collection of tax and preventing evasion

GST:

Destination based indirect tax levied at final point of consumption. (Excise, CST
was orgin based)
Features:
 Integrated GST: it is not a tax, but a system.
o CGST + SGST/UTGST collected at once and input tax credits deposited in
their respective accounts. CGST is collected in place where it is
manufactured. S/UT GST is based on the State where it is sold. UTGST is
for those w/o legislature.
o There is no interoperability bw tax credit inputs received for CGST and
S/UT GST.
o All imports will be considered interstate => Custom + IGST

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 
 GST Council: Article 279A
o Non voting members:
1. Revenue secretary - exofficio secy of council
2. CBEC chairman - permanent invitee
o Voting members
1. Union Fin min
2. Union Min of State (fin/rev)
3. State min of fin or revenue
o Quorum - 50%
o Union - 1/3rd voting power, States - 2/3rd
o Need 3/4th majority => Union + at least 20 states
Facts:
 Out of 165 countries which implemented GST so far, only 5 repealed but they also
reintroduced it.
 14th FC recommended GST Compensation fund with tapering effect upto 5 years -
> GST (Compensation to States) Act 2017.
Positives:
 By increasing min threshold, no. of taxpayers can be decreased wo substantial dec
in revenue (Ex international practices suggest that fixing threshold at $100k,
decreases tax payers by 75% wo fall in revenue by over 4%)
 This would boost small businesses, thereby equity + better exports and trade
 Decreases 'Rate Arbitrage' => balanced regional growth. Earlier State VATs
weren't uniform, so people bought were taxes were favourable, which were the
more developed States.
 Promote ancillarisation -> SMEs because removal of cascading for inputs
 Reduced burdern of logisitics, because earlier firms built warehouses in diff states
to skip CGST (given to exporting State)
 Cheaper for customers
 Encouragement to co-operative federalism: GST Council
 Reduced Human Interface - technology

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  Improving revenue buoyancy: from 0.9 to 1.14
 GST Network - can provide deep insights about the economy
 Better compliance - Total registrations post GST increased from 65 lakh to 110 lakh (70% inc)
 Unified national market - 'one country, one tax, one market'
 Impact on economy - estimated to increase GDP by 1.5 to 2%
 No cascading effect - prevents cascading as it is a destination based tax
 Ease of doing business
 Reduce tax evasion - also 'self policing feature' of tax being levied on value added
 Impact on customer - half of the consumer basket will attract zero tax rate
Challenges:
 multiple rates create problem of classification, inverted duty structure and large
scale lobbying + complicates the tech platform
 No single Revenue Netural Rate yet determined, complex slab
 Cascading effect still there because petroleum still not under GST, which is also a
main input
 Disadv to exporting States as it is destination based
 Compliance costs (esp for small businesses)
 Classification dispute and litigation (ex. Patanjali - ayuvedic or chocolate wafers?) -
> For this Authority for Advance Ruling (Union and State level) instead of
courts. consists of a Chairman who is a retired Judge of the Supreme court and
two members of the rank of Additional Secretary to the Government of India, one
each from the Indian Revenue Service and the Indian Legal Service.
 Anti profiteering clause - inspector raj
 Digital infra - unavailability of bandwidth for digital connectivity
 Federalism - states are giving up the power 'to impose taxes' - could lead to challenges
 ULBs - will suffer from fiscal gap due to scrapping of octroi, entry tax and other local body
tax
 Issue of Parliamentary and Legislative autonomy - in GST council Centre will have 33% and
States 66% weight of total votes caste
 Exclusions and different tax rates - petroleum products, diesel, petrol, alcohol, etc and 4 tax
slabs
 Pressure due to increased taxes - small companies with upto 10 lakh turonver will have to pay
GST as opposed to current 1.5 cr limit
 World Bank study said that the Indian GST rate was 2nd highest among the 115 countries with
a national value-added tax. It was also the most complicated, with five main tax rates, several
exemptions, a cess and a special rate for gold

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Steps taken to meet challenges :
1. Exemptions to small businesses - in NE and hill states with annual turnover below 10 lakh will
be out of GST and rest of india threshold 20 lakhs (NOW INCREASED TO 40 lk and 20lk
respectively)
2. Anti-profiteering law - so that benefits of input tax credit and tax reductions are passed on to
end consumers
3. Mandatory registration - every person has to be in GST system if he wants to trade. Also
included E-way bills. Taxpayers who have not filed the returns for two consecutive tax periods
shall be restricted from generating e-way bills.
4. Change in GSTN ownership - earlier 51% privately owned, but to ensure data protection, now
-> 50% centre and 50% states (GSTC approved this)
5. Communication and awareness programs - Suvidha Kendras
6. GST suvidha providers (GSP) - provide innovative and convenient methods to taxpayers for tax
admn
7. COMPOSITION SCHEME: upto 1.5 cr for SMEs at 6% (3% centre and 3% state)

It is now time for the Government to stabilise the system, remove uncertainty, facilitate compliance
by easing processes and expand the tax base to make the GST a real success.

Direct Tax Code:

 India’s current direct tax-to-GDP ratio is 5.98% (for US it is ~27%).
 Currently only 4.5% of India’s 1.3 billion population pays direct tax.
 At present, about 20% of GDP is out of taxation on account of exemptions given to
agricultural income another 20% exempt due to other tax exemptions, and varying
slabs.
 the number of persons filing income tax returns also increased by about 65% during period
from 2014-2018
 The finance ministry had on 22 November, 2017 set up a task force with Central
Board of Direct Taxes member Arbind Modi as convener and chief economic
adviser Arvind Subramanian as a special invitee to draft a new direct taxes code in
the light of global best practices and the economic needs of the country.
 In 2009, the Direct Taxes Code had suggested radical changes, including the
removal of many exemptions and generous tax slabs. Under DTC, income from all
sources, including capital gains from stocks, maturity proceeds of insurance
policies and even the PPF, was proposed to be taxed. There was also no
distinction between short-term and long-term capital gains.

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  DTC, 2013:
o indirect share transaction will be liable to be taxed in India on foreign
companies if 20% assets based in India.
o New tax slab - 35% tax on income > 10 cr
o Senior citizen 60yr from 65yr
o Levy of additional 10% if dividend income >1crore
o Even financial assets (along with physical assets) included for wealth tax at
0.25%
o Rationalisation of provisions for non profits etc.
o GAAR, Taxation of Controlled Foreign Companies, Place of Effective Management
(POEM) Rule to determine residency and tax indirect tranfer of Indian assets.
Need for direct tax code :
1. High complication and ambiguities - need for rationalization and simplification of taxation
system
2. Outdated provision - some provisions have become superfluous, inconsistent with underlying
objectives
3. Corporate tax - is higher than median of OECD countries, leads to rate arbitrage through
transfer pricing
4. Will help to increase the tax base
5. will result in efficient capital allocation
6. Direct tax system has many exemptions that hurt allocative efficiency by distorting the
decisions of participants in the economy.
7. dramatically reduce tax terrorism by undermining the discretionary powers of the tax
department.
8. A complicated tax structure in effect helps large business groups who can manipulate the
system with the help of their in-house tax experts.
Intended Benefits :
 Competitive economy
 Tax base - could increase no. of ppl paying taxes
 Lower indirect tax - higher direct tax could allow to reduce the indirect tax in GST for the poor
Relevant Initiatives :
BEPS - India endorsed it to prevent shifting profits to low or no-tax locations
Advanced Pricing Agreement - agreement b/w tax payer and tax authority determining the transfer
pricing method for international transactions

Easwar Panel Recommendations, 2015 to overhaul IT Act:

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 1. Income from sale of shares and securities - capital gains tax to be applied if shares are held for
more than one year or are held for amt upto Rs5 lakh
2. Tax deducted at source (TDS) - rates for individuals should be reduced from 10% to 5% to
avoid admn burden
3. Non-residents - higher tax rate for NRIs be revisited as it impedes their business capacity and
EoDB
4. Audit of book of accounts - threshold for audit be raised
5. Bring clarity on tax exemptions as they constitute 15% of all income tax litigations

General Anti Avoidance rules (GAAR)*:

 GAAR is a set of rules or a framework which helps prevent tax avoidance.
 Initially proposed in 2009, kicked off in April 2017
 Between the two extremes of tax planning and tax evasion lies tax avoidance, a
form of abusive tax planning complying with the letter, but not the spirit of the law,
ie technically not illegal but those cases which are not ethical.
 The provisions of GAAR are to be applied to an impermissible
avoidance arrangement (IAA). To determine an IAA, the following factors are to
be considered: (i) purpose of the arrangement is to obtain tax benefit; (ii) it is not at
an arm’s length price; (iii) it lacks commercial substance; (iv) it results in abuse of
the tax law; and (v) it is not carried out in an ordinary manner.
 Procedural safeguards have been provided in the form of a three-tier mechanism to
remove arbitrariness. The system starts with the assessing officer, the principal
commissioner of income tax and, finally, the approving panel (which includes a
retired high court judge). A period of six months is allowed to decide the
applicability of GAAR.
 Besides, GAAR has a non-obstante provision, which can override all other
provisions of the Income Tax Act, 1961, including SAAR.
 Australia implemented GAAR in 1981, China and Germany in 2008.
Merits:
1. GAAR will allow the government to raise more revenue, fiscal deficit reduction
2. GAAR helps in bringing competitive advantages to several businesses that have
been doing genuine transactions against those businesses that have been
misusing the loopholes of the tax structure. Thereby it creates a better business
environment and recognise India as a serious country promoting free and fair trade
practices rather than providing free tax advantages.

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 3. India has been showing very encouraging results of 7.1% growth rate which more
than China’s growth rate. So it may be the right time to implement GAAR in India.
4. help the tax authorities to plug loopholes check tax avoidance
5. Govt can curb the prevalence of P-Notes, which have led to reinvestment of black money
6. step towards ease of doing business
Concerns:
1. interplay between GAAR and DTAAs, the thin line of difference between tax
planning and tax avoidance, the co-existence of GAAR and Specific Anti-
Avoidance Rules (SAAR), the scope of conflicting interpretation over IAAs, the
functioning of the approving panel, etc.
2. discretionary powers to revenue officers raises concerns over harrasment.
3. subjectivity in differentiating between tax mitigation and tax avoidance practices
4. Conflict b/w DTAAs and GAAR

Parthasarathy Shome panel reccos :

1. Threshold of Rs 3 crores tax benefit to be breached before GAAR applies
2. GAAR not to apply to FIIs subject to certain conditions
3. Investments made before April, 2010 will be grandfathered

Other steps we took - APA, DTAA

Steps taken to increase tax/GDP ratios: write indirect, direct and indiv, corporate
1. formalisation - to widen tax base
2. rationalisation of tax structure to include more ppl
3. Reduce exemptions: govt losing on 2 front - high nominal coporate tax rate - discourages new
enitities, effective rate after exemptions is only 25% => incurs costs in reimbursing and
deducting etc.
4. single rate will improve compliance
5. GST - increased compliance, easing tax filing etc. Probability of detection of violations
increased because of single channel => high cost of non-compliance.

Direct taxes can also be regressive - because bruden borne by specific population. 4% filing IT, only
1% paying IT (Check ES?) => mostly salaried class is unduely charged with entire burden.
Businesses managing to evade or not pay.

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FISCAL COUNCIL / FISCAL MANAGEMENT
 NK Singh - Suggested an institutional mechanism like a ‘Fiscal Council’ to enforce fiscal rules
and keep a check on the Centre's fiscal consolidation.
 Issues in fiscal management
o Poor Budgetary Forecasting: overstating revenue projections and understating
expenditures.
o According to CAG Report in 2017, the over-ambitious revenue targets -> tax terrorism
o Limited tax buoyancy
o Creative accounting: fiscal deficts are also understated (show decline in the headline fiscal
deficit number but failed to reduce India’s public debt to GDP ratio)
o Extra budgetary resources - eg: funds of PSUs like LIC, SBI etc.
o Absence of uniform fiscal consolidation rules for centre & states: Centre uses
various cesses and surcharges. For State Govt., Art 293(3) provides a constitutional
check over market borrowings while no such restriction is there for the centre.
o Non adherence to FRBM targets
o Fiscal populism, poor institutional infra for monitoring
 Why Fiscal Discipline: investment, Credit rating, crowding out, inflation, intergenerational parity,
consti requirement. Exchange rate risk.
Article 292 of the Constitution envisages fiscal responsibility in the form of legislation that obliges the
government to have a ceiling on debt.

Fiscal council - forecasts, sustainable level of public debt, independent assessment and
consultation before flouting FD targets.
 (+) check on competitive populism
 improve financial accountability of the government to the Parliament.
 transparency, instill confidence among domestic & foreign investors
 culture of proper disclosures and good accounting practices
 improves the quality of debate on public finance, and that, in turn, helps build public opinion
favourable to fiscal discipline.
 discipline law makers; enhance coop with FC adn GST council
According to International Monetary Fund (IMF), IFCs are now an indispensable part in the design of
fiscal frameworks

STATISTICS

Draft National Policy on Official Statistics

 Core statistics: focus on certain statistics of national importance

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  National Statistical Commission (NSC) be reconstituted to regulate and audit core statistics
 National Statistical Appraisal and Assessment Organisation - under NSC to
conduct statistical audits
 National Statistical Development Council - under the chairmanship of the Prime Minister to
provide guidance to the NSC on policy matters
 All-India Indian Statistical Service

GDP Estimation
Former CEA - GDP growth overestimated by around 2.5% between 2011-12 and 2016-17.
New GDP series (2015)
1. CSO revised Base year from 2004-05 to 2011-12 (growth rate increased due to
this)
2. Also GDP now is estimated at Market price = GDP@factor cost + Indirect taxes -
Subsidies (earlier GDP was was estimated at factor cost). We calculate at constant
prices instead of current to remove inflation fluctuations.
3. GVA at basic price instead of factor cost.
4. Min of Corp Affairs - MCA 21 data base (1st launched in 2006).

GDP Back Series - released by CSO and NITI Aayog for 2005-06 to 2011-12. MCA, ASI and IIP
data was used.

16. Employment:

1. Stats
2. Problems / Unemp
3. Formal Sector
4. Job Creation
5. Labour Reforms
6. Minimum Wage
7. Skill Development
8. Female LFPR
9. PLFS Data

STATS:

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  India one of the youngest nation with 62% in working age group.
 Skill: only 2.3% of India’s workforce has undergone formal skill training compared to UK 68%,
Germany’s 75%, USA’s 52%, Japan’s 80% and South Korea’s 96% (UNDP 'India Skill Report
2017') - NSSO estimates this as 5%
 5th Annual emp-unemp survey: Agri consists of 45.7% of India's workforce in 2014-15.
 McKinsey Employment Report on India 2017: government spending and increased
entrepreneurial activity have created gainful employment of 20-26 million people between 2014
and 2017.
 World Employment and Social Outlook Report predicts that the number of jobless in India will
increase from 17.7 million in 2016 to 18 million by 2018.
 Unemployment rate for women was 8.7%, males 4.3% during 2015-16.
 India stand on 92nd rank (206-17) on a Global Index of Talent Competitiveness.
 Human Capital Index 2017, India has been ranked low at 105/130
 Work force:
o 60 lakh youth join per year
o govt jobs 10-12 lakhs
o NSSO: 84% unorg, 16% org.
o w/n org: max in govt sector, ~4% emloyed in pvt formal sector
 WB Skilling India Report - 12million youth (bw 15-29years) expected to enter workforce each
year
 Start ups: India is 3rd biggest hub, 20% from tier 2 and 3 cities. (inc due to govt policy,
urbanisation, DD, emerging market eco)
 PLFS - 44% workers in agri, 42%

McKinsey Employment Report

 Between 2011 and 2015, the number of agricultural jobs reduced by 26 million while the
number of non-farm jobs rose by 33 million.
 Despite the growth of non-farm jobs, overall labour force participation rate fell from 55.5% in
2011 to 52.4% in 2015.
 Gig economy, government spending and increased entrepreneurial activity have created gainful
employment of 20-26 million people between 2014 and 2017

Constitutional Mandate:
1. A23, 24
2. A42: just and humane conditions for work and for maternity relief
3. A43A: to ensure worker’s participation in management of industries

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PROBLEMS:
 underemployment and low paid jobs more problematic than unemployment itself (NITI
AGENDA)
 low labour force participation of women and voluntary unemployment (especially among
educated people).
 NITI Aayog asserted that voluntary unemployment is rising because people choose not to
work below a certain income level after ‘investing’ in education. People adopt wait and watch
policy for right job and remuneration
 casual labour and contract workers, preference by employers away from regular/formal
employment to circumvent labour laws. (85% workers are in contract, casual or self employed)
 Paradoxically, it had seen that greater equality in educational attainment achieved through
higher enrolment of girls in schools, has not translated into equal opportunities for women in the
labour market.
 casualisation, informalisation
 Unavailability of suitable jobs for the skilled youth (over-education)
 Downgrading of employment - hiring overqualified candidates for elementary jobs. Ex news
reports of PhD candidates applying for peon jobs
 Disparity between colleges’ curricula and industry requirements
 life skills including language and communication skills, work ethics is missing
 Devaluation of skill-focussed learning – vocational education is deemed as
undignified and equated with blue collar jobs
Problems in skilling
1. Spread across nearly 20 ministries and hence lacks coherency and holistic approach
2. Multiplicity of norms, procedures, curricula, certification
3. Non-availability of good trainers
4. Reluctance of the industry in providing a wage differential for skilled workers
5. Society is “obsessed” with a person's “degree” more than his earning potential
6. Lack of integration with formal education
7. Lack of focus on outcomes
8. Low participation of women in the workforce
9. demand supply mismatch, no industry involvement

**Reasons for Unemployment:

 Economic slowdown (decline in auto sales, fall in IIP or fall in growth rate to 5% in Q4)
 Voluntary unemp - bigger headache acc to NITI Aayog

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  Underemp / Downgrading of employment: (e.g. news reports of PhD holders applying for peon
vacancies)
 Lack of Industry- Academia cohesion, lack of skill dev, vocational training etc.

FORMAL SECTOR
 Formal job generally means regular salaried job in govt or private sector with one or more of
the following social security benefits: Provident Fund, pension and gratuity, healthcare and
maternity. Different definitions
1. Registered under Factories Act 1948
2. 10 or more workers
3. Those who have a contract regardless of size of enterprise (Arjun Sengupta Committee)
 Organised sector means those >20 workers w/o power or >10 workers with power.
 TCA Anant Committee to reduce redundancy and avoid duplication of emp estimation

NITI Task Force on Improving Employment Data, 2017: Recos

 Conduct of HH surveys on annual basis
 Time-use survey that can be conducted every 3 years (can also measure women's participation
in unpaid work)
 use tech, GSTN database
 Adopt GSTN as universal establishment number
 inclusive and wider defn of formal workers
 Expansion in export market via Coastal Employment Zone
 Reformation of labour laws

Updated (FORMALISATION)
 More than seven million jobs have been formalised between 2015 and 2018, a study
commissioned by the Indian Staffing Federation stated.
o The policies that contributed to formalisation include the introduction of the Goods and
Services Tax, demonetisation, EPF reforms, Skill India initiatives, Fixed Term Contract
Reform, as well as the Maternity Benefit reform. The study, projects, that about 11 million
more jobs will move to the formal sector between 2018 and 2021.
o Of the seven million jobs that shifted to formal sector in 2015-18, EPF reforms contributed
18.16%, ESIC 17.68%, GST 15.32%, Skill India initiatives 13.10%, demonitisation
12.35%, maternity reforms 11.83%, and Fixed Term Contract 11.56%.
o ~ 4m contributed by Felxi Contract system over 9 yrs span

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JOB CREATION:
Issue:
 Youthful labour force (15-29 yrs) saw a sharp rise of 40m (147 -> 187m) bw 2011-12 and 2015-
16
 Share of workforce in agri dec from 60% in 1999 to 49% in 2011-12 but after that the rate
declined sharply
 In fact post-2011, significant increase in youth in agricuture is noticed - a 24m increase by
2015-16. This is retrogressive development given that education levels have risen and the
aspirations of these youth are for non-agri jobs.
India will need to create 12-15 million non-agricultural jobs per year.
WF:
 The growth of enterprises: MSMEs create more jobs per unit capital.
 Improve quality of physical infrastructure and EoDB.
 Life-long learning systems: need to adapt to new technologies (automation) and new forms of
enterprises (Start-Up).
 Develop better social security systems
 CEZ (Costal Emp Zones) with labour intensive sectors like china
 Mckinsey report suggests three ways to create opportunities:
1. More appropriate statistical measurement of employment
2. Targeted government programmes, remove hurdles for investment and innovation
3. Industrial townships, tourist circuits etc.
 NITI Ayog suggested that to tackle the voluntary unemployment the government should create
a diversity of jobs

LABOUR REFORMS:
1. Payment of Bonus (Amendment) Bill, 2016??
2. Maternity Benefit (Amendment) Bill, 2016
3. Employees’ Compensation (Amendment) Bill, 2016: rationalize the penalties and strengthen
the rights of the worker.
4. Child Labour (Prohibition and Regulation) Amendment Bill, 2016
5. Industrial Employment (Standing Order) Act: Due to the seasonal nature of industry a fixed-
term employment has been introduced in the textiles and apparel sectors
6. Payment of Wages (Amendment) Bill, 2016: enable the Centre and state governments to
specify industrial units which will have to pay wages only either through cheques or by

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 transferring into bank accounts and move away from requirement of obtaining written
authorization for payment of wages by cheque or through a bank account.
7. Pradhan Mantri Rojgar Protsahan Yojana: GoI will be paying the 8.33% EPS (Employee
Provident Scheme) contribution of the employer for the new employment.
8. Provident Fund Contribution via Private Banks Contribution to EPFO
9. Proposal to Amend Plantation Labour Act, 1951: The amendment will exclude ‘in kind’
components that are regarded as wages this is because the tea industry does not pay statutory
minimum wages, citing the reason that the monetized value of the facilities under PLA 1951
compensates for wages.
10. Modal shops and establishment bill 2016
11. Governance Reforms through Technology:
o Shram Suvidha Portal: transparent Labour Inspection Scheme, Unique Labour
Identification Number
o National Career Service (NCS) Portal: services like job matching, career counselling and
information on skill development courses, apprenticeships, etc.

NITI AGENDA:
1. Apprenticeship:
o Encourage trade areas that provide for educational certi in parallel
o Mandating educational institutions to recognize skill certifications and provide for upward
mobility or lateral movements
2. Need independent regulator overseeing the various skill development initiatives
3. Set up National level Overseas Employment Promotion Agency (OEPA) under MEA to
streamline India International Skill Centres and identify potential partners around that globe with
skill gaps. Use expertise of diaspora.
4. R necognition of Prior Learning and develop matrix of skills that are transferrable across
sectors
5. Sector specific plans:
o Creative and Cultural Sectors: national cultural skill mapping
o Traditional knowledge systems should also be strengthened
o Handicrafts and Carpet Sector Skill: fuse traditional handicraft practices with
contemporary design sensibilities.

GOVT. INITIATIVES:
 new Skill Development ministry in 2014
 Skill India Initiative 2015 (to skill 400m ppl by 2022), Pradhan Mantri Kaushal Vikas
Yojana, National Skill Development Mission

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  Make in India - 100m jobs by 2022
 Skill India Mission - NSDC and Sector Skill Councils (SSCs)
 PMKVY, UDAAN
 SANKALP, STRIVE - WB partnership
 Apprenticeships - target of 50lk by 2020
 National Policy for Skill Development and Entrepreneurship 2015:
o skill 300 million by 2022
o focus on women, equity
o ITIs and ITCs (Indus training insti and centres)
SCHEMES:
1. Start up India, Start-Up India Hub
2. ATAL Innovation Mission: through Self-Employment and Talent Utilisation (SETU). NITI Aayog
will establish 500 Atal Tinkering Laboratories (ATL) in schools
3. Zero Defect-Zero Effect Scheme
4. INDIA BPO PROMOTION SCHEME (IBPS) AND NORTH EAST BPO PROMOTION SCHEME
5. START-UP SANGAM INITIATIVE (O&G wala)

LABOUR LAW REFORS

 Labour is a concurrent list subject, thus there are multiplicity of laws at Centre and State levels.
 Agenda for Labour Reforms - Consolidation and Simplification; Introduction of fixed term
employment; Definition of startups
 2nd National Commission on Labour, recommended to simplify Central Labour Laws and
replace them with 4 Labour Codes

Labour Code on ILO Report 2010 -> economic prospect of country will not yield
Wages Bill, 2017 intended outcome in absence of unified wage law
Seeks to consolidate - Payment of Wages Act 1936, Minimum Wages
Act 1948, Payment of Bonus Act 1965, Equal Remuneration Act 1976
 Will apply to any industry, trade, business including govt.
establishments
 Specifies penalties for offences committed by an employer, such
as paying less than due wages
 Statutory National Minimum Wage -> to ensure that no State govt.
fixes min. wage below the National Min wage
 Proposes payment of wages through cheque/digital/electronic
system

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 Labour Code on Replace three laws - Trade Unions Act, 1926; Industrial Employment
Industrial Relations Bill, (Standing Orders) Act, 1946; Industrial Disputes Act, 1947
2015 Provisions :
 Raises limit from 100 to 300 employees, above which govt
approval needed for layoff/retrenchment/closure
 10% of workers needed for registering a trade union
 prohibits a person from holding office in >10 unions
 Rgst. of trade union is cancelled if donot hold bi-annual
elections and fails to submit annual returns
 raises the retrenchment compensation from 15 to 45 days
 for employers employing <50 employees, the need of a min. of 1
mth notice and severance, be removed

Labour Code on Social Need arises as 90% of the current workers are not covered under any
Security & Welfare, social security. Based on ILO Convention on Social Security. Will
2017 replace ~15 social security legislations.
Provisions :
 Def. of employee and categorization of workers - included all
kinds of employments
 Funding of social security - employer/employee funded
and taxpayer funded
 requires all workers to get registered under the (Aadhaar based)
Universal Registration system
 Prescribes a grievance redressal mechanism
 provides for Community Service Order - unpaid work as directed
by the court
 Contribution Augmentation Funds - to compensate social security
in respect of workers who are unable to pay contribution
 National Stabilization Fund - harmonizing the Scheme Funds
across the country
 Protect privacy of personal data

Labour Code on Will amalgamate 13 labour laws including Factories Act, Mines Act
Occupational Safety, 1952 etc.
Health and Working Highlights :
Conditions, 2018  Annual health checkup - to be made mandatory in factories

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  Appointment letters for all workers - mentioning their rights to
statutory benefits
 At least 50% of penalty levied on employers - to provide relief to
families of workers who die or seriously injured
 National Occupational Safety and Health Advisory Board -
recommend standards on related matters
 Mandatory license - for every contractor who provides or intends
to provide contract labour
 Various allowances - such as journey allowance and displacement
allowance for migtant workers
 Site Appraisal Committee - examine applications for the
establishment of a factory
 Provisions regarding working hours, extra wages for overtime, etc

MINIMUM WAGE

Living wage (theoretical concept) - satisfies basing living req. varies. SC said it is not only
sustainable thing but also has a basic luxury (ex like wifi)
Fair wage (theoretical concept) - based on demand, supply and capacity of employer to pay.
Generally lies bw other two.
Min wage (statutory concept) - differs by profession and regio
Min wages inc - 2 lines of thought
1. infatin inc -> demand inc -> growth in emp. Limitation is tolerance of inflation (suppose 6% =>
corresponding min unemp level will be there)
2. market shd develop capacity, if statutorily imposed, then emp will decline.

SKILL DEVELOPMENT

Problems:
 There is a huge ethics and accountability issue if there is no credible assessment board and
when there are too many sector skill councils, each trying to maximise their business.
 In just five years, the government’s skill gap analysis report estimates that an extra 40 crore
workers need to be skilled, reskilled or upskilled. Currently - half crore people annually.
 India - 103/130 in WEF's Talent Preparedness Index

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  Dual challenge - paucity of skilled workers and unempl of educated youth because they dont
have job skills. NSSO found 68% grads adn 52% PGs unemp.
 Issue of voluntary unemp also withdrawal from workforce (Skill - emp mismatch)
Sharda Prasad Committee
 In 2016, the Government of India formed the Sharada Prasad Committee to rationalise the
Sector Skill Councils (SSCs), which are employer bodies mostly promoted by the FICCI, the
Confederation of Indian Industry and other industry associations
 Sharda Prasad Committee on SSCs - Abolish SSCs, since many of these have over-lapping
roles and conflict of interest, Introduce oversight mechanism on NSDC
 committee’s recommendation of a reimbursable industry contribution model (applicable only to
the organised sector) should solve the perennial problem of poaching while providing a
common level field.
WAY FORWARD
1. NITI Aayog's SATH - Sustainable Action for Transforming Human Capital
2. Tarun Khanna Committee - harness NRI talent pool for mentorship, skill dev etc. e.g VAJRA
3. Establishment of National Skills University
4. Partnership with the industry experts, use tech
5. NITI Aayog Strategy for New India:
1. Functional Labour Market Infrmation System
2. Codify labour laws, National Floor Level Minimum Wage
3. Data collection
4. Formallisation
Cabinet Committee on Employment and Skill development is a welcome step.

Skill India Mssion

 goal of 400 million people by 2022??
 Bodies for Skill Development - ITI/KVKs (State level) -> Central level body (Accredition,
standardisation) -> NSC (policy), NCVT
 Issues
o Concurrent jurisdiction of Centre and State and multi bodies and regulators
o Skilled graduated still unemp

Lecture
 organised - sector, formal - nature of job
 generally used interchangeably, but with changing economy - now organised sector also has
informal jobs (contractual, temp)

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  proportion of contractual jobs in increasing.
 no unanimity of defnining formal jobs => no final measure
 ES used 2 criteria to measure formality - tax payment or any social security scheme for any
employee


 employment elasticity - number of jobs created per 1% growth in GDP. In pre liberalisation
era - it was 0.4
 Post liberalisation, EE has continuously decreased CURRENT 0.02. Becuase service sector
contri increased, and it is high productivity and low labour intense sector. Growth is now
productivity driven rather than emp driven.
 NITI in its 3year agenda said we are not experiencing jobless growth rather we are
facing UNDEREMPLOYMENT. We are consistently creatin more jobs than people entering
workforce => not jobless. Underemp means voluntary unemp. NITI said ratio of jobs: workforce
entrants = 2:1 (=> not jobless)
 How to increase formalisation
o incentivise firms -> decrease cost of compliance (such as tax filings, EPFO work, labour
laws etc.)
o EoDB
o ease labour laws, self certification
o rationalise tax structure

*GIG ECONOMY: employment is not based on a clarified job description. Can be emplyed on temp
basis on the availability of work. ex uber, swiggy etc.
benefits:
 close to formal economy, means compliance and registered with govt.
 takes care of seasonal unemp, hedging of risk, skill req low, DD
challenges
 temporary nature, lack of security
 based on tech so with advancement in tech, they are going to be first to be slashed (automation
threat)
 good for temp emp ceation, sustainability in long term questionable

Job creation

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  Study based on EPFO data found 10 million jobs created in the past year. Criticism -> these
are not new jobs, double counted or jobs that transformed from informal to formal (due to steps
like GST, demonetisation). This fellow again came up with revision saying it's actually 12m.
 But the study already incorporated formalisation of jobs
 CMIE (Centre for Monitoring of Indian Economy) study - found jobs declined by 0.2. They
measure big formal industries and extrapolate. this is survey based. better to wait for NSSO
data.

Living wage (theoretical concept) - satisfies basing living req. varies. SC said it is not only
sustainable thing but also has a basic luxury (ex like wifi)
Fair wage (theoretical concept) - based on demand, supply and capacity of employer to pay.
Generally lies bw other two.
Min wage (statutory concept) - differs by profession and regio
Min wages inc - 2 lines of thought
1. infatin inc -> demand inc -> growth in emp. Limitation is tolerance of inflation (suppose 6% =>
corresponding min unemp level will be there)
2. market shd develop capacity, if statutorily imposed, then emp will decline.

Dhatri Reddy IPS, CSE 2018, AIR-233 [Link]

FEMALE LABOUR FORCE PARTICIPATION (FLFPR)

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  NSSO Periodic Labour Force Survey (PLFS) - shows India's FLFPR has fallen to a historic
low of 23.3% in 2017-18
 Just nine countries around the world, including Syria and Iraq, now have a fewer proportion of
working women than India
 Male LFPR remained same.
 The decline was highest among women aged 35-39 years (LFPR for this age bracket fell 9
percentage points since 2011)
 Among men, caste and religion make no real difference to workforce participation rates. But
among women, Muslim women have the lowest LFPR while among Hindu women, forward
caste women have the lowest LFPR, implying that social norms and religious conservatism
might play a role in women being “allowed" to work.
 Among Indian states, Bihar has by far the lowest rates of female workforce participation, while
the southern and eastern states do better.
 rural women work overwhelmingly in agriculture, which could offer a clue to understanding the
falling rates of rural workforce participation -> because non-farm jobs are rare for women
 The average employed Indian woman worked 44.4 hours per week (in the April-June 2018
period) as against the developing country average of 35-36 hours, as per ILO estimates.
 In rural areas, a male salaried employee earned nearly 1.4 to 1.7 times a female salaried
employee, while in urban areas, salaried men earned 1.2 to 1.3 times a salaried woman.
 Reasons
1. Wage gap: Global Wage report - 34% (perceived productivity more at home than at work)
2. Growing HH incomes (Esp in rural areas)
3. Higher skill requirement of skills in job sector
4. Going for more education (as seen in GER of secondary education)
5. Mechanisation and land fragmentation have reduced agricultural work opportunities for
both men and women. Other work opportunities, except for work in public works
programmes, are not easily open to women
6. barriers to migration for women
7. lack of agency, discrimination, stereotyping
8. Sexual harrasment - NCRB - doubled bw 2014-15
 WF - use tax policies to incentivise women, behavioural change.

Dhatri Reddy IPS, CSE 2018, AIR-233 [Link]

Dhatri Reddy IPS, CSE 2018, AIR-233 [Link]
Dhatri Reddy IPS, CSE 2018, AIR-233 [Link]
Dhatri Reddy IPS, CSE 2018, AIR-233 [Link]
JOBLESS GROWTH / PLFS DATA

 Periodic Labour Force Survey 2017-18: falling LFPR and increasing unemp
 Overall LFPR: 55.5% (2012) -> 49.7% (2018)
 In numbers: 468m (2012) -> 462m (2018)
 figure for the overall unemployment rate at 6.1% is 2.77 times the same figure for
2012.
 The highest unemployment rate of a severe nature was among the urban women at
10.8%; followed by urban men at 7.1%; rural men at 5.8%; and rural women at 3.8%.
 Gender Gap - 71% of men above 15 years and above are a part of the workforce as
compared to just 22 per cent woman. Meghalaya is the only state where 50% of the
female population is at work while states like Bihar have just 4 % employed women.
 Income gap: On average, a male employee earned nearly 1.2-1.3 times the earnings
of female regular salaried worker in 2018. However, self-employed male workers

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 earned 2 times more than the earnings of self-employed female workers in urban
areas in 2018.
 casual and contract workers has increased from 36% in 2014 to 53% in 2018.
 Educated Unemployment: Defined as unemployment among those with at least a secondary
school certificate, it is at 11.4% compared to the previous survey’s figure of 4.9%.
 New and old survey difference:
o PLFS - measures based on education whereas Emp-Unemp survey measures based on
HH incomes (SAMPLE Distributions)
o PLFS conducted annually, Emp Unemp survey done every 5 years (moved to annual due
to international practices)
o Urban - quarterly basis, Urban + Rural - yearly
o Usual Principle Subsidiary Status (UPSS) - <6months (means usual status wise unemp),
but emp according to PSS. -- being used in PLFS
o PLFS uses better tech, portable tablet
 Another finding: Condition in decent employment
1. Share of workers with a written contract in non-agri sctor -> declined
2. Workers eligible for paid leave -> declined
3. Workers eligible for social security benefits -> increased
 Rise in proportional formal employment - has increased [could either be due to increase in
formal jobs or loss of informal jobs]

Sun rise sector, Champion sectors - high potential for growth, high potential for exports

17. Economy Mains 365 Notes:

1. IBC
2. WTO
3. GS3 bites

EMPLOYMENT AND SKILL DEVELOPMENT

1.1 Employment, Unemployment and Wage Estimates

1.1.1 Highlights
Limitations of EPFO, ESIC and NPS method :

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 1. measures growth in employees on payroll not actual jobs created
2. possible that increase in formal jobs complimented by decrease in informal jobs
3. needs seasonal adjustments
4. duplicate and inactive accounts to be removed via Aadhar linking

1.1.2 Reasons for non-clarity and lower credibility of Employment Data in India
 Outdated surveys or with flaws
 Large part of labour force in informal sector
 Structural shifts happening - due to formalization of economy
 Withdrawal of women from labour force
 More youth staying back in college

2.4 TRANSFORMATION OF ASPIRATIONAL DISTRICTS

Transform the chosen 115 districts
Highlights :
Convergence – of Central and State Schemes
Collaboration – of Central, State level 'Prabhari' Officers and DCs
Competition – among districts based on the real time data and driven by a Mass Movement

One of the main elements is to identify selected Key Performance Indicators (KPIs),
Five sectors under KPIs - Health and Nutrition, Education, Agriculture and Water Resources, Basic
Infra, Financial Inclusion and Skill formation

2.5 ISLAND DEVELOPMENT AUTHORITY

IDA identified 5 islands in A&N and 5 in Lakshwadeep.
Importance of islands - Strategic Maritime Role (Malacca, Hormuz and Bab El Mandeb);
International cooperation (Act East); Regional Connectivity and trade; Blue Economy (SDG 14)
Issues - disaster prone (Okchi cyclone on Lakshadweep), climate change, piracy, smuggling,
security vunerability, illegal immigration, tribal dev challenge, logistical issues
Steps taken - tri service A&N military Command; SAGARMALA; India-Japan to “develop smart
islands”

3.2 INSOLVENCY AND BANKRUPTCY CODE (IBC)

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  India takes ~4.3 yrs to resolve bankruptcy while Japan just 0.6 yrs, including poor recovery to
lenders.
 High cost 9% of claim
 Low recovery rate

Regulator -> Insolvency and Bankruptcy Board of India - Insolvency Resolution Professionals (IRPs)
and Information Utilities
Adjudicators -> National Company Law Tribunal and Debt Recovery Tribunal
Since a ‘Code’ is a compendium of laws, thus, IBC becomes a code, than just being a law.
Provisions :
1. Time bound process - 6 mths to resolve bankruptcy, 9 mths in some circumstances
2. One law to deal with bankruptcy
3. Comprehensive coverage - companies, partnerships, individuals, LLPs (can be expanded also)
4. No deadlock - bankruptcy resolved in prescribed time, else assets to be sold to debtors
5. Everyone gets their due - cost of insolvency process, workers, secured creditors, employee
wages, unsecured creditors, govt. dues, any remaining debt
Uses
1. EoDB
2. ease lenders comfort
3. locked up assets will be freed
4. banks and ARCs gain; greater inv; matured corporate bond market
RBI withdrew its bad-loan resolution schemes such as SDR, S4A in 2018

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Assessment
 out of cases admitted in last one year only 1.9% were resolved and 5.9% went for liquidation.
 Operational creditors (vendors, supplies, employees etc.) are opting for IBC because:
o It offers credible warning to the corporate debtors
o These creditors, mostly small or mid-sized dealing with bigger enterprises, operate on a
credit cycle and missed payments hurt them bad
 The focus is more on recovery of dues, than revival of the company, thus collective resolution is
hit
 (+) Tata steel bought Bhushan steel and banks could recover 4x cost
 Banks delay approaching IBC (RBI released cricular that 1day a loan turns NPA, approach
IBC) - but it's closing all doors of outside recovery such as Power sector recovery
 (-) company's liquidation - which is the ultimate move in IBC, may or may not be due to its
incomeptency and depends on external factors.

Suggestions mooted

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 1. CVC (Central Vigilance Commission) guidelines should not be applicable to the IBC cases, to
hep PSB officials take bolder decisions
2. In the regime prior to the IBC, many tax and other exemptions were available to make
the stressed assets lucrative for the buyers – similar provisions can be provided under the IBC.
3. Govt also releasing Project Sakshat to provide some alternate channels for Banks other than
IBC.

3.3 THE OMBUDSMAN SCHEME FOR NBFCS

RBI recently launched it. Recently peer to peer lending platforms have been classified as NBFCs
About the scheme :
Will provide a cost-free and expeditious complaint redressal mechanism relating to deficiency in the
services by NBFCs
Scheme will cover all deposit taking NBFCs.
A customer can file a complaint with the ombudsman if the NBFC rejects the complaint or does not
respond within a month
Powers of ombudsman - to call for information from concerned NBFC and power to award
compensation upto 1 lakh rupees
The ombudsman will be required to send an annual report to the RBI governor

3.4.1 THE BANNING OF UNREGULATED DEPOSIT SCHEMES BILL, 2018 -(for ponzi scheme)
Recent scams - WB based Saradha group scam and Rose Valley scam
Features :
1. substantive banning clause - bans working of Unregulated Deposit Scheme
2. severe punishment and heavy pecuniary fines as deterrent
3. attachment of properties/ assets by the Competent Authority
4. adequate provisions for repayment of deposits
5. enables creation of an online central database
6. adopts best practices from State laws

3.4.2 THE CHIT FUNDS (AMENDMENT) BILL, 2018

A chit fund is a type of saving scheme where subscribers contribute via installments. Each
subscriber is entitled to a prize amount determined by lot, auction or tender. Typically the prize
amount is the entire pool of contribution minus a discount which is redistributed to subscribers as a
dividend.
Part of the Concurrent List.
Features :

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 1. Use of the words "Fraternity Fund" for chit business rather than "Prize Chits" which are banned
2. Allows two minimum required subscribers - to join through video conferencing duly recorded by
the foreman
3. increases the ceiling of foreman's commission from a maximum of 5% to 7%
4. removes the ceiling of one hundred rupees set in 1982

3.5 PUBLIC CREDIT REGISTRY (PCR)

RBI will setup PCR that collates all loan information of individuals and corporate borrowers, as
recco by High Level Task Force on PCR for India, headed by YM Deosthalee
Issues in credit rating in India :
1. The system does not permit publishing a rating without the issuer’s consent
2. Non-rating activities of CRAs - generate conflicts of interest with their main service
3. Issuer paid model - compromises their objectivity
4. Information availability - if issuer refuses to give info, then rating is based on public info
How a PCR helps?
 Help the bankers to rely on objective data for making credit decisions
 Improve the credit culture in country
 Transparency would serve as “reputational collateral” - for small borrowers (startups,
MSMEs) promoting financial inclusion, rewarding good borrowers infusing credit discipline and
a level playing field for all borrowers
 PCR can tap other transactional data - payments to utilities like power and telecom for retail
customers
 gives a complete picture instead of fragmented one
Challenges :
Setting up a comprehensive PCR will require vision, much team work and expertise
Incorporating unique customers by Aadhar for individuals and Corporate Identification
Number (CIN) for corporates

5. CORPORATE GOVERNANCE

Addressing concerns of Triple Bottom Line - 3Ps Planet, People and profit. Governance in a
manner to cater interest of all stakeholders.

5.1 SEBI PANEL ON CORPORATE GOVERNANCE

Recently, Uday Kotak panel on corporate governance has submitted its report to SEBI

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Corporate governance is the system of rules, practices and processes by which a company is
directed and controlled.
India’s corporate sector is currently facing problem of excess debt and boardroom disputes (eg.
TATA, Infosys).
Importance of Corporate Governance :
1. Good corporate governance helps the company to regulate risk and reduce opportunity for
corruption.
2. Also protects its members, officers and management based on official records
3. Good firm makes up for weaknesses in a country’s corporate laws
4. Attracts foreign investment due to reputation of company
5. improve operating results as well as market cap
Issues with Corporate Governance in India :
1. Nepotism in board appointments
2. Lack of transparency in appraisal of directors
3. Independent directors playing a passive role
4. Family owned Indian companies - poor succession
5. Lack of seriousness for CSR projects
6. Lack of importance to data protection, cyber security
7. Executive compensation principles not transparent
Reccos of Kotak Committee:
1. Increasing Transparency - enhanced disclosure requirements e.g disclosure of auditor
credentials, auditor fee, reason for resignation of auditor, disclosure of funds raised through
Preferential Allotment and QIPs
2. Reshaping the Institution of the Board of Directors - separation of chairperson and CEO
(leader of mgmt)/MD (leader of board)
3. min of 6 directors - to improve board strength and diversity
4. Capping max directors to 8
5. Quorum - 1/3 of total strength
6. Top 1000 listed entities to have min one woman independent director
7. Levelled the playing field for algorithmic trading - tick by tick data feed for all investors??
8. Committees - audit, risk management, remuneration etc.
9. increased shareholder participation by making approval of minority shareholder compulsory for
some things.
Significance :
Achieve global best practices
Help reduce promoter-raj - at the cost of minority shareholders

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5.2 SHELL COMPANIES
Shell companies typically refer to companies without active business operations or significant
assets. Recently ‘Task Force on Shell Companies’ has submitted its report to government. In India
Shell companies are not defined under Companies Act, 2013. It is a category within dormant
companies where its business doesn't justify its position (such as investments, revenues etc.)
Reccos :
1. New criteria for dubious firms - e.g lack of business ownership, rotation in transactions, board
of investors are of low means, majority of shares held by other companies, etc
2. MCA to check financial statements of cos. that were misused to channel black money after
demonetization
3. Watch on companies with abnormal increase or decrease in debts, increase in investment
>100%
Other govt. measures :
1. Comprehensive digital database of shell cos - prepared by SFIO under MCA
2. Investigations - conducted by IT dept. detected 1155 shell companies
3. Information sharing mechanism - b/w various law enforcement agencies
4. Budget 2018-19 - removed exemption under section 276CC of IT Act - was being misused by
~3 lakh inactive cos showing nil income
5. Issue with auditors - were involved in alleged connivance in facilitating illegal transactions
6. MCA deregistered 2.26lakh companies
WF: need to look into recos of Ashok Chawla panel on audit firms (Whose role is questionable at
times)

5.3 CORPORATE SOCIAL RESPONSIBILITY (CSR)

Due to non-compliance to CSR by 1/3rd firms, MCA decided to put in place a centralized system to
keep a tab on companies' compliance.
About :
 CSR is a management concept whereby companies integrate social and environmental
concerns in their business operations and interactions with their stakeholders.
 Spend at least 2% of their average net profit in the previous three years on CSR activities
 Section 135 of the Companies Act, 2013 which contains CSR provisions is applicable to
companies
o With an annual turnover of 1000cr
o Or a net worth of 500cr
o Or a net profit of 5cr

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Benefits of CSR to company:
1. Gaining of trust of communities
2. Corporate reputation and brand building
3. Attracting and retaining employees
4. Attract investors due to being ethical
5. Increased profitability - as ethical conduct influences purchasing decisions of customers
Few Challenges in CSR:
 Geographic equity - Fives states account for 1/4 of CSR spending (MH, GJ, AP, RJ and TN).
NE has least spending
 Lack of robust policy - poor long term direction to CSR spending
 Disconnect with local requirements
 Duplication of activities by different corporate houses
 Inadequate monitoring
 Viewed as additional tax - already 34% is one of the highest, compared to world avg. of 24%
 Lack of focus in rural areas
 Lack of awareness in local communities about CSR
 Ease of implementation is the basis. Ex 44% exp towards edu and diseased but child mortality
got no funding at all
Anil Balaji Committee recos
1. No additional mechanism for monitoring of CSR is required as the Board and CSR Committee
are accountable for their own shareholders and public at large.
2. Annual awards for incentivizing companies to take up CSR activities be set up

LAND RELATED POLICIES

WB ~60% of India's land area is agricultural land. However, farming is the least productive ~15% of
GDP, while employing >50% of workforce. (our scarcest resource is also our least productive
resource)

Issue related to land in India are :

1. Scarcity of Land Resources - Small and marginal landholdings (<2 ha) account for 85% of the
total operational holdings
2. Stalling of projects - 14% of 40,000 projects stalled due to land acquisition conflicts
3. Issues with Land Acquisition in India: NITI Aayog - high compensation fixed under Land
Acquisition Act, makes land acquired for affordable housing expensive

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 4. Gross Underutilisation of land - causing 'land hoarding'. CAG report found 53% of total land
acquired by govt for SEZs remains unused
5. Unclear land titles
6. Increasing Litigations - delays in acquiring lands and getting necessary permissions. SC
invalidated 95% of acquisition cases that came to it under LARR!
7. Marginalisation - due to poor implementation of FRA and PESA Act

Steps taken by govt. for sustainable usage of land :

1. Model Agricultural Land Leasing Act, 2016
o Facilitate leasing of agricultural land
o recognise tenant famers so that they can access credit, insurance, disaster relief etc.
o Security of Ownership - suggests legalizing land leasing in all areas and security of tenure
for tenants
o quicker litigation process
o automatic resumption of land after lease period
2. Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and
Resettlement act, 2013
o Social Impact Assessment survey - stating the intent for acquisition
o Compensation - upto 4 times the market value in rural areas and 2 times in urban
o Caps on Acquisition of Multi-Crop and Agricultural Land
o Special Safeguards for Tribal Communities and other disadvantaged groups - no
acquisition in Scheduled Areas without the consent of the Gram Sabhas
o rehabilitation and resettlement - be provided to the people
o mandatory consent of 70% people for PPP and 80% for pvt (doesnt apply to some like
SEZ, atomic plants etc.)

Way forward :
 land being a State subject - States to take legal reforms to ease acquisition
 Furnish details about usage of acquired land - as done in Britain
 Innovative approaches - Land Bank, land pooling
 Comprehensive inventory of land resources and usage patterns

Draft National Land Reforms Policy, 2013: finalise this

1. National land use plan
2. Assignment of land to landless
3. Land rights to SC, ST and nomadic communities (right to min land holding act)
4. land rights to women- during homestead land distri rights

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 5. dispute resolution, modernisation of land records, monitoring and evaluation

6.1 LAND BANK FOR INDUSTRIAL ALLOCATION

Land bank is a pool of land which allows government to offer land to investors without waiting for the
process of land acquisition.
Significance :
 Improving ease of doing business
 Attracting investment - FDI, local investment
 Preventing distress sales of land by farmers - as farmers can sell their land to govt.
Land Bank and related laws :
1. Forest Rights Act, 2006
2. PESA
3. LARR Act- If land acquired remains unutilized for more than 5 yrs, state govt can put it in land
bank or give it back to people
Issue: Odisha included land previously allocated to POSCO plant in its land bank! would affect 700
families if diverted.

INDUSTRIAL POLICY AND ASSOCIATED ISSUES

Constraints to Industrial Growth :

 Inadequate infrastructure - poor infra -> high logistics cost
 Restrictive labour laws - discourages regular employment of workers, led to contractualization
of work
 Complicated business environment - Complex and time taking business processes and
clearances, high compliance costs
 Slow technology adoption - Inefficient tech led to low productivity
 Low productivity - 1/3 of China
 Trade challenges - stagnant/shrinking global demand, rising protectionism. MSME sector
suffering due to cheap imports from China and FTA countries
 Inadequate expenditure on R&D and Innovation
Draft Industrial Policy, 2017:
 Establishing global linkages - by creating global brands in India, strengthen FDI
 Enhancing industrial competitiveness - by reducing cost of infra such as power, logistics,
easing regulatory burden, etc
 Advances in tech - such as robotics, IOT, etc

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  Access to capital for MSMEs - alternatives like Peer to peer lending, crowd funding, credit
rating mechanism for MSMEs
 Taxation - simplifying GST
 Creating jobs - to employ large no. of unskilled and semi-skilled labour
 R&D
Misc :
National Manufacturing Policy - NIMZs, simple and expeditious exit mechanisms, Incentives
for SMEs, zero defect manufacturing, industrial training, skill upgradation
IPR framework - that no higher IP standards be agreed other than those in TRIPS
WF -> Revisit Technology Acquisition and Development Fund (TADF) framework to enable
smooth transition to 4th IR etc.

SERVICES SECTOR

9.1 TOURISM SECTOR

 Economic Survey 2017-2018 highlighted an overall improvement has been noticed in tourism
sector
 India has 35 world heritage sites, 10 biogeographical zones and 26 biotic provinces - huge
potential and diversity
 India ranks 7th in terms of tourism sector contribution to contry's GDP (World Travel and
Tourism Council)
Significance of Tourism Sector :
 Employment - potential of 10m jobs.
 Foreign Exchange Earning - Tourism has 3rd largest foreign exchange earning for the country
(ES 2017-18)
 Diplomacy - an apparatus for soft power
 Preservation of national heritage and environment
 Infra development
Challenges :
 Lack of infra
 Domino effect - interlinked with other sectors like aviation, accommodation, etc
 Intra-sectoral competition - ppl preferring to travel abroad than domestically
 Outdated policy approach - lagging behind that of SE Asian countries. No focus on adventure
tourism, film tourism, wellness tourism, MICE (meetings, incentives, conferences and
exhibitions). Still focused on mystical charm and ancient civilisation, which alone is not
sufficient.
 Security issues and perception - women, racism, terrorist attacks etc.

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  Socio eco conditions - wide spread poverty, theft, harrassment, begging adds a -ve image
Govt initiatives :
 Draft National Tourism Policy 2015 - with vision of making India as MUST EXPERIENCE and
MUST RE VISITdestination. Target of 1% of world tourists by 2020. Responsible and
sustainable tourism.
 100% FDI in automatic route
 Incredible India 2.0
 PRASAD scheme
 e-Visa facility
 Adopt a Heritage Site
 Paryatan Parv - 3 components : Dekho Apna Desh, Tourism for All, Tourism & Governance
Way forward :
 CSR - taking 'Clean India' movement forward. e.g Red Fort leased out to Dalmia Group
 Medical tourism
 Streamlining tax structure - GST related issues
 Cinema and theatre
 Special Tourism Protection Force - to realise a tag of tourist-safe country
 HR - invest in learning foreign languages, authentic tourist guides etc.

9.2 IT-BPM SECTOR

Contributes 9.3% of India's GDP
Strength :
1. Employment - approx 4m and 0.15M ppl in SMAC (social, mobile, analytics, cloud)
2. Rapid Expansion - both vertical and geographic markets
3. Huge Consumer Market
Weakness :
1. Lack of infra
2. High Operations Cost - due to presence in Tier I cities where real estate costs are rising
3. Lack of skill development - e.g cyber security, IoT, Big Data Analytics
4. Global economic situation - protectionist policies of USA, Brexit - changes in visa and
immigration policies
Opportunity :
Urbanisation - growing urban infra creating opportunities in tertiary sector. e.g Cyber City in
Gurugram
Demographic dividends
New techs - Interactive Voice Response (IVR) : Apple Siri, Microsoft Cortana, Google DeepMind

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Threat :
Radical change in skill set
Data colonisation - can hamper healthy competition
Cyber security- data breaches, espionage
Govt initiatives:
1. India BPO Promotion Scheme: incentive and VGF for tier 2 and 3 cities
2. National Policy on Information Tech 2012
3. Budget 2018-19 - initiative to promote AI tech

9,3 CHAMPION SECTORS IN SERVICES

 The Union Cabinet recently approved an action plan for 12 champion services sectors identified
by the Ministry of commerce and industry for special focus.
 Service sector - India is 8th biggest exporter, global share of 3.4% (merchandise exports is
1.7%)
 contributed 72% GVA in 2017-18
Need of the move :
1. Premature Deindustrialisation - shift from primary to tertiary sector
2. Temporary Shock - Demonetization and GST
3. Sub-optimal utilization
4. To imporve manuf sector: because embedded services are substantial part of 'Goods' as well.
Thus, competitive services sector will add to the competitiveness of the manufacturing sector
as well.
5. challenge - manuf and service cant be seen isolated way
Govt. initiatives :
Exports from India Scheme (SEIS) - FTP 2015-20, Start-up India, National Intellectual Property
Rights (IPR) policy, Simplifying FDI process by abolishing FIPB hence ~90% inflows now via
automatic route
Way forward :
'Services from India' on lines of Make in India is needed, Improve quality of skill and higher
education, Standardisation - service standards are below many developing countries

*Innovation -> India-based R&D services companies, account for almost 22% of the global
market and grew at 12.7% in 2015-16. However, India’s gross expenditure on R&D has been low at
around 1% of GDP and it ranks 60th out of 127 on the Global Innovation Index (GII) 2017.

INFRASTRUCTURE

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10.1 INFRASTUCTURE FINANCING IN INDIA
Emerging Options :
1. National Investment and Infrastructure Fund (NIIF) - India's first sovereign wealth fund .
Being operated by establishing three Alternative Investment Funds (AIFs)
2. Pension Funds - long term and more stable in nature. But 2/3rds parked with central govt as
deposits due to stipulations on outside use.
3. Infrastructure Investment Trusts (InvITs) - mutual fund like institutions that enable investments
into the infrastructure sector
4. ‘India Infrastructure Project Development Fund’
5. Masala Bonds - rupee denominated bonds issues in offshore capital markets help to expand
the avenues for debt funding of infrastructure projects

10.2 LOGISTICS SECTOR GETS INFRASTRUCTURE STATUS

Benefits - lending at easier terms with enhanced limits, access to longer duration funds, tap the
external commercial borrowing route and refinance existing loans at competitive rates.
Challenges :
Traditionally man-power driven, unorg and fragmented industry
Transport
 Rail - railway network is oversaturated with high freight tariff
 Road - fragmentation of trucking industry, multiple checkpoints
 Ports - high turnaround time, inadequate depth at ports
Storage Infrastructures - inadequate size of warehouse
Technology - lack of online cargo solutions, GPS cargo track
Tax - a complicated tax regime
Govt. initiatives :
Diesel de-regulation - prices aligned with international movements => logistics costs more accurate
Tech - Automatic Storage and Retrieval Sysytem (ASRS), RFID, GPS
GST
Logistics enhance efficiency programme
WF: make forward looking inv like dust proofing storage spaces, involve all stakeholders etc.

11.1.3 NATIONAL HIGHWAY INVESTMENT PROMOTION CELL

NHAI created NHIPC
Need :
Funds for Bharatmala - govt. has set target of 35,000 km of NHs in the next five years under
Bharatmala which needs Rs 5.35 lakh crore

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PPP Models for Road Construction :
BOT, BOT Toll
EPC - Procurement of raw material and construction costs are met by the govt. The pvt sector’s
participation is limited to the provision of engineering expertise.
Hybrid Annuity Model (HAM) - mix of BOT and EPC models. Govt will contribute the 40% cost of the
project in the first five years through annual payments. The remaining 60% is paid after the
completion of the project as variable annuity depending upon value of the assets created

11.3 WATERWAYS, SHIPPING AND PORTS

11.4.1 COASTAL ECONOMIC ZONE

Sagarmala Programme :
It is coastal and port city development plan, where manufacturing units will be set up to generate
jobs.
Its aims to harness country 7,500 km long coastline, 14,500 km of potentially navigable waterways
The concept is based on China based Shenzhen style Coastal Economic Zone
National Perspective Plan (NPP) of the Sagarmala Programme :
 Port Modernization & New Port Development
 Port Connectivity Enhancement
 Port-linked Industrialization - 14 Coastal Economic Zones (CEZs) along the coastline
 Coastal Community Development

11.4.2 MODEL CONCESSION AGREEMENT FOR PORT DEVELOPMENT

MCA for PPP in major ports conceived under Sagarmala programme

ENERGY SECTOR

12.4 RENEWABLE ENERGY

India is also committed to meeting its commitments stated in the Paris Agreement

12.4.1 SOLAR ENERGY

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[Link] SUSTAINABLE ROOFTOP IMPLEMENTATION FOR SOLAR TRANSFIGURATION OF
INDIA (SRISTI)

[Link] KUSUM
Kisan Urja Suraksha evam Utthaan Mahaabhiyan (KUSUM) scheme was announced in Budget
2018-19
It aims to incentivise farmers to run solar farm water pumps and use barren land for generating solar
power to have extra income.
Components - Utilisation of barren land by farmers to generate 10,000 MW of solar energy and sell it
to grid; Solarisation of grid-connected farm pumps; Solarisation of government departments' grid
connected water pumps

12,4,2 WIND ENERGY

12.4.2 GUIDELINES FOR PROCURING WIND POWER

Target of reaching 175 GW - including 100 GW from solar and 60 GW from wind by the year 2022
Wind Energy under Concurrent List
Government Steps to promote wind energy :
Green Energy Corridors Project
National Offshore Wind Energy Policy

[Link] OFF-SHORE WIND POWER

Offshore wind power is the use of wind farms constructed in bodies of water, usually in the ocean on
the continental shelf, to harvest wind energy to generate electricity.
Country's first 1 GW offshore wind project to be setup in Gulf of Khambat.
Advantages - Greater area available for setting up large projects; Higher wind speed; Consistent
wind speed; Less visual impact; Close to load centres (usually near cities)
Way forward - Government should provide adequate support to realise the potential as per the
“National Offshore Wind Energy Policy –2015”.

[Link] METHANOL ECONOMY

Country’s 90% of demand of methanol is met by the import due to lack of domestic production unit.
Govt. - has initiated towards 15% blending of methanol in petrol

TELECOMMUNICATIONS

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10% increase in the rate of growth of broadband subscribers will result in a 2.4% increase in the
GDP rate in India.
Importance of telecom sector :
 Telecom is the second highest revenue earner for government after income tax
 Employment potential
 In underbanked India, mobile banking can be a boost for financial inclusion
 Telecom services become the first line of defence in any natural disaster or emergency
scenario

POLICIES GOVERNING THE TELECOM SECTOR

Need for new Telecom Policy in 2018 :
To restructure regulatory and licensing frameworks
To leverage the convergence of voice, video and data services
To account for the Industrial Revolution 4.0
facilitate development of infrastructure - for new techs like 5G and IoT

National Telecom Policy 2018 also called National Digital Communications Policy (NDCP), 2018 :
 Provisioning of Broadband for All
 Creating 4 Million additional jobs
 Propelling India to the Top 50 Nations in the ICT Development Index of ITU
 Ensuring Digital Sovereignty
 Three missions :
1. Connect India - Robust Digital Communication Infrastructure
2. Propel India - Enabling Next Generation Technologies and Services
3. Secure India - Ensuring Digital Sovereignty

CHALLENGES OF THE TELECOM SECTOR

1. Main issue - declining profitability => worsening TBS problem
2. Expensive spectrum - one of the highest in the world
3. Competition from over-the-top operators - such as WhatsApp, Skype as they don't have to
pay taxes to the govt
4. Restrictive government policies - e.g cross holding norms that prevent acquiring stakes of
one company by another, only a 100% buyout
5. Unsustainable debt
6. Quality - call drop
7. Differential pricing for data services

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 8. Interconnected Usages Charges (IUC) - reduction in it by TRAI led to huge loss to telecom
operators. (it is the cost one operator pays to other when customer from 1 calls other network)

ADDRESSING THE CHALLENGES

 Reforms in spectrum management through the processes like spectrum sharing,
spectrum trading, spectrum harmonization as well as spectrum auction.
 Bharat Net project - For deeper digital penetration in rural areas, aims to link each of 2.5 lakh
Gram Panchayats of India through Broadband optical fibre network
 Planning to auction 5G spectrum - to promote initiatives like IoT
 Phased manufacturing programme (PMP) - giving a push to the domestic manufacturing of
mobile handsets
 Misc - relaxing spectrum holding caps, extending the payment tenures for auctioned airwaves
by 4 yrs
Way forward :
Accepting TRAI recommendations - such as reducing SUC (spectrum usage charges) fees to 1%
Use PPP for Bharatnet

WTO

Issues
 Changing world order - so far rules based order benefitted the West, now they are adopting
protectionism
 Process loopholes - ministerial conferences are opaque and technical. Green room meetings
are restrictive
 Consensus based process -> stagnation
 Nature of agreements - discriminatory - Doha Development Agenda not yet finalised,
developing countries accussed of flouting TRIPS
 Dispute resolution - costly and lenghty. Developing countries become victims of process

Why still relevant

 WTO regulates 90% of world trade
 Tariffs decreased by 85% since 1942
 World trade / GDP increased 24% in 1940 to 60% in 2015
 Rules based order -> transparency and stability

GS3 BITES

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  ES 2017-18: govt shd shift focus form 'land producitvity' to 'irrigation water productivity' of agri

18. Editorial Today:

EDITORIAL TODAY – BILATERAL INVESTMENT TREATY

What is Bilateral Investment Treaty (BIT) A bilateral investment treaty (BIT) is an agreement
establishing the terms and conditions for private investment by nationals and companies of one state
in another state.
What is International investment agreement (IIA) An International Investment Agreement (IIA) is a
type of treaty between countries that addresses issues relevant to cross-border investments.
Difference between BIT and Preferential trade agreement Bilateral investment treaties deal
primarily with the admission, treatment and protection of foreign investment.
Importance of BIT BIT increases the comfort level and boosts the confidence of investors.
Counter argument against BIT Investors are driven by important factors like market size,
availability of skilled labour, infrastructure and quality of domestic governance institutions, and not so
much by the existence of a BIT.
India’s BIT
Background The first BIT was signed by India on March 14, 1994.
Why existing Model BIT was revised Considerable socio-economic changes have taken place
since 1993 when the Model text of BIT was first approved.
Features of India’s Revised Model BIT India’s revised model BIT has been formed taking into
consideration arguments against BITs.
Criticism of India’s Revised Model BIT The 20th Law Commission of India in its 260th report
recommended to the government amendments to many provisions in the draft model BIT.
India –US Bilateral Investment Treaty India and the U.S. started negotiating a BIT in 2009.
Some of the differences between in the BITs model of India and US Most Favoured Nation,
Taxation and Compulsory Licensing.
Other Bottlenecks The issue of BIT negotiations cannot be quarantined from the larger economic
issues between the two countries.

WHAT IS BILATERAL INVESTMENT TREATY (BIT)

 A bilateral investment treaty (BIT) is an agreement establishing the terms and conditions for
private investment by nationals and companies of one state in another state. This type of
investment is called foreign direct investment (FDI).

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  Most BITs grant investments made by an investor of one Contracting State in the territory of the
other a number of guarantees, which typically include fair and equitable treatment, protection
from expropriation, free transfer of means and full protection and security.
 The distinctive feature of many BITs is that they allow for an alternative dispute resolution
mechanism, whereby an investor whose rights under the BIT have been violated could have
recourse to international arbitration, often under the auspices of the ICSID (International Center
for the Settlement of Investment Disputes), rather than suing the host State in its own courts.
This process is called investor-state dispute settlement.
 Influential capital exporting states usually negotiate BITs on the basis of their own “model” texts
(such as the US model BIT).
 It is a type of International investment agreement (IIA)

WHAT IS INTERNATIONAL INVESTMENT AGREEMENT (IIA)

 An International Investment Agreement (IIA) is a type of treaty between countries that

addresses issues relevant to cross-border investments, usually for the purpose of protection,
promotion and liberalization of such investments.
 Most IIAs cover foreign direct investment (FDI) and portfolio investment, but some exclude
the latter.
 Countries concluding IIAs commit themselves to adhere to specific standards on the treatment
of foreign investments within their territory.
 IIAs further define procedures for the resolution of disputes should these commitments not be
met.
 The most common types of IIAs are Bilateral Investment Treaties (BITs) and Preferential
Trade and Investment Agreements (PTIAs).
 International Taxation Agreements and Double Taxation Treaties (DTTs) are also
considered as IIAs, as taxation commonly has an important impact on foreign investment.

DIFFERENCE BETWEEN BIT AND PREFERENTIAL TRADE AGREEMENT

 Bilateral investment treaties deal primarily with the admission, treatment and protection of
foreign investment. They usually cover investments by enterprises or individuals of one
country in the territory of its treaty partner.
 Preferential Trade and Investment Agreements are treaties among countries on cooperation
in economic and trade areas. Usually they cover a broader set of issues and are concluded at
bilateral or regional levels.
 In order to classify as IIAs, PTIAs must include, among other content, specific
provisions on foreign investment.

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IMPORTANCE OF BIT

 A BIT increases the comfort level and boosts the confidence of investors by assuring a level
playing field and non-discrimination in all matters while providing for an independent forum for
dispute settlement by arbitration.

COUNTER ARGUMENT AGAINST BIT

 Until recently, it was simply assumed that the investor protection regime enshrined in BITs
would lead to increased foreign investment and that foreign investment, in turn, would produce
economic development benefits in both the host and home countries. Yet, within the past
decade, several empirical studies have raised doubts about the accuracy of that assumption;
investors are driven by important factors like market size, availability of skilled labour,
infrastructure and quality of domestic governance institutions, and not so much by the
existence of a BIT. Moreover, it is now clear that not all investment leads to development. So
the underlying promise of BITs has not been realised.
 Second, the costs of BITs are becoming harder to ignore. An increasing number of disputes
have been brought against states to challenge good-faith measures taken in the public interest,
such as anti-tobacco legislation, phase-out of nuclear power, environmental regulations,
restrictions on development of hazardous waste facilities, domestic decisions regarding the
scope of intellectual property rights, and efforts to regulate tariffs for electricity and water in
concessions operated by private investors. These disputes are costly to litigate and even more
costly to lose, and threaten states’ ability to regulate in the public interest.
 In recent years, countries such as Bolivia, South Africa and Indonesia have either stopped
signing new treaties or have announced their intention to withdraw from existing treaties.
 Australia, view the regime with scepticism and are reluctant to sign treaties with investor-state
dispute settlement (ISDS) mechanisms.
 In a major shift in policy, Germany, which had been one the earliest proponents of the
investment treaty system (World’s first BIT was signed on November 25, 1959 between
Pakistan and Germany), now opposes the inclusion of ISDS in the investment chapter of the
Transatlantic Trade and Investment Partnership (TTIP) with the United States.
 Leading economists have similarly raised concerns about the potential impact of traditional
BITs on governments’ ability to regulate in the public interest.

INDIA’S BIT

BACKGROUND

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  The first BIT was signed by India on March 14, 1994. Since then, till date, the Government of
India has signed BITs with 83 countries. These BITs were largely negotiated on the basis of the
Indian Model BIT of 1993.
 The Union Cabinet had given its approval for the revised Model Text for the Indian Bilateral
Investment Treaty in December 2015. The revised Indian model text for Bilateral Investment
Treaty (BIT) will replace the existing Indian Model BIT. The revised model BIT will be used for
re-negotiation of existing BITs and negotiation of future BITs and investment chapters in
Comprehensive Economic Cooperation Agreements (CECAs)/ Comprehensive Economic
Partnership Agreements (CEPAs) / Free Trade Agreements (FTAs).

WHY EXISTING MODEL BIT WAS REVISED

 Considerable socio-economic changes have taken place since 1993 when the Model text of
BIT was first approved.
 The nature of government regulation concerning foreign investment has evolved.
 A wide variety of laws now regulate investments both at the central and the state levels.
 During the last few years, significant changes have occurred globally regarding BITs, in
general, and investor-state dispute resolution mechanism in particular.
 Moreover India adopted a new model BIT in 2015 as a reaction to foreign corporations suing
the country under different BITs, and perhaps with the objective to immunise itself from claims
of foreign corporations under international law.

FEATURES OF INDIA’S REVISED MODEL BIT

 India’s revised model BIT has been formed taking into consideration arguments against BITs.
 The new model clarifies that it only covers investments that have a physical presence and
substantial business activities in the territory of the host state. This means that the investments
represent long-term commitments of capital and resources to the local economy and can
facilitate crucial transfers of technology. These types of beneficial investment are still afforded
guarantees of fair treatment, protections against discrimination, expropriation and a right to
freely transfer returns on investments.
 Moreover, they get the significant benefit of ISDS — but not before pursuing prior remedies
before domestic courts, endorsing the customary rule applicable in other international
regimes that a violation of international law can only be found after there has been an
exhaustion of domestic remedies.
 India’s new model BIT makes clear that its goal is to accomplish more than mere investor
protection. Recent trends suggest that governments are wisely transforming BITs into tools of
good governance with carefully calibrated rights and obligations.

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CRITICISM OF INDIA’S REVISED MODEL BIT

 It has failed to balance the protection of foreign investment with India’s right to regulate and
was diametrically opposed to the government’s pet projects to woo foreign investors, such as
‘Make in India’ and ‘Digital India’. The 20th Law Commission of India in its 260th report
recommended to the government amendments to many provisions in the draft model BIT.
 The draft model BIT provided that the issuance of compulsory licenses (CLs) would be outside
the ambit of the treaty, if such issuances were consistent with domestic law, such as for a
patented drug. However, in the final model BIT the issuance of CLs will be outside the treaty’s
ambit only if such an issuance is consistent with the WTO treaty. To better understand the
difference, let us look at a possible situation where a foreign pharmaceutical company
challenges the issuance of CLs by India, which has been upheld by the Indian courts, before a
BIT tribunal. Under the draft model BIT, the tribunal would give deference to the decision of the
Indian courts as they are better placed to judge issues of compliance with domestic law.
However, under the final model BIT, the tribunal will have the jurisdiction to examine whether
the CL has been issued in accordance with the WTO’s agreement on trade related aspects of
intellectual property rights. The tribunal will be less deferential to Indian courts since the issue
would need to be resolved in compliance with international law and not Indian law. Apart from
concerns over whether investment tribunals have the capacity to judge such questions, this will
unnecessarily expose India’s patent laws to international judicial scrutiny.
 The final model BIT retains certain things from the draft model such as excluding taxation from
the purview of the treaty. The exclusion of taxation is a direct outcome of companies like
Vodafone challenging retrospective taxation laws before BIT tribunals. Perhaps such a strong
reaction was unnecessary because, as the Law Commission’s report observed, BIT tribunals
give adequate deference to countries on matters related to taxation unless the tax measures
are confiscatory, discriminatory or arbitrary.
 The model BIT, like the draft version, does not have the most favoured nation (MFN) provision
— a cornerstone of non-discrimination in international economic relations. The absence of the
MFN provision is a direct consequence of India losing the dispute to White Industries, an
Australian company, in 2011. White Industries used the MFN provision to import a beneficial
provision from the India-Kuwait BIT into the India-Australia BIT. The use of the MFN provision
by foreign investors for such purposes has been questioned. However, not having the MFN
provision in the BIT is a disproportionate reaction. As the Law Commission had suggested, the
objective to disallow treaty shopping can be achieved by restricting the MFN’s applicability to
actual cases of discrimination in application of domestic measures. But excluding it entirely
could send negative signals to foreign investors.
 Foreign investors have to exhaust local remedies before proceeding for international arbitration.
This might not be a very attractive proposition for foreign investors because, as the 245th report

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 of the Law Commission pointed out, the Indian judicial system is overstretched with a
humongous backlog of cases.

INDIA –US BILATERAL INVESTMENT TREATY

 When Prime Minister will visit the U.S. in June 2016, one of his high-agenda items will be the
bilateral investment treaty (BIT) between the two countries.
 India and the U.S. started negotiating a BIT in 2009. However, these negotiations lost steam
because both countries were busy updating their model BITs.
 A balanced BIT that protects foreign investment without unduly compromising the host state’s
right to regulate will benefit both India and the U.S. However, there is a yawning gap between
the two sides on core foreign investment protection standards, as reflected in their respective
model BITs, which makes BIT negotiations really difficult.

SOME OF THE DIFFERENCES BETWEEN IN THE BITS MODEL OF INDIA

AND US

 First, the U.S. model BIT contains a Most Favoured Nation (MFN) provision — a cornerstone of
non-discrimination in international economic relations — which is missing in the Indian model. It
will be very difficult for India to convince the U.S. to have a BIT without a MFN provision. From
the U.S.’s perspective, this would mean that American businesses would have no remedy
under international law, if the latter were discriminated against in India. The same argument
would apply for Indian investment in the U.S.
 Second, the Indian model completely excludes taxation from the purview of the BIT — a direct
response to Vodafone and Cairn Energy bringing BIT claims against India for imposing taxes
retrospectively. However, in the U.S. model, foreign investors can assert claims that taxation
measures, such as confiscatory taxation, involve an expropriation of foreign investment. Given
India’s recent record in administering its taxation laws that has made foreign investors jittery, it
will be quite difficult for it to convince the U.S. to agree to completely exclude taxation from the
BIT.
 Third, the Indian model completely excludes issuance of compulsory licenses (CLs) and
revocation of intellectual property rights (IPR) from its purview. On the other hand, the U.S.
model BIT excludes issuance of CLs and revocation of IPR only from the purview of the
expropriation provision.
(Expropriation is the act of taking of privately owned property by a government to be used for the
benefit of the public.)

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In other words, while the foreign companies, including pharmaceutical companies, cannot challenge
issuance of CLs and revocation of IPR as expropriation, they can surely challenge it as violation of
other BIT provisions such as fair and equitable treatment (FET) — a pretty stretchable investment
protection provision that has often been abused by foreign corporations. Complete exclusion of
issuance of CLs and revocation of IPR from the purview of the BIT might not be acceptable to the
U.S. for two reasons: first, it would not allow U.S. companies to sue India directly for issuance of CLs
or revocation of IPR; second, the U.S. continues to place India, along with China and Russia, on a
‘priority watch list’ for IPR violations, and thus would not like to foreclose opportunities for
challenging India’s IP laws internationally.

(To Understand ‘Priority watch list’ read Editorial Today #18 – Trade Facilitation Act and Its
Impact)
 Fourth, the major difference between the two models is on the issue of investor state dispute
settlement (ISDS) provisions. The Indian model BIT, unlike the U.S. model, mandatorily
requires foreign investors to litigate in domestic courts for five years before pursuing a claim
under international law. This is not at all an attractive proposition for U.S. companies in India
because of the overstretched Indian judicial system where more than three crore cases are
pending.

OTHER BOTTLENECKS

 The issue of BIT negotiations cannot be quarantined from the larger economic issues between
the two countries, especially the trade battle at the World Trade Organisation.
 The U.S. continues to accuse India for stalling the trade talks at WTO, which India vehemently
counters.
 Also, India and the U.S. have been involved in a spate of trade disputes at the WTO. In 2015,
India lost the case on ban of poultry imports to the U.S. at the WTO. Currently, India and the
U.S. are holding consultations at the WTO to resolve India’s complaint over increased visa
fees by the U.S. This comes immediately after India lost the solar panel case to the U.S. in the
WTO.
 This, in turn, perhaps prompted the government to inform Parliament that India plans to file as
many as 16 disputes against the U.S. in the WTO challenging the U.S.’s renewable energy
programmes.
19. General:

EASE OF DOING BUSINESS:

2018 - 100

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  India is among top 30 in 3 parameters - securing credit, getting electricity and protecting
minority investors.
 imporved ranking in 6/10 parameters.
 WB notes that India lagged in enforcing contracts (ES - solution), starting a business and
dealing with construction permits (Real Estate (Regulation and Development) Act, 2016 -
RERA).
 Saudi Arabia saw great results while working with targets of the index.

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