Dec-16Eco Flashcards Preview

VIAS-CA-3. ECONOMY > Dec-16Eco > Flashcards

Flashcards in Dec-16Eco Deck (27):
1

Dec-16Eco-Index

3.1. Major Ports Authority Bill, 2016
3.2. Asia Pacific Trade and Investment Report, 2016
3.3. Draft National Policy on Software Products
3.4. Digitization And Agriculture
3.5. Intellectual Property vs Competition Law
3.6. Draft National Electricity Plan (Generation)
3.7. Cashless Economy
-3.7.1. ‘Less-Cash’ Economy and Cashless Economy
-3.7.2. Regulation of Digital Payments Systems
-3.7.3. Other Steps to Usher ‘Cashless Economy’
-3.7.4. Vittiya Saksharata Abhiyan (Go Digital)
3.8. Role of Market Stabilisation Scheme Bonds
3.9. The Governance of Reserve Bank of India
3.10. Persistent Poverty of Indian State
3.11. Exclusive Suburban Tracks
3.12. Bilateral Investment Treaty
3.13. Regional Connectivity Fund for Udan Scheme
3.14. One Time Licensing for Drugs
3.15. India Reports Fishery Subsidies to WTO
3.16. Coal Mitra
3.17. Public Financial Management System (PFMS)
3.18. Review of PMFBY
3.19. Performance of Pradhan Mantri Ujjawala Yojana
3.20. Indian Enterprise Development Service (IEDS)
3.21. Garv II App
3.22. Financial Data Management Centre (FDMC)
3.23. Smart Cities: Problems in Implementation

2

3.1. MAJOR PORTS AUTHORITY BILL, 2016

Why in news
 Union cabinet approved Major Ports Authority Bill, 2016 that will replace Major Ports Trusts Act, 1963.
Issues with the ports
 Port Trusts are not leasing out the land to Private operators in time.
 Multiple agencies are involved in decision making process leading to delay.
 Multiple stakeholders are interpreting the concession agreements in their own way causing differences and litigations.
 Presently there is no independent board to look into disputes between stakeholders.
 Even though 100% FDI is allowed in Port sector, still tendering process inviting bidding from top MNC’s is not usually followed citing security issues.
Highlights of the bill
 New Bill is more compact in comparison to Major Ports Trusts Act, 1963 as no. of sections has been reduced from 134 to 65 by eliminating overlapping and obsolete provisions.
 It proposes to simplify composition of Board of Port Authority (BPA) comprising of only 11 members including 3-4 independent directors from present 17-19 members.
 Bill propose to divest Tariff Authority of Major Ports (TAMP) of its power to regulate tariffs and delegate this power to BPA to fix tariff which will act as a reference tariff for purpose of bidding PPP projects.
 BPA will be empowered to lease land for port related use for upto 40 years and for non-port related use upto 20 years and also fix rates for other port services and assets like land.
 Bill propose to introduce internal audit of Central Ports as mentioned in companies act 2013 including provisions of CSR and development of infrastructure by port authority.
 Independent Review Board (IRB) will be setup to carry out the residual function of TAMP like looking into disputes between port and PPP concessionaires, to review stressed PPP projects and suggest measures to cope with stressed PPP projects.
 IRB will also look into complaints regarding services rendered by the private operators.
Implications
 The bill would give more autonomy and flexibility to major ports in the country bringing professional approach in their governance.
 It will help in faster, independent decision making which will be beneficial for the government, stakeholders and country at large.
 A compact Board with professional independent members will strengthen decision making and strategic planning.
 It will significantly improve the project execution capabilities of the ports.
 Bill will help in reorienting the governance model of Central ports to Landlord port model. Presently most major ports in India carries out terminal operations as well, resulting in hybrid model of port governance.
Conclusion
 India has been following hybrid format of long obsolete service port model which is consistent with centralized economy.
 While globally landlord port model is followed consistent with market oriented economy this resulted in conflict of interest in India between the port trusts and the private sector, with the former acting both as port regulators and providers of commercial services in many instances.
 So there is urgent need for smooth transition to landlord port model to increase their efficiency.
[For info on Major Ports refer July 2016 edition Article 3.13]

Box--LANDLORD PORT MODEL
Ownership of the port remains with port authority. Infrastructure is leased to private firms that provide and maintain their own superstructure and install own equipment to handle cargo. In return, the landlord port gets a share of the revenue from the private entity.
SERVICE PORT MODEL
Port authority owns the land and all available assets-fixed and mobile-and performs all regulatory and port functions. The port trust is both landlord and the cargo terminal operator.

3

3.2. ASIA PACIFIC TRADE AND INVESTMENT REPORT, 2016

About the report
 The Asia-Pacific Trade and Investment Report (APTIR) is an annual major publication of Trade, Investment and Innovation Division of United Nations ESCAP.
 This report helps to understand trends and developments in trade and investment in the Asia-Pacific region.
About ESCAP
 It is a regional development arm of UN for Asia-Pacific region, home to more than 2/3rd of world population
 Founded in Bangkok, 1947 it comprises of 53 Member States and 9 Associate Members.
 It provides most comprehensive multilateral platform for promoting cooperation among member States to achieve inclusive and sustainable economic and social development in Asia and the Pacific.
Highlights of reports
Asia Pacific related facts
 Report states that because of uncertainty in global economic policy, slow economic growth followed by fall in world commodity price, Asia-Pacific trade flows kept wavering.
 In Asia–Pacific region services trade more than doubled between 2005 and 2015, from just under $600 billion to close to $1,400 billion.
 Exports are expected to increase by 4.5% and imports by 6.5% in developing countries of Asia-Pacific in 2017, but the report forecasts more modest growth in volumes of exports and imports, at 2.2% and 3.8%, respectively.
 A worrisome trend of high usage of restrictive trade policies, especially non-tariff measures, in the region.
 Region even saw a proliferation of Preferential Trade Agreements (PTA), with Asia-Pacific region contributing to almost 63 per cent of world PTAs, curbing a momentum towards region-wide free trade.
India related facts
 India’s international and intra-regional trade cost remained higher compared with trade cost of best performing economies in Asia and Pacific, although a declining trend has been observed since 2009.
 FDI flow in country may increase because of various initiatives of Government like “Make in India” and easing of FDI regulations in different sectors like aviation, defence, pharmaceuticals compounded by robust economic growth and large domestic market.
 Trend towards FDI diversion by Indian business community is observed as overseas investment from India contracted by 36% reflecting Indian investors’ confidence more in Indian market than abroad.
 FDI inflow in India during 2010-15 expanded at the rate of 10% on an average while in 2015 alone FDI flow expanded at staggering 27.8% which was significantly higher than Asia-Pacific region avg of 5.6%.
 Services, Construction development, Computer software and hardware and Telecommunications sectors attracted highest investment.
 In 2015, Indian goods exports shrank by 17.2 per cent, which was close to twice as much as the Asia-Pacific region decline of 9.7 per cent.
 India also emerged largest trading partner with South Asian countries like Nepal, Sri Lanka, Bhutan.

4

3.3. DRAFT NATIONAL POLICY ON SOFTWARE PRODUCTS

Why in news?
 Government released the Draft National Policy on Software Products for public consultation.
Need for a new Software policy
 The first Software policy came up in 1986. It resulted into Software Technology Park (STP) scheme in 1991. But, past few years have seen serious decline in growth, owing to rapid transformation in technology and Software industry, globally.
 As a maturing industry, with a distinct and strong charter of growth, there is a need to reevaluate the sector and to draw out strategies with a medium to long term perspective and introduce innovative solutions to leverage its full potential.
 There is a need to address weaknesses in regard to developing innovative software products that address the challenges thrown in implementing ambitious programmes like Digital India, Make in India, Smart cities etc.
 There are fostering new opportunities for the industry such as decline in working age population in many developed and developing economies, increased technology adoption and globalization. Thus, there is a need for focused strategies to increase the global spread of our IT-ITES sector which at present drives its business mainly from limited geographies.
 With internet penetration reaching 400 million and with more than a billion mobile phone connections, the opportunities to leverage the soft power of Indian IT professional for producing niche innovative IT solutions for Indian needs is enormous.
 Though India is well positioned to further grow in services sector, however for the holistic growth there is a need for a National Policy on Software Products that can synergies the efforts of the Government and Industry to create a robust Software Product Industry.
Mission of the Draft Policy
 To create conductive environment for creation of 10,000 technology startups to develop software products and thereby generating a direct and in-direct employment for 3.5 million persons.
 To strive for a tenfold increase in share of the Global Software product market by 2025.
 To create a specialized talent pool of 100,000 professionals by 2025.
 Apart from the above, the policy also talks about -
 Developing linkages with other sectors including core & social infrastructure and service sector.
 Creating disruptive innovations and cutting edge technologies, improved R&D and innovation ecosystem.
Strategies identified by the Draft Policy
 Ease of Doing Business:
 Ensure ease of business and address concerns that may be specific to the software product industry through an Inter-Ministerial Coordination Group.
 Creation of a Single Window online platform through Software Technology Parks of India (STPI).
 Funding, Seed Funding and Stock Options
 Allocate a defined portion of Fund of Funds of 100, 000 crores in Electronic Development Fund with a support of 100 Crores by MeitY under PPP model.
 Creation of Innovation Fund by Ministry of Finance exclusively for domestic Software Product Industry promoted by resident Indian nationals.
 Employment Generation
 Aligning the National Skills Mission with the need of Software Products companies so as to generate millions of skilled IT professionals.
 Tax on Software Products
 Demarcating tax regime for ‘Software Products’ from ‘Software Services’ by clearly defining software products.
 Further, the policy also talks about:
 Launching a “National Software Product Mission” with Industry participation.
 Promotion of Software Product through Training and Education and R&D.
 establishing 30 dedicated entrepreneur parks spread over the country in Tier-II and Tier-III towns.
 trade promotion and improving access to domestic market.

5

3.4. DIGITIZATION AND AGRICULTURE

Why in news?
Disruption from demonetisation shows the highly fragmented nature of our agricultural supply chains and monopoly in markets. Also the growth in agriculture has been muted.
What is Digitization in Agriculture?
 Farmers using the Internet of Things and smart sensors to get access to valuable information like soil moisture, nutrient levels, temperature of produce in storage and status of farming equipment.
 Use of big data analytics and artificial intelligence, technologies for price realization etc.
 Technologies such as: automation, decision support system and agriculture robots to boost growth.
 Digitization of land records – for easy access to credit and insurance, sale and purchase etc.
 Online virtual agriculture markets for ex: National Agriculture Market online trading portal.
Benefits of Digitization
 Reduce Wastage: track produce from farm to the table. In the process, it will reduce wastage in the value chain
 Improve food safety: Technology can help detect pathogens and allergens before they reach consumers.
 Improve yields and meet the growing demand according to the local variations in demand patterns. For ex: demand for poultry rose heavily in South India.
 Address the price discovery issue: The current wholesale market format suffers from a transparency challenge.
 Information sharing: With no data on volumes, prevailing prices or inventory levels, there is little information for buyers or sellers to make informed decisions
 Digitization can reduce information gap barrier to the entry of new players and, hence increase competition and better price discovery.
 Direct connect: Digitization can bring farmers in touch with profitable customers and help build sustainable partnerships to improve farming productivity.

6

3.5. INTELLECTUAL PROPERTY VS COMPETITION LAW

Why in news?
 The World Competition Day was celebrated on 5th December.
 The IPR is often seen overriding the Competition law brewing a fresh debate each time whether the two are
good enough for the producers and consumers alike.
What is IPR (Intellectual Property Rights)?
 Intellectual Property Rights are the rights given to a creator over the use of his creations. It is aimed at incentivizing creativity and innovation.
 It can include creations such a new drug composition, business module, product, software and so on.
 Some of the aspects of intellectual property include patents, trademarks, copyrights, geographical indications and industrial designs.
What is Competition Law?
 Competition law seeks to avoid market barriers and benefit consumers by encouraging competition among a multiplicity of suppliers of goods, services and technologies.
 The Competition Law has been put in place in order to ensure competitive environment among the firms.
 India’s Competition Law was formulated as Competition Act 2002 which was later amended in 2007.
 The Competition Commission of India (CCI) under the ambit of Competition Act prevents practices having adverse effect on competition, promotes and sustains competition in markets, protects the interests of consumers and ensures freedom of trade carried on by the participants.
Issues
 The IPR is often seen overriding the Competition law brewing a fresh debate each time whether the two are Interface between Competition Law and Intellectual Property Law
 Intersection of the two laws is observed when there is a interchange in the exclusive rights given by IP law to a company and the anti-competition practices that the Competition Law tries to protect.
 The Competition law stands abused when IPR holder imposes unfair and discriminatory conditions or price.
 Limits or restricts production of goods or provision of services.
 Denies market access to other entities.
 Uses its dominant position in one market to enter into another market.
 In developing countries, strengthening of IP law has taken place without commensurate levels of anti-competitive practices.
 It poses challenges to policymakers to sort out the negative fallouts of excessive monopoly power because of rights of IP owner.
 In dealing with this, patent offices are not competent enough for determining “excessive” or “unaffordable” pricing for issuing compulsory licenses to third party under TRIPS.
 Competition Commission of India also does not have required competence to deal with this trade off that exists between IP law and Competition law.
Way Forward
 There is need to balance competition and protection of intellectual property rights.
 Strengthen competition laws in order to control possible abuses emerging from the acquisition and exercise of IPRs.
 Use the flexibilities allowed by the TRIPS Agreement to determine the grounds for granting compulsory licences to remedy anti-competitive practices relating to IPRs.
 Experts in economics should be recruited in Patent offices to infuse competence for determining excessive or unaffordable prices.
 Develop policies, including guidelines, to prevent and correct abuses in the acquisition and enforcement of IPRs

Box--
India under section 84 of Patents Act 1980 granted compulsory license to NATCO for production the anti-cancer drug Nexavar against Bayer which was holding patent for Nexavar

7

3.6. DRAFT NATIONAL ELECTRICITY PLAN (GENERATION)

Why in news?
 Central Electricity Authority released the draft National Electricity Plan (generation).
Key features of the draft Plan
 The document assumes capacity addition from gas at 4,340 MW,
hydro at 15,330 MW, nuclear at 2,800 MW and
renewable sources at 115,326 MW as committed
capacity during 2017-22.
 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.
 It said that the renewable energy generation will
contribute about 20.3 per cent and 24.2 per cent
of the total energy requirement in 2021-22 and
2026-27, respectively.
 It 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.
 It has also suggested some measures to improve energy efficiency:
o developing an energy efficiency code for buildings,
o undertaking energy efficiency schemes in the small and medium enterprise sector,
o using energy efficient pump sets in agriculture, and
o bringing in regulatory instruments such as demand based pricing.
Issues involved
 Some analysts have said that there could be huge power shortages if the government sticks to the CEA's estimates because the assumed expansion in renewable energy, hydroelectric and gas-based projects may not materialise.
While the plan has scaled down peak power demand, there are concerns that demand pull that would be created by key government initiatives such as the 'Make in India' initiative, access to electricity to villages/households and new smart cities have not been taken into account.

Box--Central Electricity Authority (CEA): It is a statutory organization under the Electricity Act, 2003.
It is required to prepare a National Electricity Plan in accordance with the National Electricity Policy.

--Fig--

8

3.7. CASHLESS ECONOMY

Why in news?
The 2016 budget speech talked about the idea of making India a cashless society, with the aim of curbing the flow of black money.
What is cashless and less cash economy?
A cashless economy is one in which all the transactions are done using cards or digital means. The circulation of physical currency is minimal. When majority of them are done using digital means, then it is called a ‘less’ cash economy, which appears more practical for India to achieve.
Present state of India
 India uses too much
cash for transactions.
The ratio of cash to
gross domestic
product is one of the
highest in the world-
12.42% in 2014,
compared with
9.47% in China or 4%
in Brazil.
 Majority of India is digitally illiterate (WDR, 2016 Digital Dividends Report).
 Bulk of India lacks access to banks.
 Therefore, RBI has also recently unveiled a document-“Payments and Settlement Systems in India: Vision 2018”- setting out a plan to encourage electronic payments and to enable India to move towards a cashless society or economy in the medium and long term.
FOR MAJOR BENEFITS, THE CORRESPONDING CHALLENGES TO REACH THESE BENEFITS AND SUGGESTED SOLUTIONS ARE COMPILED IN THE TABLE BELOW. PLEASE REFER.

Box--Major ways of digital transactions:
National Electronic Funds Transfer (NEFT) and Real Time Gross Settlement in India (RTGS) and – bank services.
Utilising mobile wallet services provided by banks, UPI etc.,
Others forms pertains to debit cards and credit cards which are referred as plastic money. These cards can be used in Point of Sale (PoS) machines that are maintained by vendors.

--Fig--

----TABLE----

9

3.7.2. REGULATION OF DIGITAL PAYMENTS SYSTEMS

Need
 Securing the digital gateways: Banking infrastructure is wide open to compromise. (For ex: In October 2016, 3.2 million debit card details belonging to multiple Indian banks were hacked due to malware introduced in systems of Hitachi Payment Services).
 Cyber-attacks have become increasingly difficult to curb
 Privacy Concerns: The potential loss of privacy is an obvious concern that comes with a cashless economy. Possibilities of personal surveillance and electronic snooping as well as profiling without consent is real.
 Legal framework: Mobile payments are not legally validated. Also, the experience of App-based Taxi services like Ola showed the chaos in absence of a legal regulatory framework.
Objectives to be achieved by Regulation
 Customer Protection: In the form of clear documentation of customer rights and a customer Guarantee Protection Fund' in case of failure of business model.
 For Growth in cashless payment sector:
 Regulate lightly: to protect competition in their own jurisdiction, focus on domestic consumers rather than competitors, and keeping in view of the economic development of the country. The European Model with tight regulation has evidently failed, whereas U.S. developed as hub for these services.
 Ease in business: self-certification; disclosing the technical risks it faces at an enterprise level that can balloon into systemic risks.
 Investor Protection: The risk taking entrepreneur need to be given hand-held support.
 Effectiveness and efficiency: of Digital Economy depends on efforts put in this stage in devising regulation regime.

10

3.7.3. OTHER STEPS TO USHER ‘CASHLESS ECONOMY’

 The Union Labour ministry has proposed changes to the Section 6 of the Payment of Wages Act of 1936 – to empower States and allow industries to pay wages by cheque or by direct credit into bank accounts. Subsequently, on December 28, 2016, an Ordinance with the same provisions was issued.
 This step will also reduce the complaints regarding non-payment or less payment of minimum wages
 Boosting cashless among workers: The Centre will amend the Income Tax Act in Budget 2017 to reduce the rate of deemed profit from 8 to 6 per cent for small firms with a turnover of less than Rs. 2 crore who receive their payments electronically.
 The government departments will absorb transaction fees/ merchant discount rate associated such transactions ensuring no extra burden is put on those choosing to make payments by cashless means.
 Union Ministry of Electronics and Information Technology (MeitY) has launched a TV channel named ‘DigiShala’ to promote cashless transactions. The channel was launched as part of the ‘Digidhan’ campaign which aims to spread awareness about digital transactions.

Way forward
 Recommendations of Ratan Watal Committee are good way forward: (important ones below)
 A Medium term strategy for accelerating growth of Digital Payments in India.
 The strategy must be backed with regulatory regime which is conducive to bridging the Digital divide by promoting competition, interoperability and open access in payments.
 Greater use of Aadhaar and mobile numbers for making digital payments as easy as cash. This is needed besides, enhanced digital
security.
 The payments terrain should be open to accommodate new kinds of participants in the system. This will foster further innovation and competition, without the regulator having to play catch-up.
 Digital credit guarantee fund - to resolve cases of insolvencies
 Creation of a Technical advisory body - To provide advice to RBI about the concerns and mechanism to regulate the digital payment system.
 Accountability of Operator - Digital Payment Operator shall be made mandatory liable in case of any cyber-attack to ensure they are equipped with best and secured technology.
 RBI with a strengthened and holistic Payments and Settlements Act is the need of the hour.

Box--
Other miscellaneous steps:
To enable mobile banking on feature phones, the USSD charges have been rationalized and reduced from Rs. 1.50 per SMS to Rs. 0.50; an application for mobile phone payments (*99#) in four languages has been developed
Mobile banking through interoperable ATMs and Unified Payment Interface (UPI) application of NPCI
To popularize digital payments the acceptance infrastructure is being substantially expanded by increasing deployment of PoS/mobile-PoS machines from 14 lakhs to 25 lakhs by March 2017 and RBI has notified mandatory Aadhaar enablement of all new Point of Sale terminals.
India Post granted a license in August 2016 for a Payment Bank, 1000 ATMs installed at Post Offices permitted to be interoperable with the bank.
Smart National Common Mobility card: to enable seamless travel by different metros and other transport systems across the country besides retail shopping and purchases.

--Fig--

11

3.7.4. VITTIYA SAKSHARATA ABHIYAN (GO DIGITAL)

 An initiative launched by Ministry of Human Resource development to encourage, create awareness and motivate all people to use a digitally enabled cashless economic system for transfer of fund.
 It emphasized upon cashless economy and appealed to faculty of higher institutions to make their respective campus cashless.
 Ministry particularly appealed to youth, who can easily and quickly adapt to technology to proactively involve by becoming agent of change by spreading awareness among senior citizens, shopkeeper, small vendors, etc.
 Ministry also launched a webpage where people can register themselves, can provide their feedback and suggestions as well as upload their progress of work.
 These digital platforms are easy to use, convenient, secure and anytime accessible by anyone anywhere.

12

3.8. ROLE OF MARKET STABILISATION SCHEME BONDS

Why in news?
The government increased the ceiling of market stabilisation scheme (MSS) bonds to Rs. 6 lakh crore, from the earlier Rs. 30000 crore.
Background
 The demonetisation drive has resulted in banks having lot of excess funds skewing bond yields and interest rates, disrupting the functioning of the market.
 The central bank also imposed 100% CRR requirement on deposits collected between September 16 and November 11, to suck out excess liquidity.
 Though the hike in CRR sucked out Rs.3.24 lakh crore from banks, there are certain challenges such as:
o This amount will not earn any interest.
o Jam the transmission of liquidity adjustment facility rates and lending rates
Significance
 MSS bonds bear an interest rate that can boost banks’ income. This incentivizes banks to participate effectively in demonetization drive.
 MSS as SLR bonds: MSS bonds can also be used to calculate banks’ mandatory bond holding.
 MSS bonds does not increase Government’s fiscal deficit.
 According to CRISIL, the stock of G-secs with the RBI, necessary to conduct reverse repo operations, is limited. So MSS is needed.

Box--What is MSS scheme?
MSS is a mechanism to give more powers to RBI to manage liquidity.
To suck out the over-liquidity from the market
It was first used in February 2004 when the country was flushed with dollar inflows, which needed to be converted into the rupee.
Raised money goes to separate Market Stabilization Scheme Account (MSSA), not for government expenditure.

13

3.9. THE GOVERNANCE OF RESERVE BANK OF INDIA

Why in news?
The vacancies in RBI have been sizeable and questions on autonomy of RBI have been posed.
Issue
 Empty regional boards: There have been no
new appointments to the local boards. Each regional boards sends one representative to central board.
 Vacancy in central boards: The current government has made only three appointments to 10 positions and the rest have remained vacant for a very long time.
 Secrecy: is given as a reason for interference by the government.
 The continuous but random changes in the procedures of replacing old notes and continuous interference gives the impression that RBI is a virtual department of the government
 This will have long-term effects on the economy; especially how the rest of the world perceives policymaking in India.
 Confidence in the financial sector and in how it is regulated will be seriously affected.
Way forward
 The relationship between RBI governor and boards and the government has to be healthy, collaborative and mutually respectful.
 Post the north Atlantic financial crisis, central bank’s role in the economy goes beyond monetary policy and extends to growth and financial stability. With stable tenures and board members from various fields, this can be achieved.
 The RBI board has had representatives from agriculture, social services and even scientists in the past. RBI is not just a monetary authority worried exclusively on issues of inflation, but much beyond.
 Tenure: 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. Five-year tenure to the governor and deputy governors can be given.

Box--The central board of RBI, in the past 3 years, is shrinking. RBI board has four independent members and six executives (representing the RBI and government) while the expected structure should have 14 independent members and 7 executives.

14

3.10. PERSISTENT POVERTY OF INDIAN STATE

Why in news?
 The poor tax-GDP ratio and proliferation of black or parallel economy have caused government to push for ‘less’ cash economy with moves like demonetization.
 Tax-to-GDP ratio is the ratio of total taxes (both direct and indirect) collected to the Gross Domestic Product in a given financial period (typically one-year).
Present state
 According to the Economic Survey, India’s ratio of tax-to-GDP (gross domestic product) is 5.4 percentage points below that of comparable countries. At 16.6% tax to GDP ratio necessitates the government to take immediate steps to mop up revenue sources.
 India has one direct tax payer for every 16 voters.
Implications
 It lowers the GDP: One of the reasons for lower tax to GDP is due to pervasive structure of exemptions which indirectly impacts the GDP growth.
 Lowered spending on defence, S&T, social sectors as health and education etc. This may affect India’s long term development. This will lead to a further vicious cycle with under-development causing political instability leading to further suppressed economy etc.,
 High deficit: It also increases government borrowing and thus difficult to manage fiscal deficits.
 Burden on few sectors: Some economists argue that as high productive sectors are taxed it is incentivizing the low productivity sectors not to come into formal tax system.
 Parallel economy: Low taxation means most of the money in economy goes unaccounted and hence will encourage parallel economy.
 Social contract: It creates political incentives for successive governments to borrow money to buy votes rather than build an effective tax system that will spur economic growth.
 Citizens are also less likely to put pressure on governments to spend wisely on public goods.
Way forward
 To support social sector and capital expenditure, the ratio of taxpayers to GDP will have to rise to 23%. Therefore, bringing more people into the tax net through some form of direct taxation will help  Goods and Services Tax, which seeks to create a seamless national market will create buoyancy in markets and increase the ratio.
 Robust IT infrastructure (ex. Project SAKSHAM, Project INSIGHT) will bring transparency and accountability in tax payment and collection
 Simplification of direct tax laws as suggested by Justice Easwar committee must be looked into.

15

3.11. EXCLUSIVE SUBURBAN TRACKS

Why in News?
 Indian railways have come up with a draft policy to build suburban tracks in order to ease congestion and improve local train service.
Objectives
 The basic objective of this policy on suburban rail systems is to eliminate the conflict between the long distance intercity transport / freight transport and suburban transport and build a financially sustainable model with participation of stake holders so that it can be replicated in more and more cities.
 This model will involve participation of both the Central and State Governments and the systems that are subsequently set up may ultimately serve as nodal centres for integrated multimodal transport.
Features
 The Railways will partner with the States through a Special Purpose Vehicle (SPV) for suburban train systems.
 Exclusive tracks for the suburban system are needed as using the existing ones would increase traffic congestion and affect the freight trains as well.
 Projects which are necessarily required to be integrated with the existing Railway system for operational purpose shall be considered by IR depending upon technical, financial and operational feasibility.
 In other cases, State Governments should take up independent rail based suburban projects under Metro Acts in line with National Urban Transport Policy.
Feasibility Studies
 Feasibility studies for suburban projects, duly considering the technical requirements, site feasibility, and operational requirements have to be carried out by the state governments at their own cost.
 These feasibility reports are first to be examined by the zonal railways and then would be forwarded to Indian Railways for approval.
Other features
 According to the draft guidelines, the state government would set up a dedicated urban transport fund.
 This fund would operate through levy of dedicated taxes, levies, betterment tax and impact fee.
 These taxes would be levied in the influence zone of proposed railway station. The fund will finance capital cost of suburban train projects.
 The Indian Railways may also restructure fares on suburban trains and impose a surcharge to recover the operating losses and capital cost if operating losses are not recovered from the dedicated urban transport fund.
 IR shall lease land to the State governments as and when possible. The cost of acquisition of land and rehabilitation and resettlement of the people are to be borne by the State governments.
 Equity contribution of the Indian Railways shall only be made available when the state has acquired minimum of 70 percent of the required land.
Significance of the Project
 Suburban railway systems will result in economic development of the area they serve and will also lead to re-densification of the area along its alignment.
 It will eliminate the conflict between the suburban trains and the freight trains.

16

3.12. BILATERAL INVESTMENT TREATY

Why in News?
 India recently unilaterally terminated its Bilateral Investment Treaty (BIT) with Netherlands and it has also served notices to 20 EU members for termination of their respective BITs.
Background
 A BIT is an agreement between two countries that help formulation of rules for foreign investment in each other’s countries.
 BIT offers protection to foreign investor by holding the host state accountable for exercise of their regulatory power through an independent international arbitration mechanism.
 India changed its model BIT treaty in 2015. This model pays a greater emphasis to the state’s regulatory power.
 India was one of the most sued countries in 2015.
 Indian signed some 70-odd BITs from 1994-2011 which were investor friendly. Post 2011, the trend has been its opposite.
Implications of the Termination of BITs
 Termination of the treaty means that new foreign investment would not enjoy treaty protection.
 However, it will not impact the existing foreign investment in India as most BITs ensure investment protection even after the expiration of the treaty for the next 10-15 years.
 It will also not impact the ongoing BIT disputes.
 Foreign investors will now have to rely completely on domestic laws and domestic courts to safeguard their interests
 Decreasing protection for foreign investor will dampen investment sentiment.
 Given the dual nature of BITs, their termination will result in lesser protection for Indian investors abroad as well.
Recommendations
 In order to mend the damage already done, India must amend the 2015 BIT model and strike a balance between investor protection and host’s regulatory power.
 It must also put on hold the termination notices till the newly formulated rules are put in place.

17

3.13. REGIONAL CONNECTIVITY FUND FOR UDAN SCHEME

Why in news?
The Delhi HC issued notices to the Centre, the AAI and DGCA as the Federation of Indian Airlines (FAI) sought a stay on govt notification on levy of Rs.7,500 to Rs.8,500 per flight to create a regional connectivity fund (RCF).
What is UDAN (Ude Desh ka Aam naagrik) Scheme?
 It seeks to provide connectivity to un-served and under-served airports through revival of existing air-strips and airports etc.
 A participating carrier — which would be extended Viability Gap Funding (VGF) — has to bid for at least nine seats and a maximum of 40 seats.
 RCF will be created to meet the VGF requirements under the scheme.
 Application of subsidy would help in routes that do not have much competition. For ex: Mumbai to Dharamshala.
The issue
 Many of the existing airlines feel that the move could push the airfares higher and hence demand lower.
 FAI argues that this levy needs statutory sanction, as it is a tax by virtue of raising funds to fulfill a public purpose, i.e., to enhance regional connectivity and also this levy is an amount payable to the government
Way forward
 Market mechanisms have to be used, without much interference by Government in line with our liberalisation reforms.

18

3.14. ONE TIME LICENSING FOR DRUGS

Why in news?
The Drugs Technical Advisory Board (DTAB) recently recommended one-time licensing for manufacture and sales of drugs.
Background
At present, the renewal of licenses for each formulation rests with state regulators and takes around three years.
Other recommendations
 The board has also asked for separate rules for manufacturing, import, sale and distribution of cosmetics. It has suggested the European Union’s model.
 It has proposed making influenza drugs Oseltamivir and Zanamavir available widely at all pharmacies, by putting it in the Schedule H1 list.
 It retained the four-year approval threshold for 'new drugs' because the domestic industry felt if the definition of a new drug is extended to 10 years, innovation will take a back seat.
Significance of the move
 It will help in 'ease of doing business' and the government’s 'Make in India' initiative at a time when the country is slipping in the competitiveness index.
 It will also give a boost to industry and give comfort to our customers.

Box--Drugs Technical Advisory Board (DTAB): It is the highest statutory decision-making body under the Union Health ministry on technical matters. It is constituted as per the Drugs and Cosmetics Act, 1940.

19

3.15. INDIA REPORTS FISHERY SUBSIDIES TO WTO

Why in news?
India has notified the World Trade Organisation (WTO) on the subsidies it pays fishermen.
Background
 According to the UN FAO’s ‘State of World Fisheries and Aquaculture’, almost a third of commercial fish stocks are now fished at biologically unsustainable levels.
 So, there have been demands from US-led group of nations for a ban on subsidies given for illegal, unregulated and unreported (IUU) fishing.
 This led India to file subsidies data in WTO which are worth Rs.284 crore in 2014-15. Tamil Nadu had the highest subsidy with Rs.169 crore (of which Rs.148 crore is in fuel category)
Necessity of subsidies
 To protect and secure the livelihood of traditional and poor fishing communities.
 The subsidies were provided to fishermen who were either homeless or poor boat owners, those with registered craft and members of fishermen cooperative societies. They went for vital components such as:
a. Fuel, purchase of inboard machine, purchasing nets, accessories, life-saving jackets etc.,
b. Insurance cover to fishermen for accident due to cyclone/mishap/calamities etc.,
India’s stand
 Ban on subsidies for IUU fishing could lead to prohibition even on fishing that could be termed non-IUU.
 This could, in turn, harm the interests of lakhs of subsistence fisher folk in poor and developing nations.
Way forward
 US too gives certain subsidies that benefit several sectors, including fishing industry. All the subsidies must be included.
 Also, currently there is no unanimity among WTO members on what constitutes IUU fishing. This should be achieved first.
 ‘Cherry picking’ of topics of interest to developed nations and prioritising negotiations on fisheries subsidies should be stopped.

20

3.16. COAL MITRA

Why in News?
 GoI launched Coal Mitra web portal to facilitate coal swapping among government and private firms.
Key features
 It will show data on Operational parameters and Financial health of each coal based station.
 It will contain data about quantity and source of coal supply for Power plant and distance of each power plant from coal mine
 Central/state power generating stations can use the portal to display information regarding norms fixed for electricity charges, previous month variable charges of electricity and margin available for additional generation for utilities to identify stations for transfer of coal.
Challenges of power sector
 There is inadequate supply of fuel like coal and gas to power generating station. CIL supply is only 65% of total requirement so most of demand is met through import thus escalating generation cost.
 Financial health of most of the DISCOMS are in bad shape because of under recovery of dues, various populist schemes and transmission and distribution losses.
 Difficulty in obtaining Environmental clearance and land acquisition followed by theft of electricity.
Significance
 It will ensure flexibility in utilization of domestic coal by transferring coal reserves to more cost efficient power generating station thus ensuring optimum utilization of coal reserves.
 Low power generation cost resulting in low charge for end consumers.
 As power becomes cheap it will be beneficial for the industrial and manufacturing sector producing high end goods at lower prices.

Box--Power generation in India
Thermal – 69.3% in which coal accounts for 60.8%.
Hydro (renewable) – 14.0%
Nuclear – 1.9%
Renewable Source – 14.9%

21

3.17. PUBLIC FINANCIAL MANAGEMENT SYSTEM (PFMS)

Why in news?
As part of implementing GST, PFMS is being brought to improve the financial management. It is already universalised to cover all transactions/payments for the Central Sector Schemes.
Now, there are about Rs.1-1.5 lakh crore of idle funds lying with the government under various heads. If the government can access these funds through PFMS, it need not borrow that amount. At 7% interest, that works out to a saving in interest costs of at least Rs. 7,000 crore.
What is PFMS?
 PFMS, administered by the department of expenditure, is an end-to-end solution for processing payments, tracking, monitoring, accounting, reconciliation and reporting
 PFMS platform compiles, collates and makes available in real-time, information regarding all government schemes, and, significantly, provides the government real-time information on resource availability and utilisation across schemes.
Benefits of PFMS
 Centre stands to save a significant amount on interest costs when the Public Financial Management System is implemented
 Facilitates Just-in-Time Releases and monitor the usage of funds including information on its ultimate utilization and payments made only when they are needed.
 Transformational change: Projects will not need a budget at the beginning of the year, which then has no transparency of how it is used and how much is left. They will be paid for only when payment is needed.

22

3.18. REVIEW OF PMFBY

Why in News?
 The government launched the PM’s Fasal Bima Yojana in February 2016 in a bid to offer some respite to the farmers from the vagaries of nature. Recently, its performance was reviewed.
Background
 Before the launch of PMFBY, National Agricultural Insurance Scheme (NAIS) and Modified NAIS were serving the farmers.
 However, the scheme was not successful in providing the farmers the much needed benefits.
 The sum insured under these schemes were insufficient. Also, compensation to the farmers took several months.
How Does PMFBY Works?
 A technical committee in each district decides the sum insured taking into account all the costs incurred by the farmers.
 Premiums are decided by assessing the risk involved through mathematical and statistical calculation (actuarial analysis). Also, there is no capping on the premium.
 Both public and private insurance companies come together to decide the premium. The premium is then subsidized.
 The farmer only has to pay 2% for kharif crop, 1.5% for rabi crops and 5% for annual commercial crops. The rest is paid by the government (divided equally between the Centre and the States).
 High technology including smartphones, GPS, drones and satellites are to be used for accuracy, transparency, and faster assessment of damages and settling claims.
Performance of PMFBY So Far
 PMFBY insured 35.5 million farmers compared to just 12.1 million in kharif 2013, and 25.4 million in kharif 2015 under NAIS and MNAIS combined.
 The area insured also increased from 16.5 million hectares (mha) in kharif 2013 and 27.2 mha in kharif 2015 to 37.5 mha under PMFBY.
 The scheme has certain loopholes especially when it comes to allocation.
 The premium should have decreased with increase in scale of coverage, however the opposite happened.
 Also, states which joined late got premium rates as high as 20 percent.
 Drones were not employed for crop inspection despite its proposal. Smartphones were also not distributed.
 Premiums were to be paid to insurance companies in advance by the States but they were not. As a result, the farmers have not been compensated in time.

23

3.19. PERFORMANCE OF PRADHAN MANTRI UJJAWALA YOJANA

Why in News?
 PMUY has achieved the target of providing 1.5 crore of LPG connection in financial year 2015-16 in just 8 months.
 Under PMUY, national LPG coverage has been increased from 61% (in Jan 2016) to 70% (in December 2016).
 Top 5 states with highest number of connections are UP (46 lakh), WB (19 lakh), Bihar (17 lakh), MP (17 lakh), Rajasthan (14 lakh) constituting 75% of total connections till today.
 Hilly states like J&K, HP, Uttarakhand, all NE states have a coverage of less than national average.
 SC/ST household constitute 35% of total connections released.
What is PMUY?
 PMUY scheme provides free LPG connections in the name of woman head of BPL household identified through Socio-Economic Caste Census Data.
 Financial assistance of Rs 1600 will be provided per connection by GoI.
 It is the first welfare scheme implemented by Ministry of Petroleum and Natural Gas.
 To be implemented over 3 year period (2016-19) overall providing 5 cr connections to BPL households.
 It will help in replacing the unclean cooking fuels mostly used in rural India with clean and more efficient LPG resulting in empowerment of women and protecting their health.

24

3.20. INDIAN ENTERPRISE DEVELOPMENT SERVICE (IEDS)

Why in news?
 Government approved the creation of IEDS in office of Development Commissioner under Micro Small and Medium Enterprise ministry (MSME)
Key Features of IEDS
 Will have cadre strength of 617 officers including 6 officers at the joint secretaries level.
 It will be created by absorbing 11 trades in which recruitment had been done through different rules.
 Its headquarter will be in Delhi and will also have 72 field offices of Development commissioner.
 Out of 72 field offices, 30 will be MSME development institute and 28 branch institute.
Why IEDS?
 In 1950’s and 1960’s when these 11 trades were created there was a prevalence of regulatory regime in the country as a result development was hindered because every aspect of industries were controlled.
 So, to boost the MSME, urgent need was there to have separate cadre for their development.
How it will help
 It will help in strengthening the organization and also help in fulfilling the vision of “Start up India”, “Stand up India” and “Make in India” by promoting indigenous industries.
 This will not only increase efficiency and capacity of MSME but will also ensure growth in the sector.

25

3.21. GARV II APP

Why in News?
 Power ministry launched GARV app to provide real time data about rural electrification in all (6 lakh) villages of the country.
Need for GARV II APP
 Earlier GARV app only provided data about rural electrification regarding 18,452 unelectrified villages while GARV II will provide real time data about all villages.
 It will ensure transparency in rural electrification programme as it will be open to public scrutiny through feedback and suggestions unlike earlier GARV app.
Key features of GARV APP
 Villages with more than 15 lakh habitation has been mapped.
 It has a citizen engagement window called “SAMVAD” through which people can provide their feedback and suggestion which will be automatically forwarded to concerned authorities.
 It will have a latest update on release of funds to states sanctioned under DDUGJY.
 Progress of the various work will be updated on day to day by implementing agencies of state government.
 It has a dashboard for Managing directors and Superintendent engineers of DISCOMS for online monitoring.

Box--Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY)
Flagship programme of power ministry to facilitate 24*7 power supply esp in rural area villages.
It was launched in 2015 in Patna.
Earlier scheme for rural electrification called Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) has been subsumed in this scheme.

26

3.22. FINANCIAL DATA MANAGEMENT CENTRE (FDMC)

Why in news?
 Ajay Tyagi committee constituted under the Department of Economic Affairs recommended the creation of statutory body called Financial Data Management Centre.
Background
 Financial Stability and Development Council (FSDC) first suggested the creation of such body after RBI objected to share company specific data with FSDC as it is not a statutory body.
 So, GoI in budget 2016-17 announced the setting up of FDMC under FSDC to facilitate integrated data aggregation and analysis in financial sector.
Key functions of FDMC
 To establish, operate and maintain the financial system database, collect financial regulatory data and provide access to it.
 Standardize data from all financial sector regulators in a single database.
 To provide analytical support to the FSDC on issues relating to financial stability.
About FSDC
 An apex level autonomous body constituted in 2010 to ensure financial stability, regulate the entire financial sector of the country and enhance coordination between various financial regulatory bodies.
 Finance minister is the chairman of this body and heads of financial sector regulatory authorities are its member (RBI, SEBI, IRDA, etc)

27

3.23. SMART CITIES: PROBLEMS IN IMPLEMENTATION

Why in News?
 US Trade and Development Agency (USTDA) officials entrusted with engaging with India on the Smart Cities initiative have flagged certain issues in its implementation.
 US is partnering in developing Ajmer, Allahabad and Visakhapatnam as smart cities
Issues Flagged by USTDA Officials
 Lack of clarity in governance for execution of projects and on the role and functions of Special Purpose Vehicles at different levels of government
 No allocation of fund to some state governments due to requirement for some prior work to be done by states shows lack of adequate cooperation between centre and state governments.
 No exclusive investment desk along the lines of the ones provided to Japan and Korea. Such a desk will be conducive for attracting investment from US investors.

Way Forward
 Single-
window
systems:
Easing the
permitting
process will
accelerate
project
execution,
reduce cost
and time
overrun, and
improve intra-
and inter-
departmental
collaboration.
 Institutional reforms: Better collaboration and a unified command structure across multiple planning and administrative bodies within a city.
 Devolution of power to local government to determine and collect user charges and taxes in order to make local bodies financially independent.


---Fig---