Gist of economic Survey 2017-18 By Shyam S Kaggod ... · In the last three years, in case of the...

Shyam S Kaggod (Economics Faculty, Byju’s) [email protected]

Gist of economic Survey 2017-18 By

Shyam S Kaggod (Economics Faculty, Byju’s IAS)


Volume 1


01 State of the Economy Overview - Short Term

● The government launched GST on 1st July 2017. The revolutionary reform threw up

challenges (related to technology systems, policy, law) and the government has

moved in swiftly to provide the solution

● At the same time government addressed two Rs (Recapitalisation, Resolution) under

the 4R (Recognition, Recapitalisation, Resolution and Reforms) solution. Under this

the government has announced a recapitalisation package of Rs 2.1 lakh Cr and has

implemented IBC (Insolvency and Bankruptcy Code) which provides resolution

● Macroeconomic developments have seen swings in the economy. In the first half of

the year, Indian economy decoupled from the rest of the world because of

○ Demonetization

○ Teething difficulties in the new GST

○ High and rising real interest rates

○ An intensifying overhang from the TBS challenge

○ Sharp falls in certain food prices that impacted agricultural incomes

In the second half of the year, economy witnessed robust signs of revival as shocks

started to fade, certain corrective actions were taken, global economic recovery

boosted exports.

The improvement in India’s ranking under EoDB (October 31, 2017) and increase in

FDI inflows by 20% are reflective of the reforms and actions taken by the

government

There were other issues such as Fiscal deficit, Current account deficit and inflation

that led to concern over the economy.

So overall in the coming year the government will need to focus on

● The 4 R’s, ensuring that the process of resolving the major indebted cases

and recapitalizing the PSBs is carried to a successful conclusion, while

initiating reforms of the PSBs that will credibly shrink the unviable ones and

signal greater private sector participation in the future

● The need to stabilize GST implementation to remove uncertainty for

exporters, facilitate easier compliance, and expand the tax base

● Privatizing Air-India

● Stave off any nascent threats to macro-economic stability, notably from

persistently high oil prices, and sharp, disruptive corrections to elevated asset

prices


If these reforms are undertaken and oil prices do not increase, then the economy

will revert back to growth rate of 8%

Overview - Medium Term

● Some broader lessons for the Indian Economy

○ The formation of GST council represents cooperative federalism and a

watershed moment as in the rest of the world we are looking at retreat into

nativism. This cooperative council technology could be used to create a

common agricultural market, integrate fragmented and inefficient electricity

markets, solve interstate water disputes, implement direct benefit transfers

(DBT), make access to social benefits portable across states, and combat air

pollution

○ In case of TBS Challenge (Twin Balance Sheet Challenge) the government was

in a bind as on one hand it wanted to ensure there is resolution of such cases

and on the other hand it did not want to create an impression of favoring the

promoters of the businesses and reduce the usage of taxpayer’s money for

resolving these issues. With implementation of IBC, the concerns of the

government have been addressed

○ The government has ensured that some of the revenue expenditures or

resources (such as cooking gas, power, housing etc) are rationalized. The data

suggests that progress has been made in providing bank accounts, cooking

gas, housing, power, and toilets. The pace and magnitude of this

improvement will depend upon the extent to which increased physical

availability/provision is converted into greater actual use - toilet building into

toilet use, bank accounts into financial inclusion, cooking gas connections

into consistent gas offtake, and village electrification into extensive

household connections

○ India has two underlying macroeconomic vulnerabilities i.e. FD (Fiscal Deficit)

and CAD (Current Account Deficit) both of which worsen with increase in the

oil prices.

To overcome vulnerability of FD, there is need for India government to break

the tax to GDP ratio barrier which has remained stagnant for a very long

period. In case of the central government the ratio in recent times is similar

to what it was in the 1980s (figure 2) despite the average growth in this time

period being 6.5% on an average. In this regards the GST may boost the

indirect taxes collection. Another way of reducing this vulnerability is to

ensure the contingent liabilities (is a potential liability which might turn out

to be a liability in the future based on a certain event) liability which do not

turn out into actual ones (such as Debts of discoms or recapitalisation of the

banking sector etc) (figure 3). This in turn would ensure a favorable debt

dynamics for the government


On the other hand the CAD vulnerability can be reduced by having higher

export growth. The Make In India program with twin objectives of reviving

manufacturing sector and making the sector internationally competitive will

promote export growth. So far it has been seen that manufacturing sector

contribution to GDP has increased but the second objective is yet to be

achieved which is reflected in declining manufacturing exports to GDP ratio

and manufacturing trade balance. One of the causes of this is the

appreciation of the currency by 21% since January 2014

○ The measures to attack corruption and weak governance have social and

economic benefits but such decisions have some drawbacks. For example,

there was a need to ensure that the promoters do not follow malfeasance to

cause losses for the creditors and buy back their own companies at a very

lower price, but this has led to lower price discovery of the assets. The lesson


here is that the policies should be designed in such a way that such

drawbacks/losses must be minimized

Recent Developments

● The Global Outlook

○ As per the World Economic Outlook, the global GDP growth in 2016 was

3.2%, will be 3.6% and 3.9% in 2017 and 2018 respectively

○ The recovery has been spread around the globe because

■ The global trade in goods and services has shed its lethargy and has

registered a growth rate of 4.7% in 2017 compared to 2.5% in 2016

■ Another reason is that commodity prices have increased in the last

year (for example oil price has increased by 16% to reach $61 per

barrel), as a result of which commodity producers such as Russia,

Brazil and Saudi Arabia have benefitted

■ The inflation has remained remarkably below 2% in the advanced

regions

■ The conditions must be maintained the same in 2018 so that the

companies respond to buoyant conditions and investments are done

even by the governments embarking on an expansionary fiscal policy

■ There are certain geo-political and geo-economic risks

● War in the Korean peninsula

● Political upheaval in the Middle East

● Aggressive output cuts by Saudi Arabia (and Russia) in advance

of the planned listing of the Saudi Arabian oil company,

Aramco, which could force oil prices even higher

● A final reckoning from China’s unprecedented credit surge in

the form of capital controls, slowdown in growth, and a

sharply depreciating currency with consequences for the

global economy

○ India’s temporary Decoupling - until early 2016, Indian growth was

accelerating whereas the growth in other countries was decelerating. After

this the trend has reversed i.e. India’s growth has started to decelerate and

other countries’ growth has started to accelerate (Figure 8). Hence there is a

decoupling of Indian economy with global economy, which can be explained

by

■ Decoupling of monetary policies - until mid 2016, real interest rates

in India have followed the global interest rates but post that there

was increase in the interest rates in India (monetary tightening-250

bps increase between July and December 2016) and decrease in the


interest rates in other countries (100 bps decline in other countries

between July and December 2016) (figure 9)

This contributed to divergence in economic activity in two ways

● It depressed consumption and investment in India compared

to other countries

● It attracted capital inflows (especially into debt instruments)

which strengthened Indian rupee (between early 2016 and

November 2017, rupee appreciated against a basket of

currencies by 9%), as a result of which the returns on exports

of goods and services

■ Demonetisation and GST - The exercise of demonetisation hampered

the informal sector which mainly transacts in cash. The recovery was

happening because of remonetisation and then the government

implemented GST which affected the supply chains and affected

especially those small traders who supplied to larger manufacturing

companies.

Beginning March-April 2017 to September 2017 export growth In

India decelerated and Import growth accelerated which has not been

observed in any of the other Asian emerging economies (Figure 13

and 14). This is an indicator that the Indian economy experienced

competitiveness impact during Demonetisation and GST

■ Twin Balance Sheet Challenge (TBS Challenge) has been a drag for

some time on the Indian banking sector. As the NPAs have increased

it has put a lot of stress on the banking sector as well on those

companies. As a result of this, the profits of PSBs have plunged into a

negative territory as the provisioning against the NPAs have

increased, this has affected the lending of banking sector to industries

(Figure 15, 16 and 18)

■ In the last three years, in case of the oil prices, India has experienced

a positive terms of trade shock but in the first three quarters of 2017-

18 oil prices have increased by 16% (Table 1). It is estimated that a

$10 per barrel increase in the price of oil reduces growth by 0.2-0.3%,

increases WPI inflation by about 1.7% and worsens the CAD by about

$9-10 billion dollars


Outlook for India 2017-18

● Indicators such as GVA, IIP, GCF, exports etc have shown that economy is on the

recovery path

● Non-food credit in November 2017 has increased by 4% year-on-year basis which is a

good feature

● The lending in NBFCs has increased by 43% during April to December 2017

(compared to the same period during last year) which shows that part of the credit

shortfall from the banking sector is being met by the NBFCs

● The exports have re-accelerated (13.6%) and imports have decelerated (13.1%) in

the Q3 of FY18 in line with the global trend which suggest that the effects of GST and

demonetisation are receding

● The currency in circulation has also returned to the levels identical to that of pre-

demonetisation

● In agriculture sector, the sown area as well as sowing has declined (for both Kharif

and Rabi crops), pulses and cereals have seen an increase in sowing but the farm

gate prices have declined compared to the MSP affecting the farm revenues

● The CSO has forecast a GDP growth rate of 6.5% for the economy and the Economic

Survey keeping in mind all the above changes, has forecast a growth of 6.75% for

2017-18

Outlook for India 2018-19

● If the macro-economic stability is kept under control and all the other factors

continue in favour of India, then there is a growth potential of 8% for India

● Acceleration in the global recovery must accelerate the exports from India like it did

in mid 2000s (the export growth in India was 26% per annum)

● Remittances are already picking up and may revive further due to increasing oil

prices

● The private investment has been on the lower side and the government must ensure

speedy, timely and efficient implementation of recapitalisation so that the private

sector investment increases again

● The consumption demand will be aided by lower interest rates in the coming year

but this can be offset by the increase in the crude oil prices (12% as per IMF) which

may reduce the real income and spending

● Looking at all these factors the growth for 2018-19 could be between 7 to 7.5%


02 GST- A New View GST (Unified Indirect Tax regime) has come into effect from 1st July 2017 and has been

touted as one of the biggest economic reforms post-independence. The government has

stated that the reform has many benefits such as

● Will lead to creation of one Indian market

● Expand the tax base

● Foster cooperative federalism

Apart from these benefits one benefit that is almost unnoticed yet enormous is that of

creation of vast repository of information. This kind of new information will enlarge our

understanding of the Indian economy

Some of the new findings are

1. With implementation of GST, there has been a surge in the number of indirect

taxpayers. Of these, many have voluntarily chosen to be part of the GST, especially

small enterprises that buy from large enterprises and want to avail themselves of

input tax credits

2. The distribution of the GST base among the states is closely linked to their Gross

State Domestic Product (GSDP), allaying fears of major producing states that shifting

to new system would undermine their tax collections

3. Data on the international exports of states suggests that there is a strong correlation

between export performance and states’ standard of living

4. India’s exports are unusual in that the largest firms account for a much smaller share

than in other comparable countries

5. Internal trade is about 60 percent of GDP, even greater than estimated in last year’s

Survey and comparing very favorably with other large countries;

6. India’s formal sector non-farm payroll (non-farm payroll refers to jobs outside farms,

non-profit sector and private households) is substantially greater than currently

believed. Formality defined in terms of social security provision yields an estimate of

formal sector payroll of about 31 percent of the non-agricultural work force;

formality defined in terms of being part of the GST net suggests a formal sector

payroll of 53 percent. Similarly, the size of the formal sector (defined here as being

either in the social security or GST net) is 13 percent of total firms in the private non-

agriculture sector but 93 percent of their total turnover.

Taxpayers

● As of December 2017, there were 9.8 million registrants under GST. in the old

regime there were 9.4 million registrants (6.4 million under VAT system of the states,


2.6 million under service tax and 0.4 million under excise duties). On the face of it

the increase in the registrants may seem nominal but both the numbers are not

comparable as under the old regime a single entity/taxpayer was registered for

several taxes. Hence after accounting for double and triple counting it is found that

the GST has led to increase in the tax base by 50% i.e. a substantial increase by 3.4

million unique registrants

● Of the new registrants the B2C (Business to Customers) are accounting for 17% of

the transactions, B2B (Business to Business) account for 34% and Exports account for

29.8% of the transactions

● GST has elicited voluntary compliance. There are 1.7 million registrants whose

turnover was below Rs 20 lakh (as per the provisions, if the turnover is lesser than Rs

20 lakh then there is no need of registration under GST). Having said so there are 71

million non-agriculture enterprises of which only 13% have been registered under

GST

● 1.6 million taxpayers (17% of the total) have registered under composition scheme.

These taxpayers won’t be provided with the ITC (Input Tax Credit). Hence it becomes

difficult for the large companies to source from these vendors. As a consequence,

1.9 million (24% of the regular filers) registrants sized between Rs 20 lakh and the

threshold limit (it is Rs 1.5 Crore) have not opted for the composition scheme i.e.

approximately 54% of the taxpayers who are eligible under composition scheme

have not availed the scheme

(Composition Scheme - under this scheme tax payers who turnover is up to Rs 1.5

Crore can opt to pay a flat rate of GST. the rate as of now applicable to these

taxpayers are 1% for Manufacturers and traders and; 5% for restaurants. These

taxpayers cannot avail the input tax credit and it is not applicable to inter-state

sales)

● Maharashtra, UP, Tamil Nadu and Gujarat are the states with the greatest number of

GST registrants. UP and West Bengal have seen large increases in the number of tax

registrants compared to the old tax regime


Tax Base and Its spatial distribution

At the time of introducing GST there were two issues of concern raised

● Firstly, about the size of the tax base and Revenue Neutrality

● Secondly about the concern of the manufacturing states that a destination based tax

would switch the revenues in favour of consumption states

With regards to the revenue neutrality the two committees - GST council and RNR

Committee had recommended a revenue of Rs 65.8 Lakh Cr and Rs 68.8 Lakh Cr

respectively. The current data suggests that the GST tax base (excluding exports) is around

Rs 65 to 70 Lakh Cr, which is similar to the previous estimates. Based on the tax collections

so far, the average collection/tax rate comes at around 15.6% and the RNR committee had

recommended the RNR of 15% to 16% to preserve revenue neutrality

As far as the second issue, the top collectors of GST taxes are Maharashtra (16 percent),

Tamil Nadu (10 percent), Karnataka (9 percent), Uttar Pradesh (7 percent), and Gujarat (6

percent). GST base when plotted against the GSDP shows a perfect correlation (coefficient

of 0.95) which means the states which are big in terms of production are having a high tax

base. The share of Maharashtra’s and Gujarat’s tax base is lower than their manufacturing

base, but because these two states have significant presence of the services, their tax base

remains in line with their GSDP


Size of the firms and their transactions

All the firms have been categorized into five types (based on their turnover)

● Below-threshold, less than Rs. 20 lakhs

● Below-composition limit, Rs. 20-100 lakhs (the current upper limit of the

composition scheme is Rs. 150 lakhs)

● Small and micro enterprises (SMEs), Rs. 1-5 crore;

● Medium, Rs. 5-100 crore

● Large firms above Rs. 100 crore

The findings have been

● The registered below-threshold firms account for 32 percent of total firms but

account for less than 1% of total turnover, while the largest account for less than 1

percent of firms but 66 percent of turnover, and 54 percent of total tax liability


● Registered smaller firms (the first three categories) seem to be equally involved in

selling to consumers (B2C) and selling to other firms (B2B). Medium and large firms,

in contrast, have a much greater presence in B2B than B2C transactions

● Before the GST was introduced, it was expected that small dealers who sell directly

to consumers would chose the composition scheme while those who sell to bigger

companies would opt for regular rates as the purchasing firms would not buy unless

they could get input tax credits

● It turns out that about half the transactions of the below-threshold firms which

nonetheless voluntarily chose to comply are actually in the B2C space. This suggests

that there are other issues which have motivated these taxpayers to get registered.

The reason for this is that 68 percent of their purchases (the companies whose

turnover is below the threshold limit and which need not get registered under GST)

are from medium or large registered enterprises, giving them a powerful incentive to

register, so they could secure input tax credits on these purchases

International Trade, Inter-state trade and Economic Prosperity

● With implementation of GST, we can for the first time possibly know the state-wise

distribution of international exports of goods and services. 5 states-Maharashtra,

Gujarat, Karnataka, Tamil Nadu and Telangana- account for 70% of India’s exports.

This data proves that prosperity is related to export performance. In case of these

states there is also a high correlation between their GSDP per capita and their export

share (in this comparison Kerala is an outlier as it shows very high GSDP per capita

but very low Exports to GSDP, this is because of very high inward remittances)

● On analyzing the data, it has been found that the inter-state trade in India is above

60% of the GDP. This is much higher compared to the estimation given in the last

year’s budget of 30 to 50% of GDP

○ The five largest exporting states are Maharashtra, Gujarat, Haryana, Tamil

Nadu and Karnataka


○ The five largest importing states are Maharashtra, Tamil Nadu, Uttar Pradesh,

Karnataka and Gujarat

○ The states with the largest internal trade surpluses are Gujarat, Haryana,

Maharashtra, Odisha and Tamil Nadu

○ Looking at the above data it can be concluded that the states that export the

most are also the ones that import the most and; the states that trade the

most are the most competitive

Trading Superstars and India

● As per a survey done in 32 countries, top 1% of the exporting firms account for over

50% of the exports. Such a feature influences the sectoral composition of exports,

helps create comparative advantage and improve long term prospects; the

expansion of such big firms (or Trading Superstars) can have spillover effects on

other firms (on the other hand concentration may impede competition)

● The top 1 percent of firms accounted for 72, 68, 67, and 55 percent of exports in

Brazil, Germany, Mexico, and USA respectively but only 38 percent in the case of

India

● The top 5 percent accounted for 91, 86, 91, and 74 percent in those countries,

compared with 59 percent in India

● The top 25 percent of firms accounted for 99, 98, 99, and 93 percent in those

countries, as opposed to 82 percent in India

● The implications of such egalitarian Indian export structure is unclear

Formality and Informality of the Indian Economy

The GST has thrown up data using which the formality/informality of the Indian Economy

can be examined

Formality can be defined under two scenarios (firms not falling under either will be

informal)

1. When firms are providing some kind of social security to employees. In India,

government provides this for its employees, the Employees’ Provident Fund

Organization (EPFO) provides it to private sector employees in respect of pensions

and provident funds; and the Employees’ State Insurance Corporation (ESIC) in

respect of medical benefits

(The EPFO contribution is mandatory for industries employing greater than 20

workers, and whose monthly wage/salary is below Rs. 15,000. Of the total active

members 86% earn less than Rs 15,000 and about 98% have opted for a

combination of the ‘provident fund-pension’ option. The ESIC contribution is


mandatory for certain firms, employing greater than 10 workers, and for workers

in these firms whose monthly wage/salary is below Rs 21,000)

2. When firms are part of the tax net (with GST data available the companies registered

under it will be tax formal companies)

Based on this the key findings are

● Hard Core formal sector - About 0.6% of firms, accounting for 38% of total turnover,

87% of exports, and 63% of GST liability are both in the tax and social security net

● Purely Informal - 87% of firms, representing 21% of total turnover, are purely

informal, outside both the tax and social security nets.

● Around 12% of firms, accounting for 41% of turnover, 13% of exports, and 37% of tax

liabilities are in the tax net but not the social security net

● Less than 0.1% of firms accounting for about 14% of turnover are in the social

security net but not in the GST net. These are mostly firms that are in GST-exempted

sectors (such as education, health, electricity)


03 Investments and Savings The discussions on India’s growth since 2010 has been about the return of India’s growth

back to 8 to 10% of GDP. The present government has implemented a lot of structural

reforms which would lead to higher growth. Behind this is the belief that the domestic

savings and investment will soon start to accelerate. The present GFCF (Gross Fixed Capital

Formation) and gross domestic savings rate are above the levels that prevailed throughout

1990s. In 2000s India’s growth to 10% real GDP was accompanied by 9 percentage points

pick up in domestic savings and investment rates. Subsequently these rates have dropped to

normal levels

● The ratio of gross fixed capital formation to GDP climbed from 26.5% in 2003,

reached a peak of 35.6% in 2007, and then slid back to 26.4% in 2017

● The ratio of domestic saving to GDP has increased from 29.2% in 2003 to a peak of

38.3% in 2007, before falling back to 29% in 2016

● The cumulative fall over 2007 and 2016 has been milder for investment than saving,

but investment has fallen to a lower level

● Such sharp swings in investment and saving rates have never occurred in India’s

history–neither during 1991 BoP Crisis nor during Asian Financial Crisis. No other

country seems to have gone through such a large investment boom and bust during

this period (in the past 15 years). It has been observed that in comparable countries

the average increase in saving and investment prior to the crisis was modest, post

the crisis only domestic saving has shown a pronounced decline. Only country that

displays a similar pattern to India over the same time period is Brazil

● What explains this decline in the savings/investments?


○ The private investment accounts for 5 percentage points out of 6.3

percentage points investment decline between FY08 to FY16

○ The fall in the savings in the same period has been around 8 percentage

points which has been mainly driven by an equal decline in the savings in

public and households

○ The fall in the household savings has been driven by the decline in the

physical savings (although part of it has been offset by increase in the

holdings of financial assets)

Identifying Investment and Saving slowdowns

● Global scenario

○ Investment and saving slowdowns tend to be similar in duration

○ Investment slowdowns are greater in magnitude

○ Investment is more prone to extreme events

○ Saving slowdowns tend to drag on for a year more on average than similarly-

large investment slowdowns

○ The slowdowns have been quite frequent appearing in countries such as

China, Singapore, Mauritius etc

○ The Asian countries have faced the largest number of slowdown episodes

following 1997

● Indian scenario

○ The current slowdown (both-saving and investment) is a first in India’s history

○ The investment slowdown started in 2012, intensified in next two years and

was apparently continuing in 2016; and seems likely to continue through

2017

○ The savings slowdown started in 2010 and seems to be still continuing

○ The inference is that the current slowdown in investment and saving episode

has been lengthy compared to other and may not be over yet

Savings Vs Investment


The simultaneous slowdown in the saving and investment raises two questions

○ What should be given higher priority-policies to promote investment or

policies to promote saving

○ What is the solution

The standard solution prescribed has been to tackle both the issues simultaneously. Having

said so there is also evidence from a survey which proves that the successful economic

performance is not explained by saving transition episodes. Rather in such countries seems

to be evidence that successful economic/growth transitions have led to sustained higher

rates of saving to boost growth

Cross-country comparison shows that the relationship is significantly positive for investment

episodes, but insignificant for saving. A one percentage point fall in investment rate is

expected to dent growth by 0.4-0.7 percentage points. These results are robust to different

time periods and specifications (in certain cases it has also been found that the relationship

between fall in private investment with growth is positive and significant)

In case of India, impact of investment slowdown has been moderate on the growth

Recovery from ‘India type’ Investment Slowdowns

India’s investment slowdown is unusual because

● It is relatively moderate in magnitude

● It is long in duration

● It started from a relatively high peak rate of 36% of GDP

● It has a specific nature i.e. it is a balance sheet-related slowdown (many companies

have had to limit their investments because their finances are stressed, as the

investments they undertook during the boom have not generated enough revenues

to allow them to service the debts that they have incurred)

How these signs are important from the perspective of the investment recovery. This can be

looked at from two international experiences

● Balance Sheet related ones - India is now 11 years past its investment peak and the

findings are

○ Investment declines flowing from balance sheet problems are much more

difficult to reverse. In these cases, investment remains highly depressed,

even 17 years after the peak, whereas in case of non-balance-sheet

slowdowns the shortfall of investment is smaller and tends to reverse

○ India’s investment decline so far (8.5%) has been unusually large when

compared to other balance sheet cases

● Where investment fell (peak to trough) by 8.5 percentage points in 9 years


○ The experience has shown that the median country experiences a reverse of

only 25% of the decline in 14 years after the peak and 40% of the decline

after 17 years of the peak

○ Given the large fall in investment that India has registered, it has paid

moderate costs in terms of growth. Between 2007 and 2016, rate of real per-

capita GDP growth has fallen by about 2.3% (it is lower than the above 3%

decline in growth noticed, on average, in episodes in other countries that

have registered investment declines of similar magnitudes and from roughly

a similar peak)

Policy Lessons for India

From the above analysis, the lessons that can be drawn are

● Investment slowdowns are more detrimental to growth than savings slowdowns. So

the policy priorities in the short run must be to revive investment. Mobilizing

deposits are important but are perhaps not as urgent as reviving investment

(anyways the share of financial savings in the households has increased and has

been intensified by demonetisation)

● The investment slowdown is far from over

● India’s investment decline seems difficult to reverse as it stems from balance sheet

stress and the magnitude of the decline is large. The deeper the slowdowns are, the

slower and shallower is the recovery. At the same time, it is important to note that

some countries have have taken decisive policy action in the similar circumstances to

improve the outlook

● The government has already taken two very important steps to counter the issue

○ The public investment has been stepped up since 2015-16

○ It has implemented policies to resolve TBSP (Twin Balance Sheet Problem)

Apart from this the urgent policy agenda of the government should include

○ Easing the costs of doing business

○ Creating a clear, transparent and stable tax and regulatory environment

○ Creating a conducive environment for small and medium industries to

prosper and invest, which will revive private investment


04 Fiscal Federalism and Accountability

The tax is a binding force/glue which connects the two important pillars of the

democracy i.e. state/government with citizens. Each citizen enjoys certain

entitlements from government and in return has to contribute to the government in

the form of tax payments. If the citizen doesn’t pay the tax, either he becomes a free

rider (consumes services of the government but doesn’t pay tax) or exits (doesn’t

consume the services of the government). In either case, the accountability factor on

the government reduces. So it could be said that tax is an agreement between the

state and the citizen wherein the government promises to provide certain

entitlements to the citizen and in return the citizen makes the tax payments

Does this glue rely on whole taxation or specifically for the direct taxes. The citizens

will have higher stake if they pay higher direct taxes. The direct taxes reduce the

expendable/disposable income of the taxpayers.

Direct Taxation and Development

After the analysis which has been provided below regarding the direct taxes

collected (at various levels compared with various countries), the question raised will

be-is the current system appropriate in India? If not then how can it be changed?.

The analysis is provided at two levels-General Government and Sub Federal Levels

● General Government

○ Economic and political development has been associated with rising

share of direct taxes in total taxes

○ The advanced countries collect a substantially higher proportion of

their taxes in the form of direct taxes, compared to emerging markets.

In these countries early on the property taxes and import taxes were

the main source of taxes but with expansion to welfare state they have

shifted towards the income taxes as the main source of revenue (fig 1a)

○ India has the lowest share of direct taxes in total taxes. But on closer

examination it is revealed that India is collecting same proportion of

direct taxes, when compared to the other countries at the same

development level. The difference comes in a fact that India’s reliance

on the direct taxes seems to be declining and this will be further


intensified with the introduction of GST (as it is an indirect tax and will

lead to buoyant revenues) (fig 1b)

● Sub-Federal levels (fig 2)


○ Fiscal decentralization is embraced not only as a part of the economic

but also as a part of political and philosophical principle

○ At the second tier (state level), all countries are broadly comparable in

their reliance on devolved (taxes collected by the central government

then given to state governments) resources, but India stands out as a

country where the second tier generate a very low share of its revenue

from direct taxes-about 6% compared to 19% in Brazil in 2016 and a

hefty 44% in Germany

○ At the third tier

■ India’s Rural Local Governments (RLGs) stand out on both

counts. RLGs’ reliance on own resources is just 6% compared to

40% for third-tier governments in Brazil and Germany and

panchayats raise about 4% of their overall resource envelope in

the form of direct taxes, compared with about 19 and 26

percent in Brazil and Germany respectively

■ India’s urban local governments (ULGs), meanwhile, are much

closer to international norms. Their own revenues as a share of

total revenues are actually higher than Brazil and Germany,

while their direct tax share (about 18% of total revenues) is only

marginally lower than Brazil (19%) and somewhat lower than

Germany (26%). This is evidence that ULGs have emerged more

fiscally empowered than RLGs so far in India


Local Governments

● The 73rd CAA (1992) recognized panchayats as institutions of self-government & The

74th amendment bestowed the same status on urban local governments

● RLGs or panchayats were mandated to have three tiers (at the district, intermediate

and village levels) in states with population of over 20 lakh

● States were mandated to devolve such functions and authorities to RLGs which

would enable them to function as institutions of self-governance. The Constitution

listed 29 matters which could be the focus of their governance, such as agriculture

and land reforms, minor irrigation, small scale industries, rural communication,

drinking water, poverty alleviation programmes.


● The States were also supposed to constitute Finance Commission (SFC) to determine

the share of their financial resources going to the local tiers

● The ULGs and RLGs have been mandated to prepare and implement the plans but

the tied nature of funds is increasingly becoming a constraint in their autonomy

● The analysis (fig 3) shows that the central and state governments spend on an

average 15-20 times more per capita compared to RLGs. ULGs spend about 3 times

more. More importantly, this gap has persisted over time despite per capita

spending by RLGs increasing almost four-fold since 2010-11

● The ULGs and RLGs get their resources from

○ ULGs seem to be doing much better in terms of own revenue

generation. They generate about 44% of their total revenue from own

sources (Figure 4). On the other hand, RLGs rely overwhelmingly (about

95%) on devolution.

○ There is a significant variation in revenue generated by RLGs across the

states and within the states. There are RLGs in some states such as

Kerala, Karnataka, Andhra Pradesh etc that collect their own direct

taxes and some RLGs in states such as Uttar Pradesh where they are

completely dependent on the transfers


○ Per capita own revenue collected by ULGs is about 3% of the urban per

capita income while the corresponding figure is only 0.1% for RLGs

○ Since the funds are tied up usually the GPs (Gram Panchayats) spend

bulk of their funds in sectors such as roads, basic services, sanitation,

community assets etc. Whereas their expenditure is limited on sectors

such as irrigation (fig 5)


○ In many states, RLGs and ULGs have not been given sufficient taxation

powers. Revenues assigned to many local governments in many states

are much lesser than expenditure assignments

○ Even though many states have constituted the SFCs (State Finance

Commissions), there is variation in accepting their recommendations.

The percentage of accepted recommendations vary from 11% in

Karnataka to above 50% in West Bengal, Andhra Pradesh and

Rajasthan; to full acceptance in Kerala

○ Why is the revenue collection of local governments poor?

■ The states have not devolved enough tax powers for the

Panchayats. GPs are allowed to collect property and

entertainment taxes but not the land taxes and tolls on roads

■ Land tax assessed and collected at the state level and building

tax (property tax, house tax etc) are collected by Municipality

(ULGs) and GPs (RLGs). The property taxes are the principal

source of the revenue for the ULGs. the revenues collected are

lower because of the archaic base value, low taxes levied and

lack of powers to the local bodies (in states such as Odisha,

Rajasthan etc)

○ The states collect a small fraction of their potential in the form of land

tax. The all India average is 19%

○ The states such as Kerala and Karnataka are far ahead of devolving the

land taxation powers to the RLGs. In such states, the collection of taxes

vis-a-vis potential is only around a third

○ In case of UTs the central government undertakes the function of

collecting such taxes. Even here the collection is around 30% of the

potential

Conclusion

○ The state and local governments in India, do not conform to the cross-

country trends and are dependent more on the devolved resources

rather than on their ow resources. The reason seems to be that they

are unable to utilize their taxation powers that they possess. One of the

reason for such an outcome could be to maintain the equilibrium

desired by all the actors ( centre, state and local structures)


○ In the context of growing decentralization of both economic and

political power, the challenge to fiscal federalism will be to break this

equilibrium


05 Indian Economic Development In the present age - war, violence, deprivation and poverty are at the unprecedented lower

levels. And on the other hand standard of living, access to essential services, material well-

being etc have reached at unprecedented levels seen so far. Some of these developments

are because of the Economic Convergence in some of the countries. Since 1980 the process

of catching up has broadened. Not only the number of poorer countries growing at higher

pace has increased but the rate at which the catching up is happening has also increased

hence this has been referred to as “Convergence with Vengeance”

(Economic Convergence means that a country starts off at low performance levels on an

outcome of importance, should see faster growth on that outcome over time, improving

its performance so that it catches up with countries which had better starting points.

Convergence is thus an intuitive measure of absolute and relative performance, allowing

national and international comparisons. It simply measures the rate of catch-up, in

particular whether less developed have caught up with richer ones)

There were 112 and 153 countries that have grown faster than the United States (a proxy

for the “frontier country”) between 1960 -1980 and 1980-2017 respectively. The exercise

also allows comparisons of how much faster these converging countries have grown in the

two periods (Table 1)


India was a low-income country with a per capita income of $1,033 (@PPP) in 1960. This

was equivalent to about 6% of USA per capita income at the time. In 2008 India attained

lower middle-income status and today has a per capita income of $6538 which is 12% of the

USA. If per capita income in India grows at 6.5 percent per year, India would reach upper-

middle income status by the mid to late 2020s

But recently there have been doubts cast on the economic convergence and this has been

proposed under the “middle income trap”. The reasons for such trap are supposed to be

● As a country attains middle income status, it would be squeezed out of

manufacturing and other dynamic sectors by poorer, lower-cost competitors

● These countries would lack the institutional, human, and technological capital to

carve out niches higher up the value-added chain

Thus such economies are neither allowed to remained at the bottom nor are allowed to

reach the top, they would find themselves trapped in the middle

Having said so, it has turned out that the above theory has not held valid and many

countries have followed the principle of convergence. The convergence phenomenon has

held very strong even in the last decade. The analysis of such countries shows that


● After 1997, the average poor, low middle income and upper middle income country

have grown faster than their high income counterparts (which simply means that

there has been no middle income trap)

● Post 2008, the poorest have been growing faster than the middle income countries,

who have been growing faster than upper middle income countries, which in turn

have been growing faster than the richest

India is attempting to converge and make transition to middle income status. Hence there is

a worry that the late convergence (means post 2008 i.e. Global Financial Crisis) could be

impeded by the gathering global trends. If proven, then this would be referred to as “late

convergence stall”. To arrive at an outcome, the growth of the 4 major groups of countries

is compared for a period of 10 years before (1998 to 2007) the GFC (Global Financial Crisis)

and ten years after (2008 to 2017)

● The world growth declined from 4.3% in the ten-year period prior to the GFC to 2.9%

in the decade after the GFC

● The corresponding numbers for the four major groups of countries were

○ Advanced Economies - growth reduced from 3.6% to 1.4%

○ Upper Middle Income Economies - growth reduced from 4.5 to 3.3%

○ Lower Middle Income Economies - growth reduced from 4.9 to 4.2%

○ Low Income Countries - 5% per annum

● The underlying reasons for the above slowdown are

○ Hyper globalization Repudiation - the late converging countries are facing a

different global trading environment, the predecessors/early convergers

benefitted hugely because of global trade and as a result countries such as

China, Japan, Korea etc were able to post average export growth of 15% for

three decades of their convergence periods. But this has led to backlash from

the advanced countries which is reflected in the decline of world trade to

GDP ratios since 2011 (figure 2). The way out of this is to adopt to the gravity

theory (it implies that smaller countries tend to trade more than larger

ones. A world made up of two equal-size countries will experience more

trade than a world in which the larger country accounts for 95% of world

output). The global output is getting equally distributed (as a result of

convergence) and hence there will be increased trade


○ Thwarted structural transformation (good growth and sustainable growth) -

Successful development requires two structural transformations

■ Shift of resources from low productivity to high productivity sectors

■ A larger share of resources devoted to sectors that have the potential

for rapid productivity growth

In many cases, resources do not shift in this way. They shift instead from

informal, low productivity sectors to ones that are marginally less informal or

slightly more productive sectors. These are cases of “thwarted structural

transformation”

Hence manufacturing sector is critically important to ensure successful

transformation. This sector can provide rapid growth even in late convergers

but is a cause of worry as there is premature deindustrialization (tendency of

manufacturing sector to peak at lower levels of activity and in the earlier

stages of development process)

The general pattern is that there is a need for a good growth to have

sustained growth. India and China might defy this pattern

○ Human Capital Regression - in case of early convergers, there was alignment

between the human capital endowment with the sector associated with

structural transformation. This led to percolation of dynamism to the rest of

the economy


On the other hand, the late convergers will face difficulty because

■ They have failed to provide the basic education that was necessary for

some structural transformation

■ Technology will increasingly favour skilled human capital

The analysis shows that during the 1980s to 1990s educational attainment of

the middle income countries was below that of advanced economies. The

gap then was much smaller than it is now for the lower middle income

countries in the recent period

○ Climate change induced agriculture stress

■ The structural transformation requires the release of resources into

the modern sector under conditions of rising agricultural output. This

is necessary to produce enough food to a growing population

■ Annual growth rates in agriculture sector for rich countries has

consistently been greater than that of the developing countries

■ For the poorest countries the growth rates have declined post-GFC.

For example, the growth rates for Indian agriculture has remained

stagnant for the last three decades (Indian agriculture is heavily

dependent on the monsoon)

■ For late convergers, agriculture sector is important not only to ensure

food for the people but also to ensure human capital accumulation in

those who move from agriculture sector to modern sectors. Hence

agriculture may limit the transformation fortunes of the late

convergers

Lessons for India

● India has been rapidly catching up since 1980, with the average growth rate

of 4.5% despite

○ The limited transfer of the labour resources from low productivity to

high productivity and dynamic sectors

○ Modest growth in agriculture sector

The risk that India (as a late converger) faces is that the resources (such as

labour) will move from low productivity, informal sectors to other sectors

which are marginally less formal and only marginally productive i.e. “late

converger stall” that India must avoid

● The government needs to rapidly increase the human capital, which will be

key to sustaining India’s dynamic growth trajectory


● There is a need for rapidly improving agricultural productivity which will

ensure good and sustainable growth


06 Climate Change and Agriculture The wishful thinking of the government to double the real income of the farmers by 2022-23

is increasingly running against the present realities in agriculture and harsher prospects of

its vulnerability to long term climate change. In the last few seasons there have been

problems of plenty-farm revenues are declining despite higher production and market

prices are declining, but in long term the production has to be increased, price and income

volatility has to be reduced against the backdrop of increasing resource constraints such as

● Shortages of water and land

● Deterioration in soil quality

● Climate change-induced temperature increases

● Rainfall variability

All of these factors have effect on the agriculture

Why agriculture matters

● History and literature have contributed to the farmer acquiring mythic status in

Indian lore. He is innocent, unsullied, hard-working, in harmony with nature; and yet

poor, vulnerable, and the victim of the imperial masters, middle men and of the

landlords

● It contributes 16% to GDP and 49% of employment. Poor agricultural performance

can lead to inflation, farmer distress and unrest, and larger political and social

disaffection—all of which can hold back the economy

● Economic development is getting people out of agriculture the contribution of

agriculture to GDP declining (in percentage terms). Agriculture cannot be the

permanent or dominant source of revenue is because it cannot match the living

standards that can be achieved through manufacturing and services, which means

there has to be urbanization and industrialization; but this has to happen along with

higher growth in agriculture as there is growing need for food

Long run agriculture performance

● Real agriculture growth since 1960 has averaged about 2.8%. Till the green

revolution the growth rate was lesser than 2% and then it has been 3% till 2004.

After the surge in the global commodity prices, the growth has increased to 3.6%

(figure 1)


● The volatility in the sector has declined substantially over the period of time but the

levels are still higher compared to china (figure 2). One of the important factors

which contributes to this volatility/uncertainty is the dependence of agriculture on

the monsoon (52% of the land under cultivation is dependent on monsoon)


Rainfall and Temperature changes

There is a need for analyzing the pattern of temperature and precipitation and their impact

on the Indian Agriculture and its productivity

● Temperature

○ The pattern of rising temperatures post 1970s is common for both seasons

○ The average increase in temperature from 1970s to the recent decade is 0.45

degrees and 0.63 degrees in Kharif and Rabi seasons respectively

○ There has been a rise in the number of days with extremely high

temperatures, and a corresponding decline in the number of days with low

temperatures

● Rainfall

○ The kharif rainfall has declined (between 1970s to recent decade) on average

by 26 mm and rabi rainfall by 33 mm

○ The annual average rainfall for this period has declined by about 86 mm

○ The proportion of dry days (rainfall less than 0.1 mm per day), as well as wet

days (rainfall greater than 80 mm per day) has increased steadily over time

Thus, the imprint of climate change is clearly manifest in the increasing frequency of

extreme weather outcomes

○ Temperature increases have been particularly felt in the North-East, Kerala,

Tamil Nadu, Kerala, Rajasthan and Gujarat. Parts of India, for example,

Punjab, Odisha and Uttar Pradesh have been the least affected (Figure 8a)

○ In Case of rainfall extreme deficiencies are more concentrated in Uttar

Pradesh, North-East, and Kerala, Chhattisgarh and Jharkhand. There has

actually been an increase in precipitation in Gujarat and Odisha and also

Andhra Pradesh (Figure 8b)

What is interesting is that spatially temperature increases and rainfall declines seem

to be weakly correlated


Impact of weather on Agricultural Productivity

There findings are

○ The impact of temperature and rainfall is highly non-linear and felt almost

only when temperature increases and rainfall shortfalls are extreme. Most of

the literature focuses on the change in productivity with a unit change in

either temperature or rainfall, but this kind of marginal changes have little or

no impact on the Indian agriculture and only the extreme changes will have


an impact. It is important as majority of climate change models are predicting

an increase in extreme weather events

○ These extreme shocks have highly divergent effects between un-irrigated and

irrigated areas (and consequently between crops that are dependent on

rainfall), almost twice as high in the former compared with the latter. When a

district is significantly hotter than usual, it results in a 4% decline in

agricultural yields during kharif season and a 4.7% decline in rabi yields.

Similarly, extreme rainfall shocks (when it rains less than usual), the result is a

12.8% decline in kharif yields and 6.7% decline in rabi yields (table 1).

Unirrigated areas (districts where less than 50 percent of cropped area is

irrigated) bear the brunt of the vagaries of weather. For example, an extreme

temperature shock in unirrigated areas reduces yields by 7% for kharif and

7.6% for rabi. Similarly, the effects of extreme rainfall shocks are 14.7% and

8.6% (for kharif and rabi, respectively) in unirrigated areas, much larger than

the effects these shocks have in irrigated districts


○ Apart from this it has also been found that there are other factors which will

affect the productivity such as “when it rains” i.e. if there are dry days (days

during monsoon when the rainfall is 0.1 mm), it affects productivity. If there

is an additional dry day during the monsoon, it reduces the yield by 0.2% on

an average and 0.3% in unirrigated areas

○ Crops grown in rain fed areas (pulses in both kharif and rabi) are vulnerable

to weather shocks while the cereals (both rice and wheat) are relatively more

immune (figure 11 and 12)


Impact on the farm revenues

● Extreme temperature shocks reduce farmer incomes by 4.3% and 4.1% during kharif

and rabi respectively and extreme rainfall shocks reduce incomes by 13.7% and 5.5%

during kharif and rabi respectively (Table 2)

● Another way to present the result is that - In a year where temperatures rises by a

degree Celsius, farmer incomes would fall by 6.2% during the kharif season and 6%

during rabi in unirrigated districts. Similarly, in a year when rainfall deficit/shortage

is 100 millimeters than average, farmer incomes would fall by 15% during kharif and

by 7% during the rabi season


● A survey done by Mr. Swaminathan and his group found that a degree Celsius

increase in temperature reduces wheat production by 4% to 5%, similar to the

effects found here

● A study by the IMF (2017) finds that for emerging market economies a 1 degree

Celsius increase in temperature would reduce agricultural growth by 1.7%, and a 100

millimeters reduction in rain would reduce growth by 0.35%

● As per IPCC (Intergovernmental Panel on Climate Change), the temperatures in India

are likely to rise 3 to 4 degree Celsius by the end of 21st century and hence there is

an urgent need of change in the policy and need for farmers to adopt, otherwise the

estimations show that the farm incomes will be lower by 12% on an average and

18% in case of un-irrigated areas

● The decrease in the rainfall is expected to reduce the farm incomes by 12% for kharif

and 5.4% for rabi crops

● Not only this, the increase in the number of dry days during monsoon would reduce

the farm incomes by 1.2%

● In a nutshell the farm output and incomes are affected by three variables here-

temperature, rainfall and number of dry days. Taking these into account the farmer

income losses could come between 15 to 18% on average and; between 20 to 25% in

un-irrigated areas


Policy Implications (it needs to be remembered that agriculture is a state subject)

● Irrigation

○ India needs to spread the irrigation against a backdrop of depleting

groundwater (it has been found that India pumps more than twice the

underground water than China and USA; in the last decade the underground

water levels have fallen by 13%)

○ In 1960s less than 20% of area was irrigated and today it is over 40%

○ The Indo-Gangetic plain, and parts of Gujarat and Madhya Pradesh are well

irrigated. But parts of Karnataka, Maharashtra, Madhya Pradesh, Rajasthan,

Chhattisgarh and Jharkhand are still extremely vulnerable to climate change

on account of not being well irrigated

○ In this backdrop there is a need to promote micro irrigation and water

management and thus the PMKSY (Pradhan Mantri Krishi Sinchai Yojana)

would play a very important role and needs to be promoted

○ The power subsidy should be replaced by DBT so that usage is priced and

water is conserved

● Agricultural Research - It will play a vital role not only in increasing yields but also in

increasing reliance to all the pathologies that climate change threatens to bring in its

wake such as extreme heat and precipitation, pests, and crop disease. The analysis

shows that research will be especially important for crops such as pulses and soya

bean that are most vulnerable to weather and climate

● Insurance - furthering the objective of PMFBY (Pradhan Mantri Fasal Bima Yojana),

there is a need to develop weather based models and technology need to be used to

determine the losses and compensate the farmers within weeks (Kenya does it in

days)

● There is a need for the policy to identify that there are two agricultures

○ Well irrigated, input-addled, and price-and-procurement-supported cereals

grown in Northern India. The challenge here is for policy to change the form

of the very generous support from prices and subsidies to less damaging

support in the form of direct benefit transfers

○ Then there is another agriculture (non-cereals in central, western and

southern India) where the problems are very different

■ Inadequate irrigation

■ Continued rain dependence

■ Ineffective procurement

■ Insufficient investments in research and technology (non-cereals such

as pulses, soya beans, and cotton)

■ High market barriers and weak post-harvest infrastructure (fruits and

vegetables)

■ Challenging non-economic policy (livestock)


07 Gender Preference There is no denying that there is a need of gender equality as now it has been proven that,

by achieving equality economic gains can be made. This happens as a consequence of

women acquiring greater personal agency, assuming political power, attaining public status

and also participate equally in the labour force. In case of India itself the increased women

participation can lead to 27% higher growth in the economy.

The government has launched “Beti Bachao Beti Padhao” scheme in 2015 which will enable

it to further gender equality. It is time to evaluate the impact of such measures on gender

equality because

● There is a need to understand what has been the progress made so far and how is

India faring?

● Apart from the above reason there is a need as various indices such as WEF, UNDP

etc rank the countries in the chronological time. But the role of women evolves with

development hence there is a scope of flaw in a cross sectional comparison that is

done in many of these reports

(Gender equality is an inherently multi-dimensional issue. But in this unit the focus will be

on three indicators

● Agency is related to women’s ability to make decisions on reproduction, spending on

themselves, spending on their households, and their own mobility and health

● Attitudes relate to attitudes about violence against women/wives, and the ideal

number of daughters preferred relative to the ideal number of sons

● Outcomes relate to son preference, female employment, choice of contraception,

education levels, age at marriage, age at first childbirth, and physical or sexual

violence experienced by women)

Main Findings

● In 14 out of 17 indicators relating to agency, attitude and outcomes, India’s score has

improved over time

● The progress is most notable in the agency. Women have decision-making powers

regarding, household purchases and visiting family and relatives. There has been a

decline in the experience of physical and sexual violence. Education levels of women

have improved dramatically but incommensurate with development

● There is evidence of convergence. The gender indicators have shown improvement

with increase in the wealth. More importantly it has been seen that all the gender

dimensions respond to wealth. This kind of relation has been found to be stronger in


India compared to other countries. This is encouraging because it indicates that

increased wealth, India can catch up with rich countries in terms of gender equality

● Son Preference

○ The development that has happened in India has not been able to counteract

“The Son Preference”. This is leading to sex selective abortions and a skewed

sex ratio at birth and beyond leading to an estimate of 63 million “missing”

women

○ Some of the richest states such as Punjab and Haryana have a very skewed

sex ratio of 1200 males per 1000 females (aged 0 to 6 years). This means that

the development has not acted as an antidote to son preference

○ In 1990 Mr. Sen had noted that this kind of son Preference has led to nearly a

100 million missing of which 40 million was accounted by India (it is either

because of sex selective abortions, disease neglect and inadequate nutrition)

○ India has very high child sex ratio along with china (it increased from 1070 in

1970 to 1156 by 2014, one of the reasons is the One Child Policy)

○ India had 1108 males for every 1000 female in 2014

● Son Meta Preference

○ Another worrying phenomenon has been that of “Son Meta Preference”

(which means having children until desired number of sons are born). This

kind of preference gives rise to a notional category of “unwanted” girls which

is estimated to be 21 million

○ This does not lead to sex-selective abortion but nevertheless is detrimental to

female children as it would lead to allocation of fewer resources for them

○ The reasons for this kind of preference are

■ Patrilocality- women having to move to husbands’ houses after

marriage

■ Patrilineality- property passing on to sons rather than daughters

■ Dowry- which leads to extra costs of having girls

■ Old-age support from sons and rituals performed by sons

● In some sense the status of women improves once born but the society still wants

fewer of them to be born

● Women Workers

○ The percentage of women who work has declined from 36% (2005-06) to

24% (201-16)

○ On the supply side, Increased income of men allows women to withdraw

from the labour force, apart from this, the higher education of women also

allows them to pursue leisure and other non-work activities reducing the

labour force participation rate

○ On the demand side higher mechanization in agriculture, non-availability of

preferred jobs (part-time jobs) will force women to stay from labour force


○ The above will interact with safety concerns and social norms about

household work and caring for children and elders, militates against women’s

mobility and participation in paid work

Performance of the Indian states

● The states have been evaluated based on their average score in all the three

indicators-Agency, Attitudes and Outcomes-referred to as Gender Score

● States have shown an improvement over the period of the time and the poorer

performers have exhibited convergence

● Most of the North-Eastern states have performed well and apart from these states

Goa, Kerala have been the top performers

● The lagging performers are Bihar, Rajasthan, Madhya Pradesh, Uttar Pradesh,

Jharkhand and, surprisingly, Andhra Pradesh

● Delhi’s performance in a decade has worsened

Conclusion

● Given these observations, the state and all stakeholders have an important role to

play in increasing opportunities available for women in education and employment

● The initiatives of the government such as “Beti Bachao Beti Padhao”, “Sukanya

Samriddhi Yojana”, mandatory maternity leave rules etc are important steps which

are focused on addressing the underlying challenge


08 Transforming S&T In India India is on the path to becoming one of the largest economies in the world and hence it

needs to gradually move from being a net consumer of knowledge to net producer.

Historically India has contributed hugely to innovations from first usage of Zero to the latest

participation in the LIGO (Laser Interferometer Gravitational Wave Observatory). However,

in the recent times more importance given to careers in Engineering, Medicine,

management, government jobs etc. hence there is a need for the government to rekindle

the excitement and purpose that would attract youth into scientific enterprise. In doing so it

would also lay the knowledge foundations to address some of India’s most pressing

development challenges in addition to maintaining a decent, open society. Investing in this

field is also a necessity from security perspective, the resilience needed to address the

multiple uncertainties stemming from climate change; and the national security challenges

stemming from new emerging threats, ranging from cyberwarfare to autonomous military

systems such as drones

Inputs - R&D Expenditure

● Investments in Indian science, measured in terms of Gross Expenditure on R&D

(GERD), has tripled in the last decade

● However, as a fraction of GDP, public expenditures on research have been stagnant

(between 0.6-0.7% of GDP) over the past two decades

● Of the total expenditure in the sector, Public expenditure is dominant, although its

share has come down from three-fourths (about 75%) of all expenditures to about

three-fifths (60%)

● About three-fifths (60%) of the public investment is spread over the key government

science funding agencies like Atomic Energy, Space, Earth Sciences, Science and

Technology and Biotechnology

● Given the country’s severe health challenges the expenditure has remained stagnant

over the period and is very low compared to other sectors which is striking

● India spends about 0.6% of GDP on R&D which is well below that in major nations

such as the US (2.8% of GDP), China (2.1% of GDP), Israel (4.3% of GDP) and Korea

(4.2% of GDP)

● The R&D expenditure in India is also unique in how dominant government is in

carrying out R&D. In most countries, the private sector carries out the bulk of

research and development even if government must play an import funding role.

However, in India, the government is not just the primary source of R&D funding but

also its the primary user of these funds (Figure 1)


● Even more striking is the fact that, government expenditure on R&D is undertaken

almost entirely by the central government. There is a need for greater State

Government spending, especially application oriented R&D aimed at problems

specific to their economies and populations

● According to one analysis (Forbes, 2017) there are 26 Indian companies in the list of

the top 2,500 global R&D spenders compared to 301 Chinese companies. 19 of these

(top 26) firms are in just three sectors - pharmaceuticals, automobiles and software.

India has no firms in five of the top ten R&D sectors as opposed to China that has a

presence in each of them. The Private investments in research have severely lagged

public investments in India

● Universities

○ These play a very active role in promoting research activities in a country and

have done so in many of the countries

○ But in India a decision was taken back in 1950s to restrict the role universities

by promoting research activities under various government departments. As

a result of this, the universities have been restricted to the role of teaching.

This decision has impaired both teaching as well as research enterprise in

India

● Ph.Ds in STEM (Science, Technology, Engineering and Mathematics)

○ The analysis shows that in the recent years fewer Indian students are

enrolling for Ph.Ds in STEM in USA compared to enrolment numbers of

students from China. This is due to attractive options such as master’s degree

and rising visa challenges


○ Domestically the number of Ph.D enrolments have increased of which 62%

are for STEM. This is due to the efforts of the government in the form such as

increase in the number of fellowships

○ Overall India has far fewer researchers than the other countries

● Does India spend enough on R&D?

○ The comparison is done by controlling the developmental level i.e. the

countries expenditure is compared when they are at the similar development

level

○ At that point of time India has spent more on R&D compared to countries

such as China

○ However currently it spends lesser than various countries such as china,

Israel, US etc

○ Most other countries, especially East Asian countries like China, Japan, and

Korea, have seen dramatic increases in R&D as a percentage of GDP as they

have become richer. India, on the other hand, has only seen a slight increase

○ In 2015, there was a sizeable decline in R&D Spending even as GDP per capita

continued to rise

Outputs

● Publications

○ The number of publications reflects prowess of a country in science

○ The number of papers published has increased and India stood at 6th rank in

2013

○ Between 2009-14, the publication growth rate was 14% which has pushed up

India’s share of global publications from 3.1% (2009) to 4.4%(2014)

○ Having said so there is a worry that many of the publications are not peer

reviewed but publications go forward and publish them for a substantial fee.

This is done because the number of papers published is one of the

parameters that determines the promotions or appointments

○ Having said so it is also important to note that the quality (measured in terms

of citing the articles) has also improved over the period

● Patents

○ The number of patents reflects prowess of a country in technology

○ According to the WIPO, India is the 7th largest Patent Filing Office in the

World. In 2015, India registered 45,658 patents in comparison to China

(1,101,864), USA (589,410), Japan (318,721), Republic of Korea (213,694),

and Germany (91,726)

○ However, India produces fewer patents per capita

○ Reasons for lower patents


■ The lower number of patents in India is because of the lower middle

income status and in countries such as China, Japan and Korea it has

been observed that the number of patents have increased with

increase in the income. But the government of India has to ensure

that there is also focus on R&D

■ One of the major issues in India has been the domestic patent system.

Because of lower manpower and stringent examination process the

filings have been very lower

○ To correct this the government has

■ Announced a new IPR Framework where patenting process can be

expedited

■ Has hired over 450 patent examiners

Expanding R&D - The way forward

The government first and foremost has to double the national expenditure in R&D with

most of it coming from universities and private sector. But the metrics need to go beyond

the just papers and patents to a broader contribution to providing benefits/value for the

society. Some of the measures that could be taken are

● Improve math and cognitive skill level at the school level as the learning outcomes

have been weak

● There is a need to move towards investigator driven model for funding science

research. A step in this direction was taken back in 2008 by setting up SERB (Science

and Engineering Research Board) which has sanctioned over 3500 new R&D projects

of individual scientists. More of such initiatives are needed

● The private sector must be promoted to make an investment in R&D and also

support STEM research through CSR

● There is a need for the state governments to identify and invest in the applications

oriented research which are aimed at solving the problems of the economies and

populations

● There is a need to link national labs to universities so that a new knowledge

ecosystem is created

● Take a mission driven approach in areas such as

○ National Mission on Dark Matter

○ National Mission on Genomics

○ National Mission on Energy Storage Systems

○ National Mission on Mathematics

○ National Mission on Cyber Physical systems

○ National Mission on Agriculture


● There are over 100,000 people with PhDs who were born in India but have resided

outside India. These researchers can be leveraged either by providing them research

funding back in India; or by implementing schemes such as INSPIRE (Innovation in

Science Pursuit for Inspired Research), VAJRA (Visiting Advanced Joint Research

Faculty Scheme) which allows collaborations


09 Ease of Doing Business & Timely Justice

India jumped 30 places in EoDB report 2018 to reach 100th rank. It has performed well

enough in many parameters but a parameter where India needs to focus now is enforcing

contracts under which it made marginal improvement from 172nd rank to 164th.

In the last couple of years, the government has many initiatives to expedite and improve the

contract enforcement. Some of them are

● It has scrapped over 1000 redundant legislations

● Rationalized tribunals

● Amended The Arbitration and Conciliation Act, 2015

● Passed The Commercial Courts, Commercial Division and Commercial Appellate

Division of High Courts Act, 2015

● Reduced intra-government litigation

● Expanded the Lok Adalat Programme to reduce the burden on the judiciary

● It has also advanced a prospective legislative regime to ensure legal consistency,

reducing chaos due to unpredictable changes in regulations

Despite these reforms the economic activity is being affected by the realities and long

shadow of delays and pendency across the legal landscape

● Delays and pendency of economic cases are high and mounting in the Supreme

Court, High Courts, Economic Tribunals, and Tax Department, which is taking a

severe toll on the economy in terms of stalled projects, mounting legal costs,

contested tax revenues, and reduced investment more broadly

● Delays and pendency stem from the increase in the overall workload of the judiciary,

in turn due to expanding jurisdictions and the use of injunctions and stays; in the

case of tax litigation, this stems from government persisting with litigation despite

high rates of failure at every stage of the appellate process

● Economic Tribunals

○ For the analysis six tribunals were considered and there is a high level of

pendency across the six tribunals, estimated at about 1.8 lakh cases

○ Pendency has risen sharply over time. Compared to 2012, there is now a 25

percent increase in the size of unresolved cases. The average age of pending

cases across these tribunals is 3.8 years

● High Courts

○ The total backlog in High Courts by the end of 2017 (as per the National

Judicial Data Grid) was close to 3.5 million cases

○ While the volume of economic cases is smaller than other case categories,

their average duration of pendency is arguably the worst of most cases,

nearly 4.3 years for 5 major High Courts


○ The average pendency of tax cases is particularly acute at nearly 6 years per

case

Pendency and Delays

● Possible reasons

○ One of the reasons is the generalized overload of cases at high courts

○ Economic and commercial cases are usually complex, require economic

expertise in their handling and disposal, and hence, require more judicial

time

○ In some of the instances it is due to the expansion of discretionary

jurisdictions by Courts (for example liberal interpretation of article 226, has

led to huge number of writ petitions at various high courts)

○ Some of the high courts retain original jurisdiction and hence become the

court of first instance for some civil cases. The number of cases filed under

this is very high (10-15% of the cases of the High Courts). In case of Delhi HC,

cases filed under this in 2014 formed 30% of total cases. The pendency of

such cases is also for longer duration (5.84 years), whereas these cases take

shorter time in case of lower courts (3.66 years)

○ In case of Supreme Court (SC) the pendency is higher because of SLPs (Special

Leave Petition) filed under article 136. The cases under SLPs admitted by the

SC have increased from 25% to 40% between 2008 to 2016 (in contrast the

USA’s SC admits only 3% and Canada’s SC admits 9% of the cases)

○ The higher pendency is also because of rising injunctions by the courts (for

example in case of IPR cases, the injunctions have led to stay of up to 60% of

the cases, whose pendency is 4.3 years)

○ The governments (both central and state) in India allocates 0.08% to 0.09% of

GDP on administration of justice. This is much lower compared to other

countries (figure 11). The increased expenditure may not reduce the

pendency of the case but the expenditure on modernization,

computerization and technology can definitely lead to shorter average trial

lengths


● Cost of delay

○ The value of the infrastructure projects of six ministries (of central

government) that are currently stayed is to the tune of Rs 52000 Cr (Table 3)

○ The Ministries of Power, Roads and Railways have the highest concentration

of stayed projects (both in terms of numbers and value) and since the

projects were predominantly debt-financed, it is likely that project costs have

increased by close to 60% given the average duration of stay (Table 3)

○ The overall impact of rising pendency at Appellate Tribunals, High Courts and

the Supreme Court, coupled with the rising use of injunctions and other blunt

instruments has led to spiraling legal expenses of Corporate India (figure 8)


Tax Litigation

● Pendency, arrears and delays are not just the feature of courts but also the tax

departments

● As of March 2017, there were approximately 1,37,176 direct tax cases under

consideration at the level of ITAT, High Courts and Supreme Court

● Dedicated Subject matter benches

○ SC in 2014 set up an exclusive bench for taxation cases

○ This bench has produced impressive results and with this the SC has been

able to reverse the trend of burgeoning pendency of case. In 2015 it

authored 197 judgements (which is thrice the number of judgements passes

in the previous three years)

○ The bench has reduced its reliance on staying claims and has been focused on

hearing and disposing the cases

○ Benefits of such bench

■ These help in speeding up the case disposal and reduce the pendency

time


■ These ensure that the Supreme Court speaks in one voice

■ These ensure that there is continuity and consistency of legal

jurisprudence

■ These benches create efficiencies by allowing the judge to focus on

the specialized branch of law placed before her

Hence there is a need for all the high-courts to replicate this model

Policy Implications

● There is a need to build the capacity at the lower judiciary to particularly deal with

economic and commercial cases so that the burden from the high courts is lifted

● Downsizing/removing original and commercial jurisdiction of the High Courts and

enabling the lower judiciary to handle such cases

● Courts may revisit the size and scale of their discretionary jurisdictions and must

avoid resorting to them unless necessary

● The existing judicial capacity must be utilized fully

● The tax department must exercise restraint and limit the appeals (as the success rate

is very low). An independent panel could be created to decide on the further appeals

● The state governments must consider increasing their expenditure on

modernization, computerization and technology

● More subject matter specific benches must be created at the level of Supreme court

and High courts

● Improving the Courts Case Management and Court Automation Systems. EODB,

2018 has identified specific issues with India’s poor Court Management and Court

Automation systems, which may be used as a template by Courts and the

Government


Volume 2


01 An Overview of India's Economic Performance in 2017-18

● India has been one of the best performing economies with a GDP growth averaging

7.5% between FY15 and FY17. Although growth is expected to decline to 6.5% in

FY18, bringing the 4-year average to 7.35%, despite this, India’s GDP growth is

significantly higher than most economies of the world

● Per Capita Income

○ The real per capita income (measured in terms of per capita net national

income at constant (2011-12) prices is one of the important indicators

representing the welfare of people of a country

○ It is expected to increase from Rs 77,803 in FY16 to Rs 86,660 in FY18,

growing at an annual average rate of 5.5%. In nominal terms it increased by

an average of 9.0% per annum from Rs 94,130 in FY16 to Rs. 111,782 in FY18

● Savings and Investment

○ Despite the fact that Indian economy has registered a fairly robust growth in

the 4 years between FY15 and FY18, there has been some concern regarding

savings and investment

○ The investment rate (Gross Capital Formation-GCF-as a share of GDP) in the

economy declined by nearly 5.6% between FY12 and FY16

○ The major reduction occurred in the year FY14, when investment rate

declined by nearly 5%. This was on account of number of factors

■ Difficulties in acquiring land

■ Delayed and cumbersome environmental clearances

■ Problems on infrastructure front, etc

○ Although many of these problems have been addressed, the investment rate

(GFCF-Gross Fixed Capital Formation-mainly fixed investment) has not picked

up

○ Savings rate (Gross saving as a share of GDP) also declined by 2.5% between

FY12 and FY14 and has remained in the same range. The faster decline in

investment rate vis-à-vis the savings rate has led to lower level of current

account deficit (Savings Investment gap) from FY14 to FY16


○ There has been a consistent reduction in investment rate from close to 39%

of GDP in FY12 to 33.3% in FY16

○ Fixed investment rate (GFCF as a share of GDP) declined by 5% between FY12

and FY16. It declined by another 2% in 2016-17

● Inflation

○ Inflation in the country continued to moderate during 2017-18. Headline

inflation as per Consumer Price Index – Combined (CPI-C) declined to 3.3% in

2017-18 (Apr-Dec) from 4.8 per cent in the corresponding period of 2016-18

○ Average inflation based on the Wholesale Price Index (WPI) stood at 2.9% in

2017-18 (Apr-Dec) as compared to 0.7% in 2016-17 (Apr-Dec).

● External Sector

○ The global economy has been gathering pace and is expected to accelerate

from 3.2% in 2016 to 3.7% in 2018. World trade volume growth is projected

to increase from 2.4% in 2016 to 4.2% and 4.0% respectively in 2017 and

2018

○ Commodity prices (fuel and nonfuel) are also expected to grow in contrast to

decline in the last few years

● Balance of Payments


○ India’s balance of payments situation which has been benign since 2013-14,

continued to be so in the H1 of 2017-18, despite some rise in CAD in Q1. The

CAD increased from US$ 3.8 billion (0.4% of GDP) in H1 of 2016 -17 to US$

22.2 billion (1.8% of GDP) in H1 of 2017-18, primarily on account of a higher

trade deficit brought about by a larger increase in merchandise imports

relative to exports.

● Foreign Exchange Reserves

○ India’s foreign exchange reserves reached US$ 409.4 billion on December 29,

2017, with a growth of 14.1% on a Y-o-Y basis from end-December 2016 and

growth of 10.7% from end-March 2017

● External Debt

○ India’s stock of external debt increased by 5.1% to US$ 495.7 billion at end-

September 2017 from end-March, 2017

○ The increase in long term debt was primarily due to the increase in foreign

portfolio investment included under commercial borrowings

○ Short term debt grew by 5.4%, mainly due to an increase in trade related

credits

○ Share of Government (Sovereign) debt in total debt increased to 21.6% at

end-September 2017 from 19.4% at end-March 2017 mainly due to other

Government external debt component reflecting the increasing level of

foreign portfolio investments in Government securities.

● Trade Policy

○ Two important developments in the trade policy during the year are the mid-

term review of Foreign Trade Policy (FTP) and the recent multilateral

negotiations of WTO in December 2017

● Prospects of Growth for 2018-19

○ CSO has estimated the GDP growth in 2017-18 to be 6.5%. However, there

are indicators that have emerged in the last few days like manufacturing and

services PMI, growth of industrial sector as reflected by higher IIP,

automobile sales etc. which seem to suggest that the GDP growth could be a

little higher than CSO’s estimates and for 2017-18, it could be in the range of

6.5 to 6.75 per cent


02 Review of Fiscal Developments

The government has been determined in implementing the taxation reforms in the present

year which can be understood by looking at the fiscal indicators such as revenue buoyancy,

expenditure quality, devolution and deficits which have improved visibly in the last three

years


Receipts of the government

● There are three distinct patterns on the revenue front (till November 2017)

○ The gross tax collections are on the track

○ Non-tax revenues have visibly under-performed

○ Non-debt capital receipts especially the proceeds from the disinvestment are

doing well

● Disinvestment

○ The government had set a target of Rs 72,500 Cr (for FY18) of which

■ Rs 46500 Cr from disinvestment from CPSEs

■ Rs 15000 Cr from strategic disinvestment

■ Rs 11000 Cr from listing of insurance companies

Of this so far over Rs 52378 has been collected which is generating optimism

regarding disinvestment proceeds (the target for FY18 is much higher than

what was achieved in the previous year - Rs 46247 Cr)

● The share of taxes from the states has increased by 25.2% during April to November

2017

● The growth in direct tax proceeds has kept pace with previous year

Expenditure and Deficits


● This year the government decided to prepone the announcement of budget by a

month which gave the spending agencies time to plan in advance for the

expenditure and start the implementation early in the financial year. Hence the

expenditure patterns of this year are not comparable with any of the previous years.

This has also contributed to greater deficits in the current year compared to the

corresponding periods in the previous years. Another reason for higher deficits is the

front loading of certain expenditure (this is a part of the prudent expenditure

management). However it cannot be denied that there was pressure on revenue and

fiscal deficit front

● The revenue expenditure movements can be explained by looking at the interest

payment liabilities which have increased possibly on account of servicing the debt

payments of Market stabilization bonds that were issued during demonetization

● On the other side because of increase in the petroleum prices in the international

market, the subsidy outflow also has increased

● However the total subsidy outflow has been within the target and under control

States

● The revenue receipts of the state governments have kept pace with the previous

year in terms of growth

● The Revenue and Capital Deficit in the present year are lower than the

corresponding period in the previous years


03 Monetary Management and Fiscal Intermediation

● Liquidity Conditions

○ Post demonetization the RBI has used conventional and unconventional tools

to absorb the liquidity

○ To absorb the liquidity RBI used LAF (Liquidity Adjustment Facility), Issue of

Treasury Bills (TBs) under MSS (Market Stabilization Scheme) and OMOs

(Open Market Operations)

● Banking Sector

○ The performance of PSBs (Public Sector Banks) has continued to be subdued

even in the current financial year

○ The GNPA (Gross Non-Performing Assets) ratio of SCBs (Scheduled

Commercial Banks) has increased from 12.5% to 13.5% (between March 2017

to September 2017)

○ CRAR (Credit to Risk Weighted Assets Ratio) of SCBs has increased from

13.6% to 13.9% (between March 2017 to September 2017). This is largely

because of the improvements in the private sector banks (PVBs)

○ Many of the PSBs have continued to record negative profitability ratios since

march 2016

Credit Growth

● The NFC (Non-Food Credit) grew at 8.85% Year-on-Year (Y-o-Y) in November 2017

compared to 4.75% in November 2016

● Credit growth has finally picked up in industrial sector after remaining persistently

negative from October 2016 to October 2017 (Figure 7)

● Growth of credit to medium scale industries has remained negative


NBFC (Non-Banking Financial Companies (NBFCs)

● NBFCs bring in diversity and efficiency in the financial sector and make it more

responsive to the needs of the customers

● NBFC as a whole accounted for 17% of the bank assets and 0.26% of the bank

deposits as on September 30, 2017

● Two new categories of NBFCs have been introduced

○ P2P (Peer to Peer)

■ According to the RBI guidelines, ‘Peer to Peer Lending Platform means

an intermediary providing the services of loan facilitation via online

medium or otherwise, to the participants.’ In simple terms it is like

crowdfunding where the loans are raised and repaid with interest

without having to get it from financial institution. An individual

borrower can borrow or lend money on a platform. And the loans

given here are unsecured loans

■ The decision to recognize P2P platform is important as

● Provides official recognition for the P2P

● Gives one more avenue for the individual to borrow or lend

● Comes under regulation of RBI

● Will help in business expansion

■ Eligibility and Registration for P2P

● Only entities registered as a company can get P2P registration

from the RBI


● Every NBFC-P2P (Peer to Peer Platform) shall obtain a

certificate of registration to start P2P lending activities before

starting operations

● Every company seeking registration shall have a net owned

fund (NOF) of not less than Rs 2 crores or such higher amount

as the RBI may specify

■ Activities of P2P

● It is an online platform that matches lenders with borrowers in

order to provide unsecured loans

● The P2P should act as an intermediary providing an online

marketplace or platform to the participants involved in Peer to

Peer lending

● P2P should not mobilize deposits or give loan on its own

● P2P should not provide or arrange any credit enhancement or

credit guarantee

● P2P should not facilitate or permit any secured lending linked

to its platform

● P2P should not hold, on its own balance sheet, funds received

from lenders for lending, or funds received from borrowers for

servicing loans and the specified funds

● P2P Should not permit international flow of funds

● The aggregate exposure of a lender to all borrowers at any

point of time, across all P2Ps, shall be subject to a cap of Rs 10

lakh

● The aggregate loans taken by a borrower at any point of time,

across all P2Ps, shall be subject to a cap of Rs 10 lakh

● The exposure of a single lender to the same borrower, across

all P2Ps, shall not exceed Rs 50,000

● The maturity of the loans shall not exceed 36 months

● The loan recovery practices of other NBFCs will be applicable

to P2Ps

● There should be proper redressal mechanisms for complaints

● Fund should be transferred directly from the lender’s bank

account to that of the borrower (This is done in order to check

money laundering)

○ Account Aggregators (AAs)

■ AAs are companies/financial entities that will collect, collate and

provide information on a customer’s financial assets (investments in

various NBFCs), in a consolidated, organized and retrievable manner


to the customer or any other person as per the instructions of the

customer

■ Significance of NBFC-AA

● Presently a customer could have investments under various

financial products and at times it is difficult to recollect or

retrieve the information regarding all of such investments.

Hence the main function of the NBFC–AA is to provide

information to the customer about the various products he

has in a common format

● Whether to use the services of AAs is the prerogative of the

customer

● The activities of the AA will be IT oriented (means digital

information will be provided to the customer)

● Unlike other NBFCs, the AA will not provide any transaction in

financial assets by its customers. His only role will be that of

account aggregation

■ Services of the AA should be backed by appropriate

agreements/authorizations between the aggregator, customer and

financial service provider

The Insolvency and Bankruptcy Regime

● The Insolvency and Bankruptcy Code, 2016 (IBC) was passed in May 2016 and has

been operational from 1st December 2016

● Since then

○ The entire mechanism for the Corporate Insolvency Resolution Process (CIRP)

has been put in place

○ A number of rules and regulations have been notified to create the

institutions and professionals necessary for the process to work

○ A large number of cases have entered the insolvency process, and a few have

even exited the process

○ Over 1,300 Insolvency Professionals are registered (under three Insolvency

Professional Agencies)

○ The first Information Utility has also started functioning

○ Over 525 cases of corporate insolvency have been admitted across all the

National Company Law Tribunal (NCLT) benches (Table 1)

○ In addition, 108 Voluntary Liquidation proceedings and one Fast-Track

Corporate Insolvency Resolution have also been initiated


● A major factor behind the effectiveness of the new Code has been that the code

prescribes strict time limits for various procedures under it. As a result of this,

despite the inflow of cases being huge, the NCLT benches have been able to admit or

reject applications for CIRP admissions with very few delays. In addition, appellate

courts, including the NCLAT, High Courts and the Supreme Court have also disposed

appeals quickly and decisively. In this process, a rich case-law has evolved, reducing

future legal uncertainty

● On 13th June, 2017, the RBI identified 12 large loan defaulters where the Insolvency

and Bankruptcy Code (IBC) was initiated

● The Insolvency and Bankruptcy Code (Amendment) Bill, 2017

○ The Insolvency and Bankruptcy Code (Amendment) Bill, 2017, was passed by

the Lok Sabha on December 29, 2017, and by the Rajya Sabha on January 2,

2018. It replaces the IBC (Amendment) Bill, 2017, which was promulgated on

November 23, 2017.

○ In the CIRP the Committee of Creditors (CoC) invites resolution plans from

resolution applicants, and may select one of these plans. The Code originally

does not specify any restrictions on who these resolution applicants might

be. The Bill has declared following persons are ineligible to submit resolution

plans

■ An undischarged insolvent

■ A willful defaulter

■ A borrower whose account has been identified as a non-performing

asset for over a year and who has not repaid the amount before

submitting a plan

■ A person convicted of an offence punishable with two or more years

of imprisonment

■ A person disqualified as a director under the Companies Act, 2013

■ A person prohibited from trading in securities


■ A person who is the promoter or in the management of a company

which has indulged in undervalued, preferential, or fraudulent

transactions

■ A person who has given guarantee on a liability of the defaulting

company undergoing resolution or liquidation, and has not honored

the guarantee

■ A person who is subject to any of the above disabilities in any

jurisdiction outside India

■ A person who has a connected person disqualified in any manner

above

○ The main objective of this amendment is to prohibit the promoters who have

purposefully run down the company in order to reduce their liability by

buying their company back from the Committee of Credits at discount

○ The Bill, thus, seeks to achieve a balanced approach, enabling the CoC to

avoid imprudent transactions, while preserving its freedom to choose the

best resolution plan from amongst all the applicants


04 Prices and Inflation In the last four years Indian economy has seen shifting from a period of very high and

variable inflation to a period of stable inflation. The headline CPI inflation rate has remained

very much under the control for the fourth successive year

● In FY18 the inflation rate in the beginning was 3%. For the first two quarters the rate

has been 2.2% and 3%

● The average inflation based on the new series (2011-12) of Wholesale Price Index

(WPI) stood at 1.7% in FY17 compared to -3.7% in FY16 and 1.2% in FY15. WPI based

inflation for FY18 (April to December) stood at 2.9% (figure 1)

● The average CPI-combined (CPI-C) inflation declined to 4.5% in FY17 from 4.9% in

FY16 and 5.9% in FY15. Average inflation for FY18 (April to December) stood at 3.3%,

below the threshold level of 4% (figure 1). At the all India level the CPI-C inflation

was driven by food during FY17 (April to December)

● Food inflation

○ The government has been able to keep the food inflation under control

(through regular price monitoring) despite good agricultural production. CFPI

(Consumer Food Price Index) declined to 4.2% in FY17 from 4.9% in FY16 and

6.4% in FY15

○ Average food inflation for the FY18 (April to December) declined to a low of

1.2% and stood at 5.0% in December, 2017


○ The rise in food inflation in recent months is mainly due to factors driving

prices of vegetables and fruits

○ Food inflation based on WPI has also declined, it averaged 2.3% in FY18 (April

to December) as compared to 6.3% in FY17 (April to December)

● Core Inflation

○ While significant moderation has been witnessed in the headline and food

inflation, the CPI based core inflation has remained above 4% during the last

four financial years. However, it has declined from 4.8% in FY17 (April to

December) to 4.5% in FY18 (April to December) and was 5.2% in December,

2017 (figure 2)

○ Refined core inflation means core inflation excluding petrol, diesel, gold and

silver

● Trends in Global Commodity Prices

○ As per the commodity prices published by the World Bank, energy

commodity prices are surging recently. These recorded average inflation of

15.3% in FY18 (April to December) compared to -8.0% in FY17 (April to

December) (figure 10)


Measures taken by the government to control inflation

● Advisories are being issued (as per the requirement) to State Governments to take

strict action against hoarding & black marketing and effectively enforce the Essential

Commodities Act, 1955 & the Prevention of Black-marketing and Maintenance of

Supplies of Essential Commodities Act, 1980 for commodities in short supply

● Regular review meeting on price and availability situation is being held at the highest

level including at the level of Committee of Secretaries, Inter Ministerial Committee,

Price Stabilization Fund Management Committee and other Departmental level

review meetings

● Higher MSP has been announced so as to incentivize production and thereby

enhance availability of food items which may help moderate prices

● A scheme titled Price Stabilization Fund (PSF) is being implemented to control price

volatility of agricultural commodities like pulses, onions, etc

● Government approved enhancement in buffer stock of pulses from 1.5 lakh MT to 20

Lakh MT to enable effective market intervention for moderation of retail prices.

Accordingly, a dynamic buffer stock of pulses of up to 20 lakh tonnes has been built

under the Price Stabilization Fund (PSF) Scheme through both domestic procurement

as well as imports

● Export of edible oils was allowed only in branded consumer packs of up to 5 kg. with

a minimum export price of USD 900 per MT. With a view to incentivizing domestic

production this restriction has been removed on oil except for palm oil, mustard oil

and sunflower oil

● Government has imposed stock holding limits on stockist/dealers of sugar till April,

2018


● Government imposed 20% duty on export of sugar for promoting availability and

moderating price rise

● Permitted import of 5 lakh tonnes of raw sugar at zero duty; subsequently, import of

additional 3 lakh tonnes was allowed at 25% duty

● Export of all varieties of onion will be allowed only on letter of credit subject to a

minimum export price (MEP) of $ 850 per MT till 31st December, 2017

● States/UTs have been advised to impose stock limit on onions. States were

requested to indicate their requirement of onions so that import of requisite

quantity may be undertaken to improve availability and help moderate the

prevailing high prices

Producer Price Index

● The Producer Price Index (PPI) measures the average change in the prices of goods

and services, either as they enter the production process (referred to as Input PPI) or

as they leave the place of production (referred to as Output PPI). Thus, the input

indices measure the average change in prices that producers pay for their inputs

while the output indices measure the average change in prices that producers

receive for their outputs

● The output PPI reflects prices of goods and services received by the producers

exclusive of any tax on product, transport and trade margin, i.e., the prices are

measured at basic price captured at the level of ex-factory, ex-mine, ex-firm, ex-

service provider etc. The basic price would however include any taxes/ subsidies on

production, if any. For input PPI, valuations are done at purchaser’s price which is

defined as the amount paid by the purchaser inclusive of any non-deductible taxes

on product, and transport and trade margins. Thus input PPI measures the change in

the prices of intermediate inputs (inputs used in production process of an

establishment that are produced elsewhere in the domestic economy or imported

from abroad) while excluding primary inputs like land, labor and capital

● The basic prices reflect the amount received by the producer exclusive of any taxes

on products and transport and trade margins. It is the amount receivable by the

producer from the purchaser for a unit of a product produced as output, minus any

tax payable, plus any per unit subsidy receivable on that unit as a consequence of its

production or sale

● PPI contrasts with other measures such as the Consumer Price Index (CPI) which

measures changes in prices from buyers or consumers perspective

● The government in 2014 had set up a committee headed by Prof B N Goldhar. The

committee has submitted the report in 2017

○ PPI in India may be compiled based on Supply Use Table 2011-12 using Total

Final Use values for higher level weights. Initially indices based on Total Final

Use weights should be compiled separately for goods and services. Aggregate


index based on goods and services may be compiled and released once the

coverage of service sector indices is adequate and the sector-wise indices are

robust and stable (Supply use tables are in the form of matrices that record

how supplies of different kinds of goods and services originate from domestic

industries and imports and how those supplies are allocated between various

intermediate or final uses, including exports)

○ Two separate sets of input PPIs may be compiled - one including services and

the other excluding services

○ An additional set of output PPI based on Final Demand and Intermediate

Demand framework may also be compiled for the benefit of the users

○ The PPIs may be initially compiled on an experimental basis and switching

over from WPI to PPI should be undertaken after the PPI series stabilizes and

due consultation with the stakeholders is done

○ For compilation of experimental PPI, price quotations collected for current

series of WPI may be used

○ The experimental PPI will be released on monthly basis. Initially, the base

year of the experimental PPI would be 2011-12

○ The Working Group recommended inclusion of 15 services in the PPI basket

to begin with. The coverage of service sector may be extended to all key

sectors on an urgent basis during the experimental phases of PPI


05 Sustainable Development, Energy & Climate Change

The global community adopted UN SDGs (United Nations Sustainable Development Goals) in

September 2015. It has 17 goals and 169 targets to be achieved by 2030. The government

did not only play an important role in formation of the SDGs but has been actively taking

measures to implement various schemes so that the targets set under SDGs are achieved.

India is one of the countries that has volunteered to take part in the Voluntary National

Reviews (VNRs) at the High-Level Political Forum (HLPF) 2017 which ended with ministerial

declaration adopting the theme ‘Eradicating poverty and promoting prosperity in a changing

world’. India presented its 1st VNR on implementation of SDGs on 19th July, 2017 in the

HLPF at United Nations, New York. The VNR report is based on an analysis of progress under

various programmes and initiatives in the country. The VNR report focused on 7 SDGs

● 1 - No Poverty

● 2 - Zero Hunger

● 3 - Good Health and Well-Being

● 5 - Gender Equality

● 9 - Industry, Innovation and Infrastructure

● 14 - Life below Water

● 17 - Partnerships for the Goals

National SDG Indicator and Baseline

● A draft national SDG indicators are being developed by Ministry of Statistics &

Programme Implementation (with inputs from Central Ministries and various other

stakeholders)

● A monitoring and reporting system will be set up to regularly take stock of the

implementation process and generate credible information and evidence on

progress of the SDGs with the base year as 2016

● The National Institution for Transforming India (NITI) Aayog’s role will be to collect,

validate and document best practices in implementation of SDGs for wider

dissemination

● On a regular basis, progress on SDGs will be tracked through an integrated

dashboard

Urban India and Sustainable development

● SDG 11 is make cities inclusive, safe, resilient and sustainable. As cities are the

centers of economic development, they need to deliver on number of basic services,

which will define their sustainable development


● As per the World Economic and Social Survey, 2013, achieving the sustainability of

cities involves integration of four pillars

○ Social development

○ Economic development

○ Environmental management

○ Effective urban governance

● According to the UN World Cities Report 2016, by 2030, India is expected to be

home to seven mega-cities with population above 10 million

● According to Census 2011, 377.1 million Indians comprising 31.16% of the country’s

population live in urban areas

● India’s urban population is projected to grow to about 600 million by 2031

● Having looked at various figures, the issue is that many Indian cities are now

struggling with multiple problems of poverty, inadequate provision of urban

services, congestion, air pollution, sizeable slum population, lack of safety measures,

and challenges in terms of garbage removal, sewage system, sanitation, affordable

housing, and public transport

● Some of the reforms undertaken by the central government in this regards are

○ Smart Cities Mission

○ National Urban Housing & Habitat Policy (2007)

○ Swachh Bharat Mission (Urban)

○ Management of Municipal Solid Waste (MSW) etc

● Despite this there are many challenges which still exist. According to the High

Powered Expert Committee appointed by the Ministry of Housing and Urban Affairs,

Rs 39 lakh crore was required for creation of urban infrastructure over the next 20

years

● Raising resources of this magnitude is going to be a challenge which becomes much

more difficult when the recovery is lesser than 50%. Hence the way forward will be

to promote ULBs to raise resources by using various instruments such as municipal

bonds, PPPs, credit risk guarantees, etc

● SEBI in 2015 has notified a new regulatory framework for issuing municipal bonds

and it allowed for municipal bodies or a corporate municipal entity to issue

municipal bonds through private placement or public issue

● Apart from the bonds the ULBs and the state governments have to bring operational

efficiency and financial viability in urban projects

Access to sustainable energy

● If the SDGs are to be achieved then there is a need to provide access to affordable,

reliable, sustainable and modern energy. The access to energy is interlinked with

other goals and objectives such as good health and well-being, gender equality,

industry, innovation and infrastructure, sustainable cities and communities


● To linkage between energy access and gender equality can be explained by

○ In India women spend around 374 hrs on annual basis to collect the

firewood. It is again women who have to inhale the gases because of

firewood burning which causes health hazards

○ As per a survey 4.3 million worldwide die because of household air pollution

which results from the burning of the solid fuels

○ If the burden of collecting firewood is reduced by providing access to cooking

gas, the girls education levels can be improved which will lead to their

employment and this will lead to gender equality

○ Keeping in mind this the government has launched Pradhan Mantri Ujjwala

Yojana (PMUY) under which 8 crore beneficiaries will be provided with the

gas connections

○ Apart from this the government also has launched Ujjwala Plus under which

cooking needs of the deprived people, who are not covered under SECC will

be addressed

● The government has also implemented schemes such as Deen Dayal Upadhyaya

Gram Jyoti Yojana (DDUGJY) and Saubhagya Scheme to ensure that the villages are

electrified and 24*7 electricity is supplied

● As of November 2017, total installed capacity is 330 GW of which 18% is from the

renewable energy sources. The share of renewables has increased over the time (the

current share is thrice of what it was in 2007) (Figure 3). The total installed solar

capacity has increased from 6.8 GW (March 2016) to 17 GW (December 2017).

Although the lower tariffs are welcome this has led to an unfavourable outcome

wherein some of the states are apprehensive about the PPAs and are seeking

renegotiations. This may result in risk to the investment done in the sector which is

to the tune of Rs 48000 Cr. the renegotiation demand may also lead to long drawn

legal battles and this may crowd out the banking sector from investing in these kind

of projects. This will also affect the aim of the government to achieve the 175 GW of

renewable energy by 2022

● To ensure efficient and effective usage of energy, finance ministry has issued

guidelines in 2017 under Buildings Energy Efficiency Programme for mandatory

installation of energy efficient appliances in all central government buildings. This is

being implemented by EESL (Energy Efficiency Services Limited)


International Solar Alliance (ISA)

● ISA is a coalition of solar resource rich countries which may fully/partially between

tropic of Cancer and tropic of Capricorn

● It aims at address energy needs by harnessing solar energy

● It was launched on 30th November 2015 and has come into force from 6th

December 2017

● As on date, 46 countries have signed and of these 19 have ratified the agreement

● The ISA will help pave the way for future solar generation, storage and good

technologies for each prospective member country’s individual needs by mobilizing

more than US $ 1 trillion dollars in investments that will be required by 2030

● Financing - the GoI has made a provision of Rs 100 Cr as a one-time fund and a

recurring expenditure of Rs 15 Cr on annual basis till 2020-21. Apart from this,

France has offered €300 million for solar projects across ISA members

● Presently ISA has three programmes

○ Scaling Solar Applications for Agricultural Use


○ Affordable Finance at Scale

○ Scaling Solar Mini-grids

And is planning to launch two more schemes

○ Scaling Solar Rooftops

○ Scaling E-Mobility & Storage

● It has entered into strategic and financial partnerships with UNDP, The World Bank

etc

● The Haryana government has granted Rs 10 Cr to constitute Kalpana Chawla Solar

Award for women solar scientists doing extraordinary work across the ISA member

countries

India and Climate Change - some of the initiatives taken by the government are

● As part of the mission on strategic knowledge on climate change, India has

established 8 Global Technology Watch Groups in the areas of

○ Renewable Energy Technology

○ Advance Coal Technology

○ Enhanced Energy Efficiency

○ Green Forest

○ Sustainable Habitat

○ Water

○ Sustainable Agriculture


○ Manufacturing

● 32 States and Union Territories have put in place the State Action Plans on Climate

Change attempting to mainstream climate change concerns in their planning process

● Climate Change Action Programme (CCAP), launched in 2014 with an objective of

building and supporting capacity at central & state levels, strengthening scientific &

analytical capacity for climate change assessment, establishing appropriate

institutional framework and implementing climate related actions has been

extended for the period 2017-18 to 2019-20

● National Adaptation Fund on Climate Change established in 2015 to support

concrete adaptation activities which are not covered under ongoing activities

through the schemes of State and Central Government, continues till 31st March

2020

● India is one of the few countries where, despite ongoing development, forest and

tree cover has increased transforming country’s forests into a net sink owing to

national policies aimed at conservation and sustainable management of forests.

India’s growth in the forest cover has been in the positive territory while that for

Indonesia and Brazil, which are countries with substantial forest cover, the growth

has been in the negative territory during the same period

● Pradhan Mantri Krishi Sinchayee Yojana has been formulated with the vision of

extending the coverage of irrigation and improving water use efficiency

● Second Phase of Science Express Climate Action Special train with the aim to create

awareness among various sections of society, especially students, on the science of

climate change, the observed and anticipated impacts, and different possible

responses as to how climate change can be combated

● Zero Effect, Zero Defect is a policy initiative to enhance energy efficiency and

resources efficiency in Medium & Small Industries

● The National Mission for Clean Ganga seeks to rejuvenate the river along its length

of more than 2,500 km

● Indian financial market also moved in the direction of greener actions. SEBI issued

the circular on the disclosure requirements for Issuance and Listing of Green Debt

Securities on 30th May, 2017. The utilization of the proceeds shall be verified by the

report of an external auditor, to verify the internal tracking method and the

allocation of funds towards the project(s) and/or asset(s), from the proceeds of

Green Debt Securities

● In the Union Budget 2017, government indicated to increase the coverage under the

Pradhan Mantri Fasal Bima Yojana(PMFBY) from 30 per cent to 40 per cent in 2017-

18 and 50 per cent in 2018-19

● In February, 2017, India launched the world’s first interoperable Quick Response

(QR) code acceptance solution. It is a sticker pasted on the teller counter wall of the

merchant and can be generated dynamically on merchant itself, removing the need


to even print. By providing the Bharat QR option, India is taking the right step in the

direction of greener and sustainable future

Air Pollution in Delhi

● Reasons

○ Crop Residues - 35 million tons of rice-paddy stubble is produced in 3

adjoining states (Punjab, Haryana, UP). burning these stalks lead to

generation of plumes which drift towards New Delhi (add to this the burning

of crackers)

○ Biomass burning - in 2008-09 India produced a total of 620 million tonnes of

crop residue. Of this Punjab contributed 19-20 million tonnes and 85 to 90%

of the paddy straws are burnt in the field which add to the pollution

○ Industries

○ Power Plants

● Actions to be taken

○ Short-Term Emergency Plan (when 24-hourly PM2.5 exceeds 300-400

mg/m3)

■ Strict enforcement through heavy penalties on agricultural waste

burning using satellite based tools detecting fires, and mobile based

applications in NCR

■ Incentive payments to farmers, coordinated across states and NCR.

○ Medium and Long-Range Actions

■ Implement congestion pricing for vehicles

■ Expand and improve public buses dramatically to reduce private

vehicle use, and for connectivity to and beyond metro

■ Phase-out old vehicles, accelerate BS-VI (already notified and to be

commenced from 2020), and expand modernized bus fleets.

○ Use technologies to convert agricultural waste into usable concentrated

fodder or bio-fuels

○ Develop and implement business models with private sector and

communities and incentivize shift to non-paddy crops

○ Explore the business cases for finding uses for the crop residues such as

manure to reduce fertilizer cost, generate power so that economic values

could be assigned. One such example is the straw management system for

rice and wheat farming. A technology called Happy Seeder machine could be

a possible technological solution. It is a machine that sows seeds without the

need to remove paddy straw and works well when the straw is spread evenly

on the field through the straw management system


Way Forward

● The Global Climate Risk Index 2018 has put India amongst the six most vulnerable

countries in the world

● A large chunk of population under poverty lives in areas prone to climatic shifts and

in occupations that are highly climate-sensitive, future climate change could have

significant implications for living standards

● India’s efforts on sustainable development and climate change have ensured several

positive outcomes but there are immense financial requirements to fulfil the

commitments

● The climate change has been given high importance in policy decisions and recently

the Fifteenth Finance Commission Terms of Reference outlined climate change as an

important aspect for consideration


06 External Sector

● The volume of the global trade is projected to increase from 2.4% in 2016 to 4.2% in

2017 and 4.0% in 2018

● The Commodity prices (Oil and Nonfuel) are also expected to grow, in contrast to

previous years of decline.

● As per the estimations of the IMF (October 2017) global recovery is not yet complete

○ As inflation is still below the target in most advanced economies

○ Commodity exporters, particularly fuel exporters have been hit due to fall in

oil prices

While short term risks are broadly balanced, medium-term risks are still tilted

towards the downside

● BoP Situation

○ The BoP situation, which has been benign and comfortable since 2013-14,

continued to be so in the first half of 2017-18

○ The Current Account Deficit (CAD) in the first quarter rose, with a relatively

lower CAD in the second quarter. The widening of the CAD was due to a

higher trade deficit (US$ 74.8 billion) which was brought about by a larger

increase in merchandise imports relative to exports. The surge in imports is

because of the sharp rise in imports of gold, with its volume more than

doubling as uncertainty over GST implementation resulted in front loading of

purchases by jewellers in Q1. This, along with the rise in crude oil prices

(Indian basket) resulting in increase in oil import bill, led to the increase in

imports

● Merchandise

○ India’s merchandise exports had reached the level of US$ 314.4 billion in

2013-14. Following the global trend of decline in export growth

○ India’s exports also declined during 2014-15 and 2015-16, by 1.3% and 15.5%

respectively.

○ India’s export growth continued to be negative in the first half of 2016-17 at -

1.3%. However, in the second half of 2016-17, it started recovering, resulting

in exports reaching US$ 275.9 billion with growth of 5.2% for the year 2016-

17

○ Merchandise imports also fell from a high of US$ 490.7 billion in 2012-13 to

US$ 381.0 billion in 2015-16 and registered a mild increase of 0.9 per cent to

US$ 384.4 billion in 2016-17

● Trade Deficit

○ India’s trade deficit has declined since 2014-15, widened to US$ 74.5 billion

in H1 of 2017-18 from US$ 43.4 billion in H1 of 2016-17


○ India’s trade deficit was US$ 108.5 billion in 2016-17, with the reduction in

both POL deficit and non POL deficit

○ The top five countries with which India has negative bilateral trade balance

are China, Switzerland, Saudi Arabia, Iraq and South Korea while the top five

countries with which it has surplus trade balance are USA, UAE, Bangladesh,

Nepal and UK

○ India has the highest trade deficit with China

● Invisibles

○ As per the World Bank report, India has remained one of the major recipients

of cross border remittances and it will remain a top remittance recipient

country in 2017, followed by China, the Philippines, and Mexico

○ However, the private transfers (gross) inflows to India declined by 6.1% in

2015-16 and 6.5% in 2016-17. This was due to constrained labour market

conditions in the source countries, particularly GCC (Gulf Cooperation

Council) countries, largely caused by the fall in international crude oil prices

○ Gross private transfer inflows fell to US$ 65.6 billion and US$ 61.3 billion in

2015-16 and 2016-17 respectively from US$ 69.8 billion in 2014-15.

○ According to the World Bank, (October 2017), the number of Indian workers

emigrating to Saudi Arabia (India’s third largest remittance sender) dropped

from 3.0 lakhs in 2015 to 1.6 lakh in 2016; and to the United Arab Emirates

(India’s largest inward remittance contributor) from 2.2 lakh in 2015 to 1.6

lakh in 2016

○ Total Indian workers outflow fell from 7.8 lakh in 2015 to 5.1 lakh in 2016.

○ Apart from it, other factors which affect the remittances are tightening

norms of hiring foreign workers in US, labour market adjustment in GCC

countries and rising anti-immigration sentiments in many source countries

pose considerable downside risk


● Mid-Term review of Foreign Trade Policy

○ MEIS (Merchandise Exports from India Scheme) incentives for two sub-

sectors of Textiles i.e. Ready Made Garments and Made Ups increased from

2% to 4% involving additional annual incentives of Rs 2743 Cr

○ Across the board increase of 2% in existing MEIS incentive for exports by

MSMEs / labour intensive industries amounting to Rs 4576 Cr

○ To provide an impetus to the services trade, the SEIS (Service Export from

India Scheme) incentives have been increased by 2% for notified services

such as Business, Legal, Accounting, Architectural, Engineering, Educational,

Hospital, Hotels and Restaurants amounting to Rs 1140 Cr

○ The validity period of the Duty Credit Scrips has been increased from 18

months to 24 months to enhance their utility in the GST framework. GST rate

for transfer/sale of scrips has been reduced to zero from the earlier rate of

12%.

○ New trust based Self Ratification Scheme introduced to allow duty free inputs

for export production under duty exemption scheme with a self-declaration.

Under this scheme, instead of getting a ratification of the Norms Committee

for inputs to be used in the manufacture of export products, exporters will

self-certify the requirement of duty free raw materials/ inputs and take an

authorization from DGFT

○ Contact@DGFT service for Complaint Resolution has been activated on the

DGFT website (www.dgft.gov.in) as a single window contact point for

exporters and importers for resolving all foreign trade related issues


○ To focus on improving Ease of Trading across Borders for exporters and

importers, a professional team envisaged to handhold, assist and support

exporters with their export related problems, accessing export markets and

meeting regulatory requirements

○ New Logistics Division created in the Commerce Department to develop and

coordinate implementation of an Action Plan for the integrated development

of the logistics sector, by way of policy changes, improvement in existing

procedures, identification of bottlenecks and gaps and introduction of

technology in this sector

○ For clarity, a negative list of capital goods which are not permitted under the

EPCG (Export Promotion on Capital Goods) scheme has been notified.

○ The concept of Domestic Tariff Area (DTA) sale from Export Oriented Units

(EoUs) on concessional and full duty has been removed and hence, the limit

on entitlement of DTA sale has also been removed. Consequently, restriction

on DTA sale of motor cars, alcoholic liquors, books and tea has been removed

○ Second Hand Goods imported for the purpose of repair/

refurbishing/reconditioning or re-engineering have been made free, thereby

facilitating generation of employment in the repair services sector

○ Issue of working capital blockage of the exporters due to upfront payment of

GST on inputs has been addressed. Under advance authorization Export

Promotion for Capital Goods (EPCG) Scheme, 100% EoU’s, exporters have

been extended the benefit of sourcing inputs/capital goods from abroad as

well as domestic suppliers for exports without upfront payment of GST

○ e-wallet will be launched from 1st April 2018 to make the above schemes

operational from 1st April, 2018

○ The Union Cabinet Committee on 15th December 2017, approved the special

package for employment generation in leather and footwear sector. The

package involves implementation of Central Sector Scheme “Indian

Footwear, Leather & Accessories Development Programme” with an

approved expenditure of Rs 2600 Cr over the three years from 2017-18 to

2019-20. The scheme would lead to development of infrastructure for the

leather sector, address environment concerns specific to the leather sector,

facilitate additional investments, employment generation and increase in

production. The Special Package has the potential to generate 3.24 lakhs new

jobs in 3 years and assist in formalization of 2 lakh jobs as cumulative impact

in Footwear, Leather & Accessories Sector

● WTO-Ministerial Conference Negotiations

○ The Eleventh Ministerial Conference (MC11) of World Trade Organisation

(WTO) ended without a Ministerial Declaration or any substantive outcome


○ This was because the developed economies wanted to discuss new issues

such as regulating e-commerce whereas the developing countries such as

India wanted a permanent solution on food security issues

● Logistics

○ The logistics sector is worth $160 billion in 2016-17 and has grown at the a

CAGR of 7.8% in the last five years

○ With GST, the sector is expected to reach $215 billion by 2019-2020 with a

CAGR of 10.5%

○ The improved logistics have huge implications in Increase exports - 10%

decrease in the logistics cost can contribute to around 5-8% of exports

○ Challenges

■ High cost of logistics – impacting competitiveness in domestic &

global market

■ Unfavorable modal mix (Roadways 60%, Railways 30%) and inefficient

fleet mix

■ Underdeveloped material handling infrastructure and fragmented

warehousing

■ Multiple regulatory/policy making bodies with procedural

complexities including cumbersome and duplicate processes.

■ High dwell time and lack of seamless movement of goods across

modes

○ Suggested Action Plan

■ Formulation of National Integrated Logistics Policy to bring in greater

transparency and enhance efficiency in logistics operations

■ Develop integrated IT Platform as a single window for all logistics

related matters. This portal will have linkages with the IT systems of

Railways, Road transport & Highways, Shipping, Civil Aviation, CBEC,

State Transport departments, etc. and act as a Logistics marketplace

■ Usher in ease of documentation, faster clearance, digitization.

■ Bring down logistics cost to less than 10% of GDP by 2022

■ Faster clearances for setting up of logistics infrastructure like Multi-

modal logistic parks (MMLPs), Container Freight Station (CFS), Air

Freight Station (AFS) & Inland Container Depot (ICD).

■ Introduce professional standards and certification for service

providers

■ Promote introduction of high-end technologies like high-tech

scanning equipment, RFID, GPS, EDI, online Track & Trace systems in

the entire logistics network

■ Improve Logistics skilling in the country and increase jobs in Logistics

sector to 40 million by 2022

○ The Logistics sector has been given infrastructure status. The advantages are


■ It will be helpful in facilitating the credit flow into the sector with

longer tenures and reasonable interest rates

■ The infrastructure status will simplify the process of approval for

construction of multimodal logistics (parks) facilities that includes

both storage and transport infrastructure

■ It will encourage market accountability through regulatory authority

and will attract investments from debt and pension funds into

recognized projects

● Foreign Exchange Reserves

○ India’s foreign exchange reserves reached US$ 409.4 billion on December 29,

2017, with a growth of 14.1% on a Y-o-Y basis from end-December 2016 and

growth of 10.7% from end-March 2017

○ The import cover of India’s foreign exchange reserves was 11.1 months at

end-September 2017 as compared with 11.3 months at end-March 2017

● External Debt

○ India’s stock of external debt increased by 5.1% to US$ 495.7 billion at end-

September 2017 from end-March, 2017

○ The increase in long term debt was primarily due to the increase in foreign

portfolio investment included under commercial borrowings

○ Short term debt grew by 5.4%, mainly due to an increase in trade related

credits

○ Share of Government (Sovereign) debt in total debt increased to 21.6% at

end-September 2017 from 19.4% at end-March 2017 mainly due to other

Government external debt component reflecting the increasing level of

foreign portfolio investments in Government securities


07 Agriculture and Food Management

● The growth rates of agriculture & allied sectors have been fluctuating at 1.5% in

2012-13, 5.6% in 2013-14, (-) 0.2% in 2014-15, 0.7% in 2015-16 and 4.9% in 2016-17

● As per the 4th Advance Estimates for FY17, the country achieved a record

production of food grains estimated at 275.7 million tonnes

● The agricultural growth in India has been fluctuating since more than 50 per cent of

agriculture in India is rainfall dependent as noted in the overview. However, the

sector has been witnessing a gradual structural change in recent years. The

structural changes that are being witnessed by the agriculture sector necessitates

re-orientation in policies towards this sector in terms of strengthening the

agricultural value chain by focusing on allied activities like dairying and livestock

development along with gender-specific interventions

○ Policy for Women Farmers - as per census 2011, out of total female workers,

55% and 24% were agriculture labour and cultivators respectively. Having

said so only 12.8% of the operational holdings were owned by women. The

following steps need to be taken to ensure mainstreaming of women in

agriculture sector

■ Earmarking at-least 30% of the budget allocation for women

beneficiaries in all ongoing schemes/programmes and development

activities

■ Initiating women centric activities to ensure benefits of various

beneficiary-oriented programs/schemes reach them

■ Focusing on women self-help groups (SHGs) to connect them to

micro-credit

■ Recognizing critical role of women in agriculture (the ministry of

Agriculture and Farmer Welfare has declared 15th October of every

year as Women Farmer’s Day

● Cropping Pattern

○ India ranks first, with 179.8 Mha (approx 9.6% of the global net cropland

area) of net cropland area according to United States Geological Survey 2017

○ The pattern of cropping is determined by various factors like agro-climatic

conditions, farm size, prices, profitability and government policies

○ A diversified cropping pattern will help in

■ Mitigating the risks faced by farmers in terms of price shocks and

production/harvest losses

■ To improve soil health, productivity and thereby profitability of

cultivation

○ There is a need to diversify into high value crops and horticulture crops for

which Government has taken several measures. Crops Diversification


Programme is being implemented by the Government in original green

revolution states viz. Punjab, Haryana and in Western UP to diversify paddy

area towards less water requiring crops like oilseeds, pulses, coarse cereal etc

● Irrigation

○ The all India percentage of net irrigated area to total cropped area was

34.5%, which makes a large segment of cultivation dependent on rainfall

○ In order to increase this, the government has implemented PMKSY (Pradhan

Mantri Krishi Sinchayee Yojana) with a financial allocation of Rs 50000 Cr for

five years

● Crop Insurance

○ As per NSS Report No-573 (2012-13), some of the reasons for lower crop

insurance penetration are

■ Not aware of crop insurance

■ Not aware about the availability of the facility

■ Not interested

■ Insurance facility not available

■ Lack of resources for premium payment

■ Complex procedures

■ Delay in claim payments etc

○ To counter these issues the government has launched PMFBY (Pradhan

Mantri Fasal Bima Yojana). Some of the features are

■ Under the new Crop Insurance Scheme premium paid by the farmers

will be

● 2% for kharif crops

● 1.5% for rabi crops

● Horticulture and cotton crops the premium has been fixed at

up to 5% for both kharif and rabi seasons

● There is no upper limit on Government subsidy. Even if

balance premium is 90%, it will be borne by the Government

(earlier the claim was capped)

■ The coverage target for FY18 has been kept at 40% of gross cropped

area

■ The Government's liability on premium subsidy will be shared by the

Central and State Governments on 50-50 basis

● Climate Smart Agriculture (CSA)

○ It is beyond any doubt that the variations in the climate (variability in

temperature and rainfall and intensity of extreme weather events like

drought and flood etc) will lead to agriculture output. In this sense there is a

need of making the agriculture sector climate resilient

○ Climate Smart Agriculture (CSA)


■ CSA is an approach that helps to guide actions needed to transform

and reorient agricultural systems to effectively support development

and ensure food security in a changing climate. It basically means that

it is developing agricultural strategies to secure sustainable food

security under climate change

■ CSA aims to tackle three main objectives

● Sustainably increasing agricultural productivity and incomes

● Adapting and building resilience to climate change

● Reducing and/or removing greenhouse gas emissions

wherever possible

○ Mainstreaming CSA

■ CSA and Climate Change Adaptation (CCA) policies in India are still at

its nascent stage

■ In order to address the risk associated with Climate variability and

climate change, climate resilient technologies are being demonstrated

in 153 model villages under KVK covering 23 states under “National

Innovations on Climate Resilient Agriculture” (NICRA)

■ In addition, 623 contingency plans have been prepared so far and

hosted on ICAR /DAC websites and circulated to all state agriculture

departments to manage various weather aberrations such as

droughts, floods, cyclones, hailstorms, heat and cold waves

● Interest Subvention Scheme (ISS)

○ ISS has been operational since FY07

○ Under this scheme, farmers can avail concessional crop loans of upto Rs 3

lakh at 7% rate of interest

○ It also provides for an additional subvention of 3% provided there is a prompt

repayment within a period of one year

○ The scheme for FY18 will help farmers to avail of short term crop loans up to

Rs 3 lakh payable within one year at only 4% per annum

○ The Interest Subvention Scheme will continue for one year and it will be

implemented by NABARD and RBI

○ The interest subvention will be given to Public Sector Banks (PSBs), Private

Sector Banks, Cooperative Banks and Regional Rural Banks (RRBs) on use of

own funds and to NABARD for refinance to RRBs and Cooperative Banks. The

salient features of the scheme are as follows

■ The Central Government will provide interest subvention of 5% per

annum to all prompt payee farmers for short term crop loan upto one

year for loan upto Rs 3 lakhs borrowed by them during FY18.

■ Farmers will end up paying only 4% as interest

■ If farmers do not repay the short term crop loan in time they would

be eligible for interest subvention of 2% as against 5% available above


■ The Central Government will provide approximately Rs 20339 Cr as

interest subvention for FY18

■ As a measure to check distress sale, post-harvest loans for storage in

accredited warehouses against Negotiable Warehouse Receipts

(NWRs) are available for upto 6 months for KCC holding small &

marginal farmers

■ In order to give relief to small and marginal farmers who would have

to borrow at 9% for the post-harvest storage of their produce, the

Central Government has approved an interest subvention of 2% i.e.

an effective interest rate of 7% for loans upto 6 months


08 Industry & Infrastructure

Ease of Doing Business

● Moody’s after 13 years, upgraded India’s sovereign credit rating to Baa2 from the

lowest investment grade of Baa3

● In the EoDB Report published by World Bank, India was ranked 100 among 190

countries (India has jumped 30 positions)

● India saw an improvement in six out of ten indicators namely – Dealing with

construction permits, getting credit, protecting minority investors, paying taxes,

enforcing contracts and resolving insolvency (Figure 1). These improvements in

rankings have been because of various reform measures undertaken by the

Government such as

○ Goods and Services Tax (GST)

○ Insolvency and Bankruptcy Code (IBC)

○ Reforms aimed at strengthening India’s institutions – Demonetization,

mechanism for inflation targeting via the Monetary Policy

○ Progress in Aadhaar enrollment and use in targeted delivery of benefits

○ Announcement of the Government’s decision for recapitalization of public

sector banks

● However, there are several reforms and simplifications already complete but still to

be acknowledged by the Ease of Doing Business Team (EoDB). Some of them include

○ Construction Permits - Municipal Corporation in Mumbai and Delhi have

reduced the number of procedures to 8

○ Likewise, the time frame for approvals during the construction cycle of a

building has brought down to 60 days

○ Resolving Insolvency - Reorganization of procedure for corporate debtors

through insolvency eco-system, namely, National Company Law Tribunal

(NCLT), National Company Law Appellate Tribunal (NCLAT), Insolvency

Professionals (IP), Insolvency Professional Agency (IPA), Insolvency

Professional Entity (IPE), and Insolvency and Bankruptcy Board of India has

been carried out

○ Trading Across Border

■ Online message exchange system for import clearances of agricultural

commodities

■ Limiting the number of documents for import and export to 3

■ Establishment of Import Data Processing and Management System

(IDPMS) for data processing for payment of imports and effective

monitoring

○ Enforcing Contracts


■ Maharashtra and Delhi High Court have established Commercial

Division benches and Commercial Appellate Division benches

■ Getting Credit

● The amended SARFAESI Act 2002 provides priority to secured

creditors to be paid first over all other debts and all revenues,

taxes, cesses and other rates payable to the Central

Government or State Government or local authority

■ Paying Taxes

● The Government has introduced project ‘RAPID- revenue,

accountability, probity, information and digitalization’ for

administering the tax reforms to make tax compliances more

taxpayer-friendly, transparent with the aim of widening the

tax base

Make In India (MII)

● It is a campaign launched by Government (DIPP) under which the, investments (both

foreign and domestic) are directed towards the manufacturing sector so as to make

India a manufacturing hub

● The 4 pillars of the campaign are

○ New Infrastructure

○ New Processes

○ New Mind-set

○ New Sectors

● The punch line of MII is “Zero Effect Zero Defect”

● It has considered 25 sectors in which the Make In India will be implemented


● It seeks to facilitate job creation, foster innovation, enhance skill development and

protect intellectual property

● With implementation the contribution of manufacturing to the GDP is expected to

be increased to 25% by 2025

● Apart from this, the government has also resolved to establish 24 manufacturing

cities

● Under the ‘Make in India’ initiative, a ‘Seven Year Strategy’ has been adopted which

involves redefining the sectors covered by the new initiative, adding new sectors like

medical devices while removing sectors that lose relevance in an evolving economy,

to maximize job creation potential with evolution of the economy

● To achieve the objectives, the government has taken various reforms

○ Environmental clearances can be sought online

○ Single window clearence-www.ebiz.gov.in

○ All income tax can be filed online

○ Validity of industrial license is extended to 3 yrs

○ Investor Facilitation cell

○ Vast number of Defence items de-licensed

○ FDI reforms, Exit Policy

○ Large number of labour laws have been taken up to be

restructured/amended

○ The documentation for Imports and exports has been made easier

○ Large number of reforms under Ease of Doing Business

● The sectors have been identified for renewed focus under the Make in India version

2.0 including Capital goods, Auto and Auto Components, Defence & Aerospace,

Biotechnology, Pharmaceuticals and Medical Devices, Chemicals etc

Startup India

● The startups will drive economic growth, create employment opportunities, foster

culture of innovation etc

● The ‘Startup India’ initiative, aims at fostering entrepreneurship and promoting

innovation by creating an ecosystem that is conducive to growth

● The initiative strives for providing a long due impetus to the entrepreneurial set up

in economic landscape of the country

● An Action Plan of 19 action items spanning across areas such as simplification and

handholding, funding support and incentives and industry-academia partnership and

incubation were announced

● Provisions of Startup India

○ Tax exemption for 3 years

○ Self-certification compliance under environmental and employment laws for

three years

http://www.ebiz.gov.in/


○ Mobile app providing for one-day registration

○ Norms under procurement policy (under prior experience, turnover etc) have

been relaxed

○ Promoting and fast tracking the patenting process

○ Setting up of Fund of Funds or Start Up fund of ₹10000 Cr

○ Building innovation centers

○ Launching Innovation Focused Programmes

Intellectual Property Rights (IPR) Policy- National IPR Policy was framed and approved in

2016. The objectives are

● IPR Awareness - outreach and promotion - to create public awareness about the

economic, social and cultural benefits of IPRs among all sections of society

● Generation of IPRs – to stimulate the generation of IPRs

● Legal and Legislative Framework - to have strong and effective IPR laws, which

balance the interests of rights owners with larger public interest

● Administration and Management - to modernize and strengthen service oriented IPR

administration

● Commercialization of IPR - get value for IPRs through commercialization

● Enforcement and Adjudication – to strengthen enforcement and adjudicatory

mechanisms for combating IPR infringements

● Human Capital Development - to strengthen and expand human resources,

institutions and capacities for teaching, training, research and skill building in IPRs

● Some of the targets set up by the new policy are

○ Promote and facilitate domestic filings

○ Reducing the time required to issue a patent to 18 months (presently is

around 5 to 7 years)

○ Trademarks approval in a month (presently it is over a year on an average)

○ Review the policy every 5 years in consultation with the stakeholders

○ Designate DIPP as a nodal agency for regulatory framework and coordination

The provisions of the IPR policy are

● The policy is complaint with the TRIPS of WTO

● Special focus has been given to enforcement of the rights, promoting

commercialization through incentives and increasing awareness regarding IPRs

● The objectives of the policy is to realize property rights as a marketable financial

asset, promote innovation and entrepreneurship, while protecting public interest

● The policy to be reviewed regularly in order to have strong and effective IPR laws

● The government will look forward to enter into multilateral treaties which are in

India’s interest and also become a signatory to those treaties which India has de

facto implemented


● Since it suggests that DIPP to be made a nodal agency, Copyrights related issues will

also come under DIPP’s ambit from that of Ministry of Human Resource

Development (MHRD)

● Films, music, industrial drawings will be all covered by copyright

● It aims to promote research and development through tax benefits

● The policy provides for India to leverage legislative flexibilities (such as Compulsory

Licensing) in the international treaties and TRIPS agreement

Initiatives in MSME Sector

● Prime Minister’s Employment Generation Programme (PMEGP) is aimed at

generating self-employment opportunities through establishment of micro-

enterprises in the non-farm sector by helping traditional artisans and unemployed

youth

● Credit Guarantee Scheme for Micro and Small Enterprises covers collateral free

credit facility (term loan and/or working capital) extended by eligible lending

institutions including Non-Banking Financial Company (NBFC) to new and existing

micro and small enterprises up to Rs 200 lakh per borrowing unit

● Credit Linked Capital Subsidy Scheme (CLCSS) aims at facilitating technology

upgradation of the MSME sector

● The Government has also initiated the Pradhan Mantri Mudra Yojana for

development and refinancing activities relating to micro industrial units. The

purpose of Micro Units Development and Refinance Agency (MUDRA) is to provide

funding to the non-corporate small business sector

● The Government has also set up the MUDRA Bank

Measures taken in Road Sector

● The Ministry of Road Transport & Highways and National Highway Authority of India

(NHAI) have been monitoring the stalled projects. In case of the projects which could

be completed, one-time fund infusion by NHAI is being done to revive stalled

projects. The funds are being arranged through the common fund available with

NHAI for development of roads.

● In case of delayed projects, regular meetings are held with project developers, State

Governments and contractors, concessionaires/contractors

● Various steps have been taken for streamlining of land acquisition & environment

clearances, exit for equity investors, premium rescheduling, revamping of dispute

resolution mechanism, frequent reviews at various levels etc


● In order to facilitate implementation of the projects, Hybrid Annuity Model (HAM)

instead to Engineering, Procurement and Construction (EPC) has been adopted.

Features of HAM are

○ Capital expenditure is deferred under HAM and requires lesser amount of

funds during construction years in comparison to projects on EPC mode

○ Hybrid Annuity Model (HAM) is a combination of two models i.e., the EPC

(Engineering, Procurement and Construction) model and BOT - Annuity

(Build, Operate, Transfer) model

○ Under the EPC model, the private players construct the road and have no role

in the road’s ownership, toll collection or maintenance. National Highways

Authority of India (NHAI) pays private players for the construction of the

road. The Government with full ownership of the road, takes care of toll

collection and maintenance of the road

○ Under the BOT model private players have an active role in road

construction, operation and maintenance of the road for a specified number

of years as per agreement. After the completion of the years of operation,

the private players transfer the asset back to the Government. Under BOT,

the private players arrange all the finances for the project, while collecting

toll revenue (BOT toll model) or annuity fee (BOT annuity model) from the

Government, as agreed. In the BOT annuity model, the toll revenue risk is

taken by the Government. The Government pays private player a pre-fixed

annuity for construction and maintenance of roads.

○ HAM combines EPC (40 per cent) and BOT-Annuity (60 per cent) Models. On

behalf of the Government, NHAI releases 40 per cent of the total project

cost, in five tranches linked to milestones. The balance 60 per cent is

arranged by the developer. The developer usually invests not more than 20-

25% of the project cost, while the remaining is raised as debt

Bharatmala Pariyojana

● It is a new umbrella program for the highways sector that focuses on optimizing

efficiency of freight and passenger movement across the country by bridging critical

infrastructure gaps through effective interventions like development of Economic

Corridors, Inter Corridors and Feeder Routes, National Corridor Efficiency

Improvement, Border and International connectivity roads, Coastal and Port

connectivity roads and Greenfield expressways

● A total length of around 24,800 km are proposed to be constructed in Phase I

Logistics- Has been given infrastructure status. The advantages are


● It will be helpful in facilitating the credit flow into the sector with longer tenures and

reasonable interest rates

● The infrastructure status will simplify the process of approval for construction of

multimodal logistics (parks) facilities that includes both storage and transport

infrastructure

● It will encourage market accountability through regulatory authority and will attract

investments from debt and pension funds into recognized projects


09 Services Sector

● As per the UN National Accounts Statistics data, India’s ranking improved from 14th

position in 2006 to 7th position in 2016, among the world’s 15 largest economies in

terms of overall GDP

● Services export growth, both for World and India, which dipped to negative territory

in 2015 after an interregnum of 6 years from 2009, returned to positive territory in

2016

● As per the latest World Trade Organization (WTO) data for first half of 2017, services

export growth for the World was 4.3% and was 9.9% for India (highest growth was

registered by Russia at 18.4%, China’s growth was at 0.2%)

● As per the World Investment Report 2017, published by United Nations Conference

on Trade and Development (UNCTAD), following a surge in foreign investment in

2015, global FDI flows fell by 2% in 2016 (to US $1.75 trillion), amid weak economic

growth. Global FDI flows are projected to increase by about 5% in 2017

● In the last couple of years there have been many reforms which have been taken by

the government

○ National Intellectual Property Rights (IPR) policy

○ Implementation of GST

○ Reforms for ease of doing business that resulted in improving India’s ranking

by 30 position

○ FDI policy provisions were radically overhauled across sectors such as

construction development, broadcasting, retail trading, air transport,

insurance and pension

○ At present, more than 90% of FDI inflows are through automatic route

● India remained the eighth largest exporter of commercial services in the world in

2016 (WTO, 2017) with a share of 3.4%, which is double the share of India’s

merchandise exports in the world at 1.7%. The ratio of services exports to

merchandise exports increased from 35.8% in FY01 to 58.2% in FY17 indicating the

growing importance of the services sector in India’s exports

● Tourism

○ As per the World Tourism Barometer of the United Nation’s World Tourism

Organization (December, 2017 edition) international tourist arrivals reached

a total of 1.2 billion in 2016, this is 46 million more than in the previous year,

though the growth rate of 3.9% was lower than in 2015 (4.6%)

○ In India, the Tourism sector has been performing well with Foreign Tourist

Arrivals (FTAs) growing at 9.7% to 8.8 million and Foreign Exchange Earnings

(FEEs) at 8.8% to US$ 22.9 billion in 2016

○ Outbound tourism has also picked up in recent years, with the number of

departures of Indian nationals from India growing at 7.3% during 2016 to


21.9 million from 20.4 million, in 2015. This is more than double the foreign

tourist arrivals in India

○ Domestic tourist visits grew by 12.7% to 1,614 million in 2016 from 1,432

million in 2015. In terms of number of domestic tourist visits, Tamil Nadu,

Uttar Pradesh, Andhra Pradesh, Madhya Pradesh, and Karnataka were the

top 5 destination States, accounting for 61.3% of total number of tourist

visits in 2016

○ Various initiatives have been taken by the Government to promote tourism

■ e-Visa facility under three categories of Tourist, Medical and Business

for the citizens of 163 countries

■ Launch of Global Media Campaign for 2017-18 on various Channels

■ Launch of ‘The Heritage Trail’ to promote the World Heritage Sites in

India

■ Launch of International Media Campaign on various international TV

channels

■ Celebration of ‘Paryatan Parv’ having 3 components namely

● ‘Dekho Apna Desh’ - to encourage Indians to visit their own

country

● ‘Tourism for All’ - with tourism events at sites across all states

in the country

● ‘Tourism & Governance’ - with interactive sessions &

workshops with stakeholders on varied themes


10 Social Infrastructure, Employment & Human Development

● Public investment in social infrastructure (education, health etc) is critical in the

development of an economy. However, the expenditure on social services by the

Centre and States as a proportion of GDP has remained in the range of 6% during

FY13 to FY15. There has been a marginal decline to 5.8% in FY16 which has further

moved up to 6.6% in FY18 (BE)

● Education

○ The Government is committed to achieving the Sustainable Development

Goal (SDG- 4) – “Ensure inclusive and quality education for all and promote

lifelong learning” by 2030

○ In order to achieve the goal of universalization of elementary education, the

Right to Free & Compulsory Education (RTE) Act, 2009 had been enacted in

2010 that provides a justiciable legal framework entitling all children

between the ages of 6-14 years free and compulsory admission, attendance

and completion of elementary education. It provides for children’s right to an

education of equitable quality, based on principles of equity and non-

discrimination.

○ India has made significant progress in quantitative indicators such as

enrolment levels, completion rates and other physical infrastructure like

construction of school buildings/classrooms, drinking water facilities, toilet

facilities and appointment of teachers etc. at elementary school level

○ In addition to quantitative indicators, the quality of education also needs to

be monitored and assessed

○ At all India level, percentage of schools with SCR (Student Classroom Ratio)

greater than 30 students declined from 43% in FY10 to 25.7% in FY16

○ The PTR at national level for primary schools is 23:1 in FY16

● Gender Parity Index (GPI)

○ GPI indicates the discrimination against the girls in the the educational

opportunities

○ The government is taking various initiatives such as BBBP (Beti Bachao and

Beti Padhao) so as to promote gender parity

● Labour Reforms-Progress

○ The Government is in the process of rationalizing 38 Central Labour laws by

framing relevant provisions of existing laws into 4 labour codes

■ Code on Wages

■ Code on Safety and Working Conditions

■ Code on Industrial Relations

■ Code on Social Security and Welfare


○ The draft Code on Wages Bill 2017 has been introduced in Lok Sabha in

August 2017 and referred to the Standing Committee on Labour for

examination

○ The Government has undertaken numerous technology enabled

transformative initiatives such as

■ Shram Suvidha Portal

■ Ease of Compliance to maintain registers under various Labour

Laws/Rules

■ The Universal Account Number have been affected in order to reduce

the complexity in compliance and to bring transparency and

accountability for better enforcement of the labour laws

■ National Career Service portal (www.ncs.gov.in) by linking all

employment exchanges of the country to facilitate online registration

and posting of jobs for job-seekers and to provide employment

related services like career counselling, vocational guidance,

information on skill development courses and internships

● Gender Gap in Labour Force

○ The gender gap in labour force participation rate is more than 50%

○ The lower participation of women in economic activities adversely affects the

growth potential of the economy

○ Women are disadvantaged because

■ Women constitute a very high proportion among the low skilled

informal worker category

■ Are engaged in low-productivity and low paying work

Owing to this, women earn very low wages, mostly piece rates in highly

insecure jobs

The Government has been taking measures to increase the participation of

women in productive economic activities by schemes to provide support

services to working women and also through legislative measures to enhance

maternity benefits, MGNREGA, Mahila-E-Haat etc

● Political Women Empowerment

○ 49% of India’s population is women population. But the political participation

of women has been low

○ There are various factors that determine women’s participation in public

services, especially in societies that follow patriarchal norms and prejudices.

Some of the reasons are

■ Domestic responsibilities

■ Prevailing cultural attitudes regarding the role of women in society

■ Lack of support from family

■ Lack of confidence


■ Lack of finance

○ Recognizing the significance of roles of women in decision making process in

the society is critical to strengthen women’s agencies for building a

progressive society with equality of opportunities among all citizens. Some of

the policies that are promoting the political participation of the women are

■ Article 243D (3) of the Constitution of India provides that not less

than one third of the total number of seats be reserved for women

■ Article 243 D (4) of the Constitution of India provides that not less

than one third of the total offices of Chairpersons in Panchayats at

each level shall be reserved for women

Gist of economic Survey 2017-18 By Shyam S Kaggod ... · In the last three years, in case of the...

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