1.

Indian economy, inclusive growth and Budgeting

Key pointers

1. Behavioural changes
1. SBM — More than five lakh swachhagrahis, foot soldiers of the
SBM, were recruited to reinforce the message of toilet usage.
2. Beti Bachao Beti Padhao —The campaign was flagged from
Panipat, Haryana, which had the worst child sex ratio at 834
among other Indian states.
3. Swachh Bharat to Sundar Bharat.
4. From “Give It Up” for the LPG subsidy to “Think about the
Subsidy”.
2. The principle is that most data are generated by the people, of the
people and should be used for the people. Enabling the sharing of
information across datasets would improve the delivery of social
welfare, empower people to make better decisions, and democratise an
important public good.
3. Data collection is highly decentralised as different ministries collect this
data separately. Therefore, each ministry only has a small piece of the
jigsaw puzzle that is the individual/firm.
4. Samagra Vedika Initiative of Telengana links around 25 existing
government datasets using a common identifier – the name and address
of an individual.
5. India will have to shed its service led structure and transform into an
innovation driven economy and focus on becoming a creator rather than
an adopter.
6. The circular economy is a model of production and consumption, which
involves sharing, leasing, reusing, repairing, refurbishing and recycling
existing materialsand products as long as possible. In this way, the life
cycle of products is extended.

Basel norms

1. Basel guidelines refer to broad supervisory standards formulated by

group of central banks to reduce risks to banks and the financial system.
The purpose of the accord is to ensure that financial institutions have
 enough capital on account to meet obligations and absorb unexpected
losses. India has accepted Basel accords for the banking system.
2. The committee’s decisions have no legal force. The committee
encourages convergence towards common standards and monitors their
implementation, but without attempting detailed harmonisation of
member countries supervisory approaches.
3. Why international cooperation is needed
1. It is because these banks lend not only to its country men but also
to other nations. Also, private investors and sovereign nations take
loans from banks across other nations.
2. Further, the financial system of the world is so interconnected that
one incident of a banking collapse has its repercussions all over
the world. There can be no better example that the 2008 global
recession.
4. Why uniform standards are required
1. It is important for investors and agencies to measure the stability
of the banking system. If all the nations adopt different standards,
then calculating stability figures will be a difficult.
2. Also, suppose some nations run banks on better standards i.e.
better risk management, better returns, lower exposure to volatile
markets etc., then they have a better chance of getting foreign
investment.
5. Challenges in implementation of Basel
1. Higher capital: The private banks have the autonomy to raise
capital from the markets. But the Public sector banks have to rely
on the government mostly. The government has recently decided
to infuse 12000 Cr rupees in the PSBs. In the coming years even
more will be required.
2. More technology: Implementing the norms would require much
more sophisticated technology and management styles that the
Indian banks are presently using. Upgrading both will impose
huge cost on the banks and hurt their profitability in the coming
years.
3. Liquidity crunch: Banks would need to invest more on liquid
assets. These assets do not give handsome returns usually which
would reduce the bank’s operating profit margin. Further higher
deployment of more funds in liquid assets may crowd out good
 private sector investments and also affect economic growth.
4. NPAs: Banks are already suffering from lack of returns on NPA
assets. This will impose even more burden.
6. The way ahead for the banks
1. Change in business: Banks will need to lend more to profitable
yet safe sectors. Ex: Corporate loans. But even corporate loans in
India have been under a lot of stress. Banks are facing increasing
NPAs. Still they are safer and more profitable than retail loans.
2. Low cost funding: Banks need to focus on having a stable low
cost deposit base. For this, banks need to focus more on having
business correspondents to reach customers as adding branches
will increase costs and have an impact on the profit margin. The
RBI is thinking of introducing UID based mobile wallets to
increase the reach of the financial system.
3. Improvement in systems: Refining the systems and procedures
may help banks economise their risk-weighted assets, which will
help reduce capital requirements to some extent. It is possible that
they would impose cost in the short-run, but they would yield
great returns in the future.
4. Operational complexities: They must anticipate changes in the
Indian economic system and react accordingly. Indian banking
regulations are one of the most stringent and consequently one of
the safest in the world.

Non Performing Assets (NPA)

1. A loan asset becomes a Non Performing Asset (NPA) when it ceases to

generate income, i.e. interest, fees, commission or any other dues for
the bank for more than 90 days. Gross NPA ratio declined to 9.3 percent
as on March 2019 against the peak of 11.5 percent recorded in March
2018.
2. Why PSBs are more affected than private banks
1. The burden of stalled infrastructure projects is largely borne by
PSBs.
2. Government interference in the appointment of top executives
affect sanctioning and disbursal of loans, leading to crony
capitalism and loan waivers.
 3. The huge amount of loan granted under poverty alleviation
schemes was totally done by PSBs which is vulnerable to non
payments.
4. PSBs reflect poor level of debt recovery, patronage to wilful
defaulters, whereas private banks concentrate more on less risky
lending.
3. Causes
1. Economic slowdown has resulted in various stalled projects in
mining, manufacturing, etc. Coupled with this, cancellation of 2G
spectrum licenses has resulted in slow down in telecom.
2. Credit prioritisation is not done by the PSBs. Delay in loan
disbursement by banks leads to project off track and effect on its
capacity to repay.
3. Priority sector lending (PSL) by commercial banks to MSME,
farmers is the major cause of loan defaults. Education loan
contributed 20 percent to total NPAs.
4. Populist promises by government during election time like
waiving off farm loans.
5. Corporate debtors using political pressure to get banks to waive
their debts. Wilful defaulters and lack of integration in banking
sector database to nail those wilful defaulters.
6. PJ Nayak committee emphasised that problem at PSBs was
fundamentally one of governance. There is politicisation of
appointment process which has led to growth of wilful defaulters.
4. Impact on banks
1. It hurts banks profitability and delays further lending.
2. It also hurts liquidity of banks as money gets blocked without
return.
3. Involvement of management’s time and efforts of banks
increasing of loan recovery process.
4. Loss of public confidence and market for credit will reduce.
5. Government methods
1. 4R strategy: Government's 4Rs strategy of recognition,
resolution, recapitalisation and reform. Bad loans reduces by
Rs.89,000 crore.
2. Recapitalisation: Has announced a recapitalisation package (of
 Rs. 70,000 crore for PSBs). Government has announced to bring
down its stake in some PSBs to 51% for generating necessary
capital. But this is far from sufficient.
3. Bankruptcy code: When passed, will supplement RBI’s efforts
by speeding legal solutions.
4. Bank Boards Bureau (BBB): This will help in identifying and
appointing MDs and other senior executives of banks.
5. Split CMD post for PSBs: For better allocation of tasks and
management. Now, chairman will be the custodian of governance
and MD will be the custodian of assets and efficiency.
6. De-stressing: To destress banks by strengthening asset
reconstruction companies. 100% FDI in ARC will encourage
foreign entities, thus address the capital problem of ARCs.
7. Empowerment: Giving autonomy to banks in decision making
with out govt interference and more flexibility in hiring.
8. Accountability: To boost efficiency of banks, they will be
assessed by qualitative (human resource) and quantitative
parameters (NPA).
9. Governance reforms: Gyaan sangam where Government and
bank officials meet to resolve banking issues and frame future
policies.
6. RBI measures
1. Asset restructuring companies (ARC). Many ARCs have been
created, but they have solved only a small portion of the problem,
buying up only about 5 percent of total NPAs.
2. Scheme for Sustainable Structuring of Stressed Assets (S4A)
under which banks can split the overall loans of struggling
companies into sustainable and unsustainable based on the cash
flows of the projects. The unsustainable debt could be converted
into equity.
3. Strategic Debt Restructuring (SDR) in which consortium of
lenders converts a part of their loan in an ailing company into
equity, with the consortium owning at least 51 percent stake.
4. Corporate Debt Restructuring (CDR) mechanism and Joint
Lenders Forum.
5. 5:25 scheme to allow banks to extend long term loans of 20-25
years to match the cash flow of projects while refinancing them
 every 5-7 years.
7. Issues with above schemes
1. The Asset Quality Review (AQR) was meant to force banks to
recognise the true state of their balance sheets but banks keep on
ever greening loan.
2. Large debtors have many creditors, who need to agree on a
strategy. This is often difficult when major sums are involved.
3. Public sector bankers are even more cautious in granting debt
reductions in major cases, as this may attract the attention of not
only the investigative agencies, but also the wider public.
4. PSBs are reluctant to grant write downs under S4A, because there
are no rewards and also could quickly deplete banks capital
cushions.
5. The new bankruptcy system is not yet fully in place, and even
when it is, the new procedures (and participants) will need to be
tested first on smaller cases.
8. Measures to reduce NPAs
1. Proper evaluation of credit proposals prior to lending. An
effective bank management committee (BMC) should be set up to
determine the feasibility of lending such loans.
2. PSBs and other banks need to monitor the loans advanced to
check whether they are spent in the proposed project. In case of
priority sector lending (PSL), banks have to constantly monitor
the borrowers whether they are using it for stated purposes.
3. Government should reduce the political clout in banking
decisions. Banks should be left to function professionally in
appointment process of bank directors, management decisions,
etc.
4. The government must infuse more capital into the better-
performing PSBs.
5. RBI should caution the state Governments against loan waivers.
6. Parliament must create an apex Bad bank for tackling bad loans at
PSBs. This would vet restructuring of the bigger loans at PSBs
and mitigate policy paralysis.
7. Banks ought to take a haircut on existing debt to make the
restructured project attractive for SDR, S4A, ARCs, NIIF to
work.
 8. Banks should learn from private sector experiences in dealing
such cases. It is also crucial for the government to give a serious
thought to privatisation of Government banks. So far, this
government has shown an aversion to the privatisation of banks.
9. PARA or Bad bank
1. Bad Bank would be set up as a separate entity that would buy the
NPAs from other banks to free up their books for fresh lending.
The concept has been successfully implemented in many western
European countries post the 2007 financial crisis like Ireland,
Sweden, France etc.
2. It could solve the coordination problem, since debts would be
centralised in one agency.
3. It would separate the loan resolution process from concerns about
bank capital. Bad Bank would essentially help in clearing the
books of banks and this could make the banks more attractive to
buyers.
4. The segregation would help in managing NPAs more effectively.
The organisational requirements and skill sets are very different in
a restructuring and winding up situation than in a lending
situation.
5. It could be set up with proper incentives by giving it an explicit
mandate to maximise recoveries within a defined time period.
6. Raghuram Rajan was of the view that this concept may not be
relevant for India since much of the assets backing the banks loans
are viable or can be made viable. Ex: A large chunk of projects
stalled due to extraneous factors like problems in land acquisition
or environmental clearance.
7. There are issues with respect to composition and management of
the Bad Bank. A majority stakes with government would render
the Bad Bank with the same issues of governance and
capitalisation as PSBs.
8. If loans are transferred at inflated prices, banks would be
transferring losses to the Rehabilitation Agency. As a result,
private sector banks could not be allowed to participate.
10. The RBI has issued guidelines for quicker recognition and resolution of
stressed assets. It has developed a Prompt Corrective Action (PCA) for
recovery or sale of unviable accounts. It has lightened norms for Asset
 Reconstruction Companies by increasing cash stake of ARCs in assets
purchased by them. These measures are expected to tackle the issue of
increasing NPAs.

RBI

1. RBI controls monetary policy in India. The objective of monetary

policy is ultimately to create confidence in the economy by maintaining
a stable price environment for all agents including consumers,
producers, savers and investors. Stability allows all agents to make
sound economic choices.
2. Main ways
1. Focus on exchange rate and inflation.
2. Our monetary policy, till now, used to focus on multiple
indicators such as GDP, IIP, inflation, etc.
3. Why monetary policy is ineffective in India
1. Higher proportion of non-banking credit.
2. Presence of informal sector which is unaffected by the monetary
policy.
3. High Currency-Deposit Ratio.
4. Institutions like mutual funds, venture capital companies have an
abundant influence in effecting the overall liquidity in the
economy.
5. Rigidity in policy and growing fiscal needs.
6. Weak monitoring system.
4. Disadvantages of multiple indicator method
1. No nominal anchor, so no actual target.
2. In this method WPI is focussed. WPI doesn’t take into effect food
and fuel, which were biggest source of inflation problem. That is
why policy has remained ineffective in controlling inflation.
3. Since this strategy doesn’t have a clear cut transparent targets, it
becomes vulnerable to various pressure groups.
4. Therefore Urjit Patel committee recommended to RBI to focus on
inflation targeting. In this strategy RBI will decide a nominal
anchor, say CPI, to monitor inflation. Based on that anchor,
monetary policy will be changed to maintain inflation within
 targeted range.
5. What is inflation targeting
1. Inflation targeting is a monetary policy strategy used by Central
Banks for maintaining price level at a certain level or within a
range. It indicates the primacy of price stability as the key
objective of monetary policy. India adopted inflation targeting
based on Urjit Patel Committee Report. Under this RBI would aim
to contain consumer price inflation within 4 percent with a band
of (+/-) 2 percent.
6. Tools for inflation targeting
1. Liquidity Adjustment Facility (LAF): With this RBI controls
the money supply in the economy. These interest rates and
inflation rates tend to move in opposite directions.
2. Open Market Operations (OMO): RBI buys or sells short-term
securities in the open market, thus impacting money available
with the public.
3. Reserve Requirement: Cash Reserve Ratio (CRR) and the
Statutory Liquidity Ratio (SLR) are increased or decreased in
accordance with inflation or deflation respectively.
4. Bank rate: It is the rate at which RBI lends money to commercial
banks without any security. When bank rate is increased interest
rate also increases leading to inflation.
5. Moral Suasion: If there is a need RBI can urge the banks to
exercise credit control at times to maintain the balance of funds in
the market.
7. Advantages of inflation targeting
1. No one can put pressure on RBI to change the monetary policy as
its aim is to control inflation. If inflation is within the range then
automatically rates will o down.
2. It brings transparency. Even people can understand what RBI’s
policy is and whether it’s yielding result or not.
3. Easy to track progress. Because CPI data released after every
twelve days.
4. Central banks in all advanced economies and emerging market
economies have adopted this method.
5. Policy will be linked to medium term goals, but with some short
 term flexibility.
8.

9. Drawbacks of inflation targeting

1. It puts too much weight on inflation relative to other goals.
Central Banks starts to ignore more pressing problems.
2. Inflation target reduces flexibility. It has the potential to constrain
policy in some circumstances in which it would not be desirable to
 do so.
3. Cost push inflation may cause a temporary blip in inflation.
4. In the CPI inflation, which is what the RBI will target, the weight
of food items is around 50 percent. But food inflation in India is
usually caused by supply side constraints of food. So, monetary
policy has less impact.
5. Monetary policy transmission mechanism is weak in case of India
because of lack of fully developed financial markets and
dependence on money lenders. Thus interest rates may not have
much real impact and RBI may find
6. Target inflation is quite broad from two per cent to six per cent
which should cover most situations.
10. Why lower limit on inflation
1. 2% lower limit is set. Every business has fixed cost of production
like, minimum light bill, phone bill, office rent, staff salary etc.
So, if prices keep falling and falling, then businessman will suffer
losses. He has no motivation to expand business. He will cut
down his production costs, which leads to low employment, etc.
2. If prices of everything fall, Government tax collections also fall.
So, government spends less on education, healthcare, social
sector, etc. which has bad effects on economy.
11. 2016 agreement between Government and RBI
1. Reasserting that monetary policy will be solely handled by RBI.
2. By January 2016, CPI would be contained below 6% and
following years, it will vary between a 2% band. This will bring
taming inflation to forefront for RBI giving secondary priority to
interest rate cut, thus somehow resolving the growth-inflation
dilemma.
3. Criteria has been set that will determine when RBI missed the
target. In such case it has to explain to government the causes and
state remedial measures that will be taken. It will publish a
biyearly document explaining people the source of inflation.
4. Its inflation forecast for next 6-8 months will give an officials
estimate enabling many to form strategies accordingly.
12. RBI autonomy
1. According to a paper published in the International Journal of
Central Banking in 2014, RBI was listed as the least independent
 among 89 central banks considered under the study.
2. These rankings are likely to have improved since the adoption of
inflation targeting and monetary policy committee (MPC).
3. However, vacancies in RBI’s board and government’s reluctance
to fill them up raises questions about the decisions taken and
whether proper deliberations on those decisions are being held.
4. The relationship between RBI governor and boards and the
government has to be healthy, collaborative and mutually
respectful.
5. Post the north Atlantic financial crisis, central bank’s role in the
economy goes beyond monetary policy and extends to growth and
financial stability. With stable tenures and board members from
various fields, this can be achieved.
6. The RBI board has had representatives from agriculture, social
services and even scientists in the past. RBI is not just a monetary
authority worried exclusively on issues of inflation, but much
beyond.
13. Longer tenure for RBI governor
1. Since India is moving to a new rules based monetary policy
framework, a longer and more certain tenure is necessary.
2. Apart from monetary policy, RBI also looks after banking
supervision, currency market, and has an interest in maintaining
overall financial stability in the economy. Hence, a longer tenure
will allow the governor to plan better.
3. A more clearly defined term for the governor will also help reduce
uncertainty in financial markets.
4. Various studies have also shown how central bankers who lived
under the fear of recall were less effective in their duties.
5. A fixed term is also widely seen as a mechanism to reduce the
vulnerability of the central banker to political pressure.
14. Way ahead
1. Any government should avoid uncertainty by clearly defining the
term of the RBI governor.
2. The term should not be so short that it hampers longer term
thinking, and it should not be too long to block new ideas.
3. The government has amended the RBI act to create a monetary
 policy committee (MPC) that will have a term of four years.
4. The inflation target will be decided by the finance ministry every
five years. Clearly, a three year term for the RBI governor does
not make sense in this context. It will lead to misaligned
incentives.
15. Role performed by RBI in regulating financial sector
1. Regulating credit lending by commercial banks in India via
qualitative and quantitative measures, including fixing cash and
liquid reserves requirement, repo and reverse repo rates, credit
guidelines, margin limitations and moral suasion.
2. Granting licenses to setup new banks.
3. Penalising banks for malpractices.
4. Keeping NPAs and other stressed assets of banks in check.
5. Balancing credit uptake with controlled inflation in the economy.
RBI has been successful in reducing inflation from around 5.4%
in 2014 to 3.45% in 2018.
16. Criticisms of RBI’s role
1. RBI has not always been able to contain inflationary tendencies,
especially around 2012-13.
2. RBI has not always been able to maintain a balance between
curbing inflation and promoting growth. Rajan was criticised for
not lowering interest rates leading to lower credit uptake in the
economy.
3. The NPAs have risen with time, especially in public sector banks.
4. Commercial banks complain about higher reserve requirements by
the RBI, leaving them with lesser amount to lend out.
5. The bank has not always seen eye-to-eye with the ruling
Government’s view on economic policy of the country

RBI and Govt stand off

1. At the heart of the RBI-Government standoff is a proposal by the

Finance Ministry seeking to transfer a surplus of Rs 3.6 lakh crore,
more than a third of the total Rs 9.59 lakh crore reserves of the central
bank, to the government. The Ministry has suggested that the RBI and
the government can manage this surplus jointly.
2. For the year ending 2018, RBI had total reserves of Rs 9.59 lakh crore,
comprising mainly currency and gold revaluation account (Rs 6.91 lakh crore)
and contingency fund (Rs 2.32 lakh crore). While Contingency Fund
represents the provisions made for unforeseen contingencies, the Currency
and Gold Revaluation Account (CGRA) represent unrealised
market gains/losses.
3. The Ministry’s view is that RBI has been conservative and at times
arbitrary, especially when it came to the transfer of the interim surplus. The
CGRA accounts for 19.11% of total assets and the contingency reserve for
another 6.41%. Usha Thorat committe suggested that the CGRA should be
12.26% of total assets while the contingency reserve should be 5.5%, totalling
17.76% in all.
NBFCs

1. A Non-Banking Financial Company (NBFC) is a company registered

under the Companies Act, 1956 engaged in the business of loans and
advances. NBFCs whose asset size is of Rs. 500 crore or more are
considered as systemically important NBFCs. NBFCs cannot accept
demand deposits. Unlike banks, CRR does not apply on any
NBFCs. NBFC do not form part of the payment and settlement
system. NBFCs get license under Companies Act, 1956 and Banks
under Banking regulation Act. Deposit insurance facility is not
available to depositors of NBFCs.
2. Current problems with NBFCs
1. Multiple regulatory bodies: RBI doesn’t regulate all the
NBFC. Other institutions such as NHB , SEBI, IRDAI, etc. are
also involved depending on the type of NBFC.
2. Difficulties in access to credit: Interest rates are now going up
both domestically and also in the international market. Investors
are getting reluctant to lend post the IL&FS crisis.
3. Riskier lending pattern: Unlike banks, NBFCs are less cautious
while lending. For example NBFCs have grown their portfolio of
small and micro loans in a big way where there are risks of lack of
credit history, scale and historically high NPAs.
 4. Cascading effect of IL&FS default: Created a liquidity squeeze
for the entire NBFC sector.
5. Delayed Projects: Many infrastructural projects financed by
NBFCs are stalled due to various reasons like delayed statutory
approvals.

Rupee slide

1. In last September, the Indian rupee weakened past the 71 mark for the
first time ever, registering a loss of about 10% of its value against the
dollar since the beginning of 2018.
2. The tightening of liquidity in the West, with the U.S. Federal Reserve
raising interest rates, has played a major role in the strengthening of the
dollar since February last year. Investors who earlier put their money in
emerging markets have recently preferred American assets, which now
yield higher returns. The chief among the troubles of emerging market
economies like India is higher domestic inflation when compared to the
economies in the West

Payment regulator
FRBM

1. FRBM law (2003) was enacted to limit the government’s borrowing

authority under Article 268 of the constitution. The FRBM law
envisaged a fiscal deficit of 3% of GDP by 2008-09, but due to Global
Financial Crisis and amendments over the years the same target has
been set now to 2017-18. This act was mirrored by Fiscal
Responsibility Legislation (FRL) adopted in the states, laws that were
no less important than the FRBM, since states account for roughly half
the general government deficit.
2. Achievements of FRBM act
1. Brought centrality to the issues relating to fiscal consolidation as
the government has to mandatorily present medium term and
annual strategy statements.
2. High fiscal deficits raise the debt-to-GDP ratio and increase
interest payments as proportion of revenue.
3. It improved the fiscal performance of both centre and states,
which has contributed to their economic stability, as reflected in
controlled inflation in the past year.
4. Performance on controlling fiscal deficit has been an important
factor deciding sovereign debt ratings. Adherence to consolidation
has helped us from being downgraded.
5. Strict adherence to the path of fiscal consolidation during pre-
crisis period created enough fiscal space for pursuing counter
cyclical fiscal policy.
3. Reasons for poor performance of Centre in FD
 1. Major hike in capital expenditure.
2. Huge leakages in Govt subsidies.
3. Poor performance of PSUs.
4. Tax evasion and tax avoidance.
5. Low private expenditure.
4. NK singh committee review
1. Instead of fiscal and revenue deficit numbers, the government
should focus on public debt as a proportion to GDP to 60% by
2023 (presently 68%). This is a simple measure of insolvency,
also used by rating agencies.
2. With an aim to provide flexibility to policy makers within the
fiscal deficit, the panel, has suggested a steady target of 3% from
FY18 to FY20 and reach 2.5% by 2022-23.
3. It has also recommended certain strict escape clauses which will
allow the Government deviate from the fiscal road map by 0.5%
for any given year. The escape clauses are proposed for overriding
consideration of national security like acts of war and calamities.
4. It suggested the setting up of a fiscal council, an independent body
which will be tasked with monitoring the government’s fiscal
announcements for any given year.
5. The panel’s report also says that the focus of policymakers should
be on reducing primary deficit rather than fiscal deficit.
6. It will provide its own forecasts and analysis for the same as well
as advise the finance ministry on triggering the escape clauses.
5. Fiscal responsibility Legislation (FRL)
1. Fiscal targets were established, which were the same for all states.
2. The overall deficit was not allowed to exceed 3 percent of GSDP
at any point, while the revenue deficit was to be eliminated by
2008/9.
3. The 12th Finance Commission allowed states to borrow directly
from the market, in the hope that investors would also exercise
some discipline, by pushing up interest rates on states whose fiscal
position had not improved.
4. Finally, broad public discipline was enhanced by introducing new
reporting requirements. States were required to publish annual
Medium-Term Fiscal Policy reports.
6. Assessment of FRLs
1. FRLs clearly made an important difference, both in terms of
outcomes and behaviour. States kept their average fiscal deficit at
2.4 percent of GSDP in the 10 years after the FRL, well below the
prescribed ceiling of 3 percent of GSDP.
2. Another indication that the FRL had a significant impact is that
states kept a tight rein on wage and salary expenditure.
3. And there was also a striking change in behaviour of budgeting of
states. Budget forecasting procedures improved, and there was a
more cautious approach to guarantees, a build-up of cash
balances, and a reduction in debt.
4. Therefore, FRL had a significant impact on both fiscal deficit and
revenue deficit. Most states achieved and maintained the target
fiscal deficit level (3 percent of GSDP) and eliminated the
revenue deficit soon after the introduction of their Fiscal
Responsibility Legislation (FRL).
7. Reasons for effective consolidation
1. Although FRL played an important role in keeping the deficit low,
it was not the sole impetus behind this impressive fiscal
performance.
2. Acceleration of GDP growth helped boost states revenues. Better
tax collections (VAT revenue) and improved jurisdiction. Own tax
revenues as a percent of GSDP increase by 1 percentage point.
3. Index rankings like Ease of Doing Business take cognisance of
existing deficit levels has forced states to take appropriate actions
against deficit levels.
4. Increased transfers from the centre because of the 13th Finance
Commission recommendations and the surge in central
government revenues helped.
5. Decline in interest payments on account of the debt restructuring
package offered by the centre and increased central CSS
expenditure.
6. State competitiveness and federal competition amongst states is
also a big promoter for reducing deficit levels.
8. Reasons for poor performance of states in FD
1. UDAY scheme.
2. Farm loan waivers announced by various states like AP,
 Telangana, UP, etc.
3. Lack of fiscal discipline.
4. Stagnancy of state’s own tax revenue.
5. Implementation of state’s pay commision recommendations due
to pressure form state Govt employees.
6. Revenue uncertainties on account of implementation of GST.
9. Greater market based discipline on state government finances is
imperative. There is a complete lack of correlation between the spread
on state government bonds and their debt or deficit positions.

Cashless economy

1. The ratio of cash to GDP is one of the highest in the world at 12.42%.
Cashless economy is one where the financial transactions happen
primarily through various electronic channels such as e-wallets, credit
and debit cards, etc. Faceless, Paperless, Cashless is one of professed
role of Digital India.
2. Benefits of cashless economy
1. Time savings and convenience.
2. Safety from money being lost, stolen, robbed etc.
3. Increased efficiency in welfare programmes as money is wired
directly into the accounts of recipients. It will plug loopholes in
public welfare programmes.
4. Efficiency gains as transaction costs across the economy should
also come down.
5. Reducing use of cash would also strangulate the grey economy,
prevent money laundering and even increase tax compliance,
which will ultimately benefit the customers at large.
3. Barriers to cashless transactions
1. Lack of access to banking for a large part of the population as well
as cash being the only means available for many.
2. Lack of internet access in rural areas also act as barrier to cashless
economy.
3. An overwhelming majority of retailers, suppliers and service
providers belong to the unorganised, informal sector. They do not
have the infrastructure to offer card based transactions.
 4. The perception of consumers also sometimes acts a barrier. It is
universally believed that having cash helps you negotiate better.
5. High transaction cost for using payment gateways.
4. How can the situation be improved
1. By effective implementation of initiatives like Jan Dhan Yojana.
2. Creation of efficient and reliable internet infrastructure as all
digital payments rely on internet connectivity through
implementation of new technologies like googles project LOON,
drones, etc.
3. Increasing cyber security network to avoid scams. Constitute an
independent digital payment regulatory body which would act as
regulator for digital payment platforms.
4. Introducing apps in major regional languages as presently BHIM
app is only available in English and Hindi.
5. Asking the banks to keep merchant discount rates to minimum to
encourage consumers to transact via debit-credit cards.
6. Constituting grievance redressal body for complaints from
consumers.
5. Government efforts to promote digital transactions
1. Aadhar enabled payment system (AEPS).
2. Bharat Interface for Money (BHIM).
 1.
6. RBI efforts
1. To promote electronic transactions RBI would review guidelines
relating to mobile banking, NEFT and prepaid instruments which
 include m-wallets, prepaid cards and paper vouchers.
2. RBI will help in building a robust e-payment and settlement
infrastructure. Strengthening of existing payment systems will be
done.
3. The Unified Payments Interface (UPI) will make it convenient for
customers to use digital channels to make payments for a host of
activities ranging from mobile bills to restaurant payments.
4. Usage of Aadhaar for authentication would be encouraged by
RBI.

GDP

1. Gross domestic product (GDP) is the market value of all officially

recognized final goods and services produced within a country in a
given period of time. GDP includes the output of foreign owned
businesses that are located in a nation following foreign direct
investment.
2. GDP can be determined in three methods
1. Expenditure Approach (Aggregate Demand): The full equation
for GDP using this approach is GDP = C + I + G + (X-M).
2. Income Approach (adding together factor incomes): GDP is the
sum of the incomes earned through the production of goods and
services. This is Income from people in jobs and in self-
employment (e.g. wages and salaries) + Profits of private sector
businesses + Rent income from the ownership of land. Transfer
payments, Income not registered with the tax authorities are
excluded.
3. Production Approach: This measure of GDP adds together
the value of output produced by three sectors in the economy
using the concept of value added. Value added = value of
production - value of intermediate goods.
4.
3. Why GDP measurement is not accurate
1. Much activity is not officially recorded – including subsistence
farming and barter transactions.
2. All value additions for self consumption, which are not put out in
the market, are not accounted in the GDP.
3. GDP does not take into account the value of non-monetised
activity such as work of housewives, volunteering, etc.
4. GDP does not measure the quality of life. For example, OECD
annually issues a report based on a study of 140 countries
indicating the levels of happiness in those countries. Denmark,
Finland, have ranked at the top and India is no where to be seen.
5. It does not allow for the health of children the quality of their
education or the strength of marriages, neither compassion nor
devotion to country which makes life worthwhile.
6. GDP does not measure the inequalities in the society.
7. GDP does not take into account the sustainability of the future
GDP. More measurable things such as damage to our
environment are also left out.
8. GDP also assumes all growth is good growth. So savings from
energy efficient devices counts as a negative for GDP growth,
even though it is a positive for society.
9. GDP does not differentiate between more or less productive
economic activity (i.e. implicitly assumes that economic activity
is the desirable ends rather than a means to an end).
4. Pros
1. It is the least inaccurate method to compute the growth rate of the
economy.
2. If by growth one means the expansion of output of goods and
services, then real GDP which measures growth without the
effects of inflation is perfectly satisfactory.
3. It captures the wellbeing that results from the production of goods
and services.
4. Easier to compute than other indicators.
Social progress index (SPI)

1. It is an aggregate index of social and environmental indicators that

captures 3 dimensions of social progress which are basic human needs,
 foundations of wellbeing, and opportunity.
2. Limitations of other indices
1. GDP: While the GDP measures the economic progress of a
nation, it does not include non-market activities like gardening at
home, mother taking care of child, etc. It also excludes factors like
environment, happiness, equality, access to justice etc.
2. Gini coefficient: It measures the income inequalities among
citizens but ignores other aspects like health, education and other
social benefits.
3. GHI: Originally developed by Bhutan, it measures the happiness
level but ignores elements like gender equality, quality education
and good infrastructure. Further it can’t be used for international
comparison due to subjectivity in the meaning of happiness.
4. HDI: It covers life expectancy, mean years of schooling, expected
years of schooling, and living standards but it falls short in capture
of unequal distribution of wealth, environmental and
infrastructural development.
3. Benefits of SPI
1. It is outcome based rather than the amount of money spent or
efforts involved. So, it can bring betterment in policy making
because it measures ground level improvement.
2. It is more comprehensive than other indicators. It contains the
basic human needs like water, shelter, safety, etc., well being like
ecosystem sustainability, health, access to knowledge, etc.,
opportunity like personal freedom, tolerance, etc.
3. Relevant to all countries as it provides a holistic measure of social
progress. So, it can be suited for international comparison.
4. It is in sync with SDGs and help achieve them.
4. The index has so far been the most comprehensive way of measuring a
country’s social progress and is independent of any economic indicator,
thus giving an opportunity to examine the relationship between social
progress and economic growth. It can thus be used as a complementary
to GDP.

Inclusive growth
1. Inclusive growth is economic growth that is distributed fairly across
society and creates opportunities for all. In other words, inclusive
economic growth is not only about expanding national economies but
also about ensuring that dividends reach the most vulnerable people of
societies. According to recent Oxfam report, top 1% of Indians hold
58% of India’s wealth. This has increased from the time of 1991
economic reforms. Goal 8 of SDG specifically aims to promote
inclusive and sustainable economic growth.
2. Causes of income inequality
1. The main reason for low level of income of the majority of Indian
people is unemployment and underemployment and the
consequent low productivity of labour.
2. Poor growth in agriculture sector.
3. Women left out of the economy due to patriarchal structures.
4. Politics and corporate nexus.
5. The increase in the salary of higher-paid employees in absolute
terms is more than the lower-paid employees. New information
technology played a central role in driving up the skill premium,
resulting in increased labour income inequality.
6. High tax evasion and avoidance and give birth to a parallel
economy.
7. Economic survey points out that subsidies on railway fare, diesel,
petrol, etc., benefit rich more than the poor.
8. Trade has been an engine for growth in many countries by
promoting competitiveness and enhancing efficiency.
Nonetheless, high trade and financial flows between countries,
partly enabled by technological advances, are commonly cited as
driving income inequality.
3. Inclusive growth and sustainability
1. Women: Women account for 49.5 % of the population of the
country and their inclusion in the workforce and economic
activities will increase GDP by 27% according to IMF and will
contribute towards sustainability of the economy.
2. Farmers: In India, more than half of the population is dependent
on agricultural activities. Inclusion of farmer by providing them
with the benefit of growth is a must for food security and
development of food processing industries. This will also lead
 towards doubling farmer’s income by 2022.
3. Youth: The working age group 15-59 years account for 62.5% of
India’s population. Inclusion of youth in countries economic
journey by providing them with skills and employment will
contribute greatly in the long term economic growth.
4. Poor: Food security and employment opportunity lead to better
nutrient intake which ultimately provides a healthy workforce to
the nation.
5. Regional Inclusivity: Some social groups and territories have
been left out for decades and need support. This leads to extremist
and secessionist tendencies to create volatility.
6. Tribal: In tribal areas where the development programs for
economic growth come in conflict with the cultural sentiments of
the tribal population, which hampers social sustainability.
4. Consequences
1. High and sustained levels of inequality, especially inequality of
opportunity can entail large social costs. Entrenched inequality of
outcomes can significantly undermine individuals educational and
occupational choices.
2. Higher inequality lowers growth by depriving the ability of lower
income households to stay healthy and accumulate physical and
human capital. For instance, it can lead to underinvestment in
education as poor children end up in lower quality schools and are
less able to go on to college.
3. Extreme inequality may damage trust and social cohesion and
thus is also associated with conflicts, which discourage
investment.
4. The Arab Spring of 2011 and subsequent political conflicts in the
Middle-East, rise in extremist forces in the world is attributed to
rising disparity between nations and within particular nations.
5. How to fight wealth inequalities
1. Clamp down on tax dodging by corporations and rich individuals.
2. Invest in universal, free public services such as health and
education. Also ensure adequate safety nets for the poorest,
including a minimum income guarantee.
3. Share the tax burden fairly, shifting taxation from labour and
consumption towards capital and wealth. This will make rich to
 contribute more.
4. Introduce minimum wages and move towards a living wage for all
workers.
5. Wealth inequalities are also glaring among men and women.
Introducing equal pay legislation and promoting economic
policies to give women a fair deal will reduce gender wealth
inequalities.
6. Agree a global goal to tackle inequality.

Economic growth across states

1. Despite high economic growth, there was no uniform growth across

states in India. While the states like AP, TS, Maharashtra witnessed a
GSDP of 10%, some North-eastern states performed very badly. Five of
the six best performing states in 2001 - Gujarat, Tamil Nadu, Andhra
Pradesh, Kerala and Punjab - continue to be the top performers in 2011.
2. Factors for non-uniform growth in India
1. Natural resources: Some states such as West Bengal, Jharkhand,
Odisha, Chhattisgarh etc. are endowed with better mineral
resources while others such as Punjab and Haryana have better
irrigation facilities.
2. Historical reasons: Neglect of some regions and preference of
other regions in terms of investments and infrastructure facilities.
Historical factors that go back to mughal era and became
prominent in British Era, have also contributed to regional
inequities.
3. Government Polices: Faulty planning process inherited from
colonial rule in the post-independence era. Red tapism,
corruption, lack of political will and lack of ease of doing of
business environment and political and administrative
inefficiency. Also Industrial reform policy did not encourage
similar growth momentum in all states as investment expenditures
undertaken by individual states differed.
4. Access to markets, communication and transport: Coastal
states like GJ, MH, KL, Andhra Pradesh etc have efficient port
facilities for transport.
5. Social and physical factors: Naxal-affected areas and areas with
 under developed social indices (education and health) are less
attraction to investors. Availability of human and natural resources
and conducive environment across different states.
6. LPG reforms: Transfer of power from government to markets in
deciding the location and level of investment benefitted already
richer states. For example, States like Bihar, MP, Rajasthan etc.,
lagged behind as compared to significantly growing states like
Gujarat, Maharashtra etc.
7. Growth experience of states: Inability of states to sustain higher
growth as a result of dependency on agriculture only. Ex: Steady
acceleration of agricultural growth was seen only in Karnataka,
Kerala and WB whereas industrial growth fuelled states like
Gujarat, Punjab etc. Maharashtra and West Bengal were the only
states which witnessed high growth rates across all 3 sectors of
agriculture, industry and services.
8. Uni-directional growth spill over among states: States like
Rajasthan and WB are considered growth-inducing states as they
subsequently help in growth of other states when they grow, but
vice-versa was not observed.
3. Measures to ensure backward states catch up to the growth wagon
1. Constitutional provisions: Article 371(A-J) includes special
provisions for some states for creation of development boards,
facilities for technical education, vocational training, employment
in public services etc.
2. Aspirational Districts: NITI Aayog’s Aspirational Districts
Programme with a focus on 115 districts which fare poorly in
health, education, skill development etc, especially in backward
districts of BH, UP and MP. The states have been asked to be
considered as sites of potential transformation rather than poor or
backward areas.
3. Higher central financial assistance in schemes: 90:10 ratios in
North-Eastern states to strengthen capacity.
4. Setting up of IITs and other higher quality professional
institutions: For ex: IIT in North Karnataka region.
5. Increasing regional connectivity in transport infrastructure:
UDAN scheme, expressway, Industrial corridors etc.
6. Schemes: Increasing penetration of Gram Swaraj Abhiyan aimed
 at improving socio-economic indices in villages lagging behind in
key indices. Other schemes like Pradhan Mantri Ujjwala Yojana
(PMUY), DDUGJY, Saubhagya scheme, Swachh Bharat Abhiyan
directly or indirectly help in mainstreaming some of the most
backward areas in India. Concentration of Mudra loan scheme in
underprivileged districts to help create jobs.
7. Solving problems specific to backward region like Naxalism;
patriarchy; discrimination based on sex and caste.
8. Scientific and technological developments like prudent
interlinking of rivers; internet access through innovative projects
like project loon; prospect of cloud seeding in drought prone
areas; e-education; e-health etc.

Financial inclusion

1. Objectives@75
1. Banking for the unbanked (Bank accounts, Digital payment
services).
2. Securing the unsecured (Insurance, social security and asset
diversification).
3. Better access to credit at a reasonable cost for those presently
excluded.
2. Current situation
1. The government has launched many flagship schemes to promote
financial inclusion and provide financial security to empower the
poor and unbanked in the country. These include the Pradhan
Mantri Jan Dhan Yojana, Pradhan Mantri Mudra Yojana, Stand-
Up India Scheme, Pradhan Mantri Jeevan Jyoti Bima Yojana,
Pradhan Mantri Suraksha Bima Yojana, and Atal Pension Yojana
(APY).
2. The promotion of Aadhaar and DBT schemes facilitate financial
inclusion.
3. Awareness and use of mobile payments in India had been low. In
2016, the percentage of the population using mobile money
services in India was only 1 percent.
4. In terms of credit access, India has considerable ground to make
up. Informal credit still accounts for more than 40% of total credit
 in the rural India.
3. Constraints
1. Lack of financial literacy amongst low income households and
small informal businesses.
2. The high cost of operations of the traditional banking model.
3. Excessive regulatory requirements on products, and market entry
to new technologies.
4. Poor internet penetration.
4. Way forward
1. Launching a new scheme for comprehensive financial literacy. An
Arthik Shiksha Abhiyan will help improve financial literacy and
may be integrated in the regular school curriculum.
2. Assess the performance of banking correspondents and give better
incentives. The issue of inadequate training is being addressed by
the RBI.
3. Facilitating growth of online and paperless banking. Expand
digilocker services by including more issuers of documents.
4. Using technology to improve the assessment of credit worthiness
for households. One of the main constraints in providing low-
income households and informal businesses is the lack of
information available with formal creditors to determine their
credit worthiness.
5. Leverage payment banks and other platforms to scale up
payments systems in underserved areas. Payments through the
USSD channel have an advantage over the internet in that it can
also cover a large proportion of non-smartphone users.
6. Household acceptance of formal financial products, such as
insurance, equity, etc., can be increased if regulations governing
these are simplified and made more consumer friendly.

Exports

1. Foreign Trade Policy 2015-20 aims to double the export potential to

$900 billion and achieve the 3.5% world share of exports from about
2% by 2020.
2. External impediments in growth of exports in India
 1. Global growth slow down, which as per IMF it is expected to
shrink to 3.3 percent in 2019.
2. Non-tariff barriers by other nations, mainly in case of
phytosanitary products e.g. By European Union in case of
mangoes.
3. Increasing trade wars between USA, China and other countries is
leading to uncertain markets.
4. Protectionist measures, along with withdrawal of Generalised
System of Preferences (GSP) status, by US, which is our largest
export destination.
5. In most of our FTAs, our counter parts are getting more benefits.
For example, India-ASEAN FTA has negative impact on India’s
export of oil palm and textiles because of competition from
Indonesia and Vietnam. Most of India’s PTAs and FTAs have
limited product coverage.
6. Global issues like Brexit, macroeconomic stress in Argentina,
Turkey and Italy, and the US-China wrangle cause uncertainty in
the markets.
7. Competition from neighbouring countries facilitating cheap labour
and favourable policies. Ex: Competition in Textile from Vietnam
and Bangladesh.
8. Slow progress in drafting trade agreements impacts India's ability
to participate in global value chains, affecting export growth. Ex:
RCEP.
3. Internal impediments in growth of exports in India
1. India’s exports are not diversified which is evident from the fact
that top 20 export categories account for 78% of the total.
2. India is still exporting majority of raw material instead of the final
products. Ex: India is exporting cotton yarn rather than technical
textiles
3. Poor logistics infrastructure results in weak trade facilitation
regime. In World Bank’s Logistics Performance Index 2018, India
ranks at 44, below China (26) and Vietnam (39).
4. India’s ill-conceived trade pacts have resulted in inverted duty
structure – High import duties on raw materials and intermediates,
and lower duties on finished goods. This discourage exports and
encourages imports.
 5. Land and labour reforms are still pending, hindering large scale
investments in export sectors.
6. In case of agricultural exports, low value addition & lack of food
processing keeps export low by value.
7. Tightly regulated markets do not give enough space for exports to
grow. Under the World Bank’s Doing Business rankings, India
ranks 77, compared with China at 46 and Vietnam at 69.
8. As per Economic Survey, there is huge state wise regional
disparity in prevalence of manufacturing industries where few
states contribute to major chunks of export.
4. Foreign Trade policy, 2015
1. It introduced two new schemes known as MEIS and SEIS. These
new schemes replace multiple schemes earlier in place, each with
different conditions for eligibility and usage.
2. Branding campaigns planned to promote exports in sectors where
India has traditional Strength.
3. Online filing of documents, online inter-ministerial consultations
and simplification of processes, digitisation and e-governance.
4. Provide incentives to e-commerce companies exporting products
from sectors that create jobs.
5. Within manufacturing exports, the government will chart out a
strategy to promote key sectors like engineering products,
electronic goods and textile exports.
6. Within services, a host of incentives are likely to be rolled out to
sectors such as tourism, hospitality, education, etc, which might
be promoted in the form of project exports from India.
5. Measures
1. Diversification: The Indian export basket is skewed in favour of
agricultural commodities. The global crash in commodities prices
has thus adversely affected Indian exports. The government must
see this as an opportunity and attempt to diversify its export
baskets.
2. Sunrise industries: For fast returns, there must be increased
focus on a few high growth industries like food processing,
footwear manufacturing, etc.
3. Quality control based on international standards so as to prevent
 our goods from non-tariff barriers.
4. Initiatives like Sampada, which are promoting food processing
industry should be given impetus.
5. Improve logistics, by developing industrial corridors, waterways,
etc. as in case of Sagarmala and Bharatmala.
6. Ease of doing business by reducing red tape, enhancing foreign
direct investment limits, revamping labour laws and
environmental clearance processes, thus making manufacturing
hassle free.
7. Services related exports can be quickly scaled up and are more
remunerative. Thus, the government should also focus on this
segment for more value.
8. SEZ: Reviewing the SEZ policy and tweaking it to ensure better
utilisation of the land and other incentives provided.
9. Labour reforms: A key problem cited in the skewed business
structure in India, which favours small scale manufacturing which
is inherently inefficient is the stringent labour regulations. Reform
of these laws would help the businesses scale up.

Labour reforms

1. Labour reforms is one of the important factor for success of Make in

India programme and making India a manufacturing destination. Of
India’s total workforce of about 52 crore, agriculture employed nearly
49 percent while contributing only 15 per cent of the GVA. Industry
and services accounted for 13.7 and 37.5 percent of employment. By
some estimates, India’s informal sector employs approximately 85
percent of all workers.
2. Issues
1. Labour laws only apply to just 10% of employees in formal
employment. 90% are out of it. The wages in the informal sector
can be one twentieth of those in firms producing the same goods
or services but in the formal sector.
2. Labour being in concurrent list, many states and even centre have
enacted numerous laws. In 2016, there were 44 labour laws under
the statute of the central government. More than 100 laws fall
under the jurisdiction of state governments. The multiplicity and
 complexity of laws makes compliance and enforcement difficult.
3. Many of the laws are obsolete and hamper ease of doing business.
For example, Industrial Disputes Act (IDA) requires firms
employing more than 100 workers to seek permission from state
governments to lay off workers.
4. Employers contend that labour laws in India are excessively pro-
worker in the organized sector. There is too much of inspection,
and industries are looked upon with suspicion.
5. Another major weakness in current labour reforms is less focus on
apprenticeship. Our education system is not responsive to need of
market therefore apprenticeship becomes important.
6. Due to the complex and massive numbers of labour laws,
industries prefer to hire contractual labourers not covered under
these laws and without any social security or termination
protection.
7. According to the India Skill Report 2018, only 47 per cent of
those coming out of higher educational institutions are
employable.
8. We currently lack timely employment data of the work force. This
lack of data prevents us from rigorously monitoring the
employment situation and assessing the impact of various
interventions to create jobs.
3. Solutions
1. NITI ayoog recommends complete codification of central labour
laws into four codes by 2019.
2. Labour laws should be applied universally and there should not be
categorisation like applicable to 5-10 or 20 employees.
3. Encourage the wider use of apprenticeship programmes by all the
enterprises. This may require an enhancement of the stipend
amount paid by the government.
4. Enhance female labour force participation. by ensuring effective
implementation of and employers’ adherence to the recently
passed Maternity Benefit (Amendment) Act, 2017, and the Sexual
Harassment of Women at Work Place.
5. Conduct an annual enterprise survey using the goods and service
tax network (GSTN) as the sample frame. Increase the use of
administrative data viz. EPFO, ESIC and the NPS to track
 regularly the state of employment.
6. Enhance occupational safety and health (OSH) in the informal
sector through capacity building and targeted programmes.
7. Make compliance with the national floor level minimum wage
mandatory. Expand the Minimum Wages Act, 1948, to cover all
jobs. Enforce the payment of wages through cheque or Aadhaar-
enabled payments for all.
8. Designing single window portals for clearance of various
formalities will help not only in reducing red tapism and quicker
compliance.
9. Due to already overburdening of judicial system, a separate
tribunals for labour issues may be created.
4. While addressing the issue of simplifying and codifying the labour laws
and for ensuring ease of compliance to promote an enabling business
environment, the overall interests of labour like wages, employment,
social security, working environment, health and safety etc., should be
duly addressed.
5. Government steps
1. Shram Suvidha Portal: This allots unique labour identification
number (LIN) to units and allow them to file online compliance
for 16 out of 44 labour laws.
2. Random inspection scheme: To eliminate human discretion in
selection of units for inspection, and uploading of inspection
reports within 72 hours of inspection mandatory.
3. Universal Account Number (UAN): Enables 4.17 crore
employees to have their Provident Fund account portable, hassle
free and universally accessible.
4. Apprentice Protsahan Yojana: Government will support
manufacturing units mainly and other establishments by
reimbursing 50% of the stipend paid to apprentices during first
two years of their training.
5. RSBY: Introducing a smart card for the workers in the
unorganised sector seeded with details of two more social security
schemes.
6. The National Career Service (NCS) portal brings together job
seekers, employers and other stakeholders on a common platform
by providing services like job matching, career counselling, etc.
 7. Payment of Wages Bill, 2016 it enable the centre and state
governments to specify industrial units which will have to pay
wages only either through cheques or by transferring into bank
accounts.
8. Modal shops and establishment bill, 2016 tries to boost the
employment generation in general, especially for women. The law
as they will be permitted to work night shifts, with adequate safety
and other facilities such as drinking water, canteen, first-aid,
lavatory and crèche facilities at workplace.
6. Why labour laws are difficult in India
1. Trade unions have strong influence in India. They oppose any
labour reforms and no consensus is generally achieved.
2. No political will too, as labour laws is very sensitive subject.
3. Presence of strong opposition from mainstream pro-labour parties
also present a challenge to them.
4. Relaxation may affect labour rights like minimum wages, hire and
fire easily, etc.
5. Labour is concurrent subject. So, both states and centre have to
come to agreement for meaningful labour reforms, which is often
difficult.
7. Demands of the labour organisations
1. Increase in the daily minimum wage for unskilled workers from
Rs.246 to Rs.692.
2. Stop contractualisation of labour for perennial work.
3. Ensure the payment of same wage for contract workers as regular
workers.
4. Scrapping of proposed labour law amendments.
5. Universal social security for all workers.
8. Concerns raised by labour organisations
1. Organised labour in India, sees itself as a loser in the changes
unleashed by liberalisation and globalisation. It fears that if the
government goes ahead with some of its proposed reforms more
losses are gonna occur.
2. Dismissal laws in France are more stringent than in India, but that
did not come in the way of France’s prospering for over a century.
China itself has made its labour laws more stringent.
 3. Some studies suggest that giving workers greater protection helps
increase productivity by giving workers more incentives to invest
in firm specific skills.
4. There is also evidence that the bias against workers in Indian
industry may have more to do with tax incentives for capital than
with restrictive labour laws.
5. Contract labour is a serious assault on workers rights. The
Supreme Court has made strong observations on companies resort
to contract labour in order to avoid statutory obligations. This was
one of the reasons for labour unrest at Maruti’s plant at Manesar
in Haryana last year.
6. Privatisation and FDI are other areas of concern for organised
labour. With government opening up FDI, merging the public
sector banks, unions see these moves as a way that impacts their
jobs adversely.
9. Improving employment data
1. NITI Aayog’s Task Force made recommendations to create a 21st
century statistical system in India for the generation of
comprehensive employment, unemployment and wage estimates
on a sustained basis.
2. Conduct of household surveys on annual basis.
3. Introduction of time-use survey, that be conducted every three
years (such surveys also help in measuring women’s participation
in unpaid work).
4. Use of technology for faster and better data collection, processing
and assimilation.
5. Introduction of annual enterprise survey using enterprises
registered with the GSTN as the sample frame.
6. Separate annual survey of enterprises excluded from the GSTN
database (i.e. those in health and education sectors, and those with
turnover < INR 20 Lakh in other sectors).
7. Adoption of inclusive and wider definition of ‘formal workers’.
8. Adoption of GSTN across all legislations, ministries and
departments as the universal establishment number.
10. Job creation
1. As outlined in the NITI Aayog’s Action Agenda, India suffers
more from the problem of underemployment (i.e. low
 productivity, low wage jobs) than unemployment. For example,
agriculture engaged nearly 50% of the workforce but contributed
15% to GDP.
2. Expansion of the organized sector to create well-paid high
productivity jobs.
3. Shift towards labour intensive goods and services e.g. apparel,
footwear, food processing, tourism etc.
4. Expansion in export market by developing Coastal Employment
Zones (CEZ), using better technology, and improving on quality
to remain competitive. Leverage on economies of scale offered by
exports market potential.
5. Filling in for ageing workforce of countries like China and also
rising labour wages there.

Employment
Way forward on job creation

1. Shift development focus towards labour intensive sectors like Food

Processing, leather and footwear, wood manufacturers, textiles, etc.
2. Cluster development to support job creation in MSMEs.
3. Formalisation of workforce where growth in jobs must be inclusive and
new jobs need to be decent and secure with better work conditions.
4. Greater focus is required on better and relevant skilling opportunities.
5. Expansion in export market by developing Coastal Employment Zones
(CEZs), using better technology, etc.
6. Incentivising industry by reducing corporate tax, easing lending norms,
improving ease of doing business, etc.
 7. Increase public investments in health, education, police and judiciary to
create many government jobs.
8. The government should introduce reforms to quell the wage gap and get
more women to become a part of the country's workforce.
9. India needs good quality jobs not merely large number of jobs. NITI
Aayog’s Three Year Action Agenda also reported that
underemployment is a more serious issue than unemployment.

Employment data

1. NSSO started an exercise named the Periodic Labour Force Survey

(PLFS) that will provide annual estimates of labour force, employment,
unemployment, industry structure of workforce, nature of employment
and wages nationally and regionally on an annual basis. The PLFS
replaces the NSSO’s Employment-Unemployment Survey.
2. Changes introduced in PLFS Survey
1. Rather than using monthly per capita expenditure of the
household, PLFS uses education levels of members of the
households.
2. Better training of field officers for a uniform understanding.
 3. Usage of technology by adapting the World Bank Computer
Assisted Personal Interviewing (CAPI) solution platform with
appropriate inputs and data collected in the field using tablets.
4. Quarterly Bulletin contains key indicators for urban areas only,
whereas the Annual Report contains the indicators for both rural
and urban areas.

Extent of formal sector and formal employment

1. Formalisation of economy means to bring firms and their transactions

under tax-net, credit supply, and regulations such as the Companies Act
and labour laws, possibly giving social security to the employees.
2. Various ways of measuring formal sector employment
1. Measuring the extent of formal economy can be approached
through various ways. This gives rise to discrepancies in
estimating its extent.
2. Formal economy can include all those units who are registered
under any of the statues governing business – such as Companies
Act, Factories Act, Industrial Disputes Act, etc.
3. Measuring the number of salaried employees along with those
businesses that regularly file tax returns.
4. Estimating through registrations under GST or with the EPFO or
ESIC can be used as measures for estimation.
3. Depending on the criteria chosen, there are varying results
1. A recent study of EPFO data – “Towards a payroll reporting in
India” – states that 80% of workforce in India is unorganised
labour i.e. not registered with EPFO or other formal sector
databases..
2. According to economic survey, from a social security perspective,
formal employment is estimated at 31% of the non-
agricultural workforce.
3. According to economic survey, from a tax perspective, formal
employment is nearly 54% of the non-agricultural workforce.
However, this figure excludes many formal workers in sectors
outside the GST such as health & education.
4. Further, assessments of employment are hampered by lack of
 timely data, as the employment surveys are conducted after a
significant time lapse.
4. Thus, the measurement of extent of formal economy and formal
employment remains hazy. Nevertheless, in order to spread
formalization and bring more Indians into the income tax net,
government has undertaken a number of monetary and taxation reforms
such as GST, Demonetisation, changes in labour codes, measures
against black money, etc.

Minimum wages

1. The Minimum Wages Act, 1948 protects both regular and casual
workers. Minimum wage rates are set both by the Central and the State
governments for employees working in selected ‘scheduled’
employment. Minimum wages have been set for different categories
of workers according to skill levels, location and occupations. The Act
did not prescribe norms for fixing the level of the minimum wage.
2. Issues with minimum wages
1. Massive expansion in job categories and wage rates has led to
major variations not only across states but also within states.
2. Lack of uniform criteria for fixing the minimum wage rate. The
notified lowest minimum wage rate varies from Rs. 115 in
Nagaland to Rs. 538 in Delhi.
3. Minimum Wages Act, 1948 does not cover all wage workers as
one in every three-wage workers in India is not protected by it.
4. Presence of gender discrimination. For instance, women dominate
in the category of domestic workers while men dominate in the
category of security guards. While both these occupations fall
within the category of unskilled workers, the minimum wage rate
for domestic workers within a state is consistently lower than that
for the minimum wage rates for security guards.
5. It has been observed that compliance levels are significantly
higher for regular wageworkers when compared to casual wage
earners.
3. Way forward
1. Simplification and rationalisation of minimum wages as proposed
under the Code on Wages Billshould be taken ahead. The
 proposed Code on Wages Bill should extend applicability of
minimum wages to all workers in all sectors and should cover
both the organized as well as the unorganized sector.
2. Setting a National Floor Level Minimum Wage by the Central
Government. Accordingly, the states can fix the minimum wages,
which should not be less than the ‘floor wage.’
3. The Code on Wages Bill should consider fixing minimum wages
based on either of the two factors- (i) the skill category i.e
unskilled, semi-skilled, etc and (ii) the geographical region, or
else both. This key change would substantially reduce the number
of minimum wages in the country.
4. A national level dashboard needs to be set up by the Ministry of
Labour & Employment, which shows the date of the last revision
in the minimum wage adjunct to the mandated period. This would
enable dissemination of information and increased transparency in
the system.
5. Role of technologies including a variety of online, mobile phone
and networking technologies can be used to streamline the
complex system. It can help the workers to process the
information on different wages and use it for their benefit.
6. Grievance redressal including an easy to remember toll-free
number for complaints and a culture of swift action on them
should be established.
4. An effective minimum wage policy is a potential tool not only for the
protection of low-paid workers but is also an inclusive mechanism for
more resilient and sustainable economic development.

Fixed-Term Employment Rules

1. FTE is a contract in which a company hires an employee for a

specific period of time. The employee is not on the payroll of the
company. Their payment is fixed in advance and is not altered till the
term expires. Such contracts are given out for temporary jobs and not
for routine jobs.
2. Such workers are entitled to all statutory benefits (work hours,
wages etc.,) available to a permanent worker in the same
establishment. Industrial Employment (Standing Orders) Central
 (Amendment) Rules, 2018 in March notification allowed all industries
to hire workers on contract with a fixed tenure.
3. Benefits of Fixed-Term Employment (FTE)
1. Fixed wages and work conditions: The workers are ensured to
have a fixed wage and work conditions from before. This provides
them livelihood security for the given period.
2. Workers benefit: The workers are entitled to have statutory
benefits. Therefore, they gain greater sense of accountability from
the principal employer.
3. Forecast labour costs: The fixed term contract enables the
business to forecast their labour costs. It also provides relief
against protests related to salary hikes etc. Due to in-built
flexibility in hiring and firing the workers, the business will be
able to safeguard its commercial competitiveness through finding
suitable employees.
4. Short term Employment shortage: During peak seasons,
industries face shortage of workers. Fixed-term employment will
help them to hire and remove workers according to their
requirements without extra legislative burdens.
5. Job creation: FTE is expected to boost job creation, provided the
cost of capital does not remain so low as to deter labour use.
4. Criticism against the move
1. Hire-and-fire: Central trade unions are protesting against the
government’s policy of hire-and-fire. Trade unions will go
unrecognised by the move.
2. Removal of Safety nets: As the government has enabled the
employers to sidestep even the minimum protection offered by the
Factories Act 1948, Industrial Disputes Act 1947 and Contract
Labour (Regulation and Abolition) Act 1970.
3. Undermines Job Regularisation: Collective bargaining talks for
wage increase will not be possible. Business will have no
incentive to regularise the jobs.
4. Against the earlier judgments of Supreme court: The courts
have allowed FTE only in seasonal activities. The Supreme Court
has ruled earlier that a fixed-term contract worker who had
worked for 7 years should be regularised.
 5. Industries will be converted into Sweatshops: The major reason
of conflict of workers with management (e.g. in Maruti-Suzuki
incident) is common issues of non-recognition of trade unions,
temporary workers far outnumbering regular workers and paying
them very low wages. The move may encourage the same.
5. The norms should be arrived at in a transparent, consensual manner.
Labour reforms will not be politically acceptable in the absence of a
better social safety net.

Indian statistical system

1. Recently, there have been controversies and debates over the credibility
of data and statistics published by different agencies including
government bodies, independent think tanks and private players.
2. The Ministry of Statistics & Programme Implementation (MoSPI) was
created in 1999. The Ministry has two wings, Statistics and Programme
Implementation. The Statistics Wing called the National Statistical
Office (NSO) consists of the Central Statistical Office (CSO) and the
National Sample Survey Office (NSSO). National Statistical
Commission (NSC) was set up in 2005 in order to oversee the entire
range of official statistics.
3. General Issues with Indian Statistics
1. Data sources are not available readily. Ex: Agricultural prices are
based on mandis or retail touch-points, where such data may not
be final. Non-availability of critical fiscal data such as the data on
pay and allowances.
2. Time lag issues.
3. Capacity Building of the human and organisational resources of
the statistical agencies have not improved since the 1980s.
4. Divergence in definitions and criteria of different indicators,
which are used by various agencies.
5. Large unorganised Sector. Lack of transparency and reliability
of fiscal data due to cash-based accounting.
6. Politicisation of data which has led to inflation and deflation of
statistics to suit one’s own performance. Ex: Divergence between
high growth and low jobs in India. Erosion of autonomy of
institutions. Senior officials of National Statistics Commission
 (NSC) resigned recently over the holding back of jobs data.
4. Rather than strive for speed in disseminating data on a more real-time
basis, it would be better to tarry and provide final numbers even if there
are lags involved. This would avoid the embarrassment of changing the
discourse or commentary when reacting to new numbers.

Cess

1. Cess is an additional levy, apart from normal taxes, over the total
amount for some specific objective.
2. Criticism of overuse of Cess
1. Already taxes in India are high. Additional such cesses leads to
tax terrorism on people. Once imposed they are revised, hiked and
shifted around, but seldom discontinued.
2. Use of cess is regressive in nature, as it is more like an indirect
tax. It also increases cost of doing business.
3. Use of instruments like cess and surcharge complicate the tax
structure encouraging the practice of tax evasion.
4. Revenue raised through a cess or surcharge is excluded from the
pool that is split between centre and states (Article 270) and thus
is against cooperative federalism.
5. The collections made through cess do not effectively translate into
matching outcomes. For example, road cess of 23,000 crore a year
is collected, yet matching improvement is not seen in road
infrastructure.
6. CAG has pointed out that there is inadequate transparency and
incomplete reporting in government accounts of the manner in
which the money is spent.
3. Way forward
1. Government should focus on expanding the tax base and
simplifying the tax structure to increase the revenues to fund new
initiatives.
2. Swacch Bharat cess lacks clarity on the institutional structure
under which resources are to be spent. For a cess to be effective it
is important to have a total clarity on how collected money will be
used. Imposition of cess for initiatives like Swacch Bharat takes
away the moral incentive and instead the focus should be on
imparting greater civic sense backed by grass root initiatives such
as door to door garbage collection.
2.Indian economy, inclusive growth and Budgeting
Bank consolidation
1. Bank consolidation occurs when two or more banks become one bank, this
happens through either a takeover by a bank or via a mutual merger.
2. Pros
1. Larger banks may be more efficient and profitable than smaller ones and
generate economies of scale and scope. The efficiency gains may lead to
lower cost of providing services and higher quality.
2. There are significant overlaps between SBI and its associates. They
target similar client bases. Eliminating the overlaps will save cost and capital.
3. Increased capacity to meet corporate and infrastructure funding needs.
4. Larger banks can better cater to global needs and can penetrate towards
new markets with innovative products.
5. It will help in meeting BASEL-III norms.
6. It will end unhealthy and intense competition among the banks and will
reduce volume of inter-bank transactions.
3. Challenges
1. It may affect Government’s financial inclusion drive, as India needs
more banks.
2. India needs more banking competition than consolidation to improve
banking efficiency.
 3. Opposition by trade unions who may fear identity loss. It will result in
immediate job losses.
4. Larger banks may shift their portfolios towards higher risk return
investment. Thus, it may neglect local needs. Thus large banks lead to
consolidation of risks as well. Ex: Global financial crisis of 2007.
5. Most of the NPAs were accumulated due to inefficient functioning of the
PSBs. The weakness of the small banks may get transferred to large banks as
well.
6. Poor government record on mergers like in Air India and Indian Airlines.
4. Instead, clearing the NPAs, improving administration, increased
transparency in the working of PSBs would be a better way out in the current
situation.

5. How privatisation is better than consolidation

1. Mergers still mean that bad loans will remain on the books. Privatization
means that the low quality assets will be taken over by private party thus
easing Govt’s burden. It can also reduce burden on taxpayer and also the
fiscal deficit.
2. Privatisation would bring in market discipline and competition among
the banks which will force them to be aggressive and competitive, thus
making them take the path of growth.
3. Privatization means that staff and management also share some of the
risks borne out by shareholders. This is a good practice in itself. Their attitude
changes from rigid bureaucratic attitude.
4. Privatisation of banks that are unviable will bring resources that can be
utilised for supporting some of the banks with better prospect.
5. Acquisition of stressed banks by a bigger bank will create a still bigger
entity, but with poor health. This is a macroeconomic risk.
6. Why privatization isn’t advisable
1. It is not practicable. Govt will not get the support of unions, opposition,
etc.
2. Political will is lacking.
3. 2008 financial crisis was due to spurious lending leading to market
failure and thus government control is also necessary.
4. Until a bond market is developed, PSBs will be indispensable to funding
long gestation but important areas like mining, infrastructure, etc.
Privatisation will take away this leverage from Government.

Taxation
1. India has 7 taxpayers for every 100 voters ranking us 13th amongst 18
of our democratic G-20 peers. Tax to GDP ratio of India is low
16.6%. Fiscal democracy refers to the freedom of the elected
government to spend and tax so as to best serve the people at present,
instead of being tied down by expenditure commitments of the previous
governments.
2. Why is there low tax to GDP ratio
1. Low per capita income: Low average incomes and a high
poverty rate result in a very small portion of the labor force being
eligible to pay personal income taxes. Agricultural income is
untaxed in India.
2. Tax exemption: Populist measures like raising tax slabs in the
budget speech, which further narrows the tax base. As a result,
there is less tax buoyancy. Similarly tax expenditure is raising.
3. Tax evasions: Tax compliance in India is extremely low,
especially w.r.t. indirect taxes. High volume of transactions in
cash leads to no paper trails, making it easier for people to evade
taxes.
4. Tax disputes: India has one of the highest numbers of disputes
between tax administration and taxpayers. For example the
Vodafone tax dispute involving Rs 20000 crore lingering since
2008.
5. Loop holes in DTAA: Provisions for tax exemption from short
term capital gains are often misused by companies to re-route
their investments from such countries.
6. Informal market ecosystems: Informal sectors like Kirana
stores, stationery shops, etc. evade taxation.
3. Measures
1. Improving compliance: GAAR provisions may be useful in
dealing with tax evasions where tax benefits exceed Rs 3 crore.
2. Aadhar seeding: Mandatory seeding of bank accounts with PAN,
stringent KYC norms and Aadhaar seeding for easy traceability.
Project INSIGHT, SAKSHAM etc in order to leverage technology
and nab tax evaders.
3. Fixing loopholes in DTAA: Renegotiating double tax avoidance
treaties which are frequently misused to evade tax. Recent
amendments in Mauritius double tax avoidance agreement is a
 case in point.
4. Phasing out tax exemptions: Tax exemptions to be reviewed and
phased out. Reasonable taxation of the better-off, regardless of
where they get their income from industry, services, real estate, or
agriculture.
5. Property taxation: They are not only progressive and buoyant
but also difficult to evade since they are imposed on a non-mobile
good, which can with today’s technologies, be relatively easily
identified.
6. Fast tracking of tax disputes: Reducing discretion of taxman
and creating a predictable dispute resolution mechanism.
7. Shome Panel: Recommendations of Parthasarathy Shome panel
for simplifying the tax laws need to be considered.
8. Formal Jobs: Revamping labour laws and improving Ease of
Doing Business to increase formal sector jobs and thus the tax
base.
9. Government has to reduce corruption. By reducing corruption,
more citizens believe that public resources are not wasted, the
greater their willingness to pay taxes.
4. Observations made by TARC
1. The current organisational setup has the Revenue Secretary at the
top of the tax administration, above CBDT and CBEC. The
revenue secretary is not a tax expert, yet he has the final say in
terms of tax administration before it reaches the Finance Minister.
2. There is an artificial separation between direct and indirect tax
administration, and lack of cooperation between CBDT and
CBEC.
3. India has one of the highest numbers of disputes between tax
administration and taxpayers, with lowest proportion of recovery
of tax arrears.
4. The selection of CBDT and CBEC members does not consider
specialisation, policy experience, etc. and is based on seniority.
5. There is pressure on tax officers to meet externally imposed
revenue targets. In addition, there is a lack of protection for tax
officers from the large number of anonymous vigilance
complaints.
6. There is complete absence of research based analysis of policy,
 and lack of impact assessment studies. The benefits of ICT
systems have not been reaped.
5. Lack of fiscal democracy in India
1. Government utilises public funds for fulfilling short term goals,
populist measures etc and doesn’t go for capital asset building and
long term benefits.
2. Populist measures such as lower taxes and more exemptions also
lead to reduced revenues, hampering fiscal democracy.
3. Lack of devolution of funds at the lowest level like Panchayats.
4. Funds allotted to various government departments for welfare
remained unspent due to lax attitude of political leadership and
officials.
5. India always remained a fiscal deficit nation it shows the govt
functions on borrowing which in turn reflects towards debt of the
future generations.
6. Lack of proper financial inclusion.
6. Western democracies have had a much longer period of political
evolution allowing them to build state capacity where as India has had
only 7 decades to develop fiscal capacity. This is one of the reasons for
low fiscal capacity of India.

Goods and services tax

1. Parliament recently passed GST bill to bring an overhaul in India’s

indirect taxation regime.
2. What
1. The Goods and Services Tax (GST) is an indirect tax that would
replace all the existing indirect taxes such as excise duty, service
tax and value added tax (VAT), central sales tax, state level sales
tax etc.
2. Both the centre and state governments will impose tax with
various slabs on all goods and services produced within the
country.
3. Goods and services tax (GST) aims at bringing uniformity in the
structure, avoid multiple taxing system and widen the tax base.
4. GST will not include exports and direct taxes.
3. Economic benefits
1. GST will increase GDP growth by 1.0 to 1.5 percent which will
lead to a revival of the investment cycle and improvement in the
government’s tax buoyancy.
2. A national unified market will be established. This will
significantly lower transit time and also improve truck utilisation.
3. It is estimated that India will gain $15 billion a year by
implementing the GST as it would promote exports, raise
employment and boost growth.
4. Furthering ‘Make in India’ by eliminating bias in favour of
imports. It will make domestic tax levied on imports more
effective and less leaky, which will make domestic goods more
competitive.
5. GST will remove cascading taxes like CST. Thus it will be
conducive to combating inflation.
6. The Economist has reported that India’s long distance truckers are
parked 60 percent of the time. This also leads to delaying of
delivery of goods at destinations. The abolition of entry tax will
be a great boon for the movement of goods by road transport.
4. Governance benefits
1. GST will simplify India’s tax structure, broaden tax base by
increased compliance by citizens and traders. Thus Government
can check tax evasion. Between June and July 2017, 6.6 lakh new
agents previously outside the tax net have sought GST
registration.
2. Nearly all domestic indirect tax decisions to be taken jointly by
Centre and states through GST council. This furthers cooperative
federalism.
3. Under GST, taxation burden will be divided equitably between
manufacturing and services, through a lower tax rate by increasing
the tax base and minimising exemptions. Also distinction between
services and goods will go.
4. At present, the invoices are more detailed since taxes on goods
and services are written separately for one transaction. With the
introduction of GST only one rate will be written.
5. Reduced tax disputes. It is expected to build a transparent and
corruption free tax administration.
5. Other benefits
1. Textile and clothing sector is now fully part of the tax net.
Previously, some parts of the value chain, especially fabrics, were
outside the tax net, leading to informalisation and evasion.
2. Similarly, one segment of land and real estate transactions has
been brought into the tax net. This in turn would allow for greater
transparency and formalisation of cement, steel, and other sales,
which tended to be outside the tax net.
3. GST will rectify the inadequacies of the previous system of
domestic taxes levied on imports—the countervailing duty to
offset the excise tax.
4. The longer-term benefits include the GST’s impact on financial
inclusion. Small businesses can build up a real time track record
of tax payments digitally, and this can be used by lending
institutions for credit rating and lending purposes.
6. Concerns
1. High manufacturing states like Maharashtra, Gujarat, Tamil Nadu
may face downfall in tax collections in the short term.
2. Petroleum and liquor still out of GST. They form almost 40% of
India’s total trade, so significant portion is still outside.
3. Keeping health and education completely out is inconsistent with
equity because these are services consumed disproportionately by
the rich.
4. The tax on gold and jewellery products, items that are
disproportionately consumed by the very rich, at 3 percent is still
low.
5. Financial autonomy of states would be affected as states would no
longer have the independence to introduce taxes as per their
wishes. Concurrency of GST council would be required for
introducing fresh taxes.
6. The revenue loss would be compensated for 5 years only. If states
fail to adapt even after 5 year then once again it would have to
depend on Center for financial aid.
7. There is no tax capping in the GST bill. Higher GST tax will
nullify the benefits enjoyed by the GST.
8. Poor and people in unorganised sector likely to be affected the
most. States would no longer be able to keep them out of the
 ambit based on SECC criteria.
9. GST Dispute Settlement Authority is not included in the Bill. This
is a serious lacuna that must be filled. GST council may not be
able to deal objectively due to political contingencies. Tax
redressal mechanisms are quite poor. State commision or tribunals
are yet to be established and defined.
10. Initially, GST may actually increase the burden of indirect taxes
on consumers.
7. Problems in implementation
1. Improving coordination between state and central machinery so as
to effectively implement the tax regime.
2. Need for political consensus across the spectrum so that GST isn’t
subject to partisan forces.
3. Online filing of returns require extensive network penetration
which pose challenges in areas where connectivity infrastructure
is in bad shape.
4. One state with one vote without size of contribution create
dissatisfaction.
5. States virtually have no taxing power which could make state
dependent on center and unable to raise tax in some kind of
emergency.
6. Local bodies left untouched. Third tier governance not even
mentioned in the bill.
7. New form of litigation might evolve as many provisions are open
ended and vague. Thus, might put a stress on judicial system.
8. Large scale restructuring of departments, institutions, ministries
has to be done to absorb GST provisions. Any delay would result
in delay in overall implementation. This capacity building would
put financial stress on many states.
8. How GST differs from current regime
1. Cascading effect of taxation was present in previous tax regimes
which inflated the tax rate. The tax burden will be distributed and
not be more on the end consumer.
2. Multiple taxes earlier when compared to single uniform tax in
GST.
3. Services and Manufacturing will be taxed at uniform rates in GST
which will remove confusion arising out of definitions.
 4. The producer states gained more than the consumer states and
there is no possibility to have one market for every good and
service. This will change.
5. The tax net will be such that the tax is less but the products and
services under its ambit will become more.
9. Issues out of GST council
1. The recommendations made by GST Council will be judged by
the council itself which would be unfair and against the principles
of natural justice which states a party to a dispute should not judge
its own cause.
2. Decisions are to be made via voting where final decision would
require 3/4th votes. The Centre has 1/3rd of this share while states
have the rest giving the veto power over key decisions to the
centre.
3. Absence of a judicial member to resolve legal matters is not fair
and States at loss may feel cheated and go to courts.
4. The very legitimacy of Dispute Resolution mechanism would be
under a scanner if States have to move to courts often and DRM
would be eventually struck down in judicial review.

Inclusive growth

PMJDY

1. The government decided to make the Pradhan Mantri Jan Dhan Yojana
 (PMJDY) an open-ended scheme, meaning that it will continue
indefinitely. It is a financial inclusion program of Government of India
that aims to expand and make affordable access to financial services
such as bank accounts, remittances, etc.
2. Significance
1. Helped in financial inclusion: As per the Global Findex
Database, almost 80% of adult Indians now have bank accounts.
Financial inclusion has taken place in three ways. Financialisation
of savings by giving lower income households access to a safe
investment product. Diversification of financial products with
increasing enrolments for the low-cost accident insurance cover
and Transition to electronic payments.
2. Improved balance sheets of banks: Falling percentage of zero
balance accounts from 58% in 2015 to 15% in 2019.
3. Helped in inclusive growth: Of 35.70 crore account holders,
around 18.88 crore account holders are women.
4. Direct benefit transfer (DBT).
5. Plugging leakages from Subsidy: According to the Economic
Survey, leakages in LPG subsidy transfers fell 24% and the
exclusion of beneficiaries had been greatly reduced, due to
banking infrastructure created by the combination named as JAM
trinity.
3. Challenges
1. Dependency on unsecured debt: Access to bank accounts has
not reduced the impact on private moneylenders.
2. Internet connectivity issues: The inadequate infrastructure base
for internet facilities basically in tribal and hilly areas make it
difficult for Business Correspondents to deliver the required basic
banking services.
3. Funds for Overdraft Facility: Clarity has still not emerged on
where the funds would be diverted from to finance the overdraft
facility.
4. Increasing Cost of Business Correspondents: If these accounts
have to be functional and not remain dormant then the density of
banking correspondent has to be increased, which will increase
the cost of delivering the banking services.
5. Tackling Unaccounted Money Deposited During
 Demonetisation: After the announcement of Demonetization total
deposits in 255 million Jan Dhan accounts have increased to Rs
642521 million by November 2016.
4. With the high deposits in the banks, the Government must nudge the
banks to offer much-needed loan products to the account holders.
Allowing them to build up a credit and transaction history in the
banking system is critical to wean them away from the grip of informal
money lenders.

Universal Basic income (UBI)

1. A basic income is an income unconditionally granted to all on an

individual basis, without work requirement. The Union government has
recently mooted the idea of UBI for BPL Indian citizens. Sikkim will be
the first state in India to roll out the UBI.
2. Two basic pre-requisites
1. Functional JAM (Jan Dhan, Aadhar and Mobile) system as it
ensures that the cash transfer goes directly into the account of a
beneficiary.
2. Centre-State negotiations on cost sharing.
3. Characteristics of UBI
1. Periodic (being paid at regular intervals, not lump sum).
2. Cash payment (not in kind or vouchers, leaving it on the recipient
to spend it as they like).
3. Individual (not to households or families).
4. Universal (for all).
5. Unconditional (irrespective of income or prospects of job).
4. Economic advantages
1. According to Tendulkar commitee, still 30% of Indians fall in
poverty net. UBI can reduce poverty in one fell swoop. This
income floor will provide a safety net against health, income and
other shocks.
2. It is universal and not targeted. This will remove exclusion errors
and will reduce the administrative burden on the state. This
improves efficiency in our welfare schemes.
 3. Another important feature is cash transfer in lieu of in-kind
transfer. Cash transfers are supposed to be much less market
distorting than in-kind transfers.
4. This will encourage greater usage of bank accounts, leading to
higher profits for banking correspondents (BC) and an
improvement in financial inclusion.
5. Social prosperity
1. UBI is premised on the idea that a just society needs to guarantee
minimum income for a dignified life with access to basic goods.
Thus social justice can be ushered in. It promotes liberty because
it is anti-paternalistic, opens up the possibility of flexibility in
labour markets. It promotes equality by reducing poverty.
2. UBI can make a citizen move away from being a subject of
government welfare programme to agents of its own change.
6. Arguments against
1. It would reduce the motivation for work and might encourage
people to live off assured cash transfers.
2. Arriving at an acceptable and decent UBI would be tough for
economists. A vast section of the population is in the BPL
category, surviving on Rs.50 a day.
3. It is simply unaffordable. An estimate puts, it would entail a cost
of 11% of GDP, which is way above the 4.2% of GDP that the
government currently spends on explicit subsidies.
4. There is an apprehension that the amount would be used
wastefully by the poor especially on injurious products like
alcohol and other adulterated substances leading to social stress.
5. It is also argued that unconditional cash transfers might raise
wages due to the decline in the supply of casual labourers.
6. Gender norms may regulate the sharing of UBI within a
household. Men are likely to exercise control over spending of the
UBI. This may not always be the case with other in-kind transfers.
7. Infrastructure for cash transfer and means to withdraw same in
remote areas. Scaling up of banking infrastructure is required
before such a scheme gets approved.
8. There is also question of whether a shift towards it should be a
substitute for all existing subsidies or whether it should
complement the existing ones.
 9. None of the places where UBI has been tried have levels of
income disparity that exist in India. So, while the idea might work
in Sikkim, it might not in, say, Bihar.
7. Solutions
1. UBI should be made universal first across easily identifiable
vulnerable groups like widows, old, pregnant women etc. The
challenge to this may be of absence of bank accounts with them.
2. Centre can run a pilot UBI programme to transfer, a part of the
redistributive resources to the poorer states, directly in the
beneficiaries bank account as UBI. The challenge is of the limited
capacities of these states.
3. Define the non-deserving based on ownership of key assets such
as automobiles etc and SECC data. Adopt a Give it up scheme to
enable well off to opt out. List of UBI beneficiaries should be
publicly displayed which would name and shame the rich who
avail UBI benefits.
4. Linking it with learning of skills or with some work, will give
desired result and people will be motivated to learn skill and work,
so that they can get UBI.
5. Government service delivery is under revolution, due to role of
technology. Similar to DBT, this could be transferred to
beneficiaries and an implementing body should look after it.
6. UBI can achieve the outcomes Mahatma Gandhi so deeply cared
about and fought for all his life. UBI may not be ripe for
implementation but merits serious discussion.
8. UBI can wipe out every tear from eye as Gandhiji envisaged. But it is
simply unaffordable for the Government at the present time.

Foreign exchange swap

Apparel industry

1. According to economic survey 2016, Apparels and leather sector is

most promising in terms of job creation and export and can thus push
the India’s growth trajectory. India also exports less apparel in absolute
value than Vietnam, which is less than one-tenth of India in terms of
both population and GDP.
2. Important attributes of the industry
1. Social transformation: Boost to women employment as it
requires no special technical training, can be operated from home,
education or literacy level of women is not a barrier and their
natural creative skills. Also 3/4th of total production is done by
MSME which would lead to inclusive growth.
2. High employment: The industry has an appetite for creating 1.5
million jobs annually and is much attractive in terms of jobs
created relative to investment.
3. Decrease in competition: Rising wage levels in China has led to
decrease in its market share and provides opening to India’s low
wage competitive cost structure.
4. Boost forex: Even though marred by under performance the
exports are growing at 20% in apparel, and 25% in leather goods.
5. Abundance of raw materials: Largest bovine population, with
 1/10th of world’s goat and sheep.
3. Challenges
1. Logistics: The costs and time involved in getting goods from
factory to destination are greater than those for other countries.
The overarching Coastal Employment Zones (CEZs) will help
improve export logistics in India.
2. Labour regulations: There are strict regulations for overtime
wage payment as the Minimum Wages Act, 1948, mandates
payment of overtime wages at twice the rate of ordinary rates of
wages of the worker. Centre needs to work with states on
reforming labour regulations.
3. Tariff policy: High domestic taxes on man made fabrics vis-a-vis
cotton based fabrics. Expensive raw material and transaction costs
(high excise and custom duties) made this sector more unviable.
Long staple cotton imported from Uganda, Egypt etc are very
expensive.
4. Discrimination in export markets: India’s competitors enjoy
better market access by way of zero or at least lower tariffs in
USA and EU. For example, in the EU, Bangladesh exports enter
mostly duty free, while Indian exports of apparels face 9.1 percent
tariff.
5. Lack of finances: Inadequate credit availability has dried the
production and export capacity of power looms.
6. International trading: The global demand for footwear is
shifting away from leather footwear and towards non-leather
footwear.
7. Cotton export: Cotton corp of India exported good quality cotton
abroad at prices higher than international market that may have
led to instant profits but ultimately made Indians lose their textile
market.
8. High MSP: MSP for cotton was too high which further made the
Indian textile sector unviable.
4. Initiatives taken by Govt
1. Government approved Rs. 6,000 crore special package for textile
& apparel sector to boost employment creation, exports and
investment.
 2. The subsidy under Amended Technology Upgradation Fund
Scheme (ATUFS) was increased from 15% to 25% for the
garment sector. A unique feature of the scheme is to disburse the
subsidy only after the expected jobs are created.
3. Under the Market Development Assistance (MDA) Scheme,
financial assistance is provided for a range of export promotion
activities implemented by Textiles Export Promotion Councils.
4. The Ministry of Textiles has signed memorandum of
understanding (MoU) with 20 e-commerce companies, aimed at
providing a platform to artisans and weavers in different
handloom.
5. The Government has started promotion of its India Handloom
initiative on social media like Facebook, etc., to promote high
quality handloom products.
6. Negotiations are on the way for new FTAs with the European
Union (EU) and the United Kingdom (UK).
7. Introduction of the GST offers an excellent opportunity to
rationalise domestic indirect taxes so that they do not discriminate
in the case of man-made apparels.
8. Number of labour reforms are implemented to overcome obstacles
to employment creation in these sectors.

Skill development

1. An abysmally low level of skilled workers is acting as a major

impediment in the development of the Indian economy. While all major
economics such as Germany, US and South Korea have high level of
skilled labor force, this has not been possible in India.
2. Reasons for low skilled force
1. There is an inadequate skills training capacity in our existing
training institutes.
2. Even if there are few vocational training institute, there is wide
variation in quality among them.
3. High school dropout rates is one of the most significant cause for
abysmal level of formally skilled workers. This owes it existence
to socio-economic conditions of a family.
 4. One of the main causes of this problem is lack of industry ready
skills even in professional courses, which compel industries to not
employ people even with good degrees. This exists because of
lack of Industry-Academia collaboration.
5. A large section of workforce, in rural areas, engage in agricultural
sector. The lack of agriculture related reforms renders this section
to work in informal sectors.
3. Government steps
1. A dedicated department of Skill Development and
Entrepreneurship has been created under the Ministry of skill
development to accord focused attention towards skilling the
youth.
2. The Deen Dayal Upadhyaya Grameen Kaushalya Yojana
(DDUGKY) is a placement linked skill development scheme for
poor rural youth. Moreover, it laid greater emphasis on projects
for poor rural youth in Jammu and Kashmir (HIMAYAT), the
North-east region and 27 Left-wing districts (LWE) districts
(ROSHINI).
3. For bringing minorities into mainstream development, Nai
Manzil, a program for education and skill development of
dropouts, has been started. MANAS for upgrading entrepreneurial
skills of minority youths.
4. USTTAD has been started to conserve traditional arts and
building capacity of traditional artisans and craftsmen belonging
to minority communities has also been introduced.
5. Nai Roshni, a leadership training programme for women which
focusses on equipping women with knowledge, tools and
techniques to interact with government systems, banks and
intermediaries.
6. Increased allocations of Rs. 4,500 crore to the Deendayal
Antyodaya Yojana - National Rural Livelihood to create self
employment opportunities.
7. Government has launched Skill Acquisition and Knowledge
Awareness for Livelihood Promotion Programme (SANKALP).
8. Pradhan Mantri YUVA Yojana will provide entrepreneurship
education and training to over 7 lakh educated students in 5 years
through 3050 Institutes.
 9. Government has laid down the foundation stone of Indian Institute
of Skills inspired by Singapore model of training. The Institute
would adopt various best practices from the country.
10. Skill India Mission Operation (SIMO) is a World Bank assisted
national level project. It targets at training of 400 million Indian
people between 2017 and 2022 through with special emphasis on
reaching women, poor and other excluded communities.
11. In order to provide a platform to fresher in job market there is
launch of Apprenticeship training and increase the engagement of
apprentices from present 2.3 lakh to 50 lakh cumulatively by
2020.
12. Adoption of National Skills Qualifications Framework (NSQF). It
integrates vocational with formal education by introducing
vocational training classes linked to the local economy from class
nine onwards in at least 25% of the schools, over the next five
years.
13. Recognition of Prior Learning (RPL) framework is an outcome
based qualification framework linked to NSQF against which
prior learning through formal/informal channels would be
assessed and certified.
14. In order to make India the human resource capital of the world,
the government has set up 50 global skill banks (training centres)
to train potential immigrant workers in 110 job roles as per
international standards.
4. Issues with skill development schemes
1. Poor accreditation process: The Quality Council of India (QCI)
has often compromised with the quality of accreditation and
affiliation process.
2. Multiplicity of norms, procedures: Policies and initiatives
related to skill development are spread across nearly 20 ministries
and hence lacks coherency and holistic approach.
3. Many skill development schemes are in non-alignment with the
demand, due to lack of relevant data and studies.
4. There is non-availability of good trainers.
5. Success of schemes is mainly judged by whether input and output
targets are met, numbers enrolled and numbers of trainees
certified.
 6. There are no central checks to verify whether the placements
reported are accurate, no monitoring system to see what wages are
earned or whether jobs are commensurate with training and
aspirations.
7. Some beneficiaries get multiple benefits for undergoing same type
of training, while others don’t get opportunities.
8. Concerns with educational, vocational and professional academic
bodies.
5. Features of new skill development scheme
1. The emphasis is to skill the youths in such a way so that they get
employment and also improve entrepreneurship.
2. It provides training and support for all occupations that were of
traditional type like carpenters, cobblers, welders, blacksmiths,
masons, nurses, tailors, weavers etc.
3. More emphasis will be given on new areas like real estate,
construction, transportation, textile,, where skill development is
inadequate or nil.
4. The training programmes would be on the lines of international
level to meet the labour demands of US, Japan, China, Germany,
etc.
5. The new ministry will be the certifying agency. Certificates will
be issued to those who complete a particular skill or programme
and this certificate has to be recognised by all public and private
agencies.
6. Tailor made, need based programmes would be initiated for
specific age groups which can be like language and
communication skills, life and positive thinking skills, personality
development skills, behavioural skills, including job and
employability skills.
6. PMKSY

7. Challenges in creating new jobs

1. Of the 10.5 million new manufacturing jobs created between 1989
 and 2010, only 3.7 million were in the formal sector. The slow
pace of labour reform has encouraged firms to resort to hiring of
contract workers.
2. Contract workers in India have increased from 12 percent of all
registered manufacturing workers in 1999 to over 25 percent in
2010.
3. States are under pressure to be seen as attractive destinations for
investments that will create jobs. There may be a possibility of
competitive federalism becoming too competitive into giving too
many concessions.
4. Apparel industry’s input costs include 30 percent from wages and
only 2-3 percent are capital intensive inputs like power. Despite
this, India is ceding market share to countries like Bangladesh and
Vietnam.
5. A new business model of relocating apparel industry to second
and third-tier towns. This model of moving factories to workers
has a number of commercial and social advantages.
8. Disadvantages of hiring contract labour
1. Hiring workers through a contractor can be more expensive.
2. Contract workers do not feel as much loyalty to the company as
regular workers.
3. It also reduces the employers incentive to invest in their training.
4. It hurts a firm’s future productivity as contract workers do not
accumulate firm-specific human capital.
9. Significance of SC ruling giving temporary employees equal pay
1. Purchasing power: The purchasing power of the employees will
increase pumping more liquidity in the economy.
2. Motivation: Equal pay will motivate the temporary employees to
upgrade their skills on a regular basis.
3. Labour cost: This will increase the cost of labour. This in turn
might enhance the work stress on permanent workers. India might
lose its attraction for its cheap labor and might reduce the number
of outsourced jobs to India.
4. Formalisation of labour: This will enhance workers in formal
employment and so the tax base will be enhanced significantly.
5. A push to DPSP: It promotes constitutional provision of equality
 in Article 39 (d) of DPSP, that is equal pay for equal work.
6. Sends a good message: This would also send a message to the
private enterprises to take notice of the government following the
practice of considering employees both temporary and regular on
equal pay scales and implement for itself in future.
10. National Apprenticeship Promotion Scheme
1. The cabinet has given approval for National Apprenticeship
Promotion Scheme (NAPS). NAPS has been framed to meet
objective of National Policy of Skill Development and
Entrepreneurship, 2015, which focuses on apprenticeship as one
of the key components.
2. Union Government will directly share, 25% of the total stipend
payable and 50% of total expenditure for providing basic training
to an apprentice, with employers.
3. It will be implemented by Director General of Training (DGT)
under the aegis of Union Ministry of Skill Development and
Entrepreneurship (MSDE).
4. For MSME sector, this scheme will encourage third party
agencies to provide basic training when in-house training
infrastructure is not available.
5. Act has dismantled the outdated system of trade wise and unit
wise regulation of apprentices under a prescriptive regime. Now
the minimum target of apprentices is 2.5% and maximum is 10%.
11. Significance
1. India has less than 3 lakh apprentices. This is a small proportion
of over a crore people annually joining labour force of 48 crore
workers.
2. It substantially improves the employability of youth and market
value as well as their capability to become self employed.
3. The industry will benefit from enhanced skills, higher
productivity and better professionalism once apprentices join the
workforce.
4. Among a large number of skilling schemes, the efficacy of
apprenticeship system is the highest.
5. NAPS is a part of labour reforms. Government has already
amended Factory act, Apprenticeship act and labour laws act in
2014.
 12. It is estimated that the demographic dividend is expected to last for 25
years. Thus, to reap the benefits of this one-off opportunity India needs
to significantly scale up its skill development initiatives.

Transforming aspirational districts

1. The Aspirational Districts Programme (ADP) was launched in 2018.

Under phase-1 of ADP, 115 districts were identified based on the level
of human development, physical infrastructure, threat of left wing
extremism (LWE) and the views of state governments.
2. The main aim is to achieve balanced development in India by uplifting
115 districts, currently below the national average in the areas of health
and nutrition, education, agriculture and water resources, financial
inclusion and skill development, and basic infrastructure.
3. A list of 49 target indicators has been developed by NITI Aayog. These
will be regularly monitored for promoting improvements in health and
nutrition, education, agriculture and water resources, financial inclusion
and skill development, and basic infrastructure.
4. Constraints
1. The constraints impeding the development of these districts are
institutional.
2. Non-availability of periodical data makes it difficult to track
progress and implement evidence-based policymaking.
3. There is lack of social awareness and community participation in
development programmes.
4. There is lack of competitiveness among districtsto improve
developmental performance.
5. Governance inadequacy hampers the effective implementation of
government schemes. There is no accountability on the part of
either the government or district administrations.
6. The institutional framework has been fragmented because of the
multiplicity of implementing agencies and schemes.
5. Way forward
1. Make development a mass movement. Referring to these districts
as ‘aspirational’ rather than ‘backward’ recognises that people are
the most valuable resource.
2. Use data to inform decision making and spur competition among
 districts.
3. Converge initiatives across all levels of government.
4. Promote federalism and put in place institutional mechanisms to
ensure teamwork between the central, state and district
administration.
5. Partner with expert organizations with demonstrated technical
competence.

Spatial development

1. Spatial development means that industries and services are concentrated

in high density economically developed area and engines of growth
have failed to spread to less dense secondary cities.
2. Uneven spatial development can be seen both in manufacturing as well
as services sector. Unlike in China, Europe and the US, where the
engines of growth and job creation have spread to the secondary cities,
in India medium-sized cities remain mired in joblessness and
poverty. India’s manufacturing sector is spatially spreading at a much
faster pace than the services sector. The low density manufacturing
districts are growing at a much faster pace than high-density districts in
India.
3. A report from the rating agency Crisil found that the inter-State
disparities have widened in recent years even as the larger economy
grows in size. Many low income States have experienced isolated years
of strong economic growth above the national average.
4. Bihar was the fastest growing State this year. But they have still failed
to bridge their widening gap with the richer States since they have
simply not been able to maintain a healthy growth rate over a sustained
period of time.
5. Reasons for uneven spatial development
1. Historically, regional imbalances in India started from its British
regime. The British rulers as well as industrialists started to
develop only those earmarked regions of the country which as per
their own interests.
2. Geographical factors play an important role. The difficult terrain
surrounded by hills, dense forests leads to increase in the cost of
administration, and thus are usually ignored. Plain areas with
 availability of river waters are preferred destination for
industrialists.
3. Economic overheads like transport and communication facilities,
power, technology, banking and insurance etc., are considered
very important for the development of a particular region.
4. Failure of economic planning etc.
5. Manufacturing sector has not spread to all districts. Only those
districts that have improved their physical and human
infrastructure have attracted manufacturing enterprises. While
large manufacturing enterprises are moving away from more
congested megacities into secondary cities, this is not happening
at a faster pace to create more jobs.
6. High density service clusters have continued to grow at a much
faster pace than less dense areas and more dense locations have
become more concentrated over time.

Investment rate in India

1. Investment denotes gross capital formation (GCF) and is one of the

principal growth engines of an economy. Investment rate in India has
gradually declined from 38% to 27% over the last decade. It is the
private corporate investment that is responsible for most of the decline
in total investment.
2. Reasons for decline
1. The onset of financial crisis in 2008 had disrupted the investment
decisions. Many world economies are still struggling with its after
effects.
2. Indian economy has been suffering from twin balance sheet
syndrome since 2012, where the ongoing projects are stalled and
bankers balance sheet is stressed, leading to rising NPAs and
declining credit off-take.
3. High rate of interests because of high inflation during 2010-13
period also led to delaying of investment decisions. Even though
inflation has subsided, investors have remained wary.
4. Litigations in the PPP projects have also discouraged investments.
5. Unfavourable perception about risks and expected returns, for
example retrospective taxation laws create an environment
 of uncertainty.
6. Insufficient allocation of resources towards technological
advancement and logistics has hampered new investments.
7. Slow roll out of land and labour reforms.
8. Household savings and investment rates have been falling.
3. Changes
1. Quick recognition and resolution of NPAs, in order to address the
“Twin Balance Sheet problem”.
2. Recapitalisation of PSBs to recoup their credit making
capabilities.
3. Time bound resolution of insolvency cases, as envisioned and
mandated by the Insolvency and Bankruptcy Code
4. Capacity building and adoption of fixed deadlines for
implementation of further changes in the GST programme.
5. Speedy labour and land reforms to further improve ease of doing
business. A predictable and stable taxation regime, which gives
investors a clearer vision to make decisions.
6. Increase public investment in infrastructure sector, creating
employment. This would pull in private investment, while
increasing money supply at the same time.
7. Make appropriate changes in investment models to make
investment attractive for investors, like HAM model.
8. Renegotiate the PPP projects according to the existing situation,
thereby building confidence among investors.
4. Raising investment rates to 36 per cent by 2022-23
1. To raise the rate of investment (gross fixed capital formation as a
share of GDP) from about 29 percent in 2017-18 to about 36
percent of GDP by 2022-23.
2. To enhance public investment, India should aim to increase its
tax-GDP ratio to at least 22 per cent of GDP by 2022- 23.
Demonetization and GST will contribute positively to this critical
effort. In addition, efforts need to be made to rationalise
direct taxes for both corporate tax and personal income tax.
Simultaneously, there is a need to ease the tax compliance burden
and eliminate direct interface between taxpayers and tax officials
using technology.
 3. States could also undertake greater mobilization of own taxes
such as property tax, and taking specific steps to improve
administration of GST to increase tax collections.
4. Two areas in which higher public investment will easily be
absorbed are housing and infrastructure. Investment in housing,
especially in urban areas, will create very large multiplier effects
in the economy. Private investment needs be encouraged in
infrastructure through a renewed public-private partnership (PPP)
mechanism on the lines suggested by the Kelkar Committee.
5. By 2022-23, the government may consider further liberalizing
FDI norms across sectors. Domestic savings can be complemented
by attracting foreign investment in bonds and government
securities.
6. The government should continue to exit central public sector
enterprises (CPSEs) that are not strategic in nature.
5. Focus on exports and manufacturing
1. A focused effort on making the logistics sector more efficient is
needed.
2. Power tariff structures may be rationalized to ensure global
competitiveness of Indian industries.
3. Import tariffs that seek to promote indigenous industry should
come with measures to raise productivity which will provide the
ability to compete globally.
4. Improve connectivity by accelerating the completion of
announced infrastructure projects. We should complete projects
that are already underway such as the Delhi-Mumbai Industrial
Corridor (DMIC) and Dedicated Freight Corridors.
5. Work with states to ease labour and land regulations. In particular,
we should introduce flexibility in labour provisions across
sectors.
6. The government has recently established a dedicated fund of INR
5,000 crore for enhancing 12 “Champion Services
Sectors”. Among others, these include IT & ITeS, tourism,
medical value travel and audio visual services.
7. Strengthen the governance and technical capabilities of Export
Promotion Councils (EPCs) by subjecting them to a well-defined,
performance-based evaluation.
 8. Explore closer economic integration within South Asia and the
emerging economies of South East Asia.
6. Steps like Make in India, initiatives for quick approvals and clearances,
FDI reforms and strengthening bond market for long term financing
will further improve investment rate in India. In the long run, it is
imperative to create a clear, transparent, and stable tax and regulatory
environment to revive and boost investments.

Credit rating agencies (CRA)

Corporate governance