Oct-16Eco

Question 1

Oct-16Eco-Index

Answer 1

3.1. Idea of Bad Bank
3.2. Public Debt Management Cell (PDMC)
3.3. Project Insight
3.4. IMF’s Recent Growth Forecast
3.5. Indigenous Defence Production: Dassault Reliance
Aerospace JV
3.6. Indian Bridge Management System
3.7. India’s First Medipark
3.8. Power Transmission Planning
3.9. Regulation of Pension Products
3.10. Ethanol Pricing Revision
3.11. Agro Irradiation Centers
3.12. National SC/ST Hub and Zero Defect-Zero Effect
Scheme Launched
3.13. Options in Agricultural Produce
3.14. Global Competitiveness Index
3.15. Mining Surveillance System (MSS)
3.16. Central Assistance Under AIBP
3.17. Agricultural Marketing and Farm Friendly Reforms
Index
3.18. Regional Connectivity Scheme ‘UDAN’
3.19. Eastern Dedicated Freight Corridor
3.20. Trends in CSR Spending
3.21. Urja Ganga Project
3.22. DBT for Kerosene
3.23. Ease of Doing Business Rankings
3.24. Nobel Prize in Economics

Question 2

3.1. IDEA OF BAD BANK

Answer 2

Background
 The problem of non-performing assets in Indian banks particularly the PSBs has assumed large proportions.
 Government along with RBI has made many efforts to solve this issue. In this light another suggestion is the formation of a Bad Bank. In
What is a Bad Bank
 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. In the meanwhile, it would work towards suitably disposing off the toxic assets.
 The concept was pioneered at the Pittsburgh-headquartered Mellon Bank in 1988 and has been successfully implemented in many western European countries post the 2007 financial crisis like Ireland, Sweden, France etc.
Advantages of Bad Bank
 The present method of recapitalization can have only partial success due to limitations of Indian financial capabilities. Further it will not clear up the bad assets but would only give some more life to projects.
 Bad Bank would essentially help in clearing the books of banks and this could make the banks more attractive to buyers.
 The segregation would help in managing NPAs more effectively. The organizational requirements and skill sets are very different in a restructuring and winding up situation than in a lending situation. The segregation could thus help in putting the best suited processes and practices in a Bad Bank while the ‘normal banks’ could continue to focus on lending.
Issues
 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. E.g. a large chunk of projects stalled due to extraneous factors like problems in land acquisition or environmental clearance. They just need restructuring and additional funding.
 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 capitalization as PSBs.
 On the other hand, a private majority shareholding could invite criticism of favouritism and corruption if the loans are not priced appropriately when transferred to a ‘bad bank’.
Way Forward
 This must be complemented with other steps. The government must infuse more capital into the better-performing PSBs.
 It must also create, through an act of Parliament, an apex Loan Resolution Authority for tackling bad loans at PSBs. The authority would vet restructuring of the bigger loans at PSBs. This would mitigate the paralysis that has set in at the PSBs because of the fear factor and get funds flowing into stalled projects.
 Resolution of bad loans and restoring the health of PSBs is among the biggest challenges the economy faces today. A bad bank cannot be the sole response.

Question 3

3.2. PUBLIC DEBT MANAGEMENT CELL (PDMC)

Answer 3

Why in news?
 The Finance Ministry has set up a Public Debt Management Cell (PDMC).
What is it?
 It is an interim arrangement and will be upgraded to a statutory Public Debt Management Agency (PDMA) in about two years.
 Its main purpose is to allow separation of debt management functions from RBI to PDMA in a gradual and seamless manner, without causing market disruptions.
 PDMC will have 15 experienced debt managers from Ministry and RBI for the required expertise.
 A joint implementation committee chaired by Joint secretary (Budget) will oversee the transition process of
PDMC to PDMA.
About Public Debt Management Agency (PDMA)
 Public Debt Management Agency (PDMA) is a proposed
specialized independent agency that manages the internal
and external liabilities of the Central Government in a holistic
manner.
 The government has now made clear that PDMA will be
formed in 2 years.
Need for PDMA
 Presently the market borrowing is managed by RBI but
external debt by central government directly. Establishing a
debt management office would consolidate all debt
management functions in a single agency and bring in holistic
management of the internal and external liabilities
 There is a severe conflict of interest in the RBI responsibility of setting the short term interest rate (i.e. the task of monetary policy) and selling bonds for the government. If the Central Bank tries to be an effective debt manager, it would lean towards selling bonds at high prices, i.e. keeping interest rates low. This leads to an inflationary bias in monetary policy.
 Management of government debt, regulation of banks and monetary policy are all interlinked which could be better coordinated by an agency like PDMA.
 Some functions that are crucial to managing public debt are not carried out. For instance, no agency undertakes cash and investment management, information relating to contingent and other liabilities are not consolidated. This will be taken care of by PDMA.
Challenges
 In India sovereign debt management is not merely an exercise for resource mobilization but has a wider socio-economic impact. It thus requires a broader outlook which might not be given by an independent agency.
 PDMA’s focus is only on central government but RBI can harmonise the Debt management of both union and State governments
 The conflict of interest would still be present as government is the majority shareholder in PSBs.

Box–Key Functions of PDMC
It will only have advisory functions to avoid conflict with statutory functions of the RBI.
It will plan government borrowings as well as manage its liabilities.
It will further monitor cash balances, foster a liquid and efficient market for government securities and advise government on matters related to investment, capital market operations, fixing interest rates on small savings etc.
It will develop an Integrated Debt Database System (IDMS) as a centralised database for all liabilities of government, on a near real-time basis and undertake requisite preparatory work for PDMA.

Question 4

3.3. PROJECT INSIGHT

Answer 4

About
 Project Insight is an initiative of the finance ministry to widen the tax base by detecting tax evaders using technology.
 Various pilot projects have come up in recent years. The full programme will be implemented next year.
Key Features
 The Project will essentially use the data gathered by various pilot projects in terms of non-filers monitoring, non-PAN monitoring for Banks, Sub-registrars etc. for different kinds of taxes.
 The tax departments will also a set up a new centralized processing centre for compliance management.
 It will handle preliminary verification, generation of bulk letters/notices and follow-up arising from information collated through Project Insight.
 Through implementation of reporting compliance management system, it will ensure that third party reporting by entities like banks and other financial institutions is timely and accurate.
 It will also set up a streamlined data exchange mechanism for other government departments.
 The project adds to the list of efforts made by government towards curbing black money like GST implementation, amendment to India-Mauritius DTAA and the recently concluded Income Disclosure Scheme.
Significance
 This integrated platform would play a key role in widening of tax base and data mining to track tax evaders.
 This will help in catching tax evaders in a non-intrusive manner like search and seizure.
 It will not only promote voluntary compliance but also enable taxpayers to resolve simple compliance related issues in an online manner without visiting the Income tax office.
 The new technical infrastructure will also be leveraged for implementation of Foreign Account Tax Compliance Act Inter Governmental Agreement (FATCA IGA) and Common Reporting Standard (CRS).

Question 5

3.4. IMF’S RECENT GROWTH FORECAST

Answer 5

Key Projections
on World economy
 It has maintained its forecast for a weak global growth. The weakening is mainly caused by poor business environment and draw down of goods inventories.
 The IMF said advanced economies as a whole will see a weakening of growth in 2016, down 0.2 percentage point from July to 1.6 per cent, while emerging market and developing economies will see a 0.1 percentage point gain in growth to 4.2 per cent.
On Indian Economy
 Indian economy is expected to grow faster than any other emerging economy at 7.5 per cent as against China’s 6.3 per cent.
 IMF said India’s economy has benefited from lower commodity prices, and inflation has declined more than expected. Yet, it cautioned that underlying inflationary pressures arising from bottlenecks in the food storage and distribution sector point to the need for further structural reforms to ensure that consumer price inflation remains within the target band over the medium term.
 Growth will also benefit from recent policy reforms like constitutional amendment enabling implementation of the national GST, adoption of inflation targets, and removal of foreign direct investment (FDI) ceilings.
 The contribution of net exports has been revised downward, as import growth is expected to accelerate amid stronger domestic demand.

Question 6

3.5. INDIGENOUS DEFENCE PRODUCTION: DASSAULT RELIANCE AEROSPACE JV

Answer 6

About
 Reliance’ Group has formed a Joint Venture with French
Aerospace giant Dassault Aviation.
 The JV would be a key player in execution of the offset
obligations which was a part of the Rafale fighter jet deal.
The deal has a 50% offset clause.
 It will set up a facility at Nagpur to complete the supply chain
for the Rafale fighter jet in India.
 The facility will be planned, designed and structured with
French assistance.
Significance
 It is expected to create 1,500 direct jobs and many more indirect jobs for suppliers and sub-contractors.
 The high levels of technology transfer would benefit the entire aerospace sector.
 The strategic partnership will also focus on promoting research and development projects under the IDDM program (Indigenously Designed, Developed and Manufactured), a new initiative of India’s Defence Ministry.

Box–About IDDM
All defence acquisition proposals were required to be classified under one of five categories under the Defence Procurement Procedure (DPP) 2016 until a sixth category of Indigenously Designed Developed and Manufactured (IDDM) was added this year.
The category is expected to bring significant investments in R&D and will ensure the scientific talent in India is engaged in cutting-edge technologies in defence.

Question 7

3.6. INDIAN BRIDGE MANAGEMENT SYSTEM

Answer 7

Why in news?
 The Indian Bridge Management System was launched recently.
 IBMS is being developed to create an inventory of all bridges in the country and rate their structural condition so that timely repair and rehabilitation work can be carried out based on the criticality of the structure.
 This will help in improving the transport efficiency as well as reducing accidents.
Working Mechanism
 Every bridge in the country is assigned a unique National Identity Number based on the state and RTO zone. It is also given a Bridge Location number based on its exact location which is ascertained by GPS.
 The Bridges are also classified according to their engineering characteristics and structural components and assigned a Bridge Classification and Structural Rating Number respectively.
 The bridges are also being assigned Socio-Economic Bridge Rating Number which will decide the importance of the structure in relation to its contribution to daily socio-economic activity of the area in its vicinity.
 Based on this inventory IBMS will analyse data and identify bridges that need attention.

Question 8

3.7. INDIA’S FIRST MEDIPARK

Answer 8

About
 HLL Lifecare Ltd, a mini-ratna company, would be setting up a medical devices manufacturing park (Medipark) at Chengalpattu, a town in the outskirts of Chennai.
 It will be completed in seven years, being developed in different phases.
Significance
 The Medipark would be the first manufacturing cluster in the medical technology sector in the country, and would play a key role in the development of medical devices and technology industry and allied disciplines.
 India imports about 70% of its medical equipments and devices. It is almost completely dependent on imports for high-end items like imaging equipment, pace makers, and breathing and respiration equipment. Domestic manufacturing of the devices and equipment would bring down the cost and make healthcare more affordable.
 As part of India’s Make in India initiative this will generate direct employment for about 3000 people and indirect employment for many more thousands once it is operational.

Question 9

3.8. POWER TRANSMISSION PLANNING

Answer 9

Why in News
 The Mata Prasad committee, constituted by Central Electricity Regulatory Commission (CERC), in its recently released report has suggested an overhaul in transmission planning to facilitate transfer of power on economic principles.
Key Suggestions
 Transmission planning should be aligned to meet customer aspirations in contrast to the long-term power purchase agreements (PPAs) arrangement. Transmission planning can also be done on the basis of projected load of the states and anticipated generation scenario based on economic principles of merit order operation.
 In case of renewable energy sources, the transmission system may be planned by the central transmission utility (CTU) based on estimated capacity additions in perspective plan and renewable purchase obligations of each state. This is crucial as the Centre has already launched renewable energy capacity addition of 175 Gw by 2032.
 To promote the power market, the transmission corridor allocation should be suitably made. 5% of each flow gate may be reserved for day-ahead collective transactions, which may be released for the contingency market in case of non-utilisation of the corridor by power exchanges. This would be annually reviewed.
 The committee has emphasised the need for the creation of a central repository of generators in the Central Electricity Authority of India (CEA), where any generation project developer proposing to set up a new generation plant must register itself. This will not only provide vital data for the transmission planning process but will alleviate problems due to uncoordinated generation additions.
 The committee has also made a strong case for hand-holding of states by CEA and CTU for accurate demand forecasting.
Significance
The recommendations would be help in better long-term planning of transmission system which plays a key role in India’s power infrastructure.

Question 10

3.9. REGULATION OF PENSION PRODUCTS

Answer 10

Why in news?
 The Finance Ministry has set up a high-level committee to consolidate the regulation of pension products that is currently being done by three different watchdogs including the insurance and stock market regulators.
Background
 The Pension Fund Regulatory and Development Authority (PFRDA) was set up with the intent of regulating all pension products. However, insurers and mutual funds continue to sell pension products outside its watch. This creates confusion among consumers looking to build a retirement nest egg.
 Pension products floated by insurance companies come under the purview of the Insurance Regulatory and Development Authority (IRDA) while those sold by mutual funds are overseen by the SEBI. However, since their prime focus is on insurance and mutual funds/capital markets respectively, pension regulation done by them is only a piecemeal work.

About PFRDA
 The Pension Fund Regulatory and Development Authority (PFRDA) is a pension regulatory authority which was established in 2003.
 It is authorized by Ministry of Finance, Department of Financial Services.
 It promotes old age income security by establishing, developing and regulating pension funds and protects the interests of subscribers to schemes of pension funds and related matters

Question 11

3.10. ETHANOL PRICING REVISION

Answer 11

Why in news?
 The government has moved towards a new pricing mechanism for sugar-extracted ethanol which is used for blending in petrol. The government had initiated the ethanol blending programme way back in 2003 with an aim to cut import dependence on crude oil. Initially the quantity was fixed at 5% which was slowly supposed to be raised to 10%.
 However, this could not be done on account of the various constraints faced by the Oil Marketing Companies (OMCs) like state specific issues, supplier related issues including pricing issues of ethanol etc.
Implications
 Moving towards a free-market structure, the price of ethanol will now be determined on the basis of prevalent price of sugar in the open market as also demand-supply situation.
 The prices of ethanol will be reviewed and suitably revised by the government at any time during the ethanol supply depending upon the prevailing economic situation and other relevant factors.

Question 12

3.11. AGRO IRRADIATION CENTERS

Answer 12

Why in news?
 India and Russia have agreed to collaborate in setting up integrated irradiation centres in India.
 In the first phase, seven centres will be set up in Maharashtra, which will begin with the upgradation of the current centre at Rahuri in Ahmednagar district.
 An agro irradiation center is one where food products are subjected to a low dosage of radiation to treat them for germs and insects, thereby increasing their longevity and shelf life. (in box)
Significance
 In India post-harvest losses infood grains, fruits and vegetables are extremely high amounting to around 40-50%. This is primarily due to insect infestation, microbiological contamination, physiological changes due to sprouting and ripening, and poor shelf life. This could be controlled by irradiation.
 Irradiation doses are recommended by the IAEA and the final product is absolutely safe. It does not reduce the nutritional value of food products and does not change their organoleptic properties or appearance.

Question 13

3.12. NATIONAL SC/ST HUB AND ZERO DEFECT-ZERO EFFECT SCHEME LAUNCHED

Answer 13

Why in news?
 Prime Minister Narendra Modi launched the National SC/ST hub and the Zero Defect, Zero Effect (ZED) scheme for Micro, Small and Medium Enterprises (MSMEs).
National SC/ST Hub
 The objective of the SC/ST Hub is to provide professional support to entrepreneurs from the SC/ST and also promote enterprise culture and entrepreneurship among them.
 It will work towards strengthening market access/linkage, capacity building, monitoring, sharing industry-best practices and leveraging financial support schemes.
 It would also enable Central Public Sector Enterprises (CPSEs) to fulfill the procurement target set by the government. The Public Procurement Policy 2012 stipulates that 4 per cent of procurement done by Ministries, Departments and CPSEs would have to be from enterprises owned by SC/ST entrepreneurs.
 The ministry has made an initial allocation of Rs 490 crore for the period 2016-2020 for the Hub.
Zero Defect-Zero Effect (ZED) Scheme
 ZED Scheme aims to rate and handhold all MSMEs to deliver top quality products using clean technology. It will have sector-specific parameters for each industry.
 The slogan of Zero Defect, Zero Effect (ZED) was first mentioned by PM Narendra Modi in his Independence Day speech in 2014. It was given for producing high quality manufacturing products with a minimal negative impact on environment.
 The scheme will also be cornerstone of the Central Government’s flagship Make in India programme, which is aimed at turning India into a global manufacturing hub, generating jobs, boosting growth and increase incomes.
 Further, it will promote development and implementation of clean technology products.

Question 14

3.13. OPTIONS IN AGRICULTURAL PRODUCE

Answer 14

Why in news?
SEBI recently allowed options trading in selected commodities, including farm produce.
What is it?
An option is a financial derivative wherein one party sells its contract to another party, wherein the selling party offers the buyer the right, but not the obligation, to buy or sell a security at a predetermined price and date.
Overview
 Security to farmers as they will benefit from a stable price regime since assured prices are only set for wheat, rice and sugarcane by the government.
 Additionally, options give the farmers the right to buy and sell in the future but there is no obligation to do so. Hence, there is flexibility in decision-making.
Concerns
 There are concerns that if speculators dominate trading, the impact on prices could be significant.
 Given the experience with futures trading where cartelisation and price-rigging led to speculative excesses (SEBI had to actually ban new contracts in chana and bar select players from castorseed), the impact of the introduction of options in essential commodities needs to be watched closely.
 It is hard to see how farmers, who are a disaggregated lot and deal in small, insignificant quantities of their produce, will master the nuances of options trading.

Question 15

3.14. GLOBAL COMPETITIVENESS INDEX

Answer 15

Why in news
India’s position improved to 39th rank in the World Economic Forum’s latest Global Competitiveness Index.
Key facts
 India improved 16 places to 39, making it the fastest riser up the ranks among 138 countries surveyed.
 India’s competitiveness improved across the board, particularly in goods market efficiency (60), business sophistication (35) and innovation (29).
 India is also the second most competitive country among BRICS nations (China on 28th).
 Recent reform efforts by the government that help improve rank are
 Improving public institutions (up 16 places).
 Opening the economy to foreign investors and international trade (up 4).
 Increasing transparency in the financial system (up 15).
 WEF observed that India still needs to tackle problems like
 Labour market deficiencies,
 large public enterprises that reduce economic efficiency,
 the financial market,
 Lack of infrastructure

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Question 16

3.15. MINING SURVEILLANCE SYSTEM (MSS)

Answer 16

Why in news?
Union Minister of State for Power, Coal, New & Renewable Energy and Mines, launched the Mining Surveillance System (MSS) in New Delhi
What is it?
 MSS is a satellite based monitoring system developed under Digital India Programme by Ministry of Mines, through Indian Bureau of Mines (IBM in coordination with Bhaskaracharya Institute for Space Applications and Geo-informatics (BISAG), Gandhinagar and Ministry of Electronics and Information Technology (MEITY)
 It is one of the first surveillance systems developed in the world using space technology.
 The current system of monitoring of illegal mining activity is based on local complaints and unconfirmed information with no robust mechanism to monitor the action taken on such complaints.
 In such a situation, the MSS aims to establish responsive mineral administration through public participation by curbing instances of illegal mining activity using automatic remote sensing detection technology.
Operation of the system
 In the MSS, the maps of the mining leases are geo-referenced and are superimposed on the latest satellite remote sensing scenes obtained from CARTOSAT & USGS (United States Geological Survey).
 A check for illegality in operation is conducted and reported back using a user-friendly mobile app, which has been designed keeping public participation in mind, wherein the citizens can use it to report any unusual mining activity.
 An executive dashboard works as a decision support system using which officials can track the current status of mapping of the mining leases, reasons for triggers, the status of inspections related to triggers generated, the penalty levied etc. for all major mineral mining leases across the country.
Benefits
 States like Karnataka, which witnessed frequent instances of illegal mining in the past, will gain from the technology in the following manner.
o It will lead to transparency as the public can access to the system.
o It is a bias-free and independent system since it has scope for minimal human interference.
o It is characterized by quick response and action since there will be regular monitoring of mining areas, which will also have a deterrence effect.
o Effective follow-up on action taken on triggers.

Question 17

3.16. CENTRAL ASSISTANCE UNDER AIBP

Answer 17

Why in news?
 Union Minister for Water Resources, River Development and Ganga Rejuvenation released the first installment of Rs. 1500 crore to the states as central assistance for 99 prioritized irrigation projects under
Accelerated Irrigation Benefits Program (AIBP).
 This amount has been released for 50 projects in the states of
Gujarat, Karnataka, Madhya Pradesh, Maharashtra, Manipur,
Odisha, Punjab, Rajasthan and Telangana.
 These irrigation projects will cover drought prone districts of
the states to increase production and are also aimed at
containing incidents of suicide by farmers.
 A High Level Empowered Committee (HLEC) comprising
Finance Minister, Minister (WR, RD & GR), Minister of
Agriculture, Cooperation and Farmer’s Welfare, Minister of
Rural Development, Vice Chairman of NITI Aayog has been constituted to review the progress of the identified 99 projects.
 The HLEC will also monitor other components under Pradhan Mantri Krishi Sinchai Yojana and provide policy guidance for mid-term course correction.
Background
 Of the nearly 142 million hectares of net sown area, only about 64 million hectares, less than half, has assured access to irrigation facilities. The rest still depend on rainwater.
 Moreover, even within the overall irrigated land, nearly 60 per cent is based on pumped ground-water, banking on free or highly-subsidised power provided to farmers in most states, thereby putting further pressure on a fast-depleting critical resource.
Areas of concern
 One of the major reasons for the projects to remain incomplete is inadequate release of funds by central government.
 Other issues include time and cost overruns in most of the projects, problems in land acquisition and technical difficulties like constructing tunnels in some places.
 A government survey of the projects has shown utilisation gaps – the difference between the irrigation potential created and the area actually being irrigated – of between 25 to 55 per cent. That means these projects are serving substantially lower area and lesser number of farmers that they are meant to do.
Other Steps taken by the Govt.
 A dedicated irrigation fund has been created under the National Bank for Agriculture and Rural Development (NABARD), which has been asked to issue tax free bonds to borrow money.
 An initial corpus of Rs 20,000 crore has already been set up through the budget, which NABARD can leverage to mobilize further money from the market.
 The government has now asked the Central Water Commission and other agencies to take up 50 out of the 143 completed projects each year and work towards increasing their efficiencies.
 Each of these projects would now also have water user associations that will decide on how the water is distributed to every claimant in the area.
Way forward
 There should be provisions for online monitoring as well as physical monitoring of the projects for ensuring their completion.

Box–The Union Government launched the Accelerated Irrigation Benefits Programme (AIBP) in 1996-97 for providing financial assistance, to expedite completion of ongoing Major/Medium Irrigation (MMI) projects including Extension, Renovation and Modernization (ERM) of irrigation projects and Surface Minor Irrigation schemes as well as Lift Irrigation Schemes (LIS).

Question 18

3.17. AGRICULTURAL MARKETING AND FARM FRIENDLY REFORMS INDEX

Answer 18

What is it?
 The NITI Aayog launched the first ever “Agricultural
Marketing and Farmer Friendly Reforms Index” to rank
States and Union Territories.
Features and ranking
 The indicators used to assess represent competitiveness, efficiency and transparency in agri markets.
 The rankings are based on implementation of seven provisions proposed under model APMC Act, joining eNAM initiative, special treatment to fruits and vegetables for marketing and level of taxes in mandis.
 The other parameters included in the index are relaxation in restrictions related to lease of farm land to tenant farmers, and the freedom farmers have to fell and transport trees on their own land, which allows them to diversify their incomes.
 The index has a score, ranging from “0” implying no reforms to value “100” implying complete reforms in the selected areas and states and Union Territories have been ranked in terms of the score on the index.
 Maharashtra achieved first rank in implementation of various reforms as it implemented most of the marketing reforms and offered best environment for doing agribusiness.
 Gujarat ranked second closely followed by Rajasthan and Madhya Pradesh.  Puducherry got the lowest rank followed by Delhi and Jammu & Kashmir.
 Almost two third states including U.P., Punjab, West Bengal, Assam, Jharkhand, Tamil Nadu and J&K could not reach halfway mark of reforms score.
 Some states and UTs either did not adopt APMC Act or revoked it. They include Bihar, Kerala, Manipur, Daman and Diu, Dadra and Nagar Haveli, Andaman and Nicobar. They are not included in the ranking.
Proposed agricultural reforms
 NITI Aayog has also identified three key areas
for agricultural reform, which reveal ease of
doing agribusiness as well as opportunities for
farmers to benefit from modern trade and
commerce and have wider option for sale of
her/his produce.
 The reforms are:
 Agricultural market reforms: So that the
benefits that can be accrued from
agriculture are tapped by embracing
marketing principles that ensure best
possible reforms.  Land lease reforms: Relaxation in restrictions related to lease in and lease out agricultural land and change in law to recognise tenant and safeguard land owners’ liberalisation.
 Reforms related to forestry on private
land – felling and transit of trees: The
reforms lay stress on the untapped scope
of agro forestry in supplementing farmers’
income. Reforms also represent freedom
given to farmers for felling and transit of trees grown on private land to diversify farm business.

Way forward  The states can use the index as a yardstick and improve on the indicators where they are lagging behind as it is aimed at helping states identify and address problems in the farm sector, which suffers from low growth, low incomes and agrarian distress.
 The states should be encouraged to adopt the mentioned reforms as they aim to overhaul the agricultural sector, which will ultimately be beneficial for farmers.

Box–The Central government first introduced reforms in the APMCs or wholesale markets (mandis) through the APMC Act in 2003, urging states to adopt it as agri-marketing is a state subject under the Constitution.

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Question 19

3.18. REGIONAL CONNECTIVITY SCHEME ‘UDAN’

Answer 19

About
 UDAN is an innovative scheme to develop the regional aviation market.
 The objective of the scheme was “Ude Desh Ka Aam Naagrik”.
Key Features
 UDAN will be applicable on flights which cover between 200 km and 800 km with no lower limit set for hilly, remote, island and security sensitive regions.
 The scheme seeks to reserve a minimum number of UDAN seats i.e. seats at subsidized rates and also cap the fare for short distance flights.
 This would be achieved through two means:
o A financial stimulus in the form of concessions from Central and State governments and airport operators like tax concessions, exemptions from parking and landing charges etc.
o A Viability Gap Funding to the interested airlines to kick-off operations from such airports so that the passenger fares are kept affordable.
 The VGF would be provided by a market based model. The operators would submit their proposals to the implementing agencies would then be offered for competitive bidding through a reverse bidding mechanism and the route would be awarded to the participant quoting the lowest VGF per Seat.
 Such support would be withdrawn after a three year period, as by that time, the route is expected to become self-sustainable.
 A Regional Connectivity Fund would be created to meet the VGF requirements under the scheme. The RCF levy per departure will be applied to certain domestic flights along with 20% contribution from states.
 For balanced regional growth, the allocations under the scheme would be equitably spread across the five geographical regions of the country viz. North, West, South, East and North-east.
 The selection of airports where UDAN operations would start would be done in consultation with State Government and after confirmation of their concessions.
 The scheme UDAN envisages providing connectivity to un-served and under-served airports of the country through revival of existing air-strips and airports.
 The scheme would be in operation for a period of 10 years.
Significance
 The scheme would ensure affordability, connectivity, growth and development.
 This would help in generating employment. As per the International Civil Aviation Organisation that every rupee invested in civil aviation add Rs 3.5 to the economy and every job created directly generates 6.1 jobs indirectly.
 It provides an additional business opportunity by increasing the potential for moving existing perishable cargo, fragile goods and high-value export-oriented products by air.
 The state governments would reap the benefit of development of remote areas, enhance trade and commerce and more tourism expansion through the introduction of small aircrafts and helicopters.
 For incumbent airlines there was the promise of new routes and more passengers while for and start-up airlines there is the opportunity of new, scalable business.
 Commercialising the ‘un-served’ and ‘under-served’ airports (416 in total) will “democratise” publicly-owned sites which have hitherto been reserved for elite use. The average citizen would get a participative stake in their use and development.

Criticisms
 Airlines represent luxury. In a poor country like India it seems a case of misplaced priorities when governments and passengers have to bear the cost of additional subsidies to connect regional air routes.
 India is the fastest growing aviation market in terms of passenger traffic. Between January and September 2016, passenger traffic within India grew 23.17%. Aviation regulator’s data showed that all the licensed airlines overshot their regional connectivity quota. In other words, they flew more than what is mandated by regulations. It suggests that from this stage market dynamics may drive regional connectivity. State subsidies, therefore, are best used elsewhere.
 The assumption that three years would be enough to make a route sustainable might be misplaced. It does not take into account a scenario of fuel cost increase that would significantly change the air cost dynamics.
The environment for airlines to operate is already highly taxed (taxes on ATF is among the highest in the world). So another levy to fund the regional connectivity scheme is annoying airlines further.

Question 20

3.19. EASTERN DEDICATED FREIGHT CORRIDOR

Answer 20

About
 It is an under construction freight corridor by Indian railways connecting Indian states from Punjab to west Bengal.
 It is 1,840 km long and extends from Ludhiana in Punjab to Kolkata in West Bengal as a series of projects with three sections.
Why in News
 Recently, the International Bank for Reconstruction and Development (IRBD), part of the World Bank Group, signed an agreement with the Union government to lend $650 million to DFCCIL for the third phase of Eastern Dedicated Freight Corridor.
 The first two phases of the EDFC are already being implemented by the DFCCIL with the help of financial assistance provided by the World Bank in the form of loans worth $975 million and $1,100 million respectively.
Significance of the Project
 It will enhance rail transport capacity, improve service quality and boost freight carriage on the corridor.
 It will directly benefit the power and heavy manufacturing industries located in the Northern and Eastern parts of India as these industries depend heavily on a smooth railway network for the efficient transportation of their raw materials along with the distribution of bulk and consumer goods.
 In addition to this, railway passengers would also be benefitted as the existing passengers lines would get decongested.
 It will help in developing institutional capacity of DFCCIL to build, maintain and operate the entire Dedicated Freight Corridor network.

Question 21

3.20. TRENDS IN CSR SPENDING

Answer 21

Highlights
 The latest figures on Corporate Social Responsibility show that Indian corporate world has spent Rs 8,345 crore as part of their CSR obligation in 2015-16.
 This is a 28% jump over the Rs 6,526 crore spent in the previous year.
 Education and health continues to be favourite sectors.
 Prime Minister’s National Relief Fund along with other funds set up by the Central and the state governments has been the biggest gainer with a jump of 418%.

Issues
 While the compliance rate has increased, the unspent amount has increased. This shows that a large number of companies failed to meet their social obligation and did not spend the prescribed amount on CSR.
 Corporate is really not spending on CSR as much as they should as 28% growth indicates against 41% by PSUs.
 They are not owning and driving change rather than make a passive contribution to PM’s Relief Fund. A lot of companies find it better to do the CSR in a passive way as it saves their time and human resources.
 Other reasons cited by companies for the unspent amount are- lack of being able to identify the right opportunity or project and not being able to find an implementing agency.
About CSR
 S.135 of the Companies Act was amended in 2013 to introduce the CSR provisions. The CSR Rules, 2014 govern the process.
 The Regulations mandate companies to spend at least 2 per cent of the average net profit (earned over the last three years) towards various social causes.

Question 22

3.21. URJA GANGA PROJECT

Answer 22

About
 Recently Prime Minister Narendra Modi laid the foundation stone of Urja Ganga, the highly ambitious gas pipeline project in Varanasi, Uttar Pradesh.
 It aims to provide piped cooking (PNG) gas to residents of the eastern region of the country and CNG gas for the vehicles.
Key Features
 The project envisages laying a 2,050-km pipeline connecting Jagdishpur (UP) to Haldia (West Bengal) by 2018. It will include five states including UP, Bihar, Jharkhand, West Bengal and Odisha.
 The project is being implemented by state-run gas utility GAIL.
 The project augments existing GAIL’s network of trunk pipelines covering the length of around 11,000 km by 2540 km.
 Seven East India cities Varanasi, Jamshedpur, Patna, Ranchi, Kolkata, Bhubaneswar, Cuttack – will be the major beneficiary of this network development.
Significance
 The project is considered as a major step towards collective growth and development of the Eastern region of India. Under it, overall 20 lakh households will get PNG connections.
 From Varanasi’s perspective, 50,000 households and 20,000 vehicles will get cleaner and cheaper fuel PNG and CNG gas respectively.
 Besides, LNG terminal at Dhamra will provide clean fuel to the Industrial Development of the Eastern states of Uttar Pradesh, Jharkhand, Bihar, West Bengal and Odisha.
 25 industrial clusters in these 5 states will be developed using gas from this pipeline. Besides, 40 districts and 2600 villages will benefit from this project.
 It will also help in revival of defunct fertilizer plants in Barauni in Bihar, Gorakhpur in UP, Sindri in Jharkhand and Durgapur in West Bengal by supplying gas.
 It will also help in bringing natural gas based crematoriums at cremation grounds including Manikarnika and Harishchandra ghats in Varanasi. This will be good for environment.

Question 23

3.22. DBT FOR KEROSENE

Answer 23

About
 After the success of Direct Benefit Transfer (DBT) in LPG/Cooking gas, the government is planning to launch DBT in Kerosene as well.
 It has initiated the process by a pilot programme in 4 districts of Jharkhand.
 Under the DBTK Scheme, PDS kerosene is being sold at non-subsidised price, and, subsidy, as admissible, is being transferred to consumers directly into their bank accounts.
 This initiative of the governments is aimed at rationalising subsidy, cut subsidy leakages and reduce administrative costs. It, thus, seeks to benefit all stakeholders.
Challenges in Implementation
 Lack of a streamlined and unified digital consumer database: The LPG consumers were all under Public Sector Oil marketing companies which made it easier to compile a consumer data. However, in case of Kerosene the consumer data is with individual states under their PDS system. Thus, coordination among the large number of State-level actors, especially in the case of a non-digitised PDS beneficiary database, can create barriers.
 Differences between center and states: While the Centre burns the fiscal impact of subsidy, the States determine the beneficiaries and quantum of subsidy. This is an important political currency for State governments. Thus, states must be aligned to this idea for its successful implementation.
 The price difference between diesel and unsubsidized kerosene will still be high enough to give an incentive to the middlemen to divert the fuel as a diesel substitute.
 Another challenge is in ensuring that the subsidy is accessible to its major beneficiaries- poor households. Presently, the bank branches are not readily available in remote locations which increase the cost of withdrawing money.
Way Forward
 Studies show that kerosene is predominantly used as a lighting fuel in rural India, with less than 1 per cent of households using it as a primary cooking fuel.
 Thus, there is need to move towards solar-assisted solutions for lightening and LPG for cooking. This would be economically beneficial to government as well as households in the long-run.

Box–

Mains 2015
Q. In what way could replacement of price subsidy with Direct Benefit Transfer (DBT) change the scenario of subsidies in India? Discuss

Question 24

3.23. EASE OF DOING BUSINESS RANKINGS

Answer 24

Background
 The World Bank ranks the economies on their ease of doing business. A high ease of doing business ranking means the regulatory environment is more conducive to the starting and operation of a local firm.
 The rankings are determined by sorting the aggregate distance to frontier scores on 10 topics, each consisting of several indicators, giving equal weight to each topic.
 India has ranked poorly on this ranking for past few years. In the recent rankings for 2017, it has moved one rank up to the 130th position.
 This marginal improvement came on the back of slight improvement in four indicators- getting electricity, enforcing contracts, trading across borders and registering property.
Positives from the Report
 The report praises the various reforms taken by the present Indian government.
 It recognizes reforms under four of the 10 headers which is highest ever achieved by India.
 The ‘distance to frontier’ (DTF) score-used by the WB to measure the distance between each economy and the best performance in that category-has improved for seven of those 10 headers.
 The report especially lauds India for achieving significant reductions in time and cost to provide electricity connections to businesses.
Should the marginal improvement be a matter of concern?
 India has improved by only one position. This is being looked by many as a matter of concern on account of two reasons:
o India has taken a number of economic reforms in the past year like enactment of bankruptcy code, GST, introduction of single window system for building plan approvals and online ESIC (Employees’ State Insurance Corporation) and EPFO (Employees’ Provident Fund Organisation) registrations etc. Thus, a better ranking was expected.
o Further, the present government aims to bring India in the top 50 economies in the Ease of Doing Business by 2018. The target seems extremely challenging now.
 However, the report does not truly represent the status of economic reforms taken by India. For instance:
o The Report accounts for reforms undertaken by 1st June 2016 only. As a result some of the key reforms like Insolvency and Bankruptcy Code were not included. India hopes to get a better ranking next year.
o Second, one particular change in the ranking methodology seems to have done considerable damage to India’s improvement prospects. India ranks fourth from the bottom under the header “paying taxes”. Inclusion of new criterion ‘post-filing index’ has much to contribute to this.
o Third, the rankings cover only the two cities of Delhi and Mumbai. However, the reforms are being carried on all across India. In fact, states like Andhra Pradesh, Telangana have done remarkable efforts in economic reforms.
o Fourth, there is increasing competition from other countries who are trying to improve their rankings as well. In fact, the report mentions that the number of countries that have implemented at least one reform have increased from 122 to 137. Thus, even though India might have improved its ease of doing business, it is not reflected in the ranking in the same sense.
 Further, even this ranking process has its limitations. The report clubs all the economies together. E.g. the emerging markets with advanced economies, the war-torn with peaceful ones etc. Such an approach gives a grand ranking system but is hardly useful in predicting, for instance, the flow of capital. Thus, while India may lag behind many countries in EoDB, it may still be a better destination for FDI etc.
Way forward
 We need to learn from other countries like Georgia and Kazakhstan who have done extremely well in the rankings in a matter of few years. E.g. Georgia has improved from 100 to 16 in last 10 years.
 The DIPP is planning to appoint external agencies to help departments carry forward reforms, hold stakeholders consultations, and monitor implementation of reforms.

–Fig–

Question 25

3.24. NOBEL PRIZE IN ECONOMICS

Answer 25

Why in news?
 Oliver Hart from Harvard and MIT professor Bengt Holmstrom won this year’s Nobel Memorial Prize in Economics for their study of contracts and human behaviour in business.
What is Contract Theory?
 How contracts are designed defines our incentives in various situations in the real world. Contracts can be
o formal or informal, depending on whether they are enforced by law or social norms
o complete or incomplete, which is based on whether they take into account all possibilities that lay in the future
 Contract theory is, partly at least, an attempt to understand the nuances in our contracts and how those contracts could be better constructed.
 The two economists provided “a comprehensive framework for analysing many diverse issues in contractual design, like performance-based pay for top executives, deductibles and co-pays in insurance, and the privatisation of public-sector activities.”
 It has become especially relevant in the years after the 2008 financial crisis, which was blamed on the short-term risk encouraged by huge cash bonuses paid to investment bankers.
 It also touches on themes of moral hazard, which arises where those that take the risks don’t share in the costs of failure.
Significance
 Contract theory has greatly influenced many fields, ranging from corporate governance to constitutional law.
 Contract Theory generates precise hypotheses that can be confronted with empirical data and lays an intellectual foundation for the design of various policies and institutions, from bankruptcy legislation to political constitutions.
The use of contract theory in public policy is something that the Indian government needs to learn, be it the design of telecom auctions or the public distribution system.