GS3 Weekly
[16th – 21st Feb 2015]
[The Undercover group]
(Insightsonindia.com)
Topic:Indian economy – growth
Q) The health of economy is often gauged by the GDP and IIP figures in India. In the light of recent economic growth trend in India, examine how GDP and IIP data reflect the health of economy. (150 Words)
Business Standard
Ans-GDP indicates the aggregate value added on products.While IIP is a composite short-term indicator of change of volume of production with 75 % weightage of manufacturing.
Both helps in measuring economic health of a nation but gdp measures value addition while iip indicates real production growth.
the recent higher growth in gdp(5.4%) in comparision to iip(2%) indicates there is more value addition to the product than actual increase in the volume of production.This increases profit of businessmen.
But,both iip and gdp have demerits like they dont measure the quality of development like distribution of wealth.There is no measure of environmental harm calculation,no long term welfare measures,etc
Thus there is a need to switch to other indexes like Human Development Index(having education,life expectancy,etc),Index of Sustainable Economic Welfare,Gross Happiness Index,etc.
Topic:Indian economy – growth
Q) Recentlythe measurement of India’s gross domestic product(GDP) wastweaked to conform to international standards. But, according to economists this method has created somediscrepancies. What are these discrepancies and why are they caused? Explain. (150 Words)
Business Standard
Ans-Recently 2 changes were introduced in India's gross domestic product (GDP) calculation. First, the base year for GDP calculation was updated. This was done to update the products and services used to calculate GDP. Second, the measurement will now be done at gross value added (GVA) at market prices and not at factor costs. This means that subsidies would not be added and taxes would not be deducted from the gross value.
The change, however, has caused some discrepancies in GDP numbers. The breakup of the GDP, i.e. calculating the GVA by individual sectors and adding them up, does not match with its headline number. Further, the discrepancy has increased from .1% of GDP (at factor cost) to 1.2% of GDP (at market prices).
This is due to the following reasons
1. The data quality of GDP at market prices, for headline number as well as individual sectors, is not accurate given it is a newly adopted practice.
2. Upgradation of base year has added greater share for certain sectors such as manufacturing into the GDP causing the earlier discrepancies at factor cost to inflate.
3. Inclusion of production taxes which are levied even if the final product is not there (such as property tax) in the GDP calculation has also caused inflation of discrepancies
Topic:Environmental pollution and degradation
Q) Some environmentalists have expressed concern that farming crises in the states of Haryana and Punjab might cause air pollution in Delhi. Examine why and suggest how this can be addressed. (150 Words)
Business Standard
Ans-Pictures released by NASA in 2013, showing large-scale smoke emerging from the fields of Punjab due to burning of straw, have alarmed environmentalists with the National Green Tribunal issuing a notice to the state government. Efforts have been in progress since then to stop the prevalent practice leading to pollution and wastage of a potential resource.
This farming crises takes birth from the declining water table due to water-intensive agriculture in these states
Declining water table---->farmers not allowed to sow rice early---->less period between harvest of paddy and sowing of next crop---->quick solution to burn rice straws in field --->pollution in punjab, haryana, delhi etc--->environment and health hazard.
Various permutation and combinations of solutions have been tried like making burning of straw in fields a cognizable offence,providing subsidy for rice residue use etc. but what is needed is a more sustainable solution including :
1. Energy generation : a uniform procurement on mass scale of rice straw needed
2. Packaging : increased demand will be profitable
3. Composting and mulching : increases fertility of soil and reduces fertilizer use. However awareness generation and subsidy is necessary
4. DSR : direct seeding of rice involves sowing the seeds directly in the fields
5. offering incentives to farmers to stop burning and later credit the incentives through international carbon trading.
However the deeper flaws in the farming crises needs to be addressed which has been built in with the advent of green revolution in these states. The final solution to the crises lies in crop diversification, better awareness, organic farming and sustainable use of technology.
Topic:Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment
Q) Some analysts argue that Purchasing Power Parity (PPP) measure of GDP which ranks India among fastest growing nations is not a true reflection of India’s economic and social growth. Critically analyse flaws in the method and explain what in your opinion needs to be done to reflect correctly the overall socio-economic development of the country. (200 Words)
The Hindu
Ans-Purchase Power Parity gives an idea about the strength of nation’s currency when pegged against currency of another nation on the basis of buying same quality of goods/services in their respective nations. India’s nominal GDP is 10th in world while when calculated on PPP basis it is third only after US and China. It shows 2 things which are both hope and concern.
First, It shows that India’s has huge potential to grow and quantity wise great wealth. It’s a good thing.
Secondly, with prevalent poverty, malnutrition and other ill-economy index in India it also presents that there is huge economic inequality. Hence GDP ranking based on PPP is not correct measure of socio-economic development because it presents relative strength of currency for huge GDP in India. As India is huge in economy, resource rich and cheap in service, hence Goods/Services are cheaper here. Hence, our PPP is higher. So, this measure is distorted presentation.
Because India has very diversed demography, economy activities, economic disparity between Rural and Urban. Hence to present overall economy correctly there should be different economic yardsticks for different purpose.
(1.) Nominal GDP for GDP indexing.
(2.) HDI for human development and prosperity measurement.
(3.) Gender based GDP to give gender-wise production.
(4.) GDP share by Rural and Urban settlements. Sector wise GDP and growth (primary, secoandary and tertiary sector)
Economy is a complex in itself and so is subjectivity of Society. When both combined as Socio-Economic development, one has to extra cautious while choosing only one index to measure growth. Hence, relying on fragmented sector is better for inclusive view of economy.
Topic:Government Budgeting.
Q) “India’s annualbudget is first a macroeconomic exercise and then a micro one catering to sectors of the economy.” Elucidate and suggest what should be the priorities for government while presenting its annual budget.(200 Words)
The Hindu(Basically a General Question)
Ans- The budget or annual financial statement is presented in the Parliament as mandated by
constitution (art 112). It is a statement of annual revenue and expenditure of
union government.
It is a macro economic exercise because it reflects the overall health of the economy and
government’s current and future policy towards it. It reveals many
macro-economic indicators like fiscal deficit, current account deficit, trade
deficit, tax to gdp ratio etc.
But it also highlights the sectoral financial performances, their problems and takes steps
to correct them via changing tax structure, announcing new schemes, chalking
out favorable policy etc.
While presenting a budget, the priorities of a government should be especially in
indian context:
1. improve the fiscal indicators like fiscal deficit, current account deficit, tax to GDP
ratio etc.
2. Generate sufficient revenue to fund the current and capital expenditure using various
means.
3. Announce new schemes or assistance to revive a failing sector or encourage a potential
sector or nurture an already excelling one.
4. Keep the overall fiscal position healthy for the economy to attract investment and
create a favorable economic climate
Considering the reach of budget to every sector and every section of people, it is the
single most annual economic document.
Topic:Public Distribution System- objectives, functioning, limitations, revamping; issues of buffer stocks and food security;
Q) Recently the recommendations of theHigh Level Committee (HLC) to restructure, reorient and reform the Food Corporation of India (FCI) was made public. Critically comment on its recommendations. (200 Words)
The Hindu
Livemint
Ans-As an initial step to secure the four pillars of food security viz. availability, affordability, accessebility and stability the FCI was setup in 1964 . However the shortfalls of FCI in its 3 major objectives of procurement,storage and distribution, lead to formation of the shanta kumar committee for FCI restructuring.
Some of the progressive recommendations include:
1. Procurement Payment reforms: Popularise NWRs
2. Buffer stock reforms: Whenever FCI has grains above buffer norms, it should automatically sell excess stock in open market “Pro-Active Liquidation Policy”.
3. Storage reforms: End to End computerization and Online tracking of entire system from procurement to retail distribution.
4. Transport reforms : Improved night security at rail-points, because >85% of PDS Grain is transported through railways and maximum siphoning off occurs here. Use of inland waterways where possible
Though some of its recommendations appear progressive,most of its reforms have been debated and criticised on various grounds:
• Survey : Committee report says only 6% farmers benefited from MSP procurement regime and nearly 50% of the foodgrains are siphoned off from PDS system
But experts dispute the NSSO-survey methodology used in deriving these numbers.
• Cutting down NFSA : Many poor families will be deprived of their basic right to food.
• recommends FCI to hire contractual staff, close regional offices and give VRS to employees. Trade union leaders are in opposition to this.
• Privatisation : though many farmers have not benefited from public procurement, but FCI has not opened branches outside selected regions.
• Outsourcing procurement to some states :it recommends not to do “open ended procurement” from all states, above buffer stock limits.
This will catalyze distress sells and farmer suicides.
• Direct cash transfer has its own shortfalls
Hence to achieve the target of food security, what is needed is better targetting and proper use of technology which is pro-poor
Topic:Infrastructure – Energy
Q) “All in all, the hype and high prices of the ongoing auction of coal blocks post Supreme Court cancellation of previous allotments conceals the continuing problems of the coal sector.” Critically examine. (200 Words)
Business Standard
Ans- the historical judgement of supreme court canceled the previous allotments of the coal blocks siting the discrepancy to the rules. the govt decided to sell to coal blocks again on the high prices in the auction but this process is ultimately hurting the growth and future revenues. the problems persisting are-
1. the companies which will invest large amount in auctions will surely recover that while selling the coal fuel in market.
2. this selling of coal at high prices will increase the price of all the products and services associated with the coal.
3. this will further effect the growth and the investments, including FDI will be adversely affected in contrast to the objectives of make in india.
4. further, govt has not worked on creating the market of fuel thus the irrational movement of coal will further depress the sector. like the a grade coal is used for the work which can be easily done away with d grade coal.
5. the company which will procure the coal blocks with such high prices will then work for sole profit of itself and the interests of others will be sacrificed.
thus, while the faster allocation of coal blocks is also needed to bring back the sector on the track, the present small problems must also be taken care which if not cured will become the giant problems in future. the insensitive hike in prices of coal block may fill the funds of govt in short run but will hurt it only in future revenues.
Topic:Infrastructure – Energy
Q) India has a little over 3 GW of installed solar power capacity. In order to reach 100 GW,the solar sector has to match ambition with speed, scale and skill. Examine the factors that determine this speed, scale and skill, and explain how to improve them. (200 Words)
Business Standard
Ans-Being a tropic and Subtropic country ,where solar insolation received is capable to provide cost effectiveness to Solar tech, it is imperative for India to focus on Solar mission , and fulfil task of 2022 100GW,. With Neighbour China target to reach 7Gw every years , India cannot afford to loose this battle . For it to Succeed it need to focus 3 major areas and do the required efforts to fulfil it
1 Speed - In 7 years to touch 100GW mark , that is capacity to be doubled every one and half year. Requires govt swift policies, Advanced price/ tariffs acknowledgment ,Low interest debt finance or Equity finance , green Bonds issued recently by Yes banks , Green bank from National clean energy fund can be used .
~Land which is 3-4% of total cost , Gujrat //KA initiative of Lease bank, raj 25 lease, Mp stamp duty exemption can be used to Encourage entrepreneurs
2Scale - with Such ambitious target , it requires Use of roof top projects, Solar projects spread on wetland via canister, Net metering German policy , Micro grid or decentralised electricity , Solar lantern instead of Kerosene Subsidy .Green corridors of Gujrat and TN can be extended.
3 Skill - With NSDA ,and recent records from 2011 -2014 24k jobs were created , Such can increase to 1.3 million jobs both full time and part time . Also efficient use of land Like in recent canal top project in gujrat can serve as Encouragement for Skill development
green bank, Exchange swap , Easy exit policies , renewable purchase obligation , can help in boosting the Investment. For every 3 Gw , 1 Bn import of Solar is required this could be minimised by R&D , improving domestic competitiveness, reducing import dependence. Large government procurement order For instance similar to LED procurement& distribution Scheme in Delhi and Deen dayal yojana caused to decrease price to 120 from 400 rupees.
~Banks shall be encouraged for Solar finance , and People in area of greater Solar insolation shall be motivated to use it .
Topic:Indian economy – growth
Q) What are the salient features of Fifth Generation Fighter Aircraft (FGFA)? Some defence analysts think that India should focus on its joint project to develop FGFAs with Russia than buying them from foreign countries. Critically discuss why. (200 Words)
Business Standard
Ans-Salient Features of Fifth Generation Fighter Aircraft (FGFA) are:
(1.) It is complete stealth aircraft even if it with missiles (heavy) and arms.
(2.) Very low probability for interception by Radar. Supersonic speed gives edge over radar detection unless it is near radar station itself.
(3.) High-performance air frames, advanced avionics features, and highly integrated computer systems capable of networking with other elements within the battlespace for situational awareness.
(4.) Cost effective if we compare to introduing same feature in Fourth Generation Aircraft fighter.
(5.) More competent to fourth generation fighter aircraft and hence gives an Air combat edge.
Right now major defense companies like Dassault(France, Rafal producer), Sukhoi(Russia), Lockheed Martin(USA) are manufacturing it.
Indian Air Force(IAF) in 2007 signed a project to co-develop FGFA with India’s HAL and Russia’s ROBOBORONEXPERT(defense expert in manufacturing) collaboration. But now India is ignoring it and resorting to 126 FGFA purchasing which will costs in billions and inflating the defense budget of India.
It is not a correct measure from India’s side because of following reasons:
(1.) High tech FGFA are liability once the maintenance contract ends, then for each year India will have to pay for maintenance. While the IGA (Intergovernmental Agreement) to co-develop would have lowered the cost drastically. Already Russia is ready with FGFA named PAK-FA and found uncooperative to share technology and details with India. India must approach in peacemeal approach of purchasing few and asking for knowledge transfer for maintenance.
(2.) Co-developing such Fighter aircrafts will also boost India’s stand on future manufacture which is only with US, China, Russia, France and Turkey right now. It will boost india’s campaign “Make in India” in long term.
Defense expenditure is a permanent one, but there is one feature which all developed nations share is “Indigenous defense manufacturing”. If India want’s to realise the developed nations like defense dream in future, It must go for knowledge acquisition rather than defense machine acquisition.