I am really grateful to the BPR&D for inviting me to deliver Dr. Anand Swaroop
Gupta Memorial Lecture. Since the Police Commission Report and before it, the Indian
Police have had traditional thinking policemen who have made seminal contributions to
the difficult task of maintaining security in a large and a very fractious open democracy whereas, the Hon’ble Patil knows, permanent protest is a way of life, as the ads of the incredible India Campaign says everyday. The media is correctly exacting in a democracy and largely reporting failures to keep all of us on our toes. However, the salt of the earth are those who just do their jobs well and have the satisfaction of doing it.
While remaining un-surge as Vice chancellor of the Nehru University, I remember Mr
Rao, a senior Police Officer of the Delhi Police, approached me for cajoling forcing a crowd agitating student not to linch two eve teasers. A large force was kept outside the North Gate of the Campus, just in case we need. He wrote a case to local authority on police working together and lifting me, an admirer of crowd control, of cases not reported in the Press.
Thanking you for inviting me on an occasion to honour policeman like Dr. A S
Gupta.
India is a large federal democracy and is in a questioning mode on government
structures. Many of our established institutions are being questioned. The notion which the Press sometimes carries that all our problems can be traced back to political governance and civil service mechanism, I believe, is incorrect. Change has been rapid,expectations are high, technological and economic compulsions are severe and system performance of an incremental kind, seems unacceptable. The country use to experience the freedom movement and the post-Independence decades with idealistic goals is not coming fully to grips with the operational and functional aspects of coalition governments and decentralized institutions. In one’s work, dominating trends in relations to the governance can be seen. Somewhat tentatively I would propose: There will be a much greater emphasis on the rights of individuals in groups including participatory forms of decision making. This will demand greater fairness and self- restraint in the use of Government power. There will be a greater demand on transparency and the right to information.
To assitate withdraws from direct delivery, governance would need to establish a
regulatory function for the functioning of the economic and social sectors. But also it must lay down the institutional framework, incentive mechanisms and disincentive
mechanisms not under the words nice bouquets but also punishments, which the Police
does for those who do wrong things. So police is important and the Government
structures for civil society institutions to functions like centralized local institutions,
government co-operatives, NGOs and newer mixed forms of smaller organizations. Long
renewable resources will be far more severe. Scarcities of water, land, energy
sustainability concerns will be acute.
There would be much greater demand for protecting vulnerable groups either
historically under-privileged or the new, which will be the victims of globalization and marketisation. Concerns for human rights and particularly of specific groups such as women, children, minorities, adivasis, mentally challenged, these would be important.
Modern technology, which will have at our command, will be seen as providing
cutting edge knowledge based solutions to all these scarcities and problems. There will be greater use of Information Technology, bio-technology, systems networking, new materials outsourcing and largely to teaching management responses.
And finally I see thoughtful groups seeing security concerns becoming more and
more acute. I was saying this even before September 11. Arising from the socio-
economic and political dicotism when the world is facing and the resulting tensions also from the more basic issues of food, energy, security, water security and the institutions to do this.
I wrote a report on the ‘Examination and Training to reforms of the higher Civil
Servants’. Some of the Press people said that I was very critical of the IPS/IAS and the
IFS. Actually, the critical part of the report was written by a Senior Civil Servant.
Quote from the summary of the Report, as released by the UPSC
“Indian Political System at civil service produce some extraordinary/ordinary
women and men. They have been persons of letters of arts of history. They have
conceived and implemented green revolutions, given extraordinary idea to health
education and literacy. They have protected the tribal and the dalit, fashioned
his/her rights and fought for them. They have developed new concepts of finance
scrutiny and audit of public expenditure. They have given impetus to scientific and
correctional research. They have fashioned and followed through nation’s global
agenda. They have followed through its deepest dreams of multi-religious, multi-
ethnic society, as narrated from its freedom struggle by both creatively its
democratic and reconciliatory edifice and fighting those who have been destroyed
by the violence. They have been at the heart of the young democracy, struggle for
fashioning the velvet glove and the mailed fist. There have been men and women in
India at the highest echelons of ruling classes who have been scrupulous on the use
of every paisa of public money whose picture has never been published in the
newspapers at public expenses. They have, however, been the exception and not the
rule and what we have to do is to see to it that they become the Rule that is the
challenge in the next round. Now India is growing fast. Its growth is most stable
and its growth is fast.”
During the last month, both the International Monetary Fund and the
Harvard Economist have said the same thing. In the paper given to the Bureau, I
have given a table which was presented at the G-20 by a group arguing that India
and China should be a part of it of which CGA Canada has shown that India is now
a fourth largest economy in the world. We are no longer fifth or sixth and really the
issues which I am talking about are important. Now the Economic Survey says
growth has become a habit from 1979 which I have been saying a year and as I
have told now the world has accepted it. But if it is becoming a habit, your habit is
to grow up around six percent. In fact in the Eighties, we grew a little faster than in
the nineties. And if we want to make number three, then we should be growing at 7-
8 percent, which is what the Prime Minister and the others have said recently. In a
study which Tariq have done for the Planning Commission and I have done for the
UN, we have showed that if we want to grow from 6 to 8 then today what happens is
that for every rupee that you invest, you produce one third of a rupee and that has
to rise to 40 paise. The first thing is productivity of the investment has to rise. The
second thing is that you have to be a larger part of the world trade and the third is
that you have to save more. Countries like China are saving 10 percent more than
us. And all of this has to do with the Police, with the more functioning system, the
Civil Service and so on. Now first, the Changing Role of the State – the State is not
going to deliver steel or heavy machinery and all, which was set as the objective,
which the young lady said when I was Advisor in the Planning Commission or a
Member. The State in the next round will be a facilitator and an arbitrator and will
be a Champion of Reform and that means a very different Police from the Police of
the Civil Service that we have in the last thirty years. And these are the problems
which I address to myself. The first is the whole question of my lecture in which I
used a Latin phrase translated into English “Who will guard the Guards?” which is
the first issue. I am so happy that the Prime Minister has mentioned and I am sure
the Home Minister is very keenly involved in all of these exercises. Appointment at
the highest level to regulatory bodies to Public Sector Agencies. I can give you one
instance. When I was the Power Minister, my Secretary was the person who
became later on the Principal of the Administrative Staff College of India and Sir as
you know in the last Government he filed the case against the Government for an
incorrect decision on the Chairman of the Central Electricity Regulatory Body.
Because we had laid down very strong requirements because it is in these kinds of
appointments that you can give either right or wrong signals and Sharma had put
down criteria as to what are the kinds of factors that should be there in this
appointment. As soon as the man leaves we had an identifying spectacle of some
very senior people wanting to get that position. I gave him out printed speech the
Act of Parliament where we have put into these conditions that I had to exchange in
the final Ordinance that was not there. So the kinds of issues which have been
talked about right now ‘appointment at the highest level’ is an extremely serious
issue. Together with that you have the whole question of the ‘Recruitment and the
Training of the Civil Service’. Now most of the reform that is being talked about
now by various groups goes back to the Committee that I chaired in the UPSC
about three years ago. A large number of very distinguished people worked both
with the committee as well as outside. The Hon’ble Kalam gave me days of his
work, designed a new testing procedure where the psychological testing procedures
of the Army are adapted to the Civil Service in the Police because it was found that
there was lot of arbitrariness in the existing procedures in terms of relationships
between the results of the written test and the Interview. Those things the UPSC
have already implemented some of them and the others will be implemented. But
the other issue was as we looked ahead we saw all the problems which I talked about
with you, it is very clear that you do not just want people to read what is there in the
University system and regurgitate it but what you want is a kind of young civil
servant to whom you can train later on but she or he must show aptitude for
governance and governance now is not just a question of hitting somebody on the
head or regulating him. Governance will now be a question of networking of
championing reform, of building up institutions, which will solve problems. Now
those issues then mean that you need a different kind of Civil Servant. In the world
over this is happening. And the kind of exam which we have now, came from
England is no longer there in England because they have moved in a very big way to
management and other subjects but in France which the Prime Minister apparently
says that the Home Ministry would like to copy, is a very good idea. What are the
things they are looking for? They are looking for people who have an
understanding of rights of laws of the emerging environmental scarcities of the
ability to network, to be able to manage things together, to become more powerful
by giving away powers but by coordinating the ability to use technology. There are
some people whose brain is developed in such a way that they are not
technologically savvy. Now that is not the kind of person you want in the Civil
Servant of tomorrow. You can always train her or him in Microsoft or whatever E-
mail that whether the person’s mind left side or right side is developed in a
particular way is important. So these are the things that we said. But then we also
said and people/policemen like Mr. Rebeiro and other have been saying it. Look it
is not just important to have the best youngsters. In any case you get very good
youngsters. I am totally convinced of that. In a three lac people who apply, even if
you have the worst possible examinations system, if you take 200 people, they will be
extraordinary. Anyone of you who has come to the higher service as Civil Services
and extraordinary persons as far as I am concerned, a former Vice Chancellor of
the JNU one lac kids applied at a 1000 and I know what my girls and boys were like
and I mean they have the ability to stand up with the best in the world. The issue is
what do you do with them? And so these kinds of issues. We know that the best
struggler remain the best but what about the average. It becomes 30. So you start
learning to compromise. Now the question is, the management issue is that you
don’t get into all of this. We had a set of policies which have been released in
summary form, but I am sure the report will be available some day and the others
have talked about it, Mr Hota and others will have said. After ten years, look at the
person. Let them specialized broadly on this. Some policemen have been very
angry on me that ‘aap bolte hein we are not IAS Officers’. That is not that I said.
What the Committee said was ‘some kinds of people will have a security orientation.
Others will believe in numbers. Others love to see a University. So put them in
special area, health, education. So decide on a broad kind of specialization after ten
years. Then we said give them the best training in the world. But let them have to
face the music they have to perform. They cannot live by being the authority of
‘Saheb’. Having been to the Secretary to the Government I know what does it
means? Carry on in the emerging period. Let them realize that they have to earn
through networking, through resourcing. Let there be a full review of the persons
by his peer group, by his superior, which has done his confidential report, raise a
proposal, which is very controversial. In the Press we said ‘the public should also be
able to evaluate an officer’. Any SP will put some smugglers in jail and those
brokers will organize a negative protest. It need not be like that. In universities
where the students evaluate their teachers, Mr. Khanna said ‘you can have a group
of senior, who are in the community, who see to it that if there is public evaluation,
it is done in a fair manner’. But you must get feed back on what the officer is all
about. But then there are simpler things which you should be doing in any case.
How can you transfer people? I am so happy that the Prime Minister/Home
Minister have written to the Chief Ministers saying that you cannot do arbitrary
transfers just as you cannot make arbitrary appointments in Public Sector Agencies.
When I was Power Minister I was so fed up with pressures that I set a committee
under a member of Planning Commission, which would advise me on appointments
in PSUs. And that is the structure we put in the Electricity Regulatory Body. So we
made a proposal that if you make an unusual transfer, say less than three years, the
Minister should be required to put on file the note that what is the public interest
which required that this man should be transferred. Because one should do that
and then you will have much less of this arbitrary business that a young man stands
up to somebody in authority. All of these issues are extremely important and in the
next round we must do them.
We are suggesting that the French System should be used and I had been a
visiting professor in politics which is like the Lal Bahadur Shastri Academy or your
Academy at Hyderabad. I think the French system to the extent says involve law,
involve environment, involve technology, management strategies. But France is a
different country from India. It is a highly centralized State. Everybody’s
responsibilities and everybody’s rights are laid down. We are a different country.
They take people after school. But their schooling and our schooling is different.
The point which a psychologist made to the Alagh Committee that for the Army you
might take youngsters but for the Civil Service you will need persons who are
somewhat matured, is a valid point. Change your course-curriculum, see to it that
they are in those skills which you require and the Universities will also help them in
picking them up and choose the best input by training institutions, which should be
globally competitive. These are the kinds of changes that we have to get through.
Now the other question is technology. Technology, the real question in the next
round, we have very good mission oriented technology. We provide enough
resources and supported our scientists have done marvelously well. Whenever we
say this go and do it here is the money, they will do it. That is mission orientation.
That is not the nature of technology today. Technology today is the question of
integrating different skills in a way such that you solve field-oriented problems.
And the technology can do it in a way such that it could not do 20 years ago. I did
not have that choice when I joined Planning Commission. You do have that choice
right now. You can use technology to solve day-to-day problems. This is a question
of networking because the new technology is very friendly to each other.
Computerization, modern communication, modern materials – they reinforce each
other. But that is only possible when you know how to put them together to solve
the problem. Also they are scaled neutral. There is no reason why the most
advanced technologies in the world cannot be there at the level of a Thana. You can
really adjust modern technology but it needs a different mindset. And I would
suggest that the Bureau of Police Research and Development have given some more
thought to this in my published lecture. Does a project on ‘how does one set up
these systems so that some of the impending problems we know we are going to face
in security regime are solved’.
Another problem that I see is that as we go through globalization the rules are
going to change and the law is going to change. For the price fixation, you have rules
which do not worry about the actual cost. In fact any pricing rule which says that the
actual cost of a product is to be given is now a bad rule because what it is doing is
protecting an inefficient person. So you try to build an inefficiency pricing. If somebody
does that in an honest way and you turn back to him and say you are not fair because
your mindset is 20 years earlier then you are not understanding the nature of the de-
regulation that we are doing. So you have to be very fast and need very high level of
expertise not just technology.
Life is going to be very bad for you. Scarcity of energy in land and water is going
to be a part of your regime in way such that was in my regime. You will not be able to
live off the land. As Police and as Civil Service you will have to learn with those
scarcities. The legal environment is going to be very very different. The rights of the
individuals are going to be very important. You will have to protect them. The rights of
the minorities, the rights of the women, the rights of the dalits, the rights of the adivasis
and that is going to be the responsibility of the police and it is going to be a part of law.
Environmental law is coming on its own. You cannot just go and cut a tree. I
cannot cut the trees I have planted because the Forest Officer tells me that you are
breaking Forest Law. You will have to be very sensitive to these kinds of requirements.
What are the attributes required from the system, which would include amongst
others :
A sense of vision and direction in which Indian socio-polity is moving including its very
diverse cultural plurality.
An ability to appreciate some of the real scarcities that are emerging as also the strengths
of civil society. The fact that most of us are law abiding, good people, to cope with them
up, these kinds of strengths we must build up. These are important as India is still going
in a developmental phase. We are going from point 4 to third. We have to become third.
We are in a critical phase in the world history. If we good now, we will become number
six. We will have been a history. The world has changed. When I was a member of the
Planning Commission, the Prime Minister said do whatever you want to do. Today you
have got a 116 billion dollars. You are fitting at the doors of greatness.
You are also saying that you going to do something different of a plural society. Great
cultures always think of pluralistic development going back into the history. So China
and India cannot be the small culture. Otherwise we will become the third biggest in the
world but we will have no message to give. The inheritance taken from Gandhi and
Budha must have to be filled. You must have an ability to interface with the modern
technology which provide a cutting edge to many solutions. At higher levels of the
system there must be an ability to network with Panchayats, with NGOs, with
cooperatives, and professionals and people’s organistions. There has to be a sense
rugged professionalism the heart of a good policeman, persistence and talkedness in
pursuit of objectives and an urge to champion beneficial change. The energy to pursue
such objectives, a sense of fair play of honesty of political and systenic support, a
compassion to the poor who will be the victim of marketization. But we have to take care
of them.
Above all a commitment to India as it was thought of by its founding fathers.
So these are the messages that I have to give. There are many sad stories I could
have talked about but I am an optimistic kind of a writer and with the Government whose
objectives I show fully I want to end with an optimistic note.
Thank you very much.
Saturday, July 31, 2010
Essay : Target 140
Devising a correct strategy for Essay Paper:
Candidates will be required to write an essay on a specific topic. The choice of subjects will be given. They will be expected to keep closely to the subject of the essay to arrange their ideas in orderly fashion, and to write concisely. Credit will be given for effective and exact expression.
Examiners will pay special attention to the candidate's grasp of this material, its relevance to the subject chosen, and to his ability to think constructively and to present his ideas concisely, logically and effectively.
Candidate have to write essay on any one topic of the given 6 topics.
The essay paper (200 marks) in the civil services main examination is crucial in determining the final outcome/ selection and ranking.
This paper is decisive in the sense that it can make a difference between a winner and a loser because there is no specialisation in an essay and so no aspirant can claim expertise, unlike optional subjects.
An essay truly reflects the personality of the writer – his/her ideas, views, values, attitude, analysis, assessments and inferences, aptitude, orientation and communication (written) abilities -- all the attributes that are wanted by UPSC in an aspirant.
An essay is considered a complete composition. An essay should consist of
(i) format (framework, structure):
(ii) information (content, substance),
(iii) language (expression, presentation), and
(iv) logic (analysis and information).
The introduction is the opening part of the essay and should be confined to a paragraph. The introductory paragraph is expected to introduce the topic, and wherever necessary, explain the central theme or idea, basic or core concepts, and definitional criteria. The introduction should arouse interest and generate curiosity in the mind of the examiner.
The main text of an essay essentially is a systematic organisation of information based on a consistent methodology. It deals with the topic and related issues to be addressed, the correlation of facts, figures, ideas, views, concepts; an in-depth, systematic, coherent analysis based on the topic leading to logical inferences; as well as making (if it is required) plausible projections and providing with (if necessary) viable solutions. The text of the composition must develop, support and explain the main ideas stated in your introduction.
As the text draws close to the conclusion, the essay should have reached the stage of 'critical mass', a sort of a climax. The conclusion, a summary, should express the essence of the essay. It should not contain any fresh evidence, facts or figures.
Select topic of essay cautiously. If you are strong in English and have literature background you can select reflective essay; otherwise select essay on social/economic topic. As you are preparing for the GS Indian Economics, you should keep in mind that you may have to write an essay on the topic. You may shortlist a few topics which you think are most likely and collect necessary inputs from appropriate sources for writing the essay. Write essay on your own and get it corrected by your teacher. Talk to someone experienced about the sources from which necessary inputs may be collected.
Candidates will be required to write an essay on a specific topic. The choice of subjects will be given. They will be expected to keep closely to the subject of the essay to arrange their ideas in orderly fashion, and to write concisely. Credit will be given for effective and exact expression.
Examiners will pay special attention to the candidate's grasp of this material, its relevance to the subject chosen, and to his ability to think constructively and to present his ideas concisely, logically and effectively.
Candidate have to write essay on any one topic of the given 6 topics.
The essay paper (200 marks) in the civil services main examination is crucial in determining the final outcome/ selection and ranking.
This paper is decisive in the sense that it can make a difference between a winner and a loser because there is no specialisation in an essay and so no aspirant can claim expertise, unlike optional subjects.
An essay truly reflects the personality of the writer – his/her ideas, views, values, attitude, analysis, assessments and inferences, aptitude, orientation and communication (written) abilities -- all the attributes that are wanted by UPSC in an aspirant.
An essay is considered a complete composition. An essay should consist of
(i) format (framework, structure):
(ii) information (content, substance),
(iii) language (expression, presentation), and
(iv) logic (analysis and information).
The introduction is the opening part of the essay and should be confined to a paragraph. The introductory paragraph is expected to introduce the topic, and wherever necessary, explain the central theme or idea, basic or core concepts, and definitional criteria. The introduction should arouse interest and generate curiosity in the mind of the examiner.
The main text of an essay essentially is a systematic organisation of information based on a consistent methodology. It deals with the topic and related issues to be addressed, the correlation of facts, figures, ideas, views, concepts; an in-depth, systematic, coherent analysis based on the topic leading to logical inferences; as well as making (if it is required) plausible projections and providing with (if necessary) viable solutions. The text of the composition must develop, support and explain the main ideas stated in your introduction.
As the text draws close to the conclusion, the essay should have reached the stage of 'critical mass', a sort of a climax. The conclusion, a summary, should express the essence of the essay. It should not contain any fresh evidence, facts or figures.
Select topic of essay cautiously. If you are strong in English and have literature background you can select reflective essay; otherwise select essay on social/economic topic. As you are preparing for the GS Indian Economics, you should keep in mind that you may have to write an essay on the topic. You may shortlist a few topics which you think are most likely and collect necessary inputs from appropriate sources for writing the essay. Write essay on your own and get it corrected by your teacher. Talk to someone experienced about the sources from which necessary inputs may be collected.
Strategy for IAS MAINS: Target 1300
Essay: Target 140
GS-I: Target 190
GS-II: Target 220
Optional-I: Target 390 (out of 600)
Optional-II: Target 360 (out of 600)
GS-I: Target 190
GS-II: Target 220
Optional-I: Target 390 (out of 600)
Optional-II: Target 360 (out of 600)
Foreign Trade Policy 2009-2014, Highlights
Higher Support for Market and Product Diversification
Incentive schemes have been expanded by way of addition of new products and markets.
New markets have been added under Focus Market Scheme. The incentive available under Focus Market Scheme (FMS) has been raised from 2.5% to 3%.
The incentive available under Focus Product Scheme (FPS) has been raised from 1.25% to 2%.
A large number of products from various sectors have been included for benefits under FPS.
Market Linked Focus Product Scheme (MLFPS) has been greatly expanded by inclusion of products. MLFPS benefits also extended for export to additional new markets for certain products. These products include auto components, motor cars, bicycle and its parts, and apparels.
Higher allocation for Market Development Assistance (MDA) and Market Access Initiative (MAI) schemes is being provided.
EPCG Scheme (Export Promotion Capital Goods Scheme)
To aid technological upgradation of our export sector, EPCG Scheme at Zero Duty has been introduced.
To increase the life of existing plant and machinery, export obligation on import of spares, moulds etc. under EPCG Scheme has been reduced to 50% of the normal specific export obligation.
Taking into account the decline in exports, the facility of Re-fixation of Annual Average Export Obligation for a particular financial year in which there is decline in exports from the country, has been extended for the 5 year Policy period 2009-14.
Stability/ continuity of the Foreign Trade Policy
To impart stability to the Policy regime, Duty Entitlement Passbook (DEPB) Scheme is extended beyond 31-12- 2009 till 31.12.2010.
Interest subvention of 2% for pre-shipment credit for 7 specified sectors has been extended till 31.3.2010 in the Budget 2009-10.
Income Tax exemption to 100% EOUs and to STPI units under Section 10B and 10A of Income Tax Act, has been extended for the financial year 2010-11 in the Budget 2009-10.
The adjustment assistance scheme initiated in December, 2008 to provide enhanced ECGC cover at 95%, to the adversely affected sectors, is continued till March, 2010.
Marine Sector
Fisheries have been included in the sectors which are exempted from maintenance of average EO under EPCG Scheme
Additional flexibility under Target Plus Scheme (TPS) / Duty Free Certificate of Entitlement (DFCE) Scheme for Status Holders has been given to Marine sector.
Pharmaceutical Sector
Export Obligation Period for advance authorizations issued with 6-APA as input has been increased from the existing 6 months to 36 months, as is available for other products.
Pharma sector extensively covered under MLFPS for countries in Africa and Latin America; some countries in Oceania and Far East.
EOUs
EOUs have been allowed to sell products manufactured by them in DTA upto a limit of 90% instead of existing 75%, without changing the criteria of ‘similar goods’, within the overall entitlement of 50% for DTA sale.
To provide clarity to the customs field formations, DOR shall issue a clarification to enable procurement of spares beyond 5% by granite sector EOUs.
EOUs will now be allowed to procure finished goods for consolidation along with their manufactured goods, subject to certain safeguards.
During this period of downturn, Board of Approvals (BOA) to consider, extension of block period by one year for calculation of Net Foreign Exchange earnings of EOUs.
EOUs will now be allowed CENVAT Credit facility for the component of SAD and Education Cess on DTA sale.
DEPB (Duty Entitlement Pass Book Scheme)
DEPB rate shall also include factoring of custom duty component on fuel where fuel is allowed as a consumable in Standard Input-Output Norms.
Flexibility provided to exporters
Payment of customs duty for Export Obligation (EO) shortfall under Advance Authorisation / Duty Free Import Authorisation (DFIA) / Export Promotion Capital Goods Scheme (EPCG) Authorisation has been allowed by way of debit of Duty Credit scrips. Earlier the payment was allowed in cash only.
Import of restricted items, as replenishment, shall now be allowed against transferred DFIAs, in line with the erstwhile DFRC scheme.
Incentive schemes have been expanded by way of addition of new products and markets.
New markets have been added under Focus Market Scheme. The incentive available under Focus Market Scheme (FMS) has been raised from 2.5% to 3%.
The incentive available under Focus Product Scheme (FPS) has been raised from 1.25% to 2%.
A large number of products from various sectors have been included for benefits under FPS.
Market Linked Focus Product Scheme (MLFPS) has been greatly expanded by inclusion of products. MLFPS benefits also extended for export to additional new markets for certain products. These products include auto components, motor cars, bicycle and its parts, and apparels.
Higher allocation for Market Development Assistance (MDA) and Market Access Initiative (MAI) schemes is being provided.
EPCG Scheme (Export Promotion Capital Goods Scheme)
To aid technological upgradation of our export sector, EPCG Scheme at Zero Duty has been introduced.
To increase the life of existing plant and machinery, export obligation on import of spares, moulds etc. under EPCG Scheme has been reduced to 50% of the normal specific export obligation.
Taking into account the decline in exports, the facility of Re-fixation of Annual Average Export Obligation for a particular financial year in which there is decline in exports from the country, has been extended for the 5 year Policy period 2009-14.
Stability/ continuity of the Foreign Trade Policy
To impart stability to the Policy regime, Duty Entitlement Passbook (DEPB) Scheme is extended beyond 31-12- 2009 till 31.12.2010.
Interest subvention of 2% for pre-shipment credit for 7 specified sectors has been extended till 31.3.2010 in the Budget 2009-10.
Income Tax exemption to 100% EOUs and to STPI units under Section 10B and 10A of Income Tax Act, has been extended for the financial year 2010-11 in the Budget 2009-10.
The adjustment assistance scheme initiated in December, 2008 to provide enhanced ECGC cover at 95%, to the adversely affected sectors, is continued till March, 2010.
Marine Sector
Fisheries have been included in the sectors which are exempted from maintenance of average EO under EPCG Scheme
Additional flexibility under Target Plus Scheme (TPS) / Duty Free Certificate of Entitlement (DFCE) Scheme for Status Holders has been given to Marine sector.
Pharmaceutical Sector
Export Obligation Period for advance authorizations issued with 6-APA as input has been increased from the existing 6 months to 36 months, as is available for other products.
Pharma sector extensively covered under MLFPS for countries in Africa and Latin America; some countries in Oceania and Far East.
EOUs
EOUs have been allowed to sell products manufactured by them in DTA upto a limit of 90% instead of existing 75%, without changing the criteria of ‘similar goods’, within the overall entitlement of 50% for DTA sale.
To provide clarity to the customs field formations, DOR shall issue a clarification to enable procurement of spares beyond 5% by granite sector EOUs.
EOUs will now be allowed to procure finished goods for consolidation along with their manufactured goods, subject to certain safeguards.
During this period of downturn, Board of Approvals (BOA) to consider, extension of block period by one year for calculation of Net Foreign Exchange earnings of EOUs.
EOUs will now be allowed CENVAT Credit facility for the component of SAD and Education Cess on DTA sale.
DEPB (Duty Entitlement Pass Book Scheme)
DEPB rate shall also include factoring of custom duty component on fuel where fuel is allowed as a consumable in Standard Input-Output Norms.
Flexibility provided to exporters
Payment of customs duty for Export Obligation (EO) shortfall under Advance Authorisation / Duty Free Import Authorisation (DFIA) / Export Promotion Capital Goods Scheme (EPCG) Authorisation has been allowed by way of debit of Duty Credit scrips. Earlier the payment was allowed in cash only.
Import of restricted items, as replenishment, shall now be allowed against transferred DFIAs, in line with the erstwhile DFRC scheme.
Pension Reforms in India
On August 23, 2003, Government decided to introduce a new restructured defined contribution pension
system for new entrants to Central Government service, except to Armed Forces, in the first stage, replacing the
existing defined benefit system. Subsequently, the New Pension System (NPS) was operationalised from January 1, 2004 through a notification dated December 22, 2003. The main features of the NPS are:
It is based on defined contribution. New entrants to Central Government service contribute 10 per cent of their salary and dearness allowance (DA), which is matched by the Central Government (Tier-I).
Once the NPS architecture is fully in place, employees will have the option of a voluntary (Tier-II) withdrawable account in the absence of the facility of General Provident Fund (GPF). Government will make no contribution to this account.
Employees will normally exit the system at or after the age of 60 years. At the time of exit, it is mandatory for them to invest 40 per cent of the pension wealth to purchase an annuity to provide for lifetime pension of the employee and his dependent parents and spouse. Remaining 60 per cent of pension wealth will be paid to the employee in lump sum at the time of exit. Individuals would have the flexibility to leave the pension system prior to age 60. However, in this case, mandatory annuitisation would be 80 per cent of the pension wealth.
The new system will have a central record keeping and accounting infrastructure and several fund managers to offer investment options with varying proportions of investment in fixed-income instruments and equity.
The new system will also have a market mechanism (without any contingent liability) through which certain investment protection guarantees would be offered for the different schemes.
An interim regulator, the Pension Fund Regulatory and Development Authority (PFRDA) was constituted through a Government resolution dated October 10, 2003 as a precursor to a statutory regulator and became operational from January 1, 2004.
system for new entrants to Central Government service, except to Armed Forces, in the first stage, replacing the
existing defined benefit system. Subsequently, the New Pension System (NPS) was operationalised from January 1, 2004 through a notification dated December 22, 2003. The main features of the NPS are:
It is based on defined contribution. New entrants to Central Government service contribute 10 per cent of their salary and dearness allowance (DA), which is matched by the Central Government (Tier-I).
Once the NPS architecture is fully in place, employees will have the option of a voluntary (Tier-II) withdrawable account in the absence of the facility of General Provident Fund (GPF). Government will make no contribution to this account.
Employees will normally exit the system at or after the age of 60 years. At the time of exit, it is mandatory for them to invest 40 per cent of the pension wealth to purchase an annuity to provide for lifetime pension of the employee and his dependent parents and spouse. Remaining 60 per cent of pension wealth will be paid to the employee in lump sum at the time of exit. Individuals would have the flexibility to leave the pension system prior to age 60. However, in this case, mandatory annuitisation would be 80 per cent of the pension wealth.
The new system will have a central record keeping and accounting infrastructure and several fund managers to offer investment options with varying proportions of investment in fixed-income instruments and equity.
The new system will also have a market mechanism (without any contingent liability) through which certain investment protection guarantees would be offered for the different schemes.
An interim regulator, the Pension Fund Regulatory and Development Authority (PFRDA) was constituted through a Government resolution dated October 10, 2003 as a precursor to a statutory regulator and became operational from January 1, 2004.
Critique of Indian Plans
Indian plans may be good on paper but are rarely good in implementation. This is because:
(i) Inefficiency in gathering information;
(ii) Time lag;
(iii) Lacking implementational capacity;
(iv) Non-coherence between physical and financial planning;
(v) Development strategies often ignored spatial implication of planning ;
(vi) Absence of proper employment strategy ;
(vii) Excessive stress on investment growth;
(viii) Corrupt practices;
(i) Inefficiency in gathering information;
(ii) Time lag;
(iii) Lacking implementational capacity;
(iv) Non-coherence between physical and financial planning;
(v) Development strategies often ignored spatial implication of planning ;
(vi) Absence of proper employment strategy ;
(vii) Excessive stress on investment growth;
(viii) Corrupt practices;
National Targets of the Eleventh Plan
Twenty-seven targets at the national level fall in six major categories. The six categories are:
(i) Income and Poverty; (ii) Education; (iii) Health; (iv) Women and Children; (v) Infrastructure; and
(vi) Environment. The targets in each of these categories are given below.
(i) Income and Poverty
• Average GDP growth rate of 9% per year in the Eleventh Plan period.
• Agricultural GDP growth rate at 4% per year on the average.
• Generation of 58 million new work opportunities.
• Reduction of unemployment among the educated to less than 5%.
• 20% rise in the real wage rate of unskilled workers.
• Reduction in the head-count ratio of consumption poverty by 10 percentage points.
(ii) Education
• Reduction in the dropout rates of children at the elementary level from 52.2% in 2003–04 to 20% by 2011–12.
• Developing minimum standards of educational attainment in elementary schools, to ensure quality education.
• Increasing the literacy rate for persons of age 7 years or more to 85% by 2011–12.
• Reducing the gender gap in literacy to 10 percentage points by 2011–12.
• Increasing the percentage of each cohort going to higher education from the present 10% to 15% by 2011–12.
(iii) Health
• Infant mortality rate (IMR) to be reduced to 28 and maternal mortality ratio (MMR) to 1 per 1000 live
births by the end of the Eleventh Plan.
• Total Fertility Rate to be reduced to 2.1 by the end of the Eleventh Plan.
• Clean drinking water to be available for all by 2009, ensuring that there are no slip-backs by the end of the
Eleventh Plan.
• Malnutrition among children of age group 0–3 to be reduced to half its present level by the end of the
Eleventh Plan.
• Anaemia among women and girls to be reduced to half its present level by the end of the Eleventh Plan. (iv) Women and Children
• Sex ratio for age group 0–6 to be raised to 935 by 2011–12 and to 950 by 2016–17.
• Ensuring that at least 33% of the direct and indirect beneficiaries of all government schemes are women and girl children.
• Ensuring that all children enjoy a safe childhood, without any compulsion to work.
(v) Infrastructure
• To ensure electricity connection to all villages and BPL households by 2009 and reliable power by the end of the Plan.
• To ensure all-weather road connection to all habitations with population 1000 and above (500 and above in
hilly and tribal areas) by 2009, and all significant habitations by 2015.
• To connect every village by telephone and provide broadband connectivity to all villages by 2012.
• To provide homestead sites to all by 2012 and step up the pace of house construction for rural poor to cover
all the poor by 2016–17.
(iv) Environment
• To increase forest and tree cover by 5 percentage points.
• To attain WHO standards of air quality in all major cities by 2011–12.
• To treat all urban waste water by 2011–12 to clean river waters.
• To increase energy efficiency by 20% by 2016–17.
(i) Income and Poverty; (ii) Education; (iii) Health; (iv) Women and Children; (v) Infrastructure; and
(vi) Environment. The targets in each of these categories are given below.
(i) Income and Poverty
• Average GDP growth rate of 9% per year in the Eleventh Plan period.
• Agricultural GDP growth rate at 4% per year on the average.
• Generation of 58 million new work opportunities.
• Reduction of unemployment among the educated to less than 5%.
• 20% rise in the real wage rate of unskilled workers.
• Reduction in the head-count ratio of consumption poverty by 10 percentage points.
(ii) Education
• Reduction in the dropout rates of children at the elementary level from 52.2% in 2003–04 to 20% by 2011–12.
• Developing minimum standards of educational attainment in elementary schools, to ensure quality education.
• Increasing the literacy rate for persons of age 7 years or more to 85% by 2011–12.
• Reducing the gender gap in literacy to 10 percentage points by 2011–12.
• Increasing the percentage of each cohort going to higher education from the present 10% to 15% by 2011–12.
(iii) Health
• Infant mortality rate (IMR) to be reduced to 28 and maternal mortality ratio (MMR) to 1 per 1000 live
births by the end of the Eleventh Plan.
• Total Fertility Rate to be reduced to 2.1 by the end of the Eleventh Plan.
• Clean drinking water to be available for all by 2009, ensuring that there are no slip-backs by the end of the
Eleventh Plan.
• Malnutrition among children of age group 0–3 to be reduced to half its present level by the end of the
Eleventh Plan.
• Anaemia among women and girls to be reduced to half its present level by the end of the Eleventh Plan. (iv) Women and Children
• Sex ratio for age group 0–6 to be raised to 935 by 2011–12 and to 950 by 2016–17.
• Ensuring that at least 33% of the direct and indirect beneficiaries of all government schemes are women and girl children.
• Ensuring that all children enjoy a safe childhood, without any compulsion to work.
(v) Infrastructure
• To ensure electricity connection to all villages and BPL households by 2009 and reliable power by the end of the Plan.
• To ensure all-weather road connection to all habitations with population 1000 and above (500 and above in
hilly and tribal areas) by 2009, and all significant habitations by 2015.
• To connect every village by telephone and provide broadband connectivity to all villages by 2012.
• To provide homestead sites to all by 2012 and step up the pace of house construction for rural poor to cover
all the poor by 2016–17.
(iv) Environment
• To increase forest and tree cover by 5 percentage points.
• To attain WHO standards of air quality in all major cities by 2011–12.
• To treat all urban waste water by 2011–12 to clean river waters.
• To increase energy efficiency by 20% by 2016–17.
Objectives of Indian Planning
Four long term objectives were set out by the planners in India. They were :
a) to increase production to the maximum possible extent so as to achieve higher level of national and per capita income;
b) to achieve full employment;
c) to reduce inequities of income and wealth;
d) to set up a socialist society based on equality and justice and absence of exploitation.
Change of objectives in different Plans:
Phase I: 1950-1965: Growth-objective: Capital First Strategy or Mahalanobis Strategy
Phase : II : 1965 – 1974: Plan Holiday and Agriculture First Strategy
Phase III: (1974 – 80) : Growth with Redistribution
Phase – IV : (1980-1990): Modernization and Outward-looking Strategy
Phase–V:(1991 onwards): Economic Liberalisation, Social and Human Development
a) to increase production to the maximum possible extent so as to achieve higher level of national and per capita income;
b) to achieve full employment;
c) to reduce inequities of income and wealth;
d) to set up a socialist society based on equality and justice and absence of exploitation.
Change of objectives in different Plans:
Phase I: 1950-1965: Growth-objective: Capital First Strategy or Mahalanobis Strategy
Phase : II : 1965 – 1974: Plan Holiday and Agriculture First Strategy
Phase III: (1974 – 80) : Growth with Redistribution
Phase – IV : (1980-1990): Modernization and Outward-looking Strategy
Phase–V:(1991 onwards): Economic Liberalisation, Social and Human Development
Five Year Plan in India
Economic planning:
Economic planning is a sort of conceiving, initiating, regulating and controlling economic activity by the State according to set priorities with a view to achieving well defined objectives within a given time span.
Different types of planning:
(i) Planning by direction and planning by inducement:
Planning by direction is an integral part of a socialist society, in which there is one central authority which plans, directs and orders the execution of the plan in accordance with predetermined targets and priorities. Such planning is comprehensive and encompasses the entire economy.
Planning by inducement is democratic planning. It means planning by manipulating the market. People are induced to act in a certain way through various monetary and fiscal measures.
(ii) Indicative planning and imperative planning:
Indicative planning is peculiar to the mixed economy. In a mixed economy, the public and private sectors work together. In indicative planning the private sector is neither rigidly controlled nor directed to fulfill the targets and priorities of the plan. The state provides all types of facilities to the private sector but does not direct it, rather indicates the areas in which it can help in implementing the plan.
Under imperative planning all economic activities and resources of the economy operate under the direction of the state. There is complete control over the factors of production by the state. There is no consumers sovereignty in such planning.
(iii) Democratic planning:
In democratic planning, the philosophy of democratic government is accepted as the ideological basis. People are associated at every step in the formulation and implementation of the plan. India is a unique experimentation in democratic planning.
Features of Indian Planning:
a) Democratic Planning:
b) Indicative Planning:
c) Decentralised Planning:
d) Comprehensive Planning :
e) Development-oriented Planning:
Economic planning is a sort of conceiving, initiating, regulating and controlling economic activity by the State according to set priorities with a view to achieving well defined objectives within a given time span.
Different types of planning:
(i) Planning by direction and planning by inducement:
Planning by direction is an integral part of a socialist society, in which there is one central authority which plans, directs and orders the execution of the plan in accordance with predetermined targets and priorities. Such planning is comprehensive and encompasses the entire economy.
Planning by inducement is democratic planning. It means planning by manipulating the market. People are induced to act in a certain way through various monetary and fiscal measures.
(ii) Indicative planning and imperative planning:
Indicative planning is peculiar to the mixed economy. In a mixed economy, the public and private sectors work together. In indicative planning the private sector is neither rigidly controlled nor directed to fulfill the targets and priorities of the plan. The state provides all types of facilities to the private sector but does not direct it, rather indicates the areas in which it can help in implementing the plan.
Under imperative planning all economic activities and resources of the economy operate under the direction of the state. There is complete control over the factors of production by the state. There is no consumers sovereignty in such planning.
(iii) Democratic planning:
In democratic planning, the philosophy of democratic government is accepted as the ideological basis. People are associated at every step in the formulation and implementation of the plan. India is a unique experimentation in democratic planning.
Features of Indian Planning:
a) Democratic Planning:
b) Indicative Planning:
c) Decentralised Planning:
d) Comprehensive Planning :
e) Development-oriented Planning:
Financial Derivatives
Financial markets are, by nature, extremely volatile and hence the risk factor is an important concern for financial agents. To reduce this risk, the concept of derivatives comes into the picture.
Derivatives are products whose values are derived from one or more basic variables called bases. These bases can be underlying assets (for example forex, equity, hire-purchase agreement, HB Loan agreement etc), bases or reference rates.
The need for a derivatives market
The derivatives market performs a number of economic functions:
1. They help in transferring risks from risk averse people to risk oriented people
2. They help in the discovery of future as well as current prices
3. They catalyze entrepreneurial activity
4. They increase the volume traded in markets because of participation of risk averse people in greater numbers
5. They increase savings and investment in the long run
The players in Derivatives markets:
• Hedgers use futures or options markets to reduce or eliminate the risk associated with price of an asset.
• Speculators use futures and options contracts to get extra leverage in betting on future movements in the price of an asset. They can increase both the potential gains and potential losses by usage of derivatives in a speculative venture.
• Arbitrageurs are in business to take advantage of a discrepancy between prices in two different markets. If, for example, they see the futures price of an asset getting out of line with the cash price, they will take offsetting positions in the two markets to lock in a profit.
Types of Derivatives:
Forwards: A forward contract is a customized contract between two entities, where settlement takes place on a specific date in the future at today’s pre-agreed price.
Futures: A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. Futures contracts are special types of forward contracts in the sense that the former are standardized exchange-traded contracts
Options: Options are of two types - calls and puts. Calls give the buyer the right but not the obligation to buy a given quantity of the underlying asset, at a given price on or before a given future date. Puts give the buyer the right, but not the obligation to sell a given quantity of the underlying asset at a given price on or before a given date.
Warrants: Options generally have lives of upto one year, the majority of options traded on options exchanges having a maximum maturity of nine months. Longer-dated options are called warrants and are generally traded over-the-counter.
LEAPS: The acronym LEAPS means Long-Term Equity Anticipation Securities. These are options having a maturity of upto three years.
Baskets: Basket options are options on portfolios of underlying assets. The underlying asset is usually a moving average or a basket of assets. Equity index options are a form of basket options.
Swaps: Swaps are private agreements between two parties to exchange cash flows in the future according to a prearranged formula. They can be regarded as portfolios of forward contracts. The two commonly used swaps are :
• Interest rate swaps: These entail swapping only the interest related cash flows between the parties in the same currency.
• Currency swaps: These entail swapping both principal and interest between the parties, with the cashflows in one direction being in a different currency than those in the opposite direction.
Swaptions: Swaptions are options to buy or sell a swap that will become operative at the expiry of the options. Thus a swaption is an option on a forward swap. Rather than have calls and puts, the swaptions market has receiver swaptions and payer swaptions. A receiver swaption is an option to receive fixed and pay floating. A payer swaption is an option to pay fixed and receive floating.
Derivatives are products whose values are derived from one or more basic variables called bases. These bases can be underlying assets (for example forex, equity, hire-purchase agreement, HB Loan agreement etc), bases or reference rates.
The need for a derivatives market
The derivatives market performs a number of economic functions:
1. They help in transferring risks from risk averse people to risk oriented people
2. They help in the discovery of future as well as current prices
3. They catalyze entrepreneurial activity
4. They increase the volume traded in markets because of participation of risk averse people in greater numbers
5. They increase savings and investment in the long run
The players in Derivatives markets:
• Hedgers use futures or options markets to reduce or eliminate the risk associated with price of an asset.
• Speculators use futures and options contracts to get extra leverage in betting on future movements in the price of an asset. They can increase both the potential gains and potential losses by usage of derivatives in a speculative venture.
• Arbitrageurs are in business to take advantage of a discrepancy between prices in two different markets. If, for example, they see the futures price of an asset getting out of line with the cash price, they will take offsetting positions in the two markets to lock in a profit.
Types of Derivatives:
Forwards: A forward contract is a customized contract between two entities, where settlement takes place on a specific date in the future at today’s pre-agreed price.
Futures: A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. Futures contracts are special types of forward contracts in the sense that the former are standardized exchange-traded contracts
Options: Options are of two types - calls and puts. Calls give the buyer the right but not the obligation to buy a given quantity of the underlying asset, at a given price on or before a given future date. Puts give the buyer the right, but not the obligation to sell a given quantity of the underlying asset at a given price on or before a given date.
Warrants: Options generally have lives of upto one year, the majority of options traded on options exchanges having a maximum maturity of nine months. Longer-dated options are called warrants and are generally traded over-the-counter.
LEAPS: The acronym LEAPS means Long-Term Equity Anticipation Securities. These are options having a maturity of upto three years.
Baskets: Basket options are options on portfolios of underlying assets. The underlying asset is usually a moving average or a basket of assets. Equity index options are a form of basket options.
Swaps: Swaps are private agreements between two parties to exchange cash flows in the future according to a prearranged formula. They can be regarded as portfolios of forward contracts. The two commonly used swaps are :
• Interest rate swaps: These entail swapping only the interest related cash flows between the parties in the same currency.
• Currency swaps: These entail swapping both principal and interest between the parties, with the cashflows in one direction being in a different currency than those in the opposite direction.
Swaptions: Swaptions are options to buy or sell a swap that will become operative at the expiry of the options. Thus a swaption is an option on a forward swap. Rather than have calls and puts, the swaptions market has receiver swaptions and payer swaptions. A receiver swaption is an option to receive fixed and pay floating. A payer swaption is an option to pay fixed and receive floating.
Tuesday, July 27, 2010
Pricing of Petroleum Products in India and Parekh Committee Report
India’s consumption of petroleum products has grown at an annual compound growth rate of around 4% during 2002-03 and 2008-09. At present domestic production of crude oil meets around 20% of domestic demand for petroleum products. India’s dependence on oil imports is projected to rise to 90% by 2030. As a result, domestic costs and prices of petroleum products will be increasingly aligned to prices of oil in the international market. With this in view, the Government had notified in March 2002 that consumer prices of all petroleum products except LPG for domestic use and kerosene for public distribution system (PDS) should be determined by market factors. However, this competitive market structure envisaged in the 2002 oil sector reforms was jolted by the sharp rise in oil prices since 2004-05.
In March 2002, price of crude oil in the international market was US$23.3/barrel: it rose to US$39.2/barrel in 2004-05, US$72/barrel in July 2007 and further to US144/barrel in July 2008. Then it fell sharply. In December 2008 oil prices fell back to July 2004 level. Since then oil prices have bounced back to US$75/barrel in December 2009.
In order to shield the Indian economy and consumers from the adverse impact of a volatile international oil market, the government decided to fix the consumer prices of four sensitive petroleum products, viz. petrol, diesel, domestic LPG, PDS kerosene. As the prices of these products were below their cost, government devised a compensation mechanism for the public sector oil marketing companies (OMCs). This mechanism essentially involved financial support to OMCs from other public sector upstream companies, viz. ONGC, OIL and GAIL by way of price discounts and from the government through issue of bonds.
During the period 2003-04 to 2008-09, the OMCs suffered under-recoveries of Rs.2,99,222 crore, which were partly compensated by the Government through issue of Oil Bonds of Rs.1,42,203 crore while the upstream oil PSUs contributed Rs.1,01,285 Crore. Fixation of prices of these essential commodities by the Government at different points of time led to speculations, hoarding, temporary shortages and above all diversion of diesel, LPG, Kerosene to unintended uses. Particularly, the demand for petrol and diesel zoomed even during 2008-09 and 2009-10 when other free products faced lower consumer demands due to industrial slow down.
The financial strength of the public sector oil companies weakened considerably. They could not avail the opportunity to retain the above income for investment in the crucial E&P sector.
Besides, the substantial time taken by the government in processing the proposals for issue of bonds resulted in sever cash flow constraints for the OMCs.
The government policy approach on pricing petroleum products since 1970s has moved between cost-based pricing and import parity pricing (IPP). In the past, the first major policy shift in pricing of petroleum products occurred in 1976, when the Government replaced IPP of the 1960s by cost-plus pricing. This came to be known as Administered Pricing Mechanism (APM), which was applied to the entire oil sector. APM was completely abandoned in April 2002.
The period from 2004 to 2008 saw distinct policy phases: first, a price band mechanism, then trade parity pricing (TPP)
Recommendations:
A viable long-term strategy for pricing major petroleum products is required. It should limit the fiscal burden on government and keep the domestic oil industry financially healthy and competitive.
We recommend that petrol and diesel prices should be market determined both at the refinery gate and at the retail level.
The price of PDS kerosene needs to be increased by at least Rs.6/litre so that the share of
expenditure on kerosene in the total consumption expenditure of rural households remains at the
same level as in 2002. Thereafter, price of PDS kerosene be raised every year in step with the
growth in per capita agricultural GDP at nominal price.
Our analysis shows that prices of domestic LPG can be increased by at least Rs. 100 per
cylinder. Thereafter, the price of domestic LPG should be periodically revised based on increase in paying capacity as reflected in the rising per capita income.
Criticism:
Parikh Committee’s recommendations are bad for the country and worse for the aam aadmi. Bad for the country because the recommendations do not address the problems of petroleum pricing in their entirety and appear to be driven by the desire to allow private sector refiners, originally set up for export of products, an entry into the domestic market under the garb of liberalising price of petrol and diesel. This would be detrimental to the public sector refiners in the current context.
The Parikh Committee recommendations are worse for the aam aadmi because inclusive development shall remain a pipe dream without ensuring access to lifeline levels of modern commercial energy for all. Barring public distribution system (PDS) kerosene, the rest of the petroleum products are currently priced outside the reach of the bottom two-thirds of Indians and the report of the committee talks of further inflationary price increases.
The latest Parikh Committee does not propose “bold” reforms – it proposes bad reforms.
Source: Parekh Committee Report + EPW March 27, 2010
In March 2002, price of crude oil in the international market was US$23.3/barrel: it rose to US$39.2/barrel in 2004-05, US$72/barrel in July 2007 and further to US144/barrel in July 2008. Then it fell sharply. In December 2008 oil prices fell back to July 2004 level. Since then oil prices have bounced back to US$75/barrel in December 2009.
In order to shield the Indian economy and consumers from the adverse impact of a volatile international oil market, the government decided to fix the consumer prices of four sensitive petroleum products, viz. petrol, diesel, domestic LPG, PDS kerosene. As the prices of these products were below their cost, government devised a compensation mechanism for the public sector oil marketing companies (OMCs). This mechanism essentially involved financial support to OMCs from other public sector upstream companies, viz. ONGC, OIL and GAIL by way of price discounts and from the government through issue of bonds.
During the period 2003-04 to 2008-09, the OMCs suffered under-recoveries of Rs.2,99,222 crore, which were partly compensated by the Government through issue of Oil Bonds of Rs.1,42,203 crore while the upstream oil PSUs contributed Rs.1,01,285 Crore. Fixation of prices of these essential commodities by the Government at different points of time led to speculations, hoarding, temporary shortages and above all diversion of diesel, LPG, Kerosene to unintended uses. Particularly, the demand for petrol and diesel zoomed even during 2008-09 and 2009-10 when other free products faced lower consumer demands due to industrial slow down.
The financial strength of the public sector oil companies weakened considerably. They could not avail the opportunity to retain the above income for investment in the crucial E&P sector.
Besides, the substantial time taken by the government in processing the proposals for issue of bonds resulted in sever cash flow constraints for the OMCs.
The government policy approach on pricing petroleum products since 1970s has moved between cost-based pricing and import parity pricing (IPP). In the past, the first major policy shift in pricing of petroleum products occurred in 1976, when the Government replaced IPP of the 1960s by cost-plus pricing. This came to be known as Administered Pricing Mechanism (APM), which was applied to the entire oil sector. APM was completely abandoned in April 2002.
The period from 2004 to 2008 saw distinct policy phases: first, a price band mechanism, then trade parity pricing (TPP)
Recommendations:
A viable long-term strategy for pricing major petroleum products is required. It should limit the fiscal burden on government and keep the domestic oil industry financially healthy and competitive.
We recommend that petrol and diesel prices should be market determined both at the refinery gate and at the retail level.
The price of PDS kerosene needs to be increased by at least Rs.6/litre so that the share of
expenditure on kerosene in the total consumption expenditure of rural households remains at the
same level as in 2002. Thereafter, price of PDS kerosene be raised every year in step with the
growth in per capita agricultural GDP at nominal price.
Our analysis shows that prices of domestic LPG can be increased by at least Rs. 100 per
cylinder. Thereafter, the price of domestic LPG should be periodically revised based on increase in paying capacity as reflected in the rising per capita income.
Criticism:
Parikh Committee’s recommendations are bad for the country and worse for the aam aadmi. Bad for the country because the recommendations do not address the problems of petroleum pricing in their entirety and appear to be driven by the desire to allow private sector refiners, originally set up for export of products, an entry into the domestic market under the garb of liberalising price of petrol and diesel. This would be detrimental to the public sector refiners in the current context.
The Parikh Committee recommendations are worse for the aam aadmi because inclusive development shall remain a pipe dream without ensuring access to lifeline levels of modern commercial energy for all. Barring public distribution system (PDS) kerosene, the rest of the petroleum products are currently priced outside the reach of the bottom two-thirds of Indians and the report of the committee talks of further inflationary price increases.
The latest Parikh Committee does not propose “bold” reforms – it proposes bad reforms.
Source: Parekh Committee Report + EPW March 27, 2010
Important Economic Concepts
Phillips Curve
Two goals of economic policymakers are low inflation and low unemployment, but often these goals conflict. Suppose, for instance, that policymakers were to use monetary or fiscal policy to expand aggregate demand. This policy would lead to higher output and a higher price level. Higher output means lower unemployment, because firms need more workers when they produce more. A higher price level means higher inflation. Thus, when policymakers move the economy up, they reduce the unemployment rate and raise the inflation rate. Conversely, when they contract aggregate demand and move the economy down, unemployment rises and inflation falls. This tradeoff between inflation and unemployment, called the Phillips curve.
The Phillips curve is named after New Zealand–born economist A. W. Phillips. In 1958 Phillips observed a negative relationship between the unemployment rate and the rate of wage inflation in data for the United Kingdom.
Sacrifice Ratio
The sacrifice ratio, is the percentage of a year’s real GDP that must be forgone to reduce inflation by 1 percentage point. A typical estimate is about 5: for every percentage point that inflation is to fall, 5 percent of one year’s GDP must be sacrificed.
GDP Deflator
The GDP deflator, also called the implicit price deflator for GDP, is defined as the ratio of nominal GDP to real GDP:
GDP Deflator = (Nominal GDP/ Real GDP)
Nominal GDP measures the value of the output of the economy at current prices. Real GDP measures output valued at constant prices. The GDP deflator measures the price of output relative to its price in the base year.
Okun’s Law
Okun’s law says that a change of 1 percentage point in the unemployment rate translates into a change of 2 percentage points in GDP. Therefore, reducing inflation by 1 percentage point requires about 2.5 percentage points of cyclical unemployment.
Natural rate of unemployment
The average rate of unemployment around which the economy fluctuates. The natural rate is the rate of unemployment toward which the economy gravitates in the long run, given all the labor-market imperfections that impede workers from instantly finding jobs. (Prof. S.MAITRA, JULY,2010)
Two goals of economic policymakers are low inflation and low unemployment, but often these goals conflict. Suppose, for instance, that policymakers were to use monetary or fiscal policy to expand aggregate demand. This policy would lead to higher output and a higher price level. Higher output means lower unemployment, because firms need more workers when they produce more. A higher price level means higher inflation. Thus, when policymakers move the economy up, they reduce the unemployment rate and raise the inflation rate. Conversely, when they contract aggregate demand and move the economy down, unemployment rises and inflation falls. This tradeoff between inflation and unemployment, called the Phillips curve.
The Phillips curve is named after New Zealand–born economist A. W. Phillips. In 1958 Phillips observed a negative relationship between the unemployment rate and the rate of wage inflation in data for the United Kingdom.
Sacrifice Ratio
The sacrifice ratio, is the percentage of a year’s real GDP that must be forgone to reduce inflation by 1 percentage point. A typical estimate is about 5: for every percentage point that inflation is to fall, 5 percent of one year’s GDP must be sacrificed.
GDP Deflator
The GDP deflator, also called the implicit price deflator for GDP, is defined as the ratio of nominal GDP to real GDP:
GDP Deflator = (Nominal GDP/ Real GDP)
Nominal GDP measures the value of the output of the economy at current prices. Real GDP measures output valued at constant prices. The GDP deflator measures the price of output relative to its price in the base year.
Okun’s Law
Okun’s law says that a change of 1 percentage point in the unemployment rate translates into a change of 2 percentage points in GDP. Therefore, reducing inflation by 1 percentage point requires about 2.5 percentage points of cyclical unemployment.
Natural rate of unemployment
The average rate of unemployment around which the economy fluctuates. The natural rate is the rate of unemployment toward which the economy gravitates in the long run, given all the labor-market imperfections that impede workers from instantly finding jobs. (Prof. S.MAITRA, JULY,2010)
Yashpal Committee Report
Yashpal Committee was set up in February, 2008 to advise on “renovation and rejuvenation of higher education” in India. The major recommendations of the committee include:
i. Creation of an all-encompassing National Commission for Higher Education and Research (NCHER), a Constitutional body to replace the existing regulatory bodies including the UGC, AICTE, NCTE and DEC;
ii. Universities to be made responsible regarding the academic content of all courses and programmes of study including professional courses. Professional bodies like the AICTE, NCTE, MCI, BCI, COA,INC, PCI etc. to be divested of their academic functions, which would be restored to the universities;
iii. Curricular reform to be the topmost priority of the newly created NCHER which would create a curricular framework based on the principles of mobility within a full range of curricular areas and integration of skills with academic depth;
iv. It should be mandatory for all universities to have a rich undergraduate programme and undergraduate students must get opportunities to interact with the best faculty;
v. Undergraduate programs to be restructured to enable students to have opportunities to access all curricular areas with fair degree of mobility;
vi. The vocational education sector should be brought under the purview of universities and by providing necessary accreditation to the courses available in polytechnics, industrial training institutions, and so on;
vii. The NCHER should also galvanize research in the university system through the creation of a National Research Foundation;
viii. New governing structures to be evolved to enable the universities to preserve their autonomy in a transparent and accountable manner;
ix. Practice of according status of deemed university be stopped forthwith till the NCHER takes a considered view on it.
x. Modern higher education system requires extension facilities, sophisticated equipment and highly specialized knowledge and competent teachers. Hence, one of the primary tasks of the NCHER to create several inter-university centres (IUCs) in diverse fields to create the best of these possibilities and attract the participation of several institutions of higher learning to avail them;
xi. Institutions of excellence like the IITs and IIMs to be encouraged to diversify and expand their scope to work as full-fledged universities;
xii. One of the first tasks of the NCHER should be to identify the best 1,500 colleges across India to upgrade them as universities, and create clusters of other potentially good colleges to evolve as universities.
xiii. Universities to establish live relationship with the real world outside and develop capacities to respond to the challenges faced by rural and urban economies and culture;
xiv. All levels of teacher education to be brought under the purview of higher education;
xv. A national testing scheme for admission to the universities on the pattern of the GRE to be evolved which would be open to all the aspirants of University education, to be held more than once a year . Students would be permitted to send their best test score to the university of their choice.
xvi. Quantum of Central financial support to State-funded universities be enhanced substantially on an incentive pattern, keeping in view the needs for their growth;
xvii. Expansion of the higher education system to be evaluated and assessed continuously to excel and to respond to the needs of different regions in India in order to ensure not only equity and access but also quality and opportunity of growth along the academic vertical.
i. Creation of an all-encompassing National Commission for Higher Education and Research (NCHER), a Constitutional body to replace the existing regulatory bodies including the UGC, AICTE, NCTE and DEC;
ii. Universities to be made responsible regarding the academic content of all courses and programmes of study including professional courses. Professional bodies like the AICTE, NCTE, MCI, BCI, COA,INC, PCI etc. to be divested of their academic functions, which would be restored to the universities;
iii. Curricular reform to be the topmost priority of the newly created NCHER which would create a curricular framework based on the principles of mobility within a full range of curricular areas and integration of skills with academic depth;
iv. It should be mandatory for all universities to have a rich undergraduate programme and undergraduate students must get opportunities to interact with the best faculty;
v. Undergraduate programs to be restructured to enable students to have opportunities to access all curricular areas with fair degree of mobility;
vi. The vocational education sector should be brought under the purview of universities and by providing necessary accreditation to the courses available in polytechnics, industrial training institutions, and so on;
vii. The NCHER should also galvanize research in the university system through the creation of a National Research Foundation;
viii. New governing structures to be evolved to enable the universities to preserve their autonomy in a transparent and accountable manner;
ix. Practice of according status of deemed university be stopped forthwith till the NCHER takes a considered view on it.
x. Modern higher education system requires extension facilities, sophisticated equipment and highly specialized knowledge and competent teachers. Hence, one of the primary tasks of the NCHER to create several inter-university centres (IUCs) in diverse fields to create the best of these possibilities and attract the participation of several institutions of higher learning to avail them;
xi. Institutions of excellence like the IITs and IIMs to be encouraged to diversify and expand their scope to work as full-fledged universities;
xii. One of the first tasks of the NCHER should be to identify the best 1,500 colleges across India to upgrade them as universities, and create clusters of other potentially good colleges to evolve as universities.
xiii. Universities to establish live relationship with the real world outside and develop capacities to respond to the challenges faced by rural and urban economies and culture;
xiv. All levels of teacher education to be brought under the purview of higher education;
xv. A national testing scheme for admission to the universities on the pattern of the GRE to be evolved which would be open to all the aspirants of University education, to be held more than once a year . Students would be permitted to send their best test score to the university of their choice.
xvi. Quantum of Central financial support to State-funded universities be enhanced substantially on an incentive pattern, keeping in view the needs for their growth;
xvii. Expansion of the higher education system to be evaluated and assessed continuously to excel and to respond to the needs of different regions in India in order to ensure not only equity and access but also quality and opportunity of growth along the academic vertical.
National Knowledge Commission
National Knowledge Commission (NKC) was constituted in June 2005 under the Chairmanship of Mr. Sam Pitroda, to prepare a blueprint for reform of our knowledge related institutions and infrastructure which would enable India to meet the challenges of the future. The vision for NKC was “to create a second wave of institution building, and of excellence in the fields of education, research and capability building.”
Broadly, the objectives of reform and change in the higher education system in India, as set by the NKC, are: expansion, excellence and inclusion. The major recommendations of NKC for achieving these objectives are:
(i) Expansion:
• Create many more universities--1500 universities nationwide and achieve a gross enrolment ratio of at least 15 per cent by 2015.
• Change the system of regulation for higher education--establish an Independent Regulatory Authority for Higher Education (IRAHE)
• Increase public spending and diversify sources of financing--government support for higher education should increase to at least 1.5 per cent of GDP, out of a total of at least 6 per cent of GDP for education overall. Other possibilities that can complement the increase in public expenditure should be explored.
(ii) Inclusion:
• Ensure access for all deserving students--no student is denied the opportunity to participate in higher education due to financial constraints.
• Affirmative action—ensure access to education for economically and historically socially underprivileged students
(iii) Excellence:
• Reform existing universities—revise or restructure curricula, transition to a course credit system where degrees are granted on the basis of completing a requisite number of credits from different courses;
• Restructure undergraduate colleges—to provide autonomy to colleges either as individual colleges or as clusters of colleges, A Central Board of Undergraduate Education (CBUE) should be established, along with State Boards of Undergraduate Education, which would set curricula and conduct examinations for undergraduate New undergraduate colleges could be established as community colleges colleges that choose to be affiliated with them.
• Promote enhanced quality— The higher education system must provide for accountability to society and create accountability within. An expansion of higher education which provides students with choices and creates competition between institutions is going to be vital in enhancing accountability. Evaluation of courses and teachers by students as well as peer evaluation of teachers by teachers should be encouraged. There must be a focus on upgrading infrastructure, improving the training of teachers and continuous assessment of syllabi and examination systems. It is necessary to formulate appropriate policies for the entry of foreign institutions into India and the promotion of Indian institutions abroad, while ensuring a level playing field for foreign and domestic institutions within the country.
Broadly, the objectives of reform and change in the higher education system in India, as set by the NKC, are: expansion, excellence and inclusion. The major recommendations of NKC for achieving these objectives are:
(i) Expansion:
• Create many more universities--1500 universities nationwide and achieve a gross enrolment ratio of at least 15 per cent by 2015.
• Change the system of regulation for higher education--establish an Independent Regulatory Authority for Higher Education (IRAHE)
• Increase public spending and diversify sources of financing--government support for higher education should increase to at least 1.5 per cent of GDP, out of a total of at least 6 per cent of GDP for education overall. Other possibilities that can complement the increase in public expenditure should be explored.
(ii) Inclusion:
• Ensure access for all deserving students--no student is denied the opportunity to participate in higher education due to financial constraints.
• Affirmative action—ensure access to education for economically and historically socially underprivileged students
(iii) Excellence:
• Reform existing universities—revise or restructure curricula, transition to a course credit system where degrees are granted on the basis of completing a requisite number of credits from different courses;
• Restructure undergraduate colleges—to provide autonomy to colleges either as individual colleges or as clusters of colleges, A Central Board of Undergraduate Education (CBUE) should be established, along with State Boards of Undergraduate Education, which would set curricula and conduct examinations for undergraduate New undergraduate colleges could be established as community colleges colleges that choose to be affiliated with them.
• Promote enhanced quality— The higher education system must provide for accountability to society and create accountability within. An expansion of higher education which provides students with choices and creates competition between institutions is going to be vital in enhancing accountability. Evaluation of courses and teachers by students as well as peer evaluation of teachers by teachers should be encouraged. There must be a focus on upgrading infrastructure, improving the training of teachers and continuous assessment of syllabi and examination systems. It is necessary to formulate appropriate policies for the entry of foreign institutions into India and the promotion of Indian institutions abroad, while ensuring a level playing field for foreign and domestic institutions within the country.
Union Budget 2010-11
On February 26, 2010, Finance Minister Pranab Mukherjee presented a Budget that broadly focused on fiscal stabilization. The Union Budget was presented at a time when the Indian economy was on the path of revival and almost all demand indicators had turned significantly positive. Investment and consumption demand was also on a revival mode. The buoyancy in the manufacturing sector and uptick in import and export were also working well for economic growth prospects.
In the current economic scenario, what was required from the Budget was a further push for consumption and investment. The Budget announcements have tried to do just that.
The continued thrust on agriculture, infrastructure and rural development will unlock much of the economic growth potential in the medium-term. Along with maintaining the focus on broad based growth, the Budget has also addressed concerns on the fiscal deficit front.
Given that overall demand in the economy is still firming up, it is unlikely that the 2% hike in excise duty will be passed on, thus mitigating any immediate inflationary concerns. Also, the focus on improving food security should aid in containing food price inflation. It remains to be seen, however, how the increase in excise duty for petrol and diesel pans out in terms of its impact on inflation.
The corporate sector was slapped with a higher minimum alternate tax (MAT) at 18 per cent, in comparison to 15 per cent earlier. However, the reduction in surcharge by 2.5 percentage points to 7.5 per cent will offset much of the higher MAT impact.
On the reforms' front, Mr Mukherjee accepted the 13th Finance Commission’s recommendations on the suggested tax-sharing formula with States, but decided to wait for a status paper to study the implications of the Commission’s proposal on capping the government’s combined debt at 68 per cent of GDP. He also deferred announcing the roadmap for the introduction of a goods and services tax (GST) to April 2011, bas also the implementation of the Direct Taxes Code.
On the crucial question of implementing oil pricing reforms, as suggested by the Kirit Parikh Committee report, the Finance Minister put the ball in his colleague Murli Deora’s court, saying the petroleum minister would take an appropriate decision in due course.
In the financial sector, the Finance Minister proposed that private players would be considered for some additional licenses for banks and non-banking finance companies, subject to the fulfilment of the Reserve Bank of India’s eligibility criteria. He also allocated over Rs 16,500 crore to ensure that public sector banks are able to attain a minimum eight per cent Tier-I capital by March 2011.
On the expenditure side, the Finance Minister provided generous allocations for the rural development and social sectors. Total plan expenditure is slated to go up 18 per cent to Rs 3.73 lakh crore, while the Centre’s budgetary support would go up by a higher margin of 22 per cent to Rs 2.8 lakh crore. Agriculture, too, received special attention with a four-pronged strategy that focused on agricultural production, reduction in wastage, credit support to farmers and a thrust on the food processing sector.
Direct Taxes
• Those falling under the tax slab of up to Rs 1.6 lakh now do not have to pay any tax. From Rs 1.6 lakh to Rs 5 lakh the tax rate is at 10 per cent; Rs 5 lakh to Rs 8 lakh at 20 per cent; and income above Rs 8 lakh will be taxed at 30 per cent.
• To promote savings, deduction of an additional amount of Rs 20,000 has been allowed, over and above the existing limit of Rs 1 lakh on tax savings, for investment in long-term infrastructure bonds notified by the Central government.
• Apart from contributions to health insurance schemes currently allowed as a deduction under the Income-tax Act, contributions to the Central Government Health Scheme will also be allowed as a deduction.
• The current surcharge of 10 per cent on domestic companies has been reduced to 7.5 per cent. Minimum Alternate Tax (MAT) has been increased from 15 per cent to 18 per cent of book profits.
• To encourage R&D, the weighted deduction on expenditure incurred on in-house R&D has been enhanced from 150 per cent to 200 per cent.
• Limits for turnover over which accounts need to be audited have been enhanced to Rs 60 lakh for businesses and to Rs 15 lakh for professions.
• Limit of turnover for the purpose of presumptive taxation of small businesses has been enhanced to Rs 60 lakh.
Indirect Taxes
• Rate reduction in central excise duties has been partially rolled back and the standard rate on all non-petroleum products enhanced from 8 per cent to 10 per cent ad valorem.
• Excise duty on large cars, multi-utility vehicles and sports-utility vehicles has been increased from 20 per cent to 22 per cent.
• The basic duty of 5 per cent on crude petroleum, 7.5 per cent on diesel and petrol, and 10 per cent on other refined products has been restored. Central excise duty on petrol and diesel has been enhanced by Re 1 per litre each.
• Excise duty on all non-smoking tobacco such as scented tobacco, snuff, chewing tobacco etc has been enhanced.
• Certain services, hitherto untaxed, are being brought within the purview of Service tax, which include health checkups, services by electricity exchanges, services of sponsorship of sports, services of promoting of a "brand" of goods, services and events, amongst others. However accredited news agencies which provide news feed online and meet certain criteria have been exempted from service tax.
• Refrigeration units required for the manufacture of refrigerated vans or trucks will be fully exempt from customs duty. Specified equipment for preservation, storage and processing of agriculture and related sectors will be exempt from Central excise.
• To build the corpus of a National Clean Energy Fund, a clean energy cess on coal produced in India, at a nominal rate of Rs 50 per tonne, will be levied. This cess will also apply to imported coal.
• Monorail projects for urban transport will be granted project import status and be charged a concessional basic duty of 5 per cent.
Income-tax management simplified
In 2010-11, the salaried can look forward to easy tax filings. The new Saral-II form, which will only have two pages, will ease tax filing pains. It has been decided to phase-out the current, cumbersome form, 2F.
Tax-payers can also look forward to less interaction with the tax authorities, thanks to the computerisation and modernisation of the Income Tax Department. The Centralised Processing Centre at Bengaluru is fully functional and is currently processing around 20,000 returns a day. Tax experts say that such systems will make the audits more computerised and free from the control of any individual assessing officer.
The government has also introduced a pilot project, called ‘Sevottam’, to provide single window system for registration of all applications, including those for redressal of grievances, as well as paper returns. Currently, the scheme is on in Pune, Kochi and Chandigarh. Four more centres will be added in 2010-11.
Fiscal Consolidation Plan
In line with the recommendations of the 13th Finance Commission, Mr Pranab Mukherjee presented a roadmap for fiscal consolidation and set the fiscal deficit target at 5.5 per cent of the gross domestic product (GDP) for 2010-11. He also moved towards a transparent fiscal accounting system by including expenses due to oil and fertilizer subsidies as liabilities (of 2008-09) and cash subsidy in 2009-10, and stated the deficit for 2009-10 to be at 6.9 per cent of GDP, as against a comparable figure of 7.8 per cent of GDP in 2008-09. The target of 5.5 per cent for 2009-10 includes expenses on account of oil and fertilizer subsidies.
The actual net borrowing of the government in 2010-11 would be Rs 3,45,010 crore. The revenue deficit is also expected to show significant decline to 4 per cent of GDP from 5.3 per cent in 2009-10. The fiscal consolidation plan would be met through the availability of disinvestment proceeds and an overall reform in the expenditure management of the government including subsidies.
For 2009-10, the fiscal deficit was revised downwards to 6.7 per cent, from a projected target of 6.8 per cent. The fiscal deficit for 2009-10 is the widest deficit in the last two decades. In absolute terms, however, the fiscal deficit for 2009-10 was revised up by 3.25 per cent to Rs 4,14,041 crore from a target set at Rs 4,00,996 crore. For 2010-11, the fiscal deficit in absolute terms is estimated to be at Rs 3,81,408 crore.
Such an increase in fiscal deficit in absolute terms is on account of lower revenue receipts in the current fiscal, even as expenditure more or less met the targets. In proportion to GDP, the revenue deficit increased to 5.3 per cent, up from an earlier projection of 4.8 per cent.
With the government’s focus shifting to fiscal consolidation and tightening expenditure, it expects to spend 66 per cent of total expenditure on non-plan activities during 2010-11, compared to 70 per cent in 2009-10. The main reason for this is that the burden on account of Sixth Pay Commission report is off its back now.
The total government expenditure during 2010-11 would be Rs 11,08,749 crore, of which non-plan would be Rs 735,657 crore. Despite the austerity drive, the non-plan expenditure during the current year rose 15 per cent to Rs 706,371.23 crore. This was mainly on account of Rs 19,749 crore increase in subsidy payout, of which petroleum subsidy alone accounted for Rs 12,000 crore.
The total Central Plan outlay is Rs 524,484 crore during 2010-11, as against Rs 425,590 crore in the revised estimate for 2009-10.
The government has proposed a shift from bonds to cash for compensating the oil and fertiliser companies. The move will help in improving the cash flows of companies in both these sectors. However, the government allocated a lower subsidy of Rs 3,108 crore on petroleum products, primarily domestic LPG and kerosene, for 2010-11, compared to revised estimates of Rs 14,954 crore in 2009-10 over and above the grant of Rs 10,306 crore through bonds.
Infrastructure
Mr Pranab Mukherjee has allocated a large chunk of the total plan outlay of Rs 3,73,000 crore for 2010-11 to infrastructure sectors, including road, power, railway, ports and airports. To build the corpus of the National Clean Energy Fund set up earlier, he announced a cess on coal production at a nominal Rs 50 per tonne. This will be levied on imported coal, too. Around 75 per cent of the power generated in the country is coal-based.
In another step at cutting domestic carbon emissions, the government increased the plan outlay for the Renewable Energy Ministry by 61 per cent to Rs 1,000 crore for 2010-11. The Ministry is implementing the ambitious National Solar Mission, aimed at setting up 20,000 MW of solar power capacity by 2020.
Budget 2010 has also provided a concessional customs duty of five per cent for solar power generating equipment.
Allocations for roads and railways together were over 36,600 crore, an increase of Rs 3,300 crore. The government has targeted construction of national highways at the pace of 20 km a day.
Disbursements of the India Infrastructure Finance Company, set up to provide long-term financial assistance, would touch Rs 9,000 crore by March 2010 and reach around Rs 20,000 crore by March 2011.
Rural Infrastructure
Bharat Nirman, the six-fold action plan for rural infrastructure development, charted out in 2006 by the then UPA government, will enter the second year of its second phase with Rs 48,000 crore, with the bulk of the increase going to rural electrification, housing and roads.
The umbrella scheme, which has a clutch of six different programmes under it, had entered the second phase in 2009 with an allocation of Rs 40,900 crore. In 2010 it has gone up to Rs 48,000 crore.
The main areas covered under it are roads, houses, drinking water, irrigation, telephony and electricity in rural areas. The budget for the first phase was Rs 1,74,000 crore. But in the second phase, the road component alone is expected to cost Rs 1,32,000 crore, as per the Budget document.
The Pradhan Mantri Grameen Sadak Yojana (PMGSY), which targets to connect villages with a population of 1,000, has got an allocation of Rs 9,995 crore as against 2009-10 revised allocation of Rs 9,475 crore. The Yojana was launched on December 25, 2000 as a 100 per cent centrally sponsored scheme. But today it meets its expenses also through loans from the Asian Development Bank and World Bank.
In addition, an allocation of Rs 10,000 crore has been made as loan for PMGSY through the RIDF window of NABARD.
The PMGSY was to connect 66,000 habitations in the previous four years. The target now is to reach 1,67,000 habitations at a cost of Rs 1,32,000 crore by 2012.
The Bharat Nirman component on housing, called Indira Awas Yojana, which was to build 6 million dwellings in the four years ending 2009, now has a target of 12 million houses by 2014. The funds for this scheme implemented by the rural development ministry have gone up from Rs 7,918 crore in 2009-10 to Rs 8,996 crore in 2010-11. About Rs 5,000 crore for this scheme will be provided by the National Investment Fund.
The funds for rural electrification have gone up in 2010-11 with fund transfers to Rajiv Gandhi Grameen Vidyutikaran Yojana going up from Rs 3,100 crore to Rs 5,000 crore. The entire funding for the scheme is coming from the National Investment Fund.
The scheme was started with the aim of providing power connections to 100,000 villages and release electricity connections to 23 million rural BPL households in five years.
The National Rural Employment Guarantee Scheme (NREGS) will continue with its mammoth agenda of providing 100 days of work in the country’s rural areas, drawing its oxygen mainly from the National Investment Fund (NIF). A major part of the scheme’s allocation will come from the NIF for the second consecutive year. NIF draws money from disinvestment of government stake in public sector undertakings.
The allocation for NREGS has gone up marginally from Rs 39,100 crore in 2009-10 to Rs 40,100 crore in 2010-11. But the share of NIF component in NREGS funding has gone up from Rs 11,730 crore in 2009-10 (when the total allocation was Rs 39,100 crore) to Rs 18,768 crore in 2010-11 (against the total allocation of Rs 40,100 crore). Therefore, the government expenditure on NREGP has been declining.
The NIF proceeds for 2009-10, estimated at Rs 25,000 crore, will come on account of disinvestment of government stake in NHPC Ltd, NTPC Ltd, Oil India Ltd, Rural Electrification Corporation Ltd and NMDC Ltd. The NIF, which was constituted in 2009, is expected to part-fund social sector schemes till 2011-12.
The increased funding of Rs 1,000 crore will barely be enough to create the over 300,000 Panchayat Bhawans or Rajiv Gandhi Seva Kendras proposed by the Rural Development Ministry in every panchayat in the country, or to fund NGOs in these panchayats to help run the scheme.
Meanwhile, this Budget has extended the Rashtriya Swasthya Bima Yojana (RSBY) benefits to all NREGS beneficiaries who had worked for more than 15 days during the preceding financial year.
The insurance coverage would be through the Rs 30 per year smart cards which would provide the entire family health insurance cover worth Rs 30,000.
Agriculture Sector
The agriculture sector is in for a major push with an unprecedented 21.6 per cent hike in the central plan allocation to address the supply side constrains that have led to high food inflation.
Besides measures to boost production, stress has been laid on opening up of retail trade to reduce the wide differences between the farm gate, wholesale and retail prices. Tax sops to infrastructure have also been proposed to facilitate storage and safe handling of perishable foods until the retail points.
A four-pronged strategy has been mooted in the Budget to spur growth in farm production. It involves measures to raise agricultural production; reduce wastages; strengthen credit support to farmers; and lend a thrust to the food processing sector for value addition of farm produce.
The Central Plan allocation for 2010-11 for the agriculture and allied sectors has been raised by Rs 2,185 crore to Rs 12,185 crore. It was Rs 10,123 crore in 2009-10 (revised estimates).
The food supplies are proposed to be augmented by extending the Green Revolution to the eastern States of Bihar, Chhattisgarh, Jharkhand, West Bengal and Orissa and eastern-Uttar Pradesh. Rs 400 crore have been set apart for this purpose.
About 60,000 villages are proposed to be selected for devoting exclusive attention to producing more pulses and oilseeds in the dry land areas through better water conservation measures. A sum of Rs 300 crore has been fixed for this scheme.
The 2010-11 target for total credit flow to the farm sector has been raised to Rs 3,75,000 crore from Rs 3,25,000 crore in 2009-10, to improve farmers’ access to credit. Besides, the debt waiver and debt relief scheme has been liberalized further by giving the farmers six more months, until June 30, 2010, for repaying the outstanding loans to get a concession on the interest. The interest subvention for the farmers who repay their debts in time has been stepped up from 1 per cent earlier to 2 per cent.
To lend impetus to the food processing sector, five more mega food parks are planned to be set up. These will be in addition to the 10 already being put up for value-addition of farm produce.
Service tax concessions, including exemptions, have been proposed for seed certification and transportation of cereals and pulses.
To sustain Green Revolution areas through conservation farming, which involves attention to soil health, water conservation and preservation of biodiversity, Rs 200 crore has been allocated for launching this climate-resilient agriculture initiative.
Public Debt
The biggest commitment of the government is to reduce public debt. The combined debt of the Centre and the States will be capped at 68 per cent of the gross domestic product (GDP) by 2014-15, as recommended by the Thirteenth Finance Commission. This is the first time the government will target an explicit reduction in its domestic public debt as a proportion of GDP.
Public Health
Mr Mukherjee raised the healthcare allocation for 2010-11, initiated mapping the country’s health profile and gave some tax relief on imported medical equipment. In an announcement of far-reaching importance for public health in India, he said a health profile of all districts will be prepared in 2010. The findings will be fed into major public health initiatives, especially the National Rural Health Mission (NRHM), a flagship programme of the United Progressive Alliance (UPA) government.
In keeping with its promise of increasing the spending on this sector, Finance Minister proposed to increase the plan allocation for the ministry of health and family welfare from Rs 20,217 crore in 2009-10 (revised estimates) to Rs 23,350 crore in 2010-11, a rise of 15.5 per cent.
The overall allocation for public health has been increased from Rs 1,928 crore in 2009-10 (revised estimates) to Rs 3,181 crore in 2010-11. The NRHM allocation has been raised from Rs 12,096 crore to Rs 13,910 crore. But, that for medical education, training and research has come down slightly from Rs 2,699 crore in 2009-10 (revised) to Rs 2,678 crore in 2010-11.
Given the rapid increase in diabetes and cardiovascular diseases in India, the allocation for programmes related to control and prevention of these diseases have been raised manifold—from Rs 17 crore in 2009-10 to Rs 90 crore in 2010-11.
The minister has also sought to bring some relief for state-of-the-art medical equipment. He announced a uniform, concessional basic duty of five per cent and CVD (countervailing duty) of four per cent, with full exemption from special additional duty on all medical equipment.
Environment
With India committing itself to a goal of 20-25 per cent cuts in its carbon emission intensity by 2020, Finance Minister Pranab Mukherjee announced a slew of measures to reduce dependence on fossil fuels in the long run and promote clean energy technology, as well as check pollution.
A National Clean Energy Fund for funding research and innovative projects would be established. Finance Minister also proposed a clean energy cess on coal produced in India, as well as on imported coal. ‘Polluter pays’ will remain the basic criterion, he said in his speech.
In addition, Mr Mukherjee announced a series of customs and excise duty cuts for photovoltaic and solar thermal power units, in keeping with the government’s resolve to implement the National Solar Mission.
Central budgetary allocation for the ministry of environment and forests has risen by about 10 per cent, from Rs 2,129 crore in 2009-10 to Rs 2,351 crore in 2010-11. However, the allocation for Project Tiger, a key programme to save the rapidly-dwindling tiger population in the country, has been cut by about Rs 30 crore.
With climate change on top of the government’s list of priorities, pollution control has seen a substantial increase in allocation. The allocation for control of river water pollution programmes has gone up.
States to get 32% of gross tax receipts
The Union government has used the Thirteenth Finance Commission’s devolution formula to transfer 32 per cent of its budgeted gross tax receipts for 2010-11 to the States, as against 30.5 per cent earlier.
According to the new devolution formula, 35 per cent weight will be given to area and population, fiscal discipline has 17.5 per cent weight with the remaining 47.5 per cent has been given to fiscal capacity distance.
In line with the revised formula, the net proceeds of union taxes and duties is budgeted at Rs 2,08,997 crore during 2010-11, with the Centre’s gross total revenue budgeted to rise by 17.94 per cent to Rs 7,46,651 crore during 2010-11, compared with Rs 6,33,095 crore in the revised estimates for 2009-10. The receipts in 2009-10 would, however, be 1.25 per cent lower than the budget estimates of Rs 6,41,079 crore with corporation tax, excise and service collections likely to be lower than what was expected in July 2009.
While Mr Mukherjee has estimated a revenue loss of Rs 26,000 crore on account of income tax concessions, he has budgeted for a net revenue gain of Rs 46,500 crore from indirect taxes.
UID Project
The Nandan Nilekani-headed Unique Identification Authority of India (UIDAI) has been allotted an outlay of Rs 1,900 crore for 2010-11, significantly up from Rs 31 crore the authority spent in 2009-10. The UIDAI was set up in 2009 with the intent of providing unique identity (UID) numbers to 1.2 billion people of the country.
The authority would provide an effective platform for financial inclusion and targeted subsidy payments. The first set of UIDs is expected to be issued between August 2010 and February 2011.
The UIDAI has also been roped in by other ministries to manage their resources. The human resource development ministry, for instance, will take the authority’s help to introduce educational reforms by using UID to bring the over 8 million ‘out of school’ children into the education system.
UIDAI plans to issue 600 million UIDs over the next five years but the project, first to its kind, faces several challenges. The first hurdle is the collection of data on everyone. The project will collect data such as iris profiles, biometric prints of 10 fingers, gender, mother and father’s names and address, among other details.
Package for Women
The outlay for Women and Child Development has been increased by almost 50 per cent. A mission for empowerment of women is being set up. The ICDS platform is being expanded for effective implementation of the Rajiv Gandhi Scheme for Adolescent Girls. A Mahila Kisan Sashaktikaran Pariyojana to meet the needs of women farmers is being launched, with Rs100 crore.
Energising India through Solar Power
The plan outlay of the Ministry of New and Renewable Energy has been increased by 61 per cent, from Rs 620 crore in 2009-10 to Rs 1,000 crore. The government envisages establishing India as a global leader in solar energy, targeting 20,000 MW of solar power by 2022.
Helping the Disabled
An Indian Sign Language Research and Training Centre for the benefit of the hearing-impaired is being set up. Also, District Disability Rehabilitation Centres are being set up in 50 additional districts, along with two composite regional centres for persons with disabilities.
Coal Regulatory Authority
A Coal Regulatory Authority is to be established. This will facilitate resolution of issues like economic pricing of coal and benchmarking of standards of performance. It is also proposed to introduce a competitive bidding process for allocating coal blocks for captive mining.
New Action on Internal Security
The Planning Commission will prepare an integrated action plan for areas hit by Left-wing extremism. Adequate funds will be made available for the plan. To build confidence, 2,000 youth will be appointed as constables from J&K in five Central paramilitary forces in 2010.
Special Golden Jubilee Package for Goa
Rs 200 crore has been provided as a Special Golden Jubilee package for Goa, to preserve its natural resources and increase its green cover through sustainable forestry.
Making Ganga cleaner
The allocation for National Ganga River Basin Authority has been doubled to Rs 500 crore. ‘Mission Clean Ganga 2020’ aims to ensure that no untreated municipal sewage or industrial effluent is discharged into the river.
Alternate Port for West Bengal
Recognising the need for developing an alternate port facility in West Bengal, it is proposed to develop a project at Sagar.
Skill Development Plans
The Prime Minister’s Council on National Skill Development has the mission to create 50 crore skilled people by 2022. The government proposes to launch an extensive skill development programme in the textile and garment sector by leveraging the strength of existing institutions and instruments of the Textile Ministry. The ministry plans to train 30 lakh persons over five years.
Defence Outlay Hiked
The Defence budget for 2010-11 is pegged at Rs 147,344 crore, up 8 per cent from the revised estimates of Rs 136,264 crore and four per cent from the budget estimates of Rs 141,703 crore in 2009-10. The armed forces will get around Rs 11,000 crore extra in 2010-11.
BUDGET IN A NUTSHELL
• Additional Rs 1,65,000 cr for bank re-capitalisation
• Rs 3000 cr for agricultural impetus
• Farm loan payments to be extended for six months
• Fertilizer subsidy to be reduced
• Rs 100 cr woman farmer fund scheme
• Coal regulatory authority to be set up
• Clean energy fund to be established
• Interest subvention of 2% to be extended for handicrafts and SMEs
• Rs 200 cr for Tamil Nadu textile sector
• Interest subvention for housing loans up to 1 lacs
• Allocation to defence raised to Rs 1.47 lakh cr
• Defence capex raised to Rs 60,000 cr
• Divestment target of Rs 25,000 cr
• Rs 1200 cr assistance for drought in Bundelkhand
• Rs 48000 cr for Bharat Nirman
• NREGA scheme allocation raised to Rs 41,000 cr
• Allocation to health Rs 22,300 cr
• Allocation for school education up from Rs 26,800 cr to Rs 31036 cr
• Allocation to power sector at Rs 5130 cr
• Rs 10,000 cr allocated for Indira Awaas Yojna
• Social Security Fund to have corpus of over Rs 1000 cr
• Rs 2400 cr for MSMEs
• Government to contribute Rs 1000 per month for pension security
• Rs 5400 cr allocated for urban development
• Rs 66100 cr allocated for rural development
• Rs 1900 cr allocated for UID project
• Gross tax receipts Rs 7.46 lakh cr
• Government to set up National Mission for delivery of justice
• 15% rise in planned expenditure
• Fiscal deficit target of 5.5% in FY11
• Excise on all non smoking tobacco raised
• Televisions to be costlier
• Mobile phones to become cheaper
• Cement to be costlier
• Refrigerators to be costlier
• Jewellery to be more expensive
• Monorail granted project import status
• CDs to be cheaper
• Excise duty on CFL halved to 4%
• Bank farm loan target: Rs 3.75,lakh crore
• Nutrient based fertiliser subsidy scheme to come into force from April 1, 2010
• To build 20 km of highway every day
• Income tax on income upto Rs 1.6 lakh: Nil
• Income tax on income above Rs 1.6 lakh and upto Rs. 5 lakh: 10 per cent
• Income tax on income above Rs.5 lakh and upto Rs. 8 lakh: 20 per cent
• Income tax on income above Rs. 8 lakh 30 per cent
In the current economic scenario, what was required from the Budget was a further push for consumption and investment. The Budget announcements have tried to do just that.
The continued thrust on agriculture, infrastructure and rural development will unlock much of the economic growth potential in the medium-term. Along with maintaining the focus on broad based growth, the Budget has also addressed concerns on the fiscal deficit front.
Given that overall demand in the economy is still firming up, it is unlikely that the 2% hike in excise duty will be passed on, thus mitigating any immediate inflationary concerns. Also, the focus on improving food security should aid in containing food price inflation. It remains to be seen, however, how the increase in excise duty for petrol and diesel pans out in terms of its impact on inflation.
The corporate sector was slapped with a higher minimum alternate tax (MAT) at 18 per cent, in comparison to 15 per cent earlier. However, the reduction in surcharge by 2.5 percentage points to 7.5 per cent will offset much of the higher MAT impact.
On the reforms' front, Mr Mukherjee accepted the 13th Finance Commission’s recommendations on the suggested tax-sharing formula with States, but decided to wait for a status paper to study the implications of the Commission’s proposal on capping the government’s combined debt at 68 per cent of GDP. He also deferred announcing the roadmap for the introduction of a goods and services tax (GST) to April 2011, bas also the implementation of the Direct Taxes Code.
On the crucial question of implementing oil pricing reforms, as suggested by the Kirit Parikh Committee report, the Finance Minister put the ball in his colleague Murli Deora’s court, saying the petroleum minister would take an appropriate decision in due course.
In the financial sector, the Finance Minister proposed that private players would be considered for some additional licenses for banks and non-banking finance companies, subject to the fulfilment of the Reserve Bank of India’s eligibility criteria. He also allocated over Rs 16,500 crore to ensure that public sector banks are able to attain a minimum eight per cent Tier-I capital by March 2011.
On the expenditure side, the Finance Minister provided generous allocations for the rural development and social sectors. Total plan expenditure is slated to go up 18 per cent to Rs 3.73 lakh crore, while the Centre’s budgetary support would go up by a higher margin of 22 per cent to Rs 2.8 lakh crore. Agriculture, too, received special attention with a four-pronged strategy that focused on agricultural production, reduction in wastage, credit support to farmers and a thrust on the food processing sector.
Direct Taxes
• Those falling under the tax slab of up to Rs 1.6 lakh now do not have to pay any tax. From Rs 1.6 lakh to Rs 5 lakh the tax rate is at 10 per cent; Rs 5 lakh to Rs 8 lakh at 20 per cent; and income above Rs 8 lakh will be taxed at 30 per cent.
• To promote savings, deduction of an additional amount of Rs 20,000 has been allowed, over and above the existing limit of Rs 1 lakh on tax savings, for investment in long-term infrastructure bonds notified by the Central government.
• Apart from contributions to health insurance schemes currently allowed as a deduction under the Income-tax Act, contributions to the Central Government Health Scheme will also be allowed as a deduction.
• The current surcharge of 10 per cent on domestic companies has been reduced to 7.5 per cent. Minimum Alternate Tax (MAT) has been increased from 15 per cent to 18 per cent of book profits.
• To encourage R&D, the weighted deduction on expenditure incurred on in-house R&D has been enhanced from 150 per cent to 200 per cent.
• Limits for turnover over which accounts need to be audited have been enhanced to Rs 60 lakh for businesses and to Rs 15 lakh for professions.
• Limit of turnover for the purpose of presumptive taxation of small businesses has been enhanced to Rs 60 lakh.
Indirect Taxes
• Rate reduction in central excise duties has been partially rolled back and the standard rate on all non-petroleum products enhanced from 8 per cent to 10 per cent ad valorem.
• Excise duty on large cars, multi-utility vehicles and sports-utility vehicles has been increased from 20 per cent to 22 per cent.
• The basic duty of 5 per cent on crude petroleum, 7.5 per cent on diesel and petrol, and 10 per cent on other refined products has been restored. Central excise duty on petrol and diesel has been enhanced by Re 1 per litre each.
• Excise duty on all non-smoking tobacco such as scented tobacco, snuff, chewing tobacco etc has been enhanced.
• Certain services, hitherto untaxed, are being brought within the purview of Service tax, which include health checkups, services by electricity exchanges, services of sponsorship of sports, services of promoting of a "brand" of goods, services and events, amongst others. However accredited news agencies which provide news feed online and meet certain criteria have been exempted from service tax.
• Refrigeration units required for the manufacture of refrigerated vans or trucks will be fully exempt from customs duty. Specified equipment for preservation, storage and processing of agriculture and related sectors will be exempt from Central excise.
• To build the corpus of a National Clean Energy Fund, a clean energy cess on coal produced in India, at a nominal rate of Rs 50 per tonne, will be levied. This cess will also apply to imported coal.
• Monorail projects for urban transport will be granted project import status and be charged a concessional basic duty of 5 per cent.
Income-tax management simplified
In 2010-11, the salaried can look forward to easy tax filings. The new Saral-II form, which will only have two pages, will ease tax filing pains. It has been decided to phase-out the current, cumbersome form, 2F.
Tax-payers can also look forward to less interaction with the tax authorities, thanks to the computerisation and modernisation of the Income Tax Department. The Centralised Processing Centre at Bengaluru is fully functional and is currently processing around 20,000 returns a day. Tax experts say that such systems will make the audits more computerised and free from the control of any individual assessing officer.
The government has also introduced a pilot project, called ‘Sevottam’, to provide single window system for registration of all applications, including those for redressal of grievances, as well as paper returns. Currently, the scheme is on in Pune, Kochi and Chandigarh. Four more centres will be added in 2010-11.
Fiscal Consolidation Plan
In line with the recommendations of the 13th Finance Commission, Mr Pranab Mukherjee presented a roadmap for fiscal consolidation and set the fiscal deficit target at 5.5 per cent of the gross domestic product (GDP) for 2010-11. He also moved towards a transparent fiscal accounting system by including expenses due to oil and fertilizer subsidies as liabilities (of 2008-09) and cash subsidy in 2009-10, and stated the deficit for 2009-10 to be at 6.9 per cent of GDP, as against a comparable figure of 7.8 per cent of GDP in 2008-09. The target of 5.5 per cent for 2009-10 includes expenses on account of oil and fertilizer subsidies.
The actual net borrowing of the government in 2010-11 would be Rs 3,45,010 crore. The revenue deficit is also expected to show significant decline to 4 per cent of GDP from 5.3 per cent in 2009-10. The fiscal consolidation plan would be met through the availability of disinvestment proceeds and an overall reform in the expenditure management of the government including subsidies.
For 2009-10, the fiscal deficit was revised downwards to 6.7 per cent, from a projected target of 6.8 per cent. The fiscal deficit for 2009-10 is the widest deficit in the last two decades. In absolute terms, however, the fiscal deficit for 2009-10 was revised up by 3.25 per cent to Rs 4,14,041 crore from a target set at Rs 4,00,996 crore. For 2010-11, the fiscal deficit in absolute terms is estimated to be at Rs 3,81,408 crore.
Such an increase in fiscal deficit in absolute terms is on account of lower revenue receipts in the current fiscal, even as expenditure more or less met the targets. In proportion to GDP, the revenue deficit increased to 5.3 per cent, up from an earlier projection of 4.8 per cent.
With the government’s focus shifting to fiscal consolidation and tightening expenditure, it expects to spend 66 per cent of total expenditure on non-plan activities during 2010-11, compared to 70 per cent in 2009-10. The main reason for this is that the burden on account of Sixth Pay Commission report is off its back now.
The total government expenditure during 2010-11 would be Rs 11,08,749 crore, of which non-plan would be Rs 735,657 crore. Despite the austerity drive, the non-plan expenditure during the current year rose 15 per cent to Rs 706,371.23 crore. This was mainly on account of Rs 19,749 crore increase in subsidy payout, of which petroleum subsidy alone accounted for Rs 12,000 crore.
The total Central Plan outlay is Rs 524,484 crore during 2010-11, as against Rs 425,590 crore in the revised estimate for 2009-10.
The government has proposed a shift from bonds to cash for compensating the oil and fertiliser companies. The move will help in improving the cash flows of companies in both these sectors. However, the government allocated a lower subsidy of Rs 3,108 crore on petroleum products, primarily domestic LPG and kerosene, for 2010-11, compared to revised estimates of Rs 14,954 crore in 2009-10 over and above the grant of Rs 10,306 crore through bonds.
Infrastructure
Mr Pranab Mukherjee has allocated a large chunk of the total plan outlay of Rs 3,73,000 crore for 2010-11 to infrastructure sectors, including road, power, railway, ports and airports. To build the corpus of the National Clean Energy Fund set up earlier, he announced a cess on coal production at a nominal Rs 50 per tonne. This will be levied on imported coal, too. Around 75 per cent of the power generated in the country is coal-based.
In another step at cutting domestic carbon emissions, the government increased the plan outlay for the Renewable Energy Ministry by 61 per cent to Rs 1,000 crore for 2010-11. The Ministry is implementing the ambitious National Solar Mission, aimed at setting up 20,000 MW of solar power capacity by 2020.
Budget 2010 has also provided a concessional customs duty of five per cent for solar power generating equipment.
Allocations for roads and railways together were over 36,600 crore, an increase of Rs 3,300 crore. The government has targeted construction of national highways at the pace of 20 km a day.
Disbursements of the India Infrastructure Finance Company, set up to provide long-term financial assistance, would touch Rs 9,000 crore by March 2010 and reach around Rs 20,000 crore by March 2011.
Rural Infrastructure
Bharat Nirman, the six-fold action plan for rural infrastructure development, charted out in 2006 by the then UPA government, will enter the second year of its second phase with Rs 48,000 crore, with the bulk of the increase going to rural electrification, housing and roads.
The umbrella scheme, which has a clutch of six different programmes under it, had entered the second phase in 2009 with an allocation of Rs 40,900 crore. In 2010 it has gone up to Rs 48,000 crore.
The main areas covered under it are roads, houses, drinking water, irrigation, telephony and electricity in rural areas. The budget for the first phase was Rs 1,74,000 crore. But in the second phase, the road component alone is expected to cost Rs 1,32,000 crore, as per the Budget document.
The Pradhan Mantri Grameen Sadak Yojana (PMGSY), which targets to connect villages with a population of 1,000, has got an allocation of Rs 9,995 crore as against 2009-10 revised allocation of Rs 9,475 crore. The Yojana was launched on December 25, 2000 as a 100 per cent centrally sponsored scheme. But today it meets its expenses also through loans from the Asian Development Bank and World Bank.
In addition, an allocation of Rs 10,000 crore has been made as loan for PMGSY through the RIDF window of NABARD.
The PMGSY was to connect 66,000 habitations in the previous four years. The target now is to reach 1,67,000 habitations at a cost of Rs 1,32,000 crore by 2012.
The Bharat Nirman component on housing, called Indira Awas Yojana, which was to build 6 million dwellings in the four years ending 2009, now has a target of 12 million houses by 2014. The funds for this scheme implemented by the rural development ministry have gone up from Rs 7,918 crore in 2009-10 to Rs 8,996 crore in 2010-11. About Rs 5,000 crore for this scheme will be provided by the National Investment Fund.
The funds for rural electrification have gone up in 2010-11 with fund transfers to Rajiv Gandhi Grameen Vidyutikaran Yojana going up from Rs 3,100 crore to Rs 5,000 crore. The entire funding for the scheme is coming from the National Investment Fund.
The scheme was started with the aim of providing power connections to 100,000 villages and release electricity connections to 23 million rural BPL households in five years.
The National Rural Employment Guarantee Scheme (NREGS) will continue with its mammoth agenda of providing 100 days of work in the country’s rural areas, drawing its oxygen mainly from the National Investment Fund (NIF). A major part of the scheme’s allocation will come from the NIF for the second consecutive year. NIF draws money from disinvestment of government stake in public sector undertakings.
The allocation for NREGS has gone up marginally from Rs 39,100 crore in 2009-10 to Rs 40,100 crore in 2010-11. But the share of NIF component in NREGS funding has gone up from Rs 11,730 crore in 2009-10 (when the total allocation was Rs 39,100 crore) to Rs 18,768 crore in 2010-11 (against the total allocation of Rs 40,100 crore). Therefore, the government expenditure on NREGP has been declining.
The NIF proceeds for 2009-10, estimated at Rs 25,000 crore, will come on account of disinvestment of government stake in NHPC Ltd, NTPC Ltd, Oil India Ltd, Rural Electrification Corporation Ltd and NMDC Ltd. The NIF, which was constituted in 2009, is expected to part-fund social sector schemes till 2011-12.
The increased funding of Rs 1,000 crore will barely be enough to create the over 300,000 Panchayat Bhawans or Rajiv Gandhi Seva Kendras proposed by the Rural Development Ministry in every panchayat in the country, or to fund NGOs in these panchayats to help run the scheme.
Meanwhile, this Budget has extended the Rashtriya Swasthya Bima Yojana (RSBY) benefits to all NREGS beneficiaries who had worked for more than 15 days during the preceding financial year.
The insurance coverage would be through the Rs 30 per year smart cards which would provide the entire family health insurance cover worth Rs 30,000.
Agriculture Sector
The agriculture sector is in for a major push with an unprecedented 21.6 per cent hike in the central plan allocation to address the supply side constrains that have led to high food inflation.
Besides measures to boost production, stress has been laid on opening up of retail trade to reduce the wide differences between the farm gate, wholesale and retail prices. Tax sops to infrastructure have also been proposed to facilitate storage and safe handling of perishable foods until the retail points.
A four-pronged strategy has been mooted in the Budget to spur growth in farm production. It involves measures to raise agricultural production; reduce wastages; strengthen credit support to farmers; and lend a thrust to the food processing sector for value addition of farm produce.
The Central Plan allocation for 2010-11 for the agriculture and allied sectors has been raised by Rs 2,185 crore to Rs 12,185 crore. It was Rs 10,123 crore in 2009-10 (revised estimates).
The food supplies are proposed to be augmented by extending the Green Revolution to the eastern States of Bihar, Chhattisgarh, Jharkhand, West Bengal and Orissa and eastern-Uttar Pradesh. Rs 400 crore have been set apart for this purpose.
About 60,000 villages are proposed to be selected for devoting exclusive attention to producing more pulses and oilseeds in the dry land areas through better water conservation measures. A sum of Rs 300 crore has been fixed for this scheme.
The 2010-11 target for total credit flow to the farm sector has been raised to Rs 3,75,000 crore from Rs 3,25,000 crore in 2009-10, to improve farmers’ access to credit. Besides, the debt waiver and debt relief scheme has been liberalized further by giving the farmers six more months, until June 30, 2010, for repaying the outstanding loans to get a concession on the interest. The interest subvention for the farmers who repay their debts in time has been stepped up from 1 per cent earlier to 2 per cent.
To lend impetus to the food processing sector, five more mega food parks are planned to be set up. These will be in addition to the 10 already being put up for value-addition of farm produce.
Service tax concessions, including exemptions, have been proposed for seed certification and transportation of cereals and pulses.
To sustain Green Revolution areas through conservation farming, which involves attention to soil health, water conservation and preservation of biodiversity, Rs 200 crore has been allocated for launching this climate-resilient agriculture initiative.
Public Debt
The biggest commitment of the government is to reduce public debt. The combined debt of the Centre and the States will be capped at 68 per cent of the gross domestic product (GDP) by 2014-15, as recommended by the Thirteenth Finance Commission. This is the first time the government will target an explicit reduction in its domestic public debt as a proportion of GDP.
Public Health
Mr Mukherjee raised the healthcare allocation for 2010-11, initiated mapping the country’s health profile and gave some tax relief on imported medical equipment. In an announcement of far-reaching importance for public health in India, he said a health profile of all districts will be prepared in 2010. The findings will be fed into major public health initiatives, especially the National Rural Health Mission (NRHM), a flagship programme of the United Progressive Alliance (UPA) government.
In keeping with its promise of increasing the spending on this sector, Finance Minister proposed to increase the plan allocation for the ministry of health and family welfare from Rs 20,217 crore in 2009-10 (revised estimates) to Rs 23,350 crore in 2010-11, a rise of 15.5 per cent.
The overall allocation for public health has been increased from Rs 1,928 crore in 2009-10 (revised estimates) to Rs 3,181 crore in 2010-11. The NRHM allocation has been raised from Rs 12,096 crore to Rs 13,910 crore. But, that for medical education, training and research has come down slightly from Rs 2,699 crore in 2009-10 (revised) to Rs 2,678 crore in 2010-11.
Given the rapid increase in diabetes and cardiovascular diseases in India, the allocation for programmes related to control and prevention of these diseases have been raised manifold—from Rs 17 crore in 2009-10 to Rs 90 crore in 2010-11.
The minister has also sought to bring some relief for state-of-the-art medical equipment. He announced a uniform, concessional basic duty of five per cent and CVD (countervailing duty) of four per cent, with full exemption from special additional duty on all medical equipment.
Environment
With India committing itself to a goal of 20-25 per cent cuts in its carbon emission intensity by 2020, Finance Minister Pranab Mukherjee announced a slew of measures to reduce dependence on fossil fuels in the long run and promote clean energy technology, as well as check pollution.
A National Clean Energy Fund for funding research and innovative projects would be established. Finance Minister also proposed a clean energy cess on coal produced in India, as well as on imported coal. ‘Polluter pays’ will remain the basic criterion, he said in his speech.
In addition, Mr Mukherjee announced a series of customs and excise duty cuts for photovoltaic and solar thermal power units, in keeping with the government’s resolve to implement the National Solar Mission.
Central budgetary allocation for the ministry of environment and forests has risen by about 10 per cent, from Rs 2,129 crore in 2009-10 to Rs 2,351 crore in 2010-11. However, the allocation for Project Tiger, a key programme to save the rapidly-dwindling tiger population in the country, has been cut by about Rs 30 crore.
With climate change on top of the government’s list of priorities, pollution control has seen a substantial increase in allocation. The allocation for control of river water pollution programmes has gone up.
States to get 32% of gross tax receipts
The Union government has used the Thirteenth Finance Commission’s devolution formula to transfer 32 per cent of its budgeted gross tax receipts for 2010-11 to the States, as against 30.5 per cent earlier.
According to the new devolution formula, 35 per cent weight will be given to area and population, fiscal discipline has 17.5 per cent weight with the remaining 47.5 per cent has been given to fiscal capacity distance.
In line with the revised formula, the net proceeds of union taxes and duties is budgeted at Rs 2,08,997 crore during 2010-11, with the Centre’s gross total revenue budgeted to rise by 17.94 per cent to Rs 7,46,651 crore during 2010-11, compared with Rs 6,33,095 crore in the revised estimates for 2009-10. The receipts in 2009-10 would, however, be 1.25 per cent lower than the budget estimates of Rs 6,41,079 crore with corporation tax, excise and service collections likely to be lower than what was expected in July 2009.
While Mr Mukherjee has estimated a revenue loss of Rs 26,000 crore on account of income tax concessions, he has budgeted for a net revenue gain of Rs 46,500 crore from indirect taxes.
UID Project
The Nandan Nilekani-headed Unique Identification Authority of India (UIDAI) has been allotted an outlay of Rs 1,900 crore for 2010-11, significantly up from Rs 31 crore the authority spent in 2009-10. The UIDAI was set up in 2009 with the intent of providing unique identity (UID) numbers to 1.2 billion people of the country.
The authority would provide an effective platform for financial inclusion and targeted subsidy payments. The first set of UIDs is expected to be issued between August 2010 and February 2011.
The UIDAI has also been roped in by other ministries to manage their resources. The human resource development ministry, for instance, will take the authority’s help to introduce educational reforms by using UID to bring the over 8 million ‘out of school’ children into the education system.
UIDAI plans to issue 600 million UIDs over the next five years but the project, first to its kind, faces several challenges. The first hurdle is the collection of data on everyone. The project will collect data such as iris profiles, biometric prints of 10 fingers, gender, mother and father’s names and address, among other details.
Package for Women
The outlay for Women and Child Development has been increased by almost 50 per cent. A mission for empowerment of women is being set up. The ICDS platform is being expanded for effective implementation of the Rajiv Gandhi Scheme for Adolescent Girls. A Mahila Kisan Sashaktikaran Pariyojana to meet the needs of women farmers is being launched, with Rs100 crore.
Energising India through Solar Power
The plan outlay of the Ministry of New and Renewable Energy has been increased by 61 per cent, from Rs 620 crore in 2009-10 to Rs 1,000 crore. The government envisages establishing India as a global leader in solar energy, targeting 20,000 MW of solar power by 2022.
Helping the Disabled
An Indian Sign Language Research and Training Centre for the benefit of the hearing-impaired is being set up. Also, District Disability Rehabilitation Centres are being set up in 50 additional districts, along with two composite regional centres for persons with disabilities.
Coal Regulatory Authority
A Coal Regulatory Authority is to be established. This will facilitate resolution of issues like economic pricing of coal and benchmarking of standards of performance. It is also proposed to introduce a competitive bidding process for allocating coal blocks for captive mining.
New Action on Internal Security
The Planning Commission will prepare an integrated action plan for areas hit by Left-wing extremism. Adequate funds will be made available for the plan. To build confidence, 2,000 youth will be appointed as constables from J&K in five Central paramilitary forces in 2010.
Special Golden Jubilee Package for Goa
Rs 200 crore has been provided as a Special Golden Jubilee package for Goa, to preserve its natural resources and increase its green cover through sustainable forestry.
Making Ganga cleaner
The allocation for National Ganga River Basin Authority has been doubled to Rs 500 crore. ‘Mission Clean Ganga 2020’ aims to ensure that no untreated municipal sewage or industrial effluent is discharged into the river.
Alternate Port for West Bengal
Recognising the need for developing an alternate port facility in West Bengal, it is proposed to develop a project at Sagar.
Skill Development Plans
The Prime Minister’s Council on National Skill Development has the mission to create 50 crore skilled people by 2022. The government proposes to launch an extensive skill development programme in the textile and garment sector by leveraging the strength of existing institutions and instruments of the Textile Ministry. The ministry plans to train 30 lakh persons over five years.
Defence Outlay Hiked
The Defence budget for 2010-11 is pegged at Rs 147,344 crore, up 8 per cent from the revised estimates of Rs 136,264 crore and four per cent from the budget estimates of Rs 141,703 crore in 2009-10. The armed forces will get around Rs 11,000 crore extra in 2010-11.
BUDGET IN A NUTSHELL
• Additional Rs 1,65,000 cr for bank re-capitalisation
• Rs 3000 cr for agricultural impetus
• Farm loan payments to be extended for six months
• Fertilizer subsidy to be reduced
• Rs 100 cr woman farmer fund scheme
• Coal regulatory authority to be set up
• Clean energy fund to be established
• Interest subvention of 2% to be extended for handicrafts and SMEs
• Rs 200 cr for Tamil Nadu textile sector
• Interest subvention for housing loans up to 1 lacs
• Allocation to defence raised to Rs 1.47 lakh cr
• Defence capex raised to Rs 60,000 cr
• Divestment target of Rs 25,000 cr
• Rs 1200 cr assistance for drought in Bundelkhand
• Rs 48000 cr for Bharat Nirman
• NREGA scheme allocation raised to Rs 41,000 cr
• Allocation to health Rs 22,300 cr
• Allocation for school education up from Rs 26,800 cr to Rs 31036 cr
• Allocation to power sector at Rs 5130 cr
• Rs 10,000 cr allocated for Indira Awaas Yojna
• Social Security Fund to have corpus of over Rs 1000 cr
• Rs 2400 cr for MSMEs
• Government to contribute Rs 1000 per month for pension security
• Rs 5400 cr allocated for urban development
• Rs 66100 cr allocated for rural development
• Rs 1900 cr allocated for UID project
• Gross tax receipts Rs 7.46 lakh cr
• Government to set up National Mission for delivery of justice
• 15% rise in planned expenditure
• Fiscal deficit target of 5.5% in FY11
• Excise on all non smoking tobacco raised
• Televisions to be costlier
• Mobile phones to become cheaper
• Cement to be costlier
• Refrigerators to be costlier
• Jewellery to be more expensive
• Monorail granted project import status
• CDs to be cheaper
• Excise duty on CFL halved to 4%
• Bank farm loan target: Rs 3.75,lakh crore
• Nutrient based fertiliser subsidy scheme to come into force from April 1, 2010
• To build 20 km of highway every day
• Income tax on income upto Rs 1.6 lakh: Nil
• Income tax on income above Rs 1.6 lakh and upto Rs. 5 lakh: 10 per cent
• Income tax on income above Rs.5 lakh and upto Rs. 8 lakh: 20 per cent
• Income tax on income above Rs. 8 lakh 30 per cent
Compilation of previous years’ GS Indian Economics questions
2009
1. Answer any one of the following questions (in about 250 words each) 30
a) Comment on the salient features of the Integrated Energy Policy recently approved by the government and its implication on the energy security needs of the country.
b) How far has impact of the global meltdown been reflected in the Economic Survey 2008-09? Identify some of the core areas given priority to neutralize the adverse effects of the global downturn.
2. Comment critically on any one of the following statements in not more than 200 words: 20
(a) “Foreign investment is far from being critical to India’s economic growth.”
(b) “The lesion of the current global financial crisis is that India should halt and may be even reverse financial liberalization.”
3. Answer any one of the following in about 200 words: 20
(a) “In the WTO negotiations over the years of the DOHA Round, India appears to be diluting its stand on agriculture issues to pursue perceived gains in services.” Critically examine the statement.
(b) Discuss the Indo-US knowledge initiative in Agriculture.
4. Answer any two of the following questions (in about 150 words each) 15×2=30
a) Evaluate the prospects for greater economic cooperation between India & China.
b) Does India need the World Bank ?
c) Critically assesses the recent Free Trade Agreement entered into by India with ASEAN.
2008
1. Answer any one of the following questions (in about 250 words each) 30
(a) “Globalisation has brought about a distinct class divide in India instead of ushering in a classless society.” Critically examine this argument.
(b) “The conditions of urban poor are more deplorable than that of their rural counterparts.” Give your views.
2. Answer any one of the following (in about 250 words): 30
(a) Discuss India’s stand on agricultureal issues in WTO’s Ministerial Conferences since Doha Round.
(b) Assess the performance of India in attracting Foreign Direct Investment (FDI).
3. Answer any two of the following (answer to each question should be in about 150 words) 15x2=30
(a) Assistance to the States for Development of Export Infrastructure and other Activities (ASIDE).
(b) Convertibility of Indian Rupee.
(c) India on Global Competitiveness Index-2007.
4. Write about the following (answer to each question in about 20 words):
5x2=10
(a) Special Drawing Rights (SDRs)
(b) NAMA
(c) Non-tariff barriers
(d) Current Account Balance
(e) Free Trade Area
2007
1. Answer anyone of the following (in about 250 words): 30
(a). What is Dumping? Evaluate the remedial measures taken by Government of India vis-à-vis WTO provision regarding dumping.
(b) Comment on the relationship between credit availability and agricultural growth in India.
2. Answer any two of the following (answer to each question should be in about 150 words) 15x2=30
(a). What is the meaning and aim of social forestry ? What are the main weaknesses noticed in social forestry programme?
(b). Bring out the main objective of Rastriya Krishi Bima Yojana. The scheme is being implemented by which agency.
(c). Explain Mega Food park Scheme of Government of India.
3. Write about the following (answer to each question should be in about 20 words): 2x15 = 30
(a) Explain the term Merit Goods
(b) What is Cheap Money?
(c) What is Countervailing Duty?
(d) What is Hot Money?
(e). Explain the Concept Trickle Down Theory
(f) What is Stagflation?
(g) What is Engel's Law?
(h) Meaning of CCIL
(i) What is Administered Price?
(j) What is Venture Capital?
(k) Explain the term Balance on Current Account
(I) What is Consolidated Fund?
(m) What is Budget Deficit?
(n) Explain the term Most Favoured Nations.
(0) Meaning of Capital-Output Ratio.
2006
1. Answer any one of the following (in about 250 words each) : 30
(a) Discuss the importance of World Trade Organisation of Indian Economy in the light of various
opportunity and challenges at the global level.
(b) Describe the main sources of industrial finance in India. How India could be benefited from recent developments in international finance?
2. Answer any two of the following (in about 150 words each): 15x2=30
(a) Discuss the role of public sector during the post-reform period of Indian economy.
(b) Examine the effects of globalisation on poverty removal in India.
(c) What are the implications of gender disparities in India.
3. Answer the following (in about 20 words each) : 2x10=20
(a) What is Philips curve ?
(b) What is Hundi?
(c) What is twin deficit?
(d) What is the main difference between free trade area and common market?
(e) What is forward currency market?
(f) What is Laffer curve?
(g) What is Eurobonds?
(h) What is disguised unemployment?
(i) What are nifty junior?
(j) What is Agri-Trade?
(k) What is CEMA bloc ?
(l) What is rolling settlement ?
(m) What is Difference between Green Box subsidies and Blue Box subsidies?
(o) What are non factor services in India’s Balance of payment?
2005
1. Answer anyone of the following (in about 250 words): 30
(a) Discuss the causes and ramifications of hunger in Africa.
(b) What are the reasons for industrial sickness in India? Suggest suitable remedies.
2. Answer any two of the following (answer to each question should be in about 150 words): 2 x 15 = 30
(a) What is the role of external financial assistance in Indian economy?
(b) Enumerate the objectives of Latin American Reserve Fund. Do you favour such a fund for Asian countries?
(c) Examine the functions of the European Free Trade Association.
3. Answer or write about the following (in about 20 words each): 15x2=30
(a) What is Mekong - Ganga Co-operation?
(b) What is IFC?
(c) Crude oil price and Indian economy
(d) What is Gandhian economy?
(e) Second Green Revolution
(f) Kasturba Gandhi Balika Vidyalaya Yojana
(g) What is Euro-control?
(h) Dow Jones
(i) 'Bluetooth
(j) MFN status to India: Pakistan
(k) The notion of development of under-development
(I) Cost-push inflation
(m) What is Green GDP?
(n) What were the terms of reference of the Abid Hussain Committee?
(0)What is structural unemployment?
2004
1. Answer any ONE of the following (in about 250 words): 30
(a) State the comprehensive structural reforms under-taken to improve the Indian economy since 1991.
(b) How is poverty level measured? Evaluate poverty eradication programmes in India.
2. Answer any TWO of the following (in about 150 words each): 15x2= 30
(a) Describe the recommendations of Narasimham Committee regarding the banking sector in India.
(b) Examine the effect of economic development on environmental degradation in India.
(c) What ails India's road transport economy? Suggest measures of remedy.
3. Answer the following (in about 20 words each): 2 x 15 = 30
(a) What are the major provisions of Agreements on Agriculture in the context of World Trade Organisation?
(b) Elucidate Special Drawing Rights.
(c) What is Cash Reserve Ratio?
(d) What does "priority sector lending" mean?
(e) What is Minimum Alternative Tax (MAT)?
(f) What is Business Process Outsourcing (BPO)?
(g) What is 'social justice' in the context of Indian economy?
(h) Explain the objectives of Plant Varieties Right Act, 2002.
(i) How is human development index for life expectancy measured?
(j) What are the objectives of the Twelfth Finance Commission?
(k) Explain the necessity and role of controls in a mixed economy like India.
(i) Distinguish between primary sector, secondary sector and tertiary sector. What is the change in the share of each sector in Gross Domestic Product (GDP) during period of 1950--2000?
(m) What is the main objective of Security and Exchange Board of India (SEBI)?
(n) What has been the policy of agricultural development during last two decades in India?
(0) What is deficit financing?
2003
1. Answer any one of the following (about 250 words) 30
a) Write a note on the strategy of planning in India since 1951.
b) What were the major recommendations of the Task Force on direct taxes appointed under the Chairmanship of Shri Vijay L. Kelkar?
2. Answer any two of the following (about 150 words) 15X2=30
a) Outline the important objectives of the Tenth Five Year Plan.
b) What is a Finance Commission?
c) Point out the measures undertaken towards flexibility in capital account transactions during the recent past.
3. Answer the following (about 20 words) 2X15=30
a) What is Plan Holiday?
b) Why did India have a surplus in current account balance in 2001-02 after a gap of 24 years?
c) What is Value Added Tax?
d) What is the main objective of the Competition Act, 2002?
e) Name the two agencies that have helped to promote Foreign Direct Investment in India.
f) What is the main thrust of the Fiscal Responsibility and Budget Management Bill?
g) Highlight the main features of the policy relating to buy-back of shares.
h) Why was Janashree Bima Yojana introduced?
i) When was the idea of Agriculture Insurance Corporation mooted?
j) What is the policy of the Government with respect to child labour?
k) Explain the objectives of the National Health Policy, 2002.
l) What was the main objective of the ‘Operation Blackboard’ scheme?
m) Explain the essential feature of differential rate of interest scheme.
n) Which are the three major items of expenditure of the Government of India on revenue account?
o) What was the essential feature of the Pradhan Mantri Gram Sadak Yojana?
2002
1. Answer any one of the following (about 250 words) : 30
(a) Outline the main targets fixed in the National Population policy 2000. What have been the follow up
measures to this policy?
(b) The main thrust of the EXIM Policy 2002-07 is on creating a framework for enhancing India’s export
capability. In the light of this statement outline the salient features of EXIM Policy 2002-07.
2. Answer any two of the following (about 150 words) : 15x2=30
(a) What are ‘Minimum Support Prices’ in agricultural products? What are their objectives?
(b) Outline the main objectives and achievements of the policy of disinvestment in India?
(c) With what objectives was ‘Essential Commodities Act 1955’ amended last year?
3. Answer the following (about 20 words) 2x15=30
(a) What is the peak rate of Custom duty? What are its objectives in India?
(b) Define fiscal deficit.
(c) Explain the provision of OGL.
(d) Elucidate ‘Special Economic Zones’
(e) Highlight the salient feature of ‘National Highway Development Project’
(f) What is the role of SEBI
(g) Explain RBI’s Automatic Route in FDIs.
(h) With what objectives was the ‘Annapurna’ scheme launched?
(i) Elucidate ‘Sampoorna Gramin Rozgar Yojana’
(j) The union budget 2002-03 recommended some services to be taxed. Name any 4 of these services.
(k) What is dumping? What is its objective?
(l) What do you understand by ‘Capital account Convertibility’ of Rupee?
(m) Define Sex ration in the population of India. What is its present status?
(n) Distinguish between ad-valorem and specific duties.
(o) Define zero-based budget.
2001
1. Answer anyone of the following.(Answer should be in about 250 words) 30
(a) What is the incidence of poverty in India ? How should poverty alleviation programme be constructed?
(b) Indian Economy presents a paradox of high saving rate with low income and high saving rate with low growth rate. Analyze.
2. Answer any two of the following. (Answer to each question should be in about 150 words): 2 x 15 =30
a). Liberalization of Indian Economy since 1991 has led to excessive consumerism and over production of white goods’ Elucidate.
b). What are the hurdle faced by finance Ministers of India in keeping the fiscal deficit below 3-4 percent of the GDP ? Suggest steps to lower the fiscal deficit?
c). Discuss the nature and causes of the UTI Crisis with particular reference of US 64. How does this UTI fiasco affect the investment climate in India?
3. Answer the following. (Answer to each question should be in about 20 words) : 2 x 15 = 30
a) What is “ CRISIL” ? What does it do ?
b) What do you understand by “Current Account Convertibility of Rupee” ?
c) What do you mean by proving industry status to agriculture in India ?
d) Elucidate “ Operation Flood “
e) Expand the Term “ Nasdaq “
f) Differentiate between “ Galloping Inflation “ and “ Running away inflation”
g) What is meant by “ couple protection Ratio”
h) Distinguish between “ Human development Index “ and “ Gender related development Index”.
i) What is Green GNP
j) Distinguish between a “ Hard “ currency and a “ soft “ currency.
k) Explain “ rolling plan “ .
l) Illustrate Lorenz curve
m) What is meant by “ Trickle Down “ theory of development.
n) What is “ misery index “.
o) What is meant by “ Most favoured Nation” policy?
2000
1. Answer anyone of the following. (Answer should be in about 250 words) 30
(a) India is rapidly emerging as an Information Technology (IT) Superpower. Discuss some aspects of the growth of this Sector in the Indian economy. What role can public policy play in further enhancing growth prospects in this Sector?
(b) Control over growth of population in India is an essential condition for the country's rapid economic development. Discuss.
2. Answer any two of the following. (Answer to each question should be in about 150 words): 2 x 15 =30
(a) Discuss the reasons for the failure of the Seattle Millennium talks on the WTO (World Trade Organisation). Discuss some implications of this failure for the Indian economy.
(b) What is (Revised) Targeted Public Distribution System? What are its main features?
(c) Discuss the economic effects of Black money (Parallel economy) in Indian economy.
3. Answer the following. (Answer to each question should be in about 20 words) : 2 x 15 = 30
(a) What are the main objectives of the 9th Five-Year Plan of the Government of India?
(b) Write a note on MODVAT Scheme of 1986.
(c) Explain per capita income as a measurement of economic growth.
(d) What are the objectives of Social Security?
(e) What do you mean by 'Parallel Economy’?
(f) Describe the use of 'Command Area Development' in India.
(g) What is ICOR (Incremental Capital Output Ratio)?
(h) What are the main objectives of NABARD?
(i) What do you know about 11th Finance Commission?
(j) What do you mean by revenue deficit in the Central Government's Budget?
(k) How has the Census (1991) defined the Urban Areas?
(l) What are the objectives of New Economic Policy of the Government of India?
(m) Write a note on Rao-Manmohan model of development.
(n) What is the rational for 'Mid-day Meal' Scheme?
(o) What has been the impact of the recent economic reforms programme on the incidence of poverty in India?
Strategic subdivision of syllabus for comprehensive and better coverage:(by Prof.S.Maitra)
Structure of the Indian Economy
Aspects of Indian Economy
Planning and Indian Economy
India and the World (only economic aspects)
Globalisation and Indian Economic Reforms
1. Answer any one of the following questions (in about 250 words each) 30
a) Comment on the salient features of the Integrated Energy Policy recently approved by the government and its implication on the energy security needs of the country.
b) How far has impact of the global meltdown been reflected in the Economic Survey 2008-09? Identify some of the core areas given priority to neutralize the adverse effects of the global downturn.
2. Comment critically on any one of the following statements in not more than 200 words: 20
(a) “Foreign investment is far from being critical to India’s economic growth.”
(b) “The lesion of the current global financial crisis is that India should halt and may be even reverse financial liberalization.”
3. Answer any one of the following in about 200 words: 20
(a) “In the WTO negotiations over the years of the DOHA Round, India appears to be diluting its stand on agriculture issues to pursue perceived gains in services.” Critically examine the statement.
(b) Discuss the Indo-US knowledge initiative in Agriculture.
4. Answer any two of the following questions (in about 150 words each) 15×2=30
a) Evaluate the prospects for greater economic cooperation between India & China.
b) Does India need the World Bank ?
c) Critically assesses the recent Free Trade Agreement entered into by India with ASEAN.
2008
1. Answer any one of the following questions (in about 250 words each) 30
(a) “Globalisation has brought about a distinct class divide in India instead of ushering in a classless society.” Critically examine this argument.
(b) “The conditions of urban poor are more deplorable than that of their rural counterparts.” Give your views.
2. Answer any one of the following (in about 250 words): 30
(a) Discuss India’s stand on agricultureal issues in WTO’s Ministerial Conferences since Doha Round.
(b) Assess the performance of India in attracting Foreign Direct Investment (FDI).
3. Answer any two of the following (answer to each question should be in about 150 words) 15x2=30
(a) Assistance to the States for Development of Export Infrastructure and other Activities (ASIDE).
(b) Convertibility of Indian Rupee.
(c) India on Global Competitiveness Index-2007.
4. Write about the following (answer to each question in about 20 words):
5x2=10
(a) Special Drawing Rights (SDRs)
(b) NAMA
(c) Non-tariff barriers
(d) Current Account Balance
(e) Free Trade Area
2007
1. Answer anyone of the following (in about 250 words): 30
(a). What is Dumping? Evaluate the remedial measures taken by Government of India vis-à-vis WTO provision regarding dumping.
(b) Comment on the relationship between credit availability and agricultural growth in India.
2. Answer any two of the following (answer to each question should be in about 150 words) 15x2=30
(a). What is the meaning and aim of social forestry ? What are the main weaknesses noticed in social forestry programme?
(b). Bring out the main objective of Rastriya Krishi Bima Yojana. The scheme is being implemented by which agency.
(c). Explain Mega Food park Scheme of Government of India.
3. Write about the following (answer to each question should be in about 20 words): 2x15 = 30
(a) Explain the term Merit Goods
(b) What is Cheap Money?
(c) What is Countervailing Duty?
(d) What is Hot Money?
(e). Explain the Concept Trickle Down Theory
(f) What is Stagflation?
(g) What is Engel's Law?
(h) Meaning of CCIL
(i) What is Administered Price?
(j) What is Venture Capital?
(k) Explain the term Balance on Current Account
(I) What is Consolidated Fund?
(m) What is Budget Deficit?
(n) Explain the term Most Favoured Nations.
(0) Meaning of Capital-Output Ratio.
2006
1. Answer any one of the following (in about 250 words each) : 30
(a) Discuss the importance of World Trade Organisation of Indian Economy in the light of various
opportunity and challenges at the global level.
(b) Describe the main sources of industrial finance in India. How India could be benefited from recent developments in international finance?
2. Answer any two of the following (in about 150 words each): 15x2=30
(a) Discuss the role of public sector during the post-reform period of Indian economy.
(b) Examine the effects of globalisation on poverty removal in India.
(c) What are the implications of gender disparities in India.
3. Answer the following (in about 20 words each) : 2x10=20
(a) What is Philips curve ?
(b) What is Hundi?
(c) What is twin deficit?
(d) What is the main difference between free trade area and common market?
(e) What is forward currency market?
(f) What is Laffer curve?
(g) What is Eurobonds?
(h) What is disguised unemployment?
(i) What are nifty junior?
(j) What is Agri-Trade?
(k) What is CEMA bloc ?
(l) What is rolling settlement ?
(m) What is Difference between Green Box subsidies and Blue Box subsidies?
(o) What are non factor services in India’s Balance of payment?
2005
1. Answer anyone of the following (in about 250 words): 30
(a) Discuss the causes and ramifications of hunger in Africa.
(b) What are the reasons for industrial sickness in India? Suggest suitable remedies.
2. Answer any two of the following (answer to each question should be in about 150 words): 2 x 15 = 30
(a) What is the role of external financial assistance in Indian economy?
(b) Enumerate the objectives of Latin American Reserve Fund. Do you favour such a fund for Asian countries?
(c) Examine the functions of the European Free Trade Association.
3. Answer or write about the following (in about 20 words each): 15x2=30
(a) What is Mekong - Ganga Co-operation?
(b) What is IFC?
(c) Crude oil price and Indian economy
(d) What is Gandhian economy?
(e) Second Green Revolution
(f) Kasturba Gandhi Balika Vidyalaya Yojana
(g) What is Euro-control?
(h) Dow Jones
(i) 'Bluetooth
(j) MFN status to India: Pakistan
(k) The notion of development of under-development
(I) Cost-push inflation
(m) What is Green GDP?
(n) What were the terms of reference of the Abid Hussain Committee?
(0)What is structural unemployment?
2004
1. Answer any ONE of the following (in about 250 words): 30
(a) State the comprehensive structural reforms under-taken to improve the Indian economy since 1991.
(b) How is poverty level measured? Evaluate poverty eradication programmes in India.
2. Answer any TWO of the following (in about 150 words each): 15x2= 30
(a) Describe the recommendations of Narasimham Committee regarding the banking sector in India.
(b) Examine the effect of economic development on environmental degradation in India.
(c) What ails India's road transport economy? Suggest measures of remedy.
3. Answer the following (in about 20 words each): 2 x 15 = 30
(a) What are the major provisions of Agreements on Agriculture in the context of World Trade Organisation?
(b) Elucidate Special Drawing Rights.
(c) What is Cash Reserve Ratio?
(d) What does "priority sector lending" mean?
(e) What is Minimum Alternative Tax (MAT)?
(f) What is Business Process Outsourcing (BPO)?
(g) What is 'social justice' in the context of Indian economy?
(h) Explain the objectives of Plant Varieties Right Act, 2002.
(i) How is human development index for life expectancy measured?
(j) What are the objectives of the Twelfth Finance Commission?
(k) Explain the necessity and role of controls in a mixed economy like India.
(i) Distinguish between primary sector, secondary sector and tertiary sector. What is the change in the share of each sector in Gross Domestic Product (GDP) during period of 1950--2000?
(m) What is the main objective of Security and Exchange Board of India (SEBI)?
(n) What has been the policy of agricultural development during last two decades in India?
(0) What is deficit financing?
2003
1. Answer any one of the following (about 250 words) 30
a) Write a note on the strategy of planning in India since 1951.
b) What were the major recommendations of the Task Force on direct taxes appointed under the Chairmanship of Shri Vijay L. Kelkar?
2. Answer any two of the following (about 150 words) 15X2=30
a) Outline the important objectives of the Tenth Five Year Plan.
b) What is a Finance Commission?
c) Point out the measures undertaken towards flexibility in capital account transactions during the recent past.
3. Answer the following (about 20 words) 2X15=30
a) What is Plan Holiday?
b) Why did India have a surplus in current account balance in 2001-02 after a gap of 24 years?
c) What is Value Added Tax?
d) What is the main objective of the Competition Act, 2002?
e) Name the two agencies that have helped to promote Foreign Direct Investment in India.
f) What is the main thrust of the Fiscal Responsibility and Budget Management Bill?
g) Highlight the main features of the policy relating to buy-back of shares.
h) Why was Janashree Bima Yojana introduced?
i) When was the idea of Agriculture Insurance Corporation mooted?
j) What is the policy of the Government with respect to child labour?
k) Explain the objectives of the National Health Policy, 2002.
l) What was the main objective of the ‘Operation Blackboard’ scheme?
m) Explain the essential feature of differential rate of interest scheme.
n) Which are the three major items of expenditure of the Government of India on revenue account?
o) What was the essential feature of the Pradhan Mantri Gram Sadak Yojana?
2002
1. Answer any one of the following (about 250 words) : 30
(a) Outline the main targets fixed in the National Population policy 2000. What have been the follow up
measures to this policy?
(b) The main thrust of the EXIM Policy 2002-07 is on creating a framework for enhancing India’s export
capability. In the light of this statement outline the salient features of EXIM Policy 2002-07.
2. Answer any two of the following (about 150 words) : 15x2=30
(a) What are ‘Minimum Support Prices’ in agricultural products? What are their objectives?
(b) Outline the main objectives and achievements of the policy of disinvestment in India?
(c) With what objectives was ‘Essential Commodities Act 1955’ amended last year?
3. Answer the following (about 20 words) 2x15=30
(a) What is the peak rate of Custom duty? What are its objectives in India?
(b) Define fiscal deficit.
(c) Explain the provision of OGL.
(d) Elucidate ‘Special Economic Zones’
(e) Highlight the salient feature of ‘National Highway Development Project’
(f) What is the role of SEBI
(g) Explain RBI’s Automatic Route in FDIs.
(h) With what objectives was the ‘Annapurna’ scheme launched?
(i) Elucidate ‘Sampoorna Gramin Rozgar Yojana’
(j) The union budget 2002-03 recommended some services to be taxed. Name any 4 of these services.
(k) What is dumping? What is its objective?
(l) What do you understand by ‘Capital account Convertibility’ of Rupee?
(m) Define Sex ration in the population of India. What is its present status?
(n) Distinguish between ad-valorem and specific duties.
(o) Define zero-based budget.
2001
1. Answer anyone of the following.(Answer should be in about 250 words) 30
(a) What is the incidence of poverty in India ? How should poverty alleviation programme be constructed?
(b) Indian Economy presents a paradox of high saving rate with low income and high saving rate with low growth rate. Analyze.
2. Answer any two of the following. (Answer to each question should be in about 150 words): 2 x 15 =30
a). Liberalization of Indian Economy since 1991 has led to excessive consumerism and over production of white goods’ Elucidate.
b). What are the hurdle faced by finance Ministers of India in keeping the fiscal deficit below 3-4 percent of the GDP ? Suggest steps to lower the fiscal deficit?
c). Discuss the nature and causes of the UTI Crisis with particular reference of US 64. How does this UTI fiasco affect the investment climate in India?
3. Answer the following. (Answer to each question should be in about 20 words) : 2 x 15 = 30
a) What is “ CRISIL” ? What does it do ?
b) What do you understand by “Current Account Convertibility of Rupee” ?
c) What do you mean by proving industry status to agriculture in India ?
d) Elucidate “ Operation Flood “
e) Expand the Term “ Nasdaq “
f) Differentiate between “ Galloping Inflation “ and “ Running away inflation”
g) What is meant by “ couple protection Ratio”
h) Distinguish between “ Human development Index “ and “ Gender related development Index”.
i) What is Green GNP
j) Distinguish between a “ Hard “ currency and a “ soft “ currency.
k) Explain “ rolling plan “ .
l) Illustrate Lorenz curve
m) What is meant by “ Trickle Down “ theory of development.
n) What is “ misery index “.
o) What is meant by “ Most favoured Nation” policy?
2000
1. Answer anyone of the following. (Answer should be in about 250 words) 30
(a) India is rapidly emerging as an Information Technology (IT) Superpower. Discuss some aspects of the growth of this Sector in the Indian economy. What role can public policy play in further enhancing growth prospects in this Sector?
(b) Control over growth of population in India is an essential condition for the country's rapid economic development. Discuss.
2. Answer any two of the following. (Answer to each question should be in about 150 words): 2 x 15 =30
(a) Discuss the reasons for the failure of the Seattle Millennium talks on the WTO (World Trade Organisation). Discuss some implications of this failure for the Indian economy.
(b) What is (Revised) Targeted Public Distribution System? What are its main features?
(c) Discuss the economic effects of Black money (Parallel economy) in Indian economy.
3. Answer the following. (Answer to each question should be in about 20 words) : 2 x 15 = 30
(a) What are the main objectives of the 9th Five-Year Plan of the Government of India?
(b) Write a note on MODVAT Scheme of 1986.
(c) Explain per capita income as a measurement of economic growth.
(d) What are the objectives of Social Security?
(e) What do you mean by 'Parallel Economy’?
(f) Describe the use of 'Command Area Development' in India.
(g) What is ICOR (Incremental Capital Output Ratio)?
(h) What are the main objectives of NABARD?
(i) What do you know about 11th Finance Commission?
(j) What do you mean by revenue deficit in the Central Government's Budget?
(k) How has the Census (1991) defined the Urban Areas?
(l) What are the objectives of New Economic Policy of the Government of India?
(m) Write a note on Rao-Manmohan model of development.
(n) What is the rational for 'Mid-day Meal' Scheme?
(o) What has been the impact of the recent economic reforms programme on the incidence of poverty in India?
Strategic subdivision of syllabus for comprehensive and better coverage:(by Prof.S.Maitra)
Structure of the Indian Economy
Aspects of Indian Economy
Planning and Indian Economy
India and the World (only economic aspects)
Globalisation and Indian Economic Reforms
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