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Approach – Answer: General Studies Mains Mock Test 1234 (2019)

1. Explaining the reasons behind India's lower female labour force participation rates (LFPR), list the
steps that have been taken to augment it. What more needs to be done?
Approach:
 Explain the reasons for low female labour force participation rates (LFPR) in India.
 List out the steps that have been taken and suggestions to tackle low female labour force
participation rates (LFPR).
Answer:
India has one of the lowest female labour force participation rates (LFPR) among the emerging market
economies and developing nations. As per reports of the yet unreleased National Sample Survey data,
labour force participation rates of women aged 25-54 have stagnated at about 26-28% in urban areas,
and fallen substantially from 57% to 44% in rural areas, between 1987 and 2011. According to a report of
the International Labour Organization, India’s female labour force participation rate (LFPR) fell from
35.8% in 1994 to merely 20.2% in 2012.
Reasons for low LFPR among women:
Economic
 With growing requirement of specialised and skilled jobs, women facing structural unemployment
may be dropping from the labour force.
 Absence of jobs leaves self-employment as the viable option for work. However, difficulty in
accessing credit also closes the opportunities for entrepreneurship
 Because of mechanization, there is lower demand for female agricultural laborers.
 Increased household income and wages in rural areas because of various factors like remittances
from urban migrant workers, MGNREGA, etc. has reduced the requirement of supplementing
incomes by means of working women.
Socio-cultural
 Less women are entering workforce because of increased access to education and consequent
increase in years spent in schooling.
 Organisational hierarchy is setup in such a way that rising up to the top becomes almost impossible
for women (‘glass ceiling’). This acts as deterrent for working women and they drop from the
workforce midway.
 Working conditions, even in organized sector are not conducive for women, such as maternity
benefits law being gender specific.
 Crime against women also acts as a deterrent.
 Patriarchal mindset which sees women good for household work and men for earning household
income.
Steps taken
 Enactment of laws to prevent sexual harassment at workplace and hence develop a safe
environment to work.
 Facilitating women enterprenuership through Stand-up India mission.
 Ministry of Skill Development and Entrepreneurship coordinates the skill development schemes
across various sectors, addressing the problem of lack of or outdated skills.
 National Career Service (NCS) Project provides a nation-wide online platform for jobseekers and
employers, which will provide employment information with ease.

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  Maternity Benefit (Amendment) Act, 2017 provides for enhancement in paid maternity leave and
provisions for mandatory crèche facility in the establishments having 50 or more employees
 Advisory to States under the Factories Act, 1948 for permitting women workers in the night shifts
with adequate safety measures.
 Training to female workers through a network of Women Industrial Training institutes, National
Vocational Training Institutes and Regional Vocational Training Institutes.
 Protective provisions in various labour laws for creating congenial work environment for women
workers.
 Addressing discrimination in wages through Equal Remuneration Act, 1976 and Minimum Wages
Act, 1948.
Way forward:
 Generation of education and skill-based livelihood opportunities in rural areas.
 Policies to make workplace gender friendly, such as making men eligible for maternity benefit leave,
flexibility in working conditions such as attending to children, etc.
 Skill development initiatives must focus on women entrepreneurship through self help groups and
women cooperatives.
 Easing availability of finance such as specialised window under the MUDRA yojana.
 Recognition of the problem in the societal attitude towards women in general and working women
in particular and addressing it in an accelerated manner. .
Gender will play a bigger and more strategic role in India’s future growth. Drawing more women into the
labour force, supplemented by structural reforms that could help create more jobs would be a source of
future growth for India.

2. Parliamentary scrutiny over public finance is an important aspect of governmental accountability. In

this context, discuss the role, importance and challenges in establishing a Parliamentary Budget Office
(PBO) for effective oversight of budgetary process.
Approach:
 Briefly discuss the role of parliament in scrutiny over public finance and its effectiveness.
 Mention the role and significance of a Parliamentary Budget Office (PBO) in effective oversight of
budgetary process.
 Discuss the challenges to be faced in establishing a PBO.
Answer:
In a parliamentary democracy, legislature plays a crucial role in scrutiny of public finance. MPs, through
debates, discussions and voting on motions, hold the government accountable for the money that it
spends from the public exchequer. Constitutional bodies like CAG and parliamentary committees like the
PAC maintain a close oversight on manner of government spending.
However, due to lack of resources such as time, detailed information and expertise on
financial/economic matters with individual members, it becomes difficult to hold the government
accountable to higher standards. As such, many times it has been felt that spending by the government
has been inefficient and ineffective, if not profligate or politically expedient. In this light, a need has
been felt for an independent and impartial body that provides technical and objective analysis of
Budgets and public finance to the House and its committees.
Role:
Specifically, the functions of PBOs can be different in different countries. Generally, the following
features are found:
 Independent and objective economic forecasts;
 Baseline estimate survey;
 Analyzing the executive’s Budget proposals and their costs-benefits; and
 Providing medium- to long-term analysis.

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 Costing is a standard practice for many PBOs. Budgets generally start with an economic forecast. A PBO
can present either its own independent forecast or it can validate the government’s, providing an
objective analysis on the official forecast. A PBO is very different from research wings or Finance
Committees or Public Accounts Committee (PAC). It is comprised of independent and specialized staff
such as Budget analysts, economists, public finance experts.
Also, it must be non-partisan, independent and mandated to serve all parliamentarians including
treasury bench and opposition.
Significance:
PBOs provide legislators with high-quality analysis that is independent of the executive. They specialize
in objective and policy neutral analysis on the full budget cycle, the broad fiscal challenges facing the
government, budgetary trade-offs and the financial implications of legislative proposals. Such research
can raise the quality of debate and scrutiny in Parliament as well as enhance fiscal discipline. Most
importantly, it strengthens the role of Parliament in financial oversight.
Challenges:
The key challenges faced by any country that establishes a PBO are threefold—Guaranteeing
independence and viability of the office in the long-run, ability to carry out truly independent analysis
and demonstrating impact. However, political will and public support would help overcome these
challenges.
Going forward, it will be important to understand that a PBO can only provide independent research; it
cannot prevent executives from taking bad fiscal decisions.

3. Highlight the various challenges faced by MSMEs in accessing credit. Also, mention some of the recent
steps taken by the government and RBI to address this issue.
Approach:
 Mention the challenges faced by MSMEs in accessing credit.
 Discuss the solutions being undertaken by RBI and government.
Answer:
As per Economic Survey 2017-18 MSMEs received only 17.4% of the total credit outstanding.
Challenges faced by MSMEs in accessing credit:
 Institutional credit is prioritised for corporate or retail-salaried customers. MSMEs, which have
fluctuating incomes find it difficult to access credit from banks.
 Economic cycles affect MSME credit. As many MSMEs supply to large industries, they get finance
relatively easily when the organised economy also performs well. Because of subdued industrial
growth (due to NPAs and external factors), credit to MSME has also declined.
 Nearly 40 per cent of the lending is happening through informal sources where interest rates are at
least twice as high as in the formal market.
 Small loans are costly to financial firms as initial assessment costs are high, risk and business plans
have to be assessed, and so the transaction costs per loan are high.
 Inaccessibility to digital lending.
 Recent after-effects of demonetisation and GST, leading to a liquidity crunch in the market.
Steps taken to improve the current scenario:
 Relaxation of RBI’s priority sector lending norms for MSMEs.
 RBI has taken several steps such as setting up the trade-receivables discounting system and allowing
banks to co-originate loans with non-banking finance companies to facilitate flow of credit to the
sector. It recently allowed a one-time restructuring of existing loans to MSMEs that are in default.
 Support and Outreach Initiative for MSME Sector – It includes 59 minute loan portal to enable easy
access to credit for MSMEs for loans up to Rs. 1 crore, mandatory 25 percent procurement from
MSMEs by CPSEs and 2 percent interest subvention for all GST registered MSMEs, on fresh or
incremental loans.
 Most of the loans below Rs. 1 crore are now securitised.

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  Relaxation of capital norms for Banks with regards to loans to MSMEs
 Capitalising PSBs and mobilisation of capital.
 Promoting digitization of MSMEs.
Measures such as charges for bank guarantees longer than 2 years to be debited on an annual basis to
ease cash flow pressures on MSMEs and offering discounts to MSMEs with a good re-payment track
record can further be considered.

4. By rebalancing project risks between the public and private sectors, the HAM model has encouraged
investments in the road infrastructure sector. Discuss.
Approach:
 Explain the HAM model.
 Elaborate how it is different than the previous PPP models in the road sector vis-à-vis the risk
sharing.
 Discuss how it has rebalanced the public and private interests.
Answer:
The government introduced the Hybrid Annuity Model (HAM) to revive PPP in India. HAM is a mix of EPC
(Engineering, Procurement and Construction) and BOT (Build, Operate, Transfer) models.
Under the EPC model, NHAI pays private players to lay roads. The private player has no role in the road’s
ownership, toll collection or maintenance. Under the BOT model though, private players have an active
role — they build, operate and maintain the road for a specified number of years, before transferring the
asset back to the government. Under it, the private player arranges all the finances for the project, while
collecting toll revenue or annuity fee from the Government, as agreed. Essentially, the toll revenue risk is
taken by the government, while the private player is paid a pre-fixed annuity for construction and
maintenance of roads.
Now, HAM combines EPC (40 per cent) and BOT-Annuity (60 per cent). On behalf of the government,
NHAI releases 40 per cent of the total project cost. It is given in five tranches linked to milestones. The
balance 60 per cent is arranged by the developer. Here, the developer usually invests not more than 20-
25 per cent of the project cost (as against 40 percent or more before), while the remaining is raised as
debt. There is no toll right for the developer.
Risk allocation in different contract models:
Type of Model Financing Risk Revenue Risk O & M Risk
EPC NHAI NHAI NHAI
BOT Private player Private player Private player
HAM NHAI & Private NHAI NHAI or Private( depending
upon contract)
Advantage of HAM is that it gives enough liquidity to the developer since the financial risk is shared by
the government. It takes away a part of the construction risk and the whole traffic risk that makes
developers nervous.
Due to above features, HAM has triggered a significant increase in projects awarded, with HAM projects
accounting for around 46% of total awards in terms of highway length and 63% in terms of total value in
the fiscal year 2017-18.

5. In view of the growing significance of FinTech innovations, discuss the potential and challenges of
mainstreaming FinTech in Indian economy.
Approach:
 Give the definition of fintech.
 Explain the potential of the fintech sector in India.
 Highlight the steps taken by the government and RBI.
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Answer:
Fintech (financial technology) is the use of new technology to improve and automate the delivery and
use of financial services. It includes products such as e-wallets, P2P lending, payment gateways etc.
According to EY’s Fintech Adoption Index 2017, India has the second highest fintech adoption rate in the
world. Fintech in India is advantageous due to the following reasons:
 India has a youth demographic that is rapidly growing.
 Smartphone penetration is witnessing an upsurge - from 53% in 2014 to 64% by 2018.
 The financial services market in India is primarily untapped, with 40% of the population having no
association with any bank and more than 80% of the transactions carried out through cash.
 Almost 90 percent of small businesses are not linked to formal financial institutions.
 Innovation-driven startup landscape and availability of investment for fintech sector.
Despite the significant opportunity, there are several challenges to fintech adoption in India:
 Poor infrastructure in terms of Internet Connectivity, unbanked population and low financial literacy.
 High dependence on cash in financial transactions.
 The costs of integrating fintech solutions for MSME’s are currently prohibitive.
 Concerns around cyber security and frauds.
 Regulatory uncertainty – RBI and SEBI are yet to come out with comprehensive and separate
guidelines.
 From the fintech company’s perspective, lack of timely access to capital for risk management and
investment, curtail innovation and prevent their operations from scaling up.
The RBI has promoted the Unified Payments Interface and the Bharat Bill Payments System, as well as
digital payments, P2P lending, and the use of automated algorithms to offer financial advice. The
government’s Digital India program, India Stack and National Payments Council of India (NPCI) have
provided important enabling platforms for technology innovators.
The government should focus on the creation of a 'regulatory sandbox' - a safe space for businesses and
startups to co-create innovative products, services and business models, and also on providing cyber
security.

6. With India striving to achieve its development objectives, examine how blue economy can help in
pursuing the objectives of economic development and ecological sustainability.
Approach:
 Define ‘blue economy’.
 Examine its potential role in growth, development and ecological sustainability of the Indian
economy.
 Mention a few steps taken by India in this regard as well.
Answer:
The term ‘blue economy’ implies sustainable use of ocean resources for economic growth, improved
livelihoods and jobs, and ocean ecosystem health. It comprises of various verticals like aquaculture,
maritime tourism, blue-biotechnology, ocean energy, marine mining, offshore oil and gas etc.
Role of blue economy in growth, development and ecological sustainability of the Indian economy:
 The Indian Ocean Region is abundant with resources such as fisheries and minerals such as
polymetallic nodules/sulphides.
 Commercial and artisanal fisheries sustain the livelihoods of more than 38 million people worldwide.
An FAO report states that while other world oceans are nearing their fisheries limit, the Indian
Ocean’s resources have the potential to sustain increased production.
 More than 95% of India’s trade is being carried on by sea.
 Renewable/sustainable marine energy and climate change risk mitigation can be a vital role in socio-
economic development.
 Ocean and coastal tourism can bring jobs and economic growth.
 Waste management as 80% litter in ocean is from land based sources.
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 Steps taken
 The Sagarmala project is the strategic initiative for port-led development by tackling the issue of
underutilized ports by focussing on port modernization, efficient evacuation, and coastal economic
development.
 Under the Make in India program of the Government, shipbuilding industry can benefit from a major
thrust.
 Proactive participation of India in the Sustainable Blue Economy Conference in Nairobi.
The development of Blue Economy can serve as a growth catalyst in realizing the vision to become a $10
trillion economy by 2032. India endorses the growth of the blue economy in a sustainable, inclusive and
people centred manner through the framework of the Indian Ocean Rim Association (IORA) and has
articulated it in SAGAR - Security and Growth for All in the Region.

7. Despite many advantages associated with Electric Vehicles, there are many technical and commercial
challenges for mainstreaming them. Discuss.
Approach:
 In introduction very briefly mention the need to have Electric Vehicles (EVs).
 Mention various advantages associated with EVs.
 List techno-commercial challenges that the market for EVs is facing in India.
 In conclusion, suggest a way out.
Answer:

The shift to electric mobility has become necessary on account of fast depletion of fossil fuels, rapid
increase in energy costs and concerns over climate change. Electric Vehicles (EVs) offer many
advantages such as:
 EVs have low operational costs, which can result in reduced fares benefitting a larger population.
 Usage of EVs could significantly reduce our dependence on imported fossil fuels.
 As per a report by NITI Aayog, EVs can cut India’s energy demand by 64% and carbon emissions by
37% by 2030.
 Emerging market for EVs would diversify India’s transport market and would create more economic
opportunities.
Keeping these advantages in mind, India is soon to venture in the second phase of FAME (Faster
Adoption and Manufacturing of Hybrid and Electric Vehicles) to encourage adoption of EVs by way of
market creation and demand aggregation
However, despite numerous advantages associated with EVs, many challenges lie in ensuring their
techno-commercial feasibility:
 Lack of charging infrastructure and a robust ecosystem are biggest stumbling blocks to ensuring
EVs’ techno-commercial feasibility.
 Lack of clarity towards who should set up charging stations and whether these charging stations
should be run with renewable energy or fossil fuels.
 Low average vehicle (petrol/diesel) prices will inhibit EV uptake in the near future.
 Dearth of raw materials used in manufacturing of Lithium-ion batteries, including lithium, cobalt,
nickel, manganese and graphite.
 Limited focus on incentives meant for private purchases of electric vehicles.
 Low levels of R&D in EVs’ technology have kept their costs high as compared to conventional
internal combustion engines.
In view of the above-mentioned challenges as well as the long-term benefits, the need of the hour is the
creation of a policy blueprint for the transportation sector jointly with the State Governments to help
achieve goals of electric mobility and wider renewable energy use. Further, India needs a new approach
towards import duty of electric vehicle components while keeping “Make in India” as the main goal.

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8. A rapidly changing economic structure and demography require a comprehensive employment policy
to address the multitude of challenges that might arise in future. Discuss in the context of India.
Approach:
 Highlight the changing economic and demographic situation in India.
 Mention the challenges in the light of huge demography of India.
 Discuss some interventions through which it would address these challenges.
Answer:
India’s economic structure is undergoing a rapid transition. The share of agriculture in Indian economy
has declined over the years and that of industry and service sectors has increased. This structural
transition from farm to the non-farm sector and advances in technology is suggestive of new emerging
avenues for employment.
Data from India’s Labour Bureau on employment creation suggest that fewer than two million jobs are
being created annually, a seemingly dire situation in a country where the working age population grows
by some 16 million every year. Also, India's female labour force participation rate (LFPR) fell
from 35.8% in 1994 to merely 20.2% in 2012, which is a cause of concern.
World Bank Development Report, 2016 estimates that 69 per cent jobs in Indian economy face threat
due to technological advancements which are likely to impact India’s information technology and
business process outsourcing sectors. Consequently, it may lead to mismatch between the skill sets
needed by the industry and those held by the Indian labour force.
Nearly 81% of those employed in India are in the informal sector which has multiple adverse
consequences for workers, enterprises and the society. Further, 65 per cent of India’s population is
under the age of 35. This demographic dividend may turn in to demographic disaster if better paying
jobs are not created at a faster pace.
Thus, India faces challenge of creating adequate decent employment opportunities for scores of young
men and facilitating the transition from informal to formal employment. A comprehensive and
convergent policy can address the challenges brought forth by these economic and demographic
transitions through interventions such as:
 Laying stress on an effective Labour Market Information System (LMIS) for identifying skill shortages,
training needs and available employment opportunities.
 Ensuring coordination and coherence across policy initiatives and programmes in different sectors.
 Ensuring that the education, training and skill development system is aligned with the changing
requirements of the labour market.
 Developing women’s human capital and capabilities and establishing gender-sensitive labour market
regulations.
 Ensuring that the rural unemployed finding adequate employment on a more sustainable basis
through online employment discovery platforms.
 There is the need to link the various employment oriented government schemes. For example
linking MGNREGA with Skill India Mission can generate permanent employment in relevant sectors.
Thus, there is need of a National Employment Policy (NEP) that would encompass a set of
multidimensional interventions to overcome multitudes of challenges posed by a rapidly changing
economic structure and demography.

9. Examine the need for a comprehensive policy on e-commerce in view of its domestic expansion as
well as safeguarding India's interests globally.
Approach:
 Briefly elaborate the scope and potential of e-commerce industry in India.
 Explain the need for a comprehensive policy on e-commerce vis-à-vis the domestic expansion and
safeguarding interests in this sector.
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Answer:
The Indian e-commerce market is expected to grow to US$ 200 billion by 2026 from US$ 38.5 billion as
of 2017. It has transformed the way business is done in India.
Need for a comprehensive policy on e-commerce:
 India’s existing e-commerce policy, as represented by the IT Act, FDI policy, etc., lacks
comprehensiveness, interdepartmental coordination and enforcement muscle.
 Small and Medium Enterprises (SME) sector needs to be protected against the threat of global
corporate oligarchies and capital dumping to protect domestic businesses.
 Unlike China’s e-commerce policy which led to emergence of global commerce giants such as
Alibaba, India has failed to provide such an ecosystem.
 Domination of India’s e-commerce space by global tech giants like Amazon, Airbnb, Uber etc. There
is need to prepare domestic companies to compete on a level playing field with any global giant.
 To prevent clever corporate structuring where global giants, through their domestic operators, have
been able to circumvent the spirit of domestic laws while possibly adhering to it in letter.
 To provide sufficient safeguards for predatory pricing and deep discounting.
The absence of well-thought, comprehensive policies on e-commerce will have a long-term profound
and deleterious impact on India. Like China and the US, India needs to adopt an outcome-based
approach to policymaking.
In light of this, the Indian government has recently come up with a new e-commerce FDI policy, under
which all online sale of goods produced in India will be promoted through a limited inventory-based B2C
model and brings foreign e-commerce companies on a level playing field with their Indian counterparts.
Thus, the need of the hour is to bring a comprehensive policy on e-retail in order to safeguard India’s
interest globally and ensure a sustainable growth of this sector.

10. Discuss the need for deepening bond markets for Indian economy. Also, identify the reasons behind
weak development of bond market in India.
Approach:
 Briefly mention the significance of bond market in Indian economy and define bonds and bond
market.
 Explain the need for developing bond market in India.
 Enumerate the reasons for poor bond market in India.
 Conclusion appropriately. You may mention some of the steps taken recently in this regard.
Answer:
In India, large corporations have access to limited sources for borrowings. According to the Care Ratings
report, 106 large companies in India sourced 47% of funds from the banks and 16 of them have never
entered the bond market. Thus, there is need to link Indian companies to bond market and lessen the
burden on the banking system which is reeling under severe pressure.
A bond is a financial debt instrument issued by a public or private organization to raise financing from
the market to fund existing operations, new projects, expand business or for short-term liquidity needs.
Need to deepen bond market:
 A well-developed corporate bond market complements a sound banking system in providing an
alternative source of finance to the real sector for its long-term investment needs.
 An active corporate bond market also helps in the diversification of risks in the financial system.
 In order to enable public and private sector firms to borrow for longer maturity periods in local
currency to meet their investment needs and avoid balance sheet mismatches and foreign currency
exposures, there is a need to accelerate the development of local currency bond market.
 An active corporate bond market could also provide institutional investors such as insurance
companies and provident and pension funds with quality long-term financial assets, helping them in
matching their assets and liabilities.
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 Indian bond market is not well developed because:
 Lower interest rates of bank loans than rate sensitive bond market.
 Limiting Issuances to AA or above categories limits the scope for smaller enterprises.
 Investment mandates of pension and insurance funds limit their exposure to the bond market.
 Poor secondary market because of inefficient trading platforms.
Keeping in mind their potential, certain steps have been taken to deepen bond markets in India.
Recently SEBI proposed that large corporations should raise 25% of their borrowings from the bond
market. Additionally, introduction of repo in corporate bond market by RBI is another step in right
direction. Insolvency and Bankruptcy Code (IBC) has also empowered bondholders with powers to pull
up the defaulters and safeguard their interests.

11. In the context of IL&FS crisis, explain the risks that the economy faces due to laxity in the regulation of
the Non Banking Financial Companies (NBFCs).
Approach:
 Briefly introduce the IL&FS crisis.
 Write in brief about laxity in regulation of NBFCs.
 Highlight the impact of poor regulation over NBFCs on finnancial sector and the economy.
 Conclude by suggesting measures to avoid such crisis in future.
Answer:
Infrastructure Leasing & Financial Services (IL&FS), an NBFC, is a Systematically Important Non-Deposit
Core Investment Company (CIC-NDSI) that funds infrastructure projects. It recently defaulted on their
loan repayment.
Such troubles with non-banking financial companies have generated a lot of discussions, with calls for
tighter regulation. Compared with banks, to serve the segments that they do, NBFCs had relaxed
regulatory provisions with respect to - sector concentration norms, acceptable collateral, credit
standards and processes that rely on non-financial information, use of third-party sales channels,
recovery processes, etc. Also, there is a multiplicity of regulation on NBFCs causing a lot of confusion.
However, as the share of NBFC in the overall credit in India continues to rise sharply, such lax regulation
poses a threat to the economy in the following ways:
 Asset-liability mismatch of the NBFCs creates a liquidity crunch. This hurts their lending
capabilities, which affects liquidity of the capital market.
 Risk of default by NBFCs impacts their credit ratings and access to credit. This discourages foreign
investments via NBFCs.
 Contagion effect on lending institutions as banks, mutual funds etc. Majority of the funds of NBFCs
come from banks, which may further compound the NPA burden.
 Impact on MSMEs as NBFCs are an important source of financial intermediation for this sector.
 Impact on the stock market due to redemption pressures and sell-off in the debt market.
 Slowdown of infrastructure spending - Lack of capital expenditure may spill over to the
infrastructure and real estate sector that are heavily dependent on NBFCs and housing finance
companies for funding.
 In case, frauds go undetected, the burden to rescue systematically important NBFCs will fall on the
taxpayer.
All these factors will contribute to a slowdown in the economy, hurt the credit –off take and hence
investment in the economy. It adversely impacts the financial sector, which is already reeling under bad-
loans.
Way forward
 The Financial Sector Legislative Reform Commission (FSLRC) has recommended to establish a body
with powers to monitor risk-cutting across sectors.
 Further there is need to ensure timely infrastructure project clearances to minimize cost inflation.
 The credit rating system needs to be improved to restore confidence in the financial markets.
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  Focus should be on strengthening Corporate Governance norms by implementing Kotak panel
recommendations and enhancing shareholder awareness to check any discrepancies at the firm
level.
 The government and RBI must work together to ensure the development of a corporate bond
market in India to enable easier access to long-term funding.

12. What do you understand by Universal Basic Income (UBI)? Discuss the advantages it presents over the
existing social protection schemes in India. Also, identify the criticism associated with the idea of UBI
for a country like India.
Approach:
 Briefly explain Universal Basic Income (UBI).
 Discuss its merits over other welfare schemes.
 Highlight major concerns associated with the idea of UBI in Indian context.
Answer:
Universal Basic Income(UBI)
UBI is a periodic cash payment unconditionally delivered to all irrespective of their contribution to the
economy. It characterises the basic income in five divisions:
 Periodic (being paid at regular intervals, not lump sum)
 Cash payment (not in kind or vouchers, leaving it on the recipient to spend it as they like).
 Individual (not to households or families),
 Universal (for all), and
 Unconditional (irrespective of income or prospects of job)
Recently, Sikkim has proposed implementation of UBI by 2022.
Advantages of Universal Basic Income over other social protection schemes
 Will reduce administrative burden: There are about 950 central sector and centrally sponsored sub-
schemes which accounted for 5% of GDP by Budget allocation. Implementing such a range of
scheme needs extensive administrative network.
 Easy to implement: Targeted welfare schemes such as ICDS and PDS need extensive groundwork to
identify beneficiaries and auditing to prevent leakages. However, an across-the-board basic pay
would be simpler to deliver and monitor.
 Individual Liberty: It gives ‘Choice over current entitelement’ (Economic Survey 2016-17). It
promotes equality by reducing poverty, promotes efficiency by reducing waste in government
transfers.
 Increased productivity: A 2011 study by UNICEF and SEWA in rural Madhya Pradesh showed that
people become more productive when they get a basic income. While schmes like MGNREGA have
come under scanner for failing to provide productive employment.
 Credit Culture and freedom of occupation: Unlike farm waiver schemes, UBI does not impair credit
culture and does not tie-down people to certain occupation (farming in case of farm related
transfers).
 Compared to a farmer-centric scheme, universal basic income holds greater appeal as it does not
discriminate based on occupation or land ownership and does not depend on accuracy of targeting
to work.
However, there are several challenges when it comes to implementing UBI.
Criticisms
 Fiscal Burden: Estimates suggest that poverty line equivalent UBI in India would cost about 11.4 %
of the GDP.
 Conspicuous spending: Households may spend this additional income on wasteful activities or on
temptation goods like alcohol, tobacco.
 Moral hazard: A minimum guaranteed income might make people lazy and opt out of the labour
market.
 Gender disparity induced by cash: Men are likely to exercise control over spending of the UBI which
may not always be the case with other in-kind transfers.
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  Fiscal cost given political economy of exit: Given the large population size, the fiscal burden on
government would be high. Also, once introduced, it may become difficult for the government to
wind up a UBI in case of failure.
 Political economy of universality ideas for self-exclusion: Opposition may arise from the provision
of the transfer to rich individuals as it might seem to trump the idea of equity and state welfare for
the poor.
UBI, when carefully analyzed and successfully implemented, can have many potential benefits.
Therefore, UBI is a powerful idea, whose time even if not ripe for implementation, is ripe for serious
discussion.

13. Critically examine the practice of resorting to farm loan waivers as a means to alleviate agricultural
distress.
Approach:
 Introduce by highlighting the latest statistics on farm loan wavers.
 Discuss some merits and demerits related to farm loan waivers.
 Conclude with relevant alternate solutions.
Answer:
Farmers across the country have established themselves as an important pressure group influencing
policy and economics. This is seen from the recent farm loan waiver announcements – implemented in
eight states in the country and worth 1.9 trillion rupees.
Merits of Loan waivers
 Agricultural credit availability: A loan waiver can help bankers to renew the loans, and farmers can
use the borrowed money for production of more crops.
 Encourage production: Loan waivers also encourage farmers for the next sowing season, by taking
care of the immediate financial needs. Also, it would prevent farmers from leaving agriculture and
finding other alternative livelihood.
 Promote inclusion in formal credit system: Loan waiver schemes may attract farmers to borrow
money from banks.
 Reduced suicides: Taking care of immediate agricultural debt, it would give breathing space to
farmers in case of crop failure or insufficient market demand..
 Improved savings: It may help sustain farmer’s savings for a longer term.
However, many economists feel loan waivers are band-aid schemes, and not the long-term solution for
the following reasons:
 Exclusion of farmers: According to various studies, through higher MSPs or loan-waivers, one cannot
reach more than 20 to 30 per cent of Indian farmers. Rich farmers are benefitted more due to
better access to formal banks and greater financial literacy and awareness.
 Increased dependence on money lenders: Withdrawal of institutional lenders after a loan waiver,
pushes borrowers to high-cost unorganised channels, like moneylenders.
 Damaging the fiscal health: Waivers can deflect the state from the path of fiscal consolidation and
may contribute to inflationary pressures.
 Increased constraints for agriculture: With waivers, capital investment usually takes a back seat and
thus reduction in asset creation would increase demand and suppliy side constraints for agriculture.
 Loan default in future: Loan waiver schemes disrupts credit discipline.
 Debt over hang: Loan waivers result in a debt overhang (essentially stagnated investments due to
any new income being used largely for paying back old debts).
In order to improve the agricultural distress in the country schemes such as providing protection
through insurance, implementation of MSP for all 23 crops and not just wheat and rice, alternate
income diversification, careful study of recommendations of MS Swaminathan’s report, effective
implementation of land reforms etc. should be undertaken. Additionally, developing industries around
agriculture and food processing may also help double farm incomes by 2022 as proposed by the Ashok
Dalwai committee.
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14. Highlight the factors responsible for rise in the number of start-ups in India in recent years. Analyzing
the challenges in the existing start-up ecosystem, suggest some measures to resolve them.
Approach:
 List and explain the factors that have led to the rise of start-ups in India in recent years.
 Discuss the challenges that are being faced by the start-up ecosystem in India.
 In conclusion, suggest some measures to resolve these challenges.
Answer:
India is gradually becoming a startup hub as more than 1,200 startups came up in 2018, taking the total
number of startups to almost 7,200 in the country.
Factors responsible for an exponential growth in start-ups in India are:
 Potential entrepreneurs with innovative ideas: Educated youth in India is aware of developments
around the world and is willing to venture into a high risk, high reward business model.
 Varied sources of funding: Angel investors, crowd funding campaigns, early stage investors along
with established venture capital firms are willing to back new ideas.
 Impact of global start-up environment: More than 400 plus start-ups expanded globally, creating a
positive startup environment even in India.
 Access to low cost technology: There are plenty of tools and applications along with enough
technically qualified persons available to undertake software development or hardware integration.
 Start-up incubators have been set up at innovation parks and educational institutions like IITs.
 Organisations like NASSCOM have set up targets to support certain number of start-ups annually.
 Government initiatives like Make in India have given a boost to start-ups.
Challenges in the existing start-up ecosystem are:
 The decline in the funding of companies at the seed stage (USD 191 million in 2017 to USD 151
million in 2018), is bound to impact innovation.
 Most start-ups fail to take into account market size, revenue and profit targets thus not being
sustainable in the long run.
 Infrastructure, government regulations and availability of finance at various stages of growth remain
challenges for start-ups.
 Hiring and retaining high quality talent, especially in the areas of product and technology remains a
key challenge.
 As operations increase, expenses grow with reduced revenues forcing start-ups to concentrate on
the funding aspect, diluting the focus on the fundamentals of business.
 Regulations pertaining to labour laws, intellectual property laws, registration of a company are still
rigorous in India.
To smoothen the hurdles for the present in the start-up ecosystem in India, following measures can be
adopted :
 Providing mentorship to start-ups which have brilliant ideas, but little industry, business and market
experience..
 Creating awareness and making the implementation of government initiatives like e-Biz portal,
MUDRA yojna, SETU fund etc. more effective.
 Encouraging investment support by big business houses.

15. Discuss the idea of participatory budgeting and its significance for India. Also, identify the challenges
of mainstreaming participatory budgeting in India.
Approach:
 Give a brief concept of participatory budgeting and discuss its significance for India.
 Bring out various challenges for mainstreaming it in India.
 Conclude by suggesting some measures.

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Answer:
According to the International Budget Project, participatory budgeting is the process by which citizens
deliberate and negotiate over the distribution of public resources for the final budget. It contrasts with
standard public budget-making, in which bureaucrats or elected politicians decide the allocation of
public resources.
It addresses two distinct but interconnected needs: improving state performance and enhancing the
quality of democracy. Participatory budgeting programs also serve as “citizenship schools,” as
engagement empowers citizens to better understand their rights and duties as citizens as well as the
responsibilities of government.
Participatory budgeting is highly adaptable. But following factors need to be kept in mind for better
adoption of the idea of participatory budgeting programs:
 a civil society willing and able to contribute to ongoing policy debates
 a generally supportive political environment that insulates participatory budgeting from legislators’
attacks and
 financial resources to fund the projects selected by citizens.
Significance of participatory budgeting for India:
 The process of participatory budgeting empowers citizens and enables inclusive policy formulation
and budgetary allocation as marginalized section of the society will also have a say in the process.
 It can lead to greater accountability and transparency as citizens leave the process with more
knowledge and experience in governing and holding officials accountable.
 It has the capacity to address the basic needs of people like access to water for households,
electricity, education, health more adequately.
 It gives citizens the opportunity to learn about government practices and to come together to
deliberate, discuss, and substantively affect budget allocations.
 As highlighted by World Bank, it has the potential to limit government inefficiency and curb
clientelism, patronage, and corruption.
Challenges in main streaming of participatory budgeting in India:
 Lack of education and awareness among the people especially about various concepts of budget
and key terminology is hampering their effective participation.
 Infrastructural difficulties like digital divide may seclude some regions and sections of the society
from taking participation.
 Lower tax base and lower source of revenue may become a problem as demand of general public
may not be fulfilled making the budgeting more or less discretionary process of government.
 Lack of Capacity: Many public institutions lack resources and capacity to engage citizens.
 Fear of Failure: The participatory nature itself makes it vulnerable to criticism due to diversity of
opinions and unnecessary delays in budgetary process.
However, in this context, India can look into Brazilian experience of participatory budgeting and look
forward to implement the process and deal with the challenges by providing a robust participatory
platform. It has enhanced the quality of democracy in Brazil, improving governance and empowering
citizens.
These challenges underscore the necessity of tapping into existing civic networks to organize and
mobilize. As a result, NGOs like DISHA Foundation should be encouraged more as they are working on
budget analysis with perspective of marginalized section of people. Further, awareness creation and
knowledge about budget needs to reach hinterland regions as well.

16. Can the consolidation of banks help in stemming the existing problems in the banking sector? Discuss.
Approach:
 Briefly discuss the recent mergers against the backdrop of Narasimham Committee Report
 Highlight the contemporary issues with the banking sector
 Discuss the advantages of bank consolidation
 Bring about the unique challenges which bank consolidation will expose the banking sector.
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Answer:
The Narasimham Committee (1998) had recommended creation of a 3-tier banking network - 2-3 large
banks with global presence, 8-10 national banks, and multiple regional banks. The report has recently
come alive with the merger of State Bank of India, Bharatiya Mahila Bank and its associates, and
proposed merger of Vijaya Bank, Dena Bank and Bank of Baroda. This consolidation is happening when
banking sector is facing various challenges:
 Rising bad loans and NPA
 Emergence of frauds – eg. PNB crisis
 Lax supervision – of the NBFC sector leading to the IL&FS crisis.
 Challenges in meeting the capital adequacy requirement as per BASEL III norms.
 Inefficiency, lack of specialization in departments like risk- assessment.
Expected Benefits of Bank Consolidation -
Synergy rather than rivalry: Different Banks with overlapping geographies, specialties often
cannibalise into each other’s businesses.
 Resolving the NPA issue: the “strong” banks can help in cleaning the balance sheets of weak banks.
 Increase in business: Consolidation will lead to rise in customer base, market reach and offering
more services to customers
 Globally stronger and competitive banks thus created can access funds at cheaper rates from global
financial markets.
 Reduced operating costs because of increased efficiency as duplicate operations and redundancies
are rationalized
 Greater capital and liquidity will help merged entity in meeting the BASEL III norms.
 Enhanced human resource and specialization in areas such as risk assessment.
However, Bank Consolidation poses certain challenges:
 Systemic risks: Banks that are “too big to fail” are sources of serious risk to financial stability of the
national economy.
 Varying work culture and protests: aligning contrasting HR practices and addressing the concerns of
unions and shareholders can prove to be a major roadblock.
 Can take a toll on the operation of strong banks and cause concentration of NPAs.
 Challenges to corporate governance remain - Merger could only give a temporary relief but not
tackle problems like bad loans and poor governance in public sector banks.
 Setback to financial inclusion: Many banks have a regional audience to cater to and merger destroys
the idea of decentralization.
 Harmonization of Technology: It is a big challenge as various banks are currently operating on
different technology platforms.
Thus, though the consolidation of banks promises to solve some of the challenges facing the banking
sector, care should be taken that it follows a clear rationale driven by synergies, efficiency and
economies of scale. It is only a short term solution rather than a long term and besides this step, focus
should be laid on strengthening RBI’s regulation over the PSBs, reducing government interference in
Bank management and promoting corporate governance norms in PSBs.

17. There is a high cost of compliance as well as complexities associated with existing labour laws at
centre and state levels. Discuss. What steps have recently been taken by the central government to
address these challenges?
Approach:
 Provide a brief account of the Indian labour laws.
 Highlight the problems associated with compliances and difficulties in the implementation of labour
laws.
 Mention the steps taken by the Central government to address these complexities.
 Conclude on the basis of the above points on an optimistic note.
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Answer:
Labour laws exist to protect the interests of workers by regulating terms of employment in India i.e. -
employees’ wages, working conditions, benefits and other rights. However, compliance with these laws
is marred with high costs and complexities for employers due to following factors:
 Multiplicity of labour laws: As the labour is an item in the Concurrent List, there are 44 state laws
and more than 100 central laws which deal with a host of labour issues. For example, the Industrial
Disputes Act (1947) of the Central Government was amended by the states like Gujarat and West
Bengal to suit their local needs. Multiplicity of labour laws in the organized sector act as a
disincentive for the employers to invest in this sector.
 Existence of many archaic laws which are non-compatible with post-1991 economic reforms era.
 The regulatory framework is very rigid. For example, complusory government prior approval in case
of laying off or closing down of a firm.
 Bureaucratic apathy hampering the smooth progression of labour laws across various states.
 Maintaining various registers and records for regulatory purpose makes the process cumbersome.
 These laws hold above certain threshold employment levels, firms often have an incentive to remain
small and informal.
Steps taken by the Central government to reform Labour regulations include:
 Online licensing and compliance through Shram Suvidha Portal.
 Companies allowed filing one self-certified return for a clutch labour laws
 Implementation of EPF number portability.
 Rationalization of 38 central labour laws into four codes, namely Code on wages; Code on safety,
health and working conditions; Code on industrial relations; and Code on social security and welfare.
 A new category of 'Fixed Term Employment Workman' for all sectors in the Industrial Employment
(Standing Orders) Act, 1946 has been included.
 A Model Shops and Establishments (RE&CS) Bill, 2016 has been circulated to states/UTs which
allows for 365 days operation of an Establishments in a year without any restriction on
opening/closing time and enables employment of women during night shifts
 Rationalization of Forms and Reports under Certain Labour Laws Rules, 2017 has been done to
reduce compliance costs
Labour reforms in true sense will take place when the labour market is full of highly skilled people ready
to add to the value to manufacturing and service delivery without fear of being exploited at the hands of
the employer. Hence, while recent initiatives of government of India to make changes in labour laws are
welcome, equal emphasis should be laid on empowering the labour forces by enhancing their
competencies.

18. Why have Special Economic Zones (SEZs) in India not been able to achieve the desired objectives? In
this context, suggest some measures to revive SEZs in India.
Approach:
 Briefly discuss the objectives with which SEZs were established in India.
 Highlight the reasons for the failure of SEZs to achieve the desired objectives.
 Suggest measures to revive SEZs.
Answer:
Special Economic Zones (SEZs) in India were established to provide simplified procedure and hassle free
environment for businesses and boost manufacturing and employment. Special trade and business laws
applied to these zones to boost trade.
Reasons for failure of SEZs
 Lack of external infrastructural support such as connectivity to the ports, rail and airways.
 Failure of state governments to pursue long term development of the region due to relatively
shorter period for which they hold office.
 Due to misuse of tax concessions, government withdrew tax incentives. Ex- Removal of MAT
exemptions from 2011-12.
 According to a Princeton research, SEZs sites are selected on real estate speculation rather than the
economic potential of a region, thus undermining their potential.
 Often sites are selectd to target specific ethnic and caste groups to create vote banks.

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 Measures
 States may be allowed to open their own Export Promotion Zones (EPZs). Competition between
states is expected to improve exports and help SEZs flourish.
 There is a need for policy reforms, both at the Union and state level to create pockets of freer
markets. Withdrawal of tax exemptions need revisit.
 Baba Kalyani Committee’s recommendations to revive SEZs
o Shift focus from export to economic and employment growth.
o Incentives for the manufacturing SEZs have to be based on specific parameters including
demand, investment, employment and technology, value addition and inclusivity.
o Development of last mile and first mile connectivity infrastructure.
o The success of services sector like IT and ITES has to be replicated in health care, financial
services, legal, repair and design services.
o Simpler entry and exit processes.

19. Why has the contribution of manufacturing sector, as a percentage of the GDP, remained stagnant in
the recent years? In this context, analyse the achievements of National Manufacturing Policy, 2011
with regards to its intended objectives.
Approach:
 Brief introduction about current state of manufacturing sector with statistics.
 State the factors responsible for stagnation of manufacturing sector in recent years
 Analyse the achievements of National Manufacturing Policy 2011 with regards to its objectives.
Answer:
India is the fifth largest manufacturer in the world with a compound annual growth rate (CAGR) of
around 7.7 per cent between 2012-13 and 2017-18. However, the contribution of manufacturing sector
as a percentage of the GDP remained stagnant in recent years due to:
 Regulatory uncertainty: Regulatory risks and policy uncertainty in the past have dented investor
confidence. For e.g. FDI policy
 Investment: There has been a cyclical slowdown in fresh investment in the manufacturing sector
since 2011-12.
 Slow Exports and insufficient domestic demand: There has been no export driven industrial growth.
Domestic demand alone may not be adequate for sustained, high value manufacturing.
 Challenges to doing business: getting construction permits, enforcing contracts, paying taxes,
starting a business and trading across borders continue to constrain doing business.
 Technology adoption: The adoption of new technologies like artificial intelligence, data analytics etc.
collectively called “Industry 4.0”, are a bigger challenge for Indian manufacturing.
 Other factors: inadequate infrastructure and
connectivity, non-availability of credit or
appropriately skilled labour, lack of research, and
development.
The major objectives of the National Manufacturing
Policy (NMP) 2011 can be stated as under:
 To increase the sectoral share of manufacturing in
GDP to at least 25% by 2022;
 To increase the rate of job creation so as to create
100 million additional jobs by 2022;
 To enhance global competitiveness, domestic value
addition, establishment of National investment and
manufacturing zone (NIMZ) and environmental
sustainability of growth.
Achievements of National Manufacturing Policy, 2011
 In pursuant of above objectives, three NIMZs have been accorded final approval and 13 NIMZs have
been accorded in-principle approval.
 Besides these, eight Investment Regions along the Delhi Mumbai Industrial Corridor (DMIC) project
have also been declared as NIMZs.

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 Objectives that remain to be achieved
However, the NMP is yet to realise its major objectives. As per the data of Central Statistics Office (CSO),
share of Manufacturing (Gross Value Added) as a percentage (%) during 2016-17 was 16.83%. The
annual change in employment for seventh round of Quarterly Employment Survey (QES) over the
corresponding period of preceding year reflects an increase of just 2.5%.
The government has a crucial role to play in increasing domestic manufacturing capabilities through
proper implementation of programmes such as Make in India, Skill India, Start Up India and Ease of
Doing business which can help achieve the objectives set by NMP 2011.

20. One of the goals that a developing economy aspires for is to bring down the Incremental Capital-
Output Ratio (ICOR). In this context, what are the constraints that underlie the efficient conversion of
savings rate to investments in the Indian economy? Also suggest some measures to improve this
efficiency.
Approach:
 Give a brief concept of ICOR and then explain why developing countries aspire to bring it down.
 Giving a brief account of saving, investment and GDP growth of last decades, discuss various
constraints that hampered efficient conversions of saving rate to investments.
 Finally suggest some measures.
Answer:
Incremental Capital-Output Ratio is a variant of Capital Output which indicates additional unit of capital
or investment that is required to produce an additional unit of output.
This ratio is very significant for developing countries like India as they need to lower this ratio which
implies that with lesser investment, more output can be added to GDP. Countries aspire to bring this
ratio lower owing to a limitation on available resources. A low income usually means a low savings rate,
which usually translates to a low investment rate.
In this context, the relation between savings and investment can be drawn from India’s growth
trajectory of last decade. The rate of domestic saving was at its peak of 38.3 percent in 2007 and fell to
29 percent in 2016. During this period ratio of Fixed Capital Formation to GDP (i.e. investment) declined
from peak of 36.7 percent to 26.4 percent. The rate of decline of investment is much sharper than that
of savings during this period showing that there are some constraints that underlie in the efficient
conversion of saving rate to investments, such as:
 Despite being flush with cash, lending by banks did not pick up because of older NPAs and
constraints imposed by provisioning and capital adequacy requirements.
 Investment is a result of multiple factors like interest rates, government policies, future economic
prospects, etc. A high savings rate facilitates investment but is not a guarantee for it.
 The financial crisis of 2008 discouraged investment in the market as safer avenues of investment like
gold and land were consistently sought after. Despite a high savings rate, it was not used in
productive investment, rather in speculative investment.
 Financial liabilities of households increased owing to loans and advances, diverting savings from
investment.
 Higher dependency ratio, cyclic employment as in case of agriculture are some other prominent
factors, which necessitate a higher tendency for savings as a buffer rather than being used for
investment.
Some measures that can be taken in this regard:
 Boosting public investment with policies to decisively resolve Twin Balance Sheet problem.
 Easing cost of doing business and creating a clear cut, transparent tax regime.
 Need to create a more conducive environment for SMEs to prosper and invest and revive private
investment.
 Incentivizing households savings and financial investments through various incentives like tax
benefits, revising tax slabs etc.
 Promoting thrift by educating the masses about formal saving and investment instruments.

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